MUNICIPAL MORTGAGE & EQUITY LLC, 424B5, 1998-07-06

MUNICIPAL MORTGAGE & EQUITY LLC
424B5, 1998-07-06
REAL ESTATE

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<PAGE> 1

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED WITHOUT THE DELIVERY OF A FINAL PROSPECTUS AND
PROSPECTUS SUPPLEMENT. THIS PROSPECTUS SUPPLEMENT SHALL NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF
THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.

PROSPECTUS SUPPLEMENT SUBJECT TO COMPLETION
(TO PROSPECTUS DATED JUNE 30, 1998) JULY 1, 1998

2,500,000 SHARES

[MUNIMAE LOGO]

COMMON SHARES

Municipal Mortgage and Equity, L.L.C. (the "Company") is a self-advised and
self-managed limited liability company which, together with its predecessor,
since 1986, has been in the business of originating, investing in and servicing
tax-exempt instruments backed by multifamily housing developments. At June 30,
1998, the Company owned a portfolio of mortgage bonds and other bond related
investments (collectively, the "Investments") backed by 52 multifamily
properties containing a total of 13,684 units and located in 13 states.
Participating mortgage bonds, where the interest payments made to the Company
are based, in part, upon property performance, represented 67% of the fair value
of the Investments at March 31, 1998.

As a limited liability company, the Company combines the limited liability,
governance and management characteristics of a corporation with the pass-through
income features of a partnership. As a result, the tax-exempt income derived
from the Investments may be passed through to holders of growth shares of
limited liability company interest in the Company (the "Common Shares").
Approximately 85% of the Company's income in 1997 was tax-exempt, excluding
capital gains.

All of the Common Shares offered by this Prospectus (the "Offering") are
being offered by the Company. Upon consummation of the Offering, management and
employees of the Company will own approximately 10% of the outstanding Common
Shares on a fully diluted basis, assuming exercise of all outstanding options to
purchase Common Shares. The Common Shares are listed on the New York Stock
Exchange (the "NYSE") under the symbol "MMA." The last reported sale price of
the Common Shares on the NYSE on June 30, 1998 was $22.125. See "Price Range of
Common Shares and Dividend History."
------------------------------

SEE "RISK FACTORS" BEGINNING ON PAGE S-9 OF THIS PROSPECTUS SUPPLEMENT AND
ON PAGE 3 OF THE ACCOMPANYING PROSPECTUS FOR CERTAIN FACTORS RELEVANT TO AN
INVESTMENT IN THE COMMON SHARES.
------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
==================================================================================================================
PRICE TO UNDERWRITING DISCOUNTS PROCEEDS TO
PUBLIC AND COMMISSIONS(1) COMPANY(2)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Common Share.................... $ $ $
- ------------------------------------------------------------------------------------------------------------------
Total(3)............................ $ $ $
==================================================================================================================
</TABLE>

(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $370,000.
(3) The Company has granted the Underwriters an option to purchase up to an
aggregate of 375,000 Common Shares to cover over-allotments. If the option
is exercised in full, the total "Price to Public," "Underwriting Discounts
and Commissions" and "Proceeds to Company" will be $ , $
and $ , respectively. See "Underwriting."

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

The Common Shares are offered by the several Underwriters when, as and if
delivered to and accepted by them and subject to various prior conditions,
including their right to reject orders, in whole or in part. It is expected that
delivery of the Common Shares will be made at the offices of Legg Mason Wood
Walker, Incorporated, Baltimore, Maryland, on or about July , 1998.

LEGG MASON WOOD WALKER
INCORPORATED
MERRILL LYNCH & CO.
WHEAT FIRST UNION
July , 1998
<PAGE> 2
[Map of the United States entitled "Current Portfolio -- Property Locations"
"Bond Investments Secured by 52 properties in 13 States" with circles marking
the location of Properties in the cities of Baltimore, Richmond, Norfolk,
Knoxville, Chattanooga, Atlanta, Fort Myers, Miami, Indianapolis, St. Louis,
Springfield, Memphis, San Antonio, Kansas City, Minneapolis/St. Paul, Denver,
San Bernardino, Salinas, Sacramento, and Seattle.

Pie chart entitled "Portfolio units Geographic Distribution" with 11% in
Virginia, 5% in Washington, 10% in California, 5% in Colorado, 16% in Florida,
7% in Georgia, 5% in Indiana, 6% in Kansas, 4% in Maryland, 7% in Minnesota,
10% in Missouri, 10% Tennessee, and 4% in Texas.]

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES. SUCH
TRANSACTIONS MAY INCLUDE THE PURCHASE OF COMMON SHARES PRIOR TO THE PRICING OF
THE OFFERING FOR THE PURPOSE OF MAINTAINING THE PRICE OF THE COMMON SHARES, THE
PURCHASE OF COMMON SHARES FOLLOWING THE PRICING OF THE OFFERING TO COVER A
SYNDICATE SHORT POSITION IN THE COMMON SHARES OR FOR THE PURPOSE OF MAINTAINING
THE PRICE OF THE COMMON SHARES AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE> 3

[Color pictures of the Seasons Apartments in Denver, Colorado, Northridge Park
II in Salinas, California, Mallard Cove in Everrett, Washington and the Indian
Lakes Apartments in Virginia Beach, Virginia.]
<PAGE> 4

PROSPECTUS SUPPLEMENT SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Prospectus Supplement and the accompanying Prospectus or
incorporated herein or therein by reference. Unless indicated otherwise, the
information contained in this Prospectus Supplement assumes that the
Underwriters' over-allotment option is not exercised. Unless the context
requires otherwise, all references to the "Company" in this Prospectus
Supplement and the accompanying Prospectus shall be deemed to include the
Company, its predecessor and its subsidiaries. This Prospectus Supplement and
the accompanying Prospectus contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Company's actual results could differ
materially from those set forth in the forward-looking statements. See "Risk
Factors" for a discussion of certain factors that might cause such a difference.

THE COMPANY

The Company is a self-advised and self-managed limited liability company
which, together with its predecessor, since 1986, has been in the business of
originating, investing in and servicing tax-exempt instruments backed by
multifamily housing developments. The Company's primary objective is to maximize
value for the holders of Common Shares ("Shareholders") through increases in
tax-exempt distributable cash flow per Common Share and appreciation in the
value of its Common Shares. The Company's investments (the "Investments")
principally comprise tax-exempt mortgage revenue bonds ("Mortgage Bonds") which
have been issued by state and local governments or their agencies or authorities
to finance multifamily housing developments and other bond related investments.
The Company utilizes its unique combination of real estate and tax-exempt
investment expertise to acquire and aggressively manage the Investments. At June
30, 1998, the Company owned a portfolio of Mortgage Bonds and other bond related
investments directly or indirectly secured by 52 multifamily properties (each, a
"Property") containing a total of 13,684 units and located in 13 states.
Participating Mortgage Bonds, where the amount of the interest payments made to
the Company is based, in part, upon property performance, represented 67% of the
fair value of the Investments at March 31, 1998, and provide the Company the
opportunity to realize greater returns if and to the extent property performance
improves.

As a limited liability company, the Company combines the limited liability,
governance and management characteristics of a corporation with outside
directors with the pass-through income features of a partnership. As a result,
the tax-exempt income derived from the Investments may be passed through to
Shareholders. Approximately 85% of the Company's income in 1997 was tax-exempt,
excluding capital gains.

In 1995, the Company made the strategic decision to restructure in order to
take advantage of its expertise in multifamily and tax-exempt bond financing and
favorable market conditions for the acquisition of Mortgage Bonds and other bond
related investments. As a result of that decision, the Company transformed
itself from an owner of a static portfolio of Mortgage Bonds to an active
investor which acquires and manages a diversified portfolio of Mortgage Bonds
and other bond related investments. The key elements of the Company's strategy
are:

- - SELECTIVE ACQUISITIONS. The Company seeks external growth by investing in new
Mortgage Bonds and other bond related investments which have characteristics
similar to the Investments and possess attractive returns. Between January 1,
1997 and June 30, 1998, the Company participated in transactions with respect
to approximately $280 million of Mortgage Bonds and other bond related assets.
After subsequent securitization transactions, the Company's balance sheet as
of March 31, 1998 reflects retained interests in the transactions completed as
of March 31, 1998 of approximately $74 million. Pursuant to its business plan,
the Company expects to acquire additional investments with the proceeds of
this Offering. Pending completion of such additional investments, part or all
of the proceeds will be used to repurchase short term floating rate interests
("P-Float Interests") issued in connection with securitization transactions.

- - INTENSIVE ASSET MANAGEMENT. The Company seeks to maximize current and future
cash flow growth through active management of the Investments. To achieve this
goal, the Company has implemented strategic asset management plans relating to
the participating Mortgage Bonds (which were 67% of the fair

S-3
<PAGE> 5

value of the Investments at March 31, 1998) in order to maximize collections
of debt service payments while maintaining the long term economic viability of
the Properties. On a portfolio-wide basis, the Company conducts ongoing site
visits and inspections, management agent assessments, budget reviews, market
analyses and monitoring and monthly and annual operating statement reviews,
and also monitors the establishment and review of capital plans.

- - BALANCED FUNDING STRATEGY. The Company uses a combination of equity financing
and securitization of its assets to finance the acquisition of Mortgage Bonds
and other bond related investments. Securitizations provide funds for
acquisitions at a low cost relative to the costs of other forms of financing,
thereby generating attractive spreads which benefit the Shareholders. The
Company's securitization programs involve purchasing the residual interest in
a trust into which Mortgage Bonds have been deposited. The trust then sells
P-Float Interests in the trust to third parties. The Company typically
receives the net proceeds from the sale of the floating rate interests. The
Company has received opinions of counsel to the effect that the P-Float
Interests are not debt for federal income tax purposes. To the extent these
transactions create interest rate risks, the Company engages in interest rate
swaps designed to reduce, but not eliminate such risks. Since January 1, 1997,
the Company has completed several securitization transactions which as of
March 31, 1998 had a weighted average ten-year cost of approximately 5.0%.
From time to time, the Company may repurchase the P-Float Interests.

The Company's senior management team, led by Mark K. Joseph, its Chairman
and Chief Executive Officer, has an average of 13 years of experience with the
Company and its affiliates and an average of 21 years of experience in the real
estate industry. Upon completion of the Offering, management and employees of
the Company will own approximately 10% of the outstanding Common Shares on a
fully-diluted basis, assuming exercise of all outstanding options to purchase
Common Shares.

S-4
<PAGE> 6

RECENT TRANSACTIONS

Since January 1, 1997, the Company has participated in transactions with
respect to approximately $280 million of Mortgage Bond and other bond related
assets (together, the "Recent Transactions"). After subsequent securitization
transactions, the Company's balance sheet as of March 31, 1998 reflects retained
interests in the transactions completed as of March 31, 1998 of approximately
$74 million. The following table sets forth certain data regarding the Recent
Transactions:

<TABLE>
<CAPTION>
ORIGINAL
DATE OF AMOUNT OF
NAME OF PROPERTY UNDERLYING TRANSACTION TRANSACTION TRANSACTION
--------------------------------------- ----------- ------------
<S> <C> <C>
The Crossings(1)..................................... Jan. 97 $ 7,799,000
Southgate Crossings(1)(2)............................ June 97 11,455,000
Indian Lakes(2)...................................... July 97 10,300,000
Stone Mountain....................................... Oct. 97 33,900,000
Southwood(2)......................................... Nov. 97 25,800,000
Collateral Account(3)................................ June 97 1,000,000
Cinnamon Ridge(4).................................... Dec. 97 10,690,000
------------
1997 Subtotal................................... $100,944,000
------------
Bermuda Villa(2)(5).................................. Feb. 98 10,400,000
Mayan North(2)(5).................................... Feb. 98 2,300,000
Mayan Tower(2)(5).................................... Feb. 98 4,650,000
Miller Lake(2)(5).................................... Feb. 98 5,075,000
Nob Hill(2)(5)....................................... Feb. 98 18,025,000
Paradise Pointe(2)(5)................................ Feb. 98 5,575,000
Regency Manor(2)(5).................................. Feb. 98 6,050,000
Waterside(2)(5)...................................... Feb. 98 6,475,000
Whispering Palms(2)(5)............................... Feb. 98 12,750,000
Cedar Run(2)(5)...................................... Feb. 98 13,200,000
Palisades Park(6).................................... Feb. 98 9,495,000
Nantucket Cove....................................... Apr. 98 19,150,000
Coleman Senior....................................... Apr. 98 8,050,000
Italian Gardens...................................... Apr. 98 8,000,000
Orangevale........................................... Apr. 98 2,543,000
Cherry Creek(2)...................................... June 98 28,600,000
Sonterra(2).......................................... May 98 10,200,000
Olde English Manor(6)................................ June 98 8,300,000
-------- ------------
1998 year-to-date Subtotal...................... $178,838,000
------------
1997 to date Total.............................. $279,782,000
------------
</TABLE>

- ------------------------------
(1) Included in the transaction amount are taxable loans.

(2) These investments were involved in securitization transactions resulting in
the Company retaining or purchasing an investment in the form of Residual
Interest Tax-Exempt Securities Receipts ("RITES(R)").

(3) The collateral account is part of a structured finance program developed by
the Federal National Mortgage Association to facilitate the credit
enhancement of Mortgage Bonds for which there is shared risk. The $1.4
million risk-sharing collateral account provides additional security for
these enhanced Mortgage Bonds within a collateralized pool; to the extent
this security is not needed to repay the Mortgage Bonds, it will be
disbursed to the Company following repayment of the Mortgage Bonds.

(4) The Company has entered into a total return swap which replicates the total
return of the Cinnamon Ridge Mortgage Bond financed at a rate of 4.75%.
During the term of the swap, the Company will receive taxable income
approximating 0.625% of the face amount of the Cinnamon Ridge Mortgage Bond
from the total return swap. The Company is also currently earning a
servicing fee of 0.125% annually from this Property. In addition, the
Company has made a $120,000 taxable loan. The Company has not entered into a
binding contract to purchase the Cinnamon Ridge Mortgage Bond.

(5) These Investments are part of the Gannon portfolio.

(6) Interest on the loan secured by this Property is taxable.

S-5
<PAGE> 7

THE INVESTMENTS

The following table sets forth certain data with respect to the Company's
Investments as of March 31, 1998:
<TABLE>
<CAPTION>

BASE
MONTH-YEAR INTEREST MATURITY FACE AMORTIZED UNREALIZED FAIR
INVESTMENTS ACQUIRED RATE DATE AMOUNT COST GAIN (LOSS) VALUE
----------- ---------- -------- -------- ------ --------- ----------- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
PARTICIPATING MORTGAGE BONDS:
Alban Place(1)............................. Sep. 86 7.875% Oct. 2008 $10,065 $ 10,065 $(1,170) $ 8,895
Creekside Village(2)....................... Nov. 87 7.500 Nov. 2009 11,760 7,396 190 7,586
Emerald Hills.............................. Mar. 88 7.750 Apr. 2008 6,725 6,725 579 7,304
Lakeview Garden(2)......................... Sep. 87 7.750 Aug. 2007 9,003 5,340 -- 5,340
Newport-on-Seven(2)........................ Aug. 86 8.125 Aug. 2008 10,125 7,898 1,265 9,163
North Pointe(1)(2)......................... Sep. 86 7.875 Aug. 2006 25,185 12,738 3,717 16,455
Northridge Park............................ Aug. 87 7.500 June 2012 8,815 8,815 (1,547) 7,268
Riverset I(1).............................. Aug. 88 7.875 Nov. 1999 19,000 19,000 1,116 20,116
Southfork Village(1)....................... Jan. 88 7.875 Jan. 2009 10,375 10,375 2,084 12,459
Villa Hialeah.............................. Nov. 87 7.875 Oct. 2009 10,250 8,004 (117) 7,887
Mountainview (Willowgreen)(2).............. Nov. 86 8.000 Dec. 2010 9,275 6,770 2 6,772
The Crossings.............................. Jan. 97 8.000 July 2027 7,036 6,925 245 7,170
-------- ------- --------
SUBTOTAL PARTICIPATING MORTGAGE BONDS...... 110,051 6,364 116,415
-------- ------- --------
MORTGAGE BONDS:
Riverset II................................ Jan. 96 9.500 Oct. 2019 110 105 5 110
Charter House.............................. Dec. 96 7.450 July 2026 35 35 1 36
Hidden Valley.............................. Dec. 96 8.250 Jan. 2026 1,700 1,690 82 1,772
Oakbrook................................... Dec. 96 8.200 July 2026 3,195 3,211 167 3,378
Torries Chase.............................. Dec. 96 8.150 Jan. 2026 2,070 2,060 159 2,219
Gannon..................................... Feb. 98 12.000 June 2027 3,500 3,500 -- 3,500
-------- ------- --------
SUBTOTAL MORTGAGE BONDS.................... 10,601 414 11,015
-------- ------- --------
PARTICIPATING SUBORDINATE MORTGAGE BONDS:
Barkley Place(2)(3)........................ Feb. 95(4) 16.000 Jan. 2030 3,480 2,445 1,430 3,875
Gilman Meadows(3).......................... Feb. 95(4) 3.000 Jan. 2030 2,875 2,530 1,409 3,939
Hamilton Chase(3).......................... Feb. 95(4) 3.000 Jan. 2030 6,250 4,140 98 4,238
Mallard Cove I(3).......................... Feb. 95(4) 3.000 Jan. 2030 1,670 798 645 1,443
Mallard Cove II(3)......................... Feb. 95(4) 3.000 Jan. 2030 3,750 2,429 1,599 4,028
Meadows(2)(3).............................. Feb. 95(4) 16.000 Jan. 2030 3,635 3,716 451 4,167
Montclair(3)............................... Feb. 95(4) 3.000 Jan. 2030 6,840 1,691 3,914 5,605
Newport Village(3)......................... Feb. 95(4) 3.000 Jan. 2030 4,175 2,973 1,803 4,776
Nicollet Ridge(3).......................... Feb. 95(4) 3.000 Jan. 2030 12,415 6,075 2,325 8,400
Steeplechase Falls(2)(3)................... Feb. 95(4) 16.000 Jan. 2030 5,300 5,852 744 6,596
Whispering Lake(3)......................... Feb. 95(4) 3.000 Jan. 2030 8,500 4,779 3,234 8,013
Riverset II................................ Jan. 96 10.000 Oct. 2019 1,489 -- 1,229 1,229
-------- ------- --------
SUBTOTAL PARTICIPATING SUBORDINATE MORTGAGE
BONDS..................................... 37,428 18,881 56,309
-------- ------- --------
SUBORDINATE MORTGAGE BONDS:
Independence Ridge......................... Aug. 96 12.500 Dec. 2015 1,045 1,045 21 1,066
Locarno.................................... Aug. 96 12.500 Dec. 2015 675 675 10 685
-------- ------- --------
SUBTOTAL SUBORDINATE MORTGAGE BONDS........ 1,720 31 1,751
-------- ------- --------
OTHER BOND RELATED INVESTMENTS:
RITES:
Hunters Ridge/South Pointe(5)............. Oct. 96 n/a n/a -- -- -- --
Indian Lakes.............................. July 97 n/a n/a 3,340 3,505 369 3,874
Southgate Crossings....................... June 97 n/a n/a 2,757 3,176 274 3,450
Southwood................................. Nov. 97 n/a n/a 10,320 10,308 166 10,474
Gannon portfolio.......................... Feb. 98 n/a n/a 814 1,074 (395) 679
Riverset II(3)............................. Jan. 96 n/a n/a 7,500 7,847 338 8,185
Stone Mountain(3).......................... Oct. 97 n/a n/a 33,900 34,126 707 34,833
Charter House(6)........................... Dec. 96 n/a n/a 7,595 7,861 91 7,952
Stone Mountain interest only strip......... Oct. 97 n/a n/a -- 1,201 76 1,277
Various interest rate swaps(7)............. n/a n/a n/a 163,850(8) -- 91 91
Cinnamon Ridge total return swap(9)........ n/a n/a n/a 10,570(8) -- 291 291
Collateral account(10)..................... June 97 n/a n/a n/a 1,027 -- 1,027
-------- ------- --------
SUBTOTAL OTHER BOND RELATED INVESTMENTS.... 70,125 2,008 72,133
-------- ------- --------
TOTAL INVESTMENTS....................... $229,925 $27,698 $257,623
======== ======= ========

