THE GENERAL PARTNERS RECOMMEND VOTING FOR THE MERGER. EACH UNITHOLDER MUST MAKE ITS DETERMINATION BASED UPON SUCH UNITHOLDER'S PERSONAL SITUATION, AND SUCH DECISION SHOULD BE BASED UPON A CAREFUL EXAMINATION OF THE UNITHOLDER'S PERSONAL

RISKS ASSOCIATED WITH THE MERGER.

Uncertain Market Price of Common Stock after the Merger. Prior to the Merger, there will be no market for the Common Stock and there is substantial uncertainty as to the price at which the shares of Common Stock will trade following the consummation of the Merger. The possibility exists that the trading price of the shares may be lower than the proportionate Net Asset Value (as herein defined) estimated for each Unit. See "TERMS OF THE MERGER--Allocation of Common Stock."

Cash Merger Payment to Be Funded Partly from the Sale of Assets or Borrowings. The Merger Agreement provides that the Company will make the Cash Merger Payment, which will be paid in four equal quarterly payments of $.2650 per share of Common Stock during the first year following the Merger, to stockholders entitled to receive distributions. During the first year following the Merger, any distributions paid to stockholders by the Company out of earnings will have the effect of reducing the amount of the Cash Merger Payment so that the amount paid to stockholders during this first year will still be, in the aggregate, equal to $1.06 per share. The General Partners anticipate that the Company will fund the Cash Merger Payment, to the extent it is required to be paid to stockholders during the first year following the Merger, out of the proceeds from sales of Mortgage Securities and Mortgage Loans, short-term borrowings or existing cash reserves. Because the size of the Company's investment portfolio will be reduced in connection with the distribution of the Cash Merger Payment, the General Partners anticipate that the sale of Mortgage Securities and Mortgage Loans and the use of borrowings or reserves to fund such Cash Merger Payment will adversely affect the Company's future earnings and the payment of distributions on the Common Stock. See "TERMS OF THE MERGER--Cash Merger Payment."

Possible Lower Distributions. While the Partnerships currently pay distributions to Unitholders out of their earnings and as a return of invested capital, the Company's policy will be generally to refrain from paying return of capital distributions to stockholders (except for the Cash Merger Payment), but instead to pay as distributions substantially all of the Company's taxable income. Primarily as a result of this factor, it is expected that the quarterly distributions payable by the Company on the shares of Common Stock issued in respect of each Unit in the Merger will be lower on a quarterly basis over the first year following the Merger than the total distributions (which include amounts paid out of both net income and as a return of capital) made by the Partnerships for the three months ended September 30, 1997. See "THE COMPANY--Distribution Policy."

Fundamental Change in Nature of Investments. The nature of each Unitholder's investment will change from an interest in a finite-life limited partnership holding a static and unleveraged portfolio of fixed-rate Mortgage Securities, Mortgage Loans, preferred real estate participations ("PREPs") representing limited partnership interests in partnerships that own the multifamily properties collateralizing such Mortgage Securities and certain other investments that will be liquidated over time to shares of Common Stock in an ongoing, infinite-life mortgage REIT that will employ leverage and reinvest the proceeds of asset sales and mortgage repayments primarily in adjustable-rate Mortgage Securities and Mortgage Loans. In comparison to the Partnerships, the Company will have a more diverse investment strategy with greater opportunity for growth. Such growth potential, however, is accompanied by greater risks, such as those associated with the Company's leveraging and hedging strategies, than those posed by continued investment in the Partnerships.

Potential Conflicts of Interest of General Partners. The General Partners initiated and participated in the structuring of the Merger and have substantial conflicts of interest with respect to its completion due to interests and affiliations different from those of Unitholders. Such interests and affiliations include that (i) the Advisor will be an affiliate of the General Partners and therefore the owners of the General Partners will benefit from the completion of the Merger by indirectly receiving fees pursuant to the

Advisory Agreement (as hereinafter defined) and (ii) the General Partners determined the method of allocation of the Common Stock between themselves and Unitholders. See "MANAGEMENT OF THE COMPANY--Conflicts of Interest--General Partners."

A Majority in Interest Will Bind All Unitholders in Each Partnership. Under the Merger Agreement and the requirements of the Delaware Revised Uniform Limited Partnership Act (the "Delaware Act"), a Partnership will participate in the Merger if a majority in interest of its Unitholders consent to the Merger. If the Merger is approved by such majority, all Unitholders in such Partnership will be bound by the decision of the majority and, except for those Unitholders in Pension Fund electing to remain as Unitholders in Pension Fund (the "Retention Option"), will be required to exchange their Units for shares of Common Stock even if they do not desire to do so.

No Dissenters' Rights. Unitholders will have no appraisal, dissenters' or similar rights in connection with the Merger. Therefore, Unitholders will not be entitled to receive any cash payment in exchange for the fair value of their respective Units if they do not vote in favor of the Merger and the Merger is approved and consummated.

RISKS ASSOCIATED WITH THE COMPANY'S BUSINESS.

Leveraging Strategy. The Company will employ a strategy of borrowing funds to finance the acquisition of Mortgage Securities and Mortgage Loans and expects to maintain an equity-to-assets ratio of 8% to 10%. If the returns on such assets fail to offset the cost of the borrowings, the Company's earnings and distributions on its Common Stock will be adversely affected.

Fluctuations in Short-Term Interest Rates. Fluctuations in short-term interest rates may adversely affect the Company's earnings and the market price of its Common Stock as a result of (i) mismatches between the repricing of the Company's adjustable-rate Mortgage Securities and Mortgage Loans and the repricing of its borrowed funds, (ii) interest rate caps on its adjustable-rate Mortgage Securities and Mortgage Loans and (iii) different interest rate indices between the Company's adjustable-rate Mortgage Securities and Mortgage Loans and its borrowed funds.

Prepayment of Investments. To the extent that there is an unexpected increase in prepayment rates resulting in a shortening of the expected life of the Mortgage Securities and Mortgage Loans, the Company's earnings and the payment of distributions could be adversely affected primarily due to the increase in amortization of any remaining premium on Mortgage Securities and Mortgage Loans.

Hedging Strategies May Not Eliminate Interest Rate Risk. The Company intends to enter into hedging strategies which involve certain risks and may not be successful in reducing all of the Company's exposure to fluctuations in interest rates.

Ability to Change Policies Without Stockholder Approval. The Board of Directors will have the ability to change the Company's policies with respect to acquisitions, growth, operations, indebtedness, capitalization and distributions at any time without stockholder approval. Accordingly, stockholders will have no control over the Company's policies, except through their ability to elect new members to the Board of Directors.

Registration under the Investment Company Act. Failure to remain exempt from registration under the Investment Company Act of 1940, as amended (the "Investment Company Act"), would severely limit the Company's ability to implement its leveraging strategy.

RISKS ASSOCIATED WITH THE COMPANY QUALIFYING AS A REIT.

Taxation as a Corporation. If the Company fails to qualify as a REIT for federal income tax purposes, the Company will be taxed as a regular corporation which would adversely affect the ability of the Company to make distributions on its Common Stock.

REIT Minimum Distribution Requirements; Possible Incurrence of Additional Debt. In order to qualify as a REIT, the Company generally will be required each year to distribute to stockholders at least

95% of its net taxable income (excluding any net capital gain). The requirement to distribute a substantial portion of the Company's net taxable income could cause the Company to distribute amounts that otherwise would be spent on future investments or repayment of debt, which would require the Company to borrow funds or to sell assets to fund the costs of such items thereby adversely affecting the Company's earnings, cash available for distributions and dividend yield.

OVERVIEW OF THE MERGER

In order for each Partnership to participate in the Merger, Unitholders representing a majority of the outstanding Units in such Partnership must vote to approve the Merger and the other conditions to such Partnership's participation in the Merger as specified in the Merger Agreement must be satisfied. The Merger will not be consummated unless both Prep Fund 1 and Prep Fund 2 participate in the Merger. The participation of Pension Fund is not a condition to the closing of the Merger. As a result of the Merger, (i) outstanding Prep Fund 1 Units will be converted (at the rate of 1.00 share per Unit) into an aggregate of 5,775,797 shares of Common Stock, (ii) outstanding Prep Fund 2 BUCs will be converted (at the rate of approximately 1.26 shares per Unit) into an aggregate of 2,012,336 shares of Common Stock and (iii) outstanding Pension BUCs will be converted (at the rate of approximately 1.31 shares per Unit) into an aggregate maximum of 1,183,373 shares of Common Stock. If Pension Fund participates in the Merger, Unitholders in Pension Fund will be given the option, in lieu of receiving shares of Common Stock in the Company, to elect the Retention Option and remain as Unitholders in Pension Fund. See "TERMS OF THE MERGER--Retention Option." The 8,971,506 shares of Common Stock to be issued to Unitholders in the Merger have been allocated among the Partnerships in proportion to their relative Net Asset Values. See "TERMS OF THE MERGER--Allocation of Common Stock." The Merger Agreement also provides that the Company will make the Cash Merger Payment, which will be paid in four equal quarterly payments of $.2650 per share of Common Stock during the first year following the Merger, to stockholders entitled to receive distributions; provided, however, any distributions paid to stockholders by the Company out of earnings during this first year will have the effect of reducing the amount of the Cash Merger Payment so that the amount paid to stockholders will still be, in the aggregate, equal to $1.06 per share. See "TERMS OF THE MERGER--Cash Merger Payment." In connection with the organization of the Company, the General Partners were issued 90,621 shares of Common Stock. As consideration for the 90,621 shares, the General Partners paid the Company an aggregate of $1,000 as well as surrendered their rights to receive 1% of distributions made by the Partnerships out of operating cash flow. The General Partners will not be issued any additional shares of Common Stock or other consideration in the Merger.

RETENTION OPTION

The Unitholders in Pension Fund have the opportunity to elect the Retention Option and continue their current investment by remaining as Unitholders in Pension Fund through the retention of the same security that was originally issued to, or subsequently acquired by, such Unitholder. In providing for the Retention Option, the General Partners wanted to be responsive to those Unitholders in Pension Fund who might not want to modify their current investment in Pension Fund. To the extent that Unitholders in Pension Fund elect the Retention Option, the aggregate number of shares of Common Stock otherwise issuable to the Unitholders in Pension Fund in the Merger will be accordingly reduced. In order to elect the Retention Option, Unitholders in Pension Fund must properly complete, sign and return the enclosed form for the election of the Retention Option (the "Retention Option Form") in accordance with the procedures set forth herein under "THE CONSENT SOLICITATION--Exercise of the Retention Option." If a Unitholder in Pension Fund fails to properly complete, sign and return a Retention Option Form and Pension Fund participates in the Merger, such Unitholder will receive shares of Common Stock in connection with the Merger. For a complete discussion regarding the Retention Option and the rights, benefits and risks associated with the retention of Pension BUCs, see "TERMS OF THE MERGER-- Retention Option."

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PARTIES TO THE MERGER

PREP FUND 1. Prep Fund 1, a Delaware limited partnership, was formed on November 20, 1986. The general partner of Prep Fund 1 is America First Capital Associates Limited Partnership Three, a Delaware limited partnership. As of the Record Date, Prep Fund 1 had outstanding 5,775,797 Prep Fund 1 Units. Prep Fund 1 Units are included for quotation on the NASDAQ Stock Market ("NASDAQ") under the trading symbol "AFPFZ." As of September 30, 1997, Prep Fund 1 held a portfolio of fixed-rate Mortgage Securities, five PREPs, all of the equity interest in one limited partnership owning a multifamily property (the "Equity Interest") and one participating first Mortgage Loan on a multifamily property (a "Participating Loan") financed in part by America First Apartment Investors, L.P., an affiliated equity fund.

PREP FUND 2. Prep Fund 2, a Delaware limited partnership, was formed on May 28, 1987. The general partner of Prep Fund 2 is America First Capital Associates Limited Partnership Six, a Delaware limited partnership. As of the Record Date, Prep Fund 2 had outstanding 1,593,604 Prep Fund 2 BUCs. Prep Fund 2 BUCs are listed on the American Stock Exchange ("AMEX") under the trading symbol "PF." As of September 30, 1997, Prep Fund 2 held a portfolio of fixed-rate Mortgage Securities and three PREPs.

PENSION FUND. Pension Fund, a Delaware limited partnership, was formed on February 2, 1988. The general partner of Pension Fund is America First Capital Associates Limited Partnership Six. Pension Fund, which is not publicly traded, was organized to provide an investment vehicle to certain tax-exempt investors, including individual retirement accounts ("IRAs"), Keogh plans, pension and profit sharing plans and other qualified retirement plans (collectively, "Tax-Exempt Investors"), which would invest in the same types of investments as Prep Fund 2 without causing such investors to realize unrelated business taxable income ("UBTI") under the Internal Revenue Code of 1986, as amended (the "Code"). As of the Record Date, Pension Fund had outstanding 905,974 Pension BUCs. Pension BUCs are subject to various transfer restrictions which were imposed to prevent Pension Fund from being treated as a publicly traded partnership for federal income tax purposes and, accordingly, are not listed or regularly traded, except in the informal secondary market. As of September 30, 1997, Pension Fund held a portfolio of fixed-rate Mortgage Securities and three PREPs.

THE COMPANY

GENERAL. The Company will be a newly organized, externally advised Maryland corporation which expects to elect and qualify to be taxed as a REIT for federal tax purposes under the Code. Upon consummation of the Merger, the Company will become the direct and indirect owner of the Mortgage Securities, Mortgage Loans, PREPs and other assets, subject to liabilities, held by the Partnerships. Following the Merger, the Company intends to replace a substantial portion of the Partnerships' current portfolio with a portfolio consisting primarily of adjustable-rate Mortgage Securities, Mortgage Loans and other related assets, subject to the parameters and guidelines set forth below.

INVESTMENT STRATEGIES. The Company's investment strategy will be to acquire Mortgage Securities and Mortgage Loans in the secondary market from savings and loan institutions, commercial banks, investment banks, mortgage originators, mortgage conduits and other mortgage banking institutions who specialize in the origination, disposition and servicing of Mortgage Securities or Mortgage Loans. The Company will seek to generate income for distribution to its stockholders primarily from the difference between the interest income on its adjustable-rate Mortgage Securities and Mortgage Loans and the financing costs associated with carrying such Mortgage Securities and Mortgage Loans. See "THE COMPANY--Investment Strategies."

FINANCING STRATEGIES. The Company's strategy is to increase its assets by borrowing against its portfolio of Mortgage Securities and Mortgage Loans and reinvesting the proceeds of the borrowings in additional Mortgage Securities and Mortgage Loans. The Company expects to maintain an equity-to-assets ratio (I.E., total equity of the Company as a percentage of its total assets) of approximately 8% to 10%. The Company's Mortgage Securities will be financed primarily at short-term borrowing rates utilizing reverse repurchase agreements, borrowings under lines of credit and other secured or unsecured financings which

the Company may establish with approved institutional lenders. See "THE COMPANY--Financing Strategies."

RISK MANAGEMENT STRATEGIES. Changes in market interest rates could cause the interest paid on the Company's variable rate investments to drop below the costs paid on its borrowings. To the extent necessary, the Company will enter into hedging transactions to reduce the impact of certain adverse changes in interest rates on its net interest income. See "THE COMPANY--Risk Management Strategies."

SECURITIZATION OF MORTGAGE LOANS. The Company may supplement its portfolio of Mortgage Securities with individual Mortgage Loans acquired for its investment portfolio for future securitization. It is expected that, to be eligible for securitization, Mortgage Loans will generally be underwritten to "A" quality standards and will be combined together to create Mortgage Securities that will be more highly rated than the individual Mortgage Loans. See "THE COMPANY--Securitization of Mortgage Loans."

DISTRIBUTION POLICY. Following the Merger, the Company intends to distribute substantially all of its taxable income (which generally does not equal net income as calculated in accordance with GAAP) to stockholders as distributions. The Company intends to declare distributions on its Common Stock quarterly. The distribution policy is subject to revision by, and all distributions by the Company will be made at the discretion of, the Board of Directors. The amount of such distributions will be affected by a number of factors, including the Company's actual cash available for distribution, its financial condition, capital requirements, the annual distribution requirements under the REIT provisions of the Code and such other factors as the Board of Directors deems relevant.

MANAGEMENT OF THE COMPANY. The Company will have a seven-member Board of Directors, a majority of which will consist of persons who are neither executive officers of the Company nor executive officers or directors of the Advisor (the "Independent Directors"). The Company will contract with the Advisor to manage the Mortgage Securities and Mortgage Loans held by the Company and to provide other services to the Company pursuant to an Advisory Agreement (the "Advisory Agreement") between the Company and the Advisor. See "MANAGEMENT OF THE COMPANY--The Advisor."

BACKGROUND OF THE MERGER

Units in the Partnerships were offered to the public in three separate offerings from 1986 through 1988. The Partnerships were formed to invest their original capital on an unleveraged basis principally in Mortgage Securities, PREPs and, to a lesser extent, in participating Mortgage Loans collateralized by multifamily properties and then to liquidate their investments and distribute the proceeds from such liquidation to Unitholders generally within 12 years of purchase (I.E., by 1999 for Prep Fund 1 and by 2000 for Prep Fund 2 and Pension Fund), subject to the right of the General Partners to extend the date of liquidation to December 31, 2036 in the case of Prep Fund 1 and December 31, 2017 in the case of Prep Fund 2 and Pension Fund.

The primary objectives of the Partnerships were to provide investors with
(i) safety and preservation of capital, (ii) regular cash distributions and
(iii) a potential for capital appreciation from enhanced yield from investments in PREPs and other equity-related real estate investments. While the Partnerships have been able to provide Unitholders with regular cash distributions, they have been less successful in preserving the Unitholders' capital or providing enhanced yield or appreciation in the value of Units. At March 31, 1997, Units in Prep Fund 1, Prep Fund 2 and Pension Fund had a Net Asset Value of $9.21, $11.63 and $12.03, respectively, compared to an initial offering price for each Unit of $20.00. A part of this decline is attributable to the existing self-liquidating nature of the Partnerships which have made return of capital distributions to Unitholders out of principal repayments received by the Partnerships from their Mortgage Loans and from the mortgages underlying the Partnerships' Mortgage Securities. Through March 31, 1997, Prep Fund 1, Prep Fund 2 and Pension Fund have made return of capital distributions to Unitholders aggregating $10.24, $7.63 and $6.92, respectively, per Unit. The General Partners also attribute the decline in the value of the Units to the payment of fees and expenses incurred in connection

with the organization of the Partnerships and a decrease in the value of PREPs and other equity-related real estate investments owned by the Partnerships.

The General Partners believe that the structure of the Partnerships, as finite-life, fixed portfolio investment vehicles, has limited the flexibility of the Partnerships to react to market conditions and changes in interest rates and to implement new strategies to benefit Unitholders and the Partnerships. The General Partners have concluded that Unitholders are unlikely to achieve the full benefits from their investments in the Partnerships if the Partnerships continue to operate in accordance with their respective Agreements of Limited Partnership of the Partnerships (collectively, the "Partnership Agreements") and existing business plans or if they commence an orderly liquidation of their investment portfolios.

In the spring of 1996, the General Partners began considering different approaches for the Partnerships in an effort to enhance the value of the investments held by Unitholders. In the course of performing such analysis, the General Partners observed that mortgage REITs, which hold investments that are similar in terms of investment type and credit quality to those held by the Partnerships, are more highly valued (as a multiple of their earnings and book value) by the public equity markets than are the Partnerships. These circumstances led the General Partners to begin an assessment of the feasibility of converting the Partnerships to a mortgage REIT structure. The General Partners considered the Partnerships to be especially well positioned for such a conversion due to the investment similarities between the Partnerships and the typical mortgage REIT.

In December 1996, members of management of the General Partners approached PaineWebber to discuss the feasibility of converting the Partnerships to the mortgage REIT structure. Members of management of the General Partners sought the advice of PaineWebber due to PaineWebber's substantial experience in the mortgage REIT sector. In March 1997, the General Partners caused the Partnerships to engage PaineWebber as their financial advisor.

The General Partners, acting through the Board of Managers of America First, met on five occasions since December of 1996 to discuss the proposed Merger. At the meeting on June 17, 1997, the Board of Managers voted to appoint the Special Committee, consisting of Martin A. Massengale (chair), George Kubat and W. S. Carter, to represent the interests of Unitholders in the Merger.

Since the organization of the Special Committee, it met on six occasions for the purpose of considering the proposed Merger and related transactions. As part of its analysis of the Merger, the Special Committee engaged Christy & Viener to act as its counsel and also engaged Oppenheimer to render a fairness opinion with regard to the Merger. On July 28, 1997, the Special Committee received the Fairness Opinion from Oppenheimer and reported its determinations regarding the Merger to the Board of Managers. The Special Committee then determined that the Merger is fair to, and in the best interest of, Unitholders and recommended that Unitholders vote to approve the Merger. The General Partners, acting through the Board of Managers, also determined the Merger is fair to, and in the best interests of, Unitholders and voted to approve the Merger and the Merger Agreement and voted to recommend that Unitholders approve the Merger.

On July 29, 1997, the Partnerships and the Company signed the Merger Agreement and issued a press release announcing the proposed transaction. See "THE PROPOSED MERGER--Background of the Merger."

FAIRNESS OPINION

The Special Committee retained Oppenheimer to render its Fairness Opinion, dated as of July 28, 1997, as to the fairness, from a financial point of view, of the Merger, including the allocation of Common Stock among the Partnerships assuming, in each case, that all of the Partnerships participate in the Merger and no Unitholders in Pension Fund elect the Retention Option ("Maximum Participation") and that Pension Fund does not participate in the Merger. The full text of the Fairness Opinion, which contains a description of the assumptions and qualifications made, matters considered and limitations imposed on the review and analysis, is set forth in Appendix B and should be read in its entirety.

Based on the analysis described herein under "THE PROPOSED MERGER--Fairness Opinion," and subject to the assumptions, limitations and qualifications noted herein and in its Fairness Opinion, Oppenheimer concluded that the Merger, including the allocation of shares of Common Stock among the Partnerships, is fair from a financial point of view to the Unitholders assuming either Maximum Participation or, alternatively, that Pension Fund does not participate in the Merger. Oppenheimer subsequently delivered its written confirmatory opinion, as of the date of the CSS/P, that the Merger continues to be fair from a financial point of view to the Unitholders assuming either Maximum Participation or, alternatively, that Pension Fund does not participate in the Merger.

FINANCIAL ADVISOR

PaineWebber has been engaged by the Partnerships to serve as their financial advisor. PaineWebber rendered financial advice to the Partnerships with respect to the development and implementation of an operating structure and a business strategy for the Company, including reviewing the asset types to be purchased, the liability structures to be used to finance the assets and the Company's desired leverage ratio. PaineWebber also assisted the Partnerships in developing the Company's business plan and investment strategy and guidelines and in determining the contract terms and other arrangements between the Company and the Advisor. In addition, PaineWebber assisted the Partnerships and their General Partners in developing financial forecasts for the Company which are described herein under "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination." PaineWebber did not, in connection with its engagement by the Partnerships, render a fairness opinion to the General Partners or the Partnerships. See "THE PROPOSED MERGER--Financial Advisor."

RECOMMENDATIONS OF THE GENERAL PARTNERS AND THE SPECIAL COMMITTEE; FAIRNESS DETERMINATION

The General Partners, together with the Special Committee, have determined that the Merger is fair to, and in the best interests of, the Unitholders. Accordingly, the General Partners have approved the Merger and the Merger Agreement and the General Partners and the Special Committee have recommended that the Unitholders vote FOR the approval of the Merger and the adoption of the Merger Agreement. In reaching this determination, the General Partners and the Special Committee considered a number of factors, as well as consulted with PaineWebber, legal counsel and, in the case of the General Partners, the Partnerships' accountants, and received the Fairness Opinion from Oppenheimer. See "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination."

