Edgar Filing: AMERICAN MORTGAGE ACCEPTANCE CO

As filed with the Securities and Exchange Commission on January 11, 2002

Registration No. 333-74288
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

AMENDMENT NO. 1

FORM S-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

American Mortgage Acceptance Company
(Formerly American Mortgage Investors Trust)
(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of incorporation or organization)

13-6972380
(I.R.S. Employer Identification Number)

625 Madison Avenue
New York, New York 10022
(212) 421-5333
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)

Stuart J. Boesky
Chairman of the Board, President and Chief Executive Officer
American Mortgage Acceptance Company
625 Madison Avenue
New York, New York 10022
(212) 421-5333
(Name, address, including zip code, and telephone number,
including area code, of agent for service)

Copy to:
Mark Schonberger, Esq. Wayne D. Boberg, Esq.
Paul, Hastings, Janofsky & Walker LLP Winston & Strawn
399 Park Avenue 35 West Wacker Drive
New York, New York 10022 Chicago, Illinois 60601
(212) 318-6000 (312) 558-5600

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Approximate date of commencement of proposed sale to the public: As soon as
practicable, following the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. [_]
If the registrant elects to deliver its latest annual report to security
holders, or a complete and legal facsimile thereof, pursuant to Item 11(a)(1)
of this Form, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]

The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.

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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where such offer or sale is not permitted.

SUBJECT TO COMPLETION, DATED JANUARY 11, 2002

PRELIMINARY PROSPECTUS

[LOGO] American Mortgage Company
3,500,000 Common Shares

American Mortgage Acceptance Company

We are selling 3,500,000 common shares of beneficial interest and we will
receive all of the net proceeds from the sale. Our common shares are listed on
the American Stock Exchange under the symbol "AMC". On January 10, 2002, the
closing sale price of our common shares was $14.25.

Investing in our shares involves a high degree of risk. You should carefully
consider the information under the heading "Risk Factors" beginning on page 11
of this prospectus before buying our common shares.

Per Share Total
--------- -----

Public offering price................ $ $
Underwriter discounts and commissions $ $
Proceeds, before expenses, to us..... $ $

Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.

We have granted the underwriters an option for a period of 30 days to
purchase up to 525,000 additional common shares at the public offering price,
less the underwriting discounts, to cover over-allotments, if any. We have also
granted to Friedman, Billings, Ramsey & Co., Inc., as lead underwriter, and its
designated affiliates warrants to purchase up to 35,000 common shares. See
"Underwriting" beginning on page 59 of this prospectus.

We expect the common shares will be ready for delivery to purchasers on or
about , 2002.

FRIEDMAN BILLINGS RAMSEY RBC Capital Markets

, 2002

Forward-Looking Statements

This prospectus contains or incorporates by reference certain
forward-looking statements. When used, statements which are not historical in
nature, including those containing words such as "anticipate," "estimate,"
"should," "expect," "believe," "intend," and similar expressions are intended
to identify forward-looking statements. These forward-looking statements are
subject to various risks and uncertainties, including those related to:

. our ability to originate or acquire loans, mortgage-backed securities or
other investments on favorable terms;

. changes in short-term interest rates;

. risks associated with investing in real estate, including changes in
business conditions and the general economy;

. potential conflicts of interest among Related AMI Associates, Inc. (our
advisor), Related Capital and us;

. our ability to obtain borrowings to finance our investments;

. illiquidity of our portfolio of loans, mortgage-backed securities or other
investments;

. increases in the prepayments on the mortgage loans securing our
mortgage-backed securities;

. changes in government regulations affecting our business; and

. our ability to maintain our qualifications as a real estate investment
trust for federal income tax purposes.

Other risks, uncertainties and factors, including those discussed under
"Risk Factors" on page 11 of this prospectus or described in reports that we
file from time to time with the Securities and Exchange Commission such as our
Forms 10-K and 10-Q, could cause our actual results to differ materially from
those projected in any forward-looking statements that we make. We are not
obligated to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise.

You should rely only on the information contained in or incorporated by
reference into this prospectus. Neither we nor the underwriters have authorized
any other person to provide you with different information. If anyone provides
you with different or inconsistent information, you should not rely on it. The
information in this prospectus is current as of the date of this prospectus.
Our business, financial condition, results of operations and prospects may have
changed since that date.

PROSPECTUS SUMMARY

This summary highlights information in this prospectus. The summary is not
complete and does not contain all of the information you should consider before
investing in our common shares. We urge you to carefully read this entire
prospectus, including the financial statements, along with the information that
is incorporated by reference into this prospectus. You should carefully
consider the information discussed under "Risk Factors" before you decide to
purchase our shares. All references to "we," "us" or the "Company" mean
American Mortgage Acceptance Company and our wholly-owned subsidiaries. Unless
otherwise indicated, the information contained in this prospectus assumes that
the underwriters do not exercise their over-allotment option.

Our Business

We are a real estate investment trust that seeks asset diversification,
capital appreciation and income for distributions to our shareholders primarily
through the acquisition and origination of both government insured and
uninsured mortgages secured by multifamily properties. These investments may
take the form of government insured first mortgages and uninsured mezzanine
loans, construction loans and bridge loans. We may also invest in other real
estate assets, including commercial mortgage-backed securities.

At September 30, 2001, we had total assets of $99.9 million of which $97.7
million represented mortgage investments. At September 30, 2001, approximately
65% of our assets consisted of mortgages guaranteed or insured by a United
States government agency such as the Federal Housing Authority ("FHA") or the
Government National Mortgage Association ("GNMA" or "Ginnie Mae") or by Fannie
Mae. At September 30, 2001, we owned $46.9 million in Ginnie Mae certificates
and had invested $17.7 million in FHA insured first mortgage loans. We
generally seek to maintain 40% of our mortgage investments in government
insured or guaranteed investments.

At September 30, 2001, we owned $7.4 million in mezzanine loans and $5.5
million in bridge loans funded in connection with the development of
multifamily properties which benefit from the Low Income Housing Tax Credit
("LIHTC") program under Section 42 of the Internal Revenue Code. We also owned
an indirect investment in commercial mortgage-backed securities ("CMBS")
through our $20.2 million preferred equity interest in ARCap Investors L.L.C.
("ARCap").

[CHART]

47% ($46.9 million) Ginnie Mae Certificates
18% ($17.7 million) FHA Insured First Mortgage Loans
21% ($20.2 million) Investments in CMBS (through ARCap)
8% (7.4 million) Mezzanine loans
6% (5.5 million) Bridge loans

Through a program with Fannie Mae, we originate construction and permanent
loans for multifamily properties on Fannie Mae's behalf. We guarantee a first
loss position and receive loss sharing and loan origination fees for loans that
we originate. As of September 30, 2001, we originated loans totaling
approximately $2.2 million and have made forward commitments for an additional
approximately $6.8 million. Our maximum exposure under the Fannie Mae program
and the forward commitments at September 30, 2001 was $6.0 million. We have not
acquired an interest in any of the loans we have originated on Fannie Mae's
behalf. Since we entered into the loan program, the level of loan origination
competition has increased, reducing our projected financing volume and
profitability. As a result, we are de-emphasizing this program and evaluating
the possibility of transferring our rights and obligations in the loan program
to a third party.

We finance the acquisition of our assets primarily through borrowing at
short term rates using demand repurchase agreements. Under our declaration of
trust, we may incur permanent indebtedness of up to 50% of our total market
value calculated at the time the debt is incurred. Permanent indebtedness and
working capital indebtedness may not exceed 100% of our total market value. Our
declaration of trust provides that we may not change our policy regarding
indebtedness without the consent of a majority in interest of our shareholders.

We were formed in June 1991 as a Massachusetts business trust. From
formation until April 1999, we were a closed-end, finite-life REIT not
permitted to finance or invest beyond the proceeds raised in our initial public
offering. In April 1999, we reorganized the Company into an open-ended,
infinite-life REIT authorized to issue debt and equity securities and make a
broader range of investments. Also in April 1999, we changed our name from
American Mortgage Investors Trust to American Mortgage Acceptance Company. In
July 1999, we listed our shares on the American Stock Exchange.

We have engaged Related AMI Associates, Inc., which we refer to as our
"Advisor," to manage our day-to-day affairs. Our Advisor has subcontracted its
management obligations to its affiliate, Related Capital Company, the nation's
largest non-agency financier of affordable multifamily housing. The management
team responsible for our day-to-day affairs has an average of 12 years of
experience with Related Capital and an average of 20 years experience in the
real estate industry.

Our Industry

We focus our origination and acquisition efforts on several types of
multifamily housing financing. Commercial mortgage lenders originated
multifamily housing loans totaling $26.5 billion in 2000, more than half of
which were insured or guaranteed by an agency of the United States government.
Based upon a Prudential Financial report dated May 2001, we believe that the
estimated total amount of multifamily mezzanine loan originations was $5.77
billion in 2000.

According to the National Multi Housing Council, in the year 2001 there were
16.1 million apartment units in the United States in buildings of more than
five units valued at over $1.3 trillion. This market has increased from 15.4
million apartment units with an estimated value of $767.1 billion in 1990,
representing an average annual increase in value of 5.5% during the past
decade. Over the past 20 years the multifamily sector has delivered one of the
highest average total investment returns of all real estate property types
according to the National Council of Real Estate Investment Fiduciaries. We
believe there will continue to be a strong demand for multifamily housing
related to factors such as population growth and household formations. The
National Association of Home Builders, in its report released in February 2001,
has estimated that this demand will support production of more than 3.4 million
new multifamily units from 2001 to 2010. Improved capital market discipline,
including the lower debt ratios of America's largest apartment real estate
investment trusts, bodes well for the multifamily housing industry. We believe
the multifamily housing sector will continue to be the favored sector for
income-producing properties as well as the top performer in terms of rent
increases through mid-2002.

Within the multifamily sector, we focus a portion of our originations on
bridge loans that are secured by interests in affordable multifamily housing.
We believe there is a significant unmet demand for affordable multifamily
housing. According to a United States Department of Housing and Urban
Development report dated January 2001, 4.9 million households are in need of
quality affordable housing. We believe that affordable multifamily housing
provides an excellent form of collateral, which is further described below
under "Our Investment Strategy--Bridge Loans."

Our Investment Strategy

Since our 1999 reorganization, our goal has been to increase the return on
our asset base by investing in higher yielding assets while balancing our risk
by maintaining a portion of our investments in government agency guaranteed or
insured assets and maintaining a conservative capital structure.

We invest in the following types of assets:

Government Insured and Guaranteed Investments. We generally seek to maintain
approximately 40% of our mortgage investments in government insured or
guaranteed investments. We do this primarily through the acquisition or
origination of mortgage loans on multifamily properties, the principal of which
is insured by FHA, and the acquisition of Ginnie Mae mortgage-backed securities
and pass-through certificates. We may also acquire mortgage-backed securities
insured by Fannie Mae or the Federal Loan Mortgage Corporation ("Freddie Mac").
Government agency insured lending offers us safety, liquidity and moderate
yields, while also providing us with a strong asset base for collateralized
borrowing on favorable terms.

Mezzanine Loans. Mezzanine loans are subordinate to senior mortgages and
generally include a participating component, such as a right to a portion of
the cash flow and refinancing and sale proceeds from the underlying properties.

We seek to capitalize on attractive yields available through the funding of
mezzanine debt in combination with our origination of government insured
multifamily first mortgages. We believe that we are one of the few lenders in
the country who offer mezzanine loans in conjunction with agency-insured first
mortgage loans.

Our mezzanine loans typically finance newly constructed or rehabilitated
market-rate multifamily properties and generally have terms of 40 years with an
option to call the loan on 12 months notice at any time after the 10th
anniversary of the equity loan closing. These loans are typically in a
subordinated mortgage position, are secured by equity interests in the borrower
and have limited recourse to the borrower for the three years from the date of
the loan. We seek properties in growing real estate markets with well
capitalized developers or guarantors. We leverage the expertise of our Advisor
and its affiliates in both the initial underwriting of the property, as well as
in the ongoing monitoring of the property through construction, lease-up and
stabilization.

Bridge Loans. Our bridge loans are typically funded in connection with the
development of multifamily properties which benefit from the LIHTC program. We
believe that since 1989, on average, nearly one-third of each year's new
multifamily property construction contains an affordable component that
produces LIHTCs (from 1989 through 1999 the number of affordable units
producing LIHTCs ranged from 62,000 to 126,000). Due to the equity payment
schedule typically associated with LIHTC investment programs, there can be
periods in a construction cycle where a developer needs short term capital. To
capitalize on this demand, we offer bridge loans to developers with typical
terms of approximately 12 months and which are collateralized by the equity
interests in the property owner. We may also provide bridge loans for
properties undergoing rehabilitation by new owners when we believe the
rehabilitation process will add significant value to the property and reduce
our effective loan-to-value ratio and our risk of loss. Our loans may finance
the initial purchase or the subsequent rehabilitation of a property.

We focus our bridge lending on LIHTC properties because we believe that
default risks ordinarily associated with bridge lending are substantially
reduced by the presence of LIHTCs, the value of which typically averages two to
four times the principal amount of the bridge loan. The beneficial owners of
these LIHTC properties are typically Fortune 500 companies that have invested
in order to receive the tax benefits of the LIHTC which are received ratably
over an 11 year period. In the event that these properties cannot support their
debt service, the beneficial owners have an incentive to maintain the debt
service so that they can avoid foreclosure of their equity interests and the
loss of the tax benefits associated with the LIHTCs. According to Fitch IBCA,
loans underlying CMBS collateralized in part by multifamily properties that
benefit from federal LIHTCs are expected to have reduced risk of default due to
indirect collateral enhancement provided by LIHTCs.

Commercial Mortgage-Backed Securities. We may invest in subordinated CMBS,
which offer the advantage of significantly higher yields than government
insured and guaranteed investments. The market values of subordinated interests
in CMBS and other subordinated securities tend to be more sensitive to changes
in economic conditions than senior, rated classes. As a result of these and
other factors, subordinated interests generally are not actively traded and may
not provide holders with liquidity of investment.

We currently invest indirectly in CMBS through our convertible preferred
equity investment in ARCap. ARCap specializes in, and is a recognized industry
leader in investing in, non-investment grade and unrated subordinated CMBS. The
CMBS which comprise ARCap's portfolio are collateralized by a diverse range of
underlying properties including multifamily, retail, office and hotel.

Our Capital Structure

We seek to maintain a conservative capital structure, which we believe
distinguishes us from other more highly leveraged mortgage REITs. In this
regard, our declaration of trust limits our use of debt financing. Our
permanent indebtedness may not exceed 50% of our total market value calculated
at the time the debt is incurred. Furthermore, our permanent indebtedness, when
combined with our working capital indebtedness, may not exceed 100% of our
total market value calculated at the time the debt is incurred. As of September
30, 2001, our indebtedness, all of which was working capital indebtedness, was
$43.2 million and our ratio of indebtedness to total market value was 43.2%.

Our Advisor

Related Capital, a financial services subsidiary of The Related Companies,
L.P., has specialized in offering debt and equity products to mid-market
multifamily owners and developers for over 29 years and has provided debt and
equity financing for over 1,200 properties valued at over $11 billion and
located in 45 states and Puerto Rico. According to the 2001 National
Multihousing Council survey, Related Capital is the third largest owner of
apartments in the United States with ownership interests in 160,860 apartment
units.

Related Capital is currently the nation's largest non-agency provider of
financing for multifamily federal LIHTC housing. In 2000, Related Capital and
its affiliated entities provided over $900 million of debt and equity financing
for affordable multifamily housing. We benefit from the marketing efforts of
Related Capital's origination groups, which offer our bridge loan program in
connection with LIHTC equity investments to developers nationally. We have
access to Related Capital's proprietary client base, which includes some of the
nation's most active and respected developers of affordable multifamily housing.

We also benefit from Related Capital's underwriting and asset management
expertise. Related Capital, through 13 asset management offices throughout the
country, currently provides asset management services for a portfolio of over
765 multifamily properties.

An affiliate of Related Capital also manages another American Stock
Exchange-listed company, Charter Municipal Mortgage Acceptance Company
("CharterMac"). CharterMac predominately invests in tax-exempt revenue bonds
that secure affordable multifamily housing properties. On December 24, 2001, a
subsidiary of CharterMac acquired PW Funding, Inc., a national mortgage banking
firm specializing in agency lending to multifamily housing properties. PW
Funding is a Fannie Mae Delegated Underwriting and Servicing program lender and
an FHA lender. In addition, one of PW Funding's subsidiaries is a Freddie Mac
Program Plus Lender. We believe that we will be able to benefit, through our
affiliation with CharterMac's manager, from the PW Funding acquisition as it
may provide us with a pipeline of product for both our bridge lending and our
mezzanine lending products.

The Related Companies, L.P. is one of the nation's largest developers of
premier multifamily and mixed-use real estate assets. Since 1972, The Related
Companies, L.P. and its predecessor, have developed 156 properties, including
142 multifamily properties and 14 commercial properties. Related Management
Company, a division of The Related Companies, L.P., directly manages 153
multifamily rental properties totaling 19,000 residential units. The Related
Companies, L.P. currently has 22 fully-financed developments currently under
construction, totaling $3.8 billion, the largest of which is AOL Time Warner
Center, a 2.8 million square foot mixed use premier property located in
Manhattan at the intersection of Central Park South and Central Park West. The
property will feature AOL Time Warner, Inc.'s world headquarters, including a
CNN broadcasting facility, as well as luxury retail and restaurants, a Mandarin
Oriental Hotel and super-luxury, high-rise residential units.

General Information

We have elected to be treated as a real estate investment trust (a "REIT")
for federal income tax purposes. This treatment permits us to deduct dividend
distributions to our shareholders for federal income tax purposes, thus
effectively eliminating the "double taxation" that generally results when a
corporation earns income and distributes that income to its shareholders by way
of dividends. In order to maintain our status as a REIT, we must comply with a
number of requirements under federal income tax law that are discussed under
"Certain Federal Income Tax Considerations."

Our principal executive offices are located at 625 Madison Avenue, New York,
New York 10022. Our telephone number is (212) 421-5333.

Recent Developments

Dividend Declaration. On December 13, 2001, our Board of Trustees declared a
dividend of $0.3625 per share for the fourth quarter ended December 31, 2001,
payable to shareholders of record on December 31, 2001. The dividend will be
paid on February 14, 2002.

Election of Chief Operating Officer. On January 1, 2002, Steven B. Wendel
was elected as Chief Operating Officer. Mr. Wendel previously served as our
Senior Vice President.

New Loans. See ''Our Company--Portfolio--Recent Development'' for a
discussion of our recent loans.

The Offering

Common shares of beneficial
interest offered by us.... 3,500,000 shares(1)
Common shares of beneficial
interest outstanding after
this offering............. 7,373,630 shares(2)(3)
American Stock Exchange
symbol.................... AMC
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(1) 4,025,000 shares if the underwriters exercise their over-allotment option
in full.
(2) Includes 35,000 shares that we will issue to our Advisor upon completion of
this offering (we will issue an additional 5,250 shares to our Advisor if
the underwriters exercise their over-allotment in full) pursuant to our
advisory agreement, which entitles our Advisor to receive as compensation a
number of shares equal to 1% of all common shares issued by us.

(3) 7,903,880 shares (including 5,250 shares to be issued as described in
footnote 2 above) if the underwriters exercise their over-allotment option
in full. Does not include 383,924 common shares reserved for issuance under
our Incentive Share Option Plan. Does not include 35,000 common shares
issuable to the lead underwriter upon exercise of its warrant. See
"Underwriting."

Use of Proceeds

We intend to use the net proceeds from the sale of our common shares to
acquire and originate government insured and uninsured mortgage investments
consistent with our investment policy limitations as stated in our declaration
of trust.

The net proceeds from the sale of 3,500,000 common shares will be
approximately $ after deducting the underwriting discount and the estimated
expenses of the offering.

Summary Financial Data

The summary financial data as of December 31, 2000, 1999 and 1998 and for
the years then ended are derived from our audited financial statements for
those years. The summary financial data for the nine months ended September 30,
2000 and 2001 are derived from our unaudited financial statements for those
periods. You should read this summary financial data along with "Management's
Discussion and Analysis of Financial Condition and Results of Operations," and
our audited and unaudited financial statements and notes thereto included and
incorporated by reference in this prospectus beginning on page F-1.

Nine Months Ended
September 30, Year Ended December 31,
------------------------ ------------------------------------
2001 2000 2000 1999 1998
----------- ----------- ----------- ----------- ----------

Operating Data:
Mortgage loan income.................... $ 2,256,514 $ 1,188,021 $ 1,565,219 $ 2,569,901 $3,037,882
GNMA income............................. 1,354,307 355,962 472,693 785,591 880,680
CMBS income............................. -- 2,867,659 3,189,407 950,456 --
Equity in earnings of ARCap............. 1,788,137 -- 401,096 -- --
Temporary investment income............. 46,544 1,845,770 2,084,417 1,092,617 112,953
Other income............................ 304,345 444,828 598,307 109,017 --
Net (loss) gain on investments.......... (211,572) (392,445) (227,541) 3,054,011 12,144
Interest expense........................ (1,099,607) (2,856,936) (3,371,906) (906,581) --
Other expenses.......................... (793,384) (1,075,939) (1,393,935) (1,394,712) (647,047)
----------- ----------- ----------- ----------- ----------
Net income.............................. $ 3,645,284 $ 2,376,920 $ 3,317,757 $ 6,260,300 $3,396,612
=========== =========== =========== =========== ==========
Net income per share (basic and diluted) $ 0.95 $ 0.62 $ 0.86 $ 1.63 $ 0.88
=========== =========== =========== =========== ==========
Weighted average shares outstanding
(basic and diluted)................... 3,838,630 3,838,630 3,838,630 3,841,931 3,845,101
=========== =========== =========== =========== ==========

As of September 30, As of December 31,
------------------------ ------------------------------------
2001 2000 2000 1999 1998
----------- ------------ ----------- ------------ -----------

Balance Sheet Data:
Total assets................. $99,912,427 $121,322,167 $70,438,313 $115,565,441 $59,993,040
Repurchase facilities payable $43,191,173 $ 20,061,000 $12,655,940 $ 19,127,000 $ --
Total shareholders' equity... $54,720,311 $ 55,453,276 $55,075,873 $ 57,091,365 $58,204,574

Capitalization

Our actual capitalization at September 30, 2001, and our capitalization as
adjusted to give effect to the issuance of 3,500,000 common shares in this
offering at a price of $ per share is set forth below.

September 30, 2001
--------------------------
Actual As Adjusted*
------------ ------------

Shares of beneficial interest; par value $.10 per share; 12,500,000 shares
authorized; 4,213,826 issued and 3,838,630 outstanding (as adjusted 7,748,826
issued and 7,373,630 outstanding)............................................ $ 421,383 $ 774,883
Treasury shares of beneficial interest; 375,196 shares......................... (37,520) (37,520)
Additional paid-in-capital..................................................... 68,840,500
Distributions in excess of net income.......................................... (14,655,543) (14,655,543)
Accumulated other comprehensive income......................................... 151,491 151,491
------------ ------------
Total....................................................................... $ 54,720,311 $
============ ============

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/*/ After deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us. Includes 35,000 shares that we
will issue to our Advisor (40,250 if the underwriters exercise their over-
allotment option in full) upon completion of this offering pursuant to our
advisory agreement with our Advisor. Assumes no exercise of the
underwriter's over-allotment option to purchase up to an additional 525,000
shares. Does not include 35,000 common shares issuable to the lead
underwriter upon exercise of its warrant. See "Underwriting."

RISK FACTORS

An investment in our common shares involves a number of risks. Before making
an investment decision, you should carefully consider all of the risks
described in this prospectus. If any of the risks discussed in this prospectus
actually occur, our business, financial condition and results of operations
could be materially adversely affected. If this were to occur, the trading
price of our common shares could decline and you may lose all or part of your
investment.

Mortgage investments that are not United States government insured and
non-investment grade mortgage assets involve risk of loss

General

We intend to continue to originate and acquire uninsured and non-investment
grade mortgage loans and mortgage assets as part of our investment strategy.
Such loans and assets may include mezzanine loans, bridge loans and CMBS. While
holding such interests, we will be subject to risks of borrower defaults,
bankruptcies, fraud and losses and special hazard losses that are not covered
by standard hazard insurance. Also, the costs of financing the mortgage loans
could exceed the return on the mortgage loans. In the event of any default
under mortgage loans held by us, we will bear the risk of loss of principal and
non-payment of interest and fees to the extent of any deficiency between the
value of the mortgage collateral and the principal amount of the mortgage loan.
To the extent we suffer such losses with respect to our investments in mortgage
loans, the value of the Company and the price of our common shares may be
adversely affected.

Limited recourse loans may limit our recovery to the value of the mortgaged
property

Our mortgage loans are generally non-recourse, except for our mezzanine
loans, which typically have limited recourse provisions for the first three
years from the date of the loan. In addition, limited recourse against the
borrower may be further limited by applicable provisions of the laws of the
jurisdictions in which the mortgaged properties are located or by the selection
of remedies and the impact of those laws on that selection. With respect to our
non-recourse mortgage loans, in the event of a borrower default, the specific
mortgaged property and other assets, if any, pledged to secure the relevant
mortgage loan, may be less than the amount owed under the mortgage loan. As to
those mortgage loans that provide for recourse against the borrower and its
assets generally, there can be no assurance that such recourse will provide a
recovery in respect of a defaulted mortgage loan greater than the liquidation
value of the mortgaged property securing that mortgage loan.

Competition in acquiring desirable mortgage investments may limit the
availability of desirable investments which could, in turn, negatively affect
our ability to maintain our dividend distribution

We compete for mortgage asset investments with numerous public and private
real estate investment vehicles, such as mortgage banks, pension funds, real
estate investment trusts, institutional investors and individuals. Mortgages,
subordinated interests in CMBS and other investments are often obtained through
a competitive bidding process. In addition, competitors may seek to establish
relationships with the financial institutions and other firms from which we
intend to purchase such assets. Many of our anticipated competitors are larger
than us, may have access to greater capital and other resources, may have
management personnel with more experience than our officers or our Advisor and
may have other advantages over us and the Advisor in conducting certain
business and providing certain services. Competition may result in higher
prices for mortgage assets, lower yields and a narrower spread of yields over
our borrowing costs. In addition, competition for desirable investments could
delay the investment of proceeds from this offering in desirable assets, which
may, in turn, reduce earnings per share and may negatively affect our ability
to maintain our dividend distribution. There can be no assurance that we will
achieve investment results that will allow any specified level of cash
distribution.

Interest rate fluctuations will affect the value of mortgage assets, net income
and the common shares

General

Interest rates are highly sensitive to many factors, including governmental
monetary and tax policies, domestic and international economic and political
considerations and other factors beyond our control. Interest rate fluctuations
can adversely affect our income and value of our common shares in many ways and
present a variety of risks, including the risk of a mismatch between asset
yields and borrowing rates, variances in the yield curve and changing
prepayment rates.

Interest rate mismatch could occur between asset yields and borrowing rates
resulting in decreased yield

Our operating results will depend in large part on differences between the
income from our assets (net of credit losses) and our borrowing costs. We
expect that most of our assets will bear fixed interest rates and will have
terms in excess of five years. We fund the origination and acquisition of a
significant portion of our assets with borrowings which have interest rates
that reset relatively rapidly, such as monthly or quarterly. We anticipate
that, in most cases, the income from our assets will respond more slowly to
interest rate fluctuations than the cost of our borrowings, creating a mismatch
between asset yields and borrowing rates. Consequently, changes in interest
rates, particularly short-term interest rates, may influence our net income.
For example, our borrowings under our repurchase agreements bear interest at
rates that fluctuate with LIBOR. Based on the $43.2 million of borrowings
outstanding under these facilities at September 30, 2001, a 1% change in LIBOR
would impact our annual net income and cash flows by approximately $432,000.
Increases in these rates will tend to decrease our net income and market value
of our net assets. Interest rate fluctuations that result in our interest
expense exceeding interest income would result in our incurring operating
losses.

Prepayment rates can increase, thus adversely affecting yields

The value of our assets may be affected by prepayment rates on investments.
Prepayment rates are influenced by changes in current interest rates and a
variety of economic, geographic and other factors beyond our control, and
consequently, such prepayment rates cannot be predicted with certainty. To the
extent we originate mortgage loans, we expect that such mortgage loans will
have a measure of protection from prepayment in the form of prepayment lock-out
periods or prepayment penalties. However, such protection may not be available
with respect to investments which we acquire, but do not originate. In periods
of declining mortgage interest rates, prepayments on mortgages generally
increase. If general interest rates decline as well, the proceeds of such
prepayments received during such periods are likely to be reinvested by us in
assets yielding less than the yields on the investments that were prepaid. In
addition, the market value of mortgage investments may, because of the risk of
prepayment, benefit less from declining interest rates than from other
fixed-income securities. Conversely, in periods of rising interest rates,
prepayments on mortgages generally decrease, in which case we would not have
the prepayment proceeds available to invest in assets with higher yields. Under
certain interest rate and prepayment scenarios we may fail to recoup fully our
cost of acquisition of certain investments.

We are dependent on our Advisor and if our Advisor terminates our advisory
agreement, we may not be able to find an adequate replacement advisor

We have no employees, although for administrative purposes we have appointed
officers. We have entered into an advisory agreement with our Advisor under
which our Advisor provides us with all of the services vital to our operations.
We are dependent on our Advisor for the management and administration of our
business and investments. The results of our operations will be dependent upon
the availability of, and our Advisor's ability to identify and capitalize on,
investment opportunities. The agreement may be terminated (i) without cause by
our Advisor or (ii) with or without cause by a majority of our independent
trustees, each without penalty and each upon 60 days' prior written notice to
the non-terminating party. If our Advisor terminates our agreement, we may not
be able to find an adequate replacement advisor.

Conflicts of interest could arise among our Advisor, Related Capital and us
with respect to investment opportunities

Our Advisor has subcontracted to Related Capital the obligation to provide
the services which our Advisor is required to provide under an advisory
agreement with us. There are risks involved with this arrangement. Under our
advisory agreement, our Advisor and Related Capital are permitted to act as
advisor to any other person or entity having investment policies similar to
ours, including other real estate investment trusts. Generally, in conflict
situations with non-affiliated entities, our Advisor must present an investment
opportunity to us if the opportunity is within our investment objectives and
policies, the opportunity is of a character that could be taken by us, and we
have the financial resources to take advantage of the opportunity. However, to
the extent that other companies advised by or affiliated with our Advisor or
Related Capital have similar investment objectives to ours and have funds
available for investment at the same time as us or to the extent that an
investment is potentially suitable for us and at least one such entity,
conflicts of interest could arise as to which entity should acquire the
investment.

Related Capital effectively controls and manages a closed-end publicly held
limited partnership with similar investment objectives that may invest in
mortgages suitable for investment by us (although, barring reinvestment of
refinancing proceeds, this entity has fully invested its available funds and is
not permitted to raise additional capital). In addition, an affiliate of
Related Capital is the manager of Charter Municipal Mortgage Acceptance Company
("CharterMac"), which is an American Stock Exchange-listed company which
invests primarily in tax-exempt mortgage investments but has in the past, and
may in the future, invest in taxable mortgage investments similar to those in
which we invest. For example, CharterMac has recently acquired an interest in
ARCap. Finally Related Capital also effectively controls two Delaware limited
liability companies whose principal lines of business have been the arrangement
of credit enhancements for tax-exempt revenue bonds, although from time to time
they may invest in taxable mortgage investments similar to ours. As of the date
of this prospectus, neither entity is actively operating.

To the extent that these entities, as well as affiliated entities which may
be formed by affiliates of Related Capital in the future, have funds available
for investment at the same time as us and a potentially suitable investment is
offered to us or the affiliated entity, our Advisor will review the affiliated
entity's and our investment portfolios and will determine whether or not the
investment should be made by the affiliated company or by us based upon factors
such as the amount of funds available for investment, yield and portfolio
diversification. If the making of a mortgage loan or other mortgage investment
appears equally appropriate for these entities, the mortgage loan or other
mortgage investment will either be made by a joint venture between two or more
such entities, or will be allocated to one program on a basis of rotation with
the initial order of priority determined by the dates of formation of the
programs.

Conflicts of interest could arise in transactions where we lend to borrowers
affiliated with Related Capital

We have invested in, and may in the future invest in, mortgage investments
secured by properties in which either direct or indirect affiliates of Related
Capital own equity interests in the borrower. Our declaration of trust requires
that any transaction between our Advisor, Related Capital or any of their
affiliates and us be approved by a majority of trustees, including a majority
of the independent trustees, not otherwise interested in the transaction, as
being fair and reasonable and on terms not less favorable to us than those
available from unaffiliated third parties. As of September 30, 2001, we have 6
mortgage investments to borrowers that are affiliates of Related Capital
totaling approximately $11,728,000. Typically, these affiliate borrowers are
limited partnerships where the general partner is either an affiliate of
Related Capital or an unaffiliated third party with a 1% general partnership
interest and the 99% limited partner is a limited partnership in which an
affiliate of Related Capital owns a 1% general partnership interest and one or
more Fortune 500 companies own a 99% limited partnership interest.