<CAPTION>
INTEREST
INCOME FACE
FOR THE AMOUNT OF
THREE MONTHS OBLIGATIONS
ENDED SENIOR
MARCH 31, TO THE
INVESTMENTS 1998 INVESTMENTS
----------- ------------ -----------
(Dollars in thousands)
<S> <C> <C>
PARTICIPATING MORTGAGE BONDS:
Alban Place(1)............................. $ 198 --
Creekside Village(2)....................... 180 --
Emerald Hills.............................. 130 --
Lakeview Garden(2)......................... 100 --
Newport-on-Seven(2)........................ 180 --
North Pointe(1)(2)......................... 246 --
Northridge Park............................ 165 --
Riverset I(1).............................. 852 --
Southfork Village(1)....................... 239 --
Villa Hialeah.............................. 202 --
Mountainview (Willowgreen)(2).............. 164 --
The Crossings.............................. 141 --
------
SUBTOTAL PARTICIPATING MORTGAGE BONDS...... 2,797
------
MORTGAGE BONDS:
Riverset II................................ 3 --
Charter House.............................. 1 --
Hidden Valley.............................. 35 --
Oakbrook................................... 65 --
Torries Chase.............................. 42 --
Gannon..................................... 63 --
------
SUBTOTAL MORTGAGE BONDS.................... 209
------
PARTICIPATING SUBORDINATE MORTGAGE BONDS:
Barkley Place(2)(3)........................ 83 $ 5,350
Gilman Meadows(3).......................... 67 4,000
Hamilton Chase(3).......................... 63 7,625
Mallard Cove I(3).......................... 26 800
Mallard Cove II(3)......................... 67 2,700
Meadows(2)(3).............................. 71 3,000
Montclair(3)............................... 128 8,500
Newport Village(3)......................... 48 6,250
Nicollet Ridge(3).......................... 97 7,925
Steeplechase Falls(2)(3)................... 124 12,650
Whispering Lake(3)......................... 150 8,900
Riverset II................................ -- --
------
SUBTOTAL PARTICIPATING SUBORDINATE MORTGAGE
BONDS..................................... 924
------
SUBORDINATE MORTGAGE BONDS:
Independence Ridge......................... 33 7,685
Locarno.................................... 21 4,305
------
SUBTOTAL SUBORDINATE MORTGAGE BONDS........ 54
------
OTHER BOND RELATED INVESTMENTS:
RITES:
Hunters Ridge/South Pointe(5)............. 50 --
Indian Lakes.............................. 87 6,690
Southgate Crossings....................... 110 8,253
Southwood................................. 269 15,480
Gannon portfolio.......................... 157 80,186
Riverset II(3)............................. 124 --
Stone Mountain(3).......................... 407 --
Charter House(6)........................... 87 --
Stone Mountain interest only strip......... -- --
Various interest rate swaps(7)............. -- --
Cinnamon Ridge total return swap(9)........ 17 --
Collateral account(10)..................... -- --
------
SUBTOTAL OTHER BOND RELATED INVESTMENTS.... 1,308
------
TOTAL INVESTMENTS....................... $5,292
======
</TABLE>

- ------------------------------
(1) These assets were pledged as additional collateral in conjunction with
securitization transactions.
(2) These bonds do not currently receive full payment of the stated base
interest rate.
(3) The underlying bonds are held in trusts; the Company owns all of the
custodial receipts related to the underlying bonds.
(4) These Mortgage Bonds were originally purchased by the Company in 1986, 1987
and 1988 and were refunded by the Company in February 1995.
(5) The Company sold this Investment in the first quarter of 1998.
(6) The underlying bond is held in a trust; the Company owns all of the
custodial receipts related to the underlying bond in the form of RITES(R),
P-Float Interests and Fixed Receipts.
(7) Interest income (expense) on interest rate swaps is recognized as an
adjustment of the hedged item.
(8) Amount represents notional amount of swap agreements.
(9) During the term of the swap, the Company will receive taxable income
approximating 0.625% of the face amount of the Cinnamon Ridge Mortgage Bond
from the total return swap. The Company is also currently earning a
servicing fee of 0.125% annually from this Property. In addition, the
Company has made a $120,000 taxable loan. The Company has not entered into
a binding contract to purchase the Cinnamon Ridge Mortgage Bond.
(10) The collateral account is part of a structured finance program developed by
the Federal National Mortgage Association to facilitate the credit
enhancement of Mortgage Bonds for which there is shared risk. The $1.3
million risk-sharing collateral account provides additional security for
these enhanced Mortgage Bonds within a collateralized pool; to the extent
this security is not needed to repay the Mortgage Bonds, it will be
disbursed to the Company following repayment of the Mortgage Bonds.

S-6
<PAGE> 8

The Company also has investments in certain taxable loans made in
connection with certain of the Properties, with an aggregate book value of
approximately $20.8 million at March 31, 1998. In addition, the Company conducts
origination and mortgage servicing activities which generated taxable fee
income, for financial reporting purposes, of $268,000 during the first three
months of 1998 and $1,169,000 in fiscal year 1997. The Company has recognized
net gains on sale of $321,000 during the first three months of 1998 and
$2,824,000 in fiscal year 1997. The Company has entered into interest rate
swaps, which are contracts exchanging an obligation to pay a floating rate
approximating the rate on the floating rate trust certificates for an obligation
to pay a fixed rate. The Company has unrealized gain on such swap arrangements
aggregating approximately $91,000 at March 31, 1998.

On February 26, 1998, the Company entered into a put option with Merrill
Lynch Capital Services, Inc. ("MLCS"). MLCS has the right to sell to the
Company, and the Company has the obligation to buy, a pool of participating
tax-exempt mortgage revenue bonds with a combined principal amount of
approximately $120 million for a purchase price of $105 million, for which MLCS
has the obligation to provide $95 million of proceeds through a securitization.
Under this three year option, the Company receives an annual payment of
approximately $240,000, for assuming the purchase obligation. See "The
Investments -- Other Investment Related Transactions."

THE OFFERING

<TABLE>
<S> <C>
Common Shares offered......... 2,500,000
Common Shares outstanding
after the Offering(1)(2).... 16,877,510
Use of proceeds............... To fund future investment activity. See "Use of
Proceeds."
NYSE symbol................... "MMA"
</TABLE>

- ------------------------------
(1) The Company also had 22,940 Preferred Shares, 11,860 Preferred CD Shares and
2,000 Term Growth Shares issued and outstanding as of March 31, 1998. See
"The Company -- General."
(2) Excludes 801,621 Common Shares reserved for issuance pursuant to the
Company's 1996 Share Incentive Plan and 1996 Non-Employee Directors' Share
Plan; the Company has awarded options relating to 743,304 of such Common
Shares. There have been no awards made to eligible participants under the
1998 Share Incentive Plan or the 1998 Non-Employee Directors' Share Plan.

DISTRIBUTIONS

On June 24, 1998, the Company's Board of Directors raised the Company's
regular quarterly dividend from $0.375 to $0.380 per Common Share payable on
August 3, 1998 to Shareholders of record on July 6, 1998. This represents an
annualized dividend of $1.52 per Common Share and an indicated annualized yield
of 6.9% based on a closing price of 22.125 for the Common Shares on June 30,
1998. Approximately 85% of the Company's income in 1997 was tax-exempt,
excluding capital gains.

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<PAGE> 9

SUMMARY FINANCIAL DATA

The following table sets forth summary financial data for the Company and
its predecessor. The following information should be read in conjunction with
the financial statements and notes thereto included or incorporated by reference
herein. The financial data as of and for the years ended December 31, 1997, 1996
and 1995 have been derived from audited financial statements incorporated by
reference herein.

The financial data at March 31, 1998 and for the three months ended March
31, 1998 and March 31, 1997 are derived from unaudited consolidated financial
statements incorporated by reference herein. The unaudited financial information
includes all adjustments (consisting of normal recurring adjustments) that the
Company's management considers necessary for fair presentation of the financial
position and results of operations for these periods. Operating results for the
three months ended March 31, 1998 are not necessarily indicative of the results
to be expected for the entire year ending December 31, 1998.

<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31, YEAR ENDED DECEMBER 31,
----------------------- ------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(in thousands, except share and per share amounts)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest on investments............ $ 5,292 $ 4,019 $ 17,219 $ 13,859 $ 13,363
Interest on working capital loans,
demand notes and other loans..... 1,080 805 3,500 1,343 211
Interest on short term
investments...................... 372 270 627 1,096 366
Net gain on sale................... 321 -- 2,824 -- 623
Equity investment in MLP II
Acquisition LP................... -- -- -- 2,141 3,150
Other income....................... 268 250 1,169 231 --
---------- ---------- ---------- ---------- ----------
Total revenues..................... 7,333 5,344 25,339 18,670 17,713
Total expenses(1).................. 1,160 812 6,542 7,802 4,509
---------- ---------- ---------- ---------- ----------
Net income......................... $ 6,173 $ 4,532 $ 18,797 $ 10,868 $ 13,204
========== ========== ========== ========== ==========
Net income allocated to Common
Shares (subsequent to July 31,
1996)............................ $ 5,530 $ 3,949 $ 16,739 $ 6,275 n/a
========== ========== ========== ==========
Basic net income per Common Share
(subsequent to July 31, 1996).... $ 0.41 $ 0.36 $ 1.51 $ 0.56 n/a
========== ========== ========== ==========
Basic weighted average shares
outstanding (subsequent to July
31, 1996)........................ 13,336,903 11,093,415 11,094,881 11,122,705 n/a
Diluted net income per Common
Share............................ 0.41 0.36 1.50 0.56 n/a
========== ========== ========== ==========
Diluted weighted average shares
outstanding...................... 14,098,161 11,095,175 12,537,517 11,123,048 n/a
========== ========== ========== ==========

MARCH 31, 1998
------------------------------------
AS
ACTUAL ADJUSTED(2)
---------- ----------
(in thousands)
BALANCE SHEET DATA:
Total assets....................... $306,848 $358,887
Total liabilities.................. $ 1,861 $ 1,861
Total shareholders' equity......... $304,987 $357,026
</TABLE>

- ------------------------------
(1) Total expenses includes other than temporary impairments related to
investments in Mortgage Bonds of approximately $2.6 million and $4.0 million
for the years ended December 31, 1997 and 1996, respectively.
(2) Reflects the issuance of 2,500,000 Common Shares by the Company in the
Offering at an assumed offering price of $22.125 per share, and the use of
proceeds as described under "Use of Proceeds."

S-8
<PAGE> 10

RISK FACTORS

In addition to the other information contained in this Prospectus
Supplement and the accompanying Prospectus, the following risk factors, and
those in the accompanying Prospectus under "Risk Factors," should be carefully
considered in evaluating the Company and its business before purchasing any of
the Common Shares offered hereby.

REAL ESTATE MARKET CONDITIONS RISK

The Company's business may be adversely affected by periods of economic
slowdown or recession which may be accompanied by declining property values or
performance, particularly declines in the value or performance of multifamily
properties. Any material decline in property values increases the loan-to-value
ratios of Mortgage Bonds previously issued, thereby weakening collateral
coverage and increasing the possibility of a loss in the event of default. With
respect to a significant portion of the Investments, a decline in performance of
the related underlying multifamily properties will directly affect the Company's
interest income. Significant declines in the late 1980s and early 1990s in the
value of the underlying Properties and in cash flow on the Properties led to
defaults on most of the bonds held by the Company's predecessor and to
restructuring, refinancing or extension of many of such investments. There can
be no assurance that similar problems may not occur in the future.

Each Mortgage Bond owned by the Company is secured by an assignment to the
Company of the related mortgage loan, which in turn is secured by a mortgage on
the underlying property and assignment of rents. Although such Mortgage Bonds
are issued by state or local governments or their agencies or authorities, the
Mortgage Bonds are not general obligations of any state or local government, no
government is liable under the Mortgage Bonds, nor is the taxing power of any
government pledged to the payment of principal or interest under the Mortgage
Bonds. In addition, the underlying mortgage loans are nonrecourse, which means
that the owners of the underlying Properties, which are also the borrowers under
the mortgage loans, are not liable for the payment of principal and interest
under the loans except to the extent of cash flow from, and value of, the
Properties. Accordingly, the sole source of funds for payment of principal and
interest under the Mortgage Bonds is the revenue derived from operation of the
Properties and amounts derived from the sale, refinancing or other disposition
of such Properties.

INTEREST RATE RISKS; HEDGING RISKS

An increase in market interest rates may lead prospective purchasers of the
Company's existing assets or holders of the Company's debt or equity securities
to demand a higher annual yield than they would have otherwise and could
increase the cost to the Company of borrowing funds for investment in additional
assets, any of which could adversely affect the amount of funds available for
distribution to the holders of Securities. Any increase in market interest rates
also may reduce the market value of the Company's assets and the market value of
the Securities.

The results of the Company's operations depend on, among other things, the
level of net interest income derived from the difference between the return on
the securitized Mortgage Bonds and the short term floating rate payments owed to
the floating rate certificate holders. While the interest rate on the
securitized Mortgage Bonds is fixed, the third party holders of the floating
rate certificates in the securitization are paid interest at a floating rate
that is reset periodically. The Company, as holder of the residual trust
interest, receives the balance of interest on the Mortgage Bonds not used to pay
the third party trust certificates. Rising short term interest rates would
therefore reduce the net interest income available to the Company, and possibly
result in a loss.

Further, in an inverted yield curve environment, where short term
tax-exempt interest rates are higher than long term tax-exempt interest rates,
the return to the Company, as a purchaser of the residual trust interests on
newly acquired and securitized Mortgage Bonds, may be lower than the short term
floating tax-exempt interest rate payments owed to the floating rate certificate
holders. As a result, this may significantly reduce the Company's investment
return on such residual interests.

S-9
<PAGE> 11

are for limited time periods which generally match the anticipated prepayment
date of the underlying Mortgage Bond. However, there is no certainty that
prepayment will occur at the end of the swap period, and the swap period is
typically shorter than the term of the underlying bond. There can be no
assurance that the Company will be able to acquire interest rate swaps at
favorable prices, or at all, when the existing arrangements expire, in which
case the Company would be fully exposed to the interest rate risks described
above.

To the extent that, from time to time, the Company repurchases the short
term floating rate interests issued in connection with a securitization
transaction, the Company may elect to keep in place any related swap to the
extent that such swap is expected to be used in the future as a hedge with
respect to another transaction. To the extent that a swap is not terminated at
such time as the Company repurchases short term floating rate interests, the
Company may be exposed to interest rate risks under such swap, particularly in a
declining interest rate environment.

Developing an effective interest rate risk management strategy is complex
and no management strategy can completely insulate the Company from all
potential risks associated with interest rate changes. In addition, hedging
involves transaction costs. In the event the Company hedges against interest
rate risks, the Company may substantially reduce its net income or adversely
affect its financial condition. Furthermore, there can be no assurance that the
Company's interest rate hedging activities will be effective.

In the event that the Company purchases interest rate swaps or other
instruments, the Company must rely for payment under these agreements on the
creditworthiness of the counterparties which to date has been Merrill Lynch
Capital Services, Inc. ("MLCS"). In addition, certain of the owners of the
Properties have entered into interest rate swaps with Credit Suisse Financial
Products under which the Property owner pays the counterparty a variable rate up
to the cap in exchange for the counterparty's obligation to pay a fixed rate. To
the extent that short term interest rates increase, the cash flow on such
Property which may be distributed to the holder of the participating Mortgage
Bond may decrease. There can be no assurance any third party will honor its
payment obligations under the agreements. If the provider of such swap or other
instrument becomes financially unsound or insolvent, the Company may be forced
to unwind such swap or other instrument with such provider and may take a loss
thereon. Further, the Company could suffer the adverse consequences against
which the hedging transaction was intended to protect. No assurance can be given
that the Company can avoid risks of third party insolvency.

The Company may also engage in limited amounts of buying and selling of
other mortgage hedging securities or other hedging products, including, but not
limited to, buying and selling financial futures contracts and options on
financial futures contracts and trading forward contracts in order to hedge
commitments. These types of hedging devices and mortgage instruments are complex
and can produce volatile results. Accordingly, there can be no assurance that
the Company's hedging strategy will have the desired beneficial impact on the
Company's cash flow and on the resulting distribution yield of the Securities.

TAX RISKS

Publicly Traded Partnership Status. The Company operates as a partnership
for federal income tax purposes, which permits the Company to pass through its
items of income and deduction to Shareholders, including its tax-exempt income.
The listing of the Common Shares on the NYSE causes the Company to be treated as
a "publicly traded partnership" for federal income tax purposes. A publicly
traded partnership is generally taxable as a corporation unless 90 percent or
more of its gross income is "qualifying" income (which includes interest,
dividends, real property rents, gains from the sale or other disposition of real
property, gain from the sale or other disposition of capital assets held for the
production of interest or dividends, and certain other items). Rogers & Wells
LLP ("Rogers & Wells"), counsel to the Company, has advised the Company that,
although the issue is not free from doubt, tax-exempt interest income
constitutes qualifying income for this purpose. Company management has
represented that in all relevant prior years of the Company's (and its
predecessor's) existence that at least 90 percent of its gross income was
qualifying income and has covenanted to conduct the Company's operations in a
manner such that at least 90 percent of its gross income, including tax-exempt
interest, will constitute qualifying income. Based upon and subject to the
foregoing representation and the discussion below entitled "Federal Income Tax
Considerations -- General," in the opinion of

S-10
<PAGE> 12

Rogers & Wells, although the issue is not free from doubt, the Company (and its
predecessor) has been and is properly treated as a partnership for federal
income tax purposes. If for any reason less than 90 percent of the Company's
gross income constitutes qualifying income, items of income and deduction would
not pass through to the Shareholders and the Shareholders would be treated for
federal income tax purposes as stockholders in a corporation. The Company would
be required to pay income tax at regular corporate rates on any portion of its
net income that did not constitute tax-exempt income. Distributions by the
Company to the Shareholders would constitute ordinary dividend income taxable to
such holders to the extent of the Company's earnings and profits, which would
include its tax-exempt income, as well as any taxable income it might have, and
the payment of these dividends would not be deductible by the Company. See
"Federal Income Tax Considerations -- General -- Publicly Traded Partnership
Rules."

Tax-Exemption of the Mortgage Bonds. On the date of initial issuance of
all but one of the Mortgage Bonds, bond counsel or special tax counsel rendered
its opinion to the effect that, based on the law in effect on the date of
issuance, interest on the Mortgage Bond is excludable from gross income for
federal income tax purposes, except with respect to any Mortgage Bond (other
than a Mortgage Bond, the proceeds of which are loaned to a Section 501(c)(3) of
the Code (as defined below) charitable organization) during any period in which
it is held by a "substantial user" of the Property or a "related person." Such
opinions were conditioned on compliance with state and local usury laws. With
respect to one Mortgage Bond, bond counsel rendered its opinion that, based on
the law in effect on the date of issuance, base interest is excludable from
gross income for federal income tax purposes, except with respect to any period
in which it is held by a substantial user of the Property or a related person.
The Company believes that the contingent interest payable on such Mortgage Bond
is taxable. The Internal Revenue Code of 1986, as amended (the "Code"),
establishes certain requirements which must be met subsequent to the issuance
and delivery of Mortgage Bonds in order that interest on such Mortgage Bonds
remain excluded from gross income for federal income tax purposes. Among these
continuing requirements are restrictions on the investment and use of proceeds
on the Mortgage Bonds and, for Mortgage Bonds the proceeds of which are loaned
to a charitable organization (as described in Section 501(c)(3) of the Code),
the continued exempt status of such charitable organization obligor. Failure to
comply with the continuing requirements of the Code may cause interest on such
bonds to be includable in gross income for purposes of federal income tax
retroactive to the date of issuance, regardless of when such noncompliance
occurs. Each issuer of the Mortgage Bonds and the conduit borrower of the
Mortgage Bonds has covenanted in the Arbitrage Compliance Agreement or similar
document with respect to such Mortgage Bonds to comply with certain procedures
and guidelines as designed to insure satisfaction with the continuing
requirements of the Code. Rogers & Wells has not passed upon, and does not
assume any responsibility for, but rather has assumed the continuing correctness
of, the opinions of bond counsel or special tax counsel relating to the
tax-exemption of interest (or base interest) on the Mortgage Bonds, and has not
independently verified whether any events or circumstances have occurred or
intervened since the original issuance of the Mortgage Bonds that would
adversely affect such opinion of bond counsel or special tax counsel. However,
as of the date of this Prospectus Supplement, none of the Company, its
affiliates or Rogers & Wells will have knowledge of any events that may
adversely affect the tax-exempt status of the Mortgage Bonds, including any
notice that the Internal Revenue Service (the "IRS") considers interest on any
of the Mortgage Bonds to be includable in gross income.

