424(b)(3) Filing

Our merger. RAIT Investment Trust (“RAIT”) and Taberna Realty Finance Trust (“Taberna”) are proposing a merger of Taberna with RT Sub Inc., a newly-formed subsidiary of RAIT (“RT Sub”). The merger will combine RAIT’s senior and mezzanine loan origination platform with Taberna’s subordinated debt origination platform and collateralized debt obligation, or CDO, capabilities. We believe that following the completion of the merger, RAIT will be a diversified, strongly-capitalized finance company capable of offering a range of capital alternatives to its customers.

Merger consideration. The number of RAIT common shares that Taberna shareholders will receive in the merger is fixed. The dollar value of the share consideration Taberna shareholders will receive in the merger will change depending on changes in the market price of RAIT common shares. Based on the estimated number of Taberna shares outstanding on the record date, RAIT expects to issue approximately 23,904,389 RAIT common shares to Taberna shareholders in the merger.

The value per Taberna common share was determined by multiplying the closing RAIT share price by the 0.5389 exchange ratio, and the total consideration is the closing RAIT share price multiplied by the 23,904,389 RAIT common shares to be issued. You may obtain current market quotations for RAIT common shares. RAIT is listed on the New York Stock Exchange under the symbol “RAS.”

Voting. Your company needs your vote to complete the merger. Even if you plan to attend your company’s meeting on December 11, 2006, please vote as soon as possible by completing and submitting the enclosed proxy card.

Joint proxy statement-prospectus and risks. Please read this joint proxy statement-prospectus carefully because it contains important information about the merger. We urge you to carefully read the risk factors relating to the merger beginning on page 26.

None of the U.S. Securities and Exchange Commission, or the SEC, or any state securities commission has approved or disapproved the securities to be issued in the merger or determined if this joint proxy statement-prospectus is accurate or adequate. It is illegal to tell you otherwise.

Joint proxy statement-prospectus dated November 3, 2006, and first mailed to shareholders on or about November 7, 2006.

This joint proxy statement-prospectus incorporates by reference important business and financial information about RAIT, which term includes its subsidiaries unless the text indicates otherwise, from other documents that are not included in or delivered with this joint proxy statement-prospectus. This information is available to you without charge upon your written or oral request. You can obtain documents related to RAIT that are incorporated by reference into this joint proxy statement-prospectus through the Securities and Exchange Commission’s website at http://www.sec.gov, from RAIT’s website at http://www.raitinvestmenttrust.com, or by requesting them in writing or by telephone from RAIT from the contact person identified below:

If you would like to request documents, please do so by December 4, 2006 to receive them before your special meeting.

You also may obtain additional proxy cards and other information related to the proxy solicitation by requesting them from the contact person identified above or, if you are a Taberna shareholder, by requesting them from Taberna, which term includes its subsidiaries unless the text indicates otherwise, from the contact person identified below. You will not be charged for any documents you request.

We will hold a special meeting of shareholders of RAIT Investment Trust, a Maryland real estate investment trust, on Monday, December 11, 2006, at 10:00 a.m., Eastern time, at Crowne Plaza Hotel, 1800 Market Street, Philadelphia, PA 19103 for the following purposes:

We have fixed the close of business on October 20, 2006 as the record date for determining those shareholders entitled to notice of and to vote at the special meeting and any adjournments, postponements or continuations of the special meeting. Only RAIT common shareholders of record at the close of business on that date are entitled to notice of the special meeting and any adjournments, postponements or continuations of the special meeting, and only RAIT common shareholders of record at the close of business on that date are entitled to vote at the special meeting and any adjournments, postponements or continuations of the special meeting. The issuance of RAIT common shares as consideration in the merger requires the approval of the holders of a majority of RAIT common shares voting at the special meeting, provided that a majority of the outstanding common shares vote on the matter. Abstentions and broker non-votes will not be treated as votes cast at the special meeting and therefore will have no effect on the result of the vote. If you wish to attend the special meeting and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

Whether or not you plan to attend the special meeting in person, please complete, date, sign and return the enclosed proxy card in the enclosed envelope, or authorize your proxy by telephone or via the Internet, as described on the enclosed proxy card. The enclosed envelope requires no postage if mailed in the United States. If you attend the special meeting, you may vote in person if you wish, even if you have previously returned your proxy card or voted by telephone or via the Internet.

RAIT’s board of trustees unanimously recommends that you vote “FOR” approval of the issuance of RAIT common shares in the merger.

A special meeting of shareholders of Taberna Realty Finance Trust, a Maryland real estate investment trust, is being held on Monday, December 11, 2006, at 10:00 a.m., Eastern time, at The Pyramid Club, 1735 Market Street, 52nd Floor, Philadelphia, PA 19103, for the following purposes:

We have fixed the close of business on October 20, 2006 as the record date for determining those shareholders entitled to notice of and to vote at the special meeting and any adjournments, postponements or continuations of the special meeting. Only Taberna shareholders of record at the close of business on that date are entitled to notice of the special meeting and any adjournments, postponements or continuations of the special meeting, and only Taberna shareholders of record at the close of business on that date are entitled to vote at the special meeting and at any adjournments, postponements or continuations of the special meeting. In order to approve the merger, the holders of a majority of the outstanding Taberna common shares entitled to vote must vote in favor of the proposal. Abstentions and broker non-votes will have the same effect as votes against approval of the merger. If you wish to attend the special meeting and your shares are held in the name of a broker, trust, bank or other nominee, you must bring with you a proxy or letter from the broker, trustee, bank or nominee to confirm your beneficial ownership of the shares.

Taberna’s board of trustees unanimously recommends that you vote “FOR” approval of the merger.

The following questions and answers highlight only selected procedural information from this joint proxy statement-prospectus. We urge you to read carefully the remainder of this joint proxy statement-prospectus because the questions and answers below do not contain all of the information that might be important to you with respect to the merger. Additional important information is also contained in the appendices to, and the documents incorporated by reference in, this joint proxy statement-prospectus.

This brief summary highlights selected information from this joint proxy statement-prospectus. It may not contain all the information that is important to you. We urge you to read the entire joint proxy statement-prospectus carefully as well as the other documents to which we refer you for a more complete understanding of the proposed merger between Taberna and a newly-formed subsidiary of RAIT. In addition, we incorporate by reference into this joint proxy statement-prospectus important business and financial information about RAIT. You may obtain this information without charge by following the instructions in the section entitled “Where You Can Find More Information” on page 172. Each item in this summary includes a page reference directing you to a more complete description of that item in this joint proxy statement-prospectus.

RAIT is a self-managed and self-advised Maryland REIT. RAIT conducts its operations through RAIT Partnership, L.P., a limited partnership that owns substantially all of RAIT’s assets. RAIT’s wholly-owned subsidiaries, RAIT General, Inc. and RAIT Limited, Inc., are the sole general partner and sole limited partner, respectively, of RAIT Partnership, L.P.