In assessing the Merger, the General Partners and the Special Committee considered a comparative valuation analysis prepared by management of the General Partners. This analysis, which supported their determination that the Merger is fair to and in the best interest of Unitholders, compared estimated values of the Units assuming they are converted into shares of Common Stock in the Merger to estimated values of the Units (i) assuming the Partnerships continue to operate in accordance with their existing Partnership Agreements and business plans, (ii) assuming the Partnerships commenced an orderly liquidation of their investment portfolios on June 30, 1997 or (iii) based on recent trading or secondary market prices. In this analysis, the estimated ranges of values of the Units assuming they are converted into shares of Common Stock in the Merger were determined by applying the forecasted net income per share of the Company for the second year of its operations, which was developed by management of the General Partners with the assistance of PaineWebber, to the net income multiples developed by PaineWebber for certain Comparative Companies (as hereinafter defined) in the residential mortgage REIT industry. The second year of operations was used in this analysis because the Company is expected to have completed the portfolio realignment anticipated by its business plan before the beginning of such second year. See "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination." The estimated ranges of values of the Units included in the analysis described in
(i) and (ii) above were the same ranges of values used by Oppenheimer in connection with the analysis

underlying its Fairness Opinion. The General Partners and the Special Committee have reviewed Oppenheimer's methodology in developing such estimated ranges of values and believe that such methodology is reasonable. See "THE PROPOSED MERGER--Fairness Opinion." The recent trading prices included in this analysis
(i) for Prep Fund 1 Units and Prep Fund 2 BUCs were based on the average of the last reported sales prices of such Units on the NASDAQ and the AMEX, respectively, for the 45 consecutive trading days preceding the date prior to the public announcement of the Merger and (ii) for Pension BUCs were based on the average trading prices of such Units in the secondary markets from January 1, 1997 through the date prior to the public announcement of the Merger.

The following table summarizes the results of the comparative valuation analysis and also presents the included values as a percentage of the historical book value of the Partnerships:

                                       ESTIMATED VALUE OF
                                         UNITS ASSUMING
                                      CONVERSION TO SHARES
                                        OF COMMON STOCK          ESTIMATED             ESTIMATED
                                           IN THE NEW           CONTINUATION      LIQUIDATION VALUE(4)
                                           COMPANY(2)             VALUE(3)
                                      --------------------  --------------------  --------------------    RECENT
                                        HIGH        LOW       HIGH        LOW       HIGH        LOW       TRADING
PARTNERSHIP                             VALUE      VALUE      VALUE      VALUE      VALUE      VALUE     PRICES(5)
------------------------------------  ---------  ---------  ---------  ---------  ---------  ---------  -----------
ESTIMATED VALUATION:
Prep Fund 1.........................  $   11.88  $   10.48  $    8.80  $    8.63  $    9.08  $    8.83   $    8.63
Prep Fund 2.........................  $   14.97  $   13.20  $   11.01  $   10.71  $   11.13  $   11.06   $   12.19
Pension Fund........................  $   15.56  $   13.72  $   11.37  $   11.16  $   11.79  $   11.75   $    9.49

ESTIMATED VALUATION AS A PERCENTAGE OF HISTORICAL BOOK VALUE OF THE PARTNERSHIPS(6):
Prep Fund 1.........................       141%       124%       105%       102%       108%       105%        102%
Prep Fund 2.........................       140%       124%       103%       100%       104%       104%        114%
Pension Fund........................       136%       120%        99%        97%       103%       103%         83%

(1) Based on information available as of June 30, 1997, except with respect to the recent trading prices of the Units.

(2) See "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination."

(3) See "THE PROPOSED MERGER--Fairness Opinion--Summary of Analysis and Methodology."

(4) Represents the amount that would have been distributed with respect to each Unit if the Partnerships had sold their Mortgage Securities, Mortgage Loans and other assets on June 30, 1997, subject to certain assumptions. See "THE PROPOSED MERGER--Fairness Opinion--Summary of Analysis and Methodology."

(5) For Prep Fund 1 Units and Prep Fund 2 BUCs, the average of the last reported sales prices of such Units on the NASDAQ and the AMEX, respectively, for the 45 consecutive trading days preceding the date prior to the public announcement of the Merger. For Pension BUCs, the average trading prices of such Units in the secondary markets from January 1, 1997 through June 30, 1997.

(6) Mortgage REITs are typically valued in the public markets on the basis of either a trading price to book value or a trading price to earnings. The historical book value of the Units was used in the comparative valuation analysis, as opposed to earnings of the Partnerships, because historical book value is a measure which is applicable to all three scenarios contained in the comparative valuation analysis. The historic book value per Unit as of March 31, 1997 for Prep Fund 1 was $8.42, Prep Fund 2 was $10.67 and Pension Fund was $11.45.

In reaching their determination that the Merger is fair to and in the best interests of the Unitholders, the General Partners and the Special Committee viewed as favorable the comparative valuation analysis prepared by management of the General Partners. In this analysis, the estimated range of values of the Units assuming they are converted to shares of Common Stock in the Merger is above the estimated range of values of the Units assuming the Partnerships continue to operate in accordance with their existing Partnership Agreements and business plans or assuming the Partnerships were to have commenced an orderly liquidation of their investment portfolios on June 30, 1997 and above the recent trading or secondary market prices of the Units that were used in the analysis. See "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination."

In assessing the comparative valuation analysis, the General Partners and the Special Committee recognized that the valuation estimates used in the analysis are subject to significant uncertainties,

variables and assumptions, as well as varying market conditions, and no assurance can be given that the estimated values indicated could ever be realized. The General Partners and the Special Committee also recognize that there is substantial uncertainty as to the prices at which the shares of Common Stock will trade following the Merger and it is possible that the shares will trade below the other values in this analysis. See "RISK FACTORS--Risks Associated with the Merger--Uncertain Market Price of Common Stock After the Merger." The comparative valuation analysis was based on information available as of June 30, 1997 (except for the recent trading prices of the Units). It is not anticipated that management of the General Partners will update the comparative valuation analysis or any of the information contained therein. In addition, the General Partner and the Special Committee do not consider the recent trading prices of the Pension BUCs to be representative of the market value of such Units because secondary market activity for such Units has been limited and sporadic and the extent of such activity has varied from time from time.

In spite of these uncertainties, the General Partners and the Special Committee believe that the comparative valuation analysis, when considered together with the anticipated effect of the Merger and with all the other differences between continued ownership of Units as compared with the receipt of shares of Common Stock, supports their recommendation relating to the Merger.

In addition to the comparative valuation analysis, the General Partners and the Special Committee also considered the Fairness Opinion and several other factors as favorable to their determination. In particular, the General Partners and the Special Committee determined that the Merger provides (i) opportunities for growth once the Partnerships are combined within the Company; (ii) opportunities to increase earnings to Unitholders; (iii) enhanced access to capital and greater operating flexibilities; (iv) greater diversification of investment risk; (v) enhanced liquidity for Unitholders; (vi) opportunities to achieve a more efficient operating structure; (vii) opportunities for Unitholders to exchange their Units for shares of Common Stock on a basis that is expected to be tax-free for federal income tax purposes; and (viii) simplified tax reporting.

In assessing the Merger, the General Partners and the Special Committee also noted that the Partnerships currently pay distributions to Unitholders out of their earnings and as a return of invested capital. For the three months ended September 30, 1997, Prep Fund 1, Prep Fund 2 and Pension Fund paid distributions per Unit totalling $0.2649, $0.3267 and $.3233, respectively, while generating net income over this period of $0.12, $0.05 and $0.07, respectively. As a result, the quantity of the income producing assets held by the Partnerships has been declining each quarter which will eventually erode the ability of the Partnerships to maintain distributions at current levels. Following the Merger, the Company's policy will be generally to refrain from paying return of capital distributions to stockholders (except for the Cash Merger Payment), but instead to pay as distributions substantially all of the Company's taxable income. Primarily as a result of this factor, it is expected that the quarterly distributions payable by the Company on the shares of Common Stock issued in respect of each Unit in the Merger will be lower on a quarterly basis over the first year following the Merger than the total distributions (which include amounts paid out of both net income and as a return of capital) made by the Partnerships for the three months ended September 30, 1997. See "THE COMPANY--Distribution Policy." The Merger Agreement, however, provides that the Company will make the Cash Merger Payment, which will be paid in four equal quarterly payments of $.2650 per share of Common Stock during the first year following the Merger, to stockholders entitled to receive distributions. During the first year following the Merger, any distributions paid to stockholders by the Company out of earnings will have the effect of reducing the amount of the Cash Merger Payment so that the amount paid to stockholders during this first year will still be, in the aggregate, equal to $1.06 per share. The General Partners anticipate that the Company will fund the Cash Merger Payment, to the extent it is required to be paid to stockholders during the first year following the Merger, out of the proceeds from sales of Mortgage Securities and Mortgage Loans, short-term borrowings or existing cash reserves. See "TERMS OF THE MERGER--Cash Merger Payment." At an exchange ratio for each Unit in Prep Fund 1, Prep Fund 2 and Pension Fund of 1.0x, 1.26x and 1.31x, respectively, into shares of Common Stock, the minimum quarterly payment to be made in respect of each Unit in Prep

Fund 1, Prep Fund 2 and Pension Fund exchanged in the Merger will equal $.2650, $.3346 and $.3461, respectively. Following the completion of the initial one-year distribution period, the Company intends to pay quarterly distributions as determined by the Board of Directors.

The General Partners and the Special Committee also considered (i) that the effects of the Merger may differ with each Unitholder and may be disadvantageous to certain Unitholders, depending on their individual circumstances and investment objectives, and (ii) certain negative factors relating to the Merger, including (a) there is substantial uncertainty as to the prices at which the shares of Common Stock will trade and the possibility exists that the trading price of the shares may be lower than the proportionate Net Asset Value estimated for each Unit; (b) there is no assurance that, after the Company's first year of operations, the Company will be able to generate sufficient net income to fund the payment of distributions at the aggregate amount paid during such first year or higher; (c) the Company will be a newly formed corporation, with no operating history as a publicly traded REIT; (d) potential conflicts facing the Company following the Merger, including, among other things, the fees payable to the Advisor under the Advisory Agreement; (e) the Partnerships or the Company will pay all expenses of the Merger, including solicitation expenses, whether or not the Merger is consummated; (f) the payment of such expenses will reduce the net worth of the Company following the Merger; and (g) there can be no assurance the Company will be able to achieve the benefits of the proposed Merger and successfully implement its business plan as described herein. The General Partners and the Special Committee did not believe that the negative factors were sufficient, either individually or collectively, to outweigh the advantages of the Merger. See "RISK FACTORS" and "MANAGEMENT OF THE COMPANY--Conflicts of Interest."

ASSESSMENT OF ALTERNATIVES TO THE MERGER

In connection with their assessment of the comparative financial analysis, the General Partners also considered the following additional factors with regard to the analyzed alternatives:

CONTINUATION OF THE PARTNERSHIPS. In assessing the Merger, the General Partners and the Special Committee considered the advantages and disadvantages of keeping the Partnerships intact and continuing to operate them in accordance with their respective Partnership Agreements and existing business plans. Continuing to operate the Partnerships as in the past has a number of benefits, including (i) the Partnerships would remain separate entities, with their original investment objectives, consistent with their respective Partnership Agreements; (ii) there would be no change in the nature of the Unitholders' investments; (iii) the Unitholders' investment in the Partnerships would not be exposed to the additional risks associated with the implementation and operation of the Company's new business plan compared to the Partnerships'; (iv) the Partnerships would liquidate their holdings and distribute the proceeds from such liquidation in accordance with their respective business plans; (v) the Unitholders would continue to defer certain income taxes on Partnership distributions; and (vi) the Partnerships would not incur any expenses in connection with the Merger. In addition, continuing the Partnerships without change avoids the risks inherent in the Merger, including, among others, the implementation of the Company's new business plan and investment strategy, the uncertain market value of the Common Stock, the change in distribution policies, the fundamental change in the nature of investment held by Unitholders who receive Common Stock and the potential conflicts of interests of the General Partners. See "RISK FACTORS--Risks Associated with the Merger." In an effort to maximize the value of the Unitholders' investments in the Partnerships and to enhance the capital raising and investment flexibility of the Partnerships, the General Partners ultimately decided to take advantage of the growing acceptance of mortgage REITs in the U.S. equity markets and proceed forward with the Merger. The General Partners concluded that maintaining the Partnerships as separate entities may have the following potentially negative results when compared with the benefits that the General Partners perceive may be derived from the Merger: (i) limitations on growth and capital raising; (ii) limitations on new investments; (iii) with respect to the Pension BUCs, lower liquidity of investment on a current basis due to the illiquid nature of the market for Pension BUCs; (iv) less flexibility and control in actively managing the portfolio; and (v) duplicative general and administrative expenses.

LIQUIDATION OF THE PARTNERSHIPS. Although the investment objectives and policies of the Partnerships do not contemplate the commencement of the liquidation of the portfolios of Mortgage Securities, Mortgage Loans, PREPs and other investments until 1999 in the case of Prep Fund 1 and 2000 in the case of Prep Fund 2 and Pension Fund, the General Partners and the Special Committee assessed the possibility of commencing the orderly liquidation of the Partnerships and distributing the net proceeds from such liquidation to partners. The General Partners and Special Committee have determined that to attempt to liquidate the Partnerships' investments at the current time would likely result in Unitholders not achieving the full benefits from their investment in the Partnerships, especially capital appreciation in their Units, based on the historical amount of return on capital distributions received by Unitholders plus the amount that would be received by Unitholders if the Partnerships' investments were liquidated as compared to the amount originally invested by such Unitholders in the Partnerships. In addition, even though the Company's business plan contemplates the realignment of its portfolio through the sale of a substantial portion of its fixed-rate assets and the acquisition of adjustable-rate Mortgage Securities and Mortgage Loans, the General Partners and the Special Committee have concluded that, based on the comparative valuation analysis prepared by management of the General Partners, liquidation at the current time would be premature and would not provide the Unitholders with their best option to realize the optimum return on their investments in the Partnerships. As the comparative valuation analysis indicates, the estimated ranges of values of the Units assuming they are converted to shares of Common Stock in the Merger are substantially above the estimated ranges of values of the Units assuming the Partnerships were to have commenced an orderly liquidation of their investment portfolios on June 30, 1997. See "THE PROPOSED MERGER--Assessment of Alternatives to the Merger."

BENEFITS TO INSIDERS

The General Partners are expected to receive certain benefits as a result of the Merger. First, the General Partners were issued and will retain 90,621 shares of Common Stock representing 1% of the shares of Common Stock outstanding following the Merger (assuming Maximum Participation). Upon completion of the Merger (assuming Maximum Participation), the 90,621 shares of Common Stock issued to the General Partners will have an estimated value, based on the high-end of the range of values of Units assuming conversion to shares of Common Stock in the Merger that was used by the General Partners in the comparative valuation analysis described above, of approximately $1.07 million. See "MANAGEMENT OF THE COMPANY--Conflicts of Interest--General Partners" and "TERMS OF THE MERGER--Allocation of Common Stock." In exchange for these shares of Common Stock, the General Partners will be effectively contributing their general partner interests in the Partnerships which, as of March 31, 1997, had a Net Asset Value of approximately $825,000. In addition, the Advisor, a subsidiary of America First, the entity that owns the General Partners, will serve as the advisor to the Company and will be entitled to receive management fees from the Company pursuant to the Advisory Agreement. See "MANAGEMENT OF THE COMPANY--The Advisor" and "--Conflicts of Interest-- The Advisor." Further, certain members, managers and officers of America First, including Michael B. Yanney, Stewart Zimmerman, Gary Thompson, and George H. Krauss, will also serve as directors and officers of the Company and the Advisor. As officers of the Company and the Advisor, these persons will be entitled to receive compensation from the Company or the Advisor and may enter into employment agreements with the Company or the Advisor. Furthermore, such persons may be entitled to receive stock options under the Company's 1997 Stock Option Plan (the "Stock Option Plan"). The benefits that may be realized by such persons are likely to exceed the benefits that they would expect to derive from the Partnerships if the Merger does not occur.

THE MERGER AGREEMENT

GENERAL. The Merger Agreement, which is dated as of July 29, 1997, provides that, subject to the satisfaction or waiver of certain conditions, Prep Fund 1 and Prep Fund 2 will merge with and into the Company and Pension Fund will merge with Partnership Merger Sub. The Company and Pension Fund, if it participates, will be the surviving entities. See "TERMS OF THE MERGER--Effects of the Merger." The Merger will become effective upon the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and the Articles of Merger with the Department of Assessments and Taxation of the State of Maryland (the "Effective Date").

In addition to customary mutual covenants, each of the Partnerships is subject to covenants applicable prior to the Effective Date requiring them to operate their respective businesses in the ordinary course and imposing certain other specific restrictions on such operations. See "TERMS OF THE MERGER--The Merger Agreement." Furthermore, the Merger may be terminated prior to the Effective Date, before receipt of approval of Unitholders, as follows: (i) by mutual written consent of the Partnerships; (ii) by any of the Partnerships upon a breach in any material respect of any representation or warranty on the part of another Partnership or the breach in any material respect of any covenant or agreement of another Partnership set forth in the Merger Agreement; (iii) by any of the Partnerships if the Merger shall not have been consummated before June 30, 1998; (iv) by any of the Partnerships if the approval of a majority of holders of either Prep Fund 1 Units or Prep Fund 2 BUCs is not obtained; and (v) by any of the Partnerships if prior to the approval of the Unitholders of such Partnership the General Partner of such Partnership or the Special Committee shall have withdrawn or modified its recommendation of the Merger or the Merger Agreement.

CONDITIONS TO THE MERGER. Each Partnership's participation in the Merger is subject to the affirmative vote of Unitholders representing a majority of the outstanding Units in such Partnership. Pursuant to the Merger Agreement, the Merger is also subject to the satisfaction of certain conditions, including the participation in the Merger of Prep Fund 1 and Prep Fund 2 and the absence of any event or any matter brought to the attention of the General Partners that, in the sole judgment of the General Partners, materially affects, whether adversely or otherwise, the Partnerships, the Company or the Merger. The General Partners (with the concurrence of the Special Committee) acting on behalf of the Partnerships and the Company may, by an appropriate instrument executed at any time prior to the Effective Date, whether before or after the approvals of the Unitholders are obtained, amend, modify or waive compliance with any of the provisions of the Merger Agreement; provided that after the receipt of such approvals, no amendment, modification or waiver may be made which alters the amount or changes the form of the consideration to be delivered to the Unitholders in the Merger or that in any way, in the reasonable judgment of the General Partners, adversely affects such Unitholders unless a majority in interest of the adversely affected Unitholders consents to such amendment, modification or waiver. See "TERMS OF THE MERGER--The Merger Agreement--Waiver; Extension."

ALLOCATION OF COMMON STOCK. For purposes of allocating the shares of Common Stock to be issued in the Merger among the Partnerships, the General Partners valued each Partnership as of March 31, 1997 based on each Partnership's Net Asset Value. See "TERMS OF THE MERGER--Allocation of Common Stock." The Net Asset Value for Prep Fund 1 is $9.21, for Prep Fund 2 is $11.63 and for Pension Fund is $12.03. The 8,971,506 shares of Common Stock to be issued to Unitholders in the Merger have been allocated among the Partnerships in proportion to their relative Net Asset Values. In connection with the organization of the Company, the General Partners were issued 90,621 shares of Common Stock and will not be issued any additional shares as a result of the Merger.

CASH MERGER PAYMENT. The Merger Agreement provides that the Company will make the Cash Merger Payment, which will be paid in four equal quarterly payments of $.2650 per share of Common Stock during the first year following the Merger, to stockholders entitled to receive distributions. During the first year following the Merger, any distributions paid to stockholders by the Company out of earnings will have the

effect of reducing the amount of the Cash Merger Payment so that the amount paid to stockholders during this first year will still be, in the aggregate, equal to $1.06 per share. The General Partners anticipate that the Company will fund the Cash Merger Payment, to the extent it is required to be paid to stockholders during the first year following the Merger, out of the proceeds from sales of Mortgage Securities and Mortgage Loans, short-term borrowings or existing cash reserves. Further, there is no assurance that, after the first year following the Merger, the Company will be able to generate sufficient net income to fund the payment of distributions to stockholders at a rate that will equal the Cash Merger Payment. See "TERMS OF THE MERGER--Cash Merger Payment."

COMPARISON OF UNITS AND COMMON STOCK

The following is a comparison of certain specific attributes associated with the ownership of Units and the ownership of Common Stock. Prior to the Merger, the rights and obligations of the Unitholders will be governed by their respective Partnership Agreements. Upon consummation of the Merger, Unitholders
(except for those Unitholders in Pension Fund electing the Retention Option)
will become stockholders of the Company. The descriptions set forth below are qualified in their entirety by reference to the Articles of Incorporation of the Company (the "Charter"), the Bylaws of the Company ("Bylaws"), each Partnership's Partnership Agreement, the Maryland General Corporation Law ("MGCL") and the Delaware Act. The descriptions are summaries and do not purport to be complete discussions of these matters. Unitholders are encouraged to review carefully the more detailed comparison regarding the Units and the Common Stock discussed under "COMPARATIVE RIGHTS AND OBLIGATIONS OF UNITHOLDERS AND
STOCKHOLDERS" in this Consent Solicitation Statement/Prospectus.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------

Form of Organization                  - Limited partnerships formed under   - Maryland corporation which will
                                        the Delaware Act.                     elect to be taxed as a REIT.

Duration of Existence                 - 12-year anticipated holding period  - Perpetual.
                                        for investments, subject to the     - Reinvest proceeds from sale and
                                        right of the General Partners to      refinancing of, and payments on,
                                        extend the date of liquidation        Mortgage Securities and Mortgage
                                        until December 31, 2036 in the        Loans.
                                        case of Prep Fund 1 and December
                                        31, 2017 in the case of Prep Fund
                                        2 and Pension Fund.

                                      - Distribute proceeds from sale and
                                        refinancing of, and payments on,
                                        Mortgage Securities and Mortgage
                                        Loans to Unitholders.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Business                              - Invest in a static and unleveraged  - Invest in a growing and more
                                        portfolio of fixed-rate Mortgage      diverse portfolio consisting
                                        Securities, Mortgage Loans, PREPs     primarily of adjustable-rate
                                        and other related assets.             Mortgage Securities, Mortgage
                                                                              Loans and other related assets
                                                                              which will be subject to
                                                                              additional risks not associated
                                                                              with the Partnerships' portfolios.

                                                                            - Leverage equity capital and
                                                                              generate income on the difference
                                                                              between yield on investments and
                                                                              cost of borrowings.

                                                                            - Create, through securitization,
                                                                              Mortgage Securities.

                                                                            - Reduce interest rate risk through
                                                                              hedging techniques.

Investment and Financing Objectives   - Provide investors with safety and   - Invest primarily in adjustable-
  and Policies                          preservation of capital, regular      rate Mortgage Securities and
                                        cash distributions and a potential    Mortgage Loans.
                                        for enhanced yield from             - Take advantage of investment and
                                        investments in PREPs.                 financing opportunities as they
                                                                              arise.
                                                                            - Build on investment methods of the
                                                                              Partnerships in a manner to
                                                                              encourage growth in the Company,
                                                                              increase earnings and enhance
                                                                              value of Unitholders' investments.

Nature of Investment                  - Units constitute equity interests   - Shares of Common Stock constitute
                                        entitling each Unitholder to his      equity interests entitling each
                                        or her pro rata share of cash         stockholder to its pro rata share
                                        distributions.                        of distributions made with respect
                                                                              to the Common Stock.
                                                                            - Greater opportunity for capital
                                                                              appreciation.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Borrowing Policies                    - Prep Fund 1 may not borrow money    - Mortgage Securities and Mortgage
                                        for any purpose.                      Loans financed primarily at
                                      - Prep Fund 2 and Pension Fund may      short-term borrowing rates through
                                        not borrow money for acquisition      utilization of reverse repurchase
                                        of assets, but are permitted to       agreements, borrowings under lines
                                        borrow funds for working capital.     of credit and other secured and
                                                                              unsecured financings.
                                                                            - Maintain equity-to-assets ratio of
                                                                              8% to 10%.

Management                            - Prep Fund 1 is managed by America   - A seven-member Board of Directors
                                        First Capital Associates Limited      elected by the stockholders.
                                        Partnership Three, its general      - The Advisor will manage day- to-day
                                        partner.                              activities of the Company and
                                      - Prep Fund 2 and Pension Fund are      provide other services.
                                        each managed by America First
                                        Capital Associates Limited
                                        Partnership Six, their general
                                        partner.
                                      - The General Partners are not
                                        regularly elected by Unitholders.