Every transaction entered into between us and a Related Capital affiliate
raises a potential conflict of interest. In addition to the initial
determination to invest in mortgage investments secured by properties owned by
a Related Capital affiliate, such conflicts of interest with respect to these
mortgage investments include, among others, decisions regarding (i) whether to
waive defaults of such Related Capital affiliate, (ii) whether to foreclose on
a loan, and (iii) whether to permit additional financing on the properties
securing our investments other than financing provided by us.

We may not accurately assess investment yields, which may result in losses to us

Before making any investment, our Advisor will consider the expected yield
of the investment and the factors that may influence the yield actually
obtained on such investment. These considerations will affect our or our
Advisor's decision whether to purchase such an investment and the price offered
for such an investment. No assurances can be given that we or our Advisor can
make an accurate assessment of the yield to be produced by an investment. Many
factors beyond our and our Advisor's control are likely to influence the yield
on the investments, including, but not limited to, competitive conditions in
the local real estate market, local and general economic conditions and the
quality of management of the underlying property. Our Advisor's inability to
accurately assess investment yields may result in our purchasing assets that do
not perform as well as expected, which may adversely affect the price of our
common shares.

In our loan program with Fannie Mae, we guarantee a first loss position

Under our loan program with Fannie Mae we may originate, on Fannie Mae's
behalf, up to $250 million in construction and permanent loans for multifamily
properties. In the event we were to originate $250 million in loans pursuant to
this program, we would guarantee a first loss position on these loans equal to
the amount lost on the loans of up to a maximum of $21.25 million. If defaults
occur on loans originated by us then we may be required to make an immediate
cash payment of up to the total amount of our first loss position. As of
September 30, 2001, we originated, on Fannie Mae's behalf, loans totaling
approximately $2.2 million and have made forward commitments for an additional
approximately $6.8 million. We also guaranteed construction loans for which we
have issued a forward commitment to originate a loan under the Fannie Mae
program, with respect to which we guarantee repayment of 100% of such
construction loans. Our maximum exposure under the Fannie Mae program and the
forward commitments at September 30, 2001 was $6.0 million. We have not
acquired an interest in any of the loans we have originated on Fannie Mae's
behalf.

Volatility of values of mortgaged properties may adversely affect our mortgage
loans

Multifamily and commercial property values and net operating income derived
from such properties are subject to volatility and may be affected adversely by
a number of factors, including, but not limited to, national, regional and
local economic conditions (which may be adversely affected by industry
slowdowns and other factors); local real estate conditions (such as an
oversupply of housing, retail, industrial, office or other commercial space);
changes or continued weakness in specific industry segments; construction
quality, age and design; demographic factors; retroactive changes to building
or similar codes; and increases in operating expenses (such as energy costs).
In the event net operating income decreases, a borrower may have difficulty
paying our mortgage loan, which could result in losses to us. In addition,
decreases in property values reduce the value of the collateral and the
potential proceeds available to a borrower to repay our mortgage loans, which
could also cause us to suffer losses.

We are subject to construction completion risks

Some of our mortgages are secured by multifamily housing properties which
are still in various stages of construction. Construction of such properties
generally takes approximately 12 to 24 months. The principal risk

associated with construction lending is the risk of noncompletion of
construction which may arise as a result of: (i) underestimated initial
construction costs (ii) cost overruns during construction (iii) delays in
construction (iv) failure to obtain governmental approvals and (v) adverse
weather and other unpredictable contingencies beyond the control of the
developer. If a mortgage loan is called due to construction not being completed
as required in the mortgage loan documents, we may determine to expend
additional capital in order to preserve our investment.

In order to minimize certain risks which may occur during the construction
phase of a property, our Advisor endeavors to obtain in most instances one or
more types of security during such period, including a construction completion
guarantee from the principals of the property owner, personal recourse to the
property owner and payment and performance bonding of the general contractor,
if any, with respect to a property securing our investment. In addition, our
Advisor may require principals of the property owner to provide us with an
operating deficit guarantee, covering operating deficits of a property securing
an investment during an agreed-upon period. We may not be able, however, to
obtain such security with respect to certain properties. In other cases, we may
decide to forego certain types of available security if we determine that the
security is not necessary or is too expensive to obtain in relation to the
risks covered.

Bridge and mezzanine loans involve greater risks of loss than senior loans
secured by income producing properties

We have acquired and expect to continue to acquire bridge and mezzanine
loans. These types of mortgage loans are considered to involve a higher degree
of risk than long-term senior mortgage lending secured by income-producing real
property due to a variety of factors, including the loan becoming unsecured as
a result of foreclosure by the senior lender. We may not recover some or all of
our investment in such loans. In addition, bridge loans and mezzanine loans may
have higher loan to value ratios than conventional mortgage loans resulting in
less equity in the property and increasing the risk of loss of principal.

Subordinated interests are subject to increased risk of first loss or
non-investment grade subordinated interests

We have invested indirectly in subordinated CMBS through our ownership of a
preferred membership interest in ARCap Investors L.L.C. ("ARCap"). Subordinated
CMBS of the type in which ARCap invests include "first loss" and non-investment
grade subordinated interests. A first loss security is the most subordinate
class in a structure and accordingly is the first to bear the loss upon a
default on restructuring or liquidation of the underlying collateral and the
last to receive payment of interest and principal. Such classes are subject to
special risks, including a greater risk of loss of principal and non-payment of
interest than more senior, rated classes. The market values of subordinated
interests in CMBS and other subordinated securities tend to be more sensitive
to changes in economic conditions than more senior, rated classes. As a result
of these and other factors, subordinated interests generally are not actively
traded and may not provide holders with liquidity of investment. With respect
to our investment in ARCap, our ability to transfer our membership interest in
ARCap is further limited by the terms of ARCap's operating agreement.

Participating interests in mortgages may not be available and even if obtained
may not be realized

In connection with the acquisition and origination of mortgages, we have
obtained and may continue to obtain participating interests that may entitle us
to payments based upon a development's cash flow, profits or any increase in
the value of the development that would be realized upon a refinancing or sale
of the development. Competition for participating interests is dependent to a
large degree upon market conditions. Participating interests are more difficult
to obtain when mortgage financing is available at relatively low interest

rates. In the current interest rate environment, we may have greater difficulty
obtaining participating interests. Participating interests are not government
insured or guaranteed and are therefore subject to the general risks inherent
in real estate investments. Therefore, even if we are successful in investing
in mortgage investments which provide for participating interests, there can be
no assurance that such interests will result in additional payments to us.

Short-term repurchase agreements are our primary method of financing and they
involve risk of loss

We primarily finance and expect to continue to finance primarily through
collateralized borrowing in the form of repurchase agreements, which involve
the sale by us of assets concurrently with an agreement by us to repurchase
such assets at a later date at a fixed price. During the repurchase agreement
period, we continue to receive principal and interest payments on the assets.
The use of borrowing, or "leverage," to finance our assets involves a number of
risks, including the following:

If we are unable to renew our borrowings at favorable rates, we may be forced
to sell assets and our profitability may be adversely affected.

We rely primarily on short-term repurchase agreements to finance our assets.
Our ability to achieve our investment objectives depends on our ability to
borrow money in sufficient amounts and on favorable terms and our ability to
renew or replace maturing short-term borrowings on a continuous basis. If we
are not able to renew or replace maturing borrowings, we would be forced to
sell some of our assets under possibly adverse market conditions, which may
adversely affect our profitability. As of September 30, 2001, we had borrowings
of $43.2 million outstanding under our repurchase facilities, all of which have
30 day settlement terms.

A decline in the market value of our assets may result in margin calls that may
force us to sell assets under adverse market conditions.

Repurchase agreements involve the risk that the market value of the
securities sold by us may decline and that we will be required to post
additional collateral, reduce the amount borrowed or suffer forced sales of the
collateral. If forced sales were made at prices lower than the carrying value
of the collateral, we would experience additional losses. If we are forced to
liquidate our assets to repay borrowings, there can be no assurance that we
will be able to maintain compliance with the REIT asset and source of income
requirements.

Our use of repurchase agreements to borrow money may give our lenders greater
rights in the event of bankruptcy.

Our total borrowings of $43.2 million at September 30, 2001 were made using
repurchase agreements which require us to pledge certain of our assets to the
respective lenders to secure our obligations thereunder. Borrowings made under
repurchase agreements may qualify for special treatment under the Bankruptcy
Code, which may make it difficult for us to recover our pledged assets if a
lender files for bankruptcy. In addition, if we were to file for bankruptcy,
lenders under our repurchase agreements may be able to avoid the automatic stay
provisions of the Bankruptcy Code and take possession of, and liquidate, the
assets we pledged under these agreements without delay.

Liquidation of collateral may jeopardize our REIT status

To continue to qualify as a REIT, we must comply with requirements regarding
our assets and our sources of income. If we are compelled to liquidate our
mortgage investments to satisfy our obligations to our lenders, we may be
unable to comply with these requirements, ultimately jeopardizing our status as
a REIT. For further discussion of the asset and source of income requirements,
and the consequences of our failure to continue to qualify as a REIT, please
see the "Certain Federal Income Tax Considerations" section of this prospectus.

Hedging transactions can limit gains and increase exposure to losses

Although we have not entered into any hedging transactions to date, we may
enter into such transactions primarily to protect us from the effects of
interest rate fluctuations on floating rate debt and also to protect our
portfolio of mortgage assets from interest rate and prepayment rate
fluctuations. Hedging activities may not have the desired beneficial impact on
our results of operations or financial condition. Moreover, no hedging activity
can completely insulate us from the risks associated with changes in interest
rates and prepayment rates.

Hedging involves risk and typically involves costs, including transaction
costs. Such costs increase as the period covered by the hedging increases and
during periods of rising and volatile interest rates. Such costs will limit the
amount of cash available for distributions to shareholders. We intend generally
to hedge as much of the interest rate risk as the Advisor determines is in our
best interests given the cost of such hedging transactions.

REIT provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), may limit our ability to hedge our assets and related borrowings. Any
limitation on our use of hedging techniques may result in greater interest rate
risk.

Risks related to loans secured by properties that benefit from LIHTCs

The success of our investments in loans secured by properties that benefit
from using LIHTCs will be based in part on the results of operations of the
underlying properties. The value of such loans and the quality of the
underlying properties as collateral for such loans may be affected by other
factors, such as property resale and other restrictive terms.

Regulations prevent sales of underlying properties for a 15 year period

The law governing LIHTCs generally prohibits the owners of such properties
from selling the properties during a 15 year tax credit compliance period and
then may require, unless waived, that beginning in year 14 the properties be
offered for sale for approximately a one year period of time at the same price
originally paid for them plus an annual cost of living inflation factor. The
properties will be at least 15 years old when they are sold and may not sell
for the same price as new properties. Factors outside the owner's control, such
as demand for apartments and real estate values generally, will determine
whether the properties can be sold for more than the owner invested in them or
the amount of our mortgage loan. The properties are required to be leased to
low-income tenants at restricted rentals for periods in excess of the 15 year
tax credit compliance period.

Terms of government financings could limit revenues

If a property receives government assistance or financing, the terms of the
government assistance or financing (e.g., tenant eligibility, approvals for
rent increases, limitations on the percentage of income which low- and
moderate-income tenants may pay as rent) could limit the revenue from the
property and depress its value and thereby jeopardize the owner's ability to
repay our mortgage loan. There can be no assurance that government assistance
programs which are intended to benefit a property will be continued by the
assistance provider and that if such assistance is not continued that the
property will generate sufficient additional revenue to substitute for the
discontinued government assistance so as to meet its mortgage or operating
obligations.

Geographic concentration and the credit quality of borrowers may result in
losses

We have not established any limit upon the geographic concentration of
properties securing mortgage loans acquired or originated by us or the credit
quality of borrowers of uninsured mortgage assets acquired or originated by us.
As a result, properties securing our mortgage loans may be overly concentrated
in certain geographic areas and the underlying borrowers of our uninsured
mortgage assets may have low credit quality. We may experience losses due to
geographic concentration or low credit quality.

Changes in mortgage loan programs could adversely affect us

We could be hindered in making investments by adverse changes in the FHA
insurance, Ginnie Mae or Fannie Mae guarantee programs or rules or regulations
relating to them. Generally, once a mortgage has been endorsed for insurance or
guaranteed, subsequent amendments to the rules or regulations would not apply
retroactively to affect preexisting investments, but could affect prospective
investments. Changes to the guarantee programs could adversely affect our
ability to originate or acquire attractive investments.

There are a number of risks associated with being taxed as a REIT

Our REIT status subjects us and our shareholders to a number of risks,
including the following:

Failure to qualify as a REIT would have adverse tax consequences for us

In order to maintain our REIT status we must meet a number of requirements.
These requirements are highly technical and complex and often require an
analysis of various factual matters and circumstances that may not be totally
within our control. Even a technical or inadvertent mistake could jeopardize
our REIT status. Furthermore, Congress and the IRS may make changes to the tax
laws and regulations, and the courts may issue new rulings, that make it more
difficult or impossible for us to remain qualified as a REIT. If we fail to
qualify as a REIT, we would be subject to federal income tax at regular
corporate rates. Therefore, we would have less money available for investments
and for distributions to our shareholders. This may also have an adverse effect
on the market value of our shares. In general, we would not be able to elect
REIT status for four years after a year in which we lose our REIT status.

As a REIT, our income can only come from limited types of sources

To qualify as a REIT, at least 75% of our gross income must come from
qualified real estate sources and 95% of our gross income must come from other
sources that are itemized in the REIT tax laws. Therefore, we may have to
forego opportunities to invest in potentially profitable businesses or assets
because they would produce income that could jeopardize our status as a REIT.

We have certain distribution requirements

As a REIT, we must distribute to shareholders at least 90% of our REIT
taxable income (excluding capital gains). The required distribution limits the
amount we have available for other business purposes, including amounts to fund
our growth. Also, it is possible that because of the differences between the
time we actually receive revenue (such as original issue discount interest
income attributable to our investment in ARCap) or pay expenses and the period
we report those items for distribution purposes, we may have to borrow funds on
a short-term basis to meet the 90% distribution requirement.

We are also subject to other tax liabilities

As a REIT, we may be subject to certain federal, state and local taxes on
our income and property. Any of these taxes would reduce our operating cash
flow.

For further discussion of the risks associated with REIT taxation, please
see the "Certain Federal Income Tax Considerations" section of this prospectus.

Loss of Investment Company Act exemption would adversely affect us

We intend to conduct our business so as not to become regulated as an
investment company under the Investment Company Act. If we fail to qualify for
this exemption then we would be regulated as an investment company and our
business would be materially adversely affected. Investment company regulations
would prevent us from conducting our business as described in this prospectus
by, among other restrictions, reducing our ability to use borrowings. The
Investment Company Act exempts entities that are primarily engaged in the
business of purchasing or otherwise acquiring mortgages and other liens on and
interests in real estate. Under the

current interpretation of Securities Exchange Commission staff, in order to
qualify for this exemption, we must maintain at least 55% of our assets
directly in these qualifying real estate interests. Mortgage-backed securities
that do not represent all the certificates issued with respect to an underlying
pool of mortgages may be treated as securities separate from the underlying
mortgage loans and, thus, may not qualify for purposes of the 55% requirement.
Therefore, our ownership of these mortgage-backed securities is limited by the
provisions of the Investment Company Act. In meeting the 55% requirement under
the Investment Company Act, we treat as qualifying interests mortgage-backed
securities issued with respect to an underlying pool as to which we hold all
issued certificates. If the Commission or its staff adopts a contrary
interpretation, we could be required to sell a substantial amount of our
mortgage-backed securities under potentially adverse market conditions.
Further, in order to insure that we at all times qualify for the exemption from
the Investment Company Act, we may be precluded from acquiring mortgage-backed
securities whose yield is somewhat higher than the yield on mortgage-backed
securities that could be purchased in a manner consistent with the exemption.
The net effect of these factors may be to lower our net income.

Restrictions on share accumulation in REITs could discourage a change of
control of the Company

In order for us to qualify as a REIT, not more than 50% of the number or
value of the outstanding shares may be owned, directly or indirectly, by five
or fewer individuals during the last half of a taxable year or during a
proportionate part of a shorter taxable year.

In order to prevent five or fewer individuals from acquiring more than 50%
of our outstanding shares, and our resulting failure to qualify as a REIT, our
declaration of trust provides that, subject to certain exceptions, no person
may own, or be deemed to own by virtue of the attribution provisions of the
Code, more than 9.8% of the outstanding shares. The shares most recently
acquired by a person that are in excess of the 9.8% limit will not have any
voting rights and be deemed to have been offered for sale to us for a period
subsequent to the acquisition. Any person who acquires shares in excess of the
9.8% limit is obliged to immediately give written notice to us and provide us
with any information we may request in order to determine the effect of the
acquisition on our status as a REIT.

While these restrictions are designed to prevent any five individuals from
owning more than 50% of our shares, they also discourage a change in control of
the Company. These restrictions may also deter tender offers that may be
attractive to shareholders or limit the opportunity for shareholders to receive
a premium for their shares if an investor makes purchases of shares to acquire
a block of shares.

Supermajority voting requirements for acquisitions and mergers could discourage
a change of control of the Company

Our declaration of trust requires that 80% of our shareholders and all of
our independent trustees approve exchange offers, mergers, consolidations or
similar transactions involving us in which our shareholders receive securities
in a surviving entity having materially different investment objectives and
policies, or that is anticipated to provide significantly greater compensation
to management, except for transactions affected because of changes in
applicable law, or to preserve tax advantages for a majority in interest of our
shareholders.

Issuances of large amounts of our shares could cause our share price to decline

As of September 30, 2001, there were 3,838,630 common shares outstanding.
This prospectus relates to the sale of up to an additional 3,500,000 common
shares, which may be increased to 4,025,000 common shares if the underwriters
fully exercise their over-allotment option. Furthermore, in connection with
this offering and the issuance of any shares in the future, the Advisor is
entitled to receive as compensation shares equal to 1% of the issuance, which
shares vest over a three year period and are restricted as to their
transferability until they vest. The Advisor will receive 35,000 shares (40,250
shares if the underwriters exercise their overallotment option in full) in
connection with this offering. We have also granted to the lead underwriter
warrants to purchase up to 35,000 common shares. See "Underwriting." In
addition, we may issue common shares under our Incentive

Share Option Plan, which currently provides for the issuance of up to 383,863
common shares. Finally, our declaration of trust permits our trustees to issue
an unlimited number of shares (subject to the consent of shareholders if
required pursuant to the rules of the American Stock Exchange).The issuance of
shares could cause dilution of our existing shares and a decrease in the market
price.

The recent terrorist attacks in the United States may have a negative effect on
our earnings

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

Possible shareholder liability

It is possible that certain states may not recognize the limited liability
of shareholders, although our declaration of trust provides that our
shareholders shall not be subject to any personal liability for our acts or
obligations. Our declaration of trust also provides that every written
agreement entered into by us shall contain a provision that our obligations are
not enforceable against our shareholders personally. No personal liability
should attach to our shareholders under any agreement containing such
provision; however, not every written agreement entered into by us contains
such a provision. In certain states, our shareholders may be held personally
liable for contract claims where the underlying agreement does not specifically
exclude shareholder liability. Our shareholders may also be held personally
liable for other claims against us, such as tort claims, claims for taxes and
certain statutory liability. Upon payment of any such liability, however, the
shareholder will, in the absence of willful misconduct on the shareholder's
part, be entitled to reimbursement from our general assets, to the extent such
assets are sufficient to satisfy the claim.

Liability relating to environmental matters may impact the value of the
underlying properties

Under various federal, state and local laws, an owner or operator of real
property may become liable for the costs of removal of certain hazardous
substances released on its property. Such laws often impose liability without
regard to whether the owner or operator knew of, or was responsible for, the
release of such hazardous substances. The presence of hazardous substances may
adversely affect an owner's ability to sell real estate or borrow using real
estate as collateral. To the extent that an owner of an underlying property
becomes liable for removal costs, the ability of the owner to make debt
payments may be reduced, which in turn may adversely affect the value of the
relevant mortgage asset held by us.

Cost of compliance with Americans With Disabilities Act and fire and safety
regulations

Certain underlying properties may be required to comply with the Americans
with Disabilities Act, which has separate compliance requirements for "public
accommodations" and "commercial facilities," but generally requires that
buildings be made accessible to disabled people. Compliance with the Americans
with Disabilities Act could require removal of access barriers and
noncompliance could result in imposition of fines by the U.S. government or an
award of damages to private litigants.

In addition, owners are required to operate properties in compliance with
fire and safety regulations, building codes, and other land use regulations.
Compliance with such requirements may require owners to make substantial
capital expenditures and these expenditures may impair an owner's ability to
make debt payments, which in turn may adversely affect the value of the
relevant mortgage asset held by us.

OUR COMPANY

Formation and Background

Our Company was formed on June 11, 1991 as a Massachusetts business trust.
We have elected to be treated as a real estate investment trust ("REIT") for
federal income tax purposes.

From formation until April 1999, we were a closed-end, finite-life REIT not
permitted to finance or invest beyond the proceeds raised in our initial public
offering. We invested our initial public offering proceeds primarily in
government insured mortgages and guaranteed mortgage-backed certificates. In
April 1999, we reorganized the Company into an open-ended, infinite life REIT
authorized to issue debt and equity securities and make a broader range of
investments.

In April 1999, we changed our name from American Mortgage Investors Trust to
American Mortgage Acceptance Company. Our shares of beneficial interest began
trading on the American Stock Exchange on July 1, 1999 under the symbol "AMC".
As of January 11, 2002, there were 3,838,630 common shares of beneficial
interest outstanding.

Portfolio

Ginnie Mae Certificates

As of September 30, 2001, our portfolio included six Government National
Mortgage Association ("GNMA" or "Ginnie Mae") certificates.

Ginnie Mae is a wholly owned United States government corporation within the
Department of Housing and Urban Development created to support a secondary
market in government-insured and guaranteed mortgage loans. Ginnie Mae
guarantees the timely payment of principal and interest on its securities,
which are backed by pools of FHA and other government agency insured or
guaranteed mortgages. Ginnie Mae certificates are backed by the full faith and
credit of the United States government. Ginnie Mae's are widely held and traded
mortgage-backed securities and therefore provide a high degree of liquidity.

The yield on the GNMA certificates will depend, in part, upon the rate and
timing of principal prepayments on the underlying mortgages in the asset pool.
Generally, as market interest rates decrease, mortgage prepayment rates
increase and the market value of interest rate sensitive obligations like the
GNMA certificates increases. As market interest rates increase, mortgage
prepayment rates tend to decrease and the relative market value of interest
rate sensitive obligations like the GNMAs tends to decrease. The effect of
prepayments on yield is greater the earlier a prepayment of principal is
received. Certain of our GNMAs that are collateralized by mortgage loans on
multifamily properties are generally less subject to prepayment because they
have prepayment lockout periods and prepayment penalties.

Our portfolio of Ginnie Mae certificates as of September 30, 2001 is
summarized in the table below.

Carrying Outstanding Coupon Final
Certificate Amount Balance Rate Payment
----------- ----------- ----------- ------ ---------------
Western Manor............. $ 2,496,415 $ 2,496,416 7.125% March 2029
Elmhurst Village(1)....... 19,602,489 19,480,735 7.745% January 2042
Hollows Apartments(2)..... 8,351,495 8,372,426 7.620% January 2042
Copper Commons............ 2,106,586 2,111,865 8.500% August 2029
Reserve at Autumn Creek(3) 13,301,105 13,218,490 7.745% January 2042
Sun Coast Capital......... 1,010,715 982,697 7.000% April 2027
----------- ----------- ----- ---------------
Total/Weighted average.... $46,868,805 $46,662,629 7.711%(4) October 2040(4)
=========== =========== ===== ===============

--------
(1) Construction loan certificate with a remaining balance to fund of
$2,267,465.
(2) Construction loan certificate with a remaining balance to fund of $573,674.
(3) Construction loan certificate with a remaining balance to fund of
$3,320,210.
(4) Weighted average based on total amount committed for the construction costs.

FHA Insured First Mortgage Loans

As of September 30, 2001, our portfolio included two FHA insured first
mortgage loans. The FHA is part of the United States Department of Housing and
Urban Development created in 1934 under the National Housing Act to insure
mortgages made to finance the construction, rehabilitation, purchase and
refinancing of multifamily residential housing and other developments. Mortgage
loans insured by the FHA generally have 40 year terms, not including any
construction period, and are backed by the full faith and credit of the United
States.

Our portfolio of FHA insured first mortgage loans as of September 30, 2001
is summarized in the table below.

Outstanding
Carrying Mortgage Interest
Property Location Amount Balance Rate Maturity
---------------------- -------------- ----------- ----------- -------- -----------------

Columbiana Lakes Columbia, SC $ 9,099,026 $ 8,919,374 7.250% November 2035
Stony Brook Village II East Haven, CT 8,629,584 8,342,532 7.625% June 2037
----------- ----------- ------ -----------------
Total/Weighted average......... $17,728,610 $17,261,906 7.4312%(1) September 2037(1)
=========== =========== ====== =================

--------
(1) Weighted average based on outstanding mortgage balance.

The Columbiana Lakes FHA first mortgage was repaid on October 1, 2001, under
an agreement with the obligor of the Columbiana Lakes FHA first mortgage and
related mezzanine loan. Pursuant to the agreement, we accepted $9.6 million in
settlement of amounts due on both loans, resulting in a loss on repayment of
approximately $212,000, which was recorded during the three months ended
September 30, 2001.

Mezzanine Financing

Mezzanine loans are subordinate to senior mortgages and may include a
participating component, such as a right to a portion of the cash flow and
refinancing and sale proceeds from the underlying properties.

We seek to capitalize on attractive yields available through the funding of
mezzanine debt in combination with our origination of government insured
multifamily mortgages. We believe that we are one of the few programs in the
country that offer this mezzanine lending in connection with agency insured
first mortgage loans.

Our mezzanine loans typically finance newly constructed or rehabilitated
market-rate multifamily properties and generally have terms of 40 years with an
option to call the loan on 12 months notice at any time after the tenth
anniversary of the equity loan closing. These loans are typically in a
subordinated mortgage position, are secured by equity interests in the borrower
and have limited recourse to the borrower for the three years following the
date of the loan. We seek properties in growing real estate markets with well
capitalized developers or guarantors. We leverage the expertise of our Advisor
and its affiliates in both the initial underwriting of the property, as well as
in the ongoing monitoring of the property through construction, lease-up and
stabilization.

Our portfolio of mezzanine loans as of September 30, 2001, is summarized in
the table below.

Number of Outstanding Effective
Apartment Carrying Principal Interest
Property Location Units Occupancy Amount Balance Rate(3) Maturity
-------- --------------- --------- --------- ---------- ----------- --------- ----------------

Columbiana Lakes(2) Columbia, SC 204 98.50% $ 146,536 $ 563,000 N/A(2) November 2035(3)
Elmhurst Village Oveido, FL 313 44.70%(5) 2,415,981 2,874,000 10.00% January 2042
Hollows Apartments Greenville, NC 184 66.98%(5) 1,376,731 1,549,200 10.00% January 2042
Plaza At San
Jacinto(1) Houston, TX 132 95.50% 1,121,039 1,150,000 11.00% January 2043
Reserve at Autumn
Creek Friendswood, TX 212 30.00%(5) 1,920,791 1,987,000 10.00% January 2042
Stony Brook
Village II East Haven, CT 125 99.40% 394,960 763,909 15.33% June 2037
----- ---------- ---------- ----- ----------------
Total/Weighted average 1,170 $7,376,038 $8,887,109 10.63%(4) November 2041(4)
===== ========== ========== ===== ================

--------
(1) Funded on an earn-out basis based on property performance. Remaining
committed balance is $100,000.
(2) Repaid on October 1, 2001. See "FHA Insured First Mortgage Loans" above.
(3) Interest on the mezzanine loans is based on a fixed percentage of the
unpaid principal balance of the related first mortgage loan. The amount
shown is the approximate effective rate earned on the balance of the
mezzanine loan.
(4) Weighted average based on outstanding mortgage balance.
(5) Construction not complete and occupancy figure reflects current occupancy
as a ratio of total planned units.

Bridge Loans

Our bridge loans are typically funded in connection with the development of
multifamily properties which benefit from the LIHTC program. We believe that
since 1989, on average, nearly one-third of each year's new multifamily
property construction contains an affordable component that produces LIHTCs
(from 1989 through 1999 the number of affordable units producing LIHTCs ranged
from 62,000 to 126,000). Due to the equity payments schedule associated with
the LIHTC investment programs, there can be periods in a construction cycle
where a developer needs short term capital. To capitalize on this demand, we
offer developers bridge loans with typical terms of approximately 12 months
collateralized by the equity interests in the property owner. We may also
provide bridge loans for properties undergoing rehabilitation by new owners
when we believe the rehabilitation process will add significant value to the
property and reduce our effective loan-to-value ratio and our risk of loss. Our
loans may finance the initial purchase or the subsequent rehabilitation. From
time to time, we may make bridge loans to properties that do not benefit from
the LIHTC program.

We focus our bridge lending on LIHTC properties because we believe that
default risks ordinarily associated with bridge lending are substantially
reduced by the presence of LIHTCs, the value of which typically averages two to
four times the principal amount of the bridge loan. The beneficial owners of
these LIHTC properties are typically Fortune 500 companies that have invested
in order to receive the tax benefit of the LIHTC which are received ratably
over an 11 year period. In the event that these properties cannot support their
debt service, the beneficial owners have an incentive to maintain the debt
service so that they can avoid foreclosure of their equity interests and the
loss of the tax benefits associated with the LIHTCs. According to Fitch IBCA,
loans underlying CMBS collateralized in part by multifamily properties that
benefit from federal LIHTCs are expected to have reduced risk of default due to
indirect collateral enhancement provided by LIHTCs.

Our portfolio of bridge loans as of September 30, 2001 is summarized in the
table below.

Remaining
Number of Outstanding Committed
Apartment Carrying Principal Balance to Interest
Property Location Units Amount Balance Fund Rate Maturity
-------- ----------------- --------- ----------- ----------- ---------- -------- -----------

Alexandrine Detroit, MI 30 $ -- $ -- (1) $ 378,000 12.50% August 2002
Coronado Terrace San Diego, CA 312 -- -- (1) 2,000,000 11.00% March 2003
Miami Sunset Bay Miami, FL 308 1,436,870 1,450,000 -- 12.50% March 2002
Plaza Manor National City, CA 372 -- -- (1) 1,500,000 11.00% May 2002
Rancho Verde San Jose, CA 700 2,243,037 2,262,085 2,237,915 11.00% August 2002
Vista Terrace Hills San Ysidro, CA 262 1,855,124 1,855,124 44,876 11.00% May 2002
----- ----------- ---------- ----------
Total 1,984 $5,535,031 $5,567,209 $6,160,791
===== =========== ========== ==========

--------
(1) Funded on an as needed basis.

CMBS Through our Preferred Membership Interests in ARCap Investors, L.L.C.

Through our convertible preferred membership interests in ARCap Investors
L.L.C., we have a substantial indirect investment in commercial mortgage-backed
securities ("CMBS") owned by ARCap. ARCap was formed in January 1999 by
REMICap, an experienced CMBS investment manager, and Apollo Real Estate
Investors, the real estate arm of one of the country's largest private equity
investors. In conjunction with a preferred equity offering, REMICap and ARCap
merged, making ARCap the only internally-managed investment vehicle exclusively
investing in subordinated CMBS. As of September 30, 2001, ARCap had $504.3
million in assets, including investments in $485.0 million of CMBS. Multifamily
properties underlie approximately one-third of ARCap's CMBS.

In September 1999, we acquired a "BB+" rated subordinated CMBS from ARCap.
In connection with this acquisition, we entered into an agreement with ARCap,
which gave us the right to sell the CMBS investment to ARCap and purchase a
preferred equity position in ARCap, all based on the then fair value of the
CMBS investment. In November 2000, we exercised our right to sell the CMBS
investment to ARCap and purchased Series A Preferred Membership Interests in
ARCap in the face amount of $20 million, with a preferred dividend rate of 12%.
At September 30, 2001, the carrying value of our ARCap investment was $20.2
million.

Our equity in the earnings of ARCap will generally be equal to the preferred
equity rate of 12%, unless ARCap does not have earnings and cash flows adequate
to meet this distribution requirement. ARCap has met its distribution
requirements to the Company to date. Yields on CMBS depend, among other things,
on the rate and timing of principal payments, the pass-through rate, interest
rate fluctuations and defaults on the underlying mortgages. Our interest in
ARCap is illiquid and we need to obtain the consent of the board of managers of
ARCap before we can transfer our interest in ARCap to any party other than a
current member. The carrying amount of our investment in ARCap is not
necessarily representative of the amount we would receive upon a sale of the
interest.

ARCap has informed its members that it intends to shift its focus to CMBS
fund management, whereby ARCap will manage CMBS investment funds raised from
third-party investors. ARCap will generally be a minority investor in these
funds. ARCap thereby intends to diversify its revenue base by increasing its
proportion of revenue derived from fees as opposed to interest income.