RAIT seeks to generate income for distribution to its shareholders from a combination of interest and fees on loans, rents and other income from its real estate interests and proceeds from the disposition of its investments.

Taberna is a self-managed and self-advised Maryland REIT that intends to elect and qualify to be taxed as a REIT commencing with its taxable year ended December 31, 2005. Taberna was formed in 2005 and commenced operations upon the closing of an initial private placement of its common shares in April 2005. Taberna provides financing for REITs and other real estate operating companies and invests in real estate-related assets with the objective of generating attractive risk-adjusted returns and cash distributions for its shareholders, although future distributions and capital appreciation are not guaranteed.

As of June 30, 2006, Taberna’s management team had directed the funding of approximately $4.3 billion of subordinated financing arrangements in the form of TruPS issued by REITs and real estate operating companies. The TruPS funded through June 30, 2006 were financed through six CDO transactions in which special purpose subsidiaries of Taberna issued debt and equity securities collateralized primarily by TruPS. Taberna uses warehouse facilities to fund the issuance of TruPS and to acquire other securities that may be included in CDOs or other securitizations. When a sufficient amount of suitable investments under the warehouse facility is acquired, Taberna finances them on a more permanent basis through a CDO or other securitization. Taberna expects to incur leverage of 9 to 15 times to finance investments in TruPS.

TruPS are typically issued by a special purpose trust that lends the proceeds from the issuance of the TruPS to its parent company. The loan to the parent company is represented by a subordinated debenture with terms mirroring the terms of the TruPS. The special purpose trust uses the payments of interest and principal it receives on the debenture to pay interest, dividends and redemption amounts to the holders of the TruPS. The TruPS that were included in Taberna’s six CDOs mature between 10 to 30 years from the date of issuance. TruPS are generally not callable by the issuer within five years of issuance. If the parent company of an issuer of TruPS defaults on payments due on the debenture that correspond to the TruPS, the trustee under the indenture governing the debenture has the right to accelerate the entire principal amount of the debenture. If the trustee fails to do so, holders of the TruPS may accelerate the indebtedness. In certain circumstances where a subsidiary company issues the debenture that corresponds to the applicable TruPS, the obligations of such subsidiary under the debenture are guaranteed by its parent company. TruPS are not secured by any collateral and generally rank junior to an issuer’s existing senior debt securities in right of payment and in liquidation. In the future, Taberna may also originate or acquire other types of preferred securities, including preferred equity securities, for REITs and other real estate operating companies. Taberna expects such securities to pay a fixed dividend and rank senior to common shares, but junior to unsecured debt.

The table below describes certain characteristics of the TruPS collateralizing, as of June 30, 2006, Taberna’s five CDO subsidiaries and a CDO that Taberna manages but that is not a subsidiary.

We Propose That Taberna Merge with a Newly-Formed Subsidiary of RAIT (Page 82)

We propose that Taberna become a subsidiary of RAIT by merging RT Sub Inc., or RT Sub, a newly-formed subsidiary of RAIT, with and into Taberna, with Taberna as the surviving entity. Following the merger, RAIT and Taberna will continue to be Maryland real estate investment trusts that intend to qualify as REITs, with their headquarters in Philadelphia, Pennsylvania.

RAIT will own 100% of Taberna’s common shares and approximately 83% of a series of nonvoting preferred stock will be issued by RT Sub to RAIT and the balance issued in a private offering to up to 125 individual private investors, none of whom is affiliated with RAIT or Taberna. RT Sub will issue the preferred stock, which will be converted into Taberna preferred shares in the merger, in order to ensure that Taberna has at least 100 shareholders, as required by rules applicable to REITs. The preferred stock, including the preferred stock issued to RAIT, will have an aggregate face amount of $720,000 and will pay dividends semi-annually at the rate of 12.5% per annum.

After the completion of the merger, RAIT will be called “RAIT Financial Trust” and its common shares will trade on the NYSE under the symbol “RAS.” We expect to complete the merger in the fourth quarter of 2006.

The following chart illustrates the organizational structure of RAIT prior to the merger:

The following chart illustrates the organizational structure of Taberna prior to the merger:

The following chart illustrates the organizational structure of the combined companies following completion of the merger:

Taberna Shareholders Will Receive 0.5389 of a RAIT Common Share for Each Taberna Common Share upon Completion of the Merger (Page 83)

Taberna Shareholders. If you are a Taberna shareholder, each of your Taberna common shares will be converted in the merger into 0.5389 of a RAIT common share. The exchange ratio of 0.5389 reflects the book values of Taberna and RAIT and was calculated by dividing Taberna’s book value per share of $9.29 at March 31, 2006, the end of the most recent accounting period prior to the date of the merger agreement, by RAIT’s book value per share of $17.24 at March 31, 2006. Book value was used by the parties as a basis for agreement because the market value of financial REITs is generally reflective of their book value, after taking into consideration other factors such as quality of management, profitability and cash available for dividends. The book value per share of each of Taberna and RAIT was determined by dividing the common shareholders’ equity by the number of common shares outstanding on a fully diluted basis. See “The Merger—Background of the Merger” for a discussion of the negotiation of the exchange ratio by RAIT’s and Taberna’s special committees.

RAIT will not issue fractional shares in the merger. Instead, it will pay cash for fractional common shares based on the NYSE closing price per RAIT common share on the last trading day before completion of the merger.

If you are a Taberna shareholder with certificated common shares, you must surrender your Taberna common share certificates to receive the merger consideration for those Taberna common shares and any dividends paid by RAIT with a record date after the completion of the merger. Please do not surrender your certificates until you receive written instructions from the exchange agent after we have completed the merger.

RAIT Shareholders. If you are a RAIT shareholder, your RAIT common shares will be unchanged by the merger. You do not need to surrender your common shares or your share certificates.

Combined Company. After the completion of the merger, former Taberna shareholders will own approximately 46% of the outstanding common shares of RAIT, and current RAIT shareholders will own approximately 54% of the outstanding common shares of RAIT.

The Number of RAIT Common Shares Issued in the Merger is Fixed, Although the Value of the Merger Consideration Will Fluctuate with Market Prices (Page 83)

In the merger, Taberna shareholders will receive 0.5389 of a RAIT common share for each Taberna common share.

The number of RAIT common shares issued in the merger for each Taberna common share is fixed and will not be adjusted for changes in the market price of RAIT common shares. Accordingly, any change in the price of RAIT common shares prior to the merger will affect the market value of the merger consideration that Taberna shareholders will receive. Neither of us may terminate the merger agreement or resolicit the vote of our respective shareholders solely because of changes in the market price of RAIT common shares.

You may obtain current share price quotations for RAIT common shares. RAIT common shares are listed on the NYSE under the symbol “RAS.” There is no public trading market for Taberna common shares. The following table shows the closing prices for RAIT common shares and the implied per share value in the merger to Taberna shareholders for the following dates and periods:

We agreed upon a fixed exchange ratio, and note that a fixed exchange ratio is customary for “mergers of equals” such as this merger. Although the number of shares that will be issued will not change, the value of those shares will fluctuate with the market price.