Fees and Expenses                     - Each Partnership pays to its        - The Company will pay all of its
                                        respective General Partner or its     expenses and shall reimburse the
                                        affiliates administrative fees,       Advisor for expenses incurred on
                                        mortgage custodial and transfer       its behalf; provided, however, the
                                        agent fees, and property              Advisor will pay the compensation
                                        management fees.                      of the Company's officers and
                                      - The General Partners are              other personnel.
                                        reimbursed for costs and expenses   - Under the Advisory Agreement, the
                                        incurred in connection with the       Advisor is entitled to receive a
                                        operation of the Partnerships.        base management fee based on the
                                                                              size of the Company's portfolio
                                                                              and incentive compensation based
                                                                              on the Return on Equity (as
                                                                              defined herein) of the Company.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Potential Dilution                    - Not authorized to issue additional  - The Board of Directors is
                                        equity securities.                    authorized to issue shares of
                                                                              capital stock of any class or
                                                                              securities convertible into shares
                                                                              of capital stock of any class or
                                                                              classes.
                                                                            - The Board of Directors may
                                                                              classify or reclassify any
                                                                              unissued shares of capital stock.

                                      - No potential dilution of            - Potential for dilution of the
                                        distributions.                        relative voting power of each
                                                                              share of Common Stock in
                                                                              connection with the issuance of
                                                                              additional shares of capital
                                                                              stock.
                                                                            - Potential for dilution of the
                                                                              interests of the stockholders in
                                                                              the distributions of the Company.

Potential Redemption or Repurchase    - General Partners may set aside      - Board of Directors may authorize
                                        funds to repurchase Units in          the repurchase of shares to
                                        open-market transactions.             further the Company's business
                                                                              objectives.

Liquidity and Transferability         - Prep Fund 1 Units are included for  - The Common Stock has been approved
                                        quotation on the NASDAQ.              for listing on the NYSE.
                                      - Prep Fund 2 BUCs are listed on the  - Ownership Limit to preserve REIT
                                        AMEX.                                 status.
                                      - Pension BUCs are not listed or
                                        regularly traded, except in the
                                        informal secondary market.
                                      - The General Partners are permitted
                                        to defer or suspend trading of the
                                        Units in the event 45% of the
                                        Units are traded in any 12-month
                                        period.

Anti-Takeover Provisions              - The General Partners are not        - The Ownership Limit, the Board of
                                        regularly elected by, and can only    Directors' power to issue
                                        be removed upon the vote of a         additional stock, staggered Board
                                        majority in interest of,              of Directors and certain
                                        Unitholders.                          provisions of the MGCL, the
                                      - Units are generally freely            Charter and the Bylaws may have
                                        transferable, except for certain      the effect of delaying, deferring
                                        restrictions contained in the         or preventing a takeover.
                                        Partnership Agreements.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Taxation of Partnerships/ Company     - The Partnerships are not subject    - As a REIT, the Company will be
                                        to federal income tax.                able to deduct distributions to
                                      - Partners are allocated their          stockholders, generally
                                        proportionate share of income,        eliminating double taxation.
                                        gain, loss, deduction and credit    - The Company will be subject to
                                        of the partnership.                   federal income tax at regular
                                                                              corporate rates on any
                                                                              undistributed income, including
                                                                              capital gains, and in certain
                                                                              other circumstances.

Taxation ofUnitholders/ Stockholders  - Unitholders receive complex         - Stockholders mailed 1099-DIV in
                                        Schedule K-1 forms in March or        January.
                                        April.                              - Distributions received by
                                      - Unitholders must report their         stockholders generally constitute
                                        allocable share of partnership        portfolio income, which cannot be
                                        income. Generally, interest           offset by passive losses.
                                        income, as well as market discount  - Distributions by the Company will
                                        and original issue discount           generally be taxable to
                                        income, if any, of the                stockholders to the extent of the
                                        Partnerships are portfolio income     Company's accumulated earnings and
                                        and income or loss arising from       profits.
                                        equity investments (such as PREPs)
                                        are passive income. Passive income
                                        allocated to a Unitholder from the
                                        Partnerships may be offset by
                                        passive losses of such Unitholder.
                                      - Unitholders are taxed whether or
                                        not cash distributions are made.

Voting Rights                         - Decisions relating to the           - Stockholders are entitled to vote
                                        operation and management of the       on all material transactions and
                                        Partnerships are made by the          actions, including the election of
                                        General Partners.                     directors, amendments to the
                                      - Majority in interest of the           Charter, the determination to
                                        Unitholders may amend the             dissolve the Company, the
                                        Partnership Agreements, approve or    determination to merge the Company
                                        disapprove the sale of 75% or more    into another entity and the
                                        of the assets, dissolve the           determination to sell all or
                                        Partnerships and remove and           substantially all of the Company's
                                        replace the General Partners.         assets.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Meetings                              - No regular meetings, provided that  - Annual meetings for the election
                                        meetings may be called by the         of directors among other actions.
                                        General Partners, and meetings are  - Special meetings will be called
                                        required to be called upon written    upon the written request of the
                                        request of Unitholders holding        holders of 50% of the outstanding
                                        more than 10% of the outstanding      shares.
                                        Units.

Right to Inspect Books and Records    - Books and records must be           - Bylaws, minutes of stockholders'
                                        available for Unitholder              meetings and certain other books
                                        inspection.                           and records must be available for
                                      - Right to obtain current list of       stockholder inspection.
                                        names and addresses of partners     - Upon written request and for a
                                        and Unitholders.                      proper corporate purpose,
                                                                              stockholders shall have right to
                                                                              obtain statement showing all stock
                                                                              and securities issued by the
                                                                              Company during a specified period
                                                                              of not more than the preceding 12
                                                                              months.
                                                                            - Upon written request, stockholders
                                                                              owning more than 5% of the
                                                                              outstanding capital stock for at
                                                                              least six months shall have the
                                                                              right to inspect the Company's
                                                                              books, records and stock ledger.

Reports                               - Partnerships furnish Unitholders    - Company will mail stockholders
                                        with tax return information on        distribution information on Form
                                        complex Schedule K-1 forms in         1099-DIV in January.
                                        March or April.                     - Within 120 days after the close of
                                      - Within 120 days after the end of      each fiscal year, the Company will
                                        each fiscal year, Partnerships        furnish each stockholder with
                                        furnish Unitholders with reports      reports containing audited
                                        including audited financial           financial statements for such
                                        statements for such fiscal year.      fiscal year.
                                                                            - The Company will furnish
                                                                              stockholders with unaudited
                                                                              quarterly reports.

Liabilities                           - Under the Delaware Act, limited     - Under the MGCL, stockholders are
                                        partners are not liable for           not subject to any personal
                                        obligations of the Partnership        liability for the acts or
                                        unless deemed to be participating     obligations of the Company.
                                        in the control of the business of
                                        such partnership.

CHARACTERISTIC                            LIMITED PARTNERSHIPS (UNITS)             COMPANY (COMMON STOCK)
------------------------------------  ------------------------------------  ------------------------------------
Stock Option Plans                    - No plans pursuant to which General  - The Company will adopt the Stock
                                        Partners or their affiliates may      Option Plan pursuant to which the
                                        be granted securities or options      Advisor and the Directors,
                                        on securities in the Partnerships.    officers and employees of the
                                                                              Company may be granted options to
                                                                              purchase Common Stock.

RISKS ASSOCIATED WITH THE MERGER

ASSESSMENT OF ALTERNATIVES TO THE MERGER

As part of the assessment by the General Partners and the Special Committee of the Merger, they considered, in addition to the comparative valuation analysis, the following additional factors with regard to the analyzed alternatives:

CONTINUATION OF THE PARTNERSHIPS. In assessing the Merger, they considered the advantages and disadvantages of keeping the Partnerships intact and continuing to operate them in accordance with their respective Partnership Agreements and existing business plans. If the Partnerships were to continue in their current form, they would remain separate legal entities, with their own assets and liabilities, governed by their respective Partnership Agreements. In managing the businesses of the Partnerships, the General Partners would continue to take whatever actions they deemed were appropriate in satisfying their fiduciary obligations to the Unitholders and the Partnerships. Continuing the Partnerships without a change has a number of benefits, including (i) the Partnerships would remain separate entities, with their own assets and liabilities, and their original investment objectives, consistent with the guidelines, restrictions and safeguards in their respective Partnership Agreements; (ii) there would be no change in the nature of the Unitholders' investments; (iii) the Unitholders' investment in the Partnerships would not be exposed to the additional risks associated with the implementation and operation of the Company's new business plan compared to the Partnerships'; (iv) the Partnerships would liquidate their holdings and distribute the proceeds from such liquidation in accordance with their respective business plans; (v) the Unitholders would continue to defer certain income taxes on Partnership distributions; and (vi) the Partnerships would not incur any expenses in connection with the Merger, which are estimated to be approximately $1,660,000. In addition, continuing the Partnerships without change avoids the risks inherent in the Merger. These risks include, among others, the implementation of the Company's new business plan and investment strategy, the uncertain market value of the Common Stock, the change in distribution policies, the fundamental change in the nature of investment held by Unitholders who receive

Common Stock and the substantial conflicts of interests of the General Partners. See "RISK FACTORS-- Risks Associated with the Merger."

In an effort to maximize the value of the Unitholders' investments in the Partnerships and to enhance the capital-raising and investment flexibility of the Partnerships, the General Partners ultimately decided to take advantage of the growing acceptance of mortgage REITs in the U.S. equity markets and proceed with the Merger. The General Partners and Special Committee concluded that maintaining the Partnerships as separate entities may have the following potentially negative results when compared with the benefits that the General Partners and Special Committee perceive may be derived from the Merger: (i) limitations on growth and capital raising; (ii) limitations on new investments;
(iii) with respect to the Pension BUCs, lower liquidity of investment on a current basis due to the illiquid nature of the market for Pension BUCs; (iv) less flexibility and control in actively managing the portfolio; and (v) duplicative general and administrative expenses.

LIQUIDATION OF THE PARTNERSHIPS. Although the investment objectives and policies of the Partnerships do not contemplate the commencement of the liquidation of the portfolios of Mortgage Securities, Mortgage Loans, PREPs and other investments until 1999, in the case of Prep Fund 1, and 2000, in the case of Prep Fund 2 and Pension Fund, the General Partners and the Special Committee assessed the possibility of commencing the orderly liquidation of the Partnerships and distributing the net proceeds from such liquidation to partners. The commencement of the liquidation of the Partnerships at the present time would not have required the consent of the Unitholders even though the investment objectives and policies do not contemplate the liquidation of Prep Fund 1 for an additional two years and Prep Fund 2 and Pension Fund for an additional three years.

In a liquidation of the Partnerships, Unitholders would benefit by avoiding the risks of continuing their ownership of the Partnerships and those associated with the Merger. In addition, the Unitholders would have the potential to reinvest the net proceeds received in the liquidation in similar or different investments.

However, because the historical amount of return on capital distributions received by Unitholders (approximately $79.9 million) plus the amount that would be received by Unitholders if the Partnerships' investments were liquidated at their respective Net Asset Values (estimated to be approximately $82.6 million) would be less than the amount originally invested by such Unitholders in the Partnerships (approximately $171.2 million), the General Partners and Special Committee have determined that to attempt to liquidate the Partnerships' investments at the current time would likely result in Unitholders not achieving the full benefits from their investment in the Partnerships. See "THE PROPOSED MERGER-- Background of the Merger." The liquidation of the Partnerships would also involve certain transaction costs, such as legal fees and various other closing costs, which would further reduce the amount of net proceeds available for distribution to partners. In addition, even though the Company's business plan contemplates the realignment of its portfolio through the sale of a substantial portion of its fixed-rate assets and the acquisition of adjustable-rate Mortgage Securities and Mortgage Loans, the General Partners and the Special Committee have concluded for the reasons outlined above that, based on the comparative valuation analysis prepared by management of the General Partners, liquidation at the current time would be premature and would not provide the Unitholders with their best option to realize the optimum return on their investments in the Partnerships. As the comparative valuation analysis indicates, the estimated ranges of values of the Units assuming they are converted to shares of Common Stock in the Merger are substantially above the estimated ranges of values of the Units assuming the Partnerships were to have commenced an orderly liquidation of their investment portfolios on June 30, 1997. See "THE PROPOSED MERGER--Recommendations of the General Partners and the Special Committee; Fairness Determination."

TERMS OF THE MERGER

GENERAL

The following description of the Merger and the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the Merger Agreement, a copy of which is attached as Appendix A to this Consent Solicitation Statement/Prospectus and incorporated herein by reference. Unitholders are urged to read the Merger Agreement in its entirety. Capitalized terms used but not defined in this section shall have the meanings ascribed to them in the Merger Agreement.

EFFECTS OF THE MERGER

The Merger Agreement, which is dated as of July 29, 1997, provides that, subject to the approval of Unitholders representing a majority of outstanding Prep Fund 1 Units and outstanding Prep Fund 2 BUCs, respectively, and the satisfaction or waiver of the other conditions to the Merger, Prep Fund 1 and Prep Fund 2 will merge with and into the Company, whereupon the separate existence of Prep Fund 1 and Prep Fund 2 will cease and all the assets and liabilities of Prep Fund 1 and Prep Fund 2 will vest in the Company. On the Effective Date, the conversion of Prep Fund 1 Units and Prep Fund 2 BUCs into Common Stock pursuant to the Merger Agreement will be effected as described below. The Merger Agreement also provides that Pension Fund will participate in the Merger if approved by Unitholders representing a majority of outstanding Pension BUCs. If Pension Fund participates in the Merger, it will be merged with Partnership Merger Sub and will remain as the surviving limited partnership, the general partner of Pension Fund will be the Company and Pension BUCs, except for those held by Unitholders that retain their investments in Pension Fund through the election of the Retention Option, will be converted into Common Stock pursuant to the Merger Agreement as described below. In connection with the organization of the Company, the General Partners were issued 90,621 shares of Common Stock and will not be issued any additional shares as a result of the Merger. The Charter and the Bylaws of the Company will be as described below in "CERTAIN PROVISIONS OF MARYLAND LAW AND THE CHARTER AND BYLAWS." Following completion of the Merger, the directors and executive officers of the Company will be the individuals identified above in "MANAGEMENT OF THE COMPANY -- Directors and Executive Officers of the Company."

EFFECTIVE DATE OF THE MERGER

Following the satisfaction or waiver (where permissible) of the terms and conditions of the Merger Agreement, the Merger will be consummated and become effective on the date and at the time the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware and the Articles of Merger are duly filed with the Department of Assessments and Taxation of the State of Maryland, which filings will be made as soon as practicable following the approval of the Merger by Unitholders.

ALLOCATION OF COMMON STOCK

The number of shares to be allocated among the Partnerships in the Merger was based on the relative Net Asset Values of each such Partnership determined as of March 31, 1997. In determining the method of allocation of shares of Common Stock among the Partnerships, the General Partners also considered allocating shares based on the current trading values of the Partnerships, but concluded that an allocation based on Net Asset Value would more fairly allocate the shares among the Partnerships because Pension Fund is not publicly traded on an existing market.

"Net Asset Value" of each Partnership is equal to an amount calculated as follows:

(i) the value of the Mortgage Securities based on publicly available data relating to the trading prices of the Mortgage Securities as of March 31, 1997; plus

(ii) the value of PREPs, Equity Interests and the Participating Loans held as of March 31, 1997, adjusted to eliminate the value of assets disposed of since that date, based on the following: (A) PREPs: based on management's best estimate of the amount which would have been received under the terms of the PREP agreements if the underlying properties were sold for an amount equal to net realizable value; (B) Participating Loan:
based on management's best estimate of the net realizable value of such assets, which is based on the discounted estimated future cash flows therefrom; and (C) Equity Interests: based on management's best estimate of the net realizable value of such assets, which is based on the discounted estimated future cash flows therefrom; plus

(iii) the amount of any undistributed cash and other assets held by the Partnership as of March 31, 1997; less

(iv) the amount of the Partnership's accounts and distributions payable (including, without limitation, Partnership indebtedness and deferred fees payable to the General Partners and affiliates) as of March 31, 1997; less

(v) the amount of any mortgage notes payable by the Partnership as of March 31, 1997.

Set forth below is a table which shows the derivation of the Net Asset Values as of March 31, 1997 for each Partnership based upon the formula above:

                                                                       PREP FUND 1    PREP FUND 2   PENSION FUND
                                                                      -------------  -------------  -------------
Mortgage Securities.................................................  $  36,588,153  $  14,392,382  $   7,672,490
Real estate assets..................................................     17,522,269      1,896,859        717,695
Undistributed cash and other assets.................................      9,314,599      2,500,516      2,659,244
Accounts and distributions payable..................................       (664,642)      (256,450)      (153,361)
Mortgage notes payable..............................................     (9,590,833)            --             --
                                                                      -------------  -------------  -------------
Net Asset Value.....................................................  $  53,169,546  $  18,533,307  $  10,896,068
                                                                      -------------  -------------  -------------
                                                                      -------------  -------------  -------------

The shares of Common Stock to be allocated to each Partnership in the Merger will be reallocated among the partners in that Partnership in accordance with the terms of the Merger Agreement. The Merger Agreement provides that the General Partners will retain 1% of the shares of Common Stock outstanding following the Merger (assuming Maximum Participation). In connection with the organization of the Company, the General Partners were issued 90,621 shares of Common Stock and will not be issued any additional shares as a result of the Merger. See "THE PROPOSED MERGER -- Recommendations of the General Partners and the Special Committee; Fairness Determination."

The following table sets forth certain information (assuming Maximum Participation) relating to the initial capital contributions of Unitholders and the General Partners, the Net Asset Value of each Partnership, the number of shares

of Common Stock offered to Unitholders and the General Partners in each Partnership and the aggregate amounts of cash distributions previously paid by each Partnership to its Unitholders.

                                                                       PERCENTAGE OF      AGGREGATE NUMBER OF
                                                                         AGGREGATE       SHARES OF COMMON STOCK
                                                                         AMOUNT OF          TO BE ISSUED TO
                                                                         SHARES OF         UNITHOLDERS(1)(2)          AGGREGATE
                                                                        COMMON STOCK   --------------------------     NUMBER OF
                                  INITIAL CAPITAL                          TO BE                       ASSUMING       SHARES OF
                                   CONTRIBUTIONS                         ALLOCATED                   PENSION FUND   COMMON STOCK
                             --------------------------                IN THE MERGER     ASSUMING      DOES NOT        ISSUED
                                              GENERAL        NET          TO EACH        MAXIMUM     PARTICIPATE     TO GENERAL
PARTNERSHIP                   UNITHOLDERS    PARTNERS    ASSET VALUES   PARTNERSHIP    PARTICIPATION  IN MERGER      PARTNERS(3)
---------------------------  -------------  -----------  ------------  --------------  ------------  ------------  ---------------
Prep Fund 1................  $ 108,728,013   $     100   $ 53,169,546           64.4%    5,775,797     5,775,797         --
Prep Fund 2................     31,034,350         100     18,533,307           22.4%    2,012,336     2,012,336         --
Pension Fund...............     16,697,101         100     10,896,068           13.2%    1,183,373        --             --
                             -------------       -----   ------------  --------------  ------------  ------------
    Total..................  $ 156,459,464   $     300   $ 82,598,921          100.0%    8,971,506     7,788,133         90,621
                             -------------       -----   ------------  --------------  ------------  ------------
                             -------------       -----   ------------  --------------  ------------  ------------

                                      PER UNIT
                             ---------------------------
                                            NUMBER OF
                                            SHARES OF
                              NET ASSET    COMMON STOCK
PARTNERSHIP                     VALUE      TO BE ISSUED
---------------------------  -----------  --------------
Prep Fund 1................   $    9.21      1.00       x
Prep Fund 2................       11.63      1.262758   x
Pension Fund...............       12.03      1.306189   x
    Total..................

(1) To the extent that Unitholders of Pension BUCs elect the Retention Option, the total number of shares of Common Stock to be issued in the Merger will be reduced by the number of shares of Common Stock equal in proportion to the ratio that the Net Asset Value attributable to Pension BUCs held by Unitholders electing the Retention Option bears to the combined Net Asset Value of all the Partnerships.

(2) The number of shares of Common Stock issued to each Unitholder will be rounded to the nearest whole share.Cash payments in lieu of fractional shares will be issued, along with the initial issuance of shares of Common Stock, following the consummation of the Merger.

(3) The number of shares of Common Stock issued to the General Partners assumes Maximum Participation.To the extent that Pension Fund does not participate in the Merger, the number of shares issuable to the General Partners will be reallocated among the General Partners of Prep Fund 1 and Prep Fund 2.

CASH MERGER PAYMENT

The Merger Agreement provides that the Company will make the Cash Merger Payment, which will be paid in four equal quarterly payments of $.2650 per share of Common Stock during the first year following the Merger, to stockholders entitled to receive distributions. During the first year following the Merger, any distributions paid to stockholders by the Company out of earnings will have the effect of reducing the amount of the Cash Merger Payment so that the amount paid to stockholders during this first year will still be, in the aggregate, equal to $1.06 per share. The General Partners anticipate that the Company will fund the Cash Merger Payment, to the extent it is required to be paid to stockholders during the first year following the Merger, out of the proceeds from sales of Mortgage Securities and Mortgage Loans, short-term borrowings or existing cash reserves. The General Partners believe that the Company, with an initial unleveraged capital base of an estimated $72 million, will have the resources available to pay these payments over the one-year period following the consummation of the Merger.

Because the size of the Company's investment portfolio will be reduced in connection with the distribution of the Cash Merger Payment, the General Partners anticipate that the sale of Mortgage Securities and Mortgage Loans and the use of borrowings or reserves to fund such Cash Merger Payment will adversely affect the Company's future earnings and the payment of distributions on the Common Stock. For example, if the Company were unable to generate any earnings at all during the first year following the Merger, it would be required to sell assets valued at approximately $9.5 million in order to fund the Cash Merger Payment. As a result of the sale of such assets, the Company's investment portfolio would be reduced by approximately 13%, which in turn could diminish the Company's future earnings by approximately the same percentage. Accordingly, there is no assurance that, after the first year following the Merger, the Company will be able to generate sufficient net income to fund the payment of distributions to stockholders at a rate that will equal the Cash Merger Payment.

THE MERGER AGREEMENT

CONDITIONS TO THE MERGER. Each Partnership's participation in the Merger is subject to the affirmative vote of Unitholders representing a majority of the outstanding Units in such Partnership. Pursuant to the Merger Agreement, the Merger is also subject to the satisfaction of certain conditions, including each of the following: (i) the participation in the Merger of Prep Fund 1 and Prep Fund 2; (ii) continuing approval for listing of the Common Stock on the NYSE;
(iii) the absence of (a) any suspension of trading of, or limitation on prices for, securities generally on the NYSE, (b) a declaration of a banking moratorium by federal or state authorities or any suspension of payments by banks in the United States (whether mandatory or not) or of the extension of credit by lending institutions in the United States, or (c) in the case of any of the foregoing existing on the date of this Consent Solicitation Statement/Prospectus, any material acceleration or worsening thereof; (iv) the absence of any injunction or other legal prohibition against the Merger; (v) the effectiveness of the Registration Statement on Form S-4 to be filed under the Securities Act of which this Consent Solicitation Statement/Prospectus forms a part (the "Registration Statement") and the absence of a stop order with respect thereto; (vi) the receipt of certain legal opinions as to, among other things, the Company's status as a REIT and that the Company is not an "investment company" as defined in the Investment Company Act; (vii) the receipt of all necessary consents and approvals, on or before (and remaining in effect at) the Effective Date; and (viii) the absence of any event or any matter brought to the attention of the General Partners that, in the sole judgment of the General Partners, materially affects, whether adversely or otherwise, the Partnerships, the Company or the Merger.

The obligation of each Partnership to effect the Merger is further conditioned on the following: (i) the continuing accuracy in all material respects of the representations and warranties made by the other Partnerships in the Merger Agreement; (ii) the performance in all material respects of all agreements and covenants to be performed by the other Partnerships under the Merger Agreement; (iii) there having been no change in the other Partnerships' business, results of operations or financial condition which would have a material adverse effect on the Company; and (iv) the receipt of consents and waivers from third parties which if not obtained would have a material adverse effect on the other Partnerships or the Company. Materiality for the purpose of clauses (i), (iii) and (iv) above is defined in the Merger Agreement as events resulting in aggregate net economic losses to any of the Partnerships, the Company or the Partnership Merger Sub in excess of the greater of $1,000,000 or 5% of Net Asset Value.