Loan Origination Program with Fannie Mae

In March 2000, we entered into a loan origination program with Fannie Mae in
which we originate, on Fannie Mae's behalf, construction and permanent loans
for multifamily properties and receive loss sharing and loan origination fees.
Fannie Mae is the United States' largest source of financing for residential
mortgages and the largest investor in multifamily mortgages.

Under this program, we may originate up to $250 million in loans of no more
than $6 million each over a two year period, which may be extended for up to
two additional one year periods. In the event we were to originate $250 million
in loans pursuant to this program, we would guarantee a first loss position on
these loans equal to the amount lost on the loans of up to a maximum of $21.25
million. We also guaranteed construction loans for which we have issued a
forward commitment to originate a loan under the Fannie Mae program, with
respect to which we guarantee repayment of 100% of such construction loans. As
of September 30, 2001, we originated loans, on Fannie Mae's behalf, totaling
approximately $2.2 million and have made forward commitments for an additional
approximately $6.8 million. Our maximum exposure under the Fannie Mae program
and the forward commitments at September 30, 2001 was $6.0 million. We have not
acquired an interest in any of the loans we have originated on Fannie Mae's
behalf.

Since we entered into the loan program, the level of loan origination
competition has increased, reducing our projected financing volume and
profitability. As a result, we are de-emphasizing this program and evaluating
the possibility of transferring our rights and obligations in the loan program
to a third party.

In order to conduct the program, we organized AMAC/FM Corporation, a
Delaware corporation that we wholly own. From time to time, we expect to make
capital contributions or loans to AMAC/FM in order to ensure that it has
sufficient net worth to satisfy its obligations under the Fannie Mae program.
On April 4, 2000, we transferred the Stony Brook Village II Apartments FHA
first mortgage loan with a principal balance at September 30, 2001 of $8.3
million to AMAC/FM. AMAC/FM is treated, for federal income tax purposes, as a
taxable REIT subsidiary.

The following table provides information relating to the loans we have
originated on Fannie Mae's behalf.

Loss
Number of Sharing Fee
Property Location Apartment Units Loan Amount (annual rate)
-------- ---------------- --------------- ----------- -------------

Valley View Cedar Rapids, IA 96 $2,187,000 0.36%
Hillside Apartments(1) Minden, LA 60 1,278,000 0.28%
Alexandrine Square(1) Detroit, MI 30 342,000 0.40%
Maple Ridge Apartments(1) Jackson, MI 69 1,137,000 0.52%
Cameron Creek Apartments Dade County, FL 148 3,000,000 0.35%
Desert View Apartments(1) Coolidge, AZ 372 1,011,000 0.52%
--- ----------
Total 775 $8,955,000
=== ==========

--------
(1) Currently a construction loan with First Union National Bank, which AMAC
has fully guaranteed. Once the underlying property achieves 90% occupancy
for a period of 90 days and net income of 1.15x debt service, this
construction loan will be replaced by permanent financing through our loan
program with Fannie Mae.

Recent Developments

New Loans. On December 19, 2001, we funded a mezzanine loan in the amount of
$1,962,000 in connection with the construction of a 200 unit multifamily
apartment property, to be known as The Club at the Brazos, located in
Rosenberg, Texas. The loan will bear interest at an effective rate of 10%, and
we will also be entitled to interest from a 50% participation in cash flow and
a 25% participation in residual proceeds. The maturity date of the loan is May
1, 2043. We are committed to fund an additional $561,000 based upon achievement
of certain levels of financial performance of the property.

On December 28, 2001, we funded $3,589,743 of a $3,850,000 bridge loan to
the owner of a 360 unit property known as The Concord at Palm Center, located
in Houston, Texas. The loan will bear interest at a rate of 12% and will mature
on December 1, 2003. The loan is collateralized by a second mortgage and equity
interests in the property owner and interest on the loan is guaranteed by
certain of the borrowing entities. The Concord at Palm Center does not benefit
from the LIHTC program.

Investment Policy

General

Our investment policy has been formulated to maximize the return on our
asset base by investing in a diversified portfolio of insured and a limited
amount of uninsured mortgage assets. Our declaration of trust sets forth our
limitations regarding investments in uninsured assets. Consistent with our
policy of maintaining our status as a REIT for federal income tax purposes,
substantially all of our assets will consist of qualified REIT assets under the
Code.

Certain Investment Policy Limitations Under our Declaration of Trust

Generally, we intend to invest in mortgage investments, which can generally
be categorized into investments insured or guaranteed by an agency of the
United States or by Fannie Mae and investments that are not insured or
guaranteed. However, for purposes of our investment policy as set forth in our
declaration of trust, we also distinguish between investments we were
authorized to make prior to our April 1999 reorganization and investments we
became authorized to make upon approval of the reorganization.

Prior to our reorganization in 1999, we were generally restricted by our
declaration of trust to investments in FHA insured first mortgages,
mortgage-backed securities guaranteed by Fannie Mae or the Federal Home Loan
Mortgage Corporation ("Freddie Mac"), and collateralized mortgage obligations
("CMOs") collateralized by guaranteed and insured mortgages or mortgage
certificates. We were, however, permitted to invest up to 7% of our total
assets in non-interest bearing uninsured loans made to developers in connection
with insured mortgage loans made by us.

Subsequent to our reorganization, we broadened our investment policy to
include uninsured mortgage loans, including construction loans, loans
subordinate to a lien on the related real property ("mezzanine loans"), loans
secured by junior liens and used as temporary financing ("bridge loans"),
mortgage derivatives (including IOs), interests in CMBS and other subordinated
mortgage investments.

Investments that we became authorized to make upon approval of our April
1999 reorganization may not comprise, in the aggregate, more than 60% of all of
our mortgage investments. Stated differently, at least 40% of our mortgage
investments must be investments that we were authorized to make prior to our
April 1999 reorganization. Mortgage loans that we originate with the intent of
later securitizing may be accumulated without limit.

Financing

General

We finance at short-term borrowing rates through the use of repurchase
agreements. Under a repurchase agreement, we sell securities to a lender and
agree to repurchase those securities in the future for a price that is higher
than the original sales price. The difference in the sale price we receive and
the repurchase price we pay represents interest paid to the lender. Although
structured as a sale and repurchase obligation, a repurchase agreement operates
as a financing under which we effectively pledge our securities as collateral
to secure a short-term loan which is equal in value to a specified percentage
of the market value of the pledged collateral. We retain beneficial ownership
of the pledged collateral, including the right to distributions. At the
maturity of a repurchase agreement, we are required to repay the loan and
concurrently receive back our pledged collateral from the lender or, with the
consent of the lender, we renew such agreement at the then prevailing financing
rate. The repurchase agreements may require us to pledge additional assets to
the lender in the event the market value of the existing pledged collateral
declines.

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

Existing Repurchase Facilities

In February 2000, we entered into a $60 million FHA repurchase facility with
Nomura Asset Capital Corporation. This repurchase facility was renewed for $40
million in February 2001, for a term of one year with a one-time option to
increase the facility to $60 million. This facility enables us to borrow up to
90% of the fair market value of FHA first mortgage loans that we own with a
qualified hedge (80% without a qualified hedge). Generally, this facility bears
interest at LIBOR plus 1.25%. As of September 30, 2001, there was no
outstanding balance on this facility.

In February 2000, we also entered into a repurchase facility with Nomura
Securities International, Inc. This repurchase facility enables us to borrow up
to 95% of the fair market value of GNMA certificates and other qualified
mortgage securities that we own. Generally, this facility bears interest at
LIBOR plus 0.50%. As of September 30, 2001, the amount outstanding under this
facility was $43,191,173, and the weighted average interest rate was 4.07%. All
amounts outstanding as of September 30, 2001 had 30 day settlement terms.

Limitations on Indebtedness Under our Declaration of Trust

Our declaration of trust restricts our ability to borrow with respect to
permanent and working capital indebtedness.

For purposes of our debt restriction, "permanent indebtedness" means all of
our indebtedness except:

. "working capital indebtedness";

. trade payables; and

. subordinated Advisor fees.

Also, for purposes of our debt restriction, "working capital indebtedness"
means:

. debt with a term no longer than five years utilized to acquire and
originate mortgage investments intended to be pooled as part of an
issuance of collateralized mortgage obligations or pass through
certificates sponsored by us or our subsidiaries, the proceeds of which
will be used to repay such indebtedness and

. debt used to pay distributions to shareholders and operating expenses,
including fees to the Advisor.

We may incur permanent indebtedness of up to 50% of the greater of, and may
incur working capital indebtedness plus permanent indebtedness of up to 100% of
the greater of:

. the sum of the aggregate market value of all of our outstanding shares of
beneficial interest and all of our indebtedness (not including debt of
unconsolidated subsidiaries) and

. the aggregate value of our assets as determined by the Advisor based upon
third party or management appraisals and other criteria as the Board of
Trustees determines in its sole discretion (calculated at the time debt is
incurred).

At September 30, 2001, our indebtedness, all of which was working capital
indebtedness, was $43.2 million and our ratio of indebtedness to total market
value was 43.2%.

Competition

Our business is also affected by competition to the extent that the
properties underlying the instruments from which we derive interest and,
ultimately, principal payments may be subject to the effects of differing
rental rates and relative levels of amenities from comparable neighboring
properties.

Employees

As of January 11, 2002, we had no employees; although for administrative
purposes we have designated officers. All services are performed for us by the
Advisor and its affiliates. The Advisor receives compensation in connection
with such activities. In addition, we reimburse the Advisor and certain of its
affiliates for expenses incurred in connection with the performance by their
employees of services for us.

Legal Proceedings

We are not a party to any material pending legal proceedings.

MANAGEMENT

We are run by a Board of Trustees comprised of three independent trustees
and two trustees affiliated with Related Capital Company, a nationwide, fully
integrated real estate financial services firm. We do not have any employees
but we designate officers for administrative purposes. We engaged the Advisor,
an affiliate of Related Capital, to manage our day-to-day affairs. The Advisor
subcontracted with Related Capital to provide the services contemplated.
Through the Advisor, Related Capital offers us a core group of experienced
staff and executive management providing services on both a full and part-time
basis. These services include, among other things, acquisition, financial,
accounting, capital markets, asset monitoring, portfolio management, investor
relations and public relations services. The management team that provides us
with investment advice has an average of 12 years of experience with Related
Capital and an average of 20 years in the real estate industry. We believe that
we benefit significantly from our relationship with Related Capital, as it
provides us with resources not generally available to smaller-capitalized,
self-managed companies.

Our Trustees and Executive Officers

Our trustees and executive officers are as follows:

Year First Became Term
Name Age Offices Held Trustee or Officer Expires
---- --- ------------ ------------------ -------

Stuart J. Boesky. 45 Chairman of the Board of Trustees, Chief 1991 2002
Executive Officer, and President
Peter T. Allen... 55 Trustee (independent) 1991 2002
Arthur P. Fisch.. 59 Trustee (independent) 1991 2002
Alan P. Hirmes... 46 Trustee and Senior Vice President 1991 2002
Scott M. Mannes.. 42 Trustee (independent) 2001 2002
Steven B. Wendel. 39 Chief Operating Officer 1999 --
Michael I. Wirth. 43 Senior Vice President and Chief Financial 2000 --
Officer
Mark J. Schlacter 51 Senior Vice President 1993 --
Denise L. Kiley.. 41 Senior Vice President 1999 --
Marc D. Schnitzer 40 Senior Vice President 1999 --
Gary Parkinson... 52 Controller 2000 --
John J. Sorel.... 40 Vice President 1999 --
Teresa Wicelinski 35 Secretary 1998 --

Stuart J. Boesky is a trustee and is our Chairman, President and Chief
Executive Officer and is the President and Director of our Advisor. Mr. Boesky
practiced real estate and tax law in New York City with the law firm of Shipley
& Rothstein from 1984 until February 1986 when he joined Related Capital. From
1983 to 1984, Mr. Boesky practiced law with the Boston law firm of Kaye,
Fialkow, Richmond & Rothstein (which subsequently merged with Stroock & Stroock
& Lavan) and from 1978 to 1980 was a consultant specializing in real estate at
the accounting firm of Laventhol & Horwath. Mr. Boesky is the sole shareholder
of one of the general partners of Related Capital. Mr. Boesky graduated from
Michigan State University with a Bachelor of Arts degree and from Wayne State
School of Law with a Juris Doctor degree. He then received a Master of Laws
degree in Taxation from Boston University School of Law. Mr. Boesky also serves
on the Board of Directors of Aegis Realty, Inc. ("Aegis") and the Board of
Trustees of Charter Municipal Mortgage Acceptance Company ("CharterMac"), which
are both advised by affiliates of our Advisor.

Peter T. Allen is an independent trustee and is the President of Peter Allen
& Associates, Inc., a real estate development and management firm, in which
capacity he has been responsible for the leasing, refinancing and development
of major commercial properties. Mr. Allen has also been an Adjunct Professor of
the Graduate School of Business at the University of Michigan since 1981. Mr.
Allen received a Bachelor of Arts Degree in

history/economics from DePauw University and a Masters in Business
Administration with Distinction from the University of Michigan. Mr. Allen has
been an independent trustee since 1991 and is a member of the Audit and
Compensation Committees. Mr. Allen also serves on the Board of Trustees of
CharterMac and on the Board of Directors of Aegis.

Arthur P. Fisch is an independent trustee and has been an attorney in
private practice specializing in real property and securities law since October
1987, with Arthur P. Fisch, P.C. and Fisch & Kaufman. From 1975 until 1987, Mr.
Fisch was employed by E.F. Hutton & Company, serving as First Vice President in
the Direct Investment Department from 1981 until 1987 and associate general
counsel from 1975 to 1980 in the legal department. As First Vice President, he
was responsible for the syndication and acquisition of residential real estate.
Mr. Fisch received a B.B.A. from Bernard Baruch College of the City University
of New York and a Juris Doctor degree from New York Law School. Mr. Fisch is
admitted to practice law in New York and Pennsylvania. Mr. Fisch has been an
independent trustee since 1997 and is a member of the Audit and Compensation
Committees. Mr. Fisch also serves on the Board of Directors of Aegis and the
Board of Trustees of CharterMac.

Alan P. Hirmes is a trustee and is our Senior Vice President and is the
Senior Vice President of the Advisor. Mr. Hirmes is also the sole shareholder
of one of the general partners of Related Capital and is a Senior Managing
Director of Related Capital, where he is responsible for overseeing the
portfolio management, finance and accounting departments and the joint venture
development program. Mr. Hirmes has been a certified public accountant in New
York since 1978. Prior to joining Related Capital in October 1983, Mr. Hirmes
was employed by Weiner & Co., certified public accountants. Mr. Hirmes
graduated from Hofstra University with a Bachelor of Arts degree. Mr. Hirmes
also serves on the Board of Trustees of CharterMac and the Board of Directors
of Aegis.

Scott M. Mannes is an independent trustee and co-founder of Drawbridge
Capital LLC, an investment firm that operates as an advisor and service
provider to, and investor in, the specialty finance industry. Prior to
Drawbridge, Mr. Mannes was a key participant in the development and evolution
of the investment banking and merchant banking operations during his nine-year
career at ContiFinancial Corporation, most notably as Co-President of
ContiFinancial Services Corporation. Mr. Mannes was instrumental in developing
the investment banking, merchant banking and venture capital activities for
ContiFinancial, including managing the acquisition of assets and investment
banking relationships to promote the company's securitization activities and
managing the acquisition of equity interests in affiliate residential and
commercial loan origination companies. Prior to joining ContiFinancial in 1990,
Mr. Mannes spent seven years with Financial Guaranty Insurance Company
developing the first financial guaranties applied to sub-prime mortgage loan
securitizations. Mr. Mannes is a graduate of the State University at Albany and
received an MPA in Public Administration from the Rockefeller School of Public
Affairs and Policy.

Steven B. Wendel is our Chief Operating Officer and is responsible for the
origination and acquisition of our mortgage products. Mr. Wendel is also a
Senior Vice President of Related Capital. Prior to joining Related Capital in
June 1999, Mr. Wendel was a Managing Director of the commercial loan
origination and securitization program at ContiFinancial Corporation. From 1989
until 1992, Mr. Wendel was a senior associate of the structured finance/MBA
rotational program at Coopers & Lybrand. From 1987 until 1989, he was a
consultant at Martin E. Segal Company, and from 1984 until 1987, he was a
pricing analyst at Metropolitan Life Insurance Company. Mr. Wendel received a
Masters in Business Administration from the Stern School of Business
Administration at New York University and a Bachelor of Arts in economics from
the University of Pennsylvania.

Michael I. Wirth is our Chief Financial Officer and Senior Vice President.
Mr. Wirth is also a senior vice president of Related Capital. Mr. Wirth joined
Related Capital in August 2000. Prior to joining Related Capital, Mr. Wirth was
a vice president in the real estate group at CGA Investment Management where he
was responsible for the underwriting, investment and management of all
commercial real estate debt investments. Prior to CGA, Mr. Wirth spent 4 years
as a senior manager at Deloitte & Touche in the realty consulting group and
technology solutions practice and 5 years as a senior manager and national
director to the financial services industry at The Roulac Group of Deloitte &
Touche. Mr. Wirth received a Bachelors degree in Business Administration from
Georgia State University. He has been a Certified Public Accountant since 1986.

Mark J. Schlacter is our Senior Vice President and is responsible for our
FHA mortgage acquisitions program. Mr. Schlacter is also a Vice President of
Related Capital and has been with Related Capital since June 1989. Prior to
joining Related Capital, Mr. Schlacter gained 16 years of direct real estate
experience covering retail and residential construction, single and multifamily
mortgage origination and servicing, commercial mortgage origination and
servicing, property acquisition and financing and mortgage lending program
underwriting and development. He was a Vice President with Bankers Trust
Company from 1986 until June 1989, and held various positions with Citibank,
Anchor Savings Bank and the Pyramid Companies from 1972 to 1986. Mr. Schlacter
holds a Bachelor of Arts degree in Political Science from Pennsylvania State
University.

Denise L. Kiley is our Senior Vice President. Ms. Kiley is also a Managing
Director of Related Capital, and is the Director of Related Capital's
underwriting and asset management groups. Ms. Kiley is responsible for
overseeing the investment underwriting and approval of all real estate
properties invested in Related Capital sponsored corporate, public and private
equity and debt funds. Prior to joining Related Capital in 1990, Ms. Kiley
gained experience acquiring, financing and managing the assets of multifamily
residential properties. From 1981 through 1985 she was an auditor with a
national accounting firm. Ms. Kiley holds a Bachelor of Science degree in
Accounting from Boston College and is a Member of the Affordable Housing
Roundtable.

Marc D. Schnitzer is our Senior Vice President. Mr. Schnitzer is also a
Managing Director of Related Capital and the Director of Related Capital's Tax
Credit Group. Mr. Schnitzer received a Master of Business Administration degree
from The Wharton School of The University of Pennsylvania in December 1987, and
joined Related Capital in January 1988. From 1983 to 1986, Mr. Schnitzer was a
financial analyst in the Fixed Income Research Department of The First Boston
Corporation in New York. Mr. Schnitzer received a Bachelor of Science degree,
summa cum laude, in Business Administration from the School of Management at
Boston University.

Gary Parkinson is our controller. Mr. Parkinson is also an Assistant Vice
President of Related Capital. Mr. Parkinson has been certified public
accountant in New York since 1987. Prior to joining Related Capital in
September 2000, Mr. Parkinson was employed by American Real Estate Partners,
L.P. from July 1991 until September 2000, by Integrated Resources, Inc. from
August 1988 until July 1991 and by Ernst and Young from September 1984 until
August 1988. Mr. Parkinson graduated from Northeastern University and The
Johnson Graduate School of Business at Cornell University.

John Sorel is our Vice President and is a Vice President of Related Capital.
Mr. Sorel is responsible for overseeing loan servicing and construction risk
management for us. Prior to joining Related Capital in November 1999, Mr. Sorel
was a Vice President for BankBoston in their real estate department from 1993
until 1999, where he originated and managed corporate and construction loan
facilities for the low income housing tax credit industry. From 1991 until
1993, Mr. Sorel worked as an Assistant Vice President for Recoll Management.
Mr. Sorel holds a Bachelor of Arts degree in economics from Syracuse University.

Teresa Wicelinski is our Secretary. Ms. Wicelinski joined Related Capital in
June 1992, and prior to that date was employed by Friedman, Alprin & Green,
certified public accountants. Ms. Wicelinski graduated from Pace University
with a Bachelor of Business Science in accounting.

Our Advisor

The directors and executive officers of our Advisor, Related AMI Associates,
Inc., are set forth below. These officers of the Advisor may also provide
services to us on behalf of the Advisor.

Name Age Offices Held
---- --- ------------

Stuart J. Boesky. 45 Director and President
Michael Brenner.. 56 Director
Alan P. Hirmes... 46 Senior Vice President
Gary Parkinson... 52 Treasurer
Teresa Wicelinski 35 Secretary

Biographical information with respect to Messrs. Boesky, Hirmes and
Parkinson and Ms. Wicelinski is set forth above.

Michael J. Brenner is a Director of our Advisor, and is the Executive Vice
President and Chief Financial Officer of The Related Companies, L.P. Prior to
joining The Related Companies, L.P. in 1996, Mr. Brenner was a partner with
Coopers & Lybrand, having served as managing partner of its Industry Programs
and Client Satisfaction initiatives from 1993-1996, managing partner of the
Detroit group of offices from 1986-1993 and Chairman of its National Real
Estate Industry Group from 1984-1986. Mr. Brenner graduated summa cum laude
from the University of Detroit with a Bachelors degree in Business
Administration and from the University of Michigan with a Masters of Business
Administration, with distinction. Mr. Brenner also serves on the Board of
Directors of Aegis and the Board of Trustees of CharterMac.

Related Capital's Experience

Our Advisor has subcontracted its management obligations to Related Capital,
a financial services subsidiary of The Related Companies, L.P., which is one of
the nation's largest developers of premier multifamily and mixed-use real
estate assets and largest sponsor of real estate investment programs for retail
and institutional investors.

The predecessor to The Related Companies, L.P. was founded in 1972 by
Stephen M. Ross to engage in the business of providing real estate based
financial, acquisition, development and management services. Its real estate
related products include affordable multifamily properties, luxury apartments,
commercial office properties and retail centers located in 45 states and nearly
every major market in the U.S. and Puerto Rico.

Related Capital has sponsored 22 public and 234 private real estate
investment programs that have raised nearly $5 billion from more than 106,000
investors. Related Capital is the nation's leading non-agency financier of
affordable multifamily housing. These programs have accounted for the
acquisition of over 1,200 properties with a valuation, at cost, of over $11
billion. Related Capital's portfolio, in the aggregate, consists of
approximately 160,860 residential apartment units, 31 shopping centers and 5
regional malls. Related Capital provides asset monitoring services for the
properties within its portfolio, which include the weekly review of
occupancies, regular site visits, monitoring of financial and operating
reports, regulatory compliance checks and independent periodic analysis of
local marketplace conditions.

The Related Companies L.P. development division is a leading developer and
acquirer of luxury housing, government-assisted housing, entertainment-enhanced
retail, commercial and mixed-use properties. The development division operates
through seven principal business units organized by geographic market and
product type. The development division as a whole has developed or acquired
over 40,000 market rate and affordable housing units and 4.6 million square
feet of commercial and retail space and remains one of the country's most
active developers. The Related Companies L.P. currently has 22 fully-financed
developments under construction, totaling $3.8 billion, the largest of which is
AOL Time Warner Center, a 2.8 million square foot mixed use premier property
located in Manhattan at the intersection of Central Park South and Central Park
West. The property will feature AOL Time Warner, Inc.'s world headquarters,
including a CNN broadcasting facility, as well as luxury retail and
restaurants, a Mandarin Oriental Hotel and super-luxury, high-rise residential
units.

The Related Companies L.P. property management division provides property
management services. It directly manages approximately 153 multifamily rental
properties totaling 19,000 residential units and 3.7 million square feet of
commercial and retail space from its New York offices.

Advisory Agreement

We entered into an Advisory Agreement with the Advisor pursuant to which the
Advisor is obligated to use its best efforts to seek out and present to us,
whether through its own efforts or those of third parties retained by it,
suitable and a sufficient number of investment opportunities which are
consistent with our investment policies and objectives and consistent with such
investment programs as the Board of Trustees may adopt from time to time in
conformity with our declaration of trust.

Although our Board of Trustees has continuing exclusive authority over our
management, the conduct of our affairs and the management and disposition of
our assets, the Board of Trustees has delegated to the Advisor, subject to the
supervision and review of the Board of Trustees and consistent with the
provisions of our declaration of trust, the power and duty to:

. obtain for us, furnish and supervise the services necessary to perform any
ministerial functions in connection with the management of our day-to-day
operations subject to the supervision of the trustees;

. seek out and present to us, whether through its own efforts or those of
third parties retained by it, suitable and a sufficient number of
investment opportunities which are consistent with our investment
objectives and policies as adopted by the trustees from time to time;

. exercise absolute discretion, subject to the trustees' review, in
decisions to originate, acquire, retain, sell or negotiate for the
prepayment or restructuring of mortgages and our other investments;

. recommend investment opportunities consistent with our investment
objectives and policies and negotiate on our behalf with respect to
potential investments or their disposition;

. upon request, cause an affiliate to serve as the mortgagee of record for
our mortgages if such affiliate is qualified to do so and in that capacity
to hold escrows on behalf of mortgagors in connection with the servicing
of mortgages;

. obtain for us such other services as may be required in acquiring or
disposing of investments, disbursing and collecting our funds, paying the
debts and fulfilling our obligations, and handling, prosecuting and
settling any of our claims, including foreclosing and otherwise enforcing
mortgages and other liens securing investments;

. obtain for us such services as may be required for property management,
mortgage brokerage and servicing, and other activities relating to our
investment portfolio;

. evaluate, structure and negotiate potential prepayments or sales of
mortgages and other investments and, if applicable, coordinate with
government agencies and other third parties;

. monitor annual participating interest payments, monitor operations and
expenses of the properties underlying our mortgage investments, and verify
computations of annual participating interest payments;

. from time to time, or as requested by the trustees, make reports to us as
to its performance.

The Advisory Agreement is renewed annually, subject to the approval of a
majority of our trustees. The Advisor may terminate the Advisory Agreement
without cause and we may terminate the Advisory Agreement with or without cause
with approval from a majority of our independent trustees. Such terminations
would be without penalty, and must be upon 60 days' written notice prior to the
end of any term. The current advisory agreement expires on April 6, 2002 and
was amended on November 29, 2001 to permit the Advisor to continue to receive
origination points of up to 1% of the principal amount of loans we originate
(payable by the borrowers) without an overall cap on the aggregate amount of
such points which it may receive. Previously, the Advisor was only entitled to
origination points on the first $100 million of principal amount of loans that
we originated. See "Advisor Compensation--Origination points", below.

Advisor Compensation

Pursuant to the terms of the Advisory Agreement, the Advisor is entitled to
receive the fees and other compensation set forth below:

Types of Compensation Amount
--------------------- ------

Asset management fee. .625% on original mortgage investments owned by us prior to
April 6,1999.
.355% on original mortgage investments acquired by us after
April 6, 1999.
.355% on investment grade additional mortgage investments.
.750% on non-investment grade additional mortgage investments.
1.000% on unrated additional mortgage investments.

"Original mortgage investments" means investments authorized under our
investment policy prior to our April 1999 reorganization, which
principally include mortgages and other mortgage related securities
insured or guaranteed by Fannie Mae, Freddie Mac, Ginnie Mae or FHA
and uninsured loans made to borrowers under an insured or guaranteed
loan. "Additional mortgage investments" means uninsured mortgage
loans, construction loans, bridge loans, mezzanine loans, mortgage
derivatives and subordinated interests (including subordinated interests in
CMBS).

Annual incentive fee. Equal to the product of:

(A) 25% of the dollar amount by which

(1) (a) funds from our operations (before the annual incentive fee)
per share (based on the weighted average number of shares
outstanding) plus

(b) gains (or minus losses) from debt restructuring and sales of
property per share (based on the weighted average number of
shares outstanding), exceed

(2) an amount equal to

(a) the weighted average of (i) $20 (the price per share in our
initial public offering) and (ii) the prices per share of any
secondary offerings by us multiplied by

(b) the ten-year U.S. Treasury Rate plus 2% per annum,
multiplied by (B) the weighted average number of shares
outstanding during such year.

The Advisor will not receive an annual incentive fee in any fiscal year
unless shareholders have received a minimum annual distribution of
$1.45 per share for that fiscal year.

Origination points Advisor receives, with respect to each mortgage investment originated by
us, a portion of the origination points paid by borrowers equal to up to 1%
of the principal amount and we receive the portion of the origination
points paid by borrowers in excess of 1% of the principal amount of such
mortgage investment.

Operating expense
reimbursement..... We reimburse direct expenses incurred by the Advisor.

The fees and other compensation payable to our Advisor are subject to the
overall cap on operating expenses contained in our declaration of trust.
Subject to increase by our independent trustees, our annual operating, general
and administrative expenses (exclusive of the expense of raising capital,
interest payments, taxes, non-cash expenditures and expenses for originating,
acquiring, servicing, or disposing of our investments), may not exceed the
greater of (i) 2% of our average invested assets or (ii) 25% of our net income.

The Advisor is also permitted to earn miscellaneous compensation which may
include construction fees, escrow interest, property management fees, leasing
commissions and insurance brokerage fees. The payment of any such compensation
is generally limited to the competitive rate for the services being performed.
To the extent that we participate with a third party in any mortgage
investments, the Advisor may receive special servicer fees and other
compensation from such third party. If we foreclose on a property securing a
mortgage and sell the property and if the Advisor provides substantial services
in the sales effort then the Advisor or one of its affiliates will be entitled
to a subordinated real estate commission equal to up to 3% of the gross sales
price of the property.

Payments made to the Advisor and its affiliates for 2000, 1999, 1998 and the
nine months ended September 30, 2001 were as follows:

Nine Months Ended
Year Ended December 31, September 30, 2001
-------------------------- ------------------
2000 1999 1998
-------- -------- --------

Expense reimbursement... $374,751 $255,616 $120,029 $232,935
Asset management fees... 386,112 335,682 362,280 184,897
Annual incentive fees(1) 0 122,270 0 0
-------- -------- -------- --------
Total................ $760,863 $713,568 $482,309 $417,832
======== ======== ======== ========

--------
(1) Annual incentive fee is calculated on an annual basis and is only payable
to Advisor for years in which our shareholders have received a minimum
annual distribution of $1.45 per share.

The Advisor is also entitled to receive as compensation that number of
shares equal to 1% of all shares issued by us, including shares issued in this
offering. Any such shares issued to the Advisor become vested and transferable
in three equal installments over the first three anniversaries of the issuance.

The Advisor may receive options to acquire shares pursuant to our Incentive
Share Option Plan, but only if our distributions in any year exceed $1.45 per
share, and the Compensation Committee of the Board of Trustees determines to
grant such options.

Other Advisory Agreement Terms

The Advisor may engage in other business activities related to real estate,
mortgage investments or other investments whether similar or dissimilar to
those made by us, or act as advisor to any other person or entity having
investment policies similar or dissimilar to our investment policy. Before the
Advisor, its partners, their officers and directors, and any person controlled
by the partners of the Advisor or their officers and directors may take
advantage of an opportunity for their own account or present or recommend it to
others (except for the presentation and recommendation of equally suitable
investment opportunities to affiliated entities, which are governed by
procedures described below), they are obligated to present such investment
opportunity to us if the opportunity is of a character which could be taken by
us and is within our investment objectives and policies and we have the
financial resources to take advantage of the opportunity.

To the extent that affiliated entities have funds available for investment
at the same time as us and a potentially suitable investment is offered to us
or the affiliated entity, conflicts of interest will arise as to which

entity should acquire the investment. Upon such a conflict, our Advisor will
review the affiliated entity's and our investment portfolios and will determine
whether or not the investment should be made by the affiliated company or by us
based upon factors such as the amount of funds available for investment, yield
and portfolio diversification. If the making of a mortgage loan or other
mortgage investment appears equally appropriate for these entities, the
mortgage loan or other mortgage investment will either be made by a joint
venture between two or more such entities, or will be allocated to one program
on a basis of rotation with the initial order of priority determined by the
dates of formation of the programs.

The declaration of trust and Advisory Agreement provide that we will
indemnify the Advisor and its affiliates under certain circumstances.

The Advisor is entitled to subcontract its obligations under the Advisory
Agreement to an affiliate. In accordance with the foregoing, the Advisor's
rights have been assigned to, and its obligations have been assumed by, Related
Capital.

Incentive Share Option Plan

We have adopted an Incentive Share Option Plan to attract and retain
qualified persons as trustees and officers and to provide incentive to and more
closely align the financial interests of our Advisor and its employees and
officers with the interests of our shareholders by providing the Advisor with
substantial financial interest in our success. The Compensation Committee,
which is comprised of Messrs. Allen and Fisch, administers the Plan. Pursuant
to the Plan, if our distributions per share in the immediately preceding
calendar year exceed $1.45 per share, the Compensation Committee has the
authority to issue options to purchase, in the aggregate, that number of shares
which is equal to three percent of the shares outstanding as of December 31 of
the immediately preceding calendar year, provided that the Compensation
Committee may only issue, in the aggregate, options to purchase a maximum
number of shares over the life of the Plan equal to 383,863 shares (10% of the
shares outstanding on December 31, 1999).