The predecessor to the Company owned 22 Mortgage Bonds (the "Original
Bonds"). The Company refunded 11 of the Original Bonds in 1996. Prior to such
refunding, the obligors on such Original Bonds failed to make timely debt
service payments, resulting in defaults on such Original Bonds. In addition, the
obligors on five of the Original Bonds which were not refunded have defaulted on
their obligations and continue to be in default. Although it has not completed
foreclosure proceedings in any cases, the Company's management believes that it
has exercised and continues to exercise prudent business practices to enforce
its creditor's rights under the applicable bond documents, including initiating
foreclosure proceedings on the mortgaged properties when advisable. A risk
exists that the IRS may treat the Company's actions to exercise, or not to
exercise, its rights under one or more of the mortgages of the defaulted
Mortgage Bonds as constituting a material modification and, therefore, conclude
that such Mortgage Bonds were reissued for federal income tax purposes. If the
IRS were successful in maintaining this position, interest on such Mortgage
Bonds probably would be taxable for federal income tax purposes. The Company has
been advised by counsel that the

S-11
<PAGE> 13

Company's actions (or failures to act) taken in connection with the default of
certain Mortgage Bonds would not, under then-published rulings, decisions,
statutes and regulations, result in a reissuance of such Mortgage Bonds. Rogers
& Wells has not passed upon, and does not assume responsibility for, but rather
has assumed the correctness of, counsel's advice to the Company on this issue.
Unlike a ruling from the IRS, however, the advice of counsel has no binding
effect or official status of any kind, and no assurances can be given that the
conclusions reached will not be contested by the IRS or, if contested, will be
sustained by a court. The Company will contest any adverse determination by the
IRS on this issue. Any such contest will result in the incurrence of additional
expenses by the Company.

Treatment of Mortgage Bonds as Equity. Interest payable on certain of the
participating Mortgage Bonds depends upon the cash flow from the Properties and
proceeds from the sale of the Properties. If the Mortgage Bonds were determined
to involve an equity investment in the respective Properties because of this
feature, all or part of the interest on the Mortgage Bonds, including base
interest, would not qualify as tax-exempt interest for federal income tax
purposes. Prior to the acquisition of the Original Bonds, the Company received
opinions of counsel to the effect that, based upon certain assumptions described
in such opinions, more likely than not, each Original Bond will be treated for
federal income tax purposes as representing indebtedness and that no portion of
such Mortgage Bond or any payments receivable thereunder will be considered (i)
an equity interest in the conduit Borrower, (ii) an equity interest in a venture
between the conduit borrower and the Company or (iii) an ownership interest in
the Properties. The Company has received similar opinions with respect to each
of the 12 Participating Subordinate Mortgage Bonds and one additional
Participating Mortgage Bond. With respect to five of the Original Bonds which
have defaulted, but were not refunded as part of the Financing (as herein
defined), the Company has not received any updated opinions of counsel with
respect to the issue of whether the underlying Mortgage Bonds should be treated
as equity. The original opinions issued with respect to certain of these
Mortgage Bonds indicated that the Mortgage Bonds were, more likely than not,
indebtedness, but included a qualification that no opinion was expressed with
respect to the characterization of the Mortgage Bonds as indebtedness or equity
under circumstances of a default. Unlike a ruling from the IRS, however, an
opinion of counsel has no binding effect or official status of any kind, and no
assurances can be given that the conclusions reached in such opinion will not be
contested by the IRS or, if contested, will be sustained by a court. The Company
will contest any adverse determination by the IRS on this issue. Any such
contest will result in the incurrence of additional expenses by the Company.

A number of the opinions rendered at the time of the issuance of the
Original Bonds were rendered by Piper & Marbury L.L.P., counsel for the
underwriters ("Piper & Marbury"), who was then acting as counsel for the
Company. Except as described in the preceding sentence, none of the opinions
described in the preceding paragraph were rendered by Rogers & Wells or Piper &
Marbury, and neither has passed on or assumes any responsibility for the
opinions of other counsel on this issue. Moreover, neither Rogers & Wells nor
Piper & Marbury has made any independent determination as to whether any events
or circumstances have occurred or intervened since the original issuance of the
"indebtedness" opinions that would adversely affect such opinions (including the
defaults described above).

Investment in New Assets. The Company has been making additional
investments in Mortgage Bonds and related assets and entering into hedging
transactions, such as interest rate swaps. Such investments may produce income
that is subject to federal income taxation and not "qualifying income" for
purposes of the publicly traded partnership rules. In addition, the Company's
Investments may include investments in Mortgage Bonds that need to be
restructured and remarketed. The Company could recognize a taxable gain (or
loss) upon any such restructuring and remarketing of the Mortgage Bonds even
though such restructuring does not result in any cash proceeds. In addition,
various conditions would have to be met to insure that the restructuring and
remarketing of the Mortgage Bonds would not cause the loss of the tax-exempt
status of interest on such bonds. Any taxable income produced by other assets or
taxable gain recognized upon the restructuring and remarketing of new
investments in Mortgage Bonds will be allocated solely to the Shareholders and
not to the owners of either the Preferred Shares or the Preferred CD Shares.

Taxable Income. The Company currently invests primarily in tax-exempt
investments; however, the Company will hold and may invest in some assets and
engage in certain operations that generate income that is not exempt from
federal income tax, including capital gains from the sale of Investments.
Further, as

S-12
<PAGE> 14

described above, the IRS may seek to recharacterize a portion of the Company's
tax-exempt income as taxable income. A Shareholder's distributive share of such
income will be taxable to the Shareholder, regardless of whether an amount of
cash equal to such distributive share is actually distributed. Further, although
the Company believes it to be unlikely, Shareholders may owe taxes relating to
their investments in the Company that exceed distributions made by the Company.
See "Federal Income Tax Considerations."

Limitations on Business Activities. As stated above, the Company will not
be taxable as a corporation under the publicly traded partnership rules provided
it continues to satisfy the 90 percent qualifying income exception. In
determining whether interest is treated as qualifying income under these rules,
interest income derived from the active conduct of a lending, banking or similar
business is not treated as qualifying income. Company management has represented
and covenanted that it is acting as an investor with respect to its Investments
and that it has not and will not engage in a lending, banking or similar
business. If for any reason more than 10 percent of the Company's gross income
is derived from non-qualified sources, including interest derived from the
conduct of a lending, banking or similar financial business, the Company will be
taxable as a corporation rather than as a partnership for federal income tax
purposes, with the attendant negative consequences to the Company and the
Shareholders described above. See "-- Publicly Traded Partnership Status."

Substantial User Limitation. Interest on a Mortgage Bond, other than a
Mortgage Bond the proceeds of which are loaned to a charitable organization,
will not be excluded from the gross income during any period in which the
Company is a "substantial user" of the corresponding Property or a "related
person" to a "substantial user." A "substantial user" of a Property would
include the conduit borrower, and any other person or entity who uses the
Property on other than a de minimis basis. The Company would be a related person
to a substantial user for this purpose if, among other things, a substantial
user were also a holder of Preferred Shares, Preferred CD Shares or Common
Shares, the Dissolution Shareholder, the Special Shareholder, or any person who
is a parent, child or spouse of any of the foregoing. A partner of a conduit
borrower or owner of a Property, among other people, will, for this purpose, be
a "related person" to a "substantial user" of the Property. The Company has
received opinions and/or advice with respect to some of its Mortgage Bonds to
the effect that the Company is not a substantial user or a related person
thereto. There exist certain levels of direct or indirect common ownership
between the Company and certain of the obligors of the Mortgage Bonds which were
considered when the Company received opinions and/or advice that it is not a
related person of a substantial user of the facilities financed by such Mortgage
Bonds. Rogers & Wells has not passed upon, nor assumed any responsibility for,
but rather, except as provided in the next paragraph, has assumed the
correctness of such opinions and/or advice. However, based upon discussions with
Company management, as of the date of this Prospectus Supplement, Rogers & Wells
will not have knowledge of any facts or events that would adversely affect the
conclusions underlying such opinions and/or advice.

As of the date of the Offering, three of the officers of the Company own,
directly or indirectly, collectively more than 50 percent of the profits and/or
capital interests in partnerships which are the obligors on 13 Mortgage Bonds
owned by the Company (the "Affected Partnerships"). The Company has represented
that none of its officers who own interests in the Affected Partnerships
(including any family members or otherwise related parties) own, in the
aggregate, as of immediately after the consummation of the Offering, more than
five percent of the Company's capital or profits interests. In the opinion of
Rogers & Wells, based upon the representation of the Company and the assumptions
and qualifications discussed below, upon the consummation of the Offering, the
Company will not, by virtue of any equity investment in the Company by any of
the officers of the Company, be treated as a related person of any substantial
user of any of the facilities financed with the proceeds of a Mortgage Bond
relating to an Affected Partnership. In issuing the foregoing opinion, Rogers &
Wells has assumed that the representation of the Company is true and correct and
has not made any independent determination as to the equity ownership of the
Company or the Affected Partnerships. The foregoing opinion assumes that the
Mortgage Bonds will be treated as indebtedness for federal income tax purposes,
interest on such Mortgage Bonds is excludable from gross income for federal
income tax purposes except during any period in which it is held by a
substantial user of the Property or related person thereto, and the Company is
not treated as a substantial user of the Property for any reason. Unlike a
ruling from the IRS, however, the opinion of Rogers & Wells has no binding
effect or official status of any kind, and no assurances can be given that the
conclusion reached will not be contested by the IRS or, if contested, will be
sustained by

S-13
<PAGE> 15

a court. The Company will contest any adverse determination by the IRS on the
substantial user issue. Any such contest will result in the incurrence of
additional expenses by the Company. The issue of whether the Company will be
treated as a related person for these purposes is a highly factual inquiry which
ultimately depends upon the direct and indirect ownership of the Company.
Because the Common Shares are publicly traded, there can be no assurance that
the Company will not be treated as a related person to a substantial user at a
future time.

Allocation of Taxable and Tax-Exempt Income. The Company will use various
accounting and reporting conventions to determine each Shareholder's allocable
share of income, gain, loss and deduction. The Company's allocation provisions
will be recognized for federal income tax purposes only if they are considered
to have "substantial economic effect" and are not retroactive allocations. There
is no assurance that the IRS will agree with the Company's various accounting
methods, conventions and allocation provisions, particularly the Company's
allocation of adjustments attributable to differences between the purchase price
of Common Shares and their shares of the Company's tax basis in its assets.
Because as a publicly traded partnership the Company may be unable to comply
with the literal requirements of the applicable Treasury regulations and because
certain of the Company's allocations may not have "substantial economic effect,"
Rogers & Wells is unable to express an opinion of these issues. However, the
Company does not expect that any reasonable adjustments which may be required by
the IRS would substantially increase the income allocable to Shareholders. See
"Federal Income Tax Considerations -- Certain Income Tax Considerations Relating
to the Company and the Shareholders -- Allocation of Income and Loss."

CERTAIN CONFLICTS

Management and certain affiliates, as well as an affiliate of Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), which is a
representative of the Underwriters in this Offering, own Term Common Shares,
which participate in the cash flow of the Company. The Term Common Shares, which
will be redeemed when the preferred equity of the Company is fully redeemed, are
expected to have little or no residual value, but while outstanding receive an
aggregate of 2% of the net cash flow of the Company. While these shares remain
outstanding, the holders may have conflicts of interest in determining whether
redemption of the preferred equity and Term Common Shares is in the best
interest of the Company, in particular due to the limited residual value of the
Term Common Shares. Holders of Term Common Shares also receive a greater return
as cash flow increases in total, regardless of whether per share cash flow
increases or there is a distribution to Shareholders. See "Underwriting" and
"Risk Factors -- Conflicts of Interest" in the accompanying Prospectus.

MARKET FOR COMMON SHARES MAY BE LIMITED AND MARKET PRICE MAY FLUCTUATE

The Common Shares are traded on the NYSE. There can be no assurance that
the price at which the Common Shares sell in the public market after the closing
of this Offering will not be lower than the price at which they are sold by the
Underwriters or that an active and liquid market for the Company's Common Shares
will be maintained. The Company's growth in net income per Common Share will be
derived in part from any positive spread between the yield on the Company's
Investments and the Company's cost of capital. Such positive spread will not
necessarily be greater in high interest rate environments than in low interest
rate environments. However, in periods of high interest rates, the net income of
the Company, and therefore the dividend yield on the Common Shares, may be less
attractive compared with alternative investments, which could negatively impact
the price of the Common Shares. If the dividend yield on the Company's Common
Shares declines, or if prevailing market interest rates rise, the market price
of the Common Shares may be adversely affected. Accordingly, fluctuations in
interest rates could have a material adverse effect on the trading market for
the Common Shares.

FORWARD-LOOKING STATEMENTS

This Prospectus Supplement, the accompanying Prospectus and the other
reports incorporated by reference contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from results or plans
expressed or implied by such forward-looking statements. Such factors include,
among other things, adverse changes in the real estate markets, risk of

S-14
<PAGE> 16

default under the Mortgage Bonds, financial condition and bankruptcy of tenants,
interest rate fluctuations, tax treatment of the Company and its Investments,
environmental/safety requirements, adequacy of insurance coverage, and general
and local economic and business conditions. Although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included or incorporated by reference in
this Prospectus Supplement or the accompanying Prospectus will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements, the inclusion of such information, including the
information presented herein and under "The Company -- Business and Growth
Strategies," should not be regarded as a representation by the Company or any
other person that the objectives and plans of the Company will be achieved.

S-15
<PAGE> 17

USE OF PROCEEDS

The net proceeds to the Company from the sale of the Common Shares offered
by this Prospectus, after payment of expenses related to the Offering and
underwriting discounts and commissions, are estimated to be approximately $52
million assuming an offering price of $22.125 per share. The Company intends to
use the entire amount of such net proceeds to acquire future investments.
Pending completion of such additional investments, part or all of the proceeds
will be used to repurchase P-Float Interests.

PRICE RANGE OF COMMON SHARES AND DIVIDEND HISTORY

The Common Shares began trading on the American Stock Exchange ("AMEX") on
August 30, 1996 under the symbol "MMA." On June 25, 1998, the Common Shares
ceased trading on the AMEX and began trading on the NYSE. The table below sets
forth the quarterly high and low closing price per share of the Common Shares as
reported on the AMEX and NYSE, respectively for the quarters indicated and the
dividends paid by the Company with respect to each such period. Prior to 1997,
the Company paid a semiannual dividend. In 1997, the Company adopted a quarterly
dividend payment cycle.

<TABLE>
<CAPTION>
CLOSING PRICE
PER COMMON SHARE
-----------------------
QUARTER ENDED HIGH LOW DIVIDENDS
------------- ---- --- ---------
<S> <C> <C> <C>
1996:
Third Quarter(1)............................. $16.000 $14.125 --
Fourth Quarter............................... 16.750 13.875 $.6325(2)
1997:
First Quarter................................ 17.875 15.500 .3450
Second Quarter............................... 17.375 16.250 .3500
Third Quarter................................ 19.875 17.000 .3650
Fourth Quarter............................... 20.875 19.000 .3700
1998:
First Quarter................................ 21.750 19.625 .3750
Second Quarter............................... 22.125 20.625 .3800
------- ------- ------
</TABLE>

- ------------------------------
(1) Beginning August 30, 1996.

(2) This amount represents a $0.0700 distribution for the one month ended July
31, 1996 from the Company's predecessor and a $0.5625 distribution for the
five months ended December 31, 1996 from the Company.

On June 30, 1998, the last reported sales price of the Common Shares on the
NYSE was $22.125 per share. On April 29, 1998, the Company had 13,405
Shareholders of record.

On June 24, 1998, the Company's Board of Directors raised the Company's
regular quarterly dividend from $0.3750 to $0.3800 per Common Share payable on
August 3, 1998 to Shareholders of record on July 6, 1998. This represents an
annualized dividend of $1.52 per Common Share and an indicated annualized yield
of 6.9% based on a closing price of $22.125 for the Common Shares on June 30,
1998. Approximately 85% of the Company's income in 1997 was tax-exempt,
excluding capital gains. Including capital gains, this percentage was
approximately 79% in 1997.

The Company has a policy of distributing not less than 80% of the cash flow
allocable to Common Shares. However, this policy may be changed at any time by
the Board of Directors and future distributions by the Company will be at the
discretion of the Board of Directors and will depend on the Company's financial
condition, capital requirements and such other factors as the Board of Directors
deems relevant.

S-16
<PAGE> 18

CAPITALIZATION

The following table sets forth the capitalization of the Company, as of
March 31, 1998, and its adjusted capitalization after giving effect to the
Offering. The information set forth in the table should be read in conjunction
with the financial information included or incorporated by reference elsewhere
in this Prospectus Supplement.

<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------
AS
ACTUAL ADJUSTED(1)
------ -----------
(in thousands)
<S> <C> <C>
SHAREHOLDERS' EQUITY
Accumulated other comprehensive income(2)................. $ 27,698 $ 27,698
Preferred Shares.......................................... 16,816 16,816
Preferred CD Shares....................................... 6,248 6,248
Term Common Shares........................................ 125 125
Common Shares, net of treasury shares of $917 and unearned
compensation of $1,799................................. 254,100 306,139
-------- --------
TOTAL SHAREHOLDERS' EQUITY AND TOTAL CAPITALIZATION.... $304,987 $357,026
======== ========
</TABLE>

- ------------------------------
(1) Reflects the issuance of 2,500,000 Common Shares pursuant to this Offering
and the application of the net proceeds therefrom assuming an offering price
of $22.125 per share. Also reflects the deduction of aggregate estimated
underwriting discounts and commissions and expenses of the Offering in the
amount of approximately $3,270,000.

(2) Unrealized gain on Investments.

S-17
<PAGE> 19

THE COMPANY

GENERAL

The Company is a self-advised and self-managed limited liability company
which, together with its predecessor, since 1986, has been in the business of
originating, investing in and servicing tax-exempt instruments backed by
multifamily housing developments. The Company's primary objective is to maximize
Shareholder value through increases in tax-exempt distributable cash flow per
Common Share and appreciation in the value of its Common Shares. The Company's
Investments principally comprise interests in Mortgage Bonds which have been
issued by state and local governments or their agencies or authorities to
finance multifamily housing developments and other bond related investments. The
Company utilizes its unique combination of real estate and tax-exempt investment
expertise to select and aggressively manage its Investments. At June 30, 1998,
the Company owned a portfolio of Investments secured directly or indirectly by
52 Properties containing a total of 13,684 units and located in 13 states.
Participating Mortgage Bonds, where the amount of the interest payments made to
the Company is based, in part, on property performance, represented 67% of the
fair value of the Investments at March 31, 1998, providing the Company the
opportunity to realize greater returns if and to the extent property performance
improves.