TERMINATION. The Merger Agreement may be terminated prior to the Effective Date, before approval of Unitholders is obtained, as follows: (i) by mutual written consent of the Partnerships; (ii) by any of the Partnerships upon a breach of any representation or warranty on the part of Prep Fund 1 or Prep Fund 2 or the breach in any material respect of any covenant or agreement of Prep Fund 1 or Prep Fund 2 set forth in the Merger Agreement; (iii) by any Partnership (but such termination shall only be with regard to the obligations of Pension Fund under the Merger Agreement), upon a breach of any representation or warranty on the part of Pension Fund or the breach in any material respects of any covenant or agreement of Pension Fund set forth in the Merger Agreement; provided, however, that the right to cause a termination of the Merger Agreement or to cause the termination of the obligations of Pension Fund under the Merger Agreement shall not be available to any party that has breached its representations or warranties or has breached in any material respects any of its covenants or agreements under the Merger Agreement; (iv) by any of the Partnerships if the Merger shall not have been consummated before June 30, 1998;
(v) by any of the Partnerships if the approval of a majority of holders of either Prep Fund 1 Units or Prep Fund 2 BUCs is not obtained; (vi) by any of the Partnerships (but such termination shall only be with regard to the obligations of Pension Fund hereunder), if the approval of a majority in interest of the holders of Pension Fund shall not have been obtained on or prior to June 30, 1998; (vii) by any of the Partnerships if prior to the approval of the Unitholders of Prep Fund 1 or Prep Fund 2, the General Partner of either Prep Fund 1 or Prep Fund 2 or the Special Committee (acting with regard to such Partnership) shall have withdrawn or modified its approval or recommendation of the Merger or the Merger Agreement; and (viii) by any of the Partnerships (but such termination shall only be with regard to

the obligations of Pension Fund hereunder), if the General Partner of Pension Fund (or the Special Committee acting with respect to Pension Fund) shall have, in compliance with the provisions of this Agreement, withdrawn or modified its approval or recommendation of the Merger or this Agreement.

WAIVER; EXTENSION. The General Partners (with the concurrence of the Special Committee) acting on behalf of the Partnerships and the Company may, by an appropriate instrument executed at any time prior to the Effective Date, whether before or after the approvals of the Unitholders are obtained, amend, modify or waive compliance with any of the provisions of the Merger Agreement; provided that after the receipt of such approvals, no amendment, modification or waiver may be made which alters the amount or changes the form of the consideration to be delivered to the Unitholders in the Merger or that in any way, in the reasonable judgment of the General Partners, adversely affects such Unitholders unless a majority in interest of the adversely affected Unitholders consents to such amendment, modification or waiver. In the event that the Merger Agreement is amended, modified or waived, in any material respect, prior to the receipt of Unitholder approval, the General Partners will revise the relative disclosure contained in this Consent Solicitation Statement/Prospectus to reflect such amendment, modification or waiver and will promptly mail such revised Consent Solicitation Statement/Prospectus to Unitholders. The mailing of any such revised Consent Solicitation Statement/Prospectus will not affect the validity of any Consent Form already received by the Exchange Agent, but Unitholders will be permitted to revoke previously submitted Consent Forms for the period that Consent Forms may be revoked as provided under "THE CONSENT SOLICITATION -- Consent Procedures." In the event that the Merger Agreement is amended, modified or waived following the receipt of Unitholder approval, in a manner which alters the amount or changes the form of the consideration to be delivered to the Unitholders in the Merger or that in any way, in the reasonable judgment of the General Partners, adversely affects such Unitholders, the General Partners will not proceed to close the Merger unless they first revise the relative disclosure contained in this Consent Solicitation Statement/Prospectus to reflect such change and re-solicit the consent of the adversely affected Unitholders.

NO SOLICITATION. The Merger Agreement provides that each of the Partnerships shall not initiate, solicit (including by way of furnishing non-public information or assistance) any inquiries or make any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined below) or authorize or permit any of its partners, Unitholders, officers, directors or employees or any representative retained by it to take any such action, and each must notify the others in writing of all of the relevant details relating to all inquiries and proposals which it may receive relating to any of such matters. "Competing Transaction" means any of the following (other than the transactions contemplated by the Merger Agreement):
(i) any merger, consolidation, share exchange, business combination or other similar transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 30% or more of the assets of any Partnership in a single transaction or series of transactions, excluding any bona fide financing transactions which do not, individually or in the aggregate, have as a purpose or effect the sale or transfer of control of such assets; (iii) any tender offer or exchange offer for 30% or more of the outstanding Units of any Partnership or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcements of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

Notwithstanding the above-described non-solicitation provision and other provisions of the Merger Agreement, to the extent required by the fiduciary obligations of the General Partners of any of the Partnerships, as determined in good faith based on the advice of outside counsel, any of the General Partners may: (i) disclose to its Unitholders any information required by law to be disclosed, (ii) in response to an unsolicited request therefor, participate in discussions or negotiations with, or furnish information pursuant to a customary confidentiality agreement to, any person in connection with a Competing Transaction proposed by such person and (iii) approve or recommend (and, in connection therewith, withdraw or modify its approval or recommendation of the Merger) a Superior Competing Transaction (which is defined in the Merger Agreement as a bona fide proposal of a Competing

Transaction made by a third party which the applicable General Partner determines in good faith (based on the advice of its investment banking firm) to be more favorable to its Unitholders than the Merger).

EXPENSES. Each of the Partnerships shall generally bear their own expenses in connection with the Merger. Notwithstanding the foregoing, each Partnership has agreed in the Merger Agreement that if the Merger Agreement is terminated by any of the Partnerships pursuant to clauses (v) or (vii) (or clauses (vi) or
(viii) with regard to Pension Fund) described above and such Partnership (each such Partnership being referred to herein as the "Competing Transaction Partnership") shall have, on or prior to the date of such termination, received a proposal constituting a Competing Transaction that has not been offered on substantially equivalent terms (as determined in good faith by the Special Committee) to any of the other Partnerships (each such other Partnership being referred to herein as an "Excluded Partnership"), then the Competing Transaction Partnerships agree to reimburse each Excluded Partnership for the Excluded Partnership's share of the out-of-pocket expenses incurred in connection with the Merger Agreement and the other transactions contemplated thereby (including, without limitation, all attorneys', accountants' and investment banking fees and expenses), plus any expenses incurred in enforcing the provisions of the obligations thereunder.

CONDUCT OF THE PARTNERSHIPS' BUSINESSES PENDING COMPLETION OF THE MERGER.

COVENANTS OF THE PARTNERSHIPS. The Merger Agreement provides that, except as contemplated by the Merger Agreement, during the period from the date of the Merger Agreement to the Effective Date, each of the Partnerships: (i) will carry on its business in the usual, regular and ordinary course, substantially in the same manner as previously conducted and, to the extent consistent therewith, use commercially reasonable efforts to preserve intact its current business organization, goodwill, ongoing businesses and status as a partnership for purposes of taxation and (ii) will not (A) split, combine or reclassify any of its Units or partnership interests, or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for Units or partnership interests or purchase, redeem or otherwise acquire any Units or partnership interests; (B) issue, deliver or sell, or grant any option or other right in respect of, any Units or partnership interests, any other voting or redeemable securities of or any securities convertible into, or any rights, warrants or options to acquire, any such Units, except to the respective Partnership or any subsidiary; (C) amend its Partnership Agreement; (D) cause itself or any of its subsidiaries to merge or consolidate with any person; (E) make any tax election (unless required by law or necessary to preserve the respective Partnership's status as a partnership); or (F) except as required by GAAP, the Commission or applicable law, change in any material manner any of its methods, principles or practices of accounting.

CERTAIN ADDITIONAL COVENANTS. The Merger Agreement provides that each of the Partnerships will (i) not take any action that would cause its representations and warranties to become untrue or any conditions to closing not be satisfied; (ii) cooperate with one another in preparing, responding to the Commission in respect of, and causing to be mailed to Unitholders this Consent Solicitation Statement/ Prospectus and the Registration Statement in which it is included; (iii) use its best efforts to cause the conditions precedent to the Merger to become satisfied and to cause the expeditious consummation of the Merger, including (A) making governmental filings and taking all reasonable steps to obtain required governmental consents and approvals, (B) obtaining necessary non-governmental third-party consents, and (C) defending legal proceedings challenging the Merger or the Merger Agreement except that none of the parties to the Merger Agreement is required to take any such action that would cause a court or administrative order to be issued restraining consummation of the Merger; (iv) provide prompt notice to the other parties to the Merger Agreement of breaches by it of representations, warranties or covenants in the Merger Agreement; (v) consult with one another prior to making any public statements regarding the Merger; (vi) use its best efforts to have the NYSE approve for listing, upon official notice of issuance, the Common Stock to be issued in the Merger; and (vii) comply with certain other customary covenants.

INDEMNIFICATION. Each Partnership will and, from and after the Effective Date, the Company will, indemnify, defend and hold harmless each person who is now or has been at any time prior to the date of

the Merger Agreement or who becomes prior to the Effective Date, a General Partner or an affiliate of such General Partner of such Partnership against all losses, claims, damages, costs, expenses (including attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement of, with the approval of the indemnifying party (which approval shall not be unreasonably withheld), or otherwise in connection with any threatened or actual claim, action, suit, proceeding or investigation based on or arising out of the fact that such person is or was a General Partner or an affiliate of such General Partner of such Partnership at or prior to the Effective Date, whether asserted or claimed prior to, or at or after, the Effective Date ("Partnership Indemnified Liabilities"), including all Partnership Indemnified Liabilities based on, or arising out of, or pertaining to the Merger Agreement, in each case to the full extent permitted by applicable law (and such Partnership or the Company, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each such indemnified party to the full extent permitted by its respective Partnership Agreement or law, as the case may be, subject to limitations set forth in the Merger Agreement).

REPRESENTATIONS AND WARRANTIES. The Merger Agreement contains various representations and warranties relating to, among other things: (i) the due organization, power and standing of the Partnerships and similar corporate matters; (ii) the capital structure of the Partnerships; (iii) the authorization, execution, delivery and enforceability of the Merger Agreement;
(iv) conflicts under the Partnership Agreements or other organizational documents of the Partnerships, violations of any instruments or law and required consents or approvals; (v) certain documents filed by each of the Partnerships with the Commission and the accuracy of information contained therein; (vi) conduct of business in the ordinary course and the absence of certain changes or events; (vii) litigation; (viii) brokers' and finders' fees with respect to the Merger; (ix) compliance with laws; (x) contracts and indebtedness; (xi) tangible property and assets; (xii) books and records; (xiii) the accuracy of the information furnished for inclusion in the Registration Statement; and (xiv) the vote required to approve the Merger.

CONSEQUENCES IF MERGER NOT COMPLETED

If the Merger is not consummated for any reason, the Partnerships intend to continue to operate as ongoing businesses in their current forms. There will be no change in their investment objectives, policies or restrictions. No other transaction is currently being considered by the General Partners with respect to the Partnerships as an alternative to the Merger, although the Partnerships may from time to time explore other alternatives.

ACCOUNTING TREATMENT

The Merger will be accounted for using the purchase method of accounting in accordance with GAAP. Assuming Maximum Participation, Prep Fund 1 will be deemed to the be the acquirer of the other Partnerships under the purchase method because its Unitholders will be allocated the largest number of shares of Common Stock in the Merger. Accordingly, the Merger will result, for financial accounting purposes, in the effective purchase by Prep Fund 1 of all the Units of Prep Fund 2 and Pension Fund. As the surviving entity for financial accounting purposes, the assets and liabilities of Prep Fund 1 will be recorded by the Company at their historical cost and the assets and liabilities of Prep Fund 2 and Pension Fund will be adjusted to fair value.

FEES AND EXPENSES

All costs and expenses incurred in connection with the Merger will be paid by the Partnerships (pro rata in accordance with their aggregate Net Asset Values), whether or not the Merger is consummated. If,

however, the Merger is consummated, the Company will be allocated the entire amount of these costs. The following is an estimate of such expenses.

Financial Advisor Fees and Expenses.....................................  $ 400,000
Registration, Listing and Filing Fees...................................    100,000
Legal Fees..............................................................    325,000
Fairness Opinion........................................................    475,000
Accounting Fees and Expenses............................................     25,000
Solicitation Fees and Expenses..........................................     35,000
Printing and Engraving Expenses.........................................    150,000
Postage.................................................................     40,000
Miscellaneous...........................................................    110,000
                                                                          ---------
    Total...............................................................  $1,660,000
                                                                          ---------
                                                                          ---------

DELIVERY OF THE CERTIFICATES FOR UNITS

Promptly after the Effective Date of the Merger, the Exchange Agent shall mail to each Unitholder of record holding certificates representing Units that were converted into the right to receive shares of Common Stock as of the Effective Date ("Unit Certificates"), a letter of transmittal (a "Letter of Transmittal") (which shall specify that delivery shall be effected, and risk of loss and title to the Unit Certificates shall pass, only upon delivery of the Unit Certificates to the Exchange Agent) containing instructions for use in effecting the surrender of the Unit Certificates in exchange for the shares of Common Stock.

Upon the surrender of any Unit Certificates to the Exchange Agent in connection with the Merger, by any holder thereof, together with a duly completed and executed Letter of Transmittal, such holder will be issued and mailed a certificate representing the number of shares of Common Stock and any dividends or other distributions to which such holder is entitled as described above. From and after the Effective Date of the Merger, each Unit Certificate will evidence only the right to receive Common Stock, except those Unit Certificates held by Unitholders of Pension Fund electing the Retention Option which will continue to represent Pension BUCs.

UNITHOLDERS SHOULD NOT SEND ANY CERTIFICATES WITH THE ENCLOSED CONSENT FORM. THEY SHOULD RETAIN SUCH CERTIFICATES UNTIL THEIR RECEIPT OF THE LETTER OF TRANSMITTAL AFTER THE EFFECTIVE DATE OF THE MERGER.

All shares of Common Stock shall be issued upon the surrender of Unit Certificates and there shall be no further registration of transfers on the transfer books of the Partnerships of Units which were outstanding immediately prior to the Effective Date, except that certificates representing Pension BUCs held by Unitholders electing the Retention Option may be transferred and such transfer may be recorded on the transfer book of Pension Fund. The cash payments to be made in lieu of fractional shares of Common Stock shall be made as soon as practicable after the Exchange Agent determines the aggregate amount of cash available to make such payments. If, after the Effective Date, Unit Certificates are presented to the Company for any reason, they shall be cancelled and exchanged. No interest will be paid or accrued on the shares of Common Stock. No Unitholder will be entitled to distributions or other rights in respect of any fractional interest other than cash in lieu of fractional shares of Common Stock to which any Unitholder may be entitled.

The Company or the Exchange Agent shall be entitled to deduct and withhold from the shares of Common Stock otherwise payable pursuant to the Merger Agreement to any Unitholder such amounts as the Company or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Company or the Exchange Agent, such withheld amounts shall be treated for all

purposes as having been paid to the Unitholder in respect of which such deduction and withholding was made by the Company or the Exchange Agent.

In the event of a transfer of ownership of Unit Certificates which is not registered in the transfer records of the appropriate Partnership, payment may be made to a person other than the person in whose name the Unit Certificate so surrendered is registered if such Unit Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment either shall pay any transfer or other taxes required by reason of such payment being made to a person other than the registered holder of such Unit Certificate or establish to the satisfaction of the Company that such tax or taxes have been paid or are not applicable.

None of the Company, the Partnerships, Partnership Merger Sub or the Exchange Agent shall be liable to any person in respect of any shares of Common Stock delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Any portion of the shares of Common Stock delivered to the Exchange Agent that remains unclaimed for six months after the Effective Date shall be redelivered by the Exchange Agent to the Company, upon demand, and any holders of certificates who have not theretofore complied with the exchange procedure described above and in the Letter of Transmittal shall thereafter look only to the Company for delivery of the shares of Common Stock, subject to applicable abandoned property, escheat and other similar laws.

Shares of Common Stock to be issued to Unitholders in connection with the Merger will be freely transferable under the Securities Act, except for shares issued to any person who may be deemed to be an "affiliate" of the Partnerships or the Company within the meaning of Rule 144 or Rule 145 under the Securities Act. It is expected that such affiliates of the Partnerships or the Company will be able to sell such shares without registration in accordance with the applicable limitations of Rules 144 and 145 under the Securities Act.

DISSENTERS' RIGHT OF APPRAISAL

Under the Delaware Act, Unitholders will have no appraisal, dissenters' or similar rights in connection with the Merger. Therefore, Unitholders will not be entitled to receive cash payment in exchange for the fair value of their Units if they do not vote in favor of the Merger and the Merger is approved and consummated. Instead, holders of Prep Fund 1 Units will be able to sell their Units on the NASDAQ, holders of Prep Fund 2 BUCs will be able to sell their Units on the AMEX, and holders of Pension BUCs will be able to retain their Pension BUCs and their investment in Pension Fund or sell their Pension BUCs in the secondary market.

RETENTION OPTION

Pension Fund will be merged with and into the Partnership Merger Sub, and, upon completion of the Merger, will remain as the surviving limited partnership. The General Partner of Pension Fund will become a wholly owned subsidiary of the Company. The Unitholders in Pension Fund will exchange their Units for an aggregate maximum of 1,183,373 shares of Common Stock in the Company at the rate of approximately 1.31 shares of Common Stock per Unit. However, Unitholders in Pension Fund will be given the opportunity to elect the Retention Option, whereby those Unitholders in Pension Fund making such election would remain as Unitholders in Pension Fund, in lieu of receiving shares of Common Stock of the Company, by retaining the same security that was originally issued to, or subsequently acquired by, such Unitholder. In order to elect the Retention Option, Unitholders in Pension Fund must properly complete, sign and return a Retention Option Form, in accordance with the procedures set forth herein under "THE CONSENT SOLICITATION -- Exercise of the Retention Option." If a Unitholder in Pension Fund fails to properly complete, sign and return a Retention Option Form and Pension Fund participates in the Merger, such Unitholder will receive shares of Common Stock in connection with the Merger.

In providing for the Retention Option, the General Partners wanted to be responsive to those Unitholders in Pension Fund who might not want to modify their current investment in Pension Fund. As explained in the following discussion, following the Merger, the investments of Unitholders who elect the Retention Option will remain substantially unchanged.

OWNERSHIP. Following the Merger, the owners of Pension Fund will consist of the Company and the Unitholders in Pension Fund that elect the Retention Option. These owners will, in accordance with their percentage interests in Pension Fund, jointly derive economic benefits from Pension Fund's existing assets.

GOVERNING AGREEMENTS. Following the Merger, Pension Fund will continue to be a "finite-life" Delaware limited partnership governed by, and operated in accordance with, its Agreement of Limited Partnership, dated as of May 25, 1988, as amended by an Amendment to the Agreement of Limited Partnership, dated June 8, 1988.

MANAGEMENT. Following the Merger, America First Capital Associates Limited Partnership Six, a Delaware limited partnership, will continue to be the General Partner of Pension Fund. However, in connection with the Merger, America First Capital Associates Limited Partnership Six will be acquired by the Company and will no longer be an indirect subsidiary of America First. Although being acquired by the Company, the General Partner of Pension Fund will continue to manage the affairs of Pension Fund. In accordance with Pension Fund's existing business plans and investment policies, the General Partner will continue to emphasize providing Unitholders in Pension Fund with safety and preservation of capital and regular cash distributions. Further, Unitholders will continue to be entitled to vote on matters related to Pension Fund only as provided by its Partnership Agreement or the Delaware Act and decisions relating to the operation and management of the Partnership will continue to be made by the General Partner. Under Pension Fund's Partnership Agreement, Unitholders will continue to have voting rights only with respect to four specific areas: (i) the amendment of the Partnership Agreement; (ii) the approval or disapproval of the sale or other disposition of 75% or more of the assets of Pension Fund; (iii) the dissolution of Pension Fund; or (iv) the removal and replacement of the General Partner. Further, due to the potential conflicts of interest that may exist between the General Partner, which will be owned by the Company following the Merger, and Unitholders who elect the Retention Option, the General Partner will not, following the Merger, modify any of the investment objectives or policies of Pension Fund unless such modification is approved by a majority in interest of Unitholders electing the Retention Option. Even if the Merger were not to occur, conflicts interest would still exist between the General Partner on the one hand, which is owned by America First, and Unitholders on the other hand.

ALLOCATION OF NET PROFITS AND NET LOSSES AND PAYMENT OF

DISTRIBUTIONS. Following the Merger, Unitholders in Pension Fund will continue to be allocated net income and net loss in accordance with the existing provisions of its Partnership Agreement and will continue to receive distributions on a monthly basis. Such distributions will not be fixed in amount and will depend solely upon Pension Fund's operating results and sale, refinancing or mortgage payment proceeds. A portion of such distributions will continue to be made out of earnings and profits, while the balance will represent return of capital.

INVESTMENT AND FINANCING POLICIES. Following the Merger, Pension Fund will continue to hold its existing unleveraged portfolio of fixed-rate Mortgage Securities and other related assets. Upon consummation of the Merger, Pension Fund's portfolio will not be integrated with the assets acquired by the Company in the Merger from Prep Fund 1 and Prep Fund 2, but will continue to be held by Pension Fund. The Company, as an owner of some portion of the equity in Pension Fund, will derive benefits from its share of Pension Fund assets. Pursuant to its Partnership Agreement, Pension Fund will not be able to (i) borrow funds to purchase additional assets nor will Pension Fund's assets be pledged as collateral for the Company's borrowings, (ii) issue additional equity to raise capital or (iii) reinvest the proceeds from the sale of any of its assets. Rather, in the ordinary course of business, as Pension Fund's assets are liquidated, the proceeds from sales of its assets will be distributed to Unitholders electing the Retention Option and the Company in accordance with their relative percentage interests in Pension Fund.

LIQUIDITY. Following the Merger, Pension BUC's will continue to be freely transferable, except that pursuant to the Partnership Agreement (i) transfers must be recorded on the books of Pension Fund and will require the presentation of a properly executed transfer application certificate, (ii) the General Partner of Pension Fund may defer any transfers that would cause more than 45% of the Pension BUCs to be transferred within the previous 12 months in order to preserve the status of Pension Fund for federal income tax purposes and (iii) the General Partner of Pension Fund may impose further restrictions on the transfer of Pension BUCs in order to prevent Pension Fund from being classified as a "publicly traded partnership" for purposes of federal income taxation. In addition, following the Merger, Pension BUCs will continue not to be listed or traded on a securities exchange or other established trading market. It is not possible to predict with any certainty how the trading in Pension BUC's will be affected by the Merger. However, since the organization of Pension Fund, only 3.17% of Pension BUC's have been transferred, suggesting that under current circumstances, Unitholders in Pension Fund do not enjoy any significant liquidity in their investments.

TERM OF EXISTENCE. Pension Fund was organized with the intention to liquidate its investments and then to distribute the proceeds from such liquidation to Unitholders in Pension Fund generally within 12 years of purchase (i.e., by the year 2000), subject to the right of the General Partner to extend the date of liquidation to December 31, 2017. To the extent that the complete liquidation of Pension Fund has not been completed by the end of the year 2000, the Company has agreed to cause the redemption of Pension BUCs held by Unitholders electing the Retention Option, effective as of December 31, 2000 (the "Redemption Date"). The redemption of the Pension BUCs will be effected at their net asset value. For this purpose, net asset value will be equal to (i) the sum of (A) the value of Mortgage Securities held by Pension Fund as of the Redemption Date, which will be based on publicly available data relating to the trading prices of the Mortgage Securities; (B) the appraised value of the PREPs held by Pension Fund as of the Redemption Date, which will be based on an independent appraisal of such assets arranged by the Company; and (C) the amount of any undistributed cash and other assets held by Pension Fund as of the Redemption Date; less (ii) the sum of (A) the amount of Pension Fund's accounts and distributions payable (including, without limitation, indebtedness and deferred fees payable to the General Partners and affiliates) as of the Redemption Date; and (B) the amount of any mortgage notes payable by Pension Fund as of the Redemption Date. The determination of net asset value and the selection of the independent appraisers will be approved by the independent directors of the Company.

FEES AND EXPENSES; ALLOCATION OF EXPENSES. Following the Merger, Pension Fund will continue to reimburse its General Partner for costs and expenses incurred by the General Partner in connection with its operations. The amount payable by Pension Fund will not exceed the amount payable by Pension Fund for reimbursements to the General Partner over the last full calendar year following the closing of the Merger. Following the Merger, the fee structure of Pension Fund will also not be changed.

RISKS OF LOSS OR BANKRUPTCY. Upon consummation of the Merger, the risks of loss and bankruptcy, and the insulation from such risks, for Pension Fund and its Unitholders will be the same as it was prior to the Merger. Because the assets of Pension Fund will be segregated from those of Prep Fund 1 and Prep Fund 2 and the investment and financing policies of Pension Fund will remain constant, Unitholders in Pension Fund will not bear any of the additional risks which may be associated with the implementation of the Company's new business plan.