If the Compensation Committee does not grant the maximum number of options
in any year, then the excess of the number of authorized options over the
number of options granted in such year will be added to the number of
authorized options in the succeeding year and will be available for grant by
the Compensation Committee in such succeeding year.

All options granted by the Compensation Committee will have an exercise
price equal to or greater than the fair market value of the share on the date
of the grant. The maximum option term is ten years from the date of grant. All
share options granted pursuant to the Plan may vest immediately upon issuance
or in accordance with the determination of the Compensation Committee. No
options were granted for the years ended December 31, 1999 and 2000.

MARKET PRICE OF AND DISTRIBUTIONS ON OUR COMMON SHARES OF BENEFICIAL INTEREST

(a) Market Information. Our common shares began trading on the American
Stock Exchange on July 1, 1999, under the symbol "AMC." Prior to July 1, 1999,
there was no established public trading market for the Company's shares. The
following table sets forth the high and low sale prices for each quarterly
period in which the common shares were traded.

2001 Sale Prices 2000 Sale Prices 1999 Sale Prices
---------------- ---------------- ----------------
High Low High Low High Low
------- ------- ------ ------ ------- ------

1st Quarter $11.250 $ 7.500 $9.000 $7.875 -- --
2nd Quarter $12.000 $ 9.600 $9.688 $8.125 -- --
3rd Quarter $15.500 $10.930 $8.938 $7.875 $13.875 $9.750
4th Quarter $14.800 $12.600 $8.938 $7.250 $11.500 $8.500

(b) Shareholders. The approximate number of holders of our common shares as
of the date of this prospectus is 3,500.

(c) Distributions. We have paid cash distributions on a quarterly basis. We
intend to continue to distribute to our shareholders an amount equal to at
least 90% of our taxable income before deductions of dividends paid and
excluding net capital gains in order to maintain our REIT status for federal
income tax purposes. Cash dividends since the first quarter of 1999 are as
follows:

Cash Distribution Per Total Amount
For Quarter Ended Date Paid Share Distributed
----------------- ----------------- ------- ------------

March 31, 2001.... May 15, 2001 $ .3625 $1,391,503
June 30, 2001..... August 14, 2001 .3625 1,391,503
September 30, 2001 November 14, 2001 .3625 1,391,504
December 31, 2001. * .3625 *
------- ----------
Total for 2001. $1.4500 $4,174,510*
======= ==========
March 31, 2000.... May 15, 2000 $ .3625 $1,391,504
June 30, 2000..... August 14, 2000 .3625 1,391,504
September 30, 2000 November 14, 2000 .3625 1,391,504
December 31, 2000. February 14, 2001 .3625 1,391,503
------- ----------
Total for 2000. $1.4500 $5,566,015
======= ==========
March 31, 1999.... May 15, 1999 $ .3575 $1,372,661
June 30, 1999..... August 14, 1999 .3615 1,387,912
September 30, 1999 November 14, 1999 .3625 1,391,504
December 31, 1999. February 14, 2000 .3625 1,391,503
------- ----------
Total for 1999. $1.4440 $5,543,580
======= ==========

--------

* On December 13, 2001 our Board of Trustees declared a dividend of $0.3625 per
share for the fourth quarter ended December 31, 2001, payable to shareholders
of record on December 31, 2001. The dividend will be paid on February 14,
2002. The total amount distributed will be $1,391,503, bringing the total
amount distributed for 2001 to $5,566,013.

SELECTED CONSOLIDATED FINANCIAL DATA

The operating data for the years ended December 31, 1996, 1997, 1998, 1999
and 2000 and the balance sheet data as of December 31, 1996, 1997, 1998, 1999
and 2000 are derived from our audited financial statements and notes thereto.
The operating data for the nine months ended and the balance sheet data as of
September 30, 2000 and 2001 are derived from our unaudited financial statements
and notes thereto. In the opinion of management, the unaudited financial
statements contain all adjustments (consisting of only normal recurring
adjustments) necessary to present fairly the financial position of the Company
as of September 30, 2001 and 2000 and its results of operations for the nine
months ended September 30, 2001 and 2000. However, the operating results for
the interim periods may not be indicative of the results for the full year.

For the Nine Months
Ended September 30, Year Ended December 31,
------------------------- --------------------------------------------------------------
2001 2000 2000 1999(1) 1998 1997 1996
----------- ------------ ----------- ------------ ----------- ----------- -----------

Operating data
Mortgage loan income...... $ 2,256,514 $ 1,188,021 $ 1,565,219 $ 2,569,901 $ 3,037,882 $ 3,118,027 $ 2,866,017
GNMA income............... 1,354,307 355,962 472,693 785,591 880,680 975,599 1,306,658
CMBS income............... -- 2,867,659 3,189,407 950,456 -- -- --
Equity in earnings of
ARCap.................... 1,788,137 -- 401,096 -- -- -- --
Temporary investment
income................... 46,544 1,845,770 2,084,417 1,092,617 112,953 151,228 252,140
Other income.............. 304,345 444,828 598,307 109,017 -- -- --
----------- ------------ ----------- ------------ ----------- ----------- -----------
Total revenues............ 5,749,847 6,702,240 8,311,139 5,507,582 4,031,515 4,244,854 4,424,815
Total expenses............ 1,892,991 3,932,875 4,765,841 2,301,293 647,047 632,304 721,209
----------- ------------ ----------- ------------ ----------- ----------- -----------
Income before other gain
(loss)................... 3,856,856 2,769,365 3,545,298 3,206,289 3,384,468 3,612,550 3,703,606
Total other (loss) gain... (211,572) (392,445) (227,541) 3,054,011 12,144 (66,735) (415,975)
----------- ------------ ----------- ------------ ----------- ----------- -----------
Net income................ $ 3,645,284 $ 2,376,920 $ 3,317,757 $ 6,260,300 $ 3,396,612 $ 3,545,815 $ 3,287,631
=========== ============ =========== ============ =========== =========== ===========
Net income per share
(basic and diluted)...... $ 0.95 $ 0.62 $ 0.86 $ 1.63 $ 0.88 $ 0.92 $ 0.83
=========== ============ =========== ============ =========== =========== ===========
Weighted average shares
outstanding (basic and
diluted)................. 3,838,630 3,838,630 3,838,630 3,841,931 3,845,101 3,851,029 3,972,625
Distributions to
shareholders............. $ 4,174,510 $ 4,174,512 $ 5,566,015 $ 5,543,580 $ 5,566,903 $ 5,575,532 $ 5,569,283
Distribution per share.... $ 1.09 $ 1.09 $ 1.45 $ 1.44 $ 1.45 $ 1.45 $ 1.45
=========== ============ =========== ============ =========== =========== ===========
-----------

September 30, December 31,
------------------------- --------------------------------------------------------------
2001 2000 2000 1999 1998 1997 1996
----------- ------------ ----------- ------------ ----------- ----------- -----------

Balance Sheet Data
Total assets.............. $99,912,427 $121,322,167 $70,438,313 $115,565,441 $59,993,040 $61,645,922 $63,147,215
Repurchase facility
payable.................. $43,191,173 $ 20,061,000 $12,655,940 $ 19,127,000 -- -- --
Total liabilities......... $45,192,116 $ 65,868,891 $15,362,440 $ 58,474,076 $ 1,788,466 $ 1,259,997 $ 986,551
Total shareholders' equity $54,720,311 $ 55,453,276 $55,075,873 $ 57,091,365 $58,204,574 $60,385,925 $62,160,664
----------- ------------ ----------- ------------ ----------- ----------- -----------

--------
(1) The results for the year ended December 31, 1999 reflect a gain on
repayment of two mortgage loans.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Liquidity and Capital Resources

During the nine months ended September 30, 2001, cash and cash equivalents
decreased approximately $530,000 primarily due to proceeds from repurchase
facilities payable of $30,535,000 and cash provided by operating activities of
$3,291,000, offset by investments in mortgage loans of $19,794,000, investments
in GNMA certificates of $6,556,000, an increase in notes receivable of
$4,139,000 and distributions to shareholders of $4,175,000.

Effective February 15, 2000, we entered into a $60 million FHA repurchase
facility with the Nomura Asset Capital Corporation, with a term of one year.
This agreement enables us to borrow up to 90% with a qualified hedge or 80%
without a qualified hedge of the fair market value of FHA loans in which we
invest. This facility was renewed February 15, 2001, for $40 million, with a
one time option to increase to $60 million, a one year term, and interest at
LIBOR plus 1.25%. As of September 30, 2001, there was no outstanding balance on
this facility. As of December 31, 2000, $7,138,940 was outstanding under this
facility.

Also, effective February 15, 2000, we entered into a repurchase facility
with Nomura Securities International Inc. This facility enables us to borrow up
to 95% of the fair market value of qualified mortgage securities that we own.
Borrowings bear interest at LIBOR plus 0.50%. As of September 30, 2001 and
December 31, 2000, the amount outstanding under this facility was $43,191,173
and $5,517,000 and the weighted average interest rates were 4.07% and 7.12%,
respectively.

In order to qualify as a REIT under the Code, we must, among other things,
distribute at least 90% of our taxable income. We believe that we are in
compliance with the REIT-related provisions of the Code.

We expect that cash generated from our investments will meet our needs for
short-term liquidity, and will be sufficient to pay all of our expenses and
make distributions to our shareholders in amounts sufficient to retain our REIT
status in the foreseeable future.

We completed a loan program with Fannie Mae which has agreed to fully fund
the origination of $250 million of delegated underwriter and servicer loans for
apartment properties that qualify for low income housing tax credits under
Section 42 of the Code. Under the program, we will originate and contract, on
Fannie Mae's behalf, for individual loans of up to $6 million dollars each over
a two-year period and will work with American Property Financing, an
unaffiliated mortgage servicing company, which will underwrite and service the
loans for Fannie Mae. Each property in the program will benefit from 9% low
income housing tax credits for no less than 90% of its units. We will guarantee
a first loss position of up to $21.25 million depending on the aggregate
principal amount of the loans we originate under this program and will receive
guarantee, loan origination and other fees. As of September 30, 2001, we
originated, on Fannie Mae's behalf, loans totaling approximately $2.2 million
and have made forward commitments for an additional approximately $6.8 million.
Our maximum guaranty at September 30, 2001 under the Fannie Mae program and the
forward commitments is $6.0 million.

In November 2001, a distribution of $1,391,503 ($0.3625 per share), which
was declared in September 2001, was paid to the shareholders of record for the
quarter ended September 30, 2001.

Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way.

Results of Operations

Three and Nine Month Period Ended September 30, 2001, Compared to Three and
Nine Month Period Ended September 30, 2000

The net income for the three and nine months ended September 30, 2001 and
2000 was $1,090,107 and $1,243,277 and $3,645,284 and $2,376,920, respectively.
The total of our annual operating expenses may not exceed the greater of (i) 2%
of our average invested assets or (ii) 25% of our net income, unless such
excess is approved by the independent trustees. On an annualized basis, there
was no such excess for the nine months ended September 30, 2001 and 2000.

Interest income from mortgage loans increased approximately $1,068,000 for
the nine months ended September 30, 2001 as compared to 2000 primarily due to
interest earned on the additional principal advances to The Hollows, Elmhurst
Village and Autumn Creek prior to their conversion to GNMA certificates and on
Stonybrook (while held by our wholly owned subsidiary AMAC/FM Corporation),
partially offset by the repayment of the Town and Country mortgage loan.
Interest income from mortgage loans decreased approximately $151,000 for the
three months ended September 30, 2001 as compared to 2000 primarily due to the
conversion of the Hollows, Elmhurst Village and Autumn Creek loans to GNMA
certificates.

Interest income from GNMA certificates increased approximately $742,000 and
$998,000 for the three and nine months ended September 30, 2001, primarily due
to the conversion of three mortgage loans to GNMA certificates.

Interest income from commercial mortgage-backed security-related investment
in the amount of approximately $960,000 and $2,868,000 was recorded for the
three and nine months ended September 30, 2000; such investment was sold in
October 2000.

Interest income from temporary investments decreased approximately $604,000
and $1,799,000 for the three and nine months ended September 30, 2001 as
compared to 2000 primarily due to the reduced balances of temporary investments
and termination of the deposits with brokers held as collateral for short sales.

Interest income from notes receivable in the amount of approximately
$127,000 and $234,000 was recorded for the three and nine months ended
September 30, 2001; such investments were made after September 2000.

Equity in earnings of ARCap in the amount of $604,000 and $1,788,000 was
recorded for the three and nine months ended September 30, 2001. This
investment was acquired in October 2000.

Other income in the amount of $40,000 and $70,000 was recorded for the three
and nine months ended September 30, 2001 due to the guaranty and loan
origination fees earned on loans in the Fannie Mae loan program.

Other income for the three and nine months ended September 30, 2000 included
approximately $295,000 of interest income from a note receivable from AMAC/FM
effective January 1, 2001. AMAC/FM is consolidated for financial reporting
purposes. Any interest due from AMAC/FM to AMAC for the three and nine months
ended September 30, 2001 was eliminated in consolidation.

Interest expense decreased approximately $582,000 and $1,757,000 for the
three and nine months ended September 30, 2001 as compared to 2000 due to the
termination of the Bear Stearns Repurchase Facility and closing out of
government securities sold short positions partially offset by higher interest
expenses related to the Nomura repurchase facilities due to higher outstanding
balance.

General and administrative expenses decreased approximately $195,000 and
$258,000 for the three and nine months ended September 30, 2001 as compared to
2000 primarily due to a decrease in asset management fees

payable to the Advisor due to the sale of commercial mortgage-backed
security-related investment and a decrease in the reimbursements of certain
administrative and other costs incurred by the Advisor on our behalf.

Amortization decreased approximately $21,000 and $25,000 for the three and
nine months ended September 30, 2001 due to the deferred costs relating to the
repurchase facility with Nomura Asset Capital Corporation being fully amortized.

A gain on the repayment of mortgage loans in the amount of approximately
$14,000 was recorded for the nine months ended September 30, 2000, relating to
the repayment of the Town & Country mezzanine loan and FHA insured mortgage
loan on January 21, 2000. A gain of approximately $58,000 was recognized during
the nine months ended September 30, 2000 from the repayment of a GNMA
certificate. A loss of approximately $212,000 was recognized during the three
months ended September 30, 2001 relating to the repayment of the Columbiana
Lakes FHA first mortgage loan and related mezzanine loan.

A net loss on the commercial mortgage-backed security-related investment and
government securities sold short in the amount of approximately $464,000 was
recorded for the nine months ended September 30, 2000. These positions were
liquidated in October of 2000.

Distributions

Of the total distributions of $4,174,510 and $4,174,512 for the nine months
ended September 30, 2001 and 2000, respectively, $317,654 ($.08 per share or
7.61%) and $1,836,883 ($0.48 per share or 44%), respectively, represented a
return of capital determined in accordance with generally accepted accounting
principles. As of September 30, 2001, the aggregate amount of the distributions
made since the commencement of the initial public offering representing a
return of capital, in accordance with generally accepted accounting principles,
totaled $14,435,381. The portion of the distributions which constituted a
return of capital was significant during the initial acquisition stage in order
to maintain level distributions to shareholders.

Year Ended December 31, 2000, Compared to Year Ended December 31, 1999

Interest income from mortgage loans decreased approximately $1,005,000 for
the year ended December 31, 2000 as compared to 1999 primarily due to the
repayment of the Town and Country mortgage loan, contribution of Stonybrook FHA
Loan to an unconsolidated subsidiary and the recognition in 1999 of additional
interest income related to the Columbiana loan, which had been reserved in
1998. This was partially offset by increases due to the three new loans
acquired during 2000.

Interest income from GNMA certificates decreased approximately $313,000 for
the year ended December 31, 2000 as compared to 1999 primarily due to the
repayment of one of the GNMA certificates in January 2000.

Interest income from commercial mortgage-backed security-related investment
increased approximately $2,239,000 for the year ended December 31, 2000 due to
a longer holding period for the investment.

Interest income from note receivable increased approximately $361,000 for
the year ended December 31, 2000 primarily due to a loan made to an
unconsolidated subsidiary in March 2000.

Interest income from temporary investments increased $992,000 for the year
ended December 31, 2000 as compared to 1999 due to an increase in the amounts
invested.

Dividend income in the amount of $401,000 was reported for the year ended
December 31, 2000 due to the investment in ARCap preferred stock.

Other income increased approximately $128,000 for the year ended December
31, 2000 as compared to 1999 due to a loan origination fee and the interest
income of a bridge loan.

Interest expense increased $2,465,000 for the year ended December 31, 2000
as compared to 1999 due to the repurchase facilities and the US treasury note
transactions.

General and administrative expenses increased approximately $280,000 for the
year ended December 31, 2000 as compared to 1999 due to a usage fee for the
Nomura repurchase facilities, increased asset management fees and increased
advertising. This was partially offset by a decrease in the incentive
management fee.

Amortization costs in the amount of $85,000 were expensed for the year ended
December 31, 2000 relating to Nomura deferred costs of the Nomura repurchase
facilities.

A net loss on the commercial mortgage-backed security-related investment and
government security sold short position in the amount of approximately $300,000
was recorded for the year ended December 31, 2000, as opposed to $218,000 for
1999. This was due to fluctuations in the market values of those positions
during 1999 and 2000, until their sale on October 31, 2000.

Year Ended December 31, 1999, Compared to Year Ended December 31, 1998

Interest income from mortgage loans decreased approximately $468,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to the repayment
of the Cove and Oxford mortgage loans on March 1, 1999 which was partially
offset by increases due to the receipt of Additional Interest relating to
Columbiana and the accrual of Additional Interest (received in January 2000)
relating to Town and Country, both of which had been fully reserved and
reversed from interest in 1998.

Interest income from REMIC and GNMA certificates decreased approximately
$95,000 for the year ended December 31, 1999 as compared to 1998 primarily due
to the repayment of one of the REMICs in October 1998 and a decrease in the
balances of the GNMA certificates due to principal payments received during
1999 and 1998.

Interest income from commercial mortgage-backed security-related investment
in the amount of approximately $950,000 was recorded for the year ended
December 31, 1999; such investment was made on September 30, 1999.

Interest income from note receivable in the amount of approximately $86,000
was recorded for the year ended December 31, 1999 relating to a loan made in
May 1999 which was repaid in September 1999.

Interest income from temporary investments increased approximately $980,000
for the year ended December 31, 1999 as compared to 1998 primarily due to
proceeds from the repayment of the Cove and Oxford mortgage loans on March 1,
1999 which were temporarily invested in 1999.

Other income in the amount of approximately $23,000 was recorded for the
year ended December 31, 1999 relating primarily to origination points (fees)
relating to the note receivable.

Interest expense in the amount of approximately $907,000 was recorded for
the year ended December 31, 1999 relating to interest on a repurchase facility
payable entered into on September 30, 1999 and interest on a government
security sold short on September 30, 1999.

General and administrative expenses increased approximately $388,000 for the
year ended December 31, 1999 as compared to 1998 primarily due to an incentive
fee payable to the Advisor, an increase in the reimbursements of certain
administrative and other costs incurred by the Advisor on our behalf and an
increase in public relations expenses due to the reorganization of the Company.

Organization costs in the amount of approximately $365,000 were expensed for
the year ended December 31, 1999 relating to the reorganization of the Company.

A net loss on the commercial mortgage-backed security-related investment and
government security sold short position in the amount of approximately $218,000
was recorded for the year ended December 31, 1999 due to changes in the fair
values of such positions since they originated on September 30, 1999.

A gain on repayment of mortgage loans in the amount of approximately
$3,273,000 was recorded for the year ended December 31, 1999 relating to the
repayment of the Cove and Oxford mortgage loans on March 1, 1999.

Distributions

Of the total distributions paid of $5,566,015 and $5,543,580 for the years
ended December 31, 2000 and 1999, respectively, $2,248,259 ($.59 per share or
40%) and $686,445 ($.18 per share or 12%), respectively, represented a return
of capital determined in accordance with generally accepted accounting
principles. As of December 31, 2000, the aggregate amount of the distributions
made since the commencement of the initial public offering representing a
return of capital, in accordance with generally accepted accounting principles,
totaled $14,117,727. The portion of the distributions which constituted a
return of capital was made in order to maintain level distributions to
shareholders.

Recently Issued Accounting Standards

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. This statement was implemented by the Company on January 1,
2001. Because the Company does not utilize derivatives, implementation of this
statement did not have a material effect on the Company's financial statements.

In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations" (SFAS 141) and Statement No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). These statements establish new standards
for accounting and reporting for business combinations and for goodwill and
intangible assets resulting from business combinations. SFAS 141 applies to all
business combinations initiated after June 30, 2001; the Company is required to
implement SFAS 142 on January 1, 2002. Management believes that implementation
of these statements will not have a material impact on the Company's financial
statements.

In August of 2001, the FASB issued SFAS No. 143, "Accounting for Asset
Retirement Obligations" (effective January 1, 2003) and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets" (effective
January 1, 2002). SFAS No. 143 requires the recording of the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. SFAS No. 144 supercedes existing accounting literature dealing with
impairment and disposal of long-lived assets, including discontinued
operations. It addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of, and expands
current reporting for discontinued operations to include disposals of a
"component" of an entity that has been disposed of or is classified as held for
sale. The Company is in the process of evaluating the financial statement
impact of the adoption these two standards.

Inflation

Inflation did not have a material effect on our results for the periods
presented.

Quantitative and Qualitative Disclosures About Market Risk

Market risk is the exposure to loss resulting from changes in interest
rates, changes in spreads on CMBS, foreign currency exchange rates, commodity
prices and equity prices. The primary market risk to which our

investments are exposed is interest rate risk which is highly sensitive to many
factors, including governmental monetary and tax policies, domestic and
international economic and political considerations and other factors beyond
our control.

Our borrowings under repurchase agreements bear interest at rates that
fluctuate with LIBOR. Based on the $43.2 million of borrowings outstanding
under these facilities at September 30, 2001, a 1% change in LIBOR would impact
our annual net income and cash flows by approximately $432,000.

Cash flows and income from our other financial instruments, consisting
primarily of mortgage loans, a preferred equity interest, GNMA certificates,
and cash and cash equivalents, would not be significantly affected by changes
in interest rates, because most of these instruments bear interest at fixed
rates, and are not subject to financing or hedged.

Cash and cash equivalents and the mortgage loans are carried at historical
cost, and so their carrying values are not impacted by changes in interest
rates. The GNMA investments are adjusted to market value through comprehensive
income in the equity statement, but changes in their value have not
historically been significant to shareholders' equity. The preferred equity
interest is carried on the equity method; although changes in interest rates
would not directly impact the carrying value of this asset, they might
adversely affect the ability of the underlying entity to meet its preferred
distribution requirements.

DESCRIPTION OF SECURITIES

The summary of the terms of our shares of beneficial interest set forth
below does not purport to be complete and is subject to and qualified in its
entirety by reference to our declaration of trust, as amended and restated from
time to time.

General

Our authorized capital consists of 12,500,000 shares of beneficial interest,
par value $0.10 per share. All of our authorized and issued capital is
designated as common shares. We have not designated any of our shares of
beneficial interest as preferred shares. As of January 11, 2002, we had
outstanding 3,838,630 common shares. In addition, we have reserved 383,924
common shares for issuance under our Incentive Share Option Plan. We may sell
and issue as many shares of beneficial interest as the trustees determine in
their sole discretion. A majority of the trustees, including a majority of the
independent trustees, are authorized to determine from time to time the number
of authorized shares that will be sold and issued. The Board of Trustees may
classify any unissued shares in one or more classes or series of beneficial
interests.

Common Shares of Beneficial Interest

All common shares of beneficial interest have equal voting, dividend,
distribution, liquidation, redemption and other rights and have one vote per
share on all matters submitted to a vote of the shareholders. Common shares
will be validly issued, fully paid and non-assessable by us or on our behalf
upon receipt of full consideration for which they have been issued or without
additional consideration if issued by way of share dividend, share split, or
upon the conversion of convertible debt, and will not be subject to redemption
by us (except in the case of a redemption to prevent a violation of the
concentration of ownership provisions of the Code applicable to REITs). Unless
otherwise permitted by the Board of Trustees, the common shares do not entitle
the shareholders to preference, preemptive, appraisal, conversion or exchange
rights of any kind.

Preferred Shares of Beneficial Interest

As of September 30, 2001, we have not designated any of our shares of
beneficial interest as preferred shares. The Board of Trustees may classify any
unissued preferred shares of beneficial interest and reclassify any previously
classified but unissued preferred shares of any series from time to time, in
one or more series of shares. The Board of Trustees has no present plans to
designate any preferred shares.

Restrictions on Transfer

In order for us to qualify as a REIT, our shares must be beneficially owned
by 100 or more persons for at least 335 days of a taxable year of 12 months or
during a proportionate part of a shorter taxable year. Also, not more than 50%
of the number or value of the outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Internal Revenue
Code of 1986, as amended, to include certain exempt entities) during the last
half of a taxable year or during a proportionate part of a shorter taxable year
(other than during its first taxable year). In order to prevent five or fewer
individuals from acquiring more than 50% of our outstanding shares, and a
resulting failure to qualify as a REIT, we intend to limit the ownership and
transfer of shares in order to comply with such limitations.

Certain transfers or purchases may be prohibited by the Board of Trustees to
ensure our continued qualification as a REIT under the Code. The Board of
Trustees may require each proposed transferee of shares to deliver a statement
or affidavit setting forth the number of shares, if any, already owned,
directly or indirectly, by such transferee and may refuse to permit any
transfer of shares which would cause an accumulation of shares that would
jeopardize our status as a REIT.

Our declaration of trust provides that the Board of Trustees may redeem
shares in order to maintain our REIT status. The redemption price is determined
in good faith by our independent trustees.

Our declaration of trust provides that, subject to certain exceptions, if at
any time, a person becomes an owner of, or is deemed to own by virtue of the
attribution provisions of the Code, more than 9.8% of the outstanding shares,
then the shares most recently acquired by such person which are in excess of
the 9.8% limit (the "Excess Shares") will have the following characteristics:

. not have any voting rights;

. not be deemed outstanding for the purpose of determining a quorum at the
annual meeting or any special meeting of shareholders or for determining
the number of outstanding shares for purposes of determining a "majority
of the outstanding shares" in connection with a shareholders' vote without
a meeting;

. any dividends or distributions with respect to the Excess Shares will be
held by us in a savings account for the benefit of the holders of such
Excess Shares until such time as the Excess Shares cease to be Excess
Shares; and

. Excess Shares shall be deemed to have been offered for sale to us or our
designee for a period of 120 days from the date of (i) the transfer that
created the Excess Shares, if we had actual knowledge of the transfer or
(ii) if we do not have actual knowledge of the transfer, the determination
by the trustees in good faith that a transfer creating Excess Shares has
taken place. The price for such Excess Shares shall be their fair market
value as of the date of either (i) or (ii) above.

After we give notice of our intention to purchase the Excess Shares such
shares shall have no further rights beyond the right of the shareholder to
receive payment for them.

Any person who acquires Excess Shares is obliged to immediately give written
notice to us and provide us with any information we may request in order to
determine the effect of the acquisition on our status as a REIT.

Restrictions on Certain Conversion Transactions

Our declaration of trust requires that 80% in interest of the shareholders
and all the independent trustees approve "conversion transactions," which are
exchange offers, mergers, consolidations or similar transactions involving us
in which the shareholders receive securities in a surviving entity having a
substantially longer duration or materially different investment objectives and
policies, or that is anticipated to provide significantly greater compensation
to management, except for any such transaction affected because of changes in
applicable law, or to preserve tax advantages for a majority in interest of the
shareholders. It should be noted that standards such as "substantially longer
duration," "materially different investment objectives and policies" or
"provides significantly greater compensation to management" are not defined and
are by their nature potentially ambiguous. Any ambiguities will be resolved by
the Board of Trustees (a majority of whom are independent trustees).

Certain Provisions of our Declaration of Trust.

Our organizational document, our declaration of trust, binds each trustee
and each shareholder. Each shareholder is deemed to have agreed to the terms of
our declaration of trust by electing to become a shareholder.

Shareholder Meetings

An annual meeting of shareholders will be held not less than 30 days after
delivery of the annual report, but in no event later than June 30 of each year.
Special meetings may be called by the Chairman of the Board, by the President,
by a majority of the trustees or by a majority of the independent trustees, or
by shareholders holding, in the aggregate, not less than 10% of the outstanding
common shares. At any meeting of shareholders, each shareholder is entitled to
one vote for each common share owned of record (other than Excess Shares) on
the applicable record date. In general, the presence in person or by proxy of a
majority of the outstanding common shares shall constitute a quorum, and a
majority vote of the shareholders will be binding on all our shareholders.

Shareholder Voting Rights

Except as otherwise provided, all common shares shall have equal voting
rights. Shareholders do not have cumulative voting rights.

Excess Shares are not entitled to any voting rights and are not considered
outstanding for the purpose of determining a quorum.

All elections for trustees are decided by a plurality vote at a meeting or
without a meeting provided that at least a majority of the outstanding shares
cast a vote in such election. Unless otherwise provided by our declaration of
trust, all other questions are decided by a majority of the votes cast at a
meeting at which a quorum is present or a majority of outstanding shares cast,
without a meeting.

Each shareholder entitled to vote may do so (i) at a meeting, in person, by
written proxy or by a signed writing or consent directing the manner in which
the shareholder desires that the shareholder's vote be cast (which must be
received by the trustees prior to such meeting) or (ii) without a meeting, by a
signed writing or consent directing the manner in which the shareholder desires
that the shareholder's vote be cast (which must be received by the trustees
prior to the date the votes of the shareholders are to be counted).

Any or all trustees may be removed, with or without cause, by the
affirmative vote of the holders of at least a majority of the outstanding
shares entitled to vote.

Shareholder Lists

An alphabetical list of names, record addresses and business telephone
numbers of all shareholders with the number of shares held by each, is
maintained as part of our books and records at our principal office. Such list
is updated at least quarterly, and is open for inspection by a shareholder or
the shareholder's designated agent upon such shareholder's request. Such list
will be mailed to any shareholder requesting the list within 10 days of the
request. We may require the shareholder requesting such shareholder's list to
represent that the list is not requested for a commercial purpose unrelated to
the shareholder's interest in us.

Inspection of Books and Records

Any shareholder and any designated representative thereof is permitted
access to all of our records at all reasonable times, and may inspect and copy
any of them. In addition, our books and records are open for inspection by
state securities administrators upon reasonable notice and during normal
business hours at our principal place of business.

Trustees

A majority of the trustees must at all times be independent trustees.
Independent trustees are trustees who are not affiliated with the Advisor, not
serving as a director or trustee for more than three other REITs organized by
our sponsor and not performing other services for us except as trustees. Our
declaration of trust requires that we have not less than three nor more than
nine trustees as fixed from time to time by the Board of Trustees. On June 12,
2001, the Board of Trustees fixed the number of trustees at five.

A trustee may be removed by a majority of the other trustees only for cause.
A trustee may be removed, with or without cause, by vote of the majority of the
outstanding shares entitled to vote. Any vacancy, except a vacancy created by
the removal of a trustee by the shareholders, may be filled by a majority of
the remaining trustees, except that independent trustees must nominate
replacements for vacancies in independent trustee positions. Vacancies caused
as a result of the removal of a trustee by the shareholders must be filled by
the shareholders. Each trustee serves a term of one year.

No bond is required to secure the performance of a trustee unless the Board
of Trustees so provide or as required by law. The trustees are empowered to fix
the compensation of all officers whom they select. The independent trustees
will be paid $10,000 per year. Non-independent trustees will not be compensated
by us.

None of the Advisor, the trustees nor their affiliates may vote any shares
held by them on matters submitted to the shareholders regarding the removal of
or on any transaction between us and the Advisor, the trustees or their
affiliates. Shares held by the Advisor, the trustees and their affiliates may
not be included in determining the number of outstanding shares entitled to
vote on these matters, nor in the shares actually voted thereon.

Amendment of the Declaration of Trust

Our declaration of trust may be amended by the vote of the holders of a
majority of the outstanding common shares and a majority of the trustees,
including a majority of the independent trustees, except that the amendment of
the provision contained in our declaration of trust regarding supermajority
shareholder approval of certain roll-up or conversion transactions requires the
vote of the holders of 80% of the outstanding shares. Notwithstanding the
foregoing, a majority of the trustees, including a majority of the independent
trustees, are authorized to amend our declaration of trust without the consent
of shareholders (i) to the minimum extent necessary, based on an opinion of
counsel, to comply with the provisions of the Code applicable to REITs, the
regulations thereunder, and any ruling on or interpretation of the Code or the
regulations thereunder (ii) to delete or add any provision required to be
deleted or added by the Securities and Exchange Commission or a state "blue
sky" commissioner, which addition or deletion is deemed by such official to be
for the benefit or protection of shareholders or (iii) to clarify any
ambiguities or correct any inconsistencies.

Responsibility of Trustees

The Board of Trustees is responsible for our general policies and for such
general supervision and management of our business as may be necessary to
insure that such business conforms to the provisions of our declaration of
trust.