The Company is the successor to the business of the SCA Tax-Exempt Fund
Limited Partnership (the "Partnership"), a closed-end limited partnership that
was merged into the Company in 1996 (the "Merger"). The Partnership commenced
operations in 1986 when approximately $264 million was invested in the 22
Original Bonds and related working capital loans. The business of the
Partnership was limited to the ownership and management of the Original Bond
portfolio and the related working capital loans. Because the Partnership's
management believed that additional investment opportunities existed to purchase
Mortgage Bonds at attractive prices, the Partnership raised gross proceeds of
$67.7 million through the sale of multifamily mortgage revenue bond receipts
(the "Receipts") in February 1995 (the "Financing"). The Receipts are
collateralized by a pool of 11 of the Partnership's original Mortgage Bonds all
of which related to properties that defaulted on their original debt
obligations. In the Financing, 11 bonds were refunded by the issuers and a
Series A Bond and a Series B Bond were exchanged for each of the Original Bonds.
The aggregate principal amount of the Series A Bonds and the Series B Bonds was
$67.7 million and $58.9 million, respectively. Subsequently, the Merger was
proposed and consummated. Following the Merger, the Company has used the
proceeds of the Financing, a January 1998 Common Share offering and
securitizations to make additional investments in Mortgage Bonds and similar
assets.

In connection with the Merger, holders of interests in the Partnership were
given the opportunity to elect to exchange their interests for Common Shares,
Preferred Shares ("Preferred Shares"), and/or Preferred Capital Distribution
Shares (the "Preferred CD Shares"). The Preferred Shares were structured to give
their holders a security substantially the same as their original Partnership
interests, as if the Financing had not occurred and without giving effect to
future financings. Thus, holders of Preferred Shares participate in their share
of income from the 22 Original Bonds as they existed immediately prior to the
Financing. The Preferred CD Shares give their holders the income they would have
received from their original Partnership interests, and provide for a
distribution of their pro rata share of the proceeds of the Financing as well as
future financings with respect to the 22 Original Bonds. The Common Shares,
unlike either the Preferred Shares or the Preferred CD Shares, were structured
to enable their holders to participate in all of the income from investment of
the proceeds of the Financing, as well as future financings, in addition to
their pro rata share of the income from the Original Bonds. As a result of the
election process, the holders of 8.09% of the outstanding limited Partnership
interests received Preferred Shares, the holders of 4.29% of the outstanding
limited Partnership interests received Preferred CD Shares, and the holders of
86.62% of the outstanding limited Partnership interests received Common Shares
of the Company. Also in connection with the Merger, the Company issued shares
(the "Term Growth Shares") which are allocated an aggregate of 2% of the
Company's net cash flow after allocation to the Preferred Shares and Preferred
CD Shares, and the holders of
S-18
<PAGE> 20

the Term Growth Shares are entitled to distribution of the cash flow
attributable to such allocable income before any distributions to the holders of
the Common Shares.

In 1995, the Company, having made the strategic decision described above,
transformed itself from an owner of a static portfolio of participating Mortgage
Bonds to an active investor which acquires and manages a diversified portfolio
of Mortgage Bonds and other bond related investments. To achieve this objective
the Company embarked on an acquisition growth strategy in 1996 which capitalizes
on the Company's management expertise in multifamily real estate and tax-exempt
bond financing as well as favorable interest rates and other market conditions.
Between January 1, 1997 and June 30, 1998 the Company has participated in
transactions with respect to approximately $280 million of Mortgage Bonds and
bond related assets. After subsequent securitization transactions, the Company's
balance sheet as of March 31, 1998 reflects retained interests in the
transactions completed as of March 31, 1998 of approximately $74 million. The
Company will continue to rely on its unique combination of real estate and
tax-exempt investment expertise to prudently manage the risks associated with
the Investments. Pursuant to its business plan, the Company expects to acquire
additional investments with the proceeds of this Offering. Pending completion of
such additional investments, part or all of the proceeds will be used to
repurchase P-Float Interests issued in connection with securitization
transactions.

The Company's senior management team, led by Mark K. Joseph, Chairman and
Chief Executive Officer, has an average of 13 years of experience with the
Company and its affiliates, and an average of 21 years of experience in the real
estate industry. Upon completion of the Offering, management and employees of
the Company will own approximately 10% of the outstanding Common Shares on a
fully diluted basis, assuming exercise of all outstanding options to purchase
Common Shares.

BUSINESS AND GROWTH STRATEGIES

The Company's primary objective is to maximize shareholder value through
increases in distributable tax-exempt cash flow per Common Share and
appreciation in the value of its Common Shares. The Company seeks to achieve its
growth objectives by acquiring, servicing and managing diversified portfolios of
Mortgage Bonds and other bond related investments. In particular, the Company's
growth plans include:

- Selective acquisitions of new Mortgage Bonds and other bond related
investments at attractive spreads over its cost of capital;

- Intensive asset management to collect debt service payments as and when
due under the Company's Mortgage Bonds and to maximize the collection of
contingent interest; and

- Balanced funding through the use of equity financing and securitizations
of its assets to finance the acquisition of Mortgage Bonds and other bond
related investments.

ACQUISITION STRATEGY

The Company will continue to pursue acquisition opportunities to the extent
that appropriate tax-exempt instruments are available on attractive terms that
are expected to enhance value for Shareholders. The Company believes that
currently there are a substantial number of Mortgage Bonds and similar
investments available at attractive prices in the following categories:

- Existing Mortgage Bonds as the underlying mortgages are refinanced. Of
the Recent Transactions, $145.3 million represents the refinancing of
existing Mortgage Bonds. There are a significant number of Mortgage Bonds
backed by multifamily properties which were originated in the late 1980s.
The Company believes, in light of the current interest rate environment,
that many of the obligors on these Mortgage Bonds are likely to consider
refinancing them. According to Muller Data Corporation, there are over
$19 billion of Mortgage Bonds eligible to be refinanced over the next two
years.

- Tax-exempt bonds issued for the benefit of charitable organization
obligors which own and manage multifamily housing. These properties
generally serve moderate-income families with incomes between 50% and 80%
of a region's median. Of the Recent Transactions, $104.4 million involved
transactions, the proceeds of which were loaned to charitable
organizations.
S-19
<PAGE> 21

- Tax-exempt bonds used to finance development or rehabilitation of
multifamily properties. Of the Recent Transactions, $28.8 million
represents the financing of development or rehabilitation of multifamily
properties. Of this amount, $18.6 million represents the initial
transactions in an arrangement with Boston Financial. Under this program,
the Company will provide Mortgage Bond financing and Boston Financial
will provide tax credit equity for the development or rehabilitation of
multifamily properties eligible for the affordable housing tax credit.

- Other portfolios of tax-exempt bonds and related investments backed by
multifamily housing properties which meet the Company's underwriting
criteria and target risk adjusted returns.

ASSET MANAGEMENT STRATEGY

The Company believes that its portfolio of Mortgage Bonds offers
opportunities for growth through the Company's asset management program, which
serves to increase cash flows available for debt service, particularly from its
25 existing participating Investments. On a portfolio wide basis, the Company
conducts ongoing site visits and inspections, management agent assessments,
budget reviews, market analyses and monitoring and monthly and annual operating
statement reviews, and also monitors the establishment and review of capital
plans. The occupancy of the Properties decreased slightly from 94.2% at December
31, 1997 to 93.7% at March 31, 1998 and the average monthly rental rate per unit
decreased slightly from $646 to $631 for the same periods. The decrease in the
average monthly rental rate per unit was caused by the addition of Property
information associated with the first quarter 1998 acquisitions. With respect to
those Properties collateralizing Investments at December 31, 1997, the average
monthly rental rate per unit increased slightly from $646 at December 31, 1997
to $652 at March 31, 1998. See "The Investments."

BALANCED FUNDING STRATEGY.

The Company uses a combination of equity financing and securitization of
its assets to finance the acquisition of Mortgage Bonds and other bond related
investments. Securitizations provide funds for acquisitions at a low cost
relative to the costs of other forms of financing, thereby generating attractive
spreads which benefit the Shareholders. These securitization programs involve
purchasing the residual interest in a trust into which Mortgage Bonds have been
deposited. The trust then sells P-Float Interests in the trust to third parties.
The Company typically receives the net proceeds from the sale of the floating
rate interests. The Company has received opinions of counsel to the effect that
the P-Float Interests are not debt for federal income tax purposes. To the
extent these transactions create interest rate risks, the Company engages in
interest rate swaps designed to reduce, but not eliminate such risks. Since
January 1, 1997, the Company has completed several securitization transactions
which as of March 31, 1998 had a weighted average ten-year cost of approximately
5.0%. From time to time, the Company may repurchase the P-Float Interests.

Securitizations enable the Company to:

- provide funds for acquisitions at a low cost relative to the costs of
other forms of financing;

- minimize negative exposure to fluctuations of interest rates; and

- maintain maximum flexibility to manage the Company's short term cash
needs.

S-20
<PAGE> 22

THE INVESTMENTS

The following table sets forth certain data with respect to the Company's
Investments as of March 31, 1998:
<TABLE>
<CAPTION>

S-21
<PAGE> 23

The following is a general description of the terms of the Company's
Investments and is qualified in its entirety by the more detailed description
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, as amended, and subsequent Quarterly Report on Form 10-Q, as
amended, each of which are incorporated by reference herein.

MORTGAGE BONDS

The proceeds of the Mortgage Bonds held by the Company were used to make
mortgage loans for the construction, acquisition or refinancing of multifamily
housing developments throughout the United States. The Company's rights and the
specific terms of the Mortgage Bonds are defined by the various loan documents
which were negotiated at the time of creation of the loans and the issuance of
the Mortgage Bonds. The underlying housing developments qualify as "qualified
residential rental properties" under Section 142(d) of the Code or, in the case
of charitable organization obligors, Section 145 of the Code, both of which
require that a specified percentage of rental units of these developments be
rented to persons whose incomes do not exceed certain local median income
levels. Accordingly, the Mortgage Bonds are "qualified bonds" within the meaning
of section 141(e) of the Code, and based upon the opinions issued by bond
counsel or special tax counsel at the time of initial issuance of the Mortgage
Bonds, interest paid on the Mortgage Bonds is exempt from federal income taxes.

The Company's rights under all of the Mortgage Bonds held by it are defined
by the terms of the related mortgage loans, which are assigned to the Company to
secure the payment of principal and interest under the Mortgage Bonds. These
assignments include assignments of mortgages on the underlying properties and of
rents.

Participating Mortgage Bonds. The participating Mortgage Bonds are
collateralized by nonrecourse participating first mortgage loans on multifamily
housing developments. Prepayment is prohibited for the first seven years of the
mortgage loan except for The Crossings Property, where prepayment is prohibited
for the first 12 years. The Company may also require prepayment of the mortgage
loan upon the occurrence of an event which would cause significant risk that the
interest on the bonds would be includable in gross income for federal income tax
purposes.

The 11 participating Original Bonds (i) bear interest at base rates
reflecting market conditions at the time the Company purchased each bond and
(ii) provide for contingent interest up to a maximum of 16%. Each loan provides
for contingent interest in an amount equal to the difference between the stated
base rate and 16%. Contingent interest is payable from 100% of the project's
cash flow until the Company's aggregate non-compounded interest rate equals the
base interest rate plus 1.5% to 2.5%, as the case may be, on each mortgage loan.
Remaining cash flow is divided between the property owner and the Company until
the Company reaches the 16% limit. With respect to the Mortgage Bond for The
Crossings, base interest is paid at 8% and contingent interest and contingent
principal amortization is payable pari passu from 50% of the project's cash flow
in excess of base interest up to 16%.

To the extent the aggregate interest for any year does not equal 16%, the
difference is deferred until the Property is sold or the loan is repaid. The
ability of the Company to collect contingent interest is dependent upon the
level of project cash flow and sale or repayment proceeds. Five participating
Mortgage Bonds, with respect to base interest, and all 12, with respect to
contingent interest, are on non-accrual status for accounting purposes whereby
income is recognized as and to the extent cash is collected.

Mortgage Bonds. The Mortgage Bonds bear interest at rates that are fixed
as stated in each bond.

Participating Subordinate Bonds. The participating subordinate Mortgage
Bonds are held in a trust. The Company owns all of the custodial receipts
related to the underlying bonds. Certain of the participating bonds are
subordinated in priority and right of payment to the payment of senior bonds and
demand notes. These bonds bear interest at either 16% or the greater of 3% or
the amount of available cash flow not exceeding 16%. All the participating
subordinate bonds are payable only to the extent of available cash flow from the
projects. Income is recognized as and to the extent cash is collected for all 12
participating subordinate bonds.

Subordinate Bonds. Subordinate bonds provide for payment of interest at
rates which are fixed. Payment is, however, subordinated to senior obligations.

S-22
<PAGE> 24

BOND RELATED INVESTMENTS

In a number of securitization transactions, Mortgage Bonds are deposited in
a trust sponsored by Merrill Lynch and the Company purchases an interest in such
trust, called RITES(R) (Residual Interest Tax-Exempt Securities Receipts). In
this program, a tax-exempt bond is placed in a trust and two types of securities
are sold by the trust, P-Float Interests and RITES(R). The P-Float Interests are
senior securities which bear interest at a floating rate that is reset
periodically to result in the sale of the P-Float Interests at par, which are
marketed to tax-exempt money market funds. The Company purchases RITES(R), which
receive the remaining interest on the deposited bond after payment of the
interest on the P-Float Interests and related securitization fees. The Company
may pledge additional Mortgage Bonds to secure repayment of the P-Float
Interests. The RITES(R) are subject to call provisions upon the occurrence of
certain events. The Company also purchases interest rate swaps as a hedging
strategy to limit its exposure to rising short term interest rates. Interest
rate swaps are contracts exchanging an obligation to pay a floating rate
approximating the rate on the floating rate trust certificates for an obligation
to pay a fixed rate. Such swaps generally cover the period until the date on
which the Company expects the underlying Mortgage Bond to be prepaid although
there is no certainty that prepayment will coincide with the termination of the
swap. The Company has unrealized net gain on such swap arrangements aggregating
approximately $91,000 at March 31, 1998. The Company also has, and may continue
to, directly purchase residual interests in trusts holding Mortgage Bonds which
the Company has not previously owned directly.

OTHER INVESTMENT RELATED TRANSACTIONS

The Company also has made loans with an aggregate book value of
approximately $20.8 million at March 31, 1998 in connection with various
Properties. The proceeds of these loans were used for bridge financing,
construction financing, purchasing interest rate swaps and payment of accrued
interest. Interest on such loans is subject to income taxation.

These loans include parity working capital loans which relate to the 11
Original Bonds not subject to the Financing. The terms of these loans are
identical to those of the related bonds. Interest on these 11 Original Bonds and
their related parity working capital is allocated pari passu. The Company also
owns demand notes, which represent obligations from the borrowers benefitting
from the Financing. The demand notes, which bear interest at the applicable
federal rate, are senior to the 11 participating subordinate Mortgage Bonds with
respect to interest and scheduled principal amortization.

These loans also include two short term taxable loans. An approximately
$9.5 million loan was funded by the Company on February 12, 1998 which is
collateralized by the Palisades Park apartments. This loan, which has a coupon
of 8.5%, is expected to be retired in the third quarter of 1998 when the
proceeds will be invested in a Mortgage Bond of approximately $9.6 million
secured by the same Property. An approximately $8.3 million loan was funded by
the Company on June 30, 1998 which is collateralized by the Olde English Manor
apartments. This loan, which has a coupon of 9% is expected to be retired during
1998 when the proceeds will be invested in a Mortgage Bond of approximately $8.3
million secured by the same Property.

The Company also has invested in a collateral account owned by MMACap, LLC,
a 99.9% subsidiary of the Company, which is part of a structured finance program
developed by the Federal National Mortgage Association to facilitate the credit
enhancement of Mortgage Bonds for which there is shared risk. The $1.4 million
risk-sharing collateral account provides additional security for these enhanced
Mortgage Bonds within a collateralized pool.

The Company has entered into a total return swap which replicates the total
return of the Cinnamon Ridge Mortgage Bond financed at a rate of 4.75%. During
the term of the swap, the Company will receive taxable income approximating
0.625% of the face amount of the Mortgage Bond from the total return swap. The
Company is also currently earning a servicing fee of 0.125% annually from this
Property. In addition, the Company has made a $120,000 taxable loan. The Company
has not entered into a binding contract to purchase the Cinnamon Ridge Mortgage
Bond.

$120 million for a purchase price of $105 million, of which MLCS has the
obligation to provide $95 million from a securitization similar to the
securitizations in which the Company currently participates. Under this three
year option, the Company receives an annual payment equal to 20 basis points of
the average principal amount of the bonds in the pool, or approximately $0.2
million, for assuming the purchase obligation.
The purchase price can be reduced by up to 10% in the event of a material
adverse change (as defined in the put agreement).

The Company may make investments or enter into activities in the future
which will generate taxable income. In addition, the Company conducts
origination and mortgage servicing activities which generated taxable fee
income, for financial reporting purposes, of $268,000 during the first three
months of 1998 and $1,169,000 for the fiscal year 1997.

S-24
<PAGE> 26

THE PROPERTIES

The Investments and the related loans are typically secured by multifamily,
garden-style apartments. The Properties are geographically diversified in the
Eastern United States, Midwest and West Coast. The following table sets forth
certain data regarding the Properties underlying the Investments held by the
Company as of June 30, 1998:

<TABLE>
<CAPTION>
AVG. MONTHLY RENT
OCCUPANCY PER APARTMENT UNIT
------------------------ -------------------------
MONTH MONTH MONTH MONTH
ENDED ENDED ENDED ENDED
MONTH/YEAR APARTMENT MARCH 31, DECEMBER 31, MARCH 31, DECEMBER 31,
APARTMENT COMMUNITY LOCATION ACQUIRED UNITS 1998 1997 1998 1997
------------------- -------- ---------- --------- --------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
PARTICIPATING MORTGAGE
BONDS:
Alban Place................. Frederick, MD Sep. 86 194 96.9% 90.7% $ 721 $ 767
Creekside Village........... Sacramento, CA Nov. 87 296 94.3 95.3 472 471
Emerald Hills............... Issaquah, WA Mar. 88 130 95.4 96.9 861 848
Lakeview Garden............. Miami, FL Sep. 87 180 95.8 96.1 628 617
Mountain View
(Willowgreen).............. Tacoma, WA Nov. 86 241 96.7 94.6 528 525
Newport-on-seven............ St. Louis Park, MN Aug. 86 167 96.0 97.6 864 856
North Pointe................ San Bernardino, CA Sep. 86 540 93.5 92.0 584 586
Northridge Park............. Salinas, CA Aug. 87 128 94.9 95.3 805 804
Riverset I(1)............... Memphis, TN Aug. 88 352 98.4 97.7 646 674
Southfork Village........... Lakeville, MN Jan. 88 200 97.0 98.0 819 817
Villa Hialeah............... Hialeah, FL Nov. 87 245 89.4 92.7 617 605
The Crossings............... Lithonia, GA Jan. 97 200 94.4 97.5 681 665
------
SUBTOTAL................... 2,873
------

MORTGAGE BONDS:
Hidden Valley............... Kansas City, MO Dec. 96 82 95.1 92.7 515 484
Oakbrook.................... Topeka, KS Dec. 96 170 92.4 88.2 446 430
Torries Chase............... Olathe, KS Dec. 96 99 94.9 98.0 443 430
------
SUBTOTAL................... 351
------

PARTICIPATING SUBORDINATE
MORTGAGE BONDS:
Barkley Place............... Ft. Myers, FL Feb. 95 156 96.5 95.5 1,742 1,740
Gilman Meadows.............. Issaquah, WA Feb. 95 125 95.4 96.0 860 841
Hamilton Chase.............. Chattanooga, TN Feb. 95 300 90.4 95.0 588 576
Mallard Cove I & II......... Everett, WA Feb. 95 198 97.7 96.0 640 629
Meadows..................... Memphis, TN Feb. 95 200 98.3 98.0 539 539
Montclair................... Springfield, MO Feb. 95 159 98.9 97.5 1,600 1,587
Newport Village............. Thornton, CO Feb. 95 220 93.6 97.3 690 680
Nicollet Ridge.............. Burnsville, MN Feb. 95 339 96.0 96.8 777 771
Steeplechase Falls.......... Knoxville, TN Feb. 95 450 91.1 89.8 589 587
Whispering Lake............. Kansas City, MO Feb. 95 384 95.0 96.6 576 569
Riverset II(1).............. Memphis, TN Jan. 96 148 97.8 96.0 630 634
------
SUBTOTAL................... 2,679
------

SUBORDINATE MORTGAGE BONDS:
Independence Ridge.......... Independence, MO Aug. 96 336 97.0 99.1 505 469
Locarno..................... Kansas City, MO Aug. 96 110 100.0 99.1 765 734
------
SUBTOTAL................... 446
------

OTHER BOND RELATED
INVESTMENTS:
Indian Lakes................ Virginia Beach, VA July 97 296 90.9% 92.9% $ 644 $ 644
Riverset II(1).............. Memphis, TN Jan. 96 -- -- -- -- --
Charter House............... Lenexa, KA Dec. 96 280 97.1 94.0 545 509
Stone Mountain.............. Stone Mountain, GA Oct. 97 722 93.5 95.0 654 651
Southgate Crossings......... Columbia, MD June 97 215 95.1 96.3 770 760
Southwood................... Richmond, VA Nov. 97 1,286 85.1 87.6 469 468
Poplar Glen................. Columbia, MD June 97 191 97.6 98.4 759 753
Cinnamon Ridge.............. Egan, MN Dec. 97 264 100.0 97.0 759 750
Palisades Park(2)........... Universal City, TX Feb. 98 328 96.2 n/a 466 n/a
Gannon (Dade)(3)............ Miami, FL Feb. 98 1,252 94.7 n/a 610 n/a
Gannon (Broward)............ Lauderdale Lakes, FL Feb. 98 315 88.9 n/a 493 n/a
Gannon (St. Louis).......... St. Louis, MO Feb. 98 336 90.3 n/a 422 n/a
------
SUBTOTAL................... 5,485
------
TOTAL/WEIGHTED AVERAGE
INVESTMENTS.............. 11,834 93.7% 94.2% $ 631 $ 646
======
</TABLE>

S-25
<PAGE> 27

- ------------------------------
(1) The Company owns a participating bond, a participating subordinate bond and
a RITES(R) interest collateralized by the Riverset property.