Both RAIT and Taberna operate as REITs for U.S. federal income tax purposes. As REITs, each of RAIT and Taberna is required to distribute at least 90% of its annual net taxable income, excluding net capital gain, in order to maintain its REIT qualification. RAIT and Taberna will continue their qualification as REITs following the merger. We believe the merger will potentially result in dividend growth for the combined company because of increased cash available for distribution, or CAD, as a result of the combined company’s strategy of lowering its cost of funds through CDO financing and increasing the proportion of its assets invested in RAIT’s higher-yielding real estate loans.

Pursuant to Article VI of the merger agreement, in order to equalize the dividends (as multiplied by the exchange ratio), RAIT’s dividend for the second quarter was limited to $0.64 (Taberna had previously paid a second quarter dividend of $0.35) and a $0.62 RAIT second quarter dividend was paid. The record dates for RAIT’s and Taberna’s third quarter dividends were the same date, and the third quarter dividend payments were paid at a mutually agreed upon proportionate rate of $0.72 for RAIT and $0.39 for Taberna. Pursuant to the merger agreement, neither party may declare a fourth quarter dividend until after the completion of the merger or the termination of the merger agreement.

Neither RAIT nor Taberna has paid any dividends in excess of CAD. We define CAD as net income (loss) adjusted for non-cash items and timing differences between GAAP income recognition and the receipt of cash.

CAD is a non-GAAP financial measure that is not intended to represent cash flow for the period and is not indicative of cash flow provided by operating activities as determined under GAAP. We believe CAD provides useful information regarding the combined company’s ability to fund its dividends. Because all companies do not calculate CAD the same way, the presentation of CAD may not be comparable to similarly titled measures of other companies or to the funds from operations, referred to as FFO, as defined by NAREIT. Generally, the major differences between CAD and FFO relate to (1) non-cash amortization of deferred financing costs and (2) origination fees and structuring fees included in CAD upon receipt but deferred for GAAP reporting, thereby excluded from FFO. Amortization of deferred financing costs are included in net income under the NAREIT definition of FFO; however, as a non-cash charge, the amortization is added back in computing CAD. Fees received at initial funding for originating collateral and structuring CDOs are recognized in net income over the investment term in the CDOs and are included in CAD in the period they are received.

The merger will be treated as a purchase by RAIT of Taberna under U.S. generally accepted accounting principles, or GAAP.

The Merger Generally Will Not Result in the Recognition of Taxable Income to Shareholders (Page 92)

The merger is intended to constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code. Therefore, for U.S. federal income tax purposes, Taberna shareholders generally will not recognize gain on the receipt of RAIT common shares. Taberna shareholders will, however, recognize gain or loss in connection with cash received in lieu of fractional RAIT common shares. The merger is conditioned on the receipt of legal opinions of Sullivan & Cromwell LLP, special counsel to RAIT, and Clifford Chance US LLP, counsel to Taberna, that, for U.S. federal income tax purposes, the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that RAIT and Taberna will be treated as parties to such reorganization within the meaning of Section 368(b) of the Internal Revenue Code.

For a complete description of the material U.S. federal income tax consequences of the merger, see “The Merger Agreement—Material U.S. Federal Income Tax Consequences.”

Tax matters are very complicated and the consequences of the merger to any particular shareholder will depend on that shareholder’s particular facts and circumstances. We urge you to consult your tax advisor to determine the tax consequences of the merger to you.

Both RAIT and Taberna Established Special Committees to Negotiate and Consider the Merger (Page 61)

Because the Chairman and Chief Executive Officer of RAIT, Betsy Z. Cohen, is the mother of the Chairman and Chief Executive Officer of Taberna, Daniel G. Cohen, both companies established special committees to negotiate and consider the merger. The special committee of the board of trustees of RAIT consisted of all trustees of RAIT other than Betsy Z. Cohen and Jonathan Z. Cohen, the son of Betsy Z. Cohen and the brother of Daniel G. Cohen. The board of trustees of RAIT had previously determined that these trustees satisfied the requirements for independence under NYSE listing standards and met the definition of an independent trustee in RAIT’s declaration of trust. The special committee of the board of trustees of Taberna consisted of all trustees of Taberna other than Daniel G. Cohen and James J. McEntee, III, who is the Chief Operating Officer of Cohen Brothers, LLC, or Cohen Bros., a diversified financial services company indirectly controlled by Daniel G. Cohen. Both special committees retained their financial advisors directly, and the special committee of the board of trustees of Taberna retained separate counsel, Pepper Hamilton LLP. The special committee of the board of trustees of RAIT was advised by special counsel, Sullivan & Cromwell LLP, which also advised RAIT on the merger, and which does not otherwise regularly advise RAIT.

RAIT’s Special Committee of the Board of Trustees Received an Opinion from its Financial Advisor as to the Fairness, from a Financial Point of View, to RAIT of the Exchange Ratio in the Merger (Page 69)

In connection with the merger, the special committee of the board of trustees of RAIT received a written opinion dated June 8, 2006 from its financial advisor, UBS Securities LLC, which we refer to as UBS, as to the fairness, from a financial point of view and as of the date of such opinion, to RAIT of the exchange ratio in the

merger. The full text of UBS’ written opinion, dated June 8, 2006, is attached to this joint proxy statement-prospectus as Appendix B. We encourage you to read this opinion carefully in its entirety for a description of the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. UBS’ opinion was provided to RAIT’s special committee in its evaluation of the merger from a financial point of view, does not address any other aspect of the merger and does not constitute a recommendation to any shareholder as to how to vote or act with respect to the merger. RAIT has agreed to pay UBS for its financial advisory services in connection with the merger an aggregate fee estimated to be approximately $4.5 million, comprised of payments made in quarterly installments during UBS’ engagement totaling $200,000, an opinion fee of $1.5 million payable in connection with UBS’ opinion and a transaction fee of approximately $2.8 million contingent upon the consummation of the merger.