The trustees are accountable to the shareholders as fiduciaries and are
required to perform their duties in good faith and in a manner each trustee
believes to be in our best interest and our shareholders, with such care,
including reasonable inquiry, as a prudent person in a like position would use
under similar circumstances.

Our declaration of trust provides that the trustees shall have full,
absolute and exclusive power, control, management and authority over our assets
and over our business and affairs to the same extent as if the trustees were
the sole owners thereof in their own right. The trustees have the power to
enter into commitments to make any investment, purchase or acquisition or to
exercise any power authorized by our declaration of trust, including the power
to retain an advisor and to delegate any of the trustees' powers and duties to
an advisor.

The trustees have the responsibility to establish written policies on
investments and borrowings and shall monitor our and the Advisor's
administrative procedures, investment operations and performance to assure that
such policies are carried out. A majority in interest of the shareholders must
approve any change in our investment objectives.

Indemnification

We agreed to indemnify and hold harmless our trustees, our Advisor and their
affiliates who are performing services on our behalf ("Indemnified Parties")
against expense or liability, including attorneys' fees and disbursements, in
any action arising out of any act performed or omitted to be performed by them
in connection with our operation or business; provided, that, (i) our trustee
or the Advisor has determined, in good faith, that the course of conduct which
caused the loss or liability was in our best interests (ii) such liability or
loss was not the result of negligence or misconduct on the part of the
Indemnified Party and (iii) such indemnification or

agreement to hold harmless is recoverable only out of our assets and not from
the shareholders. In addition, our declaration of trust contains provisions
limiting the personal liability of our trustees, officers and shareholders.

We do not indemnify the Indemnified Parties for any liability imposed by a
judgment, and costs associated with a judgment, including attorneys' fees,
arising from or out of a violation of state or federal securities laws.
However, we may indemnify the Indemnified Parties for settlements and related
expenses of lawsuits alleging securities laws violations and for expenses
incurred in successfully defending such lawsuits, but only if: (a) a court
either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made or (ii) approves indemnification of
litigation costs if there has been a successful defense or (b) there has been a
dismissal on the merits with prejudice (without a settlement).

Possible Shareholder Liability

It is possible that certain states may not recognize the limited liability
of shareholders, although our declaration of trust provides that our
shareholders shall not be subject to any personal liability for our acts or
obligations. Our declaration of trust also provides that every written
agreement entered into by us shall contain a provision that our obligations are
not enforceable against our shareholders personally. No personal liability
should attach to our shareholders under any agreement containing such a
provision; however, not every written agreement entered into by us contains
such a provision. In certain states, our shareholders may be held personally
liable for claims against us (such as contract claims where the underlying
agreement does not specifically exclude shareholder liability, claims for
taxes, certain statutory liability and tort claims). Upon payment of any such
liability, however, the shareholder will, in the absence of willful misconduct
on the shareholder's part, be entitled to reimbursement from our general
assets, to the extent such assets are sufficient to satisfy the claim.

Transfer Agent and Registrar

EquiServe Trust Company N.A., c/o EquiServe American Mortgage Acceptance
Company, P.O. Box 40310, Providence, RI 02940-3010, is the transfer agent and
registrar for our shares. Its telephone number is (800) 730-6001.

CERTAIN FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the material federal income tax
considerations to you as a prospective holder of shares. The following
discussion is for general information purposes only, is not exhaustive of all
possible tax considerations and is not intended to be and should not be
construed as tax advice. For example, this summary does not give a detailed
discussion of any state, local or foreign tax considerations. In addition, this
discussion is intended to address only those federal income tax considerations
that are generally applicable to all our shareholders. It does not discuss all
of the aspects of federal income taxation that may be relevant to you in light
of your particular circumstances or to certain types of shareholders who are
subject to special treatment under the federal income tax laws including,
without limitation, insurance companies, tax-exempt entities, financial
institutions or broker-dealers, foreign corporations and persons who are not
citizens or residents of the United States.

The information in this section is based on the Internal Revenue Code of
1986, as amended, which is referred to as the Code, existing, temporary and
proposed regulations under the Code, the legislative history of the Code,
current administrative rulings and practices of the IRS and court decisions,
all as of the date hereof. No assurance can be given that future legislation,
regulations, administrative interpretations and court decisions will not
significantly change current law or adversely affect existing interpretations
of current law. Any such change could apply retroactively to transactions
preceding the date of the change. In addition, we have not received, and do not
plan to request, any rulings from the IRS concerning our tax treatment. Thus no
assurance can be provided that the statements set forth herein (which do not
bind the IRS or the courts) will not be challenged by the IRS or that such
statements will be sustained by a court if so challenged.

EACH PROSPECTIVE PURCHASER OF SHARES IS ADVISED TO CONSULT WITH HIS OR HER
OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE
PURCHASE, OWNERSHIP AND SALE OF SHARES OF AN ENTITY ELECTING TO BE TAXED AS A
REIT, INCLUDING THE FEDERAL, STATE, LOCAL AND FOREIGN AND OTHER TAX
CONSEQUENCES OF SUCH PURCHASE, OWNERSHIP, SALE AND ELECTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.

Taxation of the Company

General. We elected to be taxed as a REIT under Sections 856 through 860 of
the Code, commencing with our taxable year ended December 31, 1991. We believe
that we have been organized, and have operated, in such a manner so as to
qualify for taxation as a REIT under the Code and intend to conduct our
operations so as to continue to qualify for taxation as a REIT. No assurance,
however, can be given that we have operated in a manner so as to qualify or
will be able to operate in such a manner so as to remain qualified as a REIT.
Qualification and taxation as a REIT depend upon our ability to meet on a
continuing basis, through actual annual operating results, the required
distribution levels, diversity of share ownership and the various qualification
tests imposed under the Code discussed below, the results of which will not be
reviewed by counsel. Given the highly complex nature of the rules governing
REITs, the ongoing importance of factual determinations, and the possibility of
future changes in our circumstances, no assurance can be given that the actual
results of our operations for any one taxable year have satisfied or will
continue to satisfy such requirements.

The following is a general summary of the Code provisions that govern the
federal income tax treatment of a REIT and its shareholders. These provisions
of the Code are highly technical and complex. This summary is qualified in its
entirety by the applicable Code provisions, Treasury Regulations and
administrative and judicial interpretations thereof, all of which are subject
to change prospectively or retroactively.

If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on our net income that is currently distributed
to shareholders. This treatment substantially eliminates the "double

taxation" (at the corporate and shareholder levels) that generally results from
investment in a corporation. However, we will be subject to federal income tax
as follows: first, we will be taxed at regular corporate rates on any
undistributed REIT taxable income, including undistributed net capital gains.
Second, under certain circumstances, we may be subject to the "alternative
minimum tax" on our items of tax preference. Third, if we have (a) net income
from the sale or other disposition of "foreclosure property", which is, in
general, property acquired on foreclosure or otherwise on default on a loan
secured by such real property or a lease of such property, which is held
primarily for sale to customers in the ordinary course of business or (b) other
nonqualifying income from foreclosure property, we will be subject to tax at
the highest corporate rate on such income. Fourth, if we have net income from
prohibited transactions such income will be subject to a 100% tax. Prohibited
transactions are, in general, certain sales or other dispositions of property
held primarily for sale to customers in the ordinary course of business other
than foreclosure property. Fifth, if we should fail to satisfy the 75% gross
income test or the 95% gross income test (as discussed below), but nonetheless
maintain our qualification as a REIT because certain other requirements have
been met, we will be subject to a 100% tax on an amount equal to (a) the gross
income attributable to the greater of the amount by which we fail the 75% or
95% test multiplied by (b) a fraction intended to reflect our profitability.
Sixth, if we should fail to distribute during each calendar year at least the
sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT
capital gain net income for such year, and (c) any undistributed taxable income
from prior periods, we would be subject to a 4% excise tax on the excess of
such required distribution over the amounts actually distributed. Seventh, as
provided in temporary regulations, if we acquire any asset from a C corporation
(i.e., a corporation generally subject to full corporate level tax) in a
transaction in which the basis of the asset in our hands is determined by
reference to the basis of the asset (or any other property) in the hands of the
C corporation, the "built-in gain" associated with the asset would be
immediately subject to tax. However, if we make the proper election on our tax
return for the year in which we acquire any such asset, we instead would be
subject to tax at the highest corporate rate if we dispose of such asset during
the 10 year period beginning on the date that we acquired that asset, to the
extent of such property's "built-in gain" (the excess of the fair market value
of such property at the time of our acquisition over the adjusted basis of such
property at such time). We also will incur a 100% excise tax on transactions
with a taxable REIT subsidiary that are not conducted on an arm's-length basis.

Requirements for Qualification. A REIT is a corporation, trust or
association (1) which is managed by one or more trustees or directors, (2) the
beneficial ownership of which is evidenced by transferable shares, or by
transferable certificates of beneficial interest, (3) which would be taxable as
a domestic corporation, but for Sections 856 through 859 of the Code, (4) which
is neither a financial institution nor an insurance company subject to certain
provisions of the Code, (5) that has the calendar year as its taxable year, (6)
the beneficial ownership of which is held by 100 or more persons, (7) during
the last half of each taxable year not more than 50% in value of the
outstanding stock of which is owned, directly or indirectly, by five or fewer
individuals (as defined in the Code to include certain entities), and (8) which
meets certain other tests, described below, regarding the nature of its income
and assets. The Code provides that conditions (1) through (5), inclusive, must
be met during the entire taxable year and that condition (6) must be met during
at least 335 days of a taxable year of 12 months, or during a proportionate
part of a taxable year of less than 12 months.

We may redeem, at our option, a sufficient number of shares or restrict the
transfer thereof to bring or maintain the ownership of the shares in conformity
with the requirements of the Code. In addition, our declaration of trust
includes restrictions regarding the transfer of our stock that are intended to
assist us in continuing to satisfy requirements (6) and (7). Moreover, if we
comply with regulatory rules pursuant to which we are required to send annual
letters to holders of our capital stock requesting information regarding the
actual ownership of our capital stock, and we do not know, or exercising
reasonable diligence would not have known, whether we failed to meet
requirement (7) above, we will be treated as having met the requirement.

The Code allows a REIT to own wholly-owned subsidiaries which are "qualified
REIT subsidiaries." The Code provides that a qualified REIT subsidiary is not
treated as a separate corporation, and all of its assets, liabilities and items
of income, deduction and credit are treated as assets, liabilities and items of
income, deduction and credit of the REIT. Thus, in applying the requirements
described herein, our qualified REIT

subsidiaries will be ignored, and all assets, liabilities and items of income,
deduction and credit of such subsidiaries will be treated as our assets,
liabilities and items of income, deduction and credit.

For taxable years beginning on or after January 1, 2001, a REIT may also
hold any direct or indirect interest in a corporation that qualifies as a
"taxable REIT subsidiary", as long as the REIT's aggregate holdings of taxable
REIT subsidiary securities do not exceed 20% of the value of the REIT's total
assets. A taxable REIT subsidiary is a fully taxable corporation that generally
is permitted to engage in businesses, own assets, and earn income that, if
engaged in, owned, or earned by the REIT, might jeopardize REIT status or
result in the imposition of penalty taxes on the REIT. To qualify as a taxable
REIT subsidiary, the subsidiary and the REIT must make a joint election to
treat the subsidiary as a taxable REIT subsidiary. A taxable REIT subsidiary
also includes any corporation (other than a REIT or a qualified REIT
subsidiary) in which a taxable REIT subsidiary directly or indirectly owns more
than 35% of the total voting power or value. See "Asset Tests" below. A taxable
REIT subsidiary will pay tax at regular corporate income rates on any taxable
income it earns. Moreover, the Code contains rules, including rules requiring
the imposition of taxes on a REIT at the rate of 100% on certain reallocated
income and expenses, to ensure that contractual arrangements between a taxable
REIT subsidiary and its parent REIT are at arm's-length. An election has been
made to treat AMAC/FM Corporation as a taxable REIT subsidiary as of January 1,
2001.

In the case of a REIT which is a partner in a partnership, Treasury
Regulations provide that the REIT will be deemed to own its proportionate share
of each of the assets of the partnership and will be deemed to be entitled to
the income of the partnership attributable to such share. In addition, the
character of the assets and items of gross income of the partnership will
retain the same character in the hands of the REIT for purposes of Section 856
of the Code, including satisfying the gross income and assets tests (as
discussed below). Thus, our proportionate share of the assets, liabilities, and
items of gross income of any partnerships in which we own an interest are
treated as our assets, liabilities and items of gross income for purposes of
applying the requirements described herein.

Income Tests. In order to maintain qualification as a REIT, we must satisfy
annually certain gross income requirements. First, at least 75% of our gross
income (excluding gross income from prohibited transactions) for each taxable
year must be derived directly or indirectly from investments relating to real
property or mortgages on real property (including "rents from real property"
and, in certain circumstances, interest) or from certain types of qualified
temporary investments. Second, at least 95% of our gross income (excluding
gross income from prohibited transactions) for each taxable year must be
derived from such real property investments, dividends, interest and gain from
the sale or disposition of stock or securities.

Interest will qualify as interest on obligations secured by mortgages on
real property or on interests in real property in satisfying the gross income
requirements for a REIT described above only if several conditions are met.
Interest on obligations secured by mortgages on real property or on interests
in real property will be treated as qualifying income to the extent that the
fair market value of the property that secures the loan has a value greater
than or equal to the highest principal amount, including accrued interest, of
such loan outstanding during the REIT taxable year. To the extent the fair
market value of such property at the time of issuance and when the loan is
acquired is less than the highest principal amount, including accrued interest,
of such loan outstanding during the REIT taxable year, only a proportionate
part of the interest on such loan shall be treated as qualifying income. For
purposes of the gross income requirements, interest includes only amounts that
represent compensation for the use or forbearance of money, and does not
include a charge for services. Interest includes income from a REMIC, as long
as at least 95% of the assets of the REMIC are interests in real property. If
less than 95% of the assets of a REMIC consist of real estate, income accrued
by the REIT will be treated as interest from a mortgage in the proportion in
which assets of the REMIC consist of real estate assets. Subject to certain
exceptions, interest does not include amounts received or accrued, directly or
indirectly, if the amount depends, in whole or in part, on the income or
profits of any person. One exception to this rule is that amounts may be based
on the gross receipts or sales of a person, and still constitute interest for
these purposes. The second exception would be available if the REIT receives or
accrues amounts that would be excluded from interest

because the borrower receives or accrues an amount based on the income or
profits of any person; in such case, only a proportionate part of the amount
received or accrued by the REIT is excluded from being treated as interest.
Third, if the borrower derives substantially all of its gross income with
respect to the property subject to the mortgage from the leasing of its
property to tenants, an amount based on the net income or profits of the
borrower may be treated as interest if the borrower receives or accrues amounts
that would qualify as rents from real property had such amounts been received
by the REIT.

Rents received by us will qualify as "rents from real property" in
satisfying the gross income requirements for a REIT described above only if
several conditions are met.

We believe that substantially all of our interest income will be qualifying
income under the gross income tests.

If we fail to satisfy one or both of the 75% or 95% gross income tests for
any taxable year, we may nevertheless qualify as a REIT for such year if such
failure was due to reasonable cause and not willful neglect, we disclosed the
nature and amounts of our items of gross income in a schedule attached to our
return, and any incorrect information on the schedule was not due to fraud with
intent to evade tax. It is not possible, however, to state whether in all
circumstances we would be entitled to the benefit of this relief provision.
Even if this relief provision applied, a 100% penalty tax would be imposed on
the amount by which we failed the 75% or 95% test (whichever amount is
greater), less an amount which generally reflects expenses attributable to
earning the nonqualified income.

Subject to certain safe harbor exceptions, any gain realized by us on the
sale of any property held as inventory or other property held primarily for
sale to customers in the ordinary course of business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income may also have an adverse effect upon our ability
to satisfy the income tests for qualification as a REIT. Under existing law,
whether property is held as inventory or primarily for sale to customers in the
ordinary course of a trade or business is a question of fact that depends on
all the facts and circumstances with respect to the particular transaction.

Asset Tests. At the close of each quarter of our taxable year, we must also
satisfy the following tests relating to the nature of our assets. At least 75%
of the value of our total assets must be represented by real estate assets,
including (1) our allocable share of mortgage and other real estate assets held
by partnerships in which we own an interest or held by our qualified REIT
subsidiaries and (2) stock or debt instruments held for not more than one year
purchased with the proceeds of an offering of equity securities or a long-term
(at least five years) debt offering by us, cash, cash items and government
securities. In addition, not more than 25% of our total assets may be
represented by securities other than those in the 75% asset class. Not more
than 20% of the value of our total assets may be represented by securities of
one or more taxable REIT subsidiaries (as defined above under "Requirements for
Qualification"). Except for investments included in the 75% asset class,
securities in a taxable REIT subsidiary or qualified REIT subsidiary and
certain partnership interests and debt obligations, (1) not more than 5% of the
value of our total assets may be represented by securities of any one issuer,
(2) we may not hold securities that possess more than 10% of the total voting
power of the outstanding securities of a single issuer and (3) we may not hold
securities that have a value of more than 10% of the total value of the
outstanding securities of any one issuer.

We believe that substantially all of our assets consist and, after the
offering, will consist of (1) mortgages, (2) stock or debt investments that
earn qualified temporary investment income, (3) other qualified real estate
assets, and (4) cash, cash items and government securities. We may also invest
in securities of other entities, provided that such investments will not
prevent us from satisfying the asset and income tests for REIT qualification
set forth above.

After initially meeting the asset tests at the close of any quarter, we will
not lose our status as a REIT for failure to satisfy the asset tests at the end
of a later quarter solely by reason of changes in asset values. If we

inadvertently fail one or more of the asset tests at the end of a calendar
quarter because we acquire securities or other property during the quarter, we
can cure this failure by disposing of sufficient nonqualifying assets within 30
days after the close of the calendar quarter in which it arose.

Annual Distribution Requirement. With respect to each taxable year, we must
distribute to our shareholders as dividends (other than capital gain dividends)
at least 90% of our taxable income. Specifically, we must distribute an amount
equal to (1) 90% of the sum of our "REIT taxable income" (determined without
regard to the deduction for dividends paid and by excluding any net capital
gain), and any after-tax net income from foreclosure property, minus (2) the
sum of certain items of "excess noncash income" such as income attributable to
leveled stepped rents, cancellation of indebtedness and original issue
discount. REIT taxable income is generally computed in the same manner as
taxable income of ordinary corporations, with several adjustments, such as a
deduction allowed for dividends paid, but not for dividends received.

We will be subject to tax on amounts not distributed at regular United
States federal corporate income tax rates. In addition, a nondeductible 4%
excise tax is imposed on the excess of (1) 85% of our ordinary income for the
year plus 95% of capital gain net income for the year and the undistributed
portion of the required distribution for the prior year over (2) the actual
distribution to shareholders during the year (if any). Net operating losses
generated by us may be carried forward but not carried back and used by us for
20 years to reduce REIT taxable income and the amount that we will be required
to distribute in order to remain qualified as a REIT. As a REIT, our net
capital losses may be carried forward for five years (but not carried back) and
used to reduce capital gains.

In general, a distribution must be made during the taxable year to which it
relates to satisfy the distribution test and to be deducted in computing REIT
taxable income. However, we may elect to treat a dividend declared and paid
after the end of the year (a "subsequent declared dividend") as paid during
such year for purposes of complying with the distribution test and computing
REIT taxable income, if the dividend is (1) declared before the regular or
extended due date of our tax return for such year and (2) paid not later than
the date of the first regular dividend payment made after the declaration, but
in no case later than 12 months after the end of the year. For purposes of
computing the 4% excise tax, a subsequent declared dividend is considered paid
when actually distributed. Furthermore, any dividend that is declared by us in
October, November or December of a calendar year, and payable to shareholders
of record as of a specified date in such quarter of such year will be deemed to
have been paid by us (and received by shareholders) on December 31 of such
calendar year, but only if such dividend is actually paid by us in January of
the following calendar year.

For purposes of complying with the distribution test for a taxable year as a
result of an adjustment in certain of our items of income, gain or deduction by
the IRS, we may be permitted to remedy such failure by paying a "deficiency
dividend" in a later year together with interest and a penalty. Such deficiency
dividend may be included in our deduction of dividends paid for the earlier
year for purposes of satisfying the distribution test. For purposes of the 4%
excise tax, the deficiency dividend is taken into account when paid, and any
income giving rise to the deficiency adjustment is treated as arising when the
deficiency dividend is paid.

We believe that we have distributed and intend to continue to distribute to
our shareholders in a timely manner such amounts sufficient to satisfy the
annual distribution requirements. However, it is possible that timing
differences between the accrual of income and its actual collection, and the
need to make non-deductible expenditures (such as principal payments on debt)
may cause us to recognize taxable income in excess of our net cash receipts,
thus increasing the difficulty of compliance with the distribution requirement.
In order to meet the distribution requirement, we might find it necessary to
arrange for short-term, or possibly long-term, borrowings.

Failure to Qualify. If we fail to qualify as a REIT for any taxable year,
and if certain relief provisions of the Code do not apply, we would be subject
to federal income tax (including applicable alternative minimum tax) on our
taxable income at regular corporate rates. Distributions to shareholders in any
year in which we fail to qualify will not be deductible by us nor will they be
required to be made. As a result, our failure to qualify as a

REIT would reduce the cash available for distribution by us to our
shareholders. In addition, if we fail to qualify as a REIT, all distributions
to shareholders will be taxable as ordinary income, to the extent of our
current and accumulated earnings and profits. Subject to certain limitations of
the Code, corporate distributees may be eligible for the dividends-received
deduction.

If our failure to qualify as a REIT is not due to reasonable cause but
results from willful neglect, we would not be permitted to elect REIT status
for the four taxable years after the taxable year for which such
disqualification is effective. In the event we were to fail to qualify as a
REIT in one year and subsequently requalify in a later year, we might be
required to recognize taxable income based on the net appreciation in value of
our assets as a condition to requalification. In the alternative, we may be
taxed on the net appreciation in value of our assets if we sell assets within
ten years of the date we requalify as a REIT under federal income tax laws.

Taxation of Taxable U.S. Shareholders

As used herein, the term "U.S. shareholder" means a holder of shares who
(for United States federal income tax purposes) (1) is a citizen or resident of
the United States, (2) is a corporation, partnership, or other entity treated
as a corporation or partnership for federal income tax purposes created or
organized in or under the laws of the United States or of any political
subdivision thereof (unless, in the case of a partnership, Treasury regulations
are adopted that provide otherwise), (3) is an estate the income of which is
subject to United States federal income taxation regardless of its source or
(4) is a trust whose administration is subject to the primary supervision of a
United States court and which has one or more United States persons who have
the authority to control all substantial decisions of the trust or a trust that
has a valid election to be treated as a U.S. person in effect.

As long as we qualify as a REIT, distributions made to our U.S. shareholders
out of current or accumulated earnings and profits (and not designated as
capital gain dividends) will be taken into account by them as ordinary income
and corporate shareholders will not be eligible for the dividends-received
deduction as to such amounts.

Distributions that are properly designated as capital gain dividends will be
taxed as gains from the sale or exchange of a capital asset held for more than
one year (to the extent they do not exceed our actual net capital gain for the
taxable year) without regard to the period for which the shareholder has held
its shares. However, corporate shareholders may be required to treat up to 20%
of certain capital gain dividends as ordinary income under the Code.

Distributions in excess of our current and accumulated earnings and profits
will constitute a non-taxable return of capital to a shareholder to the extent
that such distributions do not exceed the adjusted basis of the shareholder's
shares, and will result in a corresponding reduction in the shareholder's basis
in the shares. Any reduction in a shareholder's tax basis for its shares will
increase the amount of taxable gain or decrease the deductible loss that will
be realized upon the eventual disposition of the shares. We will notify
shareholders at the end of each year as to the portions of the distributions
which constitute ordinary income, capital gain or a return of capital. Any
portion of such distributions that exceed the adjusted basis of a U.S.
shareholder's shares will be taxed as capital gain from the disposition of
shares, provided that the shares are held as capital assets in the hands of the
U.S. shareholder.

Aside from the different income tax rates applicable to ordinary income and
capital gain dividends, regular and capital gain dividends from us will be
treated as dividend income for most other federal income tax purposes. In
particular, such dividends will be treated as "portfolio" income for purposes
of the passive activity loss limitation (including all individuals) and
shareholders generally will not be able to offset any "passive losses" against
such dividends. Dividends will be treated as investment income for purposes of
the investment interest limitation contained in Section 163(d) of the Code,
which limits the deductibility of interest expense incurred by noncorporate
taxpayers with respect to indebtedness attributable to certain investment
assets.

In general, dividends paid by us will be taxable to shareholders in the year
in which they are received, except in the case of dividends declared at the end
of the year, but paid in the following January, as discussed above.

In general, a domestic shareholder will realize capital gain or loss on the
disposition of shares equal to the difference between (1) the amount of cash
and the fair market value of any property received on such disposition and (2)
the shareholder's adjusted basis of such shares. Such gain or loss will
generally be short-term capital gain or loss if the shareholder has not held
such shares for more than one year and will be long-term capital gain or loss
if such shares have been held for more than one year. Loss upon the sale or
exchange of shares by a shareholder who has held such shares for six months or
less (after applying certain holding period rules) will be treated as long-term
capital loss to the extent of distributions from us required to be treated by
such shareholder as long-term capital gain.

We may elect to retain and pay income tax on net long-term capital gains. If
we make such an election, you, as a holder of shares, will (1) include in your
income as long-term capital gains your proportionate share of such
undistributed capital gains and (2) be deemed to have paid your proportionate
share of the tax paid by us on such undistributed capital gains and thereby
receive a credit or refund for such amount. As a holder of shares you will
increase the basis in your shares by the difference between the amount of
capital gain included in your income and the amount of tax you are deemed to
have paid. Our earnings and profits will be adjusted appropriately.

Backup Withholding

We will report to our domestic shareholders and the IRS the amount of
dividends paid during each calendar year, and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a shareholder
may be subject to backup withholding at the rate of up to 30% for 2002 with
respect to dividends paid unless such holder (a) is a corporation or comes
within certain other exempt categories and, when required, demonstrates this
fact, or (b) provides a taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with the applicable
requirements of the backup withholding rules. Amounts withheld as backup
withholding will be creditable against the shareholder's income tax liability.
In addition, we may be required to withhold a portion of capital gain
distributions made to any shareholders who fail to certify their non-foreign
status to us. Additional issues may arise pertaining to information reporting
and backup withholding with respect to Non-U.S. Shareholders (persons other
than U.S. shareholders, further described below). Non-U.S. Shareholders should
consult their tax advisors with respect to any such information and backup
withholding requirements.

Taxation of Non-U.S. Shareholders

The following discussion is only a summary of the rules governing United
States federal income taxation of Non-U.S. Shareholders such as nonresident
alien individuals, foreign corporations, foreign partnerships or other foreign
estates or trusts. Prospective Non-U.S. Shareholders should consult with their
own tax advisors to determine the impact of federal, state and local income tax
laws with regard to an investment in shares, including any reporting
requirements.

Distributions that are not attributable to gain from sales or exchanges by
us of United States real property interests and not designated by us as capital
gains dividends will be treated as dividends of ordinary income to the extent
that they are made out of our current or accumulated earnings and profits. Such
distributions ordinarily will be subject to a withholding tax equal to 30% of
the gross amount of the distribution unless an applicable tax treaty reduces or
eliminates that tax. Certain tax treaties limit the extent to which dividends
paid by a REIT can qualify for a reduction of the withholding tax on dividends.
Distributions in excess of our current and accumulated earnings and profits
will not be taxable to a Non-U.S. Shareholder to the extent that they do not

exceed the adjusted basis of the shareholder's shares, but rather will reduce
the adjusted basis of such shares. To the extent that such distributions exceed
the adjusted basis of a Non-U.S. Shareholder's shares, they will give rise to
tax liability if the Non-U.S. Shareholder would otherwise be subject to tax on
any gain from the sale or disposition of his shares, as described below.

For withholding tax purposes, we are currently required to treat all
distributions as if made out of our current or accumulated earnings and profits
and thus intend to withhold at the rate of 30% (or a reduced treaty rate if
applicable) on the amount of any distribution (other than distributions
designated as capital gain dividends) made to a Non-U.S. Shareholder. Under
regulations, we would not be required to withhold at the 30% rate on
distributions we reasonably estimate to be in excess of our current and
accumulated earnings and profits. If it cannot be determined at the time a
distribution is made whether such distribution will be in excess of current and
accumulated earnings and profits, the distribution will be subject to
withholding at the rate applicable to ordinary dividends. However, the Non-U.S.
Shareholder may seek from the IRS a refund of such amounts from the IRS if it
is subsequently determined that such distribution was, in fact, in excess of
our current or accumulated earnings and profits, and the amount withheld
exceeded the Non-U.S. Shareholder's United States tax liability, if any, with
respect to the distribution.

For any year in which we qualify as a REIT, distributions that are
attributable to gain from sales or exchanges by us of United States real
property interests will be taxed to a Non-U.S. Shareholder under the provisions
of the Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under
FIRPTA, a Non-U.S. Shareholder is taxed as if such gain were effectively
connected with a United States business. Non-U.S. Shareholders would thus be
taxed at the normal capital gain rates applicable to U.S. shareholders (subject
to applicable alternative minimum tax and a special alternative minimum tax in
the case of non-resident alien individuals). Also, distributions subject to
FIRPTA may be subject to a 30% branch profits tax in the hands of a corporate
Non-U.S. Shareholder not entitled to treaty relief or exemption. We are
required by applicable regulations to withhold 35% of any distribution that
could be designated by us as a capital gains dividend regardless of the amount
actually designated as a capital gain dividend. This amount is creditable
against the Non-U.S. Shareholder's FIRPTA tax liability.

Gain recognized by a Non-U.S. Shareholder upon a sale of shares generally
will not be taxed under FIRPTA if we are a "domestically controlled REIT,"
defined generally as a REIT in which at all times during a specified testing
period less than 50% in value of the shares was held directly or indirectly by
foreign persons. It is anticipated that we will continue to be a "domestically
controlled REIT" after the offering. Therefore, the sale of shares will not be
subject to taxation under FIRPTA. However, because our shares are publicly
traded, no assurance can be given that we will continue to qualify as a
"domestically controlled REIT." If the gain on the sale of shares were to be
subject to taxation under FIRPTA, the Non-U.S. Shareholder would be subject to
the same treatment as U.S. Shareholders with respect to such gain (subject to
applicable alternative minimum tax, special alternative minimum tax in the case
of nonresident alien individuals and possible application of the 30% branch
profits tax in the case of foreign corporations) and the purchaser would be
required to withhold and remit to the Internal Revenue Service 10% of the
purchase price. Gain not subject to FIRPTA will be taxable to a Non-U.S.
Shareholder if (1) investment in the shares is effectively connected with the
Non-U.S. Shareholder's United States trade or business, in which case the
Non-U.S. Shareholder will be subject to the same treatment as U.S. Shareholders
with respect to such gain, or (2) the Non-U.S. Shareholder is a nonresident
alien individual who was present in the United States for 183 days or more
during the taxable year and such nonresident alien individual has a "tax home"
in the United States, in which case the nonresident alien individual will be
subject to a 30% tax on the individual's capital gain.

Taxation of Tax-Exempt Shareholders

Tax-exempt entities, including qualified employee pension and profit sharing
trusts and individual retirement accounts ("Exempt Organizations"), generally
are exempt from federal income taxation. However, they are subject to taxation
on their unrelated business taxable income ("UBTI"). While investments in real
estate

may generate UBTI, the Service has issued a published ruling to the effect that
dividend distributions by a REIT to an exempt employee pension trust do not
constitute UBTI, provided that the shares of the REIT are not otherwise used in
an unrelated trade or business of the exempt employee pension trust. Based on
that ruling, amounts distributed by us to Exempt Organizations generally should
not constitute UBTI. However, if an Exempt Organization finances its
acquisition of our shares with debt, a portion of its income from us, if any,
will constitute UBTI pursuant to the "debt-financed property" rules.
Furthermore, social clubs, voluntary employee benefit associations,
supplemental unemployment benefit trusts, and qualified group legal services
plans that are exempt from taxation under paragraphs (7), (9), (17), and (20),
respectively, of Code Section 501(c) are subject to different UBTI rules, which
generally will require them to characterize distributions from us as UBTI.

In addition, a pension trust that owns more than 10% of our shares is
required to treat a percentage of the dividends from us as UBTI (the "UBTI
Percentage") in certain circumstances. The UBTI Percentage is our gross income
derived from an unrelated trade or business (determined as if we were a pension
trust) divided by our total gross income for the year in which the dividends
are paid. The UBTI rule applies only if (i) the UBTI Percentage is at least 5%
(ii) we qualify as a REIT by reason of the modification of the 5/50 Rule that
allows the beneficiaries of the pension trust to be treated as holding our
shares in proportion to their actuarial interests in the pension trust and
(iii) either (A) one pension trust owns more than 25% of the value of our
shares or (B) a group of pension trusts individually holding more than 10% of
the value of our shares collectively owns more than 50% of the value of our
shares.