THE CONSENT SOLICITATION

INTRODUCTION

This Consent Solicitation Statement/Prospectus is accompanied by a separate Consent Form which is being solicited by the General Partners in connection with an action by written consent of the Unitholders to approve the Merger to be taken on or about March 31, 1998, or at any time after the required approval of Unitholders is received. The mailing of this Consent Solicitation Statement/Prospectus to Unitholders commenced on or about February 27, 1998.

RESPONSE DATE

In order to be counted in the vote on the Merger, the Consent Form must be completed, dated, signed by a Unitholder and received by the Exchange Agent by 5:00 PM, local time, on March 31, 1998. The General Partners may, however, extend the solicitation period, one or more times, for any reason, including where a number of votes sufficient to consummate the Merger has not been received by such date. All Consent Forms should be mailed to the Exchange Agent, at 110 Wall Street, New York, New York 10005, Attention: Tracy Isola.

RECORD DATE AND VOTE REQUIRED

The General Partners have fixed the close of business on February 25, 1998 as the Record Date for determining the Unitholders entitled to vote on the Merger.

Each Unit entitles the holder thereof to one vote. The Merger will require the approval of Unitholders representing a majority in interest of outstanding Prep Fund 1 Units and of Prep Fund 2 Units, or 2,887,899 of the 5,775,797 Prep Fund 1 Units outstanding on the Record Date and 796,802 of the 1,593,604 Prep Fund 2 BUCs outstanding on the Record Date. Unitholders representing a majority in interest of outstanding Pension BUCs, or 452,987 of 905,974 Pension BUCs outstanding on the Record Date, will be required for Pension Fund to participate in the Merger.

CONSENT PROCEDURES

A Consent Form which is properly completed, dated, signed and returned will be deemed to constitute a consent to the Merger unless the Consent Form is marked to the contrary. Each Unitholder must either consent to, deny consent to or abstain from consenting to the Merger with respect to all of such Unitholder's Units in a particular Partnership. The failure to return a Consent Form has the effect of, and is the equivalent to, abstaining from consenting to the Merger. Abstentions and broker non-votes (if any) will have the same effect as denying consent to the Merger. The General Partners and the Company shall be entitled to rely on the completed and signed Consent Forms and shall not be liable to Unitholders for any acts undertaken in accordance with such Consent Forms' instructions and/or directions; PROVIDED, HOWEVER, such acts were undertaken in good faith, with such care as a prudent person would use under similar circumstances. If a Unitholder executes a Consent Form with no instructions indicated thereon, Units represented by such Consent Form will be voted in favor of the Merger. A Unitholder who holds Units in more than one Partnership may elect differently as to each Partnership's participation in the Merger. Each Consent Form will be valid for 11 months from its date of execution. If the Consent Forms expire prior to the completion of the Merger, the Merger will not be consummated.

A Consent Form may be withdrawn or revoked by the Unitholder submitting it by providing written notice of such withdrawal or revocation to the Exchange Agent or by submitting a Consent Form having a later date. A written statement by the Unitholder which affirmatively withdraws or revokes such Unitholder's Consent Form and includes such Unitholder's signature shall constitute an effective written notice of withdrawal or revocation. A Consent Form may be withdrawn or revoked at any time until the later of (i) the Response Date or
(ii) the receipt by the Exchange Agent of consents to the Merger from

Unitholders owning a majority of the outstanding Units in such Partnership. Written notice of withdrawal or revocation of a Consent Form by a Unitholder should be mailed to the Exchange Agent at 110 Wall Street, New York, New York 10005, Attention: Tracy Isola.

Delivery of a Consent Form is at the risk of a Unitholder. The Consent Form will be effective only when it is actually received by the Exchange Agent. A self-addressed, postage-prepaid envelope to be used in returning completed Consent Forms has been included with this Consent Solicitation Statement/ Prospectus.

The Exchange Agent will be exclusively responsible for the tabulation of the Consent Forms received from Unitholders with regard to the Merger. Upon the written request of a Unitholder, or his duly authorized representative who has been so designated in writing, the Exchange Agent will promptly furnish to such person the most current available tabulation of the results of the solicitation relating to the Merger.

Consents to the Merger are being solicited from Unitholders by the General Partners. Employees or other representatives of affiliates of the General Partners, including America First, may solicit consents to the Merger by use of the mails, in person, or by telephone, telegram, or other means. Certain of those employees may be engaged solely for the purpose of participating in the solicitation of consents, but none of the compensation paid to any of such employees will be contingent on the outcome of their solicitation efforts or the approval of the Merger. The General Partners have retained the Exchange Agent to assist in the solicitation of consents. Brokerage house nominees, custodians and fiduciaries will be requested to forward soliciting materials to beneficial owners of Units held of record by them and the Partnerships will reimburse such persons for their reasonable expenses in doing so. In addition, representatives of the General Partners may meet with brokers, financial analysts and other members of the investment community to discuss the Merger.

EXERCISE OF THE RETENTION OPTION

A Unitholder holding Pension BUCs seeking to exercise the Retention Option must elect to retain its Pension BUCs by properly completing, signing and returning a Retention Option Form to the Exchange Agent no later than the Response Date. The failure of a Unitholder to comply with the procedure described above will have the effect of, and is equivalent to, affirmatively waiving such Unitholder's right to elect the Retention Option.

If the Merger is consummated, a Unitholder who votes against the Merger but does not elect the Retention Option will receive shares of Common Stock in the Company. A Unitholder who votes against the Merger is not required to elect the Retention Option. The Retention Option Form should only be executed and completed by Unitholders who wish to retain their investment in Pension Fund in the form of Pension BUCs.

Election of the Retention Option is at the risk of the electing Unitholder. Election of the Retention Option will be effective only when the Retention Option Form on which it is elected is actually received by the Exchange Agent. Election of the Retention Option may be revoked or withdrawn by written notice to the Exchange Agent at any time prior to the closing date of the Merger.

EFFECT OF CONSENT

A consent by a Unitholder to the Merger with respect to a Partnership in which such Unitholder holds Units will constitute such Unitholder's consent to the following: (i) the entering into and execution of the Merger Agreement by the General Partner on behalf of such Partnership; (ii) the merger of such Partnership with the Company or, in the case of Pension Fund, the merger with and into the Partnership Merger Sub in accordance with the terms of the Merger Agreement; and (iii) the taking of any action by the General Partner of such Partnership, necessary or advisable in the opinion of the General Partner, to

consummate the Merger, including all transactions set forth in this Consent Solicitation Statement/ Prospectus.

SOLICITATION EXPENSES

The Partnerships will bear the expenses of their respective consent solicitations including the cost of preparing and mailing the Consent Solicitation Statement/Prospectus, Consent Form and Retention Option Form. The Exchange Agent will be paid a fee of $10,000 plus out-of-pocket expenses for its engagement in connection with the Merger. The General Partners anticipate that the cost of the consent solicitation, in aggregate, will not exceed $35,000. In addition to the mails, the Consent Solicitation Statement/Prospectus, Consent Form and Retention Option Form may be sent and received by telegram, cablegram, datagram or other electronic transmission.

THE GENERAL PARTNERS AND THE SPECIAL COMMITTEE RECOMMEND VOTING FOR THE MERGER. EACH UNITHOLDER MUST MAKE A DETERMINATION BASED UPON SUCH UNITHOLDER'S PERSONAL SITUATION, AND SUCH DECISION SHOULD BE BASED UPON A CAREFUL EXAMINATION OF THE UNITHOLDER'S PERSONAL FINANCES, INVESTMENT OBJECTIVES, LIQUIDITY NEEDS, TAX SITUATION AND EXPECTATIONS AS TO THE COMPANY'S FUTURE GROWTH. UNITHOLDERS SHOULD NOT SEND ANY UNIT CERTIFICATES WITH THEIR CONSENT FORMS.

UNITHOLDERS RECEIVING SHARES OF COMMON STOCK AS A RESULT OF THE MERGER WILL EXCHANGE A FINITE-LIFE INVESTMENT FOR AN INFINITE-LIFE INVESTMENT IN AN ENTITY WITH THE FLEXIBILITY TO REINVEST ASSETS AND TAKE ADVANTAGE OF OPPORTUNITIES AS THEY ARE PRESENTED.

FOLLOWING THE MERGER, STOCKHOLDERS WILL VOTE ANNUALLY ON THE ELECTION OF DIRECTORS, WHILE UNITHOLDERS DO NOT VOTE ANNUALLY ON THE ELECTION OF THE GENERAL PARTNERS. THE ADVISOR WILL MANAGE THE DAY-TO-DAY OPERATIONS OF THE COMPANY. THE RIGHTS OF STOCKHOLDERS AGAINST MANAGEMENT OF THE COMPANY IN CERTAIN CIRCUMSTANCES ARE MORE LIMITED THAN THE RIGHTS OF UNITHOLDERS AGAINST THE GENERAL PARTNERS.

FEES AND EXPENSES

UNITHOLDERS. The Partnerships reimburse the General Partners for costs and expenses incurred in connection with the operation of the Partnerships including, among other things, reimbursable salaries and benefits, investor services and custodial fees, professional fees and expenses, insurance registration fees, report preparation and distribution, consulting and travel expenses, telephone expenses and other expenses.

In addition, the General Partners are entitled to administrative fees payable by the Partnerships to the extent not paid by the owners of the underlying properties in an amount equal to .35% per annum of the outstanding principal amount of investments. For the calendar years 1994, 1995, 1996 and the nine months ended September 30, 1997, the Partnerships paid administrative fees to the General Partners totalling $259,101, $288,278, $258,443 and $192,493, respectively, and property owners paid administrative fees to the General Partners totalling $57,879, $41,593, $81,482 and $29,997, respectively. In addition, the General Partner of Prep Fund 1 received administrative fees of $88,780 during 1997 in conjunction with the repayment of the Jackson Park Place Participating Loan.

General Partners or their affiliates may also be entitled to property management fees in the event a Partnership takes over active management of a property. For the calendar years 1994, 1995, 1996 and the nine months ended September 30, 1997, property owners paid property management fees to an affiliate of the General Partners of $133,862, $267,702, $314,246, and $264,352, respectively.

STOCKHOLDERS. The Company shall pay all of its expenses including the cost of equipment and shall reimburse the Advisor for documented expenses of the Advisor incurred on its behalf. Notwithstanding the

foregoing, the Advisor shall be responsible for paying compensation of the Company's officers and other personnel required for the Company's day-to-day operations. For the first full fiscal year following the Merger, it is anticipated that the operating expenses of the Company, including rent and other overhead expenses but excluding salaries and benefits expected to be paid to the Company's directors, executive officers and employees by the Advisor will amount to approximately $2,127,000.

The Advisor will receive a per annum base management fee payable monthly in arrears in an amount equal to 1.1% of the first $300 million of the Stockholders' Equity, plus .80% of the portion of the Stockholders' Equity of the Company above $300 million. The Company will also pay 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 of the Company 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%. The Advisor shall reserve a portion of any incentive compensation paid by the Company for distributions as bonuses to its employees in amounts to be determined by its board of directors.

FOLLOWING THE MERGER, THE COMPANY WILL OPERATE MORE EFFICIENTLY THAN THE PARTNERSHIPS. THE GENERAL PARTNERS CONSIDER A COMPARISON OF THE EFFICIENCY RATIO (I.E., OPERATIONAL EXPENSES DIVIDED BY THE SUM OF NET INTEREST INCOME PLUS NON-INTEREST INCOME) OF THE COMPANY, WHICH MEASURES THE COST INCURRED TO PRODUCE EARNINGS FOR A GIVEN PERIOD, TO THAT OF THE PARTNERSHIPS ON A COMBINED BASIS TO BE AN APPROPRIATE MEANS OF ASSESSING THE RELATIVE OPERATIONAL EFFICIENCIES OF THE COMPANY AND THE PARTNERSHIPS. PRIMARILY AS A RESULT OF THE INCREASED EARNINGS EXPECTED TO BE GENERATED BY THE COMPANY AS COMPARED TO THE PARTNERSHIPS ON A COMBINED BASIS, THE REALIGNMENT OF THE COMPANY'S PORTFOLIO IN ACCORDANCE WITH ITS BUSINESS PLAN AND THE CHANGES RELATING TO THE PAYMENT OF COMPENSATION AND EXPENSE REIMBURSEMENTS UNDER THE ADVISORY AGREEMENT AS COMPARED TO THE PAYMENT OF COMPENSATION AND EXPENSE REIMBURSEMENTS UNDER THE PARTNERSHIP AGREEMENTS, THE EFFICIENCY RATIO OF THE COMPANY IS EXPECTED TO BE 18.9% FOR THE SECOND YEAR OF OPERATIONS FOLLOWING THE CLOSING OF THE MERGER AS COMPARED TO THE EFFICIENCY RATIO OF THE PARTNERSHIPS ON A COMBINED BASIS OF 24.2%, 20.7% AND 18.1% FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994, RESPECTIVELY.

ADDITIONAL EQUITY SECURITIES FOLLOWING THE MERGER.

POTENTIAL DILUTION OF PAYMENT RIGHTS

UNITHOLDERS. Since the Partnerships are not authorized to issue additional equity securities, there can be no dilution of distributions to Unitholders.

STOCKHOLDERS. The Board of Directors will be authorized to issue additional shares of Common Stock or preferred stock, beyond the shares to be issued upon completion of the Merger. The issuance of such additional shares may result in the dilution of the interests of the stockholders in distributions of the Company.

UNLIKE THE PARTNERSHIPS, THE BOARD OF DIRECTORS WILL BE AUTHORIZED TO ISSUE ADDITIONAL EQUITY SECURITIES WHICH MAY DILUTE THE PAYMENT RIGHTS OF STOCKHOLDERS.

POTENTIAL REDEMPTION OR REPURCHASE

UNITHOLDERS. The General Partners of the Partnerships may set aside funds in the Partnership's reserve account in order to repurchase Units in open market transactions, provided that Units so purchase are retired.

STOCKHOLDERS. The Board of Directors may, at its sole discretion, determine to repurchase shares from time to time out of surplus funds, if any, to further the business objectives of the Company.

THE PARTNERSHIPS MAY REPURCHASE THEIR RESPECTIVE UNITS IN OPEN MARKET TRANSACTIONS. THE COMPANY WILL BE ABLE TO REPURCHASE SHARES OF COMMON STOCK TO FURTHER THE BUSINESS OBJECTIVES OF THE COMPANY.

LIQUIDITY AND TRANSFERABILITY

UNITHOLDERS. Prep Fund 1 Units are currently included for quotation on the NASDAQ and the Prep Fund 2 BUCs are listed on the AMEX. The Pension BUCs are not currently traded, although limited transfers of such Units are effected from time to time through an informal secondary market. The Units are freely transferable, except that pursuant to the Partnership Agreements (i) transfers must be recorded on the books of the respective Partnership and the Partnerships may require presentation of evidence of transfers (in the case of Pension Fund, a transfer requires presentation of a properly executed transfer application certificate), (ii) the General Partners may defer any transfers that would cause more than 45% of the Units of the respective partnership to be transferred within the previous 12 months in order to preserve the status of the Partnerships for federal income purposes, and (iii) the General Partner of Pension Fund may impose further restrictions on the transfer of Pension BUCs in order to prevent Pension Fund from being classified as a "publicly traded partnership" for purposes of federal income taxation. Additionally, the securities laws of some states create investor suitability requirements which potential transferees must satisfy.

STOCKHOLDERS. The shares of Common Stock will be listed on the NYSE and will be freely tradeable. For the Company to qualify as a REIT under the Code, during the last half of a taxable year, not more than 50% of its outstanding Common Stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the Code to include certain entities) and the Common Stock must be beneficially owned by 100 or more persons during at least 335 days of a taxable year of 12 months or during a proportionate part of a shorter taxable year.

FOLLOWING THE MERGER, THE LISTING OF THE SHARES OF COMMON STOCK ON THE NYSE AND THE COMPANY'S LARGER EQUITY MARKET CAPITALIZATION AND GROWTH STRATEGY SHOULD ENHANCE THE LIQUIDITY OF THE SHARES OF COMMON STOCK HELD BY UNITHOLDERS IN ALL OF THE PARTNERSHIPS AND IN PARTICULAR FOR HOLDERS OF PENSION BUCS.

ANTI-TAKEOVER PROVISIONS

UNITHOLDERS. The Partnership Agreements contain the following provisions which could have the effect of delaying, deferring or preventing a transaction or a change in control of the Partnerships that might involve a premium price for Units or otherwise be in the best interest of Unitholders: (i) the General Partners are not regularly elected by, and can only be removed upon the vote of a majority in interest of, Unitholders; and (ii) while the Units are generally freely transferable, they are subject to certain restrictions. See "--Liquidity and Transferability" above.

STOCKHOLDERS. The Charter and Bylaws contain the following provisions which could have the effect of delaying, deferring or preventing a transaction or a change of control of the Company that might involve a premium price for shares or otherwise be in the best interest of stockholders: (i) the Ownership Limit;

(ii) a staggered Board of Directors; (iii) removal of directors only for cause and upon vote of 80% of capital stock entitled to vote in director elections;
(iv) authorization of Board of Directors to classify and reclassify any authorized but unissued capital stock; and (v) a vote of 80% of the capital stock entitled to vote in director elections to amend the Bylaws and certain provisions of the Charter. Furthermore, the "business combinations" and "control share" provisions of the MGCL could have similar effects.

CERTAIN PROVISIONS OF THE ORGANIZATIONAL DOCUMENTS OF THE PARTNERSHIPS AND THE COMPANY COULD BE USED TO DETER ATTEMPTS TO OBTAIN CONTROL OF THE PARTNERSHIPS AND THE COMPANY IN TRANSACTIONS NOT APPROVED BY THE GENERAL PARTNERS AND THE BOARD OF DIRECTORS, RESPECTIVELY. THE CHARTER AND BYLAWS WILL ALSO CONTAIN CERTAIN PROVISIONS NECESSARY TO ENSURE CONTINUED REIT STATUS. PROVISIONS OF THE MGCL MAY HAVE SIMILAR EFFECTS.

TAXATION OF TAXABLE INVESTORS

UNITHOLDERS. The Partnerships are treated as partnerships for federal income tax purposes. Partnerships are not subject to tax, but the Unitholders report their allocable share of partnership income and loss on their respective tax returns. Unitholders are taxed on income or loss allocated to them whether or not cash distributions are made to the Unitholders. Generally, interest income, as well as market discount and original issue discount income, if any, from the Partnerships are portfolio income and income or loss arising from equity investments (such as PREPs) are "passive" income to the Unitholders. Generally, any passive income allocated to Unitholders may offset "passive" losses from their other investments. Generally, passive losses allocated to Unitholders may not be used to offset portfolio income. Generally, by March or April of each year, Unitholders receive annual Schedule K-1 forms with respect to information for inclusion on their federal income tax returns.

STOCKHOLDERS. As a corporation qualifying as a REIT, the Company generally can deduct distributions to stockholders, which effectively eliminates the "double taxation" that results when a corporation earns income and distributes distributions to stockholders. Distributions received by stockholders generally will constitute portfolio income, which cannot be offset by "passive" losses. Distributions may, in certain circumstances, constitute a larger portion of taxable income than in the case of the Partnerships, primarily because the taxable portion of a REIT distribution is computed under less favorable depreciation rules than those applicable to partnership deductions. To the extent the Company has net income (after taking into account the deduction for distributions paid), such income will be taxed at the Company level at standard corporate tax rates. Each January, stockholders will be mailed the less complex Form 1099-DIV for corporate distributions. Stockholders will pay federal, state and local income tax, if any, on distributions from the Company.

WHILE UNITHOLDERS RECEIVE COMPLEX SCHEDULE K-1 FORMS AND MUST REPORT THEIR ALLOCABLE SHARE OF PARTNERSHIP INCOME OR LOSS ON THEIR INDIVIDUAL TAX RETURNS WHETHER OR NOT DISTRIBUTIONS ARE MADE TO THEM, STOCKHOLDERS WILL RECEIVE SIMPLE 1099-DIV FORMS AND WILL PAY TAXES ONLY ON DISTRIBUTIONS FROM THE COMPANY. AS A REIT UNDER THE CODE, THE COMPANY CAN DEDUCT DISTRIBUTIONS TO STOCKHOLDERS, THUS ELIMINATING "DOUBLE TAXATION."

VOTING RIGHTS

UNITHOLDERS. The Unitholders are entitled to vote only as provided under the Delaware Act and the Partnership Agreements. The Unitholders, by vote of a majority in interest thereof, are required to (i) amend the Partnership Agreement; (ii) approve or disapprove the sale or other disposition of 75% or more of the assets of the Partnership; (iii) dissolve the Partnership; or (iv) remove and replace the General Partner.

Under the Delaware Act and the Partnership Agreements, decisions relating to the operation and management of the Partnership are made by the General Partner. If a limited partner were granted additional voting rights, the possibility exists under the Code that the partnership structure and the terms of the Partnership Agreement would be disregarded. In such event, the Partnership may be taxed as an association and thus would be subject to "double taxation" similar to a corporation.

STOCKHOLDERS. The holders of the Common Stock will be entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, subject to the provisions of the Charter regarding the restriction on transfer of stock to ensure the continued qualification of the Company as a REIT under the Code. Stockholders of a Maryland corporation are generally entitled to vote on any material transactions or actions relating to such corporation (as advised by the board of directors of such corporation), and such transactions or actions may not be consummated without the approval of the requisite number of stockholders. These instances include: (i) the right to elect the board of directors and thus participate in the management of the corporation; (ii) the right to amend the corporation's charter and Bylaws; (iii) the determination to dissolve the corporation; (iv) the determination to merge the corporation with or into another entity; (v) the determination to approve or disapprove the sale of all or substantially all of the corporation's assets; and
(vi) any other matters which are properly brought before the stockholders. Maryland corporations are also generally required to hold annual meetings which allow stockholders to vote for directors. No cumulative voting rights for the election of directors will attach to the shares of Common Stock.

FOLLOWING THE MERGER, STOCKHOLDERS OF THE COMPANY WILL ENJOY GREATER VOTING RIGHTS THAN UNITHOLDERS OF THE PARTNERSHIPS, INCLUDING THE RIGHT TO VOTE ANNUALLY ON THE ELECTION OF THE BOARD OF DIRECTORS WHILE UNITHOLDERS DO NOT VOTE ANNUALLY ON THE ELECTION OF GENERAL PARTNERS.

MEETINGS

UNITHOLDERS. Meetings of a Partnership may be called by its General Partner, and are required to be called upon written request of Unitholders holding more than 10% of the then outstanding Units of the relevant Partnership. There are no regular meeting dates. Each Unitholder may authorize any person or persons to act for him by proxy in all matters as to which such Unitholder is entitled to vote.

STOCKHOLDERS. The Company will hold annual meetings for holders of Common Stock, among other things, for the election of directors. A special meeting of holders of Common Stock will be called upon the written request of the holders of 50% of the outstanding shares of Common Stock and may be called by a majority of the Board of Directors. The holders of a majority of the outstanding shares of Common Stock present in person or by proxy will constitute a quorum at any annual or special meeting of holders of Common Stock. At any meeting of such holders, any holder entitled to vote thereat may vote by proxy.

FOLLOWING THE MERGER, MEETINGS OF STOCKHOLDERS ARE EXPECTED TO BE HELD ANNUALLY, OR AT OTHER TIMES UPON THE OCCURRENCE OF CERTAIN EVENTS. THE PARTNERSHIP AGREEMENTS DO NOT REQUIRE ANNUAL MEETINGS OF UNITHOLDERS, ALTHOUGH OTHER MEETINGS CAN BE HELD IN CERTAIN LIMITED CIRCUMSTANCES.

RIGHT TO INSPECT BOOKS AND RECORDS

UNITHOLDERS. The Partnership Agreements require each Partnership to make its books and records, including a list of the names and addresses of Unitholders, available to Unitholders and authorize any Unitholder, or his duly authorized representative, to copy and examine the books and records of the Partnership at its principal office during ordinary business hours, upon reasonable request and at the expense of the Unitholder. Unitholders may also receive copies of such documents upon written request. Each Unitholder has the right under the Delaware Act to obtain a current list of the names and last known business, residence or mailing address of each partner upon reasonable demand for any purpose reasonably related to the Unitholder's interest in the Partnership, subject to such reasonable standards as are set forth in the Partnership Agreements.