Taberna’s Special Committee of the Board of Trustees Received an Opinion from its Financial Advisor as to the Fairness of the Consideration to be Received by Taberna Shareholders (Page 74)

On June 8, 2006, the date the Taberna board of trustees approved the merger, Merrill Lynch, Pierce, Fenner & Smith Incorporated, which we refer to as Merrill Lynch, the financial advisor to the special committee of the board of trustees of Taberna, delivered its opinion to the special committee of the board of trustees of Taberna that, as of that date and based upon and subject to the factors and assumptions set forth therein, the consideration to be received by the holders of Taberna’s common shares pursuant to the merger agreement was fair from a financial point of view to such holders. The full text of Merrill Lynch’s written opinion is attached to this joint proxy statement-prospectus as Appendix C. You should read this opinion completely to understand the procedures followed, assumptions made, matters considered and qualifications and limitations of the review undertaken by Merrill Lynch. Merrill Lynch’s opinion was directed to the special committee of the board of trustees of Taberna in connection with its evaluation of the merger consideration to be offered to Taberna, does not in any manner address the decision of Taberna to proceed with or effect the merger and does not constitute a recommendation as to how any shareholder should vote with respect to the merger agreement. Pursuant to a letter agreement between Taberna and Merrill Lynch, dated as of May 5, 2006, Taberna agreed to pay Merrill Lynch for the following financial advisory services rendered: (i) a presentation fee of $500,000 for Merrill Lynch’s presentation to Taberna with respect to strategic alternatives available to Taberna, payable upon delivery of the presentation, (ii) an opinion fee of $1.0 million payable upon delivery of an opinion to Taberna’s special committee, (iii) a transaction fee of $2.5 million payable upon merger completion (less any fees previously paid), and (iv) if the merger agreement is terminated and RAIT pays Taberna a termination fee, 15% of the termination fee received by Taberna. Merrill Lynch has, in the past, provided brokering services to introduce REITs to Taberna’s funding sources, and has also structured CDOs that are managed by Taberna or certain of its affiliates and placed the securities in such CDOs. Merrill Lynch has also acted as initial purchaser in a 144A private equity offering for an affiliate of Taberna, Alesco Financial Trust, or Alesco. The approximate aggregate fees received by Merrill Lynch in the last two years for the services it rendered to Taberna as described above were $111.3 million (excluding fees in connection with the merger) and to Cohen Bros. and Alesco, $125.4 million.

Interests of Taberna’s Trustees and Executive Officers in the Merger (Page 94)

All Taberna trustees and senior executive officers are shareholders of Taberna. Some of Taberna’s trustees and executive officers have interests in the merger other than their interests as shareholders. The members of the

special committees of the boards of trustees of RAIT and Taberna knew about these additional interests and considered them when they approved the merger and the merger agreement.

Trustees of Taberna. The merger agreement provides that four designees of Taberna (one of whom will be Daniel G. Cohen) will be appointed to RAIT’s board of trustees effective upon completion of the merger. Taberna’s existing board of trustees, as is usually the case following a merger, will be replaced by a board consisting of employees of RAIT. RAIT has agreed in the merger agreement to indemnify all present and former trustees, officers and employees of Taberna and its subsidiaries against costs and expenses in connection with claims arising from matters existing or occurring prior to the completion of the merger. In addition, RAIT has agreed to obtain trustees’ and officers’ liability insurance for present and former officers and trustees of Taberna and its subsidiaries with respect to facts or events occurring prior to the completion of the merger.

Senior Executive Officers of Taberna and RAIT. Following the merger, Daniel G. Cohen will become the Chief Executive Officer of RAIT and Betsy Z. Cohen will serve as Chairman of RAIT. Betsy Z. Cohen and Scott F. Schaeffer, President and Chief Operating Officer of RAIT, waived their rights to terminate their existing employment agreements with RAIT for “good reason,” subject to entering into amended employment agreements with RAIT. In addition, four executive officers of Taberna have entered into employment agreements with RAIT, effective upon completion of the merger, and one executive officer of Taberna has entered into an amendment to his employment agreement with Taberna that will become effective upon the completion of the merger pursuant to which RAIT will assume the employment agreement and will become the employer thereunder. See “The Merger Agreement—Interests of Certain Persons in the Merger—Employment Agreements.”

Restricted Share Awards. Under the terms of Taberna’s 2005 equity incentive plan and the existing employment agreements between Taberna and its executives, Daniel G. Cohen, Mitchell Kahn, Jack E. Salmon, Raphael Licht, Plamen Mitrikov and James J. Sebra, all restrictions and risks of forfeiture applicable to restricted shares awarded under the 2005 equity incentive plan (other than the 693,333 shares issued on June 29, 2006) lapse or terminate upon the occurrence of a change of control of Taberna. The merger with RAIT will constitute a change of control under the 2005 equity incentive plan. Pursuant to their new employment agreements, Daniel G. Cohen, Taberna’s Chief Executive Officer, and Plamen Mitrikov, Taberna’s Executive Vice President—Asset Management, each agreed to waive the right to have the restrictions and risks of forfeiture terminate with respect to all of the restricted shares held by them so that their restricted shares will continue to vest in accordance with their terms notwithstanding the merger. The total number and value of the restricted shares held by each of Taberna’s executive officers and trustees as to which all restrictions and forfeiture provisions will lapse or terminate as a result of the merger is as follows (based upon the exchange ratio and the closing price of RAIT common shares on the NYSE on November 2, 2006).

Under Maryland law, Taberna shareholders are entitled to appraisal rights which allow Taberna shareholders to, subject to complying with the applicable procedures, demand and receive payment of the fair value of their Taberna common shares in cash instead of receiving the merger consideration.

We have included a copy of the applicable Maryland law requirements as Appendix D to this joint proxy statement-prospectus.

Under Maryland law, RAIT shareholders are not entitled to appraisal rights as a result of the merger.

Each Board of Trustees Recommends That Its Shareholders Vote “FOR” the Proposals Relating to the Merger (Pages 65 and 67)

RAIT Shareholders. RAIT’s board of trustees believes that the merger is in the best interests of RAIT and its shareholders, and unanimously recommends that RAIT shareholders vote “FOR” the proposal to approve the issuance of RAIT common shares as consideration in the merger.

Taberna Shareholders. Taberna’s board of trustees believes that the merger is in the best interests of Taberna and its shareholders and that the merger consideration is fair to Taberna shareholders, and unanimously recommends that Taberna shareholders vote “FOR” the proposal to approve the merger.

RAIT’s Board of Trustees. RAIT’s board of trustees is proposing that RAIT shareholders approve the issuance of RAIT common shares as consideration in the merger because, among other reasons, the board believes:

RAIT’s board of trustees also considered the potential initial negative impact of the merger and the issuance of additional RAIT common shares on the market price of RAIT common shares following announcement of the merger. In addition, it considered the following potential adverse consequences of the merger:

The RAIT board concluded, however, that the anticipated benefits of the merger were likely to substantially outweigh the risks and merger-related expenses.

Taberna’s Board of Trustees. Taberna’s board of trustees is proposing that Taberna shareholders approve the merger because, among other reasons, the board believes:

The Taberna special committee and the Taberna board of trustees also considered a number of potentially negative factors in determining whether to approve the merger, including the following:

The Taberna board concluded, however, that the anticipated benefits of the merger were likely to substantially outweigh the potentially negative factors.

RAIT and Taberna expect to incur an estimated $12.7 million of merger-related expenses.