While an investment in our shares by an Exempt Organization generally is not
expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that does arise from such an investment
will be combined with all other gross UBTI of the Exempt Organization for a
taxable year and reduced by the sum of all deductions attributable to the UBTI
and $1,000. Any amount then remaining will constitute UBTI on which the Exempt
Organization will be subject to tax. If the gross income taken into account in
computing UBTI exceeds $1,000, the Exempt Organization is obligated to file a
tax return for such year on IRS Form 990-T. We, our Board of Trustees, and any
of our or their affiliates do not intend to undertake the preparation or filing
of IRS Form 990-T for any Exempt Organization in connection with an investment
by such Exempt Organization in the shares. Generally, IRS Form 990-T must be
filed with the Service by April 15 of the year following the year in which it
relates.

Other Tax Considerations

Entity Classification. Certain of our investments are held through ARCap
Investors, L.L.C., a limited liability company that has elected to be taxed as
a partnership. If such limited liability company were treated as an
association, the entity would be taxable as a corporation and therefore would
be subject to an entity level tax on its income. In such a situation, the
character of our assets and items of gross income would change and might
preclude us from qualifying as a REIT.

We believe that ARCap Investors, L.L.C. is properly treated as a partnership
for tax purposes (and not as an association taxable as a corporation).

UNDERWRITING

Friedman, Billings, Ramsey & Co., Inc. and RBC Dain Rauscher Inc. are acting
as representatives of the underwriters. Subject to the terms and conditions
contained in the underwriting agreement, we have agreed to sell to each
underwriter, and each underwriter has agreed to purchase from us the number of
shares set forth opposite its name below. The underwriting agreement provides
that the obligation of the underwriters to pay for and accept delivery of our
shares is subject to approval of certain legal matters by their counsel and to
certain other conditions. The underwriters are obligated to take and pay for
all shares offered (other than those covered by the over-allotment option
described below) if any of the shares are taken.

Number of
Underwriter Shares
----------- ---------

Friedman, Billings, Ramsey & Co., Inc................................
RBC Dain Rauscher Inc................................................
---------
Total................................................................ 3,500,000
=========

The following table shows the per share and total underwriting discount we
will pay to the underwriters. The amounts are shown assuming both no exercise
and full exercise of the underwriters' option to purchase 525,000 additional
shares to cover over-allotments.

No Full
Exercise Exercise
-------- --------

Per Share..................................... $ $
Total......................................... $ $

Each of our officers at a level of senior vice-president or higher, our
trustees and our Advisor has agreed with the representatives, for a period of
120 days after the date of this prospectus, subject to certain exceptions, not
to sell any shares or any securities convertible into or exchangeable for
shares owned by them, without the prior written consent of the representatives.
However, the representatives may, in their sole discretion and at any time
without notice, release all or any portion of the securities subject to these
agreements.

The underwriters propose to offer our shares directly to the public at $
per share and to certain dealers at this price less a concession not in excess
of $ per share. The underwriters may allow, and the dealers may reallow, a
concession not in excess of $ per share to certain dealers.

We expect to incur expenses of approximately $ in connection with this
offering.

We have granted the underwriters an option exercisable for 30 days after the
date of this prospectus to purchase up to 525,000 additional shares to cover
over-allotments, if any, at the public offering price less the underwriting
discounts set forth on the cover page of this prospectus. If the underwriters
exercise this option, the underwriters will have a firm commitment, subject to
certain conditions, to purchase all of the shares covered by the option.

We have agreed to grant to Friedman, Billings, Ramsey & Co., Inc., as lead
underwriter, and its designated affiliates warrants representing the right to
acquire up to a number of common shares equal to 1% of the common shares issued
to the public in this offering. These warrants will allow Friedman, Billings,
Ramsey & Co., Inc. to acquire 35,000 common shares at an exercise price per
share equal to the public offering price of a common share offered in this
offering. The warrants will be exercisable on the closing date of this offering
and have a term of five years. The warrants and the underlying shares issuable
upon exercise of the warrants may not be sold, transferred, assigned or
hypothecated for one year following the date of this prospectus, except to
officers or partners of the lead underwriter or members of the selling group.
The shares underlying the warrants are not included in this registration
statement. We have agreed, however, to include the underlying shares issuable
upon exercise of the warrants in any future registration of our securities,
subject to certain exceptions, under the Securities Act of 1933, as amended,
prior to the seventh anniversary of this prospectus. The warrants enable the
lead underwriter to profit from a rise in the market price of our common
shares. Dilution to our common shares

will occur if the warrants are exercised at a time when the exercise price is
less than the market price of our common shares at the time of exercise. In
addition, the terms upon which we will be able to obtain additional equity
capital may be adversely affected because the holders of the warrants can be
expected to exercise the warrants at a time when we would likely be able to
obtain any needed capital on terms more favorable to us than those provided in
the warrants.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, as amended, or to
contribute to payments the underwriters may be required to make in respect
thereof.

In connection with this offering, the underwriters are permitted to engage
in certain transactions that stabilize the price of our shares. These
transactions consist of bids or purchases for the purpose of pegging, fixing or
maintaining the price of our shares. If the underwriters create a short
position in our shares in connection with this offering by selling more than
525,000 shares, the underwriters may reduce that short position by purchasing
our shares in the open market. In general, purchases of a security for the
purpose of stabilization or to reduce a short position could cause the price of
the security to be higher than it might be in the absence of those purchases.
Neither we nor the underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the price of our shares. In addition, neither we nor the underwriters
make any representation that the underwriters will engage in those transactions
or that those transactions, once commenced, will not be discontinued without
notice.

The representatives or their affiliates may provide us with investment
banking, financial advisory, or commercial banking services in the future, for
which they may receive customary compensation.

EXPERTS

The financial statements of American Mortgage Acceptance Company as of
December 31, 2000 and 1999 and for the years then ended included and
incorporated by reference in this prospectus from the Annual Report on Form
10-K of American Mortgage Acceptance Company for the year ended December 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their report included and incorporated by reference herein, and have
been so included in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.

The financial statements of ARCap Investors, L.L.C. incorporated in this
prospectus by reference from the Annual Report on Form 10-K of American
Mortgage Acceptance Company for the year ended December 31, 2000 have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing therein, and have been so included in reliance upon the report
of such firm given upon their authority as experts in accounting and auditing.

The statements of income, changes in shareholders' equity, and cash flows of
American Mortgage Acceptance Company (formerly American Mortgage Investors
Trust) for the year ended December 31, 1998, have been included herein and in
the registration statement in reliance upon the report, also appearing
elsewhere herein, of KPMG LLP, independent accountants, and upon the authority
of said firm as experts in accounting and auditing.

LEGAL MATTERS

The validity of the common shares of beneficial interest offered hereby will
be passed upon for us by Goodwin Procter LLP, Boston, Massachusetts. The
description of certain federal income tax consequences in "Certain Federal
Income Tax Considerations" is based on an opinion of Paul, Hastings, Janofsky &
Walker LLP, New York, New York. Certain legal matters in connection with this
offering will be passed upon for the underwriters by Winston & Strawn, Chicago,
Illinois.

WHERE YOU CAN FIND MORE INFORMATION

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You may read and copy
the materials we file at the Commission's Public Reference Room at 450 Fifth
Street, N.W., Washington, D.C. 20549, as well as at the Commission's regional
offices at Citicorp Center, 500 West Madison Street, Room 1400, Chicago,
Illinois 60661-2511. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the Public Reference Rooms. Our Commission
filings are also available to the public from the Commission's World Wide Web
site on the Internet at http://www.sec.gov. This site contains reports, proxy
and information statements and other information regarding issuers that file
electronically with the Commission. You may also read and copy this information
at the National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.

We maintain a website on the World Wide Web at
http://www.americanmortgageco.com. The information contained in our website is
not part of this prospectus and you should not rely on it in deciding whether
to invest in our common shares.

We have filed a registration statement, of which this prospectus is a part,
covering the offered securities. As allowed by Commission rules, this
prospectus does not include all of the information contained in the
registration statement and the included exhibits, financial statements and
schedules. We refer you to the registration statement, the included exhibits,
financial statements and schedules for further information. This prospectus is
qualified in its entirety by such other information.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The Commission allows us to "incorporate by reference" information into this
prospectus, which means that we can disclose important information to you by
referring you to another document filed separately with the Commission under
the Securities Exchange Act of 1934 (the "Exchange Act"). The information
incorporated by reference is deemed to be part of this prospectus, except for
any information superseded by information in this prospectus. We have filed our
annual report on Form 10-K for the year ended December 31, 2000 and our
quarterly reports on Form 10-Q for the three months ended March 31, 2001, June
30, 2001 and September 30, 2001 with the Commission (File No. 0-23972), and
those documents are incorporated herein by reference.

Any documents we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the
Exchange Act after the date of this prospectus and prior to the termination of
the offering of the securities to which this prospectus relates will
automatically be deemed to be incorporated by reference in this prospectus and
to be part hereof from the date of filing those documents. Any statement
contained in this prospectus or in a document incorporated by reference shall
be deemed to be modified or superseded for all purposes to the extent that a
statement contained in this prospectus or in any other document which is also
incorporated by reference modifies or supersedes that statement.

You may obtain copies of all documents which are incorporated in this
prospectus by reference (other than the exhibits to those documents which are
not specifically incorporated by reference herein) without charge by writing or
calling American Mortgage Acceptance Company, 625 Madison Avenue, New York, New
York, 10022, telephone number (212) 421-5333.

FINANCIAL INFORMATION

Index to Financial Statements

Page
----

Unaudited Financial Statements:
Balance Sheets of the Company as of September 30, 2001 and December 31, 2000................... F-2
Statements of Income of the Company for the three and nine months ended September 30, 2001
and 2000..................................................................................... F-3
Statements of Shareholders' Equity of the Company for the nine months ended September 30, 2001. F-4
Statements of Cash Flows of the Company for the nine months ended September 30, 2001 and 2000.. F-5
Notes to Unaudited Consolidated Financial Statements of the Company............................ F-7

Audited Financial Statements:
Independent Auditors' Report--Deloitte & Touche LLP............................................ F-15
Independent Auditors' Report--KPMG LLP......................................................... F-16
Consolidated Balance Sheets as of December 31, 2000 and 1999................................... F-17
Consolidated Statements of Income for the years ended December 31, 2000, 1999 and 1998......... F-18
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 2000, 1999 and 1998............................................................. F-19
Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998..... F-20
Notes to Financial Statements.................................................................. F-22

F-1

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

Consolidated Balance Sheets

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

Assets
Investments in mortgage loans................................................... $ 25,104,648 $ 31,828,733
Investments in GNMA certificates--available for sale............................ 46,868,805 5,851,219
Investment in ARCap............................................................. 20,238,637 20,041,733
Investment in unconsolidated subsidiary......................................... 0 1,149,182
Cash and cash equivalents....................................................... 1,102,239 1,632,652
Notes receivable................................................................ 5,535,031 8,677,843
Accrued interest receivable..................................................... 426,368 680,728
Other assets.................................................................... 636,699 576,223
------------ ------------
Total assets................................................................. $ 99,912,427 $ 70,438,313
============ ============
Liabilities and Shareholders' Equity
Liabilities:
Repurchase facilities payable................................................ $ 43,191,173 $ 12,655,940
Accrued interest payable..................................................... 29,934 27,850
Accounts payable and accrued expenses........................................ 395,349 278,760
Due to Advisor and affiliates................................................ 184,157 1,008,387
Distributions payable........................................................ 1,391,503 1,391,503
------------ ------------
Total liabilities........................................................ 45,192,116 15,362,440
------------ ------------

Commitments and contingencies

Shareholders' equity:
Shares of beneficial interest; $.10 par value; 12,500,000 shares authorized;
4,213,826 issued and 3,838,630 outstanding................................. 421,383 421,383
Treasury shares of beneficial interest; 375,196 shares....................... (37,520) (37,520)
Additional paid-in capital................................................... 68,840,500 68,840,500
Distributions in excess of net income........................................ (14,655,543) (14,126,317)
Accumulated other comprehensive gain (loss).................................. 151,491 (22,173)
------------ ------------
Total shareholders' equity............................................... 54,720,311 55,075,873
------------ ------------
Total liabilities and shareholders' equity............................... $ 99,912,427 $ 70,438,313
============ ============

See accompanying notes to financial statements.

F-2

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)

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

Revenues:
Interest income:
Mortgage loans................................... $ 349,575 $ 500,295 $2,256,514 $1,188,021
GNMA certificates................................ 859,754 117,701 1,354,307 355,962
Commercial mortgage--backed security-related
investment..................................... 0 960,467 0 2,867,659
Notes receivable................................. 126,943 0 233,882 0
Temporary investments............................ 19,783 624,146 46,544 1,845,770
Equity in earnings of ARCap.......................... 604,356 0 1,788,137 0
Other income......................................... 39,677 298,660 70,463 444,828
---------- ---------- ---------- ----------
Total revenues................................ 2,000,088 2,501,269 5,749,847 6,702,240
---------- ---------- ---------- ----------
Expenses:
Interest............................................. 462,600 1,044,215 1,099,607 2,856,936
General and administrative........................... 230,622 425,520 758,156 1,015,710
Amortization......................................... 5,187 26,227 35,228 60,229
---------- ---------- ---------- ----------
Total expenses................................ 698,409 1,495,962 1,892,991 3,932,875
---------- ---------- ---------- ----------
Other gain (loss):
Net gain (loss) on repayments of GNMA certificates
and mortgage loans................................. (211,572) (8,371) (211,572) 71,991
Net gain (loss) on commercial mortgage-backed
security--related investment and government
securities sold short.............................. 0 246,341 0 (464,436)
---------- ---------- ---------- ----------
Total other gain (loss)....................... (211,572) 237,970 (211,572) (392,445)
---------- ---------- ---------- ----------
Net income........................................... $1,090,107 $1,243,277 $3,645,284 $2,376,920
========== ========== ========== ==========
Net income per share (basic and diluted)............. $ .28 $ .32 $ .95 $ .62
========== ========== ========== ==========
Weighted average shares outstanding (basic and
diluted)........................................... 3,838,630 3,838,630 3,838,630 3,838,630
========== ========== ========== ==========

See accompanying notes to financial statements.

F-3

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

Consolidated Statement of Changes in Shareholders' Equity
(Unaudited)

Treasury Shares
Shares of of Beneficial Accumulated
Beneficial Interest Interest Additional Distributions Other
------------------- ------------------ Paid-in in Excess of Comprehensive Comprehensive
Shares Amount Shares Amount Capital Net Income Income Income (Loss)
--------- -------- -------- -------- ----------- ------------- ------------- -------------

Balance at January 1, 2001. 4,213,826 $421,383 (375,196) $(37,520) $68,840,500 $(14,126,317) $(22,173)
Comprehensive income:
Net income.............. 0 0 0 0 0 3,645,284 $3,645,284 0

Other comprehensive
income:
Net unrealized gain on
GNMA Certificates:
Net unrealized
holding gain
arising during
the period.......... 173,664 173,664
----------
Comprehensive income....... $3,818,948
==========
Distributions.............. 0 0 0 0 0 (4,174,510) 0
--------- -------- -------- -------- ----------- ------------ --------
Balance at September 30,
2001...................... 4,213,826 $421,383 (375,196) $(37,520) $68,840,500 $(14,655,543) $151,491
========= ======== ======== ======== =========== ============ ========

Total
-----------

Balance at January 1, 2001. $55,075,873
Comprehensive income:
Net income.............. 3,645,284

Other comprehensive
income:
Net unrealized gain on
GNMA Certificates:
Net unrealized
holding gain
arising during
the period.......... 173,664

Comprehensive income.......

Distributions.............. (4,174,510)
-----------
Balance at September 30,
2001...................... $54,720,311
===========

See accompanying notes to financial statements.

F-4

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows
(Unaudited)

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

Cash flows from operating activities:
Net income.................................................................... $ 3,645,284 $ 2,376,920
Adjustments to reconcile net income to net cash provided by operating activities:
Gain on commercial mortgage-backed security-related investment................ 0 (996,801)
Loss on government securities sold short...................................... 0 1,461,237
Net loss (gain) on repayments of GNMA.........................................
Certificates and mortgage loans............................................... 211,572 (71,991)
Equity in earnings of ARCap, in excess of distributions received.............. (196,904) 0
Equity income in unconsolidated subsidiary.................................... 0 (17,209)
Amortization--deferred financing costs........................................ 35,228 60,229
Amortization expense-loan premium and origination costs....................... 41,066 148,521
Accretion of GNMA discount.................................................... (16,413) (16,813)
Accretion of deferred income.................................................. (39,473) (16,587)
Accretion of discount on commercial mortgage-backed security-related
investment.................................................................. 0 (455,959)
Amortization of deferred costs relating to the CMBS-related investment........ 0 7,485
Purchase of government security.................................................. 0 (37,299,201)
Government security sold short................................................... 0 33,541,350
Changes in operating assets and liabilities:.....................................
Deposit with broker as collateral for security sold short........................ 0 3,048,541
Accrued interest receivable...................................................... 254,360 254,967
Other assets..................................................................... 6,079 19,196
Due to Advisor and affiliates.................................................... (797,634) (103,149)
Accounts payable and accrued expenses............................................ 116,589 133,145
Accrued interest payable......................................................... 2,084 (66,648)
Deferred costs relating to the CMBS-related investment........................... 0 (54,116)
------------ ------------
Net cash provided by operating activities........................................ 3,261,838 1,953,117
------------ ------------
Cash flows from investing activities:
Increase in investment in mortgage loans...................................... (19,794,035) (15,548,160)
Proceeds from repayments of mortgage loans.................................... 0 9,975,438
Periodic principal payments of mortgage loans................................. 193,512 68,315
Funding of notes receivable................................................... (4,138,655) 0
Principal repayments of GNMA Certificates..................................... 244,103 3,874,003
Increase in investment in GNMA Certificates................................... (6,556,117) 0
Costs relating to repayment of mortgage loan.................................. 0 (59,583)
Increase in other assets...................................................... (59,285) (335,903)
------------ ------------
Net cash used in investing activities............................................ (30,110,477) (2,025,890)
------------ ------------

See accompanying notes to financial statements.

F-5

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

Consolidated Statements of Cash Flows--(Continued)
(Unaudited)

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

Cash flows from financing activities:
Proceeds from repurchase facilities payable................................ 30,535,233 2,056,000
Repayments of repurchase facilities payable................................ 0 (1,122,000)
Distribution paid to shareholders.......................................... (4,174,510) (4,174,512)
Increase in deferred loan costs............................................ (42,497) (159,631)
Secured borrowings......................................................... 0 8,794,081
------------ -----------
Net cash provided by financing activities..................................... 26,318,226 5,393,938
------------ -----------
Net (decrease) increase in cash and cash equivalents....................... (530,413) 5,321,165
Cash and cash equivalents at the beginning of the period...................... 1,632,652 3,802,298
------------ -----------
Cash and cash equivalents at the end of the period............................ $ 1,102,239 $ 9,123,463
============ ===========
Supplemental information:
Interest paid................................................................. $ 1,097,524 $ 2,818,753
============ ===========
Conversion of FHA mortgage loans to GNMA certificates:
Investment in GNMA certificates............................................... $(34,515,534)
Decrease in investment in mortgage loans...................................... 34,515,534
------------
$ 0
============
Consolidation of former unconsolidated subsidiary:
Increase in investment in mortgage loans...................................... $ 8,353,294
Decrease in notes receivable.................................................. (7,264,092)
Decrease in investment in unconsolidated subsidiary........................... (1,089,202)
------------
$ 0
============
Adjustments due to contribution of mortgage loan to unconsolidated subsidiary:
Increase in investment in unconsolidated subsidiary........................ $ 1,140,000
Increase in note receivable................................................ 7,264,093
Decrease in investments in mortgage loans.................................. (8,404,093)
-----------
$ 0
===========

See accompanying notes to financial statements.

F-6

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2001
(Unaudited)

Note 1--General

American Mortgage Acceptance Company (formerly American Mortgage Investors
Trust) (the "Company") was formed on June 11, 1991 as a Massachusetts business
trust for the primary purpose of investing in government-insured mortgages and
guaranteed mortgage-backed certificates. The Company elected to be treated as a
real estate investment trust ("REIT") under the Internal Revenue Code of 1986,
as amended.

On April 6, 1999, the Company received the necessary consent from its
shareholders to approve proposals (the "Proposals") to, among other things,
restructure the Company from a closed-ended, finite-life REIT to a publicly
traded, open-ended, infinite-life operating REIT. In addition to restructuring
the Company, the Proposals, among other matters, permit the Company to modify
its investment objectives, to incur a specified amount of indebtedness and to
list the Company's shares on a national exchange.

Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company.

The Company's business plan focuses on government insured and uninsured
mortgages secured by multifamily properties, which may take the form of
government insured first mortgages and uninsured mezzanine loans, construction
loans and bridge loans. Additionally, the Company has indirectly invested in
subordinate commercial mortgage-backed securities and may invest in other real
estate assets, including non-multifamily mortgages.

The Company had been governed by a board of trustees comprised of two
independent trustees and one trustee who is affiliated with Related Capital
Company ("Related"), a nationwide, fully integrated real estate financial
services firm. Effective June 12, 2001, at its annual meeting, the Company
added two additional trustees, one an independent trustee, the other an
affiliate of Related, bringing the total number of trustees to five. The
Company has engaged Related AMI Associates, Inc. (the "Advisor"), an affiliate
of Related, to manage its day-to-day affairs.

The consolidated financial statements include the accounts of the Company
and two wholly owned subsidiaries which it controls: AMAC Repo Seller and,
effective January 2001, AMAC/FM Corporation. All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
the "Company" as hereinafter used, refers to American Mortgage Acceptance
Company and its subsidiaries.

The consolidated financial statements of the Company have been prepared
without audit. In the opinion of management, the financial statements contain
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 2001
and the results of its operations and its cash flows for the three and nine
months ended September 30, 2001 and 2000. However, the operating results for
the interim periods may not be indicative of the results for the full year.

Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America ("GAAP") have been condensed
or omitted. It is suggested that these financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Form 10-K for the year ended December 31, 2000.

F-7

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

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

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It was implemented by the Company on January 1, 2001.
Because the Company does not utilize derivatives, implementation of this
statement did not have a material effect on the Company's financial statements.

In July 2001, the Financial Accounting Standards Board issued Statement No.
141, "Business Combinations (SFAS 141) and Statement No. 142, "Goodwill and
Other Intangible Assets" (SFAS 142). These statements establish new standards
for accounting and reporting for business combinations and for goodwill and
intangible assets resulting from business combinations. SFAS 141 applies to all
business combinations initiated after June 30, 2001; the Company is required to
implement SFAS 142 on January 1, 2002. Management believes that implementation
of these statements will not have a material impact on the Company's financial
statements.

In August of 2001, the FASB issued SFAS No, 143, "Accounting for Asset
Retirement Obligations" (effective January 1, 2003) and SFAS No. 144,
"Accounting for the Impairment or Disposal of Long Lived Assets" (effective
January 1, 2002). SFAS No. 143 requires the recording of the fair value of a
liability for an asset retirement obligation in the period in which it is
incurred. SFAS No. 144 supercedes existing accounting literature dealing with
impairment and disposal of long-lived assets, including discontinued
operations. It addresses financial accounting and reporting for the impairment
of long-lived assets and for long-lived assets to be disposed of, and expands
current reporting for discontinued operations to include disposals of a
"component" of an entity that has been disposed of or is classified as held for
sale. The Company is in the process of evaluating the financial statement
impact of the adoption these two standards.

Certain prior year amounts have been reclassified to conform to the current
year presentation.

F-8

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

Note 2--Investments in Mortgage Loans

Information relating to investments in mortgage loans as of September 30,
2001 is as follows

Final Periodic Face Carrying
Maturity Call Interest Payment Amount of Amount of
Property Description Date Date (F) Rate (C) Terms Prior Liens Mortgages Mortgages (I)
-------- ----------- -------- -------- -------- -------- ----------- ----------- -------------

First Mortgage Loans (D):
Stabilized Properties
Columbiana Lakes
Columbia, SC (J).................. 204 Units 11/35 7.250% (A) $ -- $ 8,919,374 $ 9,099,026
Stony Brook II
East Haven, CT.................... 125 Units 6/37 12/06 7.625% (A) -- 8,342,532 8,629,584
----------- -----------
Subtotal First Mortgage Loans........ 17,261,906 17,728,610
----------- -----------

Mezzanine Loans (E):
Stabilized Properties
Columbiana Lakes
Columbia, SC (J).................. 204 Units 11/35 4/99 20.670% (B) 8,919,374 563,000 146,536
Stony Brook II
East Haven, CT.................... 125 Units 6/37 12/06 15.330% (B) 8,342,532 763,909 394,960
Plaza at San Jacinto
Houston, TX (G)................... 132 Units 1/43 6/11 11.000% (B) 6,638,000 1,150,000 1,121,039
----------- -----------
Subtotal Stabilized Mezzanine Loans.. 2,476,909 1,662,535
----------- -----------

Properties in Construction
The Hollows
Greenville, NC.................... 184 Units 1/42 TBD 10.000% (B) 8,372,426(H) 1,549,200 1,376,731
Elmhurst Village
Oveido, FL........................ 313 Units 1/42 TBD 10.000% (B) 19,480,735(H) 2,874,000 2,415,981
The Reserve at Autumn Creek
Friendswood, TX................... 212 Units 1/42 TBD 10.000% (B) 13,218,490(H) 1,987,000 1,920,791
----------- -----------
Subtotal Construction Mezzanine Loans 6,410,200 5,713,503
----------- -----------
Subtotal Mezzanine Loans............. 8,887,109 7,376,038
----------- -----------
Total Mortgage Loans................. $26,149,015 $25,104,648
=========== ===========

Interest
Income
Earned
Applicable
to the
Property Period
-------- ----------

First Mortgage Loans (D):
Stabilized Properties
Columbiana Lakes
Columbia, SC (J).................. $ 426,528
Stony Brook II
East Haven, CT.................... 380,748
----------
Subtotal First Mortgage Loans........ 807,276
----------

Mezzanine Loans (E):
Stabilized Properties
Columbiana Lakes
Columbia, SC (J).................. 175,000
Stony Brook II
East Haven, CT.................... 117,870
Plaza at San Jacinto
Houston, TX (G)................... 225
----------
Subtotal Stabilized Mezzanine Loans.. 293,095
----------

Properties in Construction
The Hollows
Greenville, NC.................... 220,875
Elmhurst Village
Oveido, FL........................ 585,754
The Reserve at Autumn Creek
Friendswood, TX................... 349,514
----------
Subtotal Construction Mezzanine Loans 1,156,143
----------
Subtotal Mezzanine Loans............. 1,449,238
----------
Total Mortgage Loans................. $2,256,514
==========

--------
(A) Requires monthly payments of principal and interest based on a 40 year
amortization period. Loans are subject to 5-year lockouts against
prepayments, as well as a prepayment penalty structure during the second
5-year term of the loans.

(B) Interest only payments are due monthly, with loan balance due at maturity.

(C) Interest on the mezzanine loans is based on a fixed percentage of the
unpaid principal balance of the related first mortgage loan (prior liens).
The amount shown is the approximate effective rate earned on the balance of
the mezzanine loan. The mezzanine loans also provide for payments of
additional interest based on a percentage of cash flow remaining after debt
service (generally 50%) and participation in sale or refinancing proceeds
(generally 25%)

(D) Interest and principal payments on first mortgage loans are insured by the
U.S. Department of Housing and Urban Development.

F-9

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

(E) The principal balance of the mezzanine loans is secured by the partnership
interests of the entity that owns the underlying property and a third
mortgage deed of trust. Interest payments on the mezzanine loans are
secured by a second mortgage deed of trust and are guaranteed for the first
thirty six months after construction completion by an entity related to the
general partner of the entity that owns the underlying property.

(F) Loans are subject to mandatory prepayment at the option of the Company 10
years after construction completion, with one year's notice.

(G) The funding of this mezzanine loan is based on property level operational
achievements. There is a remaining amount to fund of $100,000. The Company
does not hold the first mortgage loan relating to this mezzanine loan.

(H) The first mortgage loans related to those properties were converted into
GNMA Certificates and are held by the Company (see Note 3).

(I) Carrying amounts of mortgage loans include unamortized origination costs
and fees.

(J) During the third quarter of 2001, the Company arrived at a negotiated
settlement with the borrower under the Columbiana Lakes loans. Under this
agreement, the Company received approximately $9.3 million on October 1,
2001, in full settlement of the first mortgage loan and mezzanine loan,
resulting in a loss on repayment of approximately $212,000, which was
recorded during the third quarter of 2001.

F-10

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

Note 3--Investments in GNMA Certificates-Available for Sale

Information relating to investments in GNMA certificates as of September 30,
2001 is as follows:

Amortized
Date Purchased/ Principal at Cost at
Certificate Final Payment Stated September 30, September 30,
Name Number Payment Date Interest Rate 2001 2001
---- ----------- --------------- ------------- ------------- -------------

Bear Stearns..................................... 0355540 7/27/94 7.125% $ 2,496,416 $ 2,482,644
3/15/29
Malone Mortgage.................................. 0382486 7/28/94 8.500% 2,111,865 2,180,680
8/15/29
SunCoast Capital Group, Ltd...................... G22412 6/23/97 7.000% 982,697 982,339
4/20/27
Hollows Apts..................................... 511908 5/29/01 7.620% 8,372,426 8,372,426
7/15/02
Elmhurst Village................................. 549390 6/28/01 7.745% 19,480,735 19,480,735
4/15/04
Reserve at Autumn Creek.......................... 448747 6/28/01 7.745% 13,218,490 13,218,490
----------- -----------
7/15/02
Total......................................... $46,662,629 $46,717,314
=========== ===========

Unrealized
Gain (Loss) at Balance at Interest Income
September 30, September 30, Earned Applicable
Name 2001 2001 to the Period
---- -------------- ------------- -----------------

Bear Stearns..................................... $ 13,771 $ 2,496,415 $ 148,629

Malone Mortgage.................................. (74,094) 2,106,586 135,576

SunCoast Capital Group, Ltd...................... 28,376 1,010,715 57,646

Hollows Apts..................................... (20,931) 8,351,495 251,509

Elmhurst Village................................. 121,754 19,602,489 468,681

Reserve at Autumn Creek.......................... 82,615 13,301,105 292,266
-------- ----------- ----------

Total......................................... $151,491 $46,868,805 $1,354,307
======== =========== ==========

The amortized cost, unrealized gain and fair value for the investment in
GNMA Certificates at September 30, 2001 and December 31, 2000 were as follows:

September 30, December 31,
2001 2000
------------- ------------

Amortized cost.............................. $46,717,314 $5,873,392
Gross unrealized gain (loss)................ 151,491 (22,173)
----------- ----------
Fair Value.................................. $46,868,805 $5,851,219
=========== ==========

Note 4--Commercial Mortgage-Backed Security-Related Investment and Short Sale;
Investment in ARCap

On September 30, 1999, the Company acquired from ARCap Investors, L.L.C.
("ARCap") a "BB+" rated subordinated commercial mortgage-backed security
("CMBS") from a Chase Manhattan Bank-First Union Nation Bank Commercial
Mortgage Trust. The CMBS investment, which was purchased for $35,622,358, had a
face amount of $50,399,711 and an annual coupon rate of 6.4%. The Company
purchased the CMBS investment using cash and debt provided through the Bear
Stearns Repurchase Facility (see Note 5). In connection with this acquisition,
the Company entered into an agreement with ARCap. Under the agreement, the
Company had the right to sell the CMBS investment to ARCap and purchase a
preferred equity position in ARCap, all based on the then fair value of the
CMBS investment.

This investment was accounted for as a trading asset and carried at
estimated fair value, with changes in fair value included in earnings. Interest
income was accrued as it became receivable, and included accretion of
discounts, computed using the effective yield method, after considering
estimated prepayments and credit losses. The Company recognized gains on this
investment totaling $996,801 during the nine months ended September 30, 2000
due to marked-to-market adjustments.

F-11

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

On September 30, 1999, in order to mitigate the potential income statement
effect of changes in the fair value of its CMBS investment caused by changes in
interest rates, the Company entered into a short sale involving the sale of a
U.S. Treasury Note with a face amount of $39,327,000 and an annual coupon rate
of 5.625% borrowed from Bear Stearns & Co., Inc. ("Bear Stearns"). On March 16,
2000, the Company replaced the borrowed security by purchasing such security
through Bear Stearns, and entered into an additional short sale contract
involving the sale of a U.S. Treasury Note with a face amount of $34,512,000
and an annual coupon rate of 6.0% borrowed from Bear Stearns. Short sale
positions were carried at estimated fair value, with changes in fair value
included in earnings. The Company recognized losses on these positions totaling
$1,461,237 during the nine months ended September 30, 2000 due to
marked-to-market adjustments.

On November 1, 2000, the Company, in accordance with the agreement with
ARCap, sold the CMBS investment to ARCap and repaid its borrowing under the
Bear Stearns Repurchase Facility (see Note 5), closed out its short sale
position and purchased a preferred equity interest in ARCap in the face amount
of $20,000,000, with a preferred dividend rate of 12%. This preferred equity
interest was recorded at $19,640,637, representing the fair value of the CMBS
investment at the date of the transaction, less the Bear Stearns Repurchase
Facility repayment plus approximately $3.5 million in cash paid to ARCap.