STOCKHOLDERS. The Company will be required to keep complete and accurate books with respect to its business at its principal executive office. The books will be maintained for financial accounting purposes on the accrual basis, in accordance with GAAP. Stockholders will be entitled to have access to the Bylaws, minutes of the proceedings of stockholders' meetings, annual statements of affairs of the Company and voting trust agreements filed with the Company at reasonable times upon reasonable notice to the

Company, subject to certain limitations, including those intended to protect confidential business information. Each stockholder has the right under the MGCL to obtain, upon written request, a statement showing all stock and securities issued by the Company during a specified period of not more than the preceding 12 months. In addition, each stockholder or group of stockholders who have owned 5% or more of the outstanding stock of any class of capital stock for at least six months shall have, upon written request and for a proper purpose reasonably related to that stockholder's interest as a stockholder in the Company, the right to have access to the books, records and stock ledger of the Company.

THE INSPECTION RIGHTS OF STOCKHOLDERS ARE SIMILAR TO THE INSPECTION RIGHTS OF UNITHOLDERS. ALSO, THE RIGHTS OF HOLDERS OF COMMON STOCK OF THE COMPANY TO OBTAIN LISTS OF STOCKHOLDERS ARE SUBSTANTIALLY SIMILAR TO THE RIGHTS OF UNITHOLDERS TO OBTAIN LISTS OF UNITHOLDERS.

REPORTS

UNITHOLDERS. The Partnerships furnish each Unitholder with information required to be set forth in the Unitholder's individual federal income tax return no later than March or April of each year on complex Schedule K-1 forms. Within 120 days after the end of each fiscal year, each Partnership also furnishes the Unitholders with a report that contains financial statements of such Partnership (prepared in accordance with GAAP) rendered by independent certified public accountants, including a detailed statement of (i) all transactions with its General Partner and its affiliates, and (ii) fees, commissions, compensation and other benefits paid or accrued to its General Partner and its affiliates for such year, showing the amount paid or accrued to each recipient and the services performed. Also, within 60 days after the end of each of the first three quarters of each year, each Partnership furnishes the Unitholders with an unaudited report for such quarter (prepared in accordance with GAAP) which includes a balance sheet, statement of income, changes in partners' capital, changes in financial condition, statement of cash available for distribution and a report of the activities of the respective Partnership during such quarter.

STOCKHOLDERS. The rights of Company stockholders to receive reports on the Company will be substantially similar to the rights of Unitholders to receive reports regarding the Partnerships. The Company will furnish to each stockholder, within 120 days after the close of each fiscal year, reports containing certain financial statements of the Company for such fiscal year, including a balance sheet and statements of operations and cash flow, which will be audited by a nationally recognized firm of independent certified public accountants. The Company will also provide stockholders with unaudited quarterly reports. In addition, the Company will mail stockholders distribution information on Form 1099-DIV in January of each year.

THE RIGHTS OF STOCKHOLDERS AND UNITHOLDERS TO RECEIVE REPORTS ARE

SUBSTANTIALLY THE SAME.

LIABILITIES

UNITHOLDERS. Under the Delaware Act, a limited partner of a limited partnership is not liable for the obligations of the partnership unless he is deemed to be participating in the control of the business of such partnership, in which event he may be liable to persons who transact business with such partnership reasonably believing, based upon such limited partner's conduct, that such limited partner is a general partner of the partnership. Under the amended Delaware Act, a limited partner is not liable for a return of his contribution unless such return constitutes a wrongful distribution. Generally, under the amended Delaware Act, a limited partner who knowingly receives a wrongful distribution is liable to the partnership for the amount of the distribution for a period of three years from the date of the distribution.

STOCKHOLDERS. As stockholders of a Maryland corporation, Unitholders that receive shares of Common Stock of the Company in the Merger will not be subject to any personal liability (as stockholders) for the acts or obligations of the Company.

UNDER LIMITED CIRCUMSTANCES, UNITHOLDERS FACE THE POSSIBILITY OF PERSONAL LIABILITY FOR WRONGFUL RETURN TO THEM OF THEIR CAPITAL CONTRIBUTIONS, WHILE STOCKHOLDERS DO NOT FACE SIMILAR PERSONAL LIABILITIES AS HOLDERS OF SECURITIES IN THE COMPANY.

FIDUCIARY RESPONSIBILITIES AND INDEMNIFICATION OF OFFICERS AND DIRECTORS

Under the MGCL, each director of the Company will be required to perform his duties as a director in good faith, in a manner he believes to be in the best interests of the Company and with the care that an ordinary prudent person in a like position would use under similar circumstances. Acts or omissions of a director not amounting to a violation of this statutory standard may not be the basis for imposition of any liability of the director, either for legal or equitable relief. Under the Delaware Act, the General Partners are accountable to the Partnerships and the Unitholders as fiduciaries and consequently must exercise good faith and integrity in handling affairs of the Partnerships. Unitholders who have questions concerning the duties of the directors and officers with respect to the Company or the duties of the General Partners with respect to any of the Partnerships should consult their counsel.

The MGCL permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty established by a final judgment as being material to the cause of action. The Charter will contain such a provision which eliminates such liability to the maximum extent permitted by the MGCL.

The Charter (i) will require the Company, to the maximum extent permitted by Maryland law, to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to its directors and officers, whether serving the Company, or at its request, any other entity and (ii) will authorize, to the maximum extent permitted by Maryland law, to permit itself to indemnify and to pay or reimburse reasonable expenses in advance of final disposition of a proceeding to other employees and agents, whether serving the Company, or at its request, any other entity.

The MGCL requires a corporation (unless its charter provides otherwise, which the Company's Charter will not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, a Maryland corporation may not indemnify for an adverse judgment in a suit by or in the right of the corporation, or in a suit claiming improper benefit, except for expenses ordered by a court. In addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporation's receipt of (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation as authorized by the Bylaws and (b) a written statement by or on his behalf to repay the amount paid or reimbursed by the corporation if it shall ultimately be determined that the standard of conduct was not met. To the extent that the foregoing provisions concerning indemnification apply to actions arising under the Securities Act, the Company has been advised that, in the opinion of the Commission, such provisions are contrary to public policy and therefore are not enforceable.

By comparison, each Partnership Agreement provides that such Partnership will indemnify and hold harmless its General Partner and the General Partner's affiliates for any loss or liability (except for certain liabilities under the Securities Act, or, in the case of Prep Fund 2 and Pension Fund, certain liabilities under federal or state securities laws) incurred by the General Partner, its affiliates or the Partnerships by reason of any act performed or omitted to be performed in connection with the business of the

Partnership, except in the case of fraud, bad faith, negligence, intentional misconduct (any misconduct in the case of Prep Fund 1) or breach of fiduciary duty.

The rights of stockholders against management of the Company in certain circumstances are more limited than the rights of Unitholders against the General Partners.

THE MERGER

SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions set forth in this Agreement, (i) in accordance with the Maryland General Corporation Law (the "MGCL") and the Delaware Revised Uniform Limited Partnership Act (the "DRULPA"), Prep Fund 1 and Prep Fund 2 shall be merged with and into the Company at the Effective Time (as defined below) and (ii) in accordance with DRULPA, Pension Fund shall be merged with Partnership Merger Sub at the Effective Time. Following the Merger, (i) the separate existence of Prep Fund 1 and Prep Fund 2 shall cease and the Company shall continue as the surviving corporation and shall succeed to and assume all the rights and obligations of Prep Fund 1 and Prep Fund 2 in accordance with the MGCL and DRULPA and (ii) the separate existence of Partnership Merger Sub shall cease and Pension Fund shall continue as the surviving limited partnership and shall succeed to and assume all the rights and obligations of Partnership Merger Sub in accordance with the DRULPA.

SECTION 1.2 CLOSING. The closing of the Merger will take place at 10:00
A.M. Eastern Time, on a date to be specified by the parties, which (subject to satisfaction or waiver of the conditions set forth in Sections 6.2 and 6.3) shall be no later than the second business day after satisfaction or waiver of the conditions set forth in Section 6.1 (the "CLOSING DATE"), at the offices of Rogers & Wells, 200 Park Avenue, New York, New York 10166, unless another date or place is agreed to in writing by the parties hereto.

SECTION 1.3 EFFECTIVE DATE. As soon as practicable following the satisfaction or waiver of the conditions set forth in Article VI, the parties shall file the articles of merger, certificate of merger or other appropriate documents for the merger of Prep Fund 1 and Prep Fund 2 with and into the Company executed in accordance with Section 3-110 of the MGCL and Section 17-211 of the DRULPA and the certificate of merger or other appropriate documents for the merger of Pension Fund with Partnership Merger Sub executed in accordance with Section 17-211 of the DRULPA (collectively, the "ARTICLES OF MERGER") and shall make all other filings or recordings required under the MGCL or the DRULPA to effect the Merger. The Merger shall become effective at such time as the Articles of Merger have been duly filed with the Department of Assessments and Taxation of the State of Maryland and the Office of the Secretary of State of the State of Delaware, or at such other time as the parties shall specify in the Articles of Merger (the time and the date the Merger becomes effective being, the "EFFECTIVE TIME" and the "EFFECTIVE DATE," respectively), it being understood that the parties shall cause the Effective Time to occur on the Closing Date.

SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in the MGCL or the DRULPA, as appropriate.

SECTION 1.5 ORGANIZATIONAL DOCUMENTS.

(a) THE COMPANY. The Articles of Incorporation of the Company as in effect on the date hereof are substantially in the form of EXHIBIT A hereto (the "CHARTER"). The bylaws of the Company as in effect on the date hereof are substantially in the form of EXHIBIT B hereto (the "BYLAWS"). Prior to the Effective Time, the Charter shall be amended and restated by the Amended and Restated Articles of Incorporation substantially in the form of EXHIBIT C hereto (the "AMENDED CHARTER") and as amended shall continue to be in effect after the Merger.

(b) PENSION FUND. The Agreement of Limited Partnership, dated as of May 25, 1988, of Pension Fund as in effect on the date hereof and substantially in the form of EXHIBIT D hereto (the "PENSION FUND AGREEMENT"), shall be in effect after the Merger. The certificate of limited partnership of Pension Fund in effect on the date hereof and substantially in the form of EXHIBIT E hereto, shall continue to be in effect after the Merger.

SECTION 1.6 OFFICERS AND DIRECTORS. The officers of the Company immediately following the Effective Time shall continue to be the officers of the Company. The Board of Directors of the Company immediately following the Effective Time shall continue to be composed of the current members of the Board of Directors of the Company.

SECTION 1.7 GENERAL PARTNER OF PENSION FUND. Immediately following the Effective Time, the general partner of Pension Fund shall continue to be America First Capital Associates Limited Partnership Six, a Delaware limited partnership ("AFCA 6").

SECTION 1.8 PRINCIPAL EXECUTIVE OFFICE. The principal executive office of the Company following the Effective Date shall continue to be in New York, New York.

ARTICLE II

EFFECT OF THE MERGER ON THE EXCHANGE UNITS
OF THE PARTNERSHIPS; EXCHANGE OF CERTIFICATES

SECTION 2.1 EFFECT ON EXCHANGE UNITS; CONVERSION OF EXCHANGE UNITS. By virtue of the Merger and without any action on the part of any Unitholder participating in the Merger:

(a) At the Effective Time, each issued and outstanding Prep Fund 1 Unit, Prep Fund 2 BUC and Pension BUC (except those Pension BUCs held by Unitholders electing the Retention Option) shall be converted into the right to receive from the Company 1.00, 1.262758 and 1.306189, respectively, fully paid and nonassessable shares of Common Stock. At the Effective Time, all such Exchange Units shall no longer be outstanding and shall automatically be canceled and retired and all rights with respect thereto shall cease to exist, and each holder of a certificate representing any such Exchange Unit (an "EXCHANGE UNIT CERTIFICATE") shall cease to have any rights with respect thereto, except the right to receive, upon surrender of such certificate in accordance with Section 2.2(c), certificates representing the shares of Common Stock required to be delivered under this Section 2.1 and any cash in lieu of fractional shares of Common Stock to be issued or paid in consideration therefor upon surrender of such certificate (the "MERGER CONSIDERATION") and any dividends or other distributions to which such holder is entitled pursuant to Section 2.2(d), in each case, without interest and less any required withholding taxes.

(b) Notwithstanding the foregoing, the parties understand that following the Merger the rights of each stockholder of the Company under this Section 2.1 will be subject to the ownership limitations and other related provisions contained in the Amended Charter.

SECTION 2.2 EXCHANGE OF CERTIFICATES.

(a) EXCHANGE AGENT. Prior to the Effective Time, the Company and the Partnerships shall jointly appoint a bank or trust company to act as exchange agent (the "EXCHANGE AGENT") for the exchange of the Merger Consideration upon surrender of Exchange Unit Certificates or cancellation of uncertificated Exchange Units, as the case may be.

(b) PROVISION OF COMMON STOCK. The Company shall provide to the Exchange Agent on or before the Effective Time, for the benefit of the Unitholders participating in the Merger, sufficient shares of Common Stock issuable in exchange for the issued and outstanding Exchange Units pursuant to Section 2.1.

(c) EXCHANGE PROCEDURE. As soon as reasonably practicable after the Effective Time, the Exchange Agent shall mail to each holder of record of a Exchange Unit Certificate whose Units were converted into the right to receive the Merger Consideration pursuant to Section 2.1, (i) a letter of transmittal (which shall specify that delivery shall be effected, and risk of loss and title to the Exchange Unit Certificates shall pass, only upon delivery of the Exchange Unit Certificates to the Exchange Agent and shall be in a form and have such other provisions as the Company may reasonably specify) and (ii) instructions for use in effecting the surrender of the Exchange Unit Certificates in exchange for the Merger Consideration. Upon surrender of a Exchange Unit Certificate for cancellation to the Exchange Agent, together with such letter of transmittal, duly completed and executed, and such other documents as may reasonably be required by the Exchange Agent, the holder of such Exchange Unit Certificate shall be entitled to receive in exchange therefor the Merger Consideration and any dividends or other distributions to which such holder is entitled pursuant to Section 2.2(d), and the Exchange Unit Certificate so surrendered shall forthwith be canceled. In the event of a transfer of ownership of Exchange Units which is not registered in the transfer records of the appropriate Partnership, payment may be made to a person other than the person in whose name the Exchange Unit Certificate so surrendered is registered if such Exchange Unit Certificate shall be properly endorsed or otherwise be in proper form for transfer and the person requesting such payment either shall pay any transfer or other taxes required by reason of such payment being made to a person other than the registered holder of such Exchange Unit Certificate or establish to the satisfaction of the Company that such tax or taxes have been paid or are not applicable. Until surrendered as contemplated by this Section

2.2, each Exchange Unit Certificate shall be deemed at any time after the Effective Time to represent only the right to receive upon such surrender the Merger Consideration, without interest, into which the Exchange Units theretofore represented by such Exchange Unit Certificate shall have been converted pursuant to Section 2.1 and any dividends or other distributions to which such holder is entitled pursuant to Section 2.2(d). No interest will be paid or will accrue on the Merger Consideration upon the surrender of any Exchange Unit Certificate or on any cash payable pursuant to Section 2.2(d) or
Section 2.2(g).

(d) RECORD DATES; DISTRIBUTIONS WITH RESPECT TO UNCONVERTED EXCHANGE UNITS.

(i) From the date of this Agreement, the Company and the Partnerships shall cooperate to establish and maintain record and payment dates for regular quarterly cash distributions on their respective capital stock and Units, such that the record and payment dates, respectively, for each of the Company and the Partnerships occur on the same calendar date.

(ii) No dividends or other distributions with respect to Exchange Units with a record date after the Effective Time shall be paid to the holder of any unsurrendered Exchange Unit Certificate with respect to the Exchange Units represented thereby, and no cash payment in lieu of fractional shares shall be paid to any such holder pursuant to Section 2.2(g), in each case until the surrender of such Exchange Unit Certificate in accordance with this Article II. Subject to the effect of applicable abandoned property, escheat or similar laws, following surrender of any such Exchange Unit Certificate there shall be paid to the holder of such Exchange Unit Certificate, without interest, (A) at the time of such surrender, the amount of any cash payable in lieu of any fractional share of Common Stock to which such holder is entitled pursuant to Section 2.2(g) and (B) if such Exchange Unit Certificate is exchangeable for one or more whole shares of Common Stock, (x) at the time of such surrender, the amount of dividends or other distributions with a record date after the Effective Time theretofore paid with respect to such whole shares of Common Stock and (y) at the appropriate payment date, the amount of dividends or other distributions with a record date after the Effective Time but prior to such surrender and with a payment date subsequent to such surrender payable with respect to such whole shares of Common Stock.

(e) NO FURTHER OWNERSHIP RIGHTS IN EXCHANGE UNITS. All Merger Consideration paid upon the surrender of Exchange Unit Certificates in accordance with the terms of this Article II (and any cash paid pursuant to Section 2.2(g)) shall be deemed to have been paid in full satisfaction of all rights pertaining to the Exchange Units theretofore represented by such Exchange Unit Certificates, subject, however, to the obligation of the Company to pay, without interest, any dividends or make any other distributions with a record date prior to the Effective Time which may have been declared or made by the Partnerships on such Exchange Units in accordance with the terms of this Agreement or prior to the date of this Agreement and which remain unpaid at the Effective Time and have not been paid prior to such surrender, and there shall be no further registration of transfers on the transfer books of the Partnerships of the Exchange Units which were outstanding immediately prior to the Effective Time (except for transfers of Pension BUCs held by Unitholders electing the Retention Option). If, after the Effective Time, Exchange Unit Certificates are properly presented to the Company they shall be canceled and exchanged as provided in this Article II.

(f) NO LIABILITY. None of the Company, the Partnerships, Partnership Merger Sub or the Exchange Agent shall be liable to any person in respect of any Merger Consideration delivered to a public official pursuant to any applicable abandoned property, escheat or similar law. Any portion of the Merger Consideration delivered to the Exchange Agent pursuant to this Agreement that remains unclaimed for six months after the Effective Time shall be redelivered by the Exchange Agent to the Company, upon demand, and any holders of Exchange Unit Certificates who have not theretofore complied with Section 2.2(c) shall thereafter look only to the Company for delivery of the Merger Consideration, subject to applicable abandoned property, escheat and other similar laws.

(g) NO FRACTIONAL SHARES.

(i) No certificates or scrip representing fractional shares of Common Stock shall be issued upon the surrender for exchange of Exchange Unit Certificates, and such fractional share interests will not entitle the owner thereof to vote, to receive dividends or to any other rights of a stockholder of the Company.

(ii) Notwithstanding any other provision of this Agreement, each holder of Exchange Units exchanged in the Merger who would otherwise have been entitled to receive a fraction of a share of Common Stock (after taking into account all Exchange Unit Certificates delivered by such holder) shall receive, from the Exchange Agent in accordance with the provisions of this Section 2.2(g), a cash payment in lieu of such fractional share of Common Stock representing such holder's proportionate interest, if any, in the net proceeds from the sale by the Exchange Agent in one or more transactions (which sale transactions shall be made at such times, in such manner and on such terms as the Exchange Agent shall determine in its reasonable discretion) on behalf of all such holders of the aggregate of the fractional shares of Common Stock which would otherwise have been issued (the "FRACTIONAL SHARES"). The sale of the Fractional Shares by the Exchange Agent shall be executed on the New York Stock Exchange (the "NYSE") or such other nationally recognized securities exchange (collectively, a "NATIONAL EXCHANGE") on which the Common Stock is traded through one or more member firms of the NYSE or a National Exchange and shall be executed in round lots to the extent practicable. Until the net proceeds of such sale or sales have been distributed to the holders of Exchange Unit Certificates, the Exchange Agent will hold such proceeds in trust (the "EXCHANGE TRUST") for the holders of Exchange Unit Certificates. The Company shall pay all commissions, transfer taxes and other out-of-pocket transaction costs, including the expenses and compensation of the Exchange Agent, incurred in connection with this sale of the Fractional Shares. As soon as practicable after the determination of the amount of cash, if any, to be paid to holders of Exchange Unit Certificates in lieu of any fractional shares of Common Stock, the Exchange Agent shall make available such amounts to such holders of Exchange Unit Certificates without interest.

(h) WITHHOLDING RIGHTS. The Company or the Exchange Agent shall be entitled to deduct and withhold from the Merger Consideration otherwise payable pursuant to this Agreement to any Unitholder such amounts as the Company or the Exchange Agent is required to deduct and withhold with respect to the making of such payment under the Code, or any provision of state, local or foreign tax law. To the extent that amounts are so withheld by the Company or the Exchange Agent, such withheld amounts shall be treated for all purposes of this Agreement as having been paid to the holder of the Exchange Units, in respect of which such deduction and withholding was made by the Company or the Exchange Agent.

ARTICLE III

REPRESENTATIONS AND WARRANTIES

SECTION 3.1 REPRESENTATIONS AND WARRANTIES OF THE PARTNERSHIPS. Each of the Partnerships represents and warrants to the other Partnerships, the Company and Partnership Merger Sub as follows:

(a) ORGANIZATION, STANDING AND POWER OF THE PARTNERSHIP. The Partnership is a limited partnership duly organized and validly existing under the laws of Delaware and has the requisite power and authority to carry on its business as now being conducted. The Partnership is duly qualified or licensed to do business and is in good standing in each jurisdiction in which the nature of its businesses or the ownership of its assets makes such qualification or licensing necessary, other than in such jurisdictions where the failure to be so qualified or licensed, individually or in the aggregate, would not have a material adverse effect on the businesses, properties, assets, financial conditions or results of operations of the Partnership (a "PARTNERSHIP MATERIAL ADVERSE EFFECT").

(b) CAPITAL STRUCTURE. Prep Fund 1 represents and warrants that (i) its sole general partner is America First Capital Associates Limited Partnership Three, a Delaware limited partnership ("AFCA 3"), (ii) its sole limited partner is America First Fiduciary Corporation Number Six, a Nebraska corporation ("AFFC 6"), and (iii) on the date hereof, there were 5,775,797 Prep Fund 1 Units representing limited partnership

interests in Prep Fund 1 assigned by AFFC 6 outstanding. Prep Fund 2 represents and warrants that (i) its sole general partner is AFCA 6, (ii) its sole limited partner is America First Fiduciary Corporation Number Fourteen, a Nebraska corporation ("AFFC 14"), and (iii) on the date hereof, there were 1,593,604 Prep Fund 2 BUCs representing limited partnership interests in Prep Fund 2 assigned by AFFC 14 outstanding. Pension Fund represents and warrants that (i) its sole general partner is AFCA 6, (ii) its sole limited partner is America First Fiduciary Corporation Number Sixteen, a Nebraska corporation ("AFFC 16"), and
(iii) on the date hereof, there were 905,974 Pension BUCs representing limited partnership interests in Pension Fund assigned by AFFC 16 outstanding. On the date of this Agreement, except as set forth in this Section 3.1(b), no other Units of the Partnership were outstanding. All outstanding Units are validly issued, fully paid and nonassessable and not subject to preemptive rights. There are no bonds, debentures, notes or other indebtedness of the Partnership having the right to vote (or convertible into, or exchangeable for, securities having the right to vote) on any matters on which Unitholders may vote. There are no outstanding securities, options, warrants, calls, rights, commitments, agreements, arrangements or undertakings of any kind to which the Partnership is a party or by which such entity is bound, obligating the Partnership to issue, deliver or sell, or cause to be issued, delivered or sold, additional Units, voting securities or other ownership interests of or obligating the Partnership to issue, grant, extend or enter into any such security, option, warrant, call, right, commitment, agreement, arrangement or undertaking. There are no outstanding contractual obligations of the Partnership to repurchase, redeem or otherwise acquire any Units, voting securities or other ownership interests in the Partnership or make any material investment (in the form of a loan, capital contribution or otherwise) in any Person.