Merger Approval Requires a Majority of Votes Cast by RAIT Shareholders and a Majority of Outstanding Shares by Taberna Shareholders (Pages 57 And 59)

RAIT Shareholders. The issuance of RAIT common shares as consideration in the merger requires the approval of the holders of a majority of RAIT common shares voting at RAIT’s special meeting, provided that a majority of the outstanding common shares vote on the matter. As of October 20, 2006, the record date for the RAIT special meeting, RAIT trustees and executive officers beneficially owned about 692,158, or approximately 2.5%, of the shares entitled to vote at the RAIT special meeting. Taberna and its trustees and executive officers beneficially owned less than 1% of the shares entitled to vote at the RAIT special meeting.

Taberna Shareholders. In order to approve the merger, the holders of a majority of Taberna common shares outstanding as of October 20, 2006, the record date for the Taberna special meeting, entitled to vote must vote to approve the merger. As of that date, Taberna trustees and executive officers beneficially owned about 4,367,811, or approximately 9.8%, of the shares entitled to vote at the Taberna special meeting. RAIT and its trustees and executive officers beneficially owned less than 1% of the shares entitled to vote at the Taberna special meeting.

Our obligations to complete the merger depend on a number of conditions being satisfied or waived. These include:

Where the law permits, either of us could choose to waive a condition to our obligation to complete the merger even when that condition has not been satisfied. We cannot be certain when, or if, the conditions to the merger will be satisfied or waived, or that the merger will be completed.

The change in control of Taberna’s broker-dealer subsidiary, Taberna Securities, LLC, or Taberna Securities, in connection with the merger is subject to approval by the National Association of Securities Dealers, Inc., referred to as the NASD. Otherwise, neither RAIT nor Taberna is aware of any material U.S. federal or state regulatory requirements that must be complied with or approvals that must be obtained in connection with the merger.

Each of the combined company and Taberna intends to continue to qualify as a REIT for federal income tax purposes. In order to maintain their qualification as REITs, each of the combined company and Taberna will have to satisfy the applicable requirements for REIT qualification, which include requirements regarding the types of assets a REIT may hold and the types of income it may earn. Each entity’s intention to qualify as a REIT will have a significant impact on its investment activities. The primary REIT rules that will impact the combined company’s and Taberna’s investment activities include the following:

Each of the combined company and Taberna must invest in a sufficient amount of qualifying real estate assets directly or through disregarded subsidiaries so that the value of those assets and the amount of gross income they generate, when compared to the value of the securities each entity holds in TRSs and the dividends received and other income includable by it in its gross income as a result of its TRS investments, together with any other non-qualifying REIT income the entity earns, will enable it to continue to satisfy the REIT requirements. Each of the combined company and Taberna expects to satisfy the REIT income tests principally through the gross income generated by investments in qualifying real estate assets, such as mortgage loans and mezzanine loans of the type in which RAIT has historically invested and, to a lesser extent over time, residential mortgage loans of the type in which Taberna has previously invested, together with distributions from their respective TRSs of income generated by their assets and operations. In addition, the REIT rules provide that the value of securities each of the combined company and Taberna holds in its TRSs cannot exceed 20% of the value of RAIT Investment Trust’s or Taberna Realty Finance Trust’s, as applicable, gross assets. As of June 30, 2006, the aggregate estimated fair value of RAIT’s and Taberna’s investments in TRSs was approximately 0% and 12.3%, respectively, of the value of its gross assets. This amount is determined by dividing the estimated fair value of the securities which the REIT holds in its TRSs, which is net of third party liabilities and other indebtedness of the TRSs, by the fair value of its gross assets (which are primarily comprised of its mortgage loan portfolio and such TRS securities). The combined company’s ability to operate and grow its business and Taberna’s business will depend on its ability to continue to make, and to cause Taberna to make, sufficient investments in qualifying real estate assets.

We can mutually agree at any time to terminate the merger agreement without completing the merger, even if we have obtained the appropriate shareholder approvals. Also, either of us can decide, without the consent of the other, to terminate the merger agreement:

Whether or not the merger is completed, we will each pay our own fees and expenses, except that we will evenly divide the costs and expenses that we incur in printing and mailing this joint proxy statement-prospectus and filing fees paid in connection with the registration statement.

In circumstances involving a competing acquisition bid for the other party, the party that is the subject of the competing acquisition bid is required to pay the other party a termination fee of $18 million upon termination of the merger agreement or, in some cases, within a specified period of time after termination. See “The Merger Agreement—Termination Fee” for more information.

We Have Agreed When and How Each of Us Can Consider Third Party Acquisition Proposals (Page 88)

In the merger agreement, both Taberna and RAIT agreed not to initiate, solicit or encourage acquisition proposals from third parties. In addition, both parties agreed not to engage in negotiations with or provide confidential information to a third party regarding the acquisition of it or its businesses. However, if either RAIT or Taberna receives an unsolicited acquisition proposal from a third party, it can participate in negotiations with and provide confidential information to the third party if its board of trustees concludes in good faith that the proposal is one that is, or would reasonably be likely to result in, a superior proposal to our merger and that to take such actions would not contravene the trustees’ statutory obligations. Either company may, after following the process contemplated by the merger agreement, which includes giving the other party an opportunity to make a competing proposal, accept an acquisition proposal which it has determined to be a superior proposal. The party that terminates the merger agreement to accept a superior proposal is required to pay the other party a termination fee of $18.0 million.

We may jointly amend the merger agreement, and each of us may waive our right to require the other party to follow particular provisions of the merger agreement. However, we may not amend the merger agreement after our shareholders approve the merger if the amendment would violate applicable law.

The Rights of Taberna Shareholders Following the Merger Will Be Different (Page 107)

The rights of RAIT and Taberna shareholders are both governed by Maryland law. However, RAIT’s declaration of trust and bylaws and Taberna’s declaration of trust and bylaws differ. Taberna shareholders should be aware of these differences when they vote at the special meeting because, upon completion of the merger, they will own RAIT common shares and therefore their rights will be governed by RAIT’s declaration of trust and bylaws.

Acquisition of Taberna Capital and Taberna Securities. In April 2005, Taberna acquired from Cohen Bros. or a wholly-owned subsidiary of Cohen Bros.’ parent company 100% of the ownership interests in each of Taberna Capital Management, LLC, which we refer to herein as Taberna Capital, and Taberna Securities. Taberna consummated the acquisitions through mergers in which Cohen Bros. received an aggregate of 2.0 million of Taberna common shares with a value of $20.0 million, based upon a per share price equal to the initial offering price of Taberna common shares in Taberna’s initial private placement. At the time of the mergers, Taberna Capital’s and Taberna Securities’ assets consisted primarily of $5.0 million of cash which was pledged as collateral under Taberna’s initial TruPS warehouse facility, a collateral management agreement for Taberna Preferred Funding I, Ltd., or Taberna I, and other intangible assets. Taberna Capital acts as the collateral manager for Taberna’s six CDOs—Taberna I, Taberna Preferred Funding II, Ltd., or Taberna II, Taberna Preferred Funding III, Ltd., or Taberna III, Taberna Preferred Funding IV, Ltd., or Taberna IV, Taberna Preferred Funding V, Ltd., or Taberna V, and Taberna Preferred Funding VI, Ltd., or Taberna VI—under the terms of six separate collateral management agreements and receives an annual fee of approximately $2.8 million, $4.0 million, $3.0 million, $2.6 million, $2.8 million and $2.8 million, respectively, for its services in these capacities for so long as the relevant collateral management agreement remains in effect. The fees payable under these agreements are based upon the amount of collateral held by the CDOs. Accordingly, these fees will decline if underlying collateral assets are prepaid.