(2) Interest on the loan secured by this Property is taxable.

(3) The Gannon (Dade) portfolio comprises eight properties.

(4) Occupancy and Average Monthly Rent Per Apartment Unit data is not included
here because the Company acquired the Investments collateralized by these
Properties subsequent to March 31, 1998.

S-26
<PAGE> 28

MANAGEMENT

The directors and executive officers of the Company as of July 1, 1998 are
as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
Mark K. Joseph....................... 59 Chairman of the Board, Chief Executive Officer and
Director
Michael L. Falcone................... 36 President and Chief Operating Officer
Thomas R. Hobbs...................... 57 Senior Vice President and Secretary
Gary A. Mentesana.................... 33 Senior Vice President and Chief Financial Officer
Earl W. Cole, III.................... 44 Vice President
Jesse M. Chancellor.................. 41 Vice President
Richard A. Monfred................... 37 Vice President
Angela A. Barone..................... 37 Controller
Charles Baum......................... 56 Director
Richard O. Berndt.................... 55 Director
Robert S. Hillman.................... 58 Director
William L. Jews...................... 46 Director
Carl W. Stearn....................... 65 Director
</TABLE>

MARK K. JOSEPH is the Founder, Chairman of the Board, Chief Executive
Officer and a director of the Company. He served as the President and a director
of the managing general partner of the Partnership since 1986. He has been in
the real estate business for over three decades. He is also the Founder and
Chairman of the Shelter Group, a privately held real estate development and
management company.

MICHAEL L. FALCONE is the President and Chief Operating Officer of the
Company (having previously served as its Executive Vice President). As Chairman
of the Operations Committee, Mr. Falcone has managed the day-to-day operations
of the Company since the Merger.

THOMAS R. HOBBS is a Senior Vice President and Secretary of the Company.
Mr. Hobbs serves as Chairman of the Credit Committee and directs the
administrative, board relations and investor services operations of the Company.

GARY A. MENTESANA is a Senior Vice President and Chief Financial Officer of
the Company. Mr. Mentesana is responsible for the financial operations of the
Company. He manages the capital market activities of the Company. Mr. Mentesana
is a certified public accountant.

EARL W. COLE, III is a Vice President of the Company. Mr. Cole directs the
asset management and loan servicing operations of the Company. He served in a
similar capacity for the managing general partner of the Partnership from 1989
to 1996.

JESSE M. CHANCELLOR is a Vice President of the Company. Mr. Chancellor is
responsible for originating tax-exempt multifamily bonds on a national basis.

RICHARD A. MONFRED is a Vice President of the Company. Mr. Monfred is
responsible for originating tax-exempt multifamily bonds on a national basis.

ANGELA A. BARONE is the Controller of the Company. Ms. Barone has overall
responsibility for financial and tax reporting, Security and Exchange Commission
and stock exchange compliance and management of the Company's temporary
investments. Ms. Barone is a certified public accountant.

CHARLES BAUM has been a director of the Company since 1996. Mr. Baum is
Chairman and Chief Executive Officer of the Morgan Group, Elkhart, Indiana, a
position he has held since August of 1992. The Morgan Group provides
transportation and other services to the manufactured housing and recreational
vehicle industries.

RICHARD O. BERNDT has been a director of the Company since 1996. Mr. Berndt
is the Managing Partner of the law firm of Gallagher, Evelius & Jones located in
Baltimore, Maryland. Mr. Berndt has extensive experience in corporate and real
estate law.

ROBERT S. HILLMAN has been a director of the Company since 1996. Mr.
Hillman is a member of the law firm of Whiteford, Taylor and Preston, L.L.P.,
which has offices in Baltimore, Maryland and Washing-

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ton, D.C. Formerly the Executive Partner of the 135-attorney firm, Mr. Hillman
has extensive experience in municipal finance, real estate, labor and employment
law.

WILLIAM L. JEWS has been a director of the Company since 1996. Mr. Jews is
President and Chief Executive Officer of Blue Cross/Blue Shield of Maryland
which employs approximately 3,200 people, insures 1.4 million people and has
annual revenues of approximately $1.9 billion.

CARL W. STEARN has been a director of the Company since 1996. Mr. Stearn
formerly served as Chairman and Chief Executive Officer of Provident Bankshares
Corporation, and Chief Executive Officer of Provident Bank of Maryland, a
community bank with $3.7 billion in assets. Mr. Stearn retired from the
Provident Bankshares Corporation and Provident Bank of Maryland on April 15,
1998.

Upon completion of the Offering, management and employees of the Company
will own approximately 10% of the outstanding Common Shares on a fully diluted
basis, assuming exercise of all outstanding options to purchase Common Shares.

FEDERAL INCOME TAX CONSIDERATIONS

The following is a summary of certain of the federal income tax
considerations which are material to a typical Shareholder who is a United
States citizen or resident and is based upon the Code, judicial decisions,
final, temporary and proposed Treasury regulations ("Regulations") and
administrative rulings and pronouncements of the IRS. No attempt has been made
to comment on all federal income tax matters affecting the Company or the
Shareholders. The discussion does not purport to deal with federal income or
other tax consequences applicable to an investment by certain categories of
Shareholders, including, without limitation tax-exempt organizations, dealers in
securities, banks, insurance companies, Subchapter S corporations, real estate
investment trusts and persons who are not citizens or residents of the United
States and is not to be construed as tax advice. In the opinion of Rogers &
Wells, the following discussion reflects the federal income tax considerations
which are material to a typical Shareholder. No ruling on the federal, state or
local tax considerations relevant to the issuance of the Common Shares, the debt
characterization of the Mortgage Bonds, the tax-exempt character of interest on
the Mortgage Bonds or other Investments the classification of the Company as a
partnership, or any other issue relevant to the Offering has been, or will be,
requested from the IRS or from any other tax authority. Moreover, no assurance
can be given that the conclusions reached by Rogers & Wells will be accepted by
the IRS or, if challenged by the IRS, sustained in court. This summary is based
on current legal authority and there is no assurance that legislative or
administrative changes or court decisions may not occur which would
significantly modify the statements and opinions expressed herein.

PROSPECTIVE INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS ABOUT THE
FEDERAL, STATE, LOCAL AND FOREIGN INCOME TAX CONSEQUENCES TO THEM PRIOR TO
PURCHASING THE COMMON SHARES.

GENERAL

Partnership Status of the Company. Based upon and subject to the
representations of the Company and discussion set forth below, the Company will
be classified as a partnership for federal income tax purposes. Under
Regulations that are effective as of January 1, 1997, in the case of a "business
entity" that was in existence prior to January 1, 1997, the claimed
classification of the entity will be respected for all periods prior to January
1, 1997 if (i) the entity had a reasonable basis for its claimed classification;
(ii) the entity and all members of the entity recognized the federal tax
consequences of any change in the entity's classification within sixty months
prior to January 1, 1997; (iii) neither the entity nor any member was notified
in writing on or before May 8, 1996, that the classification of the entity was
under examination (in which case the entity's classification will be determined
in the examination). Based on the representations of the Company that the IRS
did not examine the classification of the Company or its predecessor as a
partnership on or before May 8, 1996 and based upon its review of the Company's
Certificate of Formation and Operating Agreement (the "Operating Agreement") and
the limited partnership agreement of the Company's predecessor, Rogers & Wells
has advised the Company that in its opinion the Company and its predecessor
satisfy the foregoing requirements. However, taxation of the Company as a
partnership further depends upon its satisfying the "qualifying income"
exception for publicly traded partnerships described below.

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Publicly Traded Partnership Rules. The Company is a "publicly traded
partnership" because its Common Shares are traded on the NYSE. A publicly traded
partnership is generally taxable as a corporation unless 90 percent or more of
its gross income is "qualifying income." Qualifying income includes interest,
dividends, real property rents, gains from the sale or disposition of real
property, gains from the sale or other disposition of capital assets held for
the production of interest or dividends, and certain other items. Rogers & Wells
has advised the Company that, although the issue is not free from doubt,
tax-exempt interest constitutes qualifying income for this purpose. See "Risk
Factors -- Tax Risks -- Publicity Traded Partnership Status." In addition, under
Regulations proposed on December 19, 1997, income from notional principal
contracts such as interest rate swaps, caps and floors should be included in
qualifying income if the property, income or cash flow that measures the amounts
to which the partnership is entitled under such contracts would give rise to
qualifying income if held or received directly by the partnership. Company
management has represented that in all relevant prior years of the Company's
(and its predecessor's) existence that at least 90 percent of its gross income
was qualifying income and has covenanted to conduct the Company's operations in
a manner such that the Company will continue to satisfy the qualifying income
exception.

Interest, including tax-exempt interest, will not be treated as qualifying
income for these purposes if such interest is derived in the conduct of a
financial or insurance business. Company management has represented and
covenanted that the Company acts as an investor with respect to its Investments,
and has not and will not engage in the active conduct of a lending or banking or
similar financial business. If for any reason more than 10 percent of the
Company's gross income is attributable to non-qualifying income, including
interest income derived from the conduct of a lending, banking or similar
financial business, the Company would be taxable as a corporation rather than as
a partnership for federal income tax purposes. See "Risk Factors -- Tax Risks --
Limitations on Business Activities." Based upon and subject to the foregoing
representations and covenants and based upon its review of the Company's
Investments and operational activities as reported by Company management, in the
opinion of Rogers & Wells, although the issue is not free from doubt, the
Company (and its predecessor) has been and is properly treated as a partnership
for federal income tax purposes.

If the Company in any taxable year were taxable as a corporation for
federal income tax purposes, income and deductions of the Company will be
reported only on its tax return rather than being passed through to the
Shareholders, the Preferred Shareholders and Preferred CD Shareholders and the
Company would be required to pay income tax at corporate rates on any portion of
its net income that did not constitute tax-exempt income. In this regard, a
portion of the Company's tax-exempt income may be included in determining its
alternative minimum tax liability. The imposition of any such tax would reduce
the amount of cash available to be distributed to the Shareholders, the owners
of the Preferred Shares and the owners of the Preferred CD Shares. In addition,
distributions from the Company to the Shareholders, the owners of the Preferred
Shares and the owners of the Preferred CD Shares would be ordinary dividend
income taxable to such shareholders as portfolio income to the extent of the
Company's earnings and profits, which would include its tax-exempt income as
well as any other taxable income it might have. Payments of such dividends would
not be deductible by the Company.

CERTAIN INCOME TAX CONSIDERATIONS RELATING TO THE COMPANY AND THE SHAREHOLDERS

Taxation of the Company and the Shareholders. A partnership itself is not
subject to any federal income tax. Assuming the Company is classified as a
partnership for tax purposes, the Company itself will not be subject to federal
income tax and each Shareholder will be required to report on his or her
personal income tax return his or her distributive share of Company income,
gain, loss, deduction and items of tax preference and will be subject to tax on
his or her distributive share of the Company's taxable income, regardless of
whether any portion of that income is, in fact, distributed to such Shareholder.
Thus, Shareholders may be required to accrue income, without the current receipt
of cash if the Company does not make cash distributions while generating taxable
income from operations. Consequently, a Shareholder's tax liability with respect
to his or her share of Company taxable income may exceed the cash actually
distributed in a given taxable year.

The Company must file a federal information tax return on Form 1065. The
Company will provide information as to each Shareholder's distributive share of
the Company's income, gain, loss, deduction and items of tax preference on a
Schedule K-1 supplied to such Shareholder after the close of the Company's
fiscal
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<PAGE> 31

year. In preparing such information, the Company will utilize various accounting
and reporting conventions, some of which are discussed herein, to determine each
Shareholder's allocable share of income, gain, loss and deduction. There is no
assurance that the use of such conventions will produce a result that conforms
to the requirements of the Code, Regulations or IRS administrative
pronouncements and there is no assurance that the IRS will not successfully
contend that such conventions are impermissible. Any such contentions could
result in substantial expenses to the Company and the Shareholders as a result
of contesting such contentions, as well as an increase in tax liability to
Shareholders as a result of adjustments to their allocable share of the
Company's income, gain, loss and deduction. See "-- Tax Returns, Audits,
Interest and Penalties."

Tax-Exempt Income. The Company expects that a significant portion of its
revenues will constitute tax-exempt income. There are risks that certain amounts
of income that the Company will report as tax-exempt may not qualify for such
treatment. See "Risk Factors -- Tax Risks."

Allocation of Income and Loss. Article 4 of the Operating Agreement
allocates the Company's Profits and Losses (as defined in the Operating
Agreement) and corresponding items of taxable and tax-exempt income, gain, loss
and deductions (including nondeductible expenses). The allocations generally
allocate to holders of Common Shares all of the Company's items of income, gain,
loss and deductions other than items of income gain, loss and deduction
attributable to the SCATEF Assets (as defined in the Operating Agreement), which
are used to fund most or all distributions in respect of the Preferred Shares
and Preferred CD Shares. Additional items of income, gain, loss or deduction
(including tax-exempt interest) are allocated to the holders of Preferred Shares
and Preferred CD Shares to the extent the items attributable to the SCATEF
Assets are insufficient to account for the distributions payable to such holders
under Article 5 of the Operating Agreement.

The Company's allocation provisions will be recognized for federal income
tax purposes only if they are considered to have "substantial economic effect"
and are not retroactive allocations. If any allocation of an item fails to
satisfy the "substantial economic effect" requirement, the item will be
allocated among the Shareholders based on their respective "interests in the
Company," determined on the basis of all of the relevant facts and
circumstances. Such a determination could result in the income, gains, losses,
deductions, or credits allocated under the Operating Agreement being reallocated
among the Shareholders. Such a reallocation, however, would not alter the
distribution of cash flow under the Operating Agreement.

The Operating Agreement permits shareholders' capital accounts to be
increased or decreased to reflect the revaluations of property (at fair market
value) on the Company's books in connection with a contribution or distribution
of money or other property. Capital accounts will be restated to reflect the
issuance of additional Common Shares.

In addition, the Regulations and the Operating Agreement require that the
Company allocate tax items so as to take into account variations between the
purchase price of Common Shares pursuant to this Offering and the share of the
Company's tax bases of its assets (less debt) allocable to the newly issued
Common Shares. These rules are complex and their is no assurance the Company
will be able to comply with them fully.

When Common Shares are sold or exchanged, the Company is required to
account for the variation between the basis of the transferees in the Common
Shares and the transferee's share of the tax bases of the Company's assets (less
the transferee's share of the Company's debt) allocable to his or her Common
Shares. The IRS has not issued guidance as to how a Company with publicly traded
shares can comply with these rules.

There is no assurance the IRS will agree with the Company's methods of
allocating income, gain, loss and deduction (including tax-exempt interest and
nondeductible expenses) to the holders of Common Shares, Preferred Shares and
Preferred CD Shares or the Company's determination and allocation of adjustments
attributable to differences between the purchase price of Common Shares and
their shares of the Company's tax basis in its assets. Because as a publicly
traded partnership the Company may be unable to comply with the literal
requirements of the Regulations and because certain of the Operating Agreement's
allocations may not have "substantial economic effect", Counsel is unable to
express an opinion on these issues. However, the

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<PAGE> 32

Company does not expect that any reasonable adjustments which may be required by
the IRS would substantially increase the share of the Company's taxable income
allocable to Shareholders.

Shareholder's Basis in Common Shares. A Shareholder's adjusted basis in
Common Shares is relevant in determining the gain or loss on the sale or other
disposition of Common Shares and the tax consequences of a distribution from the
Company. See "-- Treatment of Cash Distributions to Shareholders from the
Company." In addition, a Shareholder is entitled to deduct on his personal
income tax return, subject to the limitations discussed below, his distributive
share of the Company's net loss, if any, to the extent of such Shareholder's
adjusted basis in his Common Shares.

A Shareholder's initial basis in newly issued Common Shares will be his
purchase price for the Common Shares, increased by his share of items of Company
income (including tax-exempt interest) and gain, and reduced, but not below
zero, by (a) his share of items of Company loss and deduction (including any
nondeductible expenses), and (b) any cash distributions received by such
Shareholder from the Company.

Treatment of Cash Distributions to the Shareholders from the Company. Cash
distributions made to the Shareholders will generally be treated as a
non-taxable return of capital and will not generally increase or decrease such
Shareholders' share of taxable income or loss from the Company. A return of
capital generally does not result in any recognition of gain or loss for federal
income tax purposes but reduces a Shareholder's adjusted basis in his Common
Shares. Distributions of cash in excess of a Shareholder's adjusted basis in his
Common Shares immediately prior thereto will result in the recognition of gain
to the extent of such excess.

Sale of the Common Shares. Gain or loss will be recognized by a
Shareholder upon the sale of the Common Shares acquired in an amount equal to
the difference between the amount realized on the sale and the tax basis of the
Shareholder allocable to the Common Shares. Except to the extent attributable to
unrealized receivables or inventory, which are not expected to be material, such
gain or loss will be a capital gain or loss if the Common Shares are capital
assets in the hands of the holder thereof and will be a long term capital gain
or loss if the Shareholder's holding period in the Common Shares is more than
one year. In general, an individual's capital gains are taxed at a maximum rate
of 20 percent (ten percent for individuals in the 15 percent tax bracket) if the
Common Shares are held for more than 18 months. A 28 percent maximum tax rate
applies to individuals selling capital assets that were held more than 12 months
but not more than 18 months. A lower rate of 18 percent (eight percent for
individuals in the 15 percent tax bracket) applies to sales after December 31,
2000, provided that the individual Shareholder has held the Common Shares which
are sold for more than five years.