Note 5--Repurchase Facilities

On September 30, 1999, the Company entered into a repurchase facility with
Bear Stearns (the "Bear Stearns Repurchase Facility"), whereby Bear Stearns
advanced $19,568,000 in cash towards the purchase of a CMBS-related investment
(see Note 4). The Bear Stearns Repurchase Facility had a variable interest rate
based on the one-month LIBOR rate plus 1.5%, which was adjusted on the first
day of each month. The Bear Stearns Repurchase Facility was repaid November 1,
2000 in connection with the CMBS sale discussed in Note 4.

Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility with Nomura Asset Capital Corporation (the "Nomura
Repurchase Facility") with a term of one year. This facility enables the
Company to borrow up to 90% with a qualified hedge or 80% without a qualified
hedge of the fair market value of FHA loans owned by the Company. The Nomura
Repurchase Facility was renewed February 15, 2001 for $40 million, with a one
time option to increase to $60 million, a one year term and interest at LIBOR
plus 1.25%. As of September 30, 2001, there was no outstanding balance. As of
December 31, 2000, $7,138,940 was outstanding under The Nomura Repurchase
Facility and the interest rate was 7.87%. Deferred costs relating to the Nomura
Repurchase Facility are being amortized using the straight-line method over 364
days, which is the term of the facility.

Effective February 15, 2000, the Company also entered into a repurchase
facility with Nomura Securities International Inc. (the "Nomura Securities
Repurchase Facility"). This facility enables the Company to borrow up to 95% of
the fair market value of GNMA Certificates and other qualified mortgage
securities owned by the Company. Borrowings bear interest at LIBOR plus 0.50%.
As of September 30, 2001 and December 31, 2000, the amount outstanding under
this facility was $43,191,173 and $5,517,000 and interest rates were 4.07% and
7.12%, respectively. Deferred costs of $101,169 relating to the Nomura
Securities Repurchase Facility are being amortized using the straight-line
method over five years. As of September 30, 2001, all GNMA certificates owned
by the Company were pledged as collateral.

F-12

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

Note 6--Related Party Transactions

The costs incurred to related parties for the three and nine months ended
September 30, 2001 and 2000 were as follows, all of which are paid to the
Advisor:

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

Expense reimbursement............. $ 61,000 $102,130 $232,935 $291,103
Asset management fees............. 60,517 120,733 184,897 350,835
-------- -------- -------- --------
$121,517 $222,863 $417,832 $641,938
======== ======== ======== ========

Note 7--Earnings Per Share

Basic net income per share in the amount $.28 and $.32 and $.95 and $.62 for
the three and nine months ended September 30, 2001 and 2000, respectively,
equals net income for the periods ($1,090,107 and $1,243,277 and $3,645,284 and
$2,376,920, respectively), divided by the weighted average number of shares
outstanding which was 3,838,630 for each period.

Because the Company had no dilutive securities outstanding during the three
and nine months ended September 30, 2001 or 2000, diluted net income per share
is the same as basic net income per share.

Note 8--Commitments and Contingencies

The Company completed a loan program with Fannie Mae which has agreed to
fully fund the origination of $250 million of Delegated Underwriter and
Servicer loans for apartment properties that qualify for low income housing tax
credits under Section 42 of the Internal Revenue Code (see Note 9). Under the
loan program, the Company will originate and contract for individual loans of
up to $6 million dollars each over a two-year period and will work with
American Property Financing, an unaffiliated third party, which will underwrite
and service the loans for Fannie Mae. Each property in the transaction will
benefit from 9% low income housing tax credits for no less than 90% of its
units. The Company will guaranty a first loss position of up to $21.25 million,
depending on the aggregate principal amount of the loans the Company originates
under this program and will receive guaranty, loan origination and other fees.
The Company also guaranteed construction loans for which it has issued a
forward commitment to originate a loan under the Fannie Mae program, with
respect to which it guarantees repayment of 100% of such construction loans. As
of September 30, 2001, the Company had originated loans totaling approximately
$2.2 million under the Fannie Mae program and has made forward commitments for
an additional approximate $6.8 million. The Company's maximum exposure under
the Fannie Mae program and the forward commitments at September 30, 2001 is
$6.0 million.

Note 9--Investment in Unconsolidated Subsidiary and Note Receivable

As discussed in Note 8, the Company has entered into an agreement with
Fannie Mae whereby the Company will provide first loss protection ("First Loss
Obligation") on certain loans funded by Fannie Mae pursuant to a Master
Financing and Loss Sharing Agreement. Through a consolidated subsidiary,
AMAC/FM Corporation ("AMAC/FM"), and pursuant to a Guaranty and Security
Agreement with Fannie Mae, the payment of the First Loss Obligation is
guaranteed and secured by AMAC/FM's pledge and grant to Fannie Mae of a
security interest on certain assets of AMAC/FM.

F-13

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

September 30, 2001
(Unaudited)

AMAC/FM was capitalized by a contribution by the Company to AMAC/FM of the
mortgage loan secured by Stony Brook Village II Apartments with a principal
amount of $8,404,092. This contribution was recorded by AMAC/FM as a $7,264,093
loan from the Company via a subordinated promissory note, with a stated
interest rate of 7.75% and a $1,140,000 capital contribution through the
issuance of AMAC/FM non-voting common stock. During 2000, the Company accounted
for its $1,140,000 investment in AMAC/FM under the equity method of accounting,
because all of AMAC/FM's voting common shares were held by the Advisor and,
therefore, the Company did not control AMAC/FM.

During January 2001, all of the voting common stock of AMAC/FM, previously
owned by the Advisor, was purchased by the Company, the effect of which is to
make AMAC/FM a wholly owned, consolidated subsidiary of the Company. This
change was implemented as a result of the REIT Modernization Act of 1999, which
allows REITs to directly own taxable REIT subsidiaries, beginning after the
year 2000.

Note 10--Subsequent Events

In November 2001, a distribution of $1,391,503, ($0.3625 per share) which
was declared in September 2001, was paid to shareholders for the quarter ended
September 30, 2001.

F-14

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees
And Shareholders of
American Mortgage Acceptance Company
New York, New York

We have audited the accompanying consolidated balance sheets of American
Mortgage Acceptance Company and subsidiary (the "Company") as of December 31,
2000 and 1999, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of American Mortgage Acceptance
Company and subsidiary as of December 31, 2000 and 1999, and the results of
their operations and their cash flows for the years then ended in conformity
with accounting principles generally accepted in the United States of America.

/S/ DELOITTE & TOUCHE LLP

New York, New York
March 16, 2001

F-15

INDEPENDENT AUDITORS' REPORT

To the Board of Trustees
American Mortgage Acceptance Company:

We have audited the accompanying statements of income, changes in
shareholders' equity, and cash flows of American Mortgage Acceptance Company
(formerly American Mortgage Investors Trust) for the year ended December 31,
1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of operations and cash flows of American
Mortgage Acceptance Company for the year ended December 31, 1998, in conformity
with accounting principles generally accepted in the United States of America.

/S/ KPMG LLP

New York, New York
January 15, 1999

F-16

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

Consolidated Balance Sheets

December 31,
--------------------------
2000 1999
------------ ------------

Assets
Investments in mortgage loans................................................... $ 31,828,733 $ 28,893,482
Investments in GNMA certificates--available for sale............................ 5,851,219 9,464,437
Investment in ARCap............................................................. 20,041,733 0
Investment in unconsolidated subsidiary......................................... 1,149,182 0
Commercial mortgage-backed security-related investment.......................... 0 34,347,403
Deposit with broker as collateral for security sold short....................... 0 37,733,101
Cash and cash equivalents....................................................... 1,632,652 3,802,298
Notes receivable................................................................ 8,677,843 0
Accrued interest receivable..................................................... 680,728 1,180,115
Other assets.................................................................... 576,223 144,605
------------ ------------

Total assets............................................................. $ 70,438,313 $115,565,441
============ ============

Liabilities And Shareholders' Equity

Liabilities:
Repurchase facilities payable.................................................. $ 12,655,940 $ 19,127,000
Accrued interest payable....................................................... 27,850 407,952
Accounts payable and accrued expenses.......................................... 278,760 122,397
Due to Advisor and affiliates.................................................. 1,008,387 433,265
Distributions payable.......................................................... 1,391,503 1,391,503
Government security sold short................................................. 0 36,991,959
------------ ------------

Total liabilities........................................................ 15,362,440 58,474,076
============ ============

Commitments and contingencies

Total shareholders' equity............................................... 55,075,873 57,091,365
------------ ------------

Total liabilities and shareholders' equity............................... $ 70,438,313 $115,565,441
============ ============

See accompanying notes to financial statements

F-17

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

Consolidated Statements of Income

Years Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------

Revenues:
Interest income:
Mortgage loans..................................................... $1,565,219 $2,569,901 $3,037,882
REMIC and GNMA certificates and the FHA Insured Project Loan....... 472,693 785,591 880,680
Commercial mortgage-backed security-related investment............. 3,189,407 950,456 0
Note receivable.................................................... 446,625 85,786 0
Temporary investments.............................................. 2,084,417 1,092,617 112,953
Equity in earnings of ARCap........................................ 401,096 0 0
Other income....................................................... 151,682 23,231 0
---------- ---------- ----------
Total revenues................................................. 8,311,139 5,507,582 4,031,515
---------- ---------- ----------

Expenses:
Interest........................................................... 3,371,906 906,581 0
General and administrative......................................... 1,309,398 1,029,840 642,047
Amortization....................................................... 84,537 0 5,000
Organization costs................................................. 0 364,872 0
---------- ---------- ----------
Total expenses................................................. 4,765,841 2,301,293 647,047
---------- ---------- ----------

Other gain (loss):
Net loss on commercial mortgage-backed security-related investment
and government security sold short............................... (299,555) (217,699) 0
Gain on repayment of mortgage loans and GNMA certificates.......... 72,014 3,271,710 12,144
---------- ---------- ----------
Total other gain (loss)........................................ (227,541) 3,054,011 12,144
---------- ---------- ----------
Net income......................................................... $3,317,757 $6,260,300 $3,396,612
========== ========== ==========
Net income per share (basic and diluted)........................... $ .86 $ 1.63 $ .88
========== ========== ==========
Weighted average shares outstanding (basic and diluted)............ 3,838,630 3,841,931 3,845,101
========== ========== ==========

See accompanying notes to financial statements

F-18

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

Consolidated Statements of Changes in Shareholders' Equity

For the Years Ended December 31, 2000, 1999 and 1998

Shares of Treasury Shares of Distributions
Beneficial Interest Beneficial Interest Additional in Excess
------------------- ------------------ Paid-in of Net Comprehensive
Shares Amount Shares Amount Capital Income Income
--------- -------- -------- -------- ----------- ------------- -------------

Balance at December 31, 1997.............. 4,087,583 $408,759 (248,339) $(24,834) $68,849,725 $ (9,021,323)
Comprehensive income:
Net income................................ 3,396,612 $3,396,612
----------
Other comprehensive loss:
Net unrealized holding gain arising
during the period...................... 1,079
Less: reclassification adjustment for
gains included in net income........... (12,144)
----------
Other comprehensive loss.................. (11,065)
----------
Comprehensive income...................... $3,385,547
==========
Issuance of shares of beneficial interest. 85,207 8,521 0 0 1,328,465 0
Distributions............................. 0 0 0 0 0 (5,566,903)
Purchase of treasury shares............... 0 0 (85,206) (8,521) (1,328,460) 0
--------- -------- -------- -------- ----------- ------------
Balance at December 31, 1998.............. 4,172,790 417,280 (333,545) (33,355) 68,849,730 (11,191,614)
Comprehensive income:
Net income................................ 6,260,300 $6,260,300
Other comprehensive loss:
Net unrealized holding loss arising during
the period............................... (418,964)
Add: reclassification adjustment for
losses included in net income............ 1,492
----------
Other comprehensive loss.................. (417,472)
----------
Comprehensive income...................... $5,842,828
==========
Issuance of shares of beneficial
interest................................. 41,036 4,103 0 0 629,834 0
Purchase of treasury shares............... 0 0 (41,651) (4,165) (639,064) 0
Distributions............................. 0 0 0 0 0 (6,946,745)
--------- -------- -------- -------- ----------- ------------
Balance at December 31, 1999.............. 4,213,826 421,383 (375,196) (37,520) 68,840,500 (11,878,059)
Comprehensive income:
Net income................................ 3,317,757 $3,317,757
Other comprehensive income:
Net unrealized holding gain arising
during the period...................... 291,175
Less: reclassification adjustment for
gains included in net income........... (58,409)
----------
Other comprehensive income................ 232,766
----------
Comprehensive income...................... $3,550,523
==========
Distributions............................. (5,566,015)
------------
Balance at December 31, 2000.............. 4,213,826 $421,383 (375,196) $(37,520) $68,840,500 $(14,126,317)
========= ======== ======== ======== =========== ============

Accumulated
Other
Comprehensive
Income Total
------------- -----------

Balance at December 31, 1997.............. $ 173,598 $60,385,925
Comprehensive income:
Net income................................ 3,396,612

Other comprehensive loss:
Net unrealized holding gain arising
during the period......................
Less: reclassification adjustment for
gains included in net income...........

Other comprehensive loss.................. (11,065) (11,065)

Comprehensive income......................

Issuance of shares of beneficial interest. 0 1,336,986
Distributions............................. 0 (5,566,903)
Purchase of treasury shares............... 0 (1,336,981)
--------- -----------
Balance at December 31, 1998.............. 162,533 58,204,574
Comprehensive income:
Net income................................ 6,260,300
Other comprehensive loss:
Net unrealized holding loss arising during
the period...............................
Add: reclassification adjustment for
losses included in net income............

Other comprehensive loss.................. (417,472) (417,472)

Comprehensive income......................

Issuance of shares of beneficial
interest................................. 0 633,937
Purchase of treasury shares............... 0 (643,229)
Distributions............................. 0 (6,946,745)
--------- -----------
Balance at December 31, 1999.............. (254,939) 57,091,365
Comprehensive income:
Net income................................ 3,317,757
Other comprehensive income:
Net unrealized holding gain arising
during the period......................
Less: reclassification adjustment for
gains included in net income...........

Other comprehensive income................ 232,766 232,766

Comprehensive income......................

Distributions............................. 0 (5,566,015)
--------- -----------
Balance at December 31, 2000.............. $ (22,173) $55,075,873
========= ===========

See accompanying notes to financial statements.

F-19

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

Consolidated Statements Of Cash Flows

Years Ended December 31,
--------------------------------------
2000 1999 1998
------------ ------------ ----------

Cash flows from operating activities:
Net income.................................................. $ 3,317,757 $ 6,260,300 $3,396,612
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Unrealized (gain) loss on commercial mortgage-backed
security-related investment............................. (1,496,017) 1,419,016 0
Unrealized (gain) loss on government security sold short.. 1,795,572 (1,201,317) 0
Gain on repayment of mortgage loans....................... (13,582) (3,273,202) 0
Equity in earnings of ARCap............................... (401,096) 0 0
Equity in income of unconsolidated subsidiary............. (9,182) 0 0
Amortization expense--organization costs.................. 0 5,000
Amortization--deferred financing costs.................... 92,022 0 0
Amortization expense--loan premium and origination costs.. 163,371 337,590 553,608
Accretion of GNMA discount................................ (22,356) (23,145) (26,272)
Accretion of discount on commercial mortgage-backed
security-related investment............................. (652,968) (144,061) 0
(Gain) on repayment of REMIC certificates................. 0 0 (12,986)
(Gain) loss on repayment of GNMA certificates............. (58,432) 1,492 842
Government security sold short............................ 33,541,350 38,193,276 0
Purchase of government securities sold short.............. (72,328,881) 0 0
Changes in operating assets and liabilities:
Investment in commercial mortgage-backed security-related
investment.............................................. 36,764,227 (35,622,358) 0
Deposit with broker as collateral for security sold short. 37,733,101 (37,733,101) 0
Accrued interest receivable............................... 499,388 (413,413) (264,775)
Other assets.............................................. 18,863 (33,159) 0
Due to Advisor and affiliates............................. 575,122 (1,281,829) 504,220
Accounts payable and accrued expenses..................... 240,402 49,025 24,249
Accrued interest payable.................................. (380,102) 407,952 0
------------ ------------ ----------
Net cash provided by (used in) operating
activities................................................ 39,378,559 (33,056,934) 4,180,498
------------ ------------ ----------
Cash flows from investing activities:
Increase in investment in mortgage loans.................... (21,486,788) (829,204) 0
Proceeds from repayments of mortgage loans.................. 9,995,170 20,841,545 273,757
Periodic principal payments of mortgage loans............... 62,069 0 0
Increase in note receivable................................. (7,413,750) (1,900,000) 0
Repayment of note receivable................................ 6,000,000 1,900,000 0
Investment in ARCap preferred stock......................... (20,000,000) 0 0
(Increase) decrease in other assets......................... (375,178) (111,446) 4,826
Principal repayments of GNMA certificates................... 3,926,772 442,746 413,254
Principal repayments of REMIC certificates.................. 0 0 1,806,973
Costs relating to repayment of mortgage loan................ (59,583) 0 0
------------ ------------ ----------
Net cash provided by (used in) investing activities......... (29,351,288) 20,343,641 2,498,810
------------ ------------ ----------

(continued)

See accompanying notes to financial statements.

F-20

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

Consolidated Statements Of Cash Flows (Continued)

Years Ended December 31,
--------------------------------------
2000 1999 1998
------------ ----------- -----------

Cash flows from financing activities:
Proceeds from repurchase facilities payable...................... 13,698,940 19,568,000 0
Repayments of repurchase facilities payable...................... (20,170,000) (441,000) 0
Increase in deferred loan costs.................................. (159,842) 0 0
Distributions paid to shareholders............................... (5,566,015) (5,555,242) (5,566,903)
Proceeds from issuance of shares of beneficial interest.......... 0 633,937 1,336,986
Purchase of treasury shares...................................... 0 (643,229) (1,336,981)
------------ ----------- -----------

Net cash provided by (used in) financing activities.............. (12,196,917) 13,562,466 (5,566,898)
------------ ----------- -----------

Net increase (decrease) in cash and cash equivalents.............. (2,169,646) 849,173 1,112,410

Cash and cash equivalents at the beginning of the year............ $ 3,802,298 $ 2,953,125 $ 1,840,715
============ =========== ===========

Cash and cash equivalents at the end of the year.................. $ 1,632,652 $ 3,802,298 $ 2,953,125
============ =========== ===========

Supplemental information:
Interest paid..................................................... $ 3,752,008 $ 498,629 $ 0
============ =========== ===========

Adjustments due to contribution of mortgage loan to unconsolidated
subsidiary:
Increase in investment in unconsolidated subsidiary............... $ 1,140,000
Increase in note receivable....................................... 7,264,092
Decrease in investment in mortgage loans.......................... (8,404,092)
------------
$ 0
------------

See accompanying notes to financial statements.

F-21

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1--General

As a result of the adoption of the Proposals, the Company was liable for the
transaction expenses. Such expenses amounted to approximately $365,000 and are
classified as organization costs in the accompanying statements of income.

Effective April 26, 1999, upon authorization by the Board of Trustees, the
Company's name was changed from American Mortgage Investors Trust to American
Mortgage Acceptance Company.

The Company's business plan focuses on three types of mortgage products: 1)
origination of participating FHA insured multifamily mortgages, 2) origination
of construction and permanent mortgage financing for affordable multifamily
housing pursuant to a new venture with Federal National Mortgage Association
"Fannie Mae"), and 3) acquisition of direct and indirect subordinated interests
in commercial mortgage-backed securities.

The current composition of the Company's investment portfolio reflects the
recent change in the Company's business plan and is not comparable to its
investment portfolio prior to April 1999. Furthermore, the Company is still in
the process of implementing its new business plan and, therefore, the current
portfolio should not be considered indicative of the composition of the
portfolio that might be expected in the future.

The Company is governed by a board of trustees comprised of two independent
trustees and one trustee who is affiliated with Related Capital Company
("Related"). The Company has engaged Related AMI Associates, Inc. (the
"Advisor"), an affiliate of Related, to manage its day-to-day affairs.

Note 2--Accounting Policies

a) Basis of Presentation

The consolidated financial statements of the Company are prepared on the
accrual basis of accounting in accordance with accounting principles generally
accepted in the United States of America ("GAAP"). The preparation of financial
statements in conformity with GAAP requires the Manager to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of amortized assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates. The
consolidated financial statements include the accounts of the Company and one
wholly owned subsidiary, AMAC Repo/Seller. All intercompany accounts and
transactions have been eliminated in consolidation. Unless otherwise indicated,
the "Company" as herein after used, refers to American Mortgage Acceptance
Company and its subsidiary.

F-22

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

b) Investments in Mortgage Loans

The Company accounts for its investments in mortgage loans under the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" ("SFAS 114"). Under SFAS
114, a loan is impaired when, based on current information and events, it is
probable that a creditor will be unable to collect all amounts due according to
the contractual terms of the loan agreement. SFAS No. 114 requires lenders to
measure impaired loans based on: (i) the present value of expected future cash
flows discounted at the loans' effective interest rate; (ii) the loan's
observable market price; or (iii) the fair value of the collateral if the loan
is collateral-dependent. An allowance for loan losses is maintained if the
measure of an impaired loan is less than its recorded investment. Adjustments
to the allowance are made through corresponding charges or credits to the
provision for loan losses.

Interest on mortgage loans is recognized on the accrual basis. Interest
which was accrued but not received is reversed from income if deemed to be
uncollectible.

c) Investments in Mortgage-Backed Securities

The Company accounts for its investments in mortgage-backed securities under
the provisions of SFAS No. 115 "Accounting for Certain Investments in Debt and
Equity Securities".

At the date of acquisition, the Company elected to designate its GNMA
certificates as available-for-sale securities. Available-for-sale securities
are carried at fair value with net unrealized gain (loss) reported as a
separate component of other comprehensive income until realized. A decline in
the market value of any available-for-sale security below cost that is deemed
other than temporary is charged to earnings resulting in the establishment of a
new cost basis for the security. Premiums and discounts are amortized or
accreted over the life of the related security as an adjustment to interest
income using the effective yield method. Dividend and interest income are
recognized when earned. Realized gains and losses on securities are included in
earnings and are derived using the specific identification method for
determining the cost of the securities sold.

d) Investment in ARCap

The Company's preferred equity investment in ARCap Investors, L.L.C.
("ARCap") is accounted for using the equity method because the Company has the
ability to exercise significant influence, but not control, over ARCap's
operating and financial policies.

e) Cash and Cash Equivalents

Cash and cash equivalents include cash in banks and temporary investments in
short-term instruments with original maturity dates equal to or less than three
months.

f) Loan Origination Costs

Acquisition fees and other direct expenses incurred for activities performed
to originate or acquire mortgage loans have been capitalized and are included
in Investment in Mortgage Loans in the balance sheets. Loan origination costs
are being amortized to interest income using the effective yield method over
the lives of the respective mortgages.

F-23

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

g) Fair Value of Financial Instruments

As described above, the Company's GNMA certificates are carried at estimated
fair values. The Company has determined that the fair value of its remaining
financial instruments, including its mortgage loans and cash and cash
equivalents, notes receivable, investment in ARCap, and secured borrowings
approximate their carrying values at December 31, 2000 and 1999. The fair value
of investments in mortgage loans and GNMA certificates are based on actual
market price quotes or by determining the present value of the projected future
cash flows using appropriate discount rates, credit losses and prepayment
assumptions. Other financial instruments carry interest rates which are deemed
to approximate market rates.

h) Income Taxes

The Company has qualified as a REIT under the Code. A REIT is generally not
subject to federal income tax on that portion of its REIT taxable income
("Taxable Income") which is distributed to its shareholders provided that at
least 95% of Taxable Income is distributed and provided that such income meets
certain other conditions. Accordingly, no provision for federal income taxes is
required. The Company may be subject to state taxes in certain jurisdictions.

During 2000, the Company declared distributions of $1.45 per share. For
federal income tax purposes, $1.20 and $.25 of the distributions were reported
as ordinary income and return of capital, respectively, to shareholders for
2000.

i) Comprehensive Income

SFAS No. 130, "Reporting Comprehensive Income," requires the Company to
classify items of "other comprehensive income", such as unrealized gains and
losses on its investment in GNMA certificates, by their nature in the financial
statements and display the accumulated balance of other comprehensive income
(loss) separately from shareholders' equity in the shareholders' equity section
of the balance sheets. In accordance with SFAS No. 130, cumulative unrealized
gains and losses on securities available-for-sale are classified as accumulated
other comprehensive income in shareholders' equity and current period
unrealized gains and losses are included as a component of comprehensive income.

j) Use of Estimates

k) Segment Information

SFAS No. 131, "Disclosures About Segments of an Enterprise and Related
Information", requires enterprises to report certain financial and descriptive
information about their reportable operating segments, and certain
enterprise-wide disclosures regarding products and services, geographic areas
and major customers. The Company is an investor in mortgage products and
operates in only one reportable segment. The Company does not have or rely upon
any major customers. All of the Company's investments are secured by real
estate properties located in the United States; accordingly, all of its
revenues were derived from U.S. operations.

F-24

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

l) New Pronouncements

In December of 1999, the staff of the Securities and Exchange Commission
issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements". This bulletin summarizes certain of the staff's views in applying
generally accepted accounting principles to revenue recognition in financial
statements. The Company's management believes that the guidance expressed in
the bulletin does not affect the Company's correct revenue recognition policies.

SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities"
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. It is effective for the Company beginning with the first
quarter of 2001. Because the Company does not currently utilize derivatives,
implementation of this statement has not had a material effect on the Company's
financial statements.

In September of 2000, the FASB issued SFAS No. 140, "Accounting for
Transfers of Financial Assets and Extinguishment of Liabilities". This
statement replaces SFAS No. 125 which had the same name. It revises the
standards for accounting for securitizations and other transfers of financial
assets and collateral and requires certain disclosures, but it carries over
most of SFAS No. 125's provisions without reconsideration. The Company's
management does not believe that application of this statement will have a
material impact on the Company's financial statements.

l) Reclassifications

Certain amounts in the 1999 and 1998 financial statements have been
reclassified to conform to the 2000 presentation.

F-25

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 3--Investments in Mortgage Loans

Information relating to investments in mortgage loans as of December 31,
2000 and 1999 is as follows:

Accumu-
lated
Amortiza-
Date of Amounts Advanced tion
Investment/ Interest ---------------------------------- Additional
Final Rate on Total Outstanding Origi- Loans and Balance at
Descrip- Maturity Mortgage Mortgage Additional Amounts Loan nation Origination December
Property tion Date Loan (A) Loans Loans (B) Advanced Balance Costs Costs 31, 2000(G)
-------- -------- ----------- -------- ----------- ---------- ----------- ----------- --------- ----------- -----------

Town & 330 4/94 7.375%- $ 9,348,000 $1,039,000 $10,387,000 $ (C) $ 0 $ 0 $ 0
Country IV Apt. 5/29 9.167%
Apts. Units (D) (E) (F)
Urbana, IL

Columbiana 204 4/94 (E) 9,106,099 563,000 9,669,099 9,524,355 537,558 498,412 9,563,501
Lakes Apts. Apt. 5/29
Columbia, Units (C)(M)
SC (H)

Stony Brook 125 12/95 7.75%- (I) 763,909 763,909 763,909 413,492 428,736 748,665
Village II Apt. 6/37 9.128%
Apts. Units (C) (F)
East Haven,
CT (H)

Hollows 184 4/00 7.875%- 3,564,064 1,549,200 5,113,264 5,113,264 (197,829) (12,305) 4,927,740
Apts. Apt. 1/42 9.3232%
Greenville, Units (J)
SC

Elmhurst 313 6/00 8.00%- 7,694,310 2,874,000 10,568,310 10,568,310 (495,940) (15,439) 10,087,809
Village Apt. 1/42 9.3232%
Oveida, FL Units (K)

Reserve at 212 8/00 8.00%- 4,583,939 1,987,000 6,570,939 6,570,939 (71,955) (2,034) 6,501,018
Autumn Apt. (M) 9.202%
Creek Units (L)
Friendswood, TX
----------- ---------- ----------- ----------- --------- -------- -----------
Total $34,296,412 $8,776,109 $43,072,521 $32,540,777 $ 185,326 $897,370 $31,828,733
=========== ========== =========== =========== ========= ======== ===========

Interest
Earned
Balance at by the Less 2000 Net
December Company Amor- Interest
Property 31, 1999 for 2000 tization Earned
-------- ----------- ---------- --------- ----------

Town & $ 9,936,476 $ 168,643 $ (14,470) $ 154,173
Country IV
Apts.
Urbana, IL

Columbiana 9,705,686 533,987 (89,701) 444,286
Lakes Apts.
Columbia,
SC (H)

Stony Brook 9,251,320 278,010 (88,978) 189,032
Village II
Apts.
East Haven,
CT (H)

Hollows 0 185,087 12,305 197,392
Apts.
Greenville,
SC

Elmhurst 0 371,060 15,439 386,499
Village
Oveida, FL

Reserve at 0 191,803 2,034 193,837
Autumn
Creek
Friendswood, TX
----------- ---------- --------- ----------
Total $28,893,482 $1,728,590 $(163,371) $1,565,219
=========== ========== ========= ==========

F-26

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

--------
(A) The minimum interest rate shown represents base interest, which is fully
insured by HUD ("Base Interest"). The additional interest rate represents
interest which is not contingent upon cash flow and is secured by
partnership interests in the partnerships which own the Developments
("Additional Interest").

(B) Additional loans are non-interest bearing.

(C) The operations of Town and Country had not been able to support the payment
of Additional Interest for the period July 1, 1997 through December 31,
1999 which amounted to $411,911. Accordingly, the accrued interest income
that was doubtful of collection was fully reserved and excluded from
interest income from mortgage loans in previous quarters. On January 21,
2000, the general partner of the Town and Country obligor, in exchange for
the waiving of the prepayment penalty and future Additional Interest repaid
the additional loan and Additional Interest due through January 21, 2000 in
the amounts of $1,039,000 and $421,273, respectively. As a result, the
Additional Interest which had been fully reserved was deemed to be fully
collectible and recorded as interest income in the fourth quarter of 1999.
On March 31, 2000, the Town and Country obligor fully repaid the FHA
insured mortgage and accrued Base Interest in the amounts of $8,934,581 and
$53,040, respectively, resulting in a gain on the repayment in the amount
of $28,165 (including a $45,000 loan termination fee due from the Company
to the loan servicing agent and unamortized origination costs).

(D) The Mortgages have terms of 40 years, subject to mandatory prepayment at
any time after 10 years and upon one year's notice.

(E) The interest rates for Columbiana are 7.9%-8.678% during the permanent loan
period and was 7.4% during the construction period. In addition to the
interest rate during the permanent loan period, the Company will be
entitled to 25% of the cash flow remaining after payment of 8.678%
interest. The operations of Columbiana had not been able to support the
payment of Additional Interest for the period October 1, 1997 through June
30, 1998 which amounted to $48,760. Accordingly, the accrued interest
income that was deemed doubtful of collection was fully reserved and
reversed from interest income from mortgage loans in the fourth quarter of
1998. As a result of the Company's final advance and conversion of the
construction loan to a permanent loan during the second quarter of 1999,
Columbiana was able to repay construction period advances from the
developer as well as Additional Interest due to the Company through the
second quarter. As a result, the Additional Interest which had been fully
reserved was recorded as interest income in the second quarter of 1999.

(F) In addition to the interest rate, the Company is entitled to 40% of the
cash flow remaining after payment of Base and Additional Interest.

(G) Aggregate cost for federal income tax purposes is $29,766,598.

(H) In order for the Company to exercise an acceleration option it must
terminate the mortgage insurance contract with FHA not later than the
accelerated payment date and, in certain circumstances, must terminate the
mortgage insurance contract upon the exercise of the acceleration option.
Since the exercise of such option would be at the Company's discretion, it
is intended to be exercised only where the value of the underlying property
has increased by an amount which would justify accelerating payment in full
and assuming the risks of foreclosure if the mortgagor failed to make the
accelerated payment.

(I) The Company contributed the FHA portion of this loan to capitalize AMAC/FM,
an unconsolidated subsidiary. The principal amount contributed was
$8,404,092 (See Note 12). The Company retained the additional loan.

F-27

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

(J) The interest rates for Hollows Apartments are 9.6083% per annum during the
permanent loan period and 7.875% during the construction period. The Note
rate of 7.875% is fully insured by HUD, and is secured by a first mortgage
deed of trust. Payments in excess of the Note rate, up to a rate of
9.6083%, are secured by a second mortgage deed of trust and are guaranteed
until August 2004 by an entity related to the general partner of the
partnership which owns Hollows Apartments. The principal balance of the
Additional Loan is secured by a third mortgage deed of trust. In addition
to the interest rate during the permanent loan period, the Company is
entitled to 50% of cash flow, if any, remaining after the payment of debt
service and 25% of the sale or refinancing proceeds. The total loan is
comprised of the mortgage loan of $8,946,100 and the additional loan of
$1,549,200. As of December 31, 2000, $3,564,064 of the mortgage loan and
the full amount of the additional loan had been funded. Both loans mature
in January, 2042, have 5-year lockouts against prepayment, and have a
prepayment penalty structure during the second 5-year period of the loans.