Shared Facilities and Services Agreement. Taberna entered into the shared facilities and services agreement with Cohen Bros. pursuant to which Cohen Bros. agreed to provide Taberna, directly or through its subsidiaries, with certain facilities and services, including office space and assistance with structuring and managing Taberna’s investments in mortgage loans and other mortgage-backed securities. The initial term of the shared facilities and services agreement, effective from April 2005 through April 2006, provided that, in respect of services relating to structuring and managing Taberna’s investments in mortgage loans and other mortgage-backed securities, Taberna would pay Cohen Bros. an annual fee of 10 basis points on the amount of the investments, subject to a minimum fee of $250,000 per year and a maximum fee of $750,000 per year. In respect of accounting support and cash management services and administrative and other transitional services, Taberna paid Cohen Bros. for the cost of providing those services plus 10% of such cost, including a monthly rental fee of $17,500 for office space and facilities. The shared facilities and services agreement was renewed on July 2006 through June 30, 2008. The renewed agreement provides that in respect of services relating to structuring and managing Taberna’s investments in CMBS and RMBS, Taberna will pay Cohen Bros. an annual fee ranging from 2 to 20 basis points on the amount of the investments, based on the rating of the security. For investments in residential whole loans, Taberna will pay Cohen Bros. an annual fee of 1.5 basis points on the amount of the investments. In respect of software licensing, human resources and administrative and other services, Taberna will continue to pay Cohen Bros. for the cost of providing those services plus 10% of such cost. Taberna and Cohen Bros. are negotiating a separate sub-lease agreement for the shared office space and facilities. Through June 30, 2006, Taberna incurred $1.1 million of expenses under the shared facilities and services agreement.

Broker-Dealer Services Agreement. Taberna entered into the broker-dealer services agreement with Taberna’s affiliate Cohen & Company Securities, LLC, or CB&C, a registered broker-dealer. CB&C is a wholly-owned subsidiary of Cohen Bros. Under the agreement, CB&C agreed to perform, at Taberna’s request, any activities related to Taberna’s investment activities that could be performed only by a registered broker-dealer. Under this agreement, CB&C is entitled to retain any origination fees paid by third parties in respect of investments Taberna makes; provided, however, that CB&C will not charge origination fees exceeding 1.5% of the gross proceeds to such issuer per transaction. In addition, CB&C may engage third-party investment banks to originate collateral, and these banks will also receive a portion of the origination fees. CB&C may not originate any investment on Taberna’s behalf except pursuant to the request and approval of a majority of Taberna’s independent trustees.

A substantial majority of the TruPS funded through Taberna’s warehouse facilities and the Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI CDOs were originated by CB&C. Through June 30, 2006, CB&C had retained $32.4 million in origination fees in respect of TruPS that were funded through Taberna’s warehouse facilities and the Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI CDOs. In addition, third-party investment banks and brokers unrelated to CB&C received $62.7 million in origination fees since Taberna’s inception through June 30, 2006. Because Taberna Securities is now licensed to act as a broker-dealer, Taberna anticipates that CB&C will provide significantly fewer services under this agreement. However, if the value of our investment in Taberna Securities or Taberna’s other TRSs becomes too high, Taberna and, following the completion of the merger, the combined company may be precluded by the REIT rules from expanding or maintaining the business of Taberna Securities, and Taberna may re-engage CB&C, or engage a third-party broker-dealer, to act as an originator. Taberna has and Taberna may from time to time continue to utilize the services of CB&C to sell securities issued by Taberna’s CDO entities, and CB&C will earn customary market commissions for such services. From Taberna’s inception through June 30, 2006, CB&C earned $5.8 million in connection with the placement of debt and equity securities issued by Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI.

Non-Competition Agreement. Taberna entered into a three-year non-competition agreement with Cohen Bros. pursuant to which Cohen Bros. agreed not to engage in purchasing from, or acting as placement agent for, issuers of TruPS or other preferred equity securities issued by REITs and other real estate operating companies.

Cohen Bros. also agreed not to act as collateral manager for CDOs or securitizations involving such securities. In addition, Cohen Bros. agreed not to solicit Taberna’s executive officers to do anything that would violate Cohen Bros.’ non-competition covenant or to terminate their employment with Taberna or become employed by Cohen Bros., if not already so employed, during the term of the agreement. This agreement runs from April 28, 2005, the closing date of Taberna’s initial private placement, and is subject to termination in certain circumstances, including upon the change of control of Taberna. The merger with RAIT will constitute a change of control of Taberna under the non-competition agreement. Accordingly, Cohen Bros. has agreed to waive its termination right as a result of the merger under this agreement.

RAIT. After the merger, RAIT expects to continue to engage in transactions with several related entities of RAIT and Taberna in the ordinary course of its business, including transactions that would result in the payment of fees such as fees for sharing facilities and providing brokerage, CDO structuring and management services. We describe these transactions in “Business of Taberna—Certain Relationships and Related Party Transactions of Taberna” and in RAIT’s quarterly report on Form 10-Q for the quarterly period ended June 30, 2006 referenced below under “Where You Can Find More Information.” In addition, RAIT anticipates it will engage in transactions with Cohen Bros. in which Cohen Bros. will earn fees for the structuring and placement of CDOs.

RAIT plans to hold its special meeting on Monday, December 11, 2006, at 10:00 a.m., Eastern time, at Crowne Plaza Hotel, 1800 Market Street, Philadelphia, PA 19103. At the meeting, RAIT common shareholders will be asked to approve the issuance of RAIT common shares as consideration in the merger.

RAIT common shareholders can vote at the RAIT special meeting of shareholders if they owned RAIT common shares at the close of business on October 20, 2006. As of that date, there were 28,161,470 RAIT common shares outstanding and entitled to vote. RAIT common shareholders can cast one vote for each RAIT common share that they owned on that date. The issuance of RAIT common shares as consideration in the merger requires the approval of the holders of a majority of RAIT common shares voting at the special meeting, provided that a majority of the outstanding common shares vote on the matter.

Taberna plans to hold its special meeting of shareholders on Monday, December 11, 2006, at 10:00 a.m., Eastern time, at The Pyramid Club, 1735 Market Street, 52nd Floor Philadelphia, PA 19103. At the meeting, Taberna shareholders will be asked to approve the merger.