It is the position of the IRS that a partner has a single aggregate basis
in all of the partner's partnership interests and that, to determine gain or
loss upon a sale of a part of such partnership interests, the portion of the
partner's basis allocated to the interests being sold equals the partner's share
of partnership liabilities transferred in the sale plus the partner's aggregate
tax basis (excluding basis attributable to partnership liabilities) multiplied
by the ratio of the fair market value of the interests sold to the fair market
value of all of the partner's partnership interests. This portion may produce
unexpected results if applied to a Shareholder who purchased Common Shares at
more than one price or who owns Preferred Shares and/or Preferred CD Shares in
addition to Common Shares because the sale may result in significantly different
gains or losses than in the case of a Shareholder who held only the Common
Shares being sold.

Limitations on Deductibility of Losses. It is not anticipated that the
Company will generate any tax losses. A corporate Shareholder generally will be
entitled to deduct its distributive share of any losses of the Company to the
extent of the tax basis of its Common Shares at the end of the year in which
such losses occur. However, Shareholders who are individuals, trusts, estates,
personal service companies and certain closely held C corporations may be
subject to limitations on deducting losses of the Company.

Limitation on Interest Deductions. The deductibility of a non-corporate
taxpayer's "investment interest" expense is generally limited to the amount of
such taxpayer's "net investment income." Investment interest expense includes
(i) interest on indebtedness incurred or continued to purchase or carry property
held for investment and that is not part of a passive activity, (ii) a
partnership's interest expense attributed to portfolio income under the passive
loss rules and (iii) the portion of interest expense incurred or continued to
purchase or carry an interest in a passive activity (such as a Shareholder's
interest in the Company) to the

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extent attributed to portfolio income under the passive loss rules. Net
investment income includes gross income from property held for investment, gain
attributable to the disposition of property held for investment, and amounts
treated as gross portfolio income pursuant to the passive loss rules less
deductible expenses (other than interest) directly connected with the production
of investment income.

A Shareholder would treat as investment interest his allocable portion of
the Company's total interest expense, if any, or of any margin account or other
interest expense incurred to purchase or carry a Common Share, that is
attributable to the Company's gross portfolio income less deductible expenses
directly connected with such portfolio income. The Company does not expect to
incur any significant amount of indebtedness as part of its investment strategy.
The portion of a Shareholder's allocable share of interest expense of the
Company, or of any margin account or other interest expense incurred to purchase
or carry a Common Share, that is attributable to the Company's passive income is
subject to the passive loss limitations described above.

Deductibility of Interest Connected with Tax-Exempt Income. The Code
disallows any deduction for interest paid by a taxpayer on indebtedness incurred
or continued for the purpose of purchasing or carrying a tax-exempt obligation.
A purpose to carry tax-exempt obligations will be inferred whenever a taxpayer
owns tax-exempt obligations and has outstanding indebtedness which is neither
directly connected with personal expenditures nor incurred in connection with
the active conduct of a trade or business. The IRS might take the position that
a Shareholder's allocable portion of any interest paid by the Company on its
borrowings and any interest paid by the Shareholder on indebtedness incurred to
purchase an interest in the Company should be viewed in whole or in part as
incurred to enable such Shareholder to continue carrying such tax-exempt
obligations and, therefore, that the deduction of any such interest by such
Shareholder should be disallowed in whole or in part. The Company does not
expect to incur any significant amount of indebtedness to purchase or carry
tax-exempt investments, however a risk exists that the IRS may take the position
that the P-Float Interests sold as part of the securitizations are debt. The
Company has received opinions of counsel to the effect that the P-Float
Interests are not debt for federal income tax purposes. However, if the IRS was
successful in maintaining this position, interest paid to the holders of P-Float
Interests may not be deductible.

Alternative Minimum Tax. Unless grandfathered, interest on the Mortgage
Bonds generally is an item of tax preference for purpose of the alternative
minimum tax ("AMT"). To the extent interest on any of the Mortgage Bonds owned
by the Company is such an item of tax preference, a portion of the interest
income allocable to a holder of Common Shares interest also will be a tax
preference item.

Other Federal Income Tax Considerations. The Code contains certain
provisions that could result in other tax consequences as a result of ownership
of the Common Shares or the inclusion in certain computations including, without
limitation, those related to the corporate alternative minimum tax and
environmental tax, of interest that is excluded from gross income.

Ownership of tax-exempt obligations may result in collateral tax
consequences to certain taxpayers, including, without limitation, financial
institutions, property and casualty insurance companies, certain foreign
corporations doing business in the United States, certain S corporations with
excess passive income, individual recipients of social security or railroad
retirement benefits and individuals otherwise eligible for the earned income
credit. Prospective purchasers of Common Shares should consult a tax adviser as
to the applicability of any such collateral consequences.

Company Expenses. The Company has incurred or will incur various expenses
in connection with its ongoing administration and operation. Payments for
services generally are deductible if the payments are ordinary and necessary
expenses, are reasonable in amount and are for services performed during the
taxable year in which paid or accrued. The Company anticipates that a
substantial portion of its ordinary expenses will be allocable to tax-exempt
interest income. The Code prohibits the deduction of any expense otherwise
allowable under Code Section 212 which is allocable to tax-exempt interest
income. The Company allocates its expenses in proportion to the amount of
tax-exempt income and taxable income that it receives. Shareholders who are
individuals will not be permitted to deduct the portion of the Company's
expenses related to tax-exempt income in calculating their federal income tax
liability.

To the extent the Company's expenses are not disallowed as described in the
previous paragraph, payments for services related to the acquisition of an asset
having a useful life in excess of one year, such as

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brokerage fees, generally must be capitalized into the cost basis of the
acquired property. The IRS may not agree with the Company's determinations as to
the deductibility of fees and expenses and might require that certain expenses
be capitalized and amortized or depreciated over a period of years. If all or a
portion of such deductions were to be disallowed, on the basis that some of the
foregoing expenses are non-deductible syndication fees or otherwise, the
Company's taxable income would be increased or its losses would be reduced.

An individual's miscellaneous itemized deductions, including his investment
expenses, are deductible only to the extent they exceed 2% of his adjusted gross
income. Under the Taxpayer Relief Act of 1997, if the Company elects to be
treated as an "electing large partnership" under the Code, the limitation on
miscellaneous itemized deductions will apply at the Company level. Instead of
the 2% floor, 70% of the Company's total miscellaneous itemized deductions are
disallowed.

Offering Expenses. Expenses of issuing and marketing Common Shares in the
Company ("syndication expenses") are not allowable deductions to the Company or
any Shareholder. Syndication expenses are defined as expenditures connected with
the issuing and marketing of interests in partnerships. Fees payable to dealer
managers and soliciting dealers, registration fees, printing costs, selling and
promotional material costs and legal fees for securities and tax advice
pertaining to registration of the Common Shares with the Commission are
syndication expenses and, therefore, do not qualify for amortization.

Section 754 Election. The Company has elected under Section 754 of the
Code to adjust the basis of partnership property on the transfer of Preferred
Shares, Preferred CD Shares and Common Shares by the difference between the
transferee's basis for his shares and the transferee's allocable share of the
basis of all property of the Company. The increase or decrease affects the basis
of the Company's property only with respect to the transferee holder of shares.
The procedure for allocating the basis adjustment is complex and there is no
assurance that the IRS would not challenge the allocations of the step-up among
the Company's assets.

Backup Withholding. Distributions to Shareholders whose Common Shares are
held on their behalf by a "broker" may constitute "reportable payments" under
the federal income tax rules regarding "backup withholding." Backup withholding,
however, would apply only if the Shareholder (i) failed to furnish his Social
Security number or other taxpayer identification number of the person subject to
the backup withholding requirement (e.g., the "broker") or (ii) furnished an
incorrect Social Security number or taxpayer identification number. If "backup
withholding" were applicable to a Shareholder, the Company would be required to
withhold 31% of each distribution to such Shareholder and to pay such amount to
the IRS on behalf of such Shareholder.

Issuance of Additional Common Shares. The Company is likely to issue new
Common Shares to additional investors to finance the acquisition of additional
investments. On any issuance of additional Common Shares, the capital accounts
of the existing Shareholders will be adjusted to reflect a revaluation of the
Company's property (based on their then fair market value, net of liabilities,
to which they are then subject).

Tax Returns, Audits, Interest and Penalties. The Company will supply
Schedules K-1 to Form 1065 to each Shareholder of record as of the last day of
each month after the end of each calendar year. The Company is not obligated to
provide tax information to persons who are not such Shareholders of record.

Any Shareholder who sells or exchanges a Common Share will be required to
notify the Company of such transaction in writing within 30 days of the
transaction (or, if earlier, by January 25 of the calendar year after the year
in which the transaction occurs). The notification is required to include (i)
the names and addresses of the transferor and the transferee; (ii) the taxpayer
identification number of the transferor and, if known, of the transferee; and
(iii) the date of the sale or exchange. A Shareholder will not be required to
notify the Company of a sale or exchange of a Common Share if an information
return is required to be filed by a broker with respect to such sale or
exchange. Any transferor who fails to notify the Company of a sale or exchange
may be subject to a $50 penalty for each such failure. The Company will treat
any transferor Shareholder who provides all of the information requested of the
transferor on the depositary receipt as having satisfied this notification
requirement.

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In addition, the Company must file a return notifying the IRS of any sale
or exchange of a Common Share of which the Company has notice and report the
name and address of the transferee and the transferor who were parties to such
transaction, along with all other information required by applicable
Regulations, including the fair market value of the selling Shareholder's
allocable share of unrealized receivables (including depreciation recapture, if
any). If the Company does not know the identity of the beneficial owner of the
Common Share, the record holder of such Common Share may be treated as the
transferor or transferee, as the case may be. If the Company fails to file such
a return, it may be subject to a penalty of $50 for each such failure up to an
annual maximum of $250,000 (with no limit in the case of intentional disregard
of the filing requirement). The Company is also required to provide this
information to the transferor and the transferee. If the Company fails to
furnish any such information, it may be subject to a penalty of $50 per failure
up to an annual maximum of $250,000. However, the Company would not be required
to file a return upon the sale or exchange of a Common Share with respect to
which an information return is required to be filed by a broker.

To the extent the Company's tax returns are examined by the IRS, the tax
treatment of the Company's income, gain, loss or deductions or credits will be
determined at the Company level in a unified proceeding, rather than separate
proceedings for each holder of Common Shares, Preferred Shares, or Preferred CD
Shares. The Company may elect to be treated as an "electing large partnership"
under the Code. If the Company makes such election, only the Company (and not
the Shareholders) will receive notice of IRS adjustments to the Company's
return. Only the Company has the right to appeal the adjustments. Under the
electing large partnership provisions, the Company may elect to either (i)
combine the adjustments with similar items for the current tax year and pass
through the adjustment to the Shareholders for such year, or (ii) pay a tax on
any adjustment at the highest individual or corporate rate, plus interest and
penalties. In general terms, if the Company does not elect to be treated as an
electing large partnership, the Company will still be subject to a unified
partnership proceeding, but Shareholders owing at least a one percent profits
interest in the Company whose name and address is furnished to the IRS would
receive notice of the commencement of an audit of the Company as well as notice
of the final partnership administrative adjustment. Also, if the Company does
not elect "electing large partnership" status, the tax matters partner, which is
also the Special Shareholder under the Operating Agreement, would not be able to
settle on behalf of, and bind, Shareholders with less that a one percent profits
interest under certain circumstances.

State, Local and Foreign Income Taxes. In addition to the federal income
tax consequences described above, Shareholders should consider potential state,
local and foreign tax consequences of an investment in the Company and are urged
to consult their individual tax advisors in this regard. The rules of some
states and localities for computing and/or reporting taxable income may differ
from the federal rules. Interest income that is tax-exempt for federal purposes
may be taxable by some states and localities.

Under the tax laws of certain states, the Company may be subject to state
income or franchise tax or other taxes that may be applicable to the Company.
Such taxes will decrease the amount of income available to Shareholders.
Shareholders are advised to consult with their tax advisors concerning the tax
treatment of the Company, and its effect on Shareholders, under the tax laws of
the states applicable to the Company and the Shareholders.

Both the substantive features and the filing requirements of state income
taxation of Shareholders will vary according to several factors which include
the following: (i) the status of the Shareholder; (ii) whether the state imposes
personal or corporate income taxation or instead imposes a form of franchise,
unincorporated business or occupational taxation; (iii) whether the state will
allow credits or exemptions for income taxes to which a Shareholder is subject
in his state or other jurisdiction of residence; (iv) the level of personal
exemptions or credits allowed by the state and whether those exemptions or
credits are required to be prorated in the ratio of income sourced in the taxing
state to total income; and (v) whether the applicable tax rate structure is
applied on the basis of income sourced in the taxing jurisdiction or on the
basis of total income of a nonresident taxpayer. The Company may be required to
withhold state taxes from distributions to Shareholders in some instances.

THE SUMMARY TAX CONSEQUENCES SET FORTH ABOVE IS FOR GENERAL INFORMATION
ONLY AND DOES NOT ADDRESS THE CIRCUMSTANCE OF ANY PARTICULAR SHAREHOLDER.
SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF COMMON SHARES
INCLUDING THE APPLICATION OF STATE, LOCAL AND FOREIGN TAX LAWS.

S-34
<PAGE> 36

UNDERWRITING

Subject to the terms and conditions contained in the underwriting agreement
(the "Underwriting Agreement"), the underwriters named below (the
"Underwriters"), for whom Legg Mason Wood Walker, Incorporated, Merrill Lynch,
Pierce, Fenner & Smith Incorporated and Wheat First Union, a division of Wheat
First Securities, Inc., are acting as representatives (the "Representatives"),
have severally agreed to purchase from the Company the following number of
Common Shares at the public offering price less the underwriting discounts and
commissions set forth on the cover page of this Prospectus Supplement:

<TABLE>
<CAPTION>
UNDERWRITERS NUMBER OF SHARES
------------ ----------------
<S> <C>
Legg Mason Wood Walker, Incorporated........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Wheat First Securities, Inc. ...............................
---------
Total.................................................. 2,500,000
=========
</TABLE>

The Underwriting Agreement provides that the obligations to purchase the
Common Shares are subject to the satisfaction of certain conditions precedent
and that if any of the foregoing Common Shares are purchased by the Underwriters
pursuant to the Underwriting Agreement, all such Common Shares must be so
purchased.

The Company has been advised by the Underwriters that they propose to offer
the Common Shares directly to the public initially at the initial offering price
set forth on the cover page of this Prospectus Supplement and to certain dealers
at such public offering price less a concession not in excess of $. per share.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $. per Common Share to certain other underwriters or to certain other
brokers or dealers. After the public offering, the public offering price, the
concession to selected dealers and the reallowance to other dealers may be
changed by the Underwriters.

The Company has granted to the Underwriters an option to purchase up to an
additional 375,000 Common Shares to cover over-allotments, if any, at the public
offering price, less the underwriting discounts and commissions set forth on the
cover page of this Prospectus Supplement. The Underwriters may exercise this
option at any time up to 30 days after the date of this Prospectus Supplement.
To the extent that the Underwriters exercise this option, each of the
Underwriters will have a firm commitment to purchase approximately the same
percentage of Common Shares that the number of Common Shares to be purchased by
it shown on the foregoing table bears to 2,500,000, and the Company will be
obligated, pursuant to that option to sell such Common Shares to the
Underwriters. If purchased, the Underwriters will sell such additional Common
Shares on the same terms as those on which the 2,500,000 Common Shares are being
offered.

The Company and certain of the Company's directors, officers and affiliated
parties have agreed that they will not, without the prior written consent of
Legg Mason Wood Walker, Incorporated offer for sale, contract to sell, sell or
otherwise issue or dispose of, directly or indirectly, any Common Shares other
than Common Shares issued by the Company pursuant to the Company's Non-Employee
Directors' Plans and Share Incentive Plans, or sell or grant options, rights or
warrants with respect to any Common Shares (other than the grant of options
pursuant to the Company's Option Plan), for a period of 90 days following the
consummation of the Offering.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act or to contribute to
payments the Underwriters may be required to make in respect thereof.

Certain of the Underwriters and their affiliates have from time to time
performed, and may continue to perform in the future, various investment
banking, financial advisory and other commercial services for the Company, for
which they received, and will in the future receive, customary compensation. An
affiliate of Merrill Lynch owns 1,250 Term Growth Shares of the Company and
128,367 Common Shares and thus received approximately 2.3% of the net cash flow
of the Company for the three months ended March 31, 1998. The Company has also
entered into various RITES(R) and interest swap transactions with Merrill Lynch,
on

S-35
<PAGE> 37

terms generally available in the marketplace. See "Risk Factors -- Interest Rate
Risks; Hedging Risks," "-- Certain Conflicts" and "The Investments -- Bond
Related Investments."

Until the distribution of the Common Shares is completed, the rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase Common Shares. As an exception to these rules,
in connection with the Offering, certain Underwriters and selling group members
and their respective affiliates may engage in transactions that stabilize,
maintain or otherwise affect the market price of the Common Shares. Such
transactions may include stabilization transactions effected in accordance with
Rule 104 of Regulation M promulgated by the Commission pursuant to which such
persons may bid for or purchase Common Shares for the purpose of pegging, fixing
or maintaining the market price of the Common Shares.

The Underwriters may also create a short position for the account of the
Underwriters by selling more Common Shares in connection with the Offering than
they are committed to purchase from the Company, and in such case may purchase
Common Shares in the open market following completion of the Offering to cover
all or a portion of such position. The Underwriters also may elect to reduce any
short position by exercising all or part of the over-allotment option described
herein.

In addition, the Representatives, on behalf of the Underwriters, also may
impose "penalty bids" under contractual arrangements with the Underwriters
whereby they may reclaim from an Underwriter (or any selling group member
participating in the Offering) for the account of the other Underwriters, the
selling concession with respect to Common Shares that are distributed in the
Offering but subsequently purchased for the account of the Underwriters in the
open market.

In general, purchases of a security for the purpose of stabilization or to
reduce a syndicate short position could cause the price of the security to be
higher than it might otherwise be in the absence of such purchases. The
imposition of a penalty bid might have an effect on the price of a security to
the extent that it were to discourage resales of the security by purchasers in
the Offering.

Neither the Company nor any of the Underwriters makes any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Shares. In addition, neither
the Company nor any of the Undertakers makes any representations that the
Underwriters will engage in such transaction, or that such transactions once
commenced, will not be discontinued without notice.

The Common Shares are listed on the NYSE under the symbol "MMA."

EXPERTS

The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K, as amended, of the Company for the year ended
December 31, 1997 have been so incorporated in reliance on the report (which
contains an explanatory paragraph relating to management's estimates of fair
value of mortgage revenue bonds and other bond related investments as described
in Note 2 to the financial statements) of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Rogers & Wells
LLP, New York, New York, and for the Underwriters by Piper & Marbury L.L.P.,
Baltimore, Maryland. Rogers & Wells LLP will rely as to certain matters of
Maryland law on the opinion of Piper & Marbury L.L.P.

S-36
<PAGE> 38

PROSPECTUS

$349,304,375

MUNICIPAL MORTGAGE AND EQUITY, L.L.C.

COMMON SHARES, PREFERRED SHARES AND WARRANTS
------------------------
Municipal Mortgage and Equity, L.L.C. (the "Company") may from time to time
offer, together or separately, in one or more series: (i) growth shares of
limited liability company interest ("Common Shares"); (ii) preferred shares of
limited liability company interest ("Preferred Shares"); and (iii) warrants or
other rights to purchase Common Shares, Preferred Shares, or any combination
thereof, as may be designated by the Company at the time of the offering
("Warrants"), with an aggregate public offering price of up to $349,304,375, in
amounts, at prices and on terms to be determined at the time of offering. The
Common Shares, Preferred Shares and Warrants (collectively, the "Securities")
may be offered, separately or together, in separate series and in amounts, at
prices and on terms to be set forth in one or more supplements to this
Prospectus (each a "Prospectus Supplement").