(K) The interest rates for Elmhurst Village are 9.3232% per annum during the
permanent loan period and 8% during the construction period. The Note rate
of 8% is fully insured by HUD, and is secured by a first mortgage deed of
trust. Payments in excess of the Note rate, up to a rate of 9.3232%, are
secured by a second mortgage deed of trust and are guaranteed until
December 2004 by an entity related to the general partner of the
partnership which owns the Elmhurst Village Apartments. The principal
balance of the Additional Loan is secured by a third mortgage deed of
trust. In addition to the interest rate during the permanent loan period,
the Company is entitled to 50% of cash flow, if any, remaining after the
payment of debt service and 25% of the sale or refinancing proceeds. The
total loan is comprised of the mortgage loan of $21,748,200 and the
additional loan of $2,874,000. As of December 31, 2000, $7,694,310 of the
mortgage loan and the full amount of the additional loan had been funded.
Both loans mature in January, 2042 and have 5-year lockouts against
prepayment, as well as a prepayment penalty structure during the second
5-year period of the loans.

(L) The interest rates for the Reserve at Autumn Creek are 9.202% during the
permanent loan period and 8% during the construction period. The Note rate
of 8% is fully insured by HUD and is secured by a first mortgage deed of
trust. Payments in excess of the Note rate, up to a rate of 9.202%, are
secured by a second mortgage deed of trust and are guaranteed until January
2005 by an entity related to the general partner of the partnership which
owns The Reserve at Autumn Creek. The principal balance of the Additional
Loan is secured by a third mortgage deed of trust. In addition to the
interest rate during the permanent loan period, the Company is entitled to
50% of cash flow, if any, remaining after the payment of debt service and
25% of the sale or refinancing proceeds. The total loan is compromised of
the mortgage loan of $16,538,700 and the additional loan of $1,987,000. As
of December 31, 2000, $4,583,939 of the mortgage loan and the full amount
of the additional loan had been funded. Both loans mature in December 2041
and have 5 year lockouts against prepayment, as well as a prepayment
penalty structure during the second 5 year period of the loans.

(M) Pledged as collateral in connection with a secured credit repurchase
facility with Nomura Asset Capital Corporation (See Note 6).

F-28

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Further information relating to investments in mortgage loans for the years
ended December 31, 2000, 1999 and 1998 is as follows:

2000 1999 1998
----------- ------------ -----------

Reconciliation of mortgage loans:
Balance at beginning of period............... $28,893,482 $ 45,965,488 $46,792,853
Advances made during the period.............. 22,252,512 829,204 0
Loan origination fees (net of acquisition
expenses).................................. (765,724) 4,723 0
Proceeds from repayment of mortgage loans.... (9,995,170) (20,841,545) (273,757)
Periodic principal payments of mortgage loans (62,069) 0 0
Loan contributed to unconsolidated subsidiary (8,404,092) 0 0
Excess of proceeds over carrying value of
mortgage loans............................. 13,582 3,273,202 0
Costs relating to repayment of mortgage loan. 59,583 0 0
Amortization of acquisition expenses......... (38,680) (103,318) (180,692)
Amortization of additional loans............. (124,691) (234,272) (372,916)
----------- ------------ -----------
Investments in mortgage loans--December 31,.. $31,828,733 $ 28,893,482 $45,965,488
=========== ============ ===========

F-29

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4--Investments in GNMA Certificates-Available for Sale

Information relating to investments in GNMA Certificates as of December 31,
2000 and 1999 is as follows:

Date Original Loan Unrealized
Purchased Purchase Principal Discount Accumulated Origination Gain Loss
/Final Stated Price at at Amortization Costs at at Balance at
Certificate Payment Interest Including December December at December December December December
Seller Number Date Rate Discount 31, 2000 31, 2000 31, 2000 31, 2000 31, 2000 31, 2000
------------- ----------- --------- -------- ----------- ---------- ---------- ------------ ----------- ---------- ----------

GNMA
Certificates
Bear Stearns. 0355540 7/27/94 7.125% $ 2,407,102 $2,516,855 $(232,809) $126,289 $ 77,865 $ 9,975 $2,498,175
3/15/29
Malone
Mortgage.... 0382486 7/28/94 8.500% 2,197,130 2,124,715 (7,967) 4,511 72,162 (33,516) 2,159,906
8/15/29
Goldman
Sachs....... 0328502 7/29/94 8.250% 3,928,615 0 0 0 0 0 0
7/15/29
SunCoast
Capital
Group, Ltd.. G22412 6/23/97 7.000% 1,981,566 1,193,511 (7,832) 6,092 0 1,368 1,193,138
4/20/27
----------- ---------- ---------- -------- -------- --------- ----------
Total................................. $10,514,413 $5,835,081 $(248,608) $136,892 $150,027 $(22,173) $5,851,219
=========== ========== ========== ======== ======== ========= ==========

Interest
Earned
Balance at by the Net
December Company 2000 Interest
Seller 31, 1999 for 2000 Accretion Earned
------------- ---------- -------- --------- --------

GNMA
Certificates
Bear Stearns. $2,431,778 $180,128 $19,775 $199,903

Malone
Mortgage.... 2,168,686 181,179 706 181,885

Goldman
Sachs....... 3,565,054 0 13 13

SunCoast
Capital
Group, Ltd.. 1,298,919 89,030 1,862 90,892

---------- -------- ------- --------
Total..... $9,464,437 $450,337 $22,356 $472,693
========== ======== ======= ========

F-30

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

The amortized cost, unrealized gain and fair value for the investment in
GNMA Certificates at December 31, 2000 and 1999 were as follows:

December 31,
---------------------
2000 1999
---------- ----------

Amortized cost.............. $5,873,392 $9,719,376
(22,173) (254,939)
Gross unrealized gain (loss) ---------- ----------
$5,851,219 $9,464,437
Fair Value.................. ========== ==========

For the year ended December 31, 2000, there were gains and losses of $741
and $119,895, respectively, (including acquisition fees and expenses) on
principal repayments of GNMA certificates. For the year ended December 31,
1999, there were gains and losses of $1,790 and $3,282, respectively,
(including acquisition fees and expenses) on principal repayments of REMIC and
GNMA certificates.

Due to the complexity of the GNMA structure and the uncertainty of future
economic and other factors that affect interest rates and mortgage prepayments,
it is not possible to predict the effect of future events upon the yield to
maturity or the market value of the GNMA Certificates upon any sale or other
disposition or whether the Company, if it chose to, would be able to reinvest
proceeds from prepayments at favorable rates relative to the coupon rate.

Note 5--Commercial Mortgage-Backed Security-Related Investment and Short Sale;
Investment in ARCap

On September 30, 1999, the Company acquired from ARCap a "BB+" rated
subordinated commercial mortgage-backed security ("CMBS") from a Chase
Manhattan Bank-First Union Nation Bank Commercial Mortgage Trust. The CMBS
investment, which was purchased for $35,622,358, has a face amount of
$50,399,711 and an annual coupon rate of 6.4%. This investment was accounted
for as a trading asset and carried at estimated fair value, with changes in
fair value included in earnings. The Company purchased the CMBS investment
using cash and debt provided through the Bear Stearns Repurchase Facility (see
Note 6). In connection with this acquisition, the Company entered into an
agreement (the "Agreement") with ARCap. Under the Agreement, the Company had
the right to sell the CMBS investment to ARCap and purchase a preferred equity
position in ARCap, all based on the then fair value of the CMBS investment.

This investment was accounted for as a trading asset and carried at
estimated fair value, with changes in fair value included in earnings. Interest
income was accrued as it became receivable, and included accretion of
discounts, computed using the effective yield method, after considering
estimated prepayments and credit losses. The Company recognized gains on this
investment totaling $1,496,017 in 2000 and losses of $1,419,016 in 1999, due to
mark-to-market adjustments.

On September 30, 1999, in order to mitigate the potential income statement
effect of changes in the fair value of its CMBS investment caused by changes in
interest rates, the Company entered into a short sale involving the sale of a
U.S. Treasury Note with a face amount of $39,327,000 and an annual coupon rate
of 5.625% borrowed from Bear Stearns & Co., Inc. ("Bear Stearns"). On March 16,
2000, the Company replaced the borrowed security by purchasing such security
through Bear Stearns, and entered into an additional short sale contract
involving the sale of a U.S. Treasury Note with a face amount of $34,512,000
and an annual coupon rate of 6.0% borrowed from Bear Stearns. On November 1,
2000, the Company terminated the short sale in connection with its sale of the
associated CMBS investment. The Company earned $1,498,627 and $471,262 on short
sale proceeds held by Bear Stearns during 2000 and 1999, respectively (included
in interest income from

F-31

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

temporary investments) and incurred interest of $1,757,648 and 547,025 on its
short sale contracts during 2000 and 1999, respectively (included in interest
expense. Short sale positions were carried at estimated fair value, with
changes in fair value included in earnings. The Company recognized losses on
these positions totaling $1,795,572 in 2000 and gains of $1,201,317 in 1999 due
to mark-to-market adjustments.

On November 1, 2000, the Company, in accordance with the Agreement, sold the
CMBS investment to ARCap and repaid its borrowing under the repurchase facility
(see Note 6), closed out its short sales position and purchased a preferred
equity interest in ARCap in the face amount of $20,000,000, with a preferred
dividend rate of 12%. This preferred equity interest was recorded at
$19,640,637, representing the fair value of the CMBS investment at the date of
the transaction, less the Bear Stearns Repurchase Facility repayment plus
approximately $3.5 million in cash paid to ARCap.

Summarized information for ARCap as of December 31, 2000 and the year then
ended is as follows:

Investment securities--trading............. $214,000,516
Investment securities--available for sale.. 76,092,175
20,249,212
Other assets............................... ------------
$310,341,903
Total assets............................... ============
Repurchase agreements and other liabilities $133,314,684
177,027,219
Members' equity............................ ------------
$310,341,903
Total liabilities and equity............... ============
Total revenues............................. $ 19,931,055
8,105,265
Total expenses............................. ------------
$ 11,825,790
Net income................................. ============

Note 6--Repurchase Facilities

On September 30, 1999, the Company entered into a repurchase facility with
Bear Stearns (the "Bear Stearns Repurchase Facility"), whereby Bear Stearns
advanced $19,568,000 in cash towards the purchase of the CMBS-related
investment (see Note 5). The Bear Stearns Repurchase Facility had a variable
interest rate based on the one-month LIBOR rate plus 1.5%, which is adjusted on
the first day of each month. The Bear Stearns Repurchase Facility was repaid
November 1, 2000 in connection with the CMBS sale discussed above.

Effective February 15, 2000, the Company entered into a $60 million FHA
repurchase facility (the "Nomura Repurchase Facility") with Nomura Asset
Capital Corporation. This agreement enables the Company to borrow up to 90%
with a qualified hedge or 80% without a qualified hedge of the fair market
value of FHA loans owned by the Company. The Nomura Repurchase Facility has a
term of 364 days and bears interest at LIBOR plus 1.25%. As of December 31,
2000, the amount outstanding under this facility was $7,138,940, and the
interest rate was 7.87%. Deferred costs of $79,815 relating to the Nomura
Repurchase Facility are being amortized using the straight-line method over 364
days, which is the term of the facility.

Effective February 15, 2000, the Company entered into a repurchase facility
with Nomura Securities International, Inc. (the "Nomura Securities Repurchase
Facility"). This agreement enables the Company to borrow up to 95% of the fair
market value of qualified mortgage securities owned by the Company. Borrowings
bear interest at LIBOR plus 0.50%. As of December 31, 2000, the amount
outstanding under this facility was $5,517,000, and the interest rate was
7.12%. Deferred costs of $79,815 relating to the Nomura Securities Repurchase
Facility are being amortized using the straight-line method over five years.

F-32

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 7--Related Party Transactions

Prior to the adoption of the Proposals on April 6, 1999, the Company had an
agreement with the Advisor pursuant to which the Advisor received compensation
consisting primarily of (i) asset management fees calculated as .625% of total
assets invested by the Company; (ii) a subordinated incentive fee based on the
economic gain on the sale of Mortgage Investments; (iii) reimbursement of
certain administrative and other costs incurred by the Advisor on behalf of the
Company; and (iv) certain other fees. In addition, with respect to Mortgage
Loans acquired by the Company, the Advisor was entitled to receive loan
placement fees paid by borrowers equal to up to 1.5% of the principal amount of
each mortgage loan.

As a result of the adoption of the Proposals (see Note 1), the Board of
Trustees amended the Advisory Agreement between the Company and the Advisor to,
among other matters, reflect the Proposals and change the Advisory Agreement's
fee structure to (a) eliminate the acquisition and disposition fees payable to
the Advisor; (b) modify the annual asset management fee payable to the Advisor
as set forth below; and (c) include an annual incentive fee payable to the
Advisor as also set forth below. The modified annual asset management fee is
calculated as follows: (i) .355% for investments in Mortgage Loans; (ii) .355%
for certain investment grade investments; (iii) .750% for certain
non-investment grade investments; (iv) 1.000% for unrated investments; and (v)
.625% for investments held prior to the adoption of the Proposals. The annual
incentive fee is calculated as follows: subject to a minimum annual
distribution being made to shareholders from cash available for distribution of
approximately $1.45 per Share, the Advisor will be entitled to receive
incentive compensation for each fiscal year in an amount equal to the product
of (A) 25% of the dollar amount by which (1)(a) Funds From Operations of the
Company (before the incentive fee) per Share (based on the weighted average
number of Shares outstanding) plus (b) gains (or minus losses) from debt
restructuring and sales of property per Share (based on the weighted average
number of Shares outstanding), exceed (2) an amount equal to (a) the weighted
average of the price per Share of the initial offering (i.e. $20 per Share) and
the prices per Share of any secondary offerings by the Company multiplied by
(b) the ten-year U.S. Treasury rate plus two percent per annum multiplied by
(B) the weighted average number of Shares outstanding during such fiscal year.
For any period less than a fiscal year during which the amended Advisory
Agreement is in effect, the incentive fee will be prorated according to the
proportion which such period bears to a full fiscal year, taking into account,
however, the Company's cash available for distribution for the entire fiscal
year.

In addition, the Advisory Agreement's fee structure was also changed so that
with respect to the first $100 million of new Mortgage Loans acquired by the
Company, the Advisor will receive origination points paid by borrowers equal to
up to 1% of the principal amount of each Mortgage Loan and the Company will
receive origination points paid by borrowers in excess of 1%. After the first
$100 million of additional Mortgage Loans is acquired, the Company will retain
100% of the origination points paid by borrowers.

The costs incurred to related parties for the years ended December 31, 2000,
1999 and 1998 were as follows:

Years Ended December 31,
--------------------------
2000 1999 1998
-------- -------- --------

Expense reimbursement $374,751 $255,616 $120,029
Asset management fees 386,112 335,682 362,280
Incentive fee........ 0 122,270 0
-------- -------- --------
$760,863 $713,568 $482,309
======== ======== ========

Asset management fees, the incentive management fee and expense
reimbursements owed to the Advisor and its affiliates amounting to
approximately $243,000 and $431,000 were accrued and unpaid at December 31,
2000 and 1999, respectively.

On May 19, 1999, the Company made a loan in the amount of $1,900,000 to
Patterson Hope '98 Urban Renewal L.L.C. (the "Borrower"), an entity in which an
affiliate of the Advisor is a member. The note bore interest at 12% which was
payable, along with the principal, at maturity on September 15, 1999. The note
was

F-33

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

secured by all of the membership interest in the Borrower, was guaranteed by
Related Capital Company and could be prepaid in whole or in part at any time.
In September 1999, the loan was repaid and the Advisor and the Company each
received origination points in the amount of $19,000. The Company earned
interest income of approximately $86,000 from this loan.

Note 8--Earnings Per Share

Basic net income per share in the amount of $.86, $1.63 and $.88 for the
years ended December 31, 2000, 1999 and 1998, respectively, equals net income
for the periods ($3,317,757, $6,260,300 and $3,396,612, respectively), divided
by the weighted average number of shares outstanding for the periods
(3,838,630, 3,841,931 and 3,845,101, respectively).

Because the Company has no dilutive securities outstanding at December 31,
2000, diluted net income per share is the same as basic net income per share.

Note 9--Capital Shares

In December 1992, the Company issued 10,000 shares of beneficial interest at
$20 per share in exchange for $200,000 cash from the Advisor.

On March 29, 1993, the Company commenced a public offering (the "Offering")
through Related Equities Corporation, an Affiliate of the Advisor, and other
broker-dealers on a "best efforts" basis, for up to 10,000,000 of its shares of
beneficial interest, at an initial offering price of $20 per share. The
Offering terminated November 30, 1994, with a total of 3,809,601 shares sold to
the public, either through the Offering or the Company's dividend reinvestment
plan (the "Reinvestment Plan"), representing Gross Proceeds ("the "Gross
Proceeds") of $76,192,021 (before volume discounts of $40,575).

The Reinvestment Plan became effective March 29, 1993. During the offering
period, the price per share purchased pursuant to the Reinvestment Plan equaled
$20. From November 30, 1994 (the termination of the offering period) until
November 30, 1997, the price per share under the Reinvestment Plan was lowered
to $19. Effective November 30, 1997, the Board adopted a policy to adjust the
reinvestment price annually to reflect the net asset value of a share of the
Company's shares of beneficial interest. Since November 30, 1994, 355,744
shares have been sold through the Reinvestment Plan, the proceeds of which (the
"Reinvestment Proceeds") were restricted for use in connection with the
Company's redemption plan and were not included in Gross Proceeds.

The Redemption Plan became effective on November 30, 1994. Under the
Redemption Plan, Eligible Shares could not be presented to the Company for
redemption. Eligible Shares were shares acquired directly from the Company or
through the Reinvestment Plan owned by the original holder. The Company was
required to redeem such Eligible Shares presented from redemption for cash to
the extent it had sufficient Reinvestment Proceeds.

Through the quarter ended March 31, 1997, the redemption price pursuant to
the Redemption Plan was $19 per Eligible Share. For the quarter ended June 30,
1997, the Board of Trustees reduced the $19 redemption price to $17.47 to
reflect that shareholders had received, through that date, $1.53 in return of
capital distributions. The Board subsequently adopted a policy to adjust the
redemption price annually to reflect the then net asset value of a share of the
Company's shares of beneficial interest.

Pursuant to the Redemption Plan, 375,196 shares have been redeemed for an
aggregate price of $6,575,799.

F-34

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

During the Offering, the Advisor received 38,481 restricted shares
(including 717 from the Reinvestment Plan) in addition to the 10,000 purchased
which the Advisor (pursuant to the terms of the Offering) valued at $14.75 per
share. As a result of shares being redeemed, the Advisor was required to return
172 shares as of December 31, 1994; no additional shares were required to be
returned since then.

As a result of the adoption of the Proposals (see Note 1), the Company's
Reinvestment Plan and Redemption Plan have been terminated, effective with the
distribution for the quarter ended March 31, 1999. The final reinvestment of
shares occurred on May 15, 1999. The final redemption of shares occurred on May
24, 1999. In addition, in connection with the listing of the Company's Shares
on the American Stock Exchange, fractional shares totaling approximately 612
were redeemed on July 1, 1999.

F-35

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

Note 10--Selected Quarterly Financial Data (unaudited)

2000 Quarter Ended
-----------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------

Revenues:
Interest income:
Mortgage loans................................. $ 491,400 $ 196,326 $ 500,295 $ 377,315
GNMA certificates.............................. 119,631 118,630 117,701 116,731
Commercial mortgage-backed security-related
investment................................... 950,662 956,530 960,467 321,748
Note receivable................................ 0 146,168 131,381 169,076
Temporary investments.......................... 547,104 674,520 624,146 238,647
Dividend income................................ 0 0 0 401,096
Other income................................... 0 0 167,279 (15,597)
---------- ---------- ---------- ----------
Total revenues............................. 2,108,797 2,092,174 2,501,269 1,609,016
---------- ---------- ---------- ----------
Expenses:
Interest....................................... 909,107 903,614 1,044,215 514,970
General and administrative..................... 332,220 257,970 425,520 293,688
Amortization................................... 13,651 20,350 26,227 24,309
---------- ---------- ---------- ----------
Total expenses............................. 1,254,978 1,181,934 1,495,962 832,967
---------- ---------- ---------- ----------
Other gain (loss):
Net gain (loss) on commercial mortgage-backed
security-related investment and government
security sold short.......................... (457,042) (253,735) 246,341 164,881
Gain (loss) on repayment of mortgage loans and
GNMA certificates............................ 86,439 (6,077) (8,371) 23
---------- ---------- ---------- ----------
Total other gain (loss).................... (370,603) (259,812) 237,970 164,904
---------- ---------- ---------- ----------
Net income..................................... $ 483,216 $ 650,428 $1,243,277 $ 940,953
========== ========== ========== ==========
Net income per share (basic and diluted)....... $ .13 $ .17 $ .32 $ .25
========== ========== ========== ==========

F-36

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

1999 Quarter Ended
----------------------------------------------
March 31 June 30 September 30 December 31
- ---------- ---------- ------------ -----------

Revenues:
Interest income:
Mortgage loans.................................... $ 548,365 $ 666,585 $465,994 $ 888,957
GNMA certificates................................. 199,646 196,898 195,315 193,732
Commercial mortgage-backed security-related
investment...................................... 0 0 10,187 940,269
Note receivable................................... 0 26,860 58,926 0
Temporary investments............................. 96,528 262,386 221,459 512,244
Other income...................................... 0 4,231 19,000 0
---------- ---------- -------- ----------

Total revenues................................ 844,539 1,156,960 970,881 2,535,202
---------- ---------- -------- ----------

Expenses:
Interest.......................................... 0 0 6,061 900,520
General and administrative........................ 137,534 298,729 250,841 342,736
Organization costs................................ 0 348,413 16,405 54
Total expenses................................ 137,534 647,142 273,307 1,243,310
Other gain (loss):
Net unrealized loss on commercial mortgage-backed
security-related investment and government
security sold short............................. 0 0 0 (217,699)
Gain (loss) on repayment of mortgage loans and
GNMA certificates............................... 3,273,116 (331) (485) (590)
---------- ---------- -------- ----------
Total other gain (loss)....................... 3,273,116 (331) (485) (218,289)
---------- ---------- -------- ----------
Net income........................................ $3,980,121 $ 509,487 $697,089 $1,073,603
========== ========== ======== ==========
Net income per share (basic and diluted).......... $ 1.03 $ .13 $ .18 $ .28
========== ========== ======== ==========

Note 11--Commitments and Contingencies

The Company completed a loan venture with Federal National Mortgage
Association ("Fannie Mae") which has agreed to fund the origination of $250
million of Delegated Underwriter and Servicer loans for apartment properties
that qualify for low income housing tax credits under Section 42 of the
Internal Revenue Code. Under the loan venture, the Company will originate and
contract for individual loans of up to $6 million dollars each over a two-year
period and will work with American Property Financing, which will underwrite
and service the loans for Fannie Mae. Each property in the transaction will
benefit from 9% low income housing tax credits for no less than 90% of its
units. The Company will guaranty a first loss position of up to 10% of the pool
of $250 million and will receive guaranty and other fees. As of December 31,
2000, the Company originated four loans totaling $4,937,511 under this loan
venture.

Note 12--Investment in Unconsolidated Subsidiary and Note Receivable

The Company has entered into an agreement with the Federal National Mortgage
Association ("Fannie Mae") whereby the company will provide first loss
protection ("First Loss Obligation") on certain loans

F-37

AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)

originated by Fannie Mae pursuant to a Master Financing and Loss Sharing
Agreement (See Note 11). Through an unconsolidated subsidiary, AMAC/FM
Corporation ("AMAC/FM"), and pursuant to a Guaranty and Security Agreement with
Fannie Mae, the payment of the First Loss Obligation is guaranteed and secured
by AMAC/FM's pledge and grant to Fannie Mae of a security interest on certain
assets of AMAC/FM.

AMAC/FM was capitalized by a contribution by the Company to AMAC/FM of the
mortgage loan secured by Stony Brook Village II Apartments with a principal
amount of $8,404,092. This contribution was recorded by AMAC/FM as a $7,264,093
loan from the Company via a subordinated promissory note, with a stated
interest rate of 7.75% and a $1,140,000 capital contribution through the
issuance of AMAC/FM non-voting common stock. The Company accounts for its
$1,140,000 investment in AMAC/FM under the equity method of accounting, because
all of AMAC/FM's voting common shares are held by the Advisor and, therefore,
the Company does not control AMAC/FM.

During January, 2001, all of the voting common stock of AMAC/FM, previously
owned by the Advisor, was purchased by the Company, the effect of which is to
make AMAC/FM a wholly owned subsidiary of the Company. This change was possible
due to a change in federal REIT legislation passed in December 1999, allowing
REITS to directly own taxable subsidiaries, beginning after the year 2000.

Note 13--Subsequent Event

On February 15, 2001, the Company renewed the Nomura Repurchase Facility
with Nomura Asset Capital Corporation. Under the new terms, the Company may
borrow up to $40 million, with a one time option to increase total borrowings
to $60 million. The renewed facility bears interest at LIBOR plus $1.25% and
matures February 15, 2002.

F-38

--------------------------------------
--------------------------------------

No dealer, salesperson or other person is authorized to distribute any
information or to represent anything not contained in this prospectus. You must
not rely on any unauthorized information or representations. This prospectus is
an offer to sell our shares of beneficial interest only under circumstances and
in jurisdictions where it is lawful to do so. The information combined in this
prospectus is current only as of its date.

TABLE OF CONTENTS

Page
----

PROSPECTUS SUMMARY............... 3

RISK FACTORS..................... 11

OUR COMPANY...................... 21
MANAGEMENT....................... 29

MARKET PRICE OF AND DISTRIBUTIONS
ON OUR COMMON SHARES OF
BENEFICIAL INTEREST............ 37

SELECTED CONSOLIDATED FINANCIAL
DATA............................ 38

MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...... 39

DESCRIPTION OF SECURITIES........ 45

CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.................. 50

UNDERWRITING..................... 59

EXPERTS.......................... 60

LEGAL MATTERS.................... 60

WHERE YOU CAN FIND MORE
INFORMATION..................... 61

INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE.......... 61

INDEX TO CONSOLIDATED FINANCIAL
STATEMENTS...................... F-1

--------------------------------------
--------------------------------------

3,500,000 Common Shares

[LOGO] American Mortgage Company

-----------------

PROSPECTUS

-----------------

FRIEDMAN BILLINGS RAMSEY

RBC Capital Markets

, 2002

--------------------------------------
--------------------------------------

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 14. Other Expenses of Issuance and Distribution

SEC registration fee.................................. $ 13,468
Transfer agent and registrar fees..................... 3,500*
Printing expenses..................................... 80,000*
Accountants' fees..................................... 75,000*
American Stock Exchange listing fee................... 17,500
Counsel fees.......................................... 300,000*
Miscellaneous......................................... 100,000*
--------
Total.............................................. $589,468
========

------------
* Estimated.

ITEM 15. Indemnification of Directors and Officers

In our declaration of trust, we agree to indemnify and hold harmless our
trustees, our Advisor and their affiliates who are performing services on our
behalf ("Indemnified Parties") against expense or liability, including
attorneys' fees and disbursements, in any action arising out of any act
performed or omitted to be performed by them in connection with our operation
or business; provided, that, (i) our trustees or the Advisor has determined, in
good faith, that the course of conduct which caused the loss or liability was
in our best interests (ii) such liability or loss was not the result of
negligence or misconduct on the part of the Indemnified Party and (iii) such
indemnification or agreement to hold harmless is recoverable only out of our
assets and not from the shareholders. In addition, our declaration of trust
contains provisions limiting the personal liability of our trustees, officers
and shareholders.

We shall not indemnify the Indemnified Parties for any liability imposed by
a judgment, and costs associated with a judgment, including attorneys' fees,
arising from or out of a violation of state or federal securities laws.
However, we may indemnify the Indemnified Parties for settlements and related
expenses of lawsuits alleging securities laws violations and for expenses
incurred in successfully defending such lawsuits, but only if: (a) a court
either (i) approves the settlement and finds that indemnification of the
settlement and related costs should be made or (ii) approves indemnification of
litigation costs if there has been a successful defense or (b) there has been a
dismissal on the merits with prejudice (without a settlement).

We purchased and maintain insurance on behalf of our trustees and officers
against liability asserted against such trustees and officers in their
capacities as such.

II-1

ITEM 16. Exhibits

Exhibit
Number Description of Document
------ -----------------------

1.1** Form of Underwriting Agreement between the Registrant and Friedman, Billings,
Ramsey & Co., Inc.

4.1* Specimen of Common Share Certificate of Registrant.

4.2** Form of Warrant Agreement between the Registrant and Friedman Billings, Ramsey & Co., Inc.

5.1* Opinion of Goodwin Procter LLP.

8.1* Opinion of Paul, Hastings, Janofsky & Walker LLP as to tax matters.

10.1 Rockport Mortgage Corporation Mortgage Note in the principal amount of $8,500,000 dated
December 15, 1995 (incorporated herein by reference to Exhibit 10(a) to Form 8-K dated December
15, 1995 filed with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934 (Commission File No. 0-23972)).

10.2 Equity Loan Note in the principal amount of $1,039,000 dated December 15, 1995 (incorporated
herein by reference to Exhibit 10(b) to Form 8-K dated December 15, 1995 filed with the Securities
and Exchange Commission pursuant to the Securities Exchange Act of 1934 (Commission File No.
0-23972)).

10.3 Subordinated Promissory Note by SCI-ROEV East Haven Land Limited Partnership, dated
December 15, 1995 (incorporated herein by reference to Exhibit 10(c) to Form 8-K dated December
15, 1995 filed with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934 (Commission File No. 0-23972)).

10.4 Limited Operating Guaranty between SCI Real Estate Development, Ltd., and Euro General East
Haven, Inc., and the Company dated December 15, 1995 (incorporated herein by reference to
Exhibit 10(d) to Form 8-K dated December 15, 1995 filed with the Securities and Exchange
Commission pursuant to the Securities Exchange Act of 1934 (Commission File No. 0-23972)).

10.5 Amended and Restated Advisory Services Agreement, effective as of April 6, 1999 (incorporated
herein by reference to Exhibit 10(z) to Form 10-Q dated September 30, 1999 filed with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of 1934
(Commission File No. 0-23972)).

10.6* First Amendment to Amended and Restated Advisory Services Agreement between Related AMI
Associates, Inc. and the Company dated November 29, 2001.

10.7* Settlement and Escrow Agreement between Related Mortgage Corporation, Columbiana Lakes
Limited Partnership, the Company, et al. dated June 7, 2001.

23.1** Consent of Deloitte & Touche LLP.

23.2** Consent of KPMG LLP.

23.3** Consent of Deloitte & Touche LLP regarding ARCap Investors L.L.C.

23.4* Consent of Goodwin Procter LLP (included in exhibit 5.1 to this registration statement).

23.5* Consent of Paul, Hastings, Janofsky & Walker LLP (included in exhibit 8.1 to this registration
statement).

24.1* Power of Attorney.

--------

* Previously filed as part of this registration statement.

** Filed herewith.

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ITEM 17. Undertakings

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.

The undersigned registrant hereby undertakes that:

(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.

II-3

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant certifies that it has reasonable grounds to believe that it meets
the requirements for filing on Form S-2 and has duly caused this registration
statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York, State of New York, on the 11th day of
January, 2002.

AMERICAN MORTGAGE ACCEPTANCE
COMPANY

By: /s/ STUART J. BOESKY
-----------------------------
Stuart J. Boesky
Trustee, Chairman of the
Board, President and
Chief Executive Officer

Pursuant to the requirements of the Securities Act of 1933, as amended, this
registration statement has been signed by the following persons in the
capacities and on the dates indicated.

Signature Title Date
--------- ----- ----

/S/ STUART J. BOESKY* Trustee, Chairman of the Board, January 11, 2002
------------------------ President and Chief Executive
Stuart J. Boesky Officer (principal executive
officer

* Trustee January 11, 2002
------------------------
Peter T. Allen

* Trustee January 11, 2002
------------------------
Arthur P. Fisch

* Trustee January 11, 2002
------------------------
Alan P. Hirmes

* Trustee January 11, 2002
------------------------
Scott M. Mannes

/s/ MICHAEL I. WIRTH Senior Vice President and Chief January 11, 2002
------------------------ Financial Officer (principal
Michael I. Wirth financial and accounting officer)

*By /s/ MICHAEL I. WIRTH
------------------------
Michael I. Wirth
As Attorney-In-Fact

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EXHIBIT INDEX

Exhibit
Number Description of Document
------ -----------------------

1.1 Form of Underwriting Agreement between the Registrant and Friedman, Billings, Ramsey & Co., Inc.

4.2 Form of Warrant Agreement between the Registrant and Friedman Billings, Ramsey & Co., Inc.

23.1 Consent of Deloitte & Touche LLP.

23.2 Consent of KPMG LLP.

23.3 Consent of Deloitte & Touche LLP regarding ARCap Investors L.L.C.

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