Taberna shareholders can vote at the Taberna special meeting of shareholders if they owned Taberna common shares at the close of business on October 20, 2006. As of that date, there were 44,353,973 Taberna common shares outstanding and entitled to vote. Taberna shareholders can cast one vote for each Taberna common share that they owned on that date. In order to approve the merger, the holders of a majority of the outstanding Taberna common shares entitled to vote must vote in favor of the merger.

The table on the following page shows historical information about our companies’ respective earnings per share, dividends per share and book value per share, and similar information reflecting the merger, which we refer to as “pro forma” information, at or for the six months ended June 30, 2006, and at or for the year ended December 31, 2005. In presenting the comparative pro forma information for the periods shown, it is assumed that RAIT and Taberna had been combined throughout those periods.

The merger will be accounted for under an accounting method known as “purchase accounting.” Under the purchase method of accounting, the assets and liabilities of the company not surviving a merger are recorded, as

of the completion date of the merger, at their respective fair values and added to those of the surviving company. Financial statements of the surviving company issued after completion of the merger reflect such values and are not restated retroactively to reflect the historical financial position or results of operations of the company not surviving. Applying “purchase accounting” to this transaction, RAIT is deemed to be the acquirer.

Pro forma combined amounts are calculated by adding together the historical amounts reported by RAIT and Taberna, as adjusted for:

RAIT also anticipates that the merger will provide RAIT with financial benefits that include increased CAD, but these financial benefits are not reflected in the pro forma information. Accordingly, the pro forma information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company would have been had our companies been combined during the periods presented.

The information in the following table is based on historical financial information and related notes that we have presented in RAIT’s prior filings with the SEC and on the information concerning Taberna contained elsewhere in this joint proxy statement-prospectus. You should read all of the summary financial information provided in the following table together with this historical financial information and related notes. The historical financial information concerning RAIT is also incorporated into this joint proxy statement-prospectus by reference. See “Where You Can Find More Information” for a description of where you can find this historical information.

At December 31, 2005 historical book value per share is computed by subtracting the liquidation value of preferred shares of $125.5 million (5.0 million Series A and B shares at $25.00 per share) from total shareholders’ equity of $609.2 million and dividing that result by total common shares outstanding of 27.9 million.

At December 31, 2005, pro forma book value per share is computed by subtracting the liquidation value of preferred shares of $125.5 million (5.0 million Series A and B shares at $25.00 per share) from total shareholders’ equity of $1.2 billion and dividing that result by total common shares outstanding of 51.8 million.

The following tables show summarized historical financial data for each of RAIT and Taberna and also show similar pro forma information reflecting the merger. The historical financial data show the financial results actually achieved by RAIT and Taberna for the periods indicated. The pro forma information reflects the pro forma effect of accounting for the merger under the purchase method of accounting. The pro forma income statement data for the six months ended June 30, 2006 assumes completion of the merger on January 1, 2006. The pro forma income statement data for the year ended December 31, 2005 assumes completion of the merger on January 1, 2005. The pro forma balance sheet data assumes completion of the merger on June 30, 2006.

Pro forma combined amounts are calculated by adding together the historical amounts reported by RAIT and Taberna, as adjusted for:

The information in the tables on the following pages is based on historical financial information and related notes that RAIT has presented in its prior filings with the SEC and that is included elsewhere in the joint proxy statement-prospectus with respect to Taberna. You should read all of the summary financial information provided in the following tables together with this historical financial information and related notes. RAIT historical financial information is also incorporated into this joint proxy statement-prospectus by reference. See “Where You Can Find More Information” for a description of where you can find this historical information concerning RAIT.

During the six-months ended June 30, 2006, RAIT reclassified two properties from “held for use” to “held for sale.” In compliance with Statement of Financial Accounting Standards No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” or SFAS No. 144, and in connection with this joint proxy statement-prospectus, on July 17, 2006, RAIT filed a current report on Form 8-K to provide required updating disclosure with respect to its Annual Report on Form 10-K for the fiscal year ended December 31, 2005 and its Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2006.

The following summary selected financial data are derived from RAIT’s audited financial statements as of and for the years ended December 31, 2005 through 2001^(a) and from its unaudited financial statements as of and for the six months ended June 30, 2006 and 2005. Financial data as of and for the six months ended June 30, 2006 and 2005 are not necessarily indicative of results of operations or financial condition to be expected as of any future date or for any future period. This information is only a summary. You should read it along with RAIT’s historical audited and unaudited financial statements and related notes and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operation” contained in RAIT’s annual reports, quarterly reports and other information on file with the SEC and incorporated by reference into this joint proxy statement-prospectus. See “Where You Can Find More Information.”

The following summary selected financial data of Taberna are derived from consolidated financial statements contained elsewhere in this joint proxy statement-prospectus. In the opinion of Taberna management, such information reflects all adjustments necessary for a fair statement of the results of operations for such period. Financial data as of and for the periods shown below are not necessarily indicative of results of operations or financial condition to be expected as of any future date or for any future period. The summary selected financial data should be read in conjunction with the more detailed information contained in the financial statements and notes thereto and in “Taberna Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained elsewhere in this joint proxy statement-prospectus.

In addition to the other information contained in or incorporated by reference into this joint proxy statement-prospectus, including the matters addressed under the heading “Forward-Looking Statements,” you should carefully consider the following risk factors in deciding how to vote on the merger.

Because the market price of RAIT common shares may fluctuate, Taberna shareholders cannot be sure of the market value of the RAIT common shares that they will receive in the merger.

In the merger, Taberna shareholders will receive 0.5389 of a RAIT common share for each Taberna common share. Because the number of RAIT common shares that will be issued in the merger to each Taberna common shareholder is fixed and will not be adjusted for changes in the market price of RAIT common shares, any change in the price of RAIT common shares will affect the market value of the consideration that Taberna shareholders will receive. Neither RAIT nor Taberna is permitted to terminate the merger agreement or resolicit the vote of its shareholders solely because of changes in the market price of RAIT common shares.

Share price changes may result from a variety of factors, including general market and economic conditions and changes in our businesses, operations and prospects and other considerations. Many of these factors are beyond our control. The price of RAIT common shares at the closing of the merger may vary from its price on the date the merger agreement was executed, the date of this joint proxy statement-prospectus and the date of the special meetings. As a result, the value represented by the merger consideration also will vary. For example, based on the range of closing prices of RAIT common shares during the period from June 8, 2006, the last trading day before public announcement of the execution of the merger agreement, through November 2, 2006, the merger consideration represented a value ranging from a high of $16.20 to a low of $13.56 for each Taberna common share. Because the date the merger is completed could be later than the dates of the meetings, at the time of your shareholders’ meeting, you will not necessarily know the market value of RAIT common shares that Taberna shareholders will receive upon completion of the merger.

Combining our two companies may be more difficult, costly or time-consuming than we expect.