(c) AUTHORITY; NONCONTRAVENTION; CONSENTS. The Partnership has the requisite power and authority to enter into this Agreement. The Partnership has the requisite power and authority, subject to approval of the Merger, this Agreement and any other transactions contemplated hereby by the requisite vote of the Unitholders (the "UNITHOLDER APPROVALS"), to consummate the Merger and other transactions contemplated by this Agreement to which the Partnership is a party. The execution and delivery of this Agreement by the Partnership and the consummation by the Partnership and other transactions contemplated hereby to which the Partnership is a party have been duly executed and authorized by all necessary action on the part of the Partnership, subject to approval of this Agreement pursuant to the Unitholder Approvals. This Agreement has been duly executed and delivered by the Partnership and constitutes a valid and binding obligation of the Partnership, enforceable against such entity in accordance with its terms. The execution and delivery of this Agreement by the Partnership does not, and the consummation of the Merger and other transactions contemplated hereby and thereby to which the Partnership is a party and compliance by the Partnership with the provisions of this Agreement will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or to loss of a material benefit under, or result in the creation of any pledge, claim, lien, charge, encumbrance or security interest of any kind or nature whatsoever (a "LIEN") upon any of the properties or assets of the Partnership under (i) the partnership agreement (the "PARTNERSHIP AGREEMENT") or certificate of limited partnership of the Partnership, each as amended or supplemented to the date of this Agreement, (ii) any loan or credit agreement, note, bond, mortgage, indenture, reciprocal easement agreement, lease or other agreement, instrument, permit, concession, franchise or license applicable to the Partnership or its properties or assets or (iii) subject to the governmental filings and other matters referred to in the following sentence, any judgement, order, decree, statute, law, ordinance, rule or regulation (collectively "LAWS") applicable to the Partnership or its properties or assets, other than, in the case of clause (ii) or (iii), any such conflicts, violations, defaults, rights or Liens that individually or in the aggregate would not (x) have a Partnership Material Adverse Effect or (y) prevent the consummation of the Merger or other transactions contemplated hereby. No consent, approval, order or authorization of, or registration, declaration or filing with, any federal, state or local government or any court, administrative authority or agency (a "GOVERNMENTAL ENTITY"), is required by or with respect to the Partnership in connection with the execution and delivery of this Agreement by the Partnership or the consummation by the Partnership of the Merger and other transactions contemplated

hereby and thereby, except for (i) the filing with the Securities and Exchange Commission ("SEC") of (x) a consent solicitation statement/prospectus (the "CONSENT SOLICITATION STATEMENT/PROSPECTUS") relating to the approval by Unitholders of the Merger, this Agreement and the other transactions contemplated by this Agreement, and a registration statement relating to the issuance of the Merger Consideration ("REGISTRATION STATEMENT") in which the Consent Solicitation Statement/Prospectus will be included as a prospectus and
(y) such reports under Section 13(a) and Section 14 of the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as may be required in connection with this Agreement and the other transactions contemplated by this Agreement,
(ii) the filing of the Articles of Merger for the Merger with the Department of Assessments and Taxation of the State of Maryland and the Office of the Secretary of State of the State of Delaware, (iii) such other consents, approvals, orders, authorizations, registrations, declarations and filings which, if not obtained or made, would not prevent or delay in any material respect the consummation of the Merger or any of the transactions contemplated by this Agreement or otherwise prevent the Partnership from performing its obligations under this Agreement in any material respect or have, individually or in the aggregate, a Partnership Material Adverse Effect.

(d) SEC DOCUMENTS; FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES. Each of Prep Fund 1, Prep Fund 2 and Pension Fund have filed all required reports, schedules, forms, statements and other documents with the SEC since December 31, 1986, June 30, 1987 and March 31, 1988, respectively (the "PARTNERSHIP SEC DOCUMENTS"). All of the Partnership SEC Documents (other than preliminary material), as of their respective filing dates, complied in all material respects with all applicable requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"), and the Exchange Act and, in each case, the rules and regulations promulgated thereunder applicable to such Partnership SEC Documents. None of the Partnership SEC Documents at the time of filing contained any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading, except to the extent such statements have been modified or superseded by later filed Partnership SEC Documents. There is no unresolved violation, criticism or exception by any Governmental Entity of which the Partnership has received written notice with respect to such entity or statement which, if resolved in a manner unfavorable to the Partnership could have a Partnership Material Adverse Effect. The financial statements of the Partnership included in the Partnership SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto, have been prepared in accordance with generally accepted accounting principles ("GAAP") (except, in the case of interim financial statements, as permitted by Forms 10-Q and 8-K of the SEC) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented, in accordance with the applicable requirements of GAAP, the financial position of the Partnership as of the dates thereof and the results of operations and cash flows of the Partnership for the periods then ended (subject, in the case of interim financial statements, to normal year-end adjustments). Except as permitted by
Section 4.1 (for the purposes of this sentence, as if Section 4.1 had been in effect since December 31, 1996), the Partnership does not have any liabilities or obligations of any nature (whether accrued, absolute, contingent or otherwise) required by GAAP to be set forth on a balance sheet of the Partnership or in the notes thereto and which, individually or in the aggregate, would have a Partnership Material Adverse Effect.

(e) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the Partnership SEC Documents filed and publicly available prior to the date of this Agreement (referred to collectively as the "PARTNERSHIP FILED SEC DOCUMENTS"), since the date of the most recent financial statements included in the Partnership Filed SEC Documents (the "FINANCIAL STATEMENT DATE") and to the date of this Agreement, the Partnership has conducted its business only in the ordinary course and there has not been (i) any material adverse change in the business, financial condition or results of operations of the Partnership that has resulted or would result, individually or in the aggregate, in Economic Losses (as defined in Section 6.2 below) of the greater of $1,000,000 or 5% of the Net Asset Value (as hereinafter defined) of such Partnership (a "PARTNERSHIP MATERIAL ADVERSE CHANGE"), nor has there been any occurrence or circumstance that with the passage of

time would reasonably be expected to result in a Partnership Material Adverse Change, (ii) except for regular quarterly distributions not in excess of $.2649 per Unit in the case of Prep Fund 1, $.3354 per unit in the case of Prep Fund 2, and $.3314 per Unit in the case of Pension Fund, with customary record and payment date, any declaration, setting aside or payment of any dividend or other distribution (whether in cash, stock or property) with respect to any of the Units, (iii) any split, combination or reclassification of any of the Units or any issuance or the authorization of any issuance of any other securities in respect of, in lieu of or in substitution for, or giving the right to acquire by exchange or exercise, Units, except as permitted by Section 4.1, (iv) any damage, destruction or loss, whether or not covered by insurance, that has or would have a Partnership Material Adverse Effect or (v) any change in accounting methods, principles or practices by the Partnership materially affecting its assets, liabilities or business, except insofar as may have been disclosed in the Partnership Filed SEC Documents or required by a change in GAAP.

(f) LITIGATION. Except as disclosed in the Partnership Filed SEC Documents and other than routine tort litigation arising from the ordinary course of operations of the Partnership which are covered by adequate insurance, there is no suit, action or proceeding pending or, to the knowledge of the Partnership, threatened against or affecting such entity that, individually or in the aggregate, could reasonably be expected to (i) have a Partnership Material Adverse Effect or (ii) prevent the consummation of the Merger or any of the transactions contemplated by this Agreement, nor is there any judgment, decree, injunction, rule or order of any Governmental Entity or arbitrator outstanding against the Partnership having, or which, insofar as reasonably can be foreseen, in the future would have, any such effect.

(g) BROKERS; FEES AND EXPENSES. No broker, investment banker, financial advisor or other person, other than PaineWebber Incorporated ("PAINEWEBBER"), the fees and expenses of which, as set forth in a letter agreement between the General Partners and PaineWebber, will be paid by the Partnerships pro rata in accordance with their respective net asset values as used to determine the allocation of Common Stock among the Partnerships in the Merger (the "NET ASSET VALUES") and Oppenheimer & Co. ("OPPENHEIMER"), the fees and expenses of which, as set forth in a letter agreement between the General Partners, together with the Special Committee and Oppenheimer, will be paid by the Partnerships pro rata in accordance with their respective Net Asset Values, is entitled to any broker's, finder's, financial advisor's or other similar fee or commission in connection with the Merger based upon arrangements made by or on behalf of the Partnership.

(h) COMPLIANCE WITH LAWS. Except as disclosed in the Partnership Filed SEC Documents, the Partnership has not violated or failed to comply with any statute, law, ordinance, regulation, rule, judgment, decree or order of any Governmental Entity applicable to its business, properties or operations, except for violations and failures to comply that would not, individually or in the aggregate, reasonably be expected to result in a Partnership Material Adverse Effect.

(i) CONTRACTS; DEBT INSTRUMENTS.

(i) The Partnership is not in violation of or in default under, in any material respect (nor does there exist any condition which upon the passage of time or the giving of notice or both would cause such a violation of or default under), any material loan or credit agreement, note, bond, mortgage, indenture, lease, permit, concession, franchise or license, or any agreement to acquire real property, or any other material contract, agreement, arrangement or understanding, to which it is a party or by which it or any of its properties or assets is bound, except for violations or defaults that would not, individually or in the aggregate, result in a Partnership Material Adverse Effect.

(ii) Except for any of the following expressly identified in the most recent financial statements contained in the Partnership Filed SEC Documents and except as permitted by Section 4.1, there are no loan or credit agreements, notes, bonds, mortgages, indentures and other agreements and instruments outstanding pursuant to which the Partnership is indebted in an aggregate principal amount in excess of $2,000,000 per item or pursuant to which such indebtedness may be incurred. For purposes of this Section

3.1(i)(ii), "INDEBTEDNESS" shall mean, with respect to any person, without duplication, (A) all indebtedness of such person for borrowed money, whether secured or unsecured, (B) all obligations of such person under conditional sale or other title retention agreements related to property purchased by such person, (C) all capitalized lease obligations of such person, (D) all obligations of such person under interest rate or currency hedging transactions (valued at the termination value thereof), (E) all guarantees of such person of any such indebtedness of any other person and (F) any agreements to provide any of the foregoing.

(j) TANGIBLE PROPERTY AND ASSETS. The Partnership has good and marketable fee simple title to, those assets set forth in its most recent report filed with the SEC on Form l0-Q, free and clear of all Liens other than (i) any statutory Lien arising in the ordinary course of business by operation of law with respect to a liability that is not yet due or delinquent and (ii) any easement, restriction or minor imperfection of title or similar Lien which individually or in the aggregate with other such Liens does not materially impair the value of the property or asset subject to such Lien or the use of such property or asset in the conduct of the business of the Partnership.

(k) BOOKS AND RECORDS.

(i) The books of account and other financial records of the Partnership are in all material respects true, complete and correct, have been maintained in accordance with good business practices, and are accurately reflected in all material respects in the financial statements included in the Partnership Filed SEC Documents.

(ii) The Partnership has made available to the other Partnerships true and correct copies of the partnership agreement and, if applicable, certificate of limited partnership of the Partnership as amended to date.

(l) REGISTRATION STATEMENT. The information furnished by the Partnership for inclusion in the Registration Statement will not, as of the effective date of the Registration Statement, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.

(m) VOTE REQUIRED. The affirmative vote of at least a majority of the outstanding Units of the Partnership is the only vote of any security holder in the Partnership (under applicable law or otherwise) to approve the Merger, this Agreement and the other transactions contemplated hereby.

ARTICLE IV

COVENANTS

SECTION 4.1 CONDUCT OF BUSINESS BY THE PARTNERSHIPS. During the period from the date of this Agreement to the Effective Time, the Partnerships shall carry on their respective businesses in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and, to the extent consistent therewith, use commercially reasonable efforts to preserve intact its current business organization, goodwill, ongoing businesses and its status as a partnership within the meaning of the Code. Without limiting the generality of the foregoing, the following additional restrictions shall apply. During the period from the date of this Agreement to the Effective Time, except as otherwise contemplated by this Agreement, each Partnership shall not (and shall not authorize or commit or agree to):

(a) (i) split, combine or reclassify any Units or partnership interests or issue or authorize the issuance of any other securities in respect of, in lieu of or in substitution for Units or partnership interests or (ii) purchase, redeem or otherwise acquire any Units or partnership interests;

(b) issue, deliver or sell, or grant any option or other right, in respect of, any Units or partnership interests, any other voting or redeemable securities of the Partnership or any securities convertible into, or any rights, warrants or options to acquire, any such voting securities or convertible or redeemable securities, except to the respective Partnership;

(c) amend the partnership agreement of the respective Partnership;

(d) merge or consolidate with any Person;

(e) make any tax election (unless required by law or necessary to preserve the respective Partnership's status as a partnership);

(f) (i) change in any material manner any of its methods, principles or practices of accounting, except as may be required by the SEC, applicable law or GAAP or (ii) make or rescind any express or deemed election relating to tax matters; or

(g) pay any distribution except regular quarterly distributions that are not in excess of $.2649, $.3354 or $.3314 per Unit of Prep Fund 1, Prep Fund 2 or Pension Fund, respectively.

SECTION 4.2 OTHER ACTIONS. Each of the Partnerships shall not take any action that would result in (i) any of the representations and warranties of such party (without giving effect to any "knowledge" qualification) set forth in this Agreement that are qualified as to materiality becoming untrue, (ii) any of such representations and warranties (without giving effect to any "knowledge" qualification) that are not so qualified becoming untrue in any material respect or (iii) except as contemplated by Section 7.1, any of the conditions to the Merger set forth in Article VI not being satisfied.

SECTION 4.3 PAYMENTS OF DIVIDENDS BY THE COMPANY. The Company has set, for the first year following the Merger, the rate of its quarterly distributions to stockholders at $.265 per share of Common Stock ($1.06 on an annual basis); PROVIDED, HOWEVER, the payment of such distributions shall be subject to the provisions of Section 2-311 of the MGCL.

ARTICLE V

ADDITIONAL COVENANTS

SECTION 5.1 PREPARATION OF THE REGISTRATION STATEMENT AND THE CONSENT SOLICITATION STATEMENT/ PROSPECTUS.

(a) As soon as practicable following the date of this Agreement, the Partnerships shall prepare and file with the SEC a preliminary Registration Statement in form and substance satisfactory to each of the Partnerships in which the Consent Solicitation Statement/Prospectus will be included as a prospectus. Each of the Partnerships shall use its best efforts to (i) respond to any comments of the SEC and (ii) have the Registration Statement declared effective under the Securities Act and the rules and regulations promulgated thereunder as promptly as practicable after such filing and to keep the Registration Statement effective as long as is necessary to consummate the Merger. Each Partnership shall use its best efforts to mail the Consent Solicitation Statement/Prospectus to the Unitholders as promptly as practicable after the Registration Statement is declared effective. Each party will notify the other promptly of the receipt of any comments from the SEC and of any request by the SEC for amendments or supplements to the Registration Statement the Consent Solicitation Statement/Prospectus or for additional information and will supply the other Partnerships with copies of all correspondence between such party or any of its representatives and the SEC with respect to the Registration Statement or the Consent Solicitation Statement/Prospectus. The Registration Statement and the Consent Solicitation Statement/Prospectus shall comply in all material respects with all applicable requirements of Law. Whenever any event occurs which is required to be set forth in an amendment or supplement to the Registration Statement or the Consent Solicitation Statement/Prospectus, the Partnership, as the case may be, shall promptly inform the other Partnerships of such occurrences and cooperate in filing with the SEC, and/or mailing to the Unitholders such amendment or supplement in a form reasonably acceptable to the Partnerships.

(b) Each Partnership covenants that the Consent Solicitation Statement/Prospectus shall include the recommendation of the General Partner of such Partnership to the effect the Merger and this Agreement are fair to, and in the best interests of, Unitholders and a recommendation of the Special Committee (the

"SPECIAL COMMITTEE") of the board of Managers of America First Companies L.L.C. in favor of the Merger and this Agreement; PROVIDED, however, that the recommendation of such General Partner or the Special Committee may not be included or may be withdrawn, modified or amended if such General Partner or the Special Committee shall approve or recommend a Superior Competing Transaction (as defined below) or enter into an agreement with respect to such Superior Competing Transaction and the General Partner of such Partnership and the Special Committee determines in good faith that they are in compliance with
Section 7.1.

SECTION 5.2 BEST EFFORTS; NOTIFICATION.

(a) Upon the terms and subject to the conditions set forth in this Agreement, each of the Partnerships agrees to use its best efforts to take, or cause to be taken, all actions, and to do, or cause to be done, and to assist and cooperate with the other Partnerships in doing all things necessary, proper or advisable to fulfill all conditions applicable to such party pursuant to this Agreement and to consummate and make effective, in the most expeditious manner practicable, the Merger and the other transactions contemplated hereby, including (i) the obtaining of all necessary actions or nonactions, waivers, consents and approvals from Governmental Entities and the making of all necessary registrations and filings and the taking of all reasonable steps as may be necessary to obtain an approval, waiver or exemption from, or to avoid an action or proceeding by, any Governmental Entity, (ii) the obtaining of all necessary consents, approvals, waivers or exemption from non-governmental third parties, (iii) the defending of any lawsuits or other legal proceedings, whether judicial or administrative, challenging the Merger, this Agreement or the consummation of the Merger and the other transactions contemplated hereby, including seeking to have any stay or temporary restraining order entered by any court or other Governmental Entity vacated or reversed, and (iv) the execution and delivery of any additional instruments necessary to consummate the Merger and the other transactions contemplated by, and to fully carry out the purposes of, this Agreement; PROVIDED, HOWEVER, that a party shall not be obligated to take any action pursuant to the foregoing if the taking of such action or the obtaining of any waiver, consent, approval or exemption is reasonably likely to result in the imposition of a condition or restriction of the type referred to in Section 6.1(e).

(b) Each Partnership shall give prompt notice to the other Partnerships, if
(i) any representation or warranty made by it contained in this Agreement that is qualified as to materiality becomes untrue or inaccurate in any respect or any such representation or warranty that is not so qualified becomes untrue or inaccurate in any material respect or (ii) it fails to comply with or satisfy in any material respect any covenant, condition or agreement to be complied with or satisfied by it under this Agreement; PROVIDED, HOWEVER, that no such notification shall affect the representations, warranties, covenants or agreements of the parties or the conditions to the obligations of the parties under this Agreement.

SECTION 5.3 NO SOLICITATION OF TRANSACTIONS. Subject to Section 7.1, each of the Partnerships shall not directly or indirectly, through any officer, director, employee, agent, investment banker, financial advisor, attorney, accountant, broker, finder or other representative, initiate or solicit (including by way of furnishing non-public information or assistance) any inquiries or the making of any proposal that constitutes, or may reasonably be expected to lead to, any Competing Transaction (as defined below), or authorize or permit any of its partners, Unitholders, officers, directors, employees or agents, attorneys, investment bankers, financial advisors, accountants, brokers, finders or other representatives retained by it to take any such action. Each of the Partnerships shall notify the other parties in writing (as promptly as practicable) of all of the relevant details relating to all inquiries and proposals which it or any such officer, director, employee, agent, investment banker, financial advisor, attorney, accountant, broker, finder or other representative may receive relating to any of such matters and if such inquiry or proposal is in writing, each of the Partnerships shall deliver to the other parties a copy of such inquiry or proposal. For purposes of this Agreement, "COMPETING TRANSACTION" shall mean any of the following (other than the Merger and the other transactions contemplated by this Agreement): (i) any merger, consolidation, share exchange, business combination, or similar transaction involving a Partnership; (ii) any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 30% or more of the assets of such Partnership

in a single transaction or series of related transactions, excluding any bona fide financing transactions which do not, individually or in the aggregate, have as a purpose or effect the sale or transfer of control of such assets; (iii) any tender offer or exchange offer for 30% or more of the outstanding Units of such Partnership or the filing of a registration statement under the Securities Act in connection therewith; or (iv) any public announcements of a proposal, plan or intention to do any of the foregoing or any agreement to engage in any of the foregoing.

SECTION 5.4 PUBLIC ANNOUNCEMENTS. Each Partnership and the Company will consult with the other parties before issuing, and provide the other parties the opportunity to review and comment upon, any press release or other public statements with respect to the Merger and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law, court process or by obligations pursuant to any listing agreement with any national securities exchange. The parties agree that the initial press release to be issued with respect to the Merger will be in the form agreed to by the parties hereto prior to the execution of this Agreement.

SECTION 5.5 LISTING OF COMMON STOCK. The Company will promptly prepare and submit to the NYSE a listing application covering the Common Stock issuable in the Merger. Prior to the Effective Time, the Company shall use its best efforts to have the NYSE approve for listing, upon official notice of issuance, the Common Stock to be issued in the Merger.

SECTION 5.6 INDEMNIFICATION.

(a) (i) Each Partnership and, from and after the Effective Time, the Company shall, indemnify, defend and hold harmless each person who is now or has been at any time prior to the date hereof or who becomes prior to the Effective Time, a General Partner or an affiliate of such General Partner of such Partnership or an officer or a member of the board of managers or board of directors, (or any regular or Special Committee thereof, including the Special Committee) or any committee thereof of any such general partner or affiliate (the "INDEMNIFIED PARTIES") against all losses, claims, damages, costs, expenses (including attorneys' fees and expenses), liabilities or judgments or amounts that are paid in settlement of, with the approval of the indemnifying party (which approval shall not be unreasonably withheld), or otherwise in connection with any threatened or actual claim, action, suit, proceeding or investigation based on or arising out of the fact that such person is or was a General Partner or an affiliate of such General Partner of such Partnership or an officer or a member of the board of managers or board of directors (or any regular or special committee thereof, including the Special Committee) or any committee thereof of any such general partner or affiliate at or prior to the Effective Time, whether asserted or claimed prior to, or at or after, the Effective Time ("PARTNERSHIP INDEMNIFIED LIABILITIES"), including all Partnership Indemnified Liabilities based on, or arising out of, or pertaining to this Agreement or the Merger, in each case to the full extent a Partnership is permitted under its Partnership Agreement to indemnify its own partners or the Company is permitted under Maryland law to indemnify such persons, as the case may be, (and such Partnership or the Company, as the case may be, will pay expenses in advance of the final disposition of any such action or proceeding to each Indemnified Party to the full extent permitted by law, subject to the limitations set forth in
Section 5.6(a)(iii)).

(ii) Any Indemnified Parties proposing to assert the right to be indemnified under this Section 5.6 shall, promptly after receipt of notice of commencement of any action against such Indemnified Parties in respect of which a claim is to be made under this Section 5.6 against any Partnership and/or the Company (collectively, the "INDEMNIFYING PARTIES"), notify the Indemnifying Parties of the commencement of such action, enclosing a copy of all papers served. If any such action is brought against any of the Indemnified Parties and such Indemnified Parties notify the Indemnifying Parties of its commencement, the Indemnifying Parties will be entitled to participate in and, to the extent that they elect by delivering written notice to such Indemnified Parties promptly after receiving notice of the commencement of the action from the Indemnified Parties, to assume the defense of the action and after notice from the Indemnifying Parties to the Indemnified Parties of their election to assume the defense, the Indemnifying Parties will not be liable to the Indemnified Parties for any legal or other expenses except as provided below and except for the reasonable costs of investigation subsequently incurred by the Indemnified Parties in connection with the defense. If the Indemnifying Parties assume the defense, the Indemnifying Parties shall have the right to settle such action without the consent of the Indemnified Parties; PROVIDED, HOWEVER, that the Indemnifying Parties shall be required to obtain such consent (which consent shall not be unreasonably withheld) if the settlement includes any admission of wrongdoing on the part of the Indemnified Parties or any decree or restriction on the Indemnified Parties or their partners, officers or directors; PROVIDED, FURTHER, that no Indemnifying Parties, in the defense of any such action shall, except with the consent of the Indemnified Parties (which consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Parties of a release from all liability with respect to such action. The Indemnified Parties will have the right to employ their own counsel in any such action, but the fees, expenses and other charges of such counsel will be at the expense of such Indemnified Parties unless (i) the employment of counsel by the Indemnified Parties has been authorized in writing by the Indemnifying Parties, (ii) the Indemnified Parties have reasonably concluded (based on advice of counsel) that there may be legal defenses available to them that are different from or in addition to those available to the Indemnifying Parties, (iii) a conflict or potential conflict exists (based on advice of counsel to the Indemnified Parties) between the Indemnified Parties and the Indemnifying Parties (in which case the Indemnifying Parties will not have the right to direct the defense of such action on behalf of the

Indemnified Parties) or (iv) the Indemnifying Parties have not in fact employed counsel to assume the defense of such action within a reasonable time after receiving notice of the commencement of the action, in each of which cases the reasonable fees, disbursements and other charges of counsel will be at the expense of the Indemnifying Parties.

(iii) It is understood that the Indemnifying Parties shall not, in connection with any proceeding or related proceedings in the same jurisdiction, be liable for the reasonable fees, disbursements and other charges of more than one separate firm admitted to practice in such jurisdiction at any one time for all such Indemnified Parties unless (a) the employment of more than one counsel has been authorized in writing by the Indemnifying Parties, (b) any of the Indemnified Parties have reasonably concluded (based on advice of counsel) that there may be legal defenses available to them that are different from or in addition to those available to other Indemnified Parties or (c) a conflict or potential conflict exists (based on advice of counsel to the Indemnified Parties) between any of the Indemnified Parties and the other Indemnified Parties, in each case of which the Indemnifying Parties shall be obligated to pay the reasonable fees and expenses of such additional counsel or counsels.