The specific terms of the Securities in respect of which this Prospectus is
being delivered will be set forth in the applicable Prospectus Supplement and
will include, where applicable, in the case of Common Shares, the number of
shares and the terms of the offering and sale; (ii) in the case of Preferred
Shares, the number of shares, the specific title, the aggregate amount, any
distribution (including the method of calculating payment of distributions),
seniority, liquidation, redemption, voting and other rights, any terms for any
conversion or exchange into other Securities, the initial public offering price
and any other terms; and (iii) in the case of Warrants, the designation and
number, the exercise price and any other terms in connection with the offering,
sale and exercise of the Warrants. The Common Shares are listed on the New York
Stock Exchange, Inc. ("NYSE") under the symbol "MMA."

The applicable Prospectus Supplement will also contain information, where
applicable, about certain United States federal income tax considerations
relating to, and any listing on a national securities exchange of, the
Securities covered by such Prospectus Supplement, not contained in this
Prospectus.

The Securities may be offered directly to one or more purchasers, through
agents designated from time to time by the Company or to or through underwriters
or dealers. If any agents or underwriters are involved in the sale of any of the
Securities, their names, and any applicable purchase price, fee, commission or
discount arrangement between or among them, will be set forth, or will be
calculable from the information set forth, in an accompanying Prospectus
Supplement. The net proceeds to the Company from such sale will also be set
forth in an accompanying Prospectus Supplement. No Securities may be sold by the
Company without delivery of a Prospectus Supplement describing the method and
terms of the offering of such series of Securities. See "Plan of Distribution."

SEE "RISK FACTORS" BEGINNING ON PAGE 3 FOR A DISCUSSION OF CERTAIN FACTORS
RELEVANT TO AN INVESTMENT IN THE SECURITIES.

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED UPON
THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

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

The date of this Prospectus is June 30, 1998.
<PAGE> 39

AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (of which this Prospectus is a part) on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities Act"),
with respect to the Securities in respect of which this Prospectus is being
delivered. This Prospectus does not contain all the information set forth in the
Registration Statement, certain portions of which have been omitted as permitted
by the rules and regulations of the Commission, and in the exhibits thereto.
Statements contained in this Prospectus as to the content of any contract or
other document are not necessarily complete, and in each instance reference is
made to the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference and the exhibits and schedules thereto. For further information
regarding the Company and the Securities, reference is hereby made to the
Registration Statement and such exhibits and schedules, which may be examined
without charge at, or copies obtained upon payment of prescribed fees from, the
Commission and its regional offices listed below.

The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Commission. The Registration Statement, as well as such reports, proxy
statements and other information filed with the Commission, can be inspected and
copied at the public reference facilities maintained by the Commission at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, and Seven World Trade Center, 13th Floor, New York, New
York 10048. Copies of such material also can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
The Company files its reports, proxy statements and other information with the
Commission electronically. The Commission maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the Commission at http://www.sec.gov.
The Common Shares are listed on the NYSE, and reports, proxy statements and
other information concerning the Company can be inspected and copied at the
offices of the New York Stock Exchange at 20 Broad Street, New York, New York
10005.

INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE

The following documents have been filed by the Company under the Exchange
Act with the Commission and are incorporated by reference in this Prospectus:

1. The Company's Annual Report on Form 10-K for the year ended December 31,
1997, as amended by the Company's Form 10-K/A filed on May 29, 1998.

2. The Company's Quarterly Report on Form 10-Q for the quarter ended March
31, 1998, as amended by the Company's Form 10-Q/A filed on May 29, 1998.

3. The Company's Current Report on Form 8-K filed January 23, 1998.

4. The Company's Current Report on Form 8-K filed January 29, 1998.

5. The Company's Prospectus/Consent Solicitation Statement included in its
Registration Statement on Form S-4 (File No. 33-99088), as declared
effective by the Commission on May 29, 1996, as it relates to the
description of the Company's Common Shares contained under the caption
"Description of Shares" and incorporated by reference into Item 1 of
Form 8-A filed with the Commission on July 25, 1996, pursuant to 12(b)
of the Exchange Act, including all amendments and reports updating such
description.

All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of filing hereof and prior to the date
on which the Company ceases offering and selling Securities pursuant to this
Prospectus shall be deemed to be incorporated by reference in this Prospectus
and to be a part hereof from the dates of filing of such documents. Any
statement contained in a document incorporated or
2
<PAGE> 40

deemed to be incorporated by reference herein shall be deemed modified or
superseded for the purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.

The Company will furnish without charge to each person, including any
beneficial owner, to whom this Prospectus and the accompanying Prospectus
Supplement are delivered, upon the written or oral request of such person, a
copy of any or all of the documents incorporated by reference herein by
reference, other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the Registration Statement to which
this Prospectus relates or into such other documents. Requests for documents
should be directed to Municipal Mortgage and Equity, L.L.C., 218 North Charles
Street, Suite 500, Baltimore, Maryland 21201, Attention: Derek Cole, (410)
962-8044.

THE COMPANY

The Company is a self-advised and self-managed Delaware limited liability
company which, together with its predecessor, has since 1986 been in the
business of originating, investing in and servicing tax-exempt instruments
backed by multifamily housing developments. The Company's investments
principally represent interests in mortgage bonds which have been issued by
state and local governments or their agencies or authorities to finance
multifamily housing developments and other bond related investments (the
"Mortgage Bonds"). The Company owns a portfolio of investments (the
"Investments") secured directly or indirectly by properties (the "Properties")
located in a variety of states. Certain of the Investments are participating
Mortgage Bonds where the amount of the interest payments made to the Company is
based, in part, on property performance, providing the Company the opportunity
to realize greater returns if and to the extent property performance improves.

As a limited liability company, the Company combines the limited liability,
governance and management characteristics of a corporation with outside
directors together with the pass-through income features of a partnership. As a
result, the tax-exempt income derived from the investments may be passed through
to shareholders. Approximately 85% of the Company's interest income in 1997 was
tax-exempt.

The principal executive offices of the Company are located at 218 North
Charles Street, Suite 500, Baltimore, Maryland 21201, and its telephone number
at that location is (410) 962-8044.

RISK FACTORS

RISKS OF INVESTING IN MORTGAGE BONDS SECURED BY MULTIFAMILY APARTMENT PROPERTIES

One of the major risks of investing in Mortgage Bonds secured by
multifamily residential properties is the possibility that the property securing
a Mortgage Bond (a "Mortgaged Property") will not generate income sufficient to
meet its operating expenses, including debt service on the related Mortgage
Bonds, or that the net proceeds of a sale of such Mortgaged Property will not be
sufficient to repay the related Mortgage Bonds. In that event, delays in
payments on the Mortgage Bonds and/or losses of principal on the Mortgage Bonds
may occur. The factors affecting the operations of each Mortgaged Property and
its potential for appreciation in value include general and local economic or
market conditions, changes in neighborhood characteristics, changes in real
estate taxes, insurance premiums, cost of utilities, changes in the amount of
operating, administrative and maintenance costs relating to the Mortgaged
Property, rental values, rent strikes, collection difficulties, governmental
rules and fiscal policies, vandalism, uninsured losses and competition from
existing and future housing complexes in the vicinity of the Mortgaged
Properties. A significant portion of the Mortgaged Properties have failed in the
past to meet required debt service under the Mortgage Bonds, and a number of the
Mortgage Bonds have been refunded on terms which defer, and in certain
circumstances reduce, the amounts payable thereunder. There can be no assurance
that such defaults and refundings will not occur in the future.

3
<PAGE> 41

INVESTMENTS IN JUNIOR MORTGAGES

When the Company invests in mortgages (or related bonds) which are junior
to senior mortgages on a particular property, the Company is subject to the
risks of such investment, which include the risks that borrowers may not be able
to make debt service payments on both the senior and the junior mortgages, that
the value of the mortgaged property may be less than the amounts owed under both
mortgages and that debt service collected on the junior mortgages may be lower
than the Company's cost of funds. If any of the above occurred, the Company's
ability to make expected distributions to the Company's shareholders could be
adversely affected.

RISKS OF SECURITIZATIONS

The Company seeks to enhance its overall return on its Investments and to
purchase additional investments through the securitization of part of its
portfolio of Mortgage Bonds. In a typical securitization, Mortgage Bonds are
sold and deposited into a trust. Short term floating rate interests in the
trust, which have first priority on the cash flow from the Mortgage Bonds, are
sold to third party investors and these interests are paid before the Company's
residual interest described herein. The Company retains the residual cash flow
from the trust and receives the proceeds from the sale of the floating rate
interests less certain transaction costs. The Company will recognize taxable
capital gains (or losses) upon the deposit of Mortgage Bonds in a trust. In the
event the trust cannot meet its obligations, all or a portion of the deposited
Mortgage Bonds may be distributed to the floating rate interest holders or sold
to satisfy such obligations. Therefore, cash flow from these Mortgage Bonds may
not be available to pay any amounts on the residual interest held by the Company
and in the event of the liquidation of the Mortgage Bonds, no payment will be
made to the Company except to the extent that the market value of the Mortgage
Bonds exceeds the amounts due on the other obligations of the trust. Additional
Mortgage Bonds may be pledged to secure repayment of the floating rate
certificates. Upon any default in repayment of such certificates, the pledged
Mortgage Bonds may be subject to foreclosure and sale and the Company may lose
the cash flow therefrom, and/or its ownership interest therein. The Company may
have a limited ability to remedy defaults inside the trust and prevent the loss
of its investment in the residual interest. As a result of these
securitizations, the Company generally owns higher yielding but riskier portions
of bond related investments such as Residual Interest Tax Exempt Securities
receipts ("RITES(R)"). Furthermore, the RITES(R) may be subject to call in
certain circumstances which are beyond
4
<PAGE> 42

the control of the Company. Where the Mortgage Bonds bear fixed rates of
interest, securitization may also create interest rate risks, as described
below. See "-- Interest Rate Risks; Hedging Risks" below.

The Company relies, in part, on securitizations to fund acquisitions of its
investments. Accordingly, the ability of the Company to achieve its investment
objectives depends on its ability to successfully securitize its Mortgage Bonds
and manage its interest rate exposure. Certain of the Company's Mortgage Bonds
may have credit or other characteristics which make them unsuitable for
securitization at this time. Any failure to consummate securitization and
interest rate swap transactions could reduce the Company's net interest income
and have a material adverse effect on the Company's operations.

INTEREST RATE RISKS; HEDGING RISKS

To reduce the Company's exposure to rising interest rates, the Company
enters into interest rate swaps, which are contracts exchanging an obligation to
pay a floating rate approximating the rate on the floating rate trust
certificates for an obligation to pay a fixed rate. Net swap payments received
by the Company, if any, will be taxable income, even though the investment being
hedged pays tax-exempt interest. The interest rate swaps are for limited time
periods which generally match the anticipated prepayment date of the underlying
Mortgage Bond. However, there is no certainty that prepayment will occur at the
end of the swap period, and the swap period is typically shorter than the term
of the underlying bond. There can be no assurance that the Company will be able
to acquire interest rate swaps at favorable prices, or at all, when the existing
arrangements expire, in which case the Company would be fully exposed to the
interest rate risks described above.

5
<PAGE> 43

the counterparty a variable rate up to the cap in exchange for the
counterparty's obligation to pay a fixed rate. To the extent that short term
interest rates increase, the cash flow on such Property which may be distributed
to the holder of the participating Mortgage Bond may decrease. There can be no
assurance any third party will honor its payment obligations under the
agreements. If the provider of such swap or other instrument becomes financially
unsound or insolvent, the Company may be forced to unwind such swap or other
instrument with such provider and may take a loss thereon. Further, the Company
could suffer the adverse consequences against which the hedging transaction was
intended to protect. No assurance can be given that the Company can avoid risks
of third party insolvency.

CONFLICTS OF INTEREST

Affiliates of certain directors and officers of the Company are responsible
for a full range of property management functions for certain Mortgaged
Properties for which they receive property management fees pursuant to
management contracts. The Company's management believes that these contracts
provide for fees which are at or below market rates for property management
fees. These management contracts will continue to be renewed only if (i) such
affiliates are providing such property management services at a price
competitive with the prices which would be charged for such goods and services
by independent parties for comparable goods and services in the same geographic
location, and (ii) in the case of any management contract with any affiliate of
any member of the Company's Board of Directors, such management contract is
approved by the independent directors of the Company. Nonetheless, conflicts may
exist in determining whether to renew or terminate these management contracts,
and in setting the fees payable under such contracts, since any change in such
fees could affect the amounts payable under the related Mortgage Bonds.

Certain entities which control certain Mortgaged Properties are controlled
by Mark K. Joseph, the Chairman of the Board and Chief Executive Officer of the
Company. As a result, such entities could have interests which do not fully
coincide with, or even are adverse to, the interests of the Company. Such
entities could choose to act in accordance with their own interests, which could
adversely affect the Company. Among the actions such entities could desire to
take might be selling a Mortgaged Property, and thereby causing a redemption
event, at a time and under circumstances which would not be advantageous to the
Company.

Management and certain affiliates own Term Common Shares, which participate
in the cash flow of the Company. The Term Common Shares, which will be redeemed
when the preferred equity of the Company issued in 1996 is fully redeemed, are
expected to have little or no residual value, but while outstanding receive an
aggregate of 2% of the net cash flow of the Company. While these shares remain
outstanding, the holders may have conflicts of interest in determining whether
redemption of the preferred equity issued in 1996 and Term Common Shares is in
the best interest of the Company, in particular due to the limited residual
value of the Term Common Shares. Holders of Term Common Shares also receive a
greater return as cash flow increases in total, regardless of whether per share
cash flow increases or there is a distribution to shareholders. See "Description
of Preferred Shares."

DEPENDENCE ON KEY EMPLOYEES

The Company is wholly dependent for the selection, structuring and
monitoring of its Mortgage Bonds and other Investments on the diligence and
skill of its executive officers, many of whom would be difficult to replace.

6
<PAGE> 44

REGISTRATION UNDER THE INVESTMENT COMPANY ACT

The Company at all times intends to conduct its business so as not to
become regulated as an investment company under the Investment Company Act of
1940, as amended (the "Investment Company Act"). 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"
("Qualifying Interests"). Under current interpretation of the staff of the
Securities and Exchange Commission, in order to qualify for this exemption, the
Company must maintain at least 55% of its assets directly in Qualifying
Interests and the balance in real estate-type interests. For example, unless
certain mortgage securities represent all of the certificates issued with
respect to an underlying pool of mortgages, such mortgage securities may be
treated as securities separate from the underlying mortgage loans and, thus, may
not be considered Qualifying Interests for purposes of the 55% requirement.
Similar interpretations mandate that the Company own "whole" bonds in order for
its Mortgage Bonds to be Qualifying Interests. Based on advice of counsel, the
Company believes it meets the 55% test. However, the Company's RITES(R)
interests and certain of its Mortgage Bonds are not Qualifying Interests. The
requirement that the Company maintain 55% of its assets in Qualifying Interests
may inhibit the Company's ability to acquire certain kinds of assets or to
securitize additional interests in the future. If the Company fails to qualify
for exemption from registration as an investment company, its ability to
maintain its financing strategies would be substantially reduced, and it would
be unable to conduct its business as described herein. Such a failure to qualify
could have a material adverse effect on the Company.

LIMITED OPERATING HISTORY DOES NOT PREDICT FUTURE PERFORMANCE

The Company embarked on its acquisition growth strategy in 1996 and,
accordingly, has not yet developed an extensive financial history or experienced
a wide variety of interest rate fluctuations or market conditions. Consequently,
the Company's financial results to date may not be indicative of future results.
Furthermore, there can be no assurance that the Company will receive returns on
its investments sufficient to compensate for interest rate and credit risks
inherent in the Company's investment strategy.

FAILURE TO MANAGE EXPANSION MAY ADVERSELY AFFECT RESULTS OF OPERATIONS

The Company's expansion as a result of its investment of the net proceeds
of an offering may cause a significant strain on the Company's financial,
management and other resources. To manage the Company's growth effectively, the
Company must continue to improve and expand its existing resources and
management information systems. If the Company is unable to manage growth
effectively, the Company's financial conditions and results of operations may be
adversely affected.

INVESTMENTS IN MORTGAGE BONDS AND RITES(R) MAY BE ILLIQUID

The Company's Investments lack a regular trading market and may be
illiquid. In addition, during turbulent market conditions, the liquidity of all
of the Company's Investments may be adversely impacted. There is no limit to the
percentage of the Company's assets that may be invested in illiquid Mortgage
Bonds and RITES(R). In the event the Company required additional cash, the
Company may be required to liquidate its Investments on unfavorable terms which
could substantially reduce the value of the Securities.

ENVIRONMENTAL MATTERS

Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate is liable for the costs of removal or
remediation of certain hazardous or toxic substances released on, above, under
or in such property. Such laws often impose such liability without regard to
whether the owner knew of, or was responsible for, the presence of such
hazardous or toxic substances. The costs of such removal or remediation could be
substantial and could negatively impact the availability of property cash flow
for payments on the Investments. Phase I environmental site assessments (which
involve inspection without soil sampling or groundwater analysis) have been
conducted by independent environmental consultants ("Phase I Assessments") with
respect to most, but not all, of the Properties. The assessments that have been
completed have not revealed any environmental conditions as of the time such
studies were completed which the

7
<PAGE> 45

Company believes would have a material adverse effect on its business, assets or
results of operations. No assurance can be given that these Phase I Assessments
or the Company's inspections have revealed all environmental liabilities and
problems relating to the Properties or that nothing has occurred since the
completion of such Phase I Assessments. Management is not aware of any material
environmental problems with respect to the Properties. No assurance can be given
that the Properties on which no environmental assessment was conducted do not
contain regulated toxic or hazardous substances.

BOARD OF DIRECTORS' ABILITY UNILATERALLY TO EFFECT CHANGES IN INVESTMENT,
FINANCING AND CERTAIN OTHER POLICIES

The major policies of the Company, including its policies with respect to
acquisitions, financing, growth, debt, capitalization and distributions, will be
determined by the Company's Board of Directors. Although the Board of Directors
of the Company has no present intention to change the Company's business plan,
the Board of Directors may amend or revise these and certain other policies from
time to time without a vote of the Company's shareholders. Accordingly, the
Company's shareholders will have no control over changes in the policies of the
Company (except for certain policies directly affecting holders of the Company's
preferred shares), and changes in the Company's policies may not fully serve the
interests of all of the Company's shareholders.

PROVISIONS THAT MAY DISCOURAGE CHANGES OF CONTROL

The Company's organizational documents contain provisions that may be
deemed to have an anti-takeover effect, including the staggered terms of the
Company's directors, business combination and fair price provisions and control
share acquisition provisions. The Company has adopted a shareholder rights plan.
Further, the employment agreements of certain of the officers provide them with
substantial payments should their employment terminate as a result of a change
of control. These provisions are intended to enhance the likelihood of
continuity and stability in the composition of the Company's Board of Directors
and management and in the policies formulated by the Board of Directors and to
discourage an unsolicited takeover of the Company if the Board of Directors
determines that such takeover is not in the best interests of the persons to
which the Board of Directors feels it owes a fiduciary duty, including the
Company's shareholders. These provisions may, however, have the effect of
delaying, deferring or preventing a takeover attempt that a shareholder might
consider to be in the shareholder's best interest, including offers that might
result in a premium over market price for the Common Shares. These provisions
may reduce interest in the Company as a potential acquisition target or reduce
the likelihood of a change in the management or voting control of the Company
without the consent of the then incumbent Board of Directors. In addition, in
the event that certain business combination or share acquisition transactions
occur, and the Company's special shareholder does not approve of such
transaction, such special shareholder has the right to withdraw as a shareholder
of the Company; and in the event of such withdrawal, (i) the Company would be
obligated to pay the withdrawing special shareholder $1,000,000, and (ii) a new
special shareholder might have to be found in order to ensure that the Company
is not deemed to be taxable as a corporation, any of which may have an adverse
effect on the Company or the Common Shares.