RAIT and Taberna have operated and, until completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees or disruption of each company’s ongoing business or inconsistencies in standards, systems, controls, procedures and policies that adversely affect our ability to maintain relationships with employees or to achieve the anticipated benefits of the merger. The success of RAIT following the merger may depend in large part on the ability to integrate the two businesses. If we are not able to integrate our operations successfully and timely, the expected benefits of the merger may not be realized.

Future results of the combined company may differ materially from the pro forma financial information presented in this joint proxy statement-prospectus.

RAIT’s future results may be materially different from those shown in the pro forma financial information presented in this joint proxy statement-prospectus that show only a combination of RAIT’s and Taberna’s historical results. RAIT and Taberna expect to incur an estimated $12.7 million of merger-related expenses. The expenses may be higher or lower than estimated, depending upon how costly or difficult it is to integrate our two companies.

Uncertainties associated with the merger may cause a loss of employees and may otherwise affect the future business and operations of RAIT and Taberna.

RAIT’s success after the merger will depend in part upon its ability to retain key employees of RAIT and Taberna. Current and prospective employees of RAIT and Taberna may experience uncertainty about their roles

with the combined company following the merger. This may adversely affect the ability of each of RAIT and Taberna to attract and retain key personnel. In addition, key employees may depart because of issues relating to the uncertainty and difficulty of integration or a desire not to remain with the combined company following the merger. Accordingly, no assurance can be given that the combined company will be able to attract or retain key employees of RAIT and Taberna to the same extent that those companies have been able to attract or retain their own employees in the past. To date, RAIT and Taberna have not been notified by any key employees that they plan to terminate their relationship with either company.

RAIT and Taberna expect to incur costs and expenses in connection with the merger.

RAIT and Taberna expect to incur costs and expenses of approximately $12.7 million in connection with the merger. These costs and expenses include insurance costs, investment banking, legal and accounting fees, printing expenses and other related charges incurred and expected to be incurred by RAIT and Taberna. There can be no assurance that the costs incurred by RAIT and Taberna in connection with the merger will not be higher than expected or that the combined company will not incur additional unanticipated costs and expenses in connection with the merger.

All Taberna trustees and executive officers are shareholders of Taberna. However, certain trustees and executive officers of Taberna have interests in the merger that may be different from, or in addition to, their interests as shareholders generally.

When considering the Taberna board’s recommendation that holders of Taberna common shares vote in favor of the merger, Taberna shareholders should be aware that members of Taberna’s senior management will receive certain benefits as a result of the merger. The Taberna board of trustees and special committee were aware of these interests and considered them, among other matters, in approving the merger. These interests include:

Taberna shareholders should consider whether these interests may have influenced these trustees and officers to support or recommend approval of the merger. For a full description of these interests, see “The Merger Agreement—Interests of Certain Persons in the Merger.”

Failure to complete the merger could negatively impact the price of RAIT common shares and future business and operations.

The merger is subject to customary conditions to closing, including the receipt of required approvals from the shareholders of RAIT and the shareholders of Taberna. If any condition to the merger is not satisfied or, if

permissible, waived, the merger will not be completed. In addition, RAIT and Taberna may terminate the merger agreement in certain circumstances. If RAIT and Taberna do not complete the merger, the market price of RAIT common shares may fluctuate to the extent that the current market price of RAIT common shares reflects a market assumption that the merger will be completed. RAIT and Taberna also have paid, and will be obligated to pay, certain fees and expenses in connection with the merger, even if the merger is not completed. RAIT has to date paid fees of $2.4 million and Taberna has to date paid fees of $4.2 million in connection with the merger. In addition, RAIT and Taberna have each diverted significant management resources in an effort to complete the merger and are each subject to restrictions contained in the merger agreement on the conduct of its business. If the merger is not completed for any reason, RAIT and Taberna will have incurred costs including the diversion of management resources, for which it will have received little or no benefit. In addition, Taberna will have foregone a significant amount of time that could have been devoted to pursuing an IPO.

RAIT common shares, including those common shares Taberna shareholders will receive in the merger, are subordinate in right of dividend and liquidation payments to RAIT’s preferred shares.

RAIT’s outstanding 7.75% Series A cumulative redeemable preferred shares of beneficial interest and 8.375% Series B cumulative redeemable preferred shares of beneficial interest rank senior to RAIT common shares, including those common shares Taberna shareholders will receive in the merger, with respect to dividend rights, redemption rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up. No cash dividends may be paid on RAIT common shares unless full cumulative dividends due on these preferred shares have been paid (other than any payment necessary to maintain RAIT’s qualification as a REIT). If RAIT liquidates, dissolves or winds up, holders of its preferred shares have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not declared) to and including the date of payment, before any payments are made to the holders of RAIT common shares. If dividends on the preferred shares are in arrears for six or more quarterly periods (whether or not consecutive), holders of the preferred shares will have the right to elect two additional trustees.

The following risk factors are specifically applicable to Taberna’s business. Unlike RAIT, whose risk factors are incorporated by reference herein from documents filed with the SEC, Taberna was, at the time of the execution of the merger agreement, in the process of an IPO, and thus does not have SEC filings that can be incorporated by reference. Upon completion of the merger, RAIT will be subject to these risks as a result of its ownership of Taberna. In addition, to the extent the following activities are undertaken directly by RAIT upon the completion of the merger, RAIT will be subject directly to the following risks.

Taberna has a limited operating history and limited experience operating as a REIT.

Taberna was formed in March 2005 and has a limited operating history and limited experience operating as a REIT. Taberna is subject to all of the business risks and uncertainties associated with any new business. There can be no assurance that Taberna will be able to generate sufficient revenue from operations to pay its operating expenses. Taberna intends to elect and qualify to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ended December 31, 2005 and will be subject to various rules relating to REITs. The REIT rules and regulations are highly technical and complex and the failure to comply with these rules and regulations could prevent Taberna from qualifying as a REIT or could force Taberna and after the merger, RAIT, to pay unexpected taxes and penalties. Because Taberna has limited experience operating within the complex rules and regulations required for REIT qualification, there can be no assurance that Taberna will be able to comply with these rules and regulations. Taberna’s failure to comply with these rules and regulations could have a material adverse effect on the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger.

Neither TruPS nor equity in corporate entities, such as CDOs, that hold TruPS will qualify as real estate assets for purposes of the REIT asset tests and the income generated by such investments generally will not qualify as real estate-related income for the REIT gross income tests. Taberna must invest in qualifying real estate assets, such as mortgage loans and debt securities secured by real estate, to maintain its REIT qualification, and these assets typically generate less attractive returns than TruPS which could result in reduced returns for RAIT’s shareholders after the merger.

Neither TruPS nor equity in corporate entities, such as CDOs, that hold TruPS will qualify as real estate assets for purposes of the REIT asset tests that Taberna must meet on a quarterly basis to maintain its qualification as a REIT. The income received from Taberna’s investments in TruPS or in corporate entities holding TruPS generally will not qualify as real estate-related income for purposes of the REIT gross income tests. Accordingly, Taberna will be limited in its ability to originate TruPS or maintain its