(iv) The Indemnifying Parties will not be liable for any settlement of any action or claim effected without their written consent (which consent shall not be unreasonably withheld).

(b) The provisions of this Section 5.6 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party, his or her heirs and personal representatives and shall be binding on all successors and assigns of the Partnerships and the Company.

ARTICLE VI

CONDITIONS PRECEDENT

SECTION 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The respective obligation of each party to effect the Merger and to consummate the other transactions contemplated by this Agreement to occur on the Closing Date is subject to the satisfaction or waiver on or prior to the Effective Time of the following conditions:

(a) APPROVAL OF UNITHOLDERS OF PREP FUND 1 AND PREP FUND 2. The approval of Unitholders representing a majority in interest of the Prep Fund 1 Units and Unitholders representing a majority in interest of the Prep Fund 2 BUCs.

(b) LISTING OF COMMON STOCK. The NYSE or another National Exchange shall have approved for listing the Common Stock to be issued in the Merger and such approval shall remain in effect at the Effective Time.

(c) ABSENCE OF CERTAIN CONDITIONS. The absence at the Effective Time of (a) any suspension of trading of, or limitation on prices for, securities generally on the NYSE, (b) a declaration of a banking moratorium by federal or state authorities or any suspension of payments by banks in the United States (whether mandatory or not) or of the extension of credit by lending institutions in the United States, or (c) in the case of any of the foregoing existing on the date of the Consent Solicitation Statement/Prospectus, any material acceleration or worsening thereof.

(d) REGISTRATION STATEMENT. The Registration Statement shall have become effective under the Securities Act and shall not be the subject of any stop order or proceedings by the SEC seeking a stop order.

(e) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order, preliminary or permanent injunction or other order issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Merger or any of the other transactions contemplated by this Agreement shall be in effect.

(f) OPINION RELATED TO PARTNERSHIP STATUS OF THE PARTNERSHIP. The Partnerships shall have received an opinion dated as of the Closing Date of Rogers & Wells, subject to certificates, letters and assumptions, reasonably satisfactory to the Partnerships that each Partnership was organized and has operated in conformity with the requirements for qualification as a partnership within the meaning of the Code since 1986 in the case of Prep Fund 1, 1987 in the case of Prep Fund 2 and 1988 in the case of Pension Fund, and not as a corporation or an association taxable as a corporation.

(g) OPINION RELATED TO REIT STATUS OF THE COMPANY. The Partnerships shall have received an opinion dated as of the Closing Date of Rogers & Wells, subject to certificates, letters and assumptions, reasonably satisfactory to the Partnerships that following the Merger (after giving effect thereto), the Company's proposed method of operation will enable it to meet the requirements for qualification and taxation as a REIT under the Code.

(h) THE INVESTMENT COMPANY ACT OPINION. The Partnerships shall have received an opinion dated as of the Closing Date of Rogers & Wells, subject to certificates, letters and assumptions, reasonably satisfactory to the Partnerships, to the effect that neither the Company nor any of its Subsidiaries is an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended.

(i) CONSENTS AND APPROVALS. The receipt of all necessary consents and approvals on or before (and remaining in effect at) the Effective Time.

(j) ABSENCE OF MATERIAL ADVERSE EFFECTS. The absence of any event or any matter brought to the attention of the General Partners that, in the sole judgment of the General Partners, materially affects, whether adversely or otherwise, the Partnerships, the Company or the Merger.

SECTION 6.2 CONDITIONS TO OBLIGATIONS OF THE PARTNERSHIPS. The obligations of each of the Partnerships to effect the Merger and to consummate the other transactions contemplated in this Agreement to occur on the Closing Date are further subject to the following conditions, any one or more of which may be waived by such Partnership:

(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of the other Partnerships (without giving effect to any "materiality" qualification or limitation) set forth in this Agreement shall be true and correct as of the Closing Date, as though made on and as of the Closing Date, except to the extent the representation or warranty is expressly limited by its terms to another date, and the other Partnerships shall have received a certificate (which certificate may be qualified by knowledge to the same extent as such representations and warranties are so qualified) signed on behalf of such Partnership by the General Partner of such entity to such effect. This condition shall be deemed satisfied notwithstanding any failure of a representation or warranty of such Partnership to be true and correct as of the Closing Date (without giving effect to any materiality qualification) if the aggregate amount of Economic Losses (as defined below) that would reasonably be expected to arise as a result of the failures of such representations and warranties to be true and correct as of the Closing Date does not exceed the greater of $1,000,000 or 5% of the Net Asset Value of such Partnership (such amount to be calculated by counting in all cases from the first dollar of such Economic Losses without giving effect to the $1,000,000 or 5% of the Net Asset Value limitation set forth in Section 3.1(e)). "ECONOMIC LOSSES," as used in this Section 6.2, shall mean any and all net damage, net loss (including diminution in the value of properties or assets which diminution, with regard to permanent cash flow losses from any property or assets that produces cash flow, shall be measured by multiplying the annual net cash flow produced by such property or asset over the 12-month period preceding the date of the applicable loss by a factor of 10), net liability or expense suffered by such Partnership, but shall not include any claims, damages, loss, expense or other liability resulting from any class action or Unitholders' or partners' derivative lawsuits relating to the Transactions against such Partnership, if any, filed subsequent to the date of this Agreement or any amounts paid or expenses incurred by such Partnership in obtaining non-governmental third party consents, as contemplated by Section 5.2.

(b) PERFORMANCE OF OBLIGATIONS OF THE OTHER PARTNERSHIPS. The other Partnerships shall have performed in all material respects all obligations required to be performed by them under this Agreement at or prior to the Effective Time, and each Partnership shall have received a certificate signed on behalf of each of the other Partnerships by the General Partner of each of the other Partnerships to such effect.

(c) MATERIAL ADVERSE CHANGE. Since the date of this Agreement, there has been no material adverse change in the business, results of operations or financial condition of any of the other Partnerships, that have resulted or would result, individually or in the aggregate, in Economic Losses of the greater of $1,000,000 or 5% of the Net Asset Value of such to any of the Partnerships or the Company. Each Partnership shall have received a certificate of the General Partner of each of the other Partnerships to the effect that there has been no such material adverse change.

(d) CONSENTS. All consents and waivers from third parties necessary in connection with the consummation of the Merger and the other transactions contemplated by this Agreement shall have been received, other than such consents and waivers from third parties, which, if not obtained, would not result, individually or in the aggregate, in Economic Losses of the greater of $1,000,000 or 5% of the Net Asset Value of the Partnerships or the Company.

SECTION 6.3 CONDITIONS TO OBLIGATIONS OF PENSION FUND. The obligation of Pension Fund to effect the Merger and to consummate the other Transactions contemplated to occur on the Closing Date is further subject to the approval of the Merger by a majority in interest of Unitholders holding the outstanding Pension BUCs.

ARTICLE VII

GENERAL PARTNER ACTIONS

SECTION 7.1 GENERAL PARTNER ACTIONS. Notwithstanding Section 5.3 or any other provision of this Agreement to the contrary, to the extent required by the fiduciary obligations of the General Partner of any Partnership, as determined in good faith based on the advice of outside counsel, such General Partner may:

(a) disclose to its Unitholders any information required to be disclosed under applicable law;

(b) in response to an unsolicited request therefor, participate in discussions or negotiations with, or furnish information with respect to itself pursuant to a customary confidentiality agreement (as determined by its outside counsel) to, any person in connection with a Competing Transaction proposed by such person; and

(c) approve or recommend (and in connection therewith withdraw or modify its approval or recommendation of the Merger or this Agreement) a Superior Competing Transaction (as defined below) or enter into an agreement with respect to such Superior Competing Transaction (for purposes of this Agreement, "SUPERIOR COMPETING TRANSACTION" means a bona fide proposal of a Competing Transaction made by a third party which the applicable General Partner determines in good faith (based on the advice of its investment banking firm) to be more favorable to its Unitholders than the Merger), as the case may be.

ARTICLE VIII

TERMINATION, AMENDMENT AND WAIVER

SECTION 8.1 TERMINATION. This Agreement may be terminated at any time prior to the Effective Date whether before or after Unitholder Approvals are obtained:

(a) by mutual written consent of the Partnerships duly authorized by their respective General Partners and approved by the Special Committee;

(b) by any Partnership, upon a breach of any representation or warranty on the part of Pension Fund 1 or Pension Fund 2 or the breach in any material respect of any covenant or agreement of Pension Fund 1 or Pension Fund 2 set forth in this Agreement; or (ii) by any Partnership (but such termination shall only be with regard to the obligations of Pension Fund hereunder), upon a breach of any representation or warranty on the part of Pension Fund or the breach in any material respects of any covenant or agreement of Pension Fund set forth in this Agreement; PROVIDED, HOWEVER, that the right to cause a termination of this Agreement or to cause the termination of the obligations of Pension Fund under this Section 8.1(b) shall not be available to any party that has breached its representations or warranties or has breached in any material respects any of its covenants or agreements hereunder;

(c) by any Partnership, if the Merger shall not have been consummated before June 30, 1998;

(d) by any of the Partnerships, if the approval of a majority in interest of the holders of outstanding Prep Fund 1 Units or a majority in interest of the holders of Prep Fund 2 BUCs shall not have been obtained on or prior to June 30, 1998;

(e) by any of the Partnerships (but such termination shall only be with regard to the obligations of Pension Fund hereunder), if the approval of a majority in interest of the holders of Pension Fund shall not have been obtained on or prior to June 30, 1998;

(f) by any Partnership, if prior to the approval of the Unitholders of such Partnership the General Partner of Prep Fund 1 or Prep Fund 2 (or the Special Committee acting with respect to such Partnership) shall have, in compliance with the provisions of this Agreement, changed its recommendation with respect to or withdrawn or modified its approval of the Merger or this Agreement; or

(g) by any Partnership (but such termination shall only be with regard to the obligations of Pension Fund hereunder), if the General Partner of Pension Fund (or the Special Committee acting with respect to Pension Fund) shall have, in compliance with the provisions of this Agreement, changed its recommendation with respect to or withdrawn or modified its approval of the Merger or this Agreement.

SECTION 8.2 EXPENSES.

(a) Except as otherwise specified in this Section 8.2 or agreed in writing by the parties, all costs and expenses incurred in connection with this Agreement, the Merger and the other transactions contemplated hereby shall be paid by the Partnerships (pro rata in accordance with their aggregate Net Asset Values from cash on hand) whether or not the Merger is consummated. If, however, the Merger is consummated, the Company will be allocated the entire amount of the expenses referred to in this paragraph (a).

(b) Notwithstanding the foregoing, each Partnership agrees that, if this Agreement shall be terminated pursuant to Section 8.1(d) or (f) (or the obligations of Pension Fund shall have been terminated pursuant to Section 8.1(e) or (g)) and such Partnership (each such Partnership being referred to herein as the "COMPETING TRANSACTION PARTNERSHIP") shall have, on or prior to the date of such termination, received a proposal constituting a Competing Transaction that has not been offered on substantially equivalent terms (as determined in good faith by the Special Committee) to any of the other Partnerships (each such other Partnership being referred to herein as an "EXCLUDED PARTNERSHIP"), then the Competing Transaction Partnerships agree to reimburse each Excluded Partnership for such Excluded Partnership's share of the out-of-pocket expenses incurred in connection with this Agreement and the other transactions contemplated hereby (including, without limitation, all attorneys', accountants' and investment banking fees and expenses), plus any expenses incurred in enforcing the provisions of this Section 8.2.

SECTION 8.3 EFFECT OF TERMINATION. In the event of termination of this Agreement by any Partnership as provided in Section 8.1, this Agreement shall forthwith become void and have no effect, without any liability or obligation on the part of any Partnership, other than Section 8.2, this Section 8.3

and Article IX and except to the extent that such termination results from a willful breach by a party of any of its representations, warranties, covenants or agreements set forth in this Agreement.

SECTION 8.4 AMENDMENT. This Agreement may be amended or modified by the General Partners (with the concurrence of the Special Committee) acting on behalf of the Partnerships and the Company in writing by appropriate instrument executed at any time before or after any Unitholder Approvals are obtained and prior to the Effective Date; PROVIDED, HOWEVER, that, after Unitholder Approvals are obtained, no such amendment, modification or supplement shall be made which alters the amount or changes the form of the consideration to be delivered to such Unitholders or alters or changes any of the terms or conditions of this Agreement if such alteration or change would, in the reasonable judgment of the General Partners, adversely affect such Unitholders unless a majority in interest of the adversely affected Unitholders consents to such amendment, modification or supplement.

SECTION 8.5 WAIVER. Compliance with any of the provisions of this Agreement may be waived by the General Partners (with the concurrence of the Special Committee) acting on behalf of the Partnerships and the Company in writing by appropriate instrument executed at any time before or after any Unitholder Approvals are obtained and prior to the Effective Date; PROVIDED, HOWEVER, that, after Unitholder Approvals are obtained, no such waiver shall be made which alters or changes any of the terms or conditions of this Agreement if such alteration or change would, in the reasonable judgment of the General Partners, adversely affect such Unitholders unless a majority in interest of the adversely affected Unitholders consents to such waiver.

ARTICLE IX

GENERAL PROVISIONS

SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the representations and warranties in this Agreement or in any instrument delivered pursuant to this Agreement shall survive the Effective Time. This Section 9.1 shall not limit any covenant or agreement of the parties which by its terms contemplates performance after the Effective Time.

SECTION 9.2 NOTICES. All notices, requests, claims, demands and other communications under this Agreement shall be in writing and shall be deemed given if delivered personally, sent by overnight courier (providing proof of delivery) to the parties or sent by telecopy (providing confirmation of transmission) at the following addresses or telecopy numbers (or at such other address or telecopy number for a party as shall be specified by like notice):

(a) if to the Partnerships or any of the General Partners, to

1004 Farnam Street

Omaha, Nebraska 68102

Attn: Maurice E. Cox, Jr.
Fax: (402) 345-8966

with a copy to:

Rogers & Wells

200 Park Avenue
New York, New York 10166

Attn: Alan L. Gosule, Esq.
Jay L. Bernstein, Esq.
Fax: (212) 878-8375

(b) if to the Company or Partnership Merger Sub, to

399 Park Avenue
19th Floor
New York, New York 10022
Attn: Stewart Zimmerman
Fax: (212) 935-8760
Rogers & Wells
200 Park Avenue
New York, NY 10166
Attn: Alan L. Gosule, Esq.
Jay L. Bernstein, Esq.
Fax: (212) 878-8375

SECTION 9.3 INTERPRETATION. When a reference is made in this Agreement to a Section, such reference shall be to a Section of this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Whenever the words "include," "includes" or "including" are used in this Agreement, they shall be deemed to be followed by the words "without limitation."

SECTION 9.4 COUNTERPARTS. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall become effective when one or more counterparts have been signed by each of the parties and delivered to the other parties.

SECTION 9.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This Agreement and the other agreements entered into in connection with the Transactions (a) constitute the entire agreement and supersedes all prior agreements and understandings, both written and oral, between the parties with respect to the subject matter of this Agreement and, (b) except for the provisions of Article II and Section 5.6, are not intended to confer upon any person other than the parties hereto any rights or remedies.

SECTION 9.6 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICT OF LAWS THEREOF.

SECTION 9.7 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations under this Agreement shall be assigned or delegated, in whole or in part, by operation of law or otherwise by any of the parties without the prior written consent of the other parties. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of, and be enforceable by, the parties and their respective successors and assigns.

SECTION 9.8 ENFORCEMENT. The parties agree that irreparable damage would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement in any court of the United States located in the State of Delaware or in any Delaware state court, this being in addition to any other remedy to which they are entitled at law or in equity. In addition, each of the parties hereto (a) consents to submit itself (without making such submission exclusive) to the personal jurisdiction of any federal court located in the State of Delaware or any Delaware state court in the event any dispute arises out of this Agreement or any of the Transactions contemplated by this Agreement and (b) agrees that it will not attempt to deny or defeat such personal jurisdiction by motion or other request for leave from any such court.

ARTICLE X

CERTAIN DEFINITIONS

SECTION 10.1 CERTAIN DEFINITIONS. For purposes of this Agreement:

"AFFILIATE" of any person means another person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such first person.

"EXCHANGE UNITS" means the Units (except for those Pension BUCs held by Unitholders electing the Retention Option) of those Partnerships participating in the Merger.

"NET ASSET VALUE" means the net asset value of the Partnerships calculated by the General Partners for purposes of allocating the shares of Common Stock to be issued in the Merger.

"PENSION BUCS" means Beneficial Unit Certificates representing assigned limited partnership interests in Pension Fund.

"PERSON" means an individual, corporation, partnership, limited liability company, joint venture, association, trust, unincorporated organization or other entity.

"PREP FUND 1 UNITS" means Exchangeable Units representing assigned limited partnership interests in Prep Fund 1.

"PREP FUND 2 BUCS" means Beneficial Unit Certificates representing assigned limited partnership interests in Prep Fund 2.

"SUBSIDIARY" of any person means any corporation, partnership, limited liability company, joint venture or other legal entity of which such person
(either directly or through or together with another Subsidiary of such person)
owns 50% or more of the voting stock or other equity interests of such corporation, partnership, limited liability company, joint venture or other legal entity.

"UNITHOLDERS" means the holders of Units.

"UNITS" means Prep Fund 1 Units, Prep Fund 2 BUCs and Pension BUCs.

IN WITNESS WHEREOF, Prep Fund 1, Prep Fund 2, Pension Fund, the Company and Partnership Merger Sub have caused this Agreement to be signed by their respective officers thereunto duly authorized, all as of the date first written above.

By:        /s/ MICHAEL THESING
           -----------------------------------------
           Michael Thesing
           Title: Vice President

AMERICA FIRST PREP FUND 2 LIMITED
PARTNERSHIP

By:        AMERICA FIRST CAPITAL ASSOCIATES
           LIMITED PARTNERSHIP SIX,
           its general partner

           By:        AMERICA FIRST COMPANIES L.L.C.,
                      its general partner

                      By:        /s/ MICHAEL THESING
                                 -----------------------------------------
                                 Michael Thesing
                                 Title: Vice President

                      By:        /s/ MICHAEL THESING
                                 -----------------------------------------
                                 Michael Thesing
                                 Title: Vice President

AMERICA FIRST MORTGAGE INVESTMENTS, INC.

By:        /s/ STEWART ZIMMERMAN
           ------------------------------------------------
           Stewart Zimmerman
           Title: President

AF MERGER, L.P.

By:        AMERICA FIRST MORTGAGE INVESTMENTS,
           INC., its general partner

                      By:        /s/ STEWART ZIMMERMAN
                                 -----------------------------------------
                                 Stewart Zimmerman
                                 Title: President

APPENDIX B

OPINION OF OPPENHEIMER

July 28, 1997

Special Committee of the Management Board America First Companies L.L.C.
1004 Farnam Street
Omaha, Nebraska 68102

Gentlemen:

You have requested our opinion (the "Fairness Opinion") as to whether the proposed combination (the "Merger") of America First Mortgage Investments, Inc. (the "Company") and 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", and together with Prep Fund 1 and Prep Fund 2, the "Partnerships"), including the allocation of shares of common stock of the Company (the "Common Stock") among the Partnerships is fair to the Unitholders, from a financial point of view. We have issued our Fairness Opinion on the basis of (i) participation of the three Partnerships and (ii) participation solely of Prep Fund 1 and Prep Fund 2. All capitalized terms used in this Fairness Opinion shall have the same meaning as set forth in the Preliminary Consent Solicitation Statement/Prospectus.

Oppenheimer & Co., Inc. ("Oppenheimer"), as part of its investment banking business, is regularly engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate, estate and other purposes. We have been retained by the non-employee managers (the "Special Committee") of America First Companies L.L.C. for the purpose of, and will receive a fee for, rendering this Fairness Opinion.

In connection with this Fairness Opinion, we have reviewed, among other things: a draft of the Consent Solicitation Statement/Prospectus; the Prospectus dated October 2, 1986 for the Prep Fund 1; the Prospectus dated October 1, 1987 for Prep Fund 2; the Prospectus dated March 3, 1988 for Pension Fund; audited financial statements for each Partnership for calendar year 1996; the Form 10-K for each partnership for the year ended December 31, 1996 and the Form 10-Q for each Partnership for the quarter ended March 31, 1997; documents describing each Partnership's PREPs, Prep Fund 1's Equity Interests, and Prep Fund 1's Participating Loan, including partnership and other agreements; audited financial statements for calendar years 1994, 1995 and 1996 and unaudited financial statements and other financial information for the three months period ending March 31, 1997 for each Property underlying a PREP, Prep Fund 1's Equity Interests, and Prep Fund 1's Participating Loan; pro forma balance sheets of the Company assuming the Merger was consummated on March 31, 1997 and pro forma statements of operations of the Company for the year ended December 31, 1996 and for the three months ended March 31, 1997 assuming the Merger was consummated on January 1, 1996; financial forecasts of future operations of the Company covering each of the years in the five year period ended December 31, 2002, assuming the Merger occurred January 1, 1998; a business plan of the Company; and certain other financial and other information that was publicly available or furnished to Oppenheimer by the Partnerships, PaineWebber, and the Company.

In addition, Oppenheimer held discussions with representatives of the Partnerships, PaineWebber and the Company concerning the Partnerships' historical and current operations, financial condition and prospects and the Company's financial condition and prospects, inspected each of the Properties, except the Property located in Amelia, Ohio, underlying the PREPs, Prep Fund 1's Equity Interests, and Prep Fund 1's Participating Loan, interviewed property managers at the Properties inspected, reviewed certain publicly available information of selected companies whose securities are publicly traded that Oppenheimer deemed generally comparable to the Company, and conducted such other investigations, financial analyses and studies, and reviewed such other information and factors as it deemed appropriate for the purposes of rendering this Fairness Opinion. Oppenheimer's Fairness Opinion is based upon analysis of the foregoing factors in light of our assessment of general economic, financial and market conditions as they exist on the date hereof. Events occurring after such date could materially affect the assumptions and

conclusions contained in this Fairness Opinion. We have not been requested or engaged and did not undertake to reaffirm or revise our Fairness Opinion or otherwise comment upon any events occurring after the date thereof.

In rendering this Fairness Opinion, Oppenheimer relied, without assuming responsibility for independent verification, on the accuracy and completeness of
(i) all historical and operating data, financial analysis, reports and other information relating to the Partnerships that were publicly available or furnished or communicated to Oppenheimer by or on behalf of the Special Committee; (ii) the financial forecasts of the Partnerships prepared by the General Partners that were furnished to Oppenheimer by or on behalf of the Special Committee; and (iii) the financial forecasts of the Company prepared by the General Partners furnished to Oppenheimer by or on behalf of the Special Committee. With respect to the financial forecasts furnished to Oppenheimer, Oppenheimer assumed, with the Special Committee's approval, that they reflected the best current judgment of the General Partners as to future financial performance of the Partnerships and the Company, respectively, and that there was a reasonable probability that the forecasts would prove to be substantially correct. Oppenheimer did not make an independent evaluation or appraisal of the assets or liabilities (contingent or otherwise) of the Partnerships.

Furthermore, Oppenheimer expresses no opinion as to the price or trading range at which the Company's Common Stock would trade following the completion of the Merger.

Oppenheimer was not requested to serve as financial advisor to the Special Committee, the General Partners or the Partnerships or to assist in the structuring of the proposed transaction. Additionally, Oppenheimer did not analyze the impact of any federal, state or local income taxes to the Unitholders arising out of the proposed transaction.

It is understood that this Fairness Opinion is not to be quoted, referred to, excerpted or summarized in whole or in part, or used for any purpose, without our written consent. However, this Fairness Opinion may be included in the Consent Statement/Proxy distributed to the Unitholders in connection with the proposed Merger. We have been engaged by the Special Committee for the purpose of rendering this Fairness Opinion, in connection with which we will receive a fee payable in installments (i) upon engagement and (ii) upon the rendering of the Fairness Opinion.

Based upon and subject to the foregoing and based upon such other matters as we consider relevant, it is our opinion that, as of the date hereof, the proposed Merger, including the allocation of shares of Common Stock among the Partnerships is fair, from a financial point of view, to the Unitholders in such Partnerships.

Very truly yours,

OPPENHEIMER & CO., INC.

APPENDIX C