ISSUANCE OF ADDITIONAL SECURITIES

The Company may issue additional securities, including additional preferred
interests in the Company, in the public or private market to obtain funds for
the acquisition of additional assets or may exchange such securities for
additional assets. The ability of the Company to sell or exchange such
securities will depend on conditions then prevailing in the relevant capital
markets and the Company's results of operations, financial condition and
business prospects. The issuance of such additional securities will not be
subject to the approval of the holders of Securities, could affect the timing
and amount of distributions to the holders of Securities, and may affect the
trading price of the Securities. The holders of Securities will not have any
preemptive rights in connection with the issuance of any additional securities
of the Company.

8
<PAGE> 46

FORWARD-LOOKING STATEMENTS

This Prospectus, the accompanying Prospectus Supplement and the other
reports incorporated by reference contain certain forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Company to be materially different from results or plans
expressed or implied by such forward-looking statements. Such factors include,
among other things, adverse changes in the real estate markets, risk of default
under the Mortgage Bonds, financial condition and bankruptcy of tenants,
interest rate fluctuations, tax treatment of the Company and its Investments,
environmental/safety requirements, adequacy of insurance coverage, and general
and local economic and business conditions. Although the Company believes that
the assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate and, therefore, there can be no assurance
that the forward-looking statements included or incorporated by reference in
this Prospectus or the accompanying Prospectus Supplement will prove to be
accurate. In light of the significant uncertainties inherent in the
forward-looking statements, the inclusion of such information, including the
information presented herein and under "The Company," should not be regarded as
a representation by the Company or any other person that the objectives and
plans of the Company will be achieved.

RATIOS OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED DIVIDENDS

The following are ratios of consolidated earnings to combined fixed charges
and preferred dividends for the Company for each of the years ended December 31,
1997, 1996, 1995, 1994 and 1993 and for the three months ended March 31, 1998
and 1997.

<TABLE>
<CAPTION>
THREE
MONTHS
ENDED
FISCAL YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------- -----------
1997 1996 1995 1994 1993 1998 1997
---- ---- ----- ----- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
RATIO: ....................................... 8.9 10.7 507.7 592.1 323.8 9.4 7.6
</TABLE>

For purposes of computing this ratio, earnings represent earnings from
continuing operations. Combined fixed charges include management's estimate of
the interest portion of operating lease rentals based on one third of such
rentals. For the periods in which Preferred Shares were outstanding, preferred
dividend requirements represent the share of net income that is allocable to
Preferred Shares, Preferred CD Shares and Term Growth Shares.

USE OF PROCEEDS

Unless otherwise described in the applicable Prospectus Supplement, the
Company intends to use the net cash proceeds from the sale of Securities in
respect of which this Prospectus is being delivered for general corporate
purposes, including new investments and working capital. Pending such uses, the
Company may invest such net proceeds in short term liquid investments. Any
specific allocation of the net proceeds of an offering of Securities to a
specific purpose will be determined at the time of such offering and will be
described in the related Prospectus Supplement.

DESCRIPTION OF COMMON SHARES

The following brief description of the Common Shares does not purport to be
complete and is subject in all respects to applicable Delaware law and to the
provisions of the Company's Amended and Restated Certificate of Formation and
Operating Agreement (the "Operating Agreement") and By-laws, copies of which are
exhibits to the Registration Statement of which this Prospectus is a part.

9
<PAGE> 47

GENERAL

The Operating Agreement does not limit the number of Common Shares which
the Company's Board of Directors may cause the Company to issue. The Company had
14,359,407 Common Shares outstanding at March 31, 1998. The Company will pay
distributions to holders of the Common Shares on a pro rata basis when declared
by its Board of Directors out of funds legally available therefor. Distributions
to the holders of Common Shares are subject to preferences on distributions on
the Company's then Outstanding Preferred Shares (as defined below), and any
other preferred securities which may be issued by the Company in the future.

Holders of Common Shares have no preemptive, conversion, sinking fund or
cumulative voting rights. The shares of Common Shares are not redeemable, except
pursuant to certain anti-takeover provisions adopted by the Company.

The Operating Agreement and By-laws of the Company set forth the
relationship of the shareholders to the Company and to one another and the
manner in which the Company will conduct its operations, much like the articles
and bylaws of a Delaware corporation or the partnership agreement of a Delaware
general or limited partnership. While, as a limited liability company, the
Company is not subject to the Delaware General Corporation Law (the "DGCL"), the
Delaware Limited Liability Company Act permits a limited liability company
agreement to provide, and the Operating Agreement and By-laws of the Company do
provide, that the management of a limited liability company shall be conducted
by a board of directors and officers designated by such board and that the
holders of shares in such limited liability company (as is the case with the
holders of the Common Shares) be afforded substantially all of the rights that
are afforded holders of the common shares issued by a corporation organized
under the DGCL. In all material respects, the fiduciary duties of the directors
and officers of the Company and any duties of shareholders of the Company and
their affiliates are the same as those applicable under the DGCL.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Shares is Registrar and
Transfer Company, 10 Commerce Drive, Cranford, New Jersey 07016, telephone
number (908) 272-8511.

DESCRIPTION OF PREFERRED SHARES

Under the Company's Operating Agreement, the Company's Board of Directors
(without any further vote or action by the Company's shareholders) is authorized
to provide for the issuance, in one or more series, of an unlimited amount of
Preferred Shares. The Board of Directors is authorized to fix the number of
shares, the relative powers, preferences and rights, and the qualifications,
limitations or restrictions applicable to each series thereof by resolution
authorizing the issuance of such series.

OUTSTANDING PREFERRED SHARES

In connection with the merger of its predecessor with the Company in 1996,
the Company issued the original preferred shares (the "Original Preferred
Shares") and Preferred CD Shares (collectively, the "Outstanding Preferred
Shares"). The Company is required to distribute to the holders of the
Outstanding Preferred Shares cash flow attributable to such shares (defined in
the Operating Agreement to be the cash flow derived from a specific pool of 22
Mortgage Bonds (the "Original Bonds")). In addition, the Company is required to
distribute 2% of the Company's net cash flow to the holders of the 2000 shares
of Term Common Shares.

As of March 31, 1998, there were 22,940 Original Preferred Shares and
11,860 Preferred CD Shares outstanding. The Company does not intend to issue any
shares of the series of Outstanding Preferred Shares. The terms of the
Outstanding Preferred Shares require that no other Preferred Shares be senior in
rank or priority of payment to the Outstanding Preferred Shares with respect to
the cash flow from the Original Bonds.

10
<PAGE> 48

The description below sets forth certain general terms and provisions of
the Company's Preferred Shares to which a Prospectus Supplement may relate. The
specific terms of any series of Preferred Shares in respect of which this
Prospectus is being delivered (the "Offered Preferred Shares") will be described
in the Prospectus Supplement relating to such Offered Preferred Shares. The
following summary of certain provisions governing the Company's preferred shares
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Operating Agreement and the resolutions of the
Board of Directors relating to each particular series of Offered Preferred
Shares in connection with such Offered Preferred Shares.

If so indicated in the applicable Prospectus Supplement, the terms of any
series of Offered Preferred Shares may differ from the terms set forth below,
except those terms required by the Operating Agreement.

GENERAL

The Offered Preferred Shares, when issued in accordance with the terms of
the Operating Agreement and of the applicable resolutions of the Board of
Directors and as described in the applicable Prospectus Supplement, will be
fully paid and non-assessable.

To the extent not fixed in the Operating Agreement, the relative rights,
preferences, powers, qualifications, limitations or restrictions of the Offered
Preferred Shares of any series will be fixed pursuant to resolutions of the
Board of Directors relating to such series. The Prospectus Supplement relating
to the Offered Preferred Shares of each such series shall specify the terms
thereof, including:

(1) The class, series title or designation and stated value (if any)
for such Offered Preferred Shares;

(2) The maximum number of shares of Offered Preferred Shares in such
series, the liquidation preference per share and the offering price per
share for such Offered Preferred Shares;

(3) The distribution preferences and the distribution rate(s),
period(s) and/or payment date(s) or method(s) of calculation thereof
applicable to such Offered Preferred Shares;

(4) The date from which distributions on such Offered Preferred Shares
will accumulate, if applicable, and whether distributions will be
cumulative;

(5) The provisions for a retirement or sinking fund, if any, with
respect to such Offered Preferred Shares;

(6) The provisions for redemption, if applicable, of such Offered
Preferred Shares;

(7) The voting rights, if any, of shares of such Offered Preferred
Shares;

(8) Any listing of such Offered Preferred Shares for trading on any
securities exchange or any authorization of such Offered Preferred Shares
for quotation in an interdealer quotation system of a registered national
securities association;

(9) The terms and conditions, if applicable, upon which such Offered
Preferred Shares will be convertible into, or exchangeable for, any other
equity securities of the Company, including the title of any such
securities and the conversion or exchange price therefor;

(10) A discussion of federal income tax considerations applicable to
such Offered Preferred Shares; and

(11) Any other specific terms, preferences, rights, limitations or
restrictions of such Offered Preferred Shares.

Subject to the terms of the Operating Agreement and to any limitations
contained in the resolutions of the Board of Directors pertaining to any series
of Outstanding Preferred Shares, the Company may issue additional series of
Preferred Shares at any time or from time to time, with such powers, preferences
and relative, participating, optional or other special rights and
qualifications, limitations or restrictions thereof, as

11
<PAGE> 49

the Board of Directors shall determine, all without further action of the
shareholders, including the holders of any series of Outstanding Preferred
Shares of the Company.

DISTRIBUTIONS

Holders of any series of Offered Preferred Shares will be entitled to
receive cash distributions when, as and if declared by the Board of Directors of
the Company out of funds of the Company legally available therefor, at such rate
and on such dates as will be set forth in the applicable Prospectus Supplement.
Each distribution will be payable to holders of record as they appear on the
share ledger of the Company on the record date fixed by the Board of Directors.
Distributions, if cumulative, will be cumulative from and after the date set
forth in the applicable Prospectus Supplement.

LIQUIDATION RIGHTS

The Company's Operating Agreement provides that, in the event of a
liquidation or dissolution of the Company, or a winding up of its affairs,
whether voluntary or involuntary, or in the event of a merger or consolidation
of the Company, no distributions will be made to holders of any class of the
Company's capital shares until after payment or provision for payment of the
debts or liabilities of the Company. The holders of the Outstanding Preferred
Shares have priority on the proceeds derived from the liquidation of the
Original Bonds and to the allocation of items of income and deduction up to the
value of their respective capital accounts. The applicable Prospectus Supplement
will specify the amount and type of distributions to which the holders of any
series of Offered Preferred Shares would be entitled upon the occurrence of any
such event.

REDEMPTION

If so provided in the applicable Prospectus Supplement, the Offered
Preferred Shares will be redeemable in whole or in part at the option of the
Company, at the times, at the redemption prices and in accordance with any
additional terms and conditions set forth therein. The Operating Agreement
provides that the Company may not redeem shares of any series until all of the
Outstanding Preferred Shares are redeemed.

VOTING RIGHTS

Except as indicated in the applicable Prospectus Supplement, or except as
expressly required by applicable law, the holders of any series of Offered
Preferred Shares will not be entitled to vote.

CONVERSION

The terms and conditions, if any, on which shares of the Offered Preferred
Shares are convertible into any other class of the Company's securities will be
set forth in the Prospectus Supplement relating thereto. Such terms will include
the designation of the security into which such shares are convertible, the
conversion price, the conversion period, provisions as to whether conversion
will be at the option of the holder or the Company, the events requiring an
adjustment of the conversion price and provisions affecting conversion in the
event of the redemption of the Offered Preferred Shares. In the case of
conversion of the Offered Preferred Shares into Common Shares or into any other
security of the Company for which there exists an established public trading
market at the time of such conversion, such terms may include provisions under
which the amount of such security to be received by the holders of the Offered
Preferred Shares would be calculated according to the market price of such
security as of a time stated in the Prospectus Supplement.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Offered Preferred Shares will be
named in the applicable Prospectus Supplement.

12
<PAGE> 50

DESCRIPTION OF WARRANTS

The Company may issue Warrants for the purchase of Common Shares, Preferred
Shares or any combination thereof. Warrants may be issued independently,
together with any other Securities offered by a Prospectus Supplement, and may
be attached to or separate from such Securities. Warrants may be issued under
warrant agreements (each, a "Warrant Agreement") to be entered into between the
Company and a warrant agent specified in the applicable Prospectus Supplement
(the "Warrant Agent"). The Warrant Agent will act solely as an agent of the
Company in connection with the Warrants of a particular series and will not
assume any obligation or relationship of agency or trust for or with any holders
or beneficial owners of Warrants. The following sets forth certain general terms
and provisions of the Warrants offered hereby. Further terms of the Warrants and
the applicable Warrant Agreement will be set forth in the applicable Prospectus
Supplement.

The applicable Prospectus Supplement will describe the terms of the
Warrants in respect of which this Prospectus is being delivered, including,
where applicable, the following: (i) the title of such Warrants; (ii) the
aggregate number of such Warrants; (iii) the price or prices at which such
Warrants will be issued; (iv) the designation, number and terms of the Common
Shares, Preferred Shares or combination thereof, purchasable upon exercise of
such Warrants; (v) the designation and terms of the other Securities, if any,
with which such Warrants are issued and the number of such Warrants issued with
each such Security; (vi) the date, if any, on and after which such Warrants and
the related underlying Securities will be separately transferable; (vii) the
price at which each underlying Security purchasable upon exercise of such
Warrants may be purchased; (viii) the date on which the right to exercise such
Warrants shall commence and the date on which such right shall expire; (ix) the
minimum amount of such Warrants which may be exercised at any one time; (x)
information with respect to book-entry procedures, if any; (xi) a discussion of
any applicable federal income tax considerations; and (xii) any other terms of
such Warrants, including terms, procedures and limitations relating to the
transferability, exchange and exercise of such Warrants.

PLAN OF DISTRIBUTION

The Company may sell Securities to or through underwriters or dealers,
directly to other purchasers, or through agents. The Prospectus Supplement with
respect to any Securities will set forth the terms of the offering of the
Securities, including the name or names of any underwriters, dealers or agents,
the price of the offered Securities and the net proceeds to the Company from
such sale, any underwriting discounts or other items constituting underwriters'
compensation, any discounts or concessions allowed or reallowed or paid to
dealers and any national securities exchanges on which such Securities may be
listed.

If underwriters are used in the sale, the Securities will be acquired by
the underwriters for their own account and may be resold from time to time in
one or more transactions, including negotiated transactions, at a fixed public
price or at varying prices determined at the time of sale. The underwriter or
underwriters with respect to a particular underwritten offering of Securities
will be named in the Prospectus Supplement relating to such offering, and if an
underwriting syndicate is used, the managing underwriter or underwriters will be
set forth on the cover of such Prospectus Supplement. Unless otherwise set forth
in the Prospectus Supplement, the obligations of the underwriters or agents to
purchase the Securities will be subject to certain conditions precedent and the
underwriters will be obligated to purchase all the Securities if any are
purchased. Any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers may be changed from time to time.

If a dealer is utilized in the sale of any Securities in respect of which
this Prospectus is delivered, the Company will sell such Securities to the
dealer, as principal. The dealer may then resell such Securities to the public
at varying prices to be determined by such dealer at the time of resale. The
name of the dealer and the terms of the transaction will be set forth in the
Prospectus Supplement relating thereto.

Securities may be sold directly by the Company to one or more institutional
purchasers, or through agents designated by the Company from time to time, at a
fixed price, or prices, which may be changed, or at varying prices determined at
the time of sale. Any agent involved in the offer or sale of the Securities will
be named,

13
<PAGE> 51

and any commissions payable by the Company to such agent will be set forth, in
the Prospectus Supplement relating thereto. Unless otherwise indicated in the
Prospectus Supplement, any such agent will be acting on a best efforts basis for
the period of its appointment.

In connection with the sale of the Securities, underwriters or agents may
receive compensation from the Company or from purchasers of Securities for whom
they may act as agents in the form of discounts, concessions, or commissions.
Underwriters, agents, and dealers participating in the distribution of the
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of the Securities
by them may be deemed to be underwriting discounts or commissions under the
Securities Act.

Unless otherwise specified in the applicable Prospectus Supplement, each
series of Securities, other than the Common Shares, will be a new issue with no
established trading market. Any Common Shares sold pursuant to a Prospectus
Supplement will be listed on the NYSE subject to official notice of issuance.
The Company may elect to list any series of the Securities on an exchange, but
it is not obligated to do so. Any underwriters to whom Securities are sold by
the Company for public offering and sale may make a market in such Securities,
but such underwriters will not be obligated to do so and may discontinue any
market making at any time without notice. No assurance can be given as to the
liquidity of the trading market for any Securities.

Under agreements entered into with the Company, underwriters, dealers, and
agents may be entitled to indemnification by the Company against certain civil
liabilities, including liabilities under the Securities Act, or to contribution
with respect to payments that such agents, dealers, or underwriters may be
required to make with respect thereto. Underwriters, dealers, or agents and
their associates may be customers of, engage in transactions with and perform
services for, the Company in the ordinary course of business.

If so indicated in the applicable Prospectus Supplement, the Company will
authorize underwriters or other persons acting as the Company's agents to
solicit offers by certain institutions to purchase Securities from the Company
pursuant to contracts providing for payment and delivery on a future date.
Institutions with which such contracts may be made include commercial and
savings banks, insurance companies, pension funds, investment companies,
educational and charitable institutions and others, but in all cases such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect in respect of the
validity or performance of such contracts.

In order to comply with the securities laws of certain states, if
applicable, the Securities offered hereby will be sold in such jurisdictions
only through registered or licensed brokers or dealers. In addition, in certain
states Securities may not be sold unless they have been registered or
qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of Securities offered hereby may not engage in
market making activities with respect to the Securities for a period of two
business days prior to the commencement of such distribution.

EXPERTS

The financial statements incorporated in this Prospectus by reference to
the Annual Report on Form 10-K of the Company for the year ended December 31,
1997 have been so incorporated in reliance on the report (which contains an
explanatory paragraph relating to management's estimates of fair value of
mortgage revenue bonds and other bond related investments as described in Note 2
to the financial statements) of Price Waterhouse LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.

LEGAL MATTERS

Certain legal matters will be passed upon for the Company by Rogers & Wells
LLP, New York, New York.

14
<PAGE> 52

[Color pictures of the Locarno Apartments in Kansas City, Missouri, Southgate
Crossings in Columbia, Maryland and the Meadows in Memphis, Tennessee.]
<PAGE> 53

======================================================

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE BY THIS PROSPECTUS SUPPLEMENT AND THE
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS.
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO
SELL, OR SOLICITATION OF AN OFFER TO BUY, BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER TO SELL OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS SUPPLEMENT AND THE PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE FACTS SET FORTH IN THIS PROSPECTUS SUPPLEMENT OR IN THE PROSPECTUS OR IN THE
AFFAIRS OF THE COMPANY OR THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.

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

TABLE OF CONTENTS

PROSPECTUS SUPPLEMENT

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Supplement Summary........ S-3
Summary Financial Data............... S-8
Risk Factors......................... S-9
Use of Proceeds...................... S-16
Price Range of Common Shares and
Dividend History................... S-16
Capitalization....................... S-17
The Company.......................... S-18
The Investments...................... S-21
The Properties....................... S-25
Management........................... S-27
Federal Income Tax Considerations.... S-28
Underwriting......................... S-35
Experts.............................. S-36
Legal Matters........................ S-36
- -------------------------------------------
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
The Company.......................... 3
Risk Factors......................... 3
Ratios of Earnings to Combined Fixed
Charges and Preferred Dividends.... 9
Use of Proceeds...................... 9
Description of Common Shares......... 9
Description of Preferred Shares...... 10
Description of Warrants.............. 13
Plan of Distribution................. 13
Experts.............................. 14
Legal Matters........................ 14
</TABLE>

======================================================
======================================================

2,500,000 SHARES

[MUNIMAE LOGO]

COMMON SHARES
------------------------------
PROSPECTUS SUPPLEMENT
------------------------------
JULY , 1998

LEGG MASON WOOD WALKER
INCORPORATED

MERRILL LYNCH & CO.

WHEAT FIRST UNION
======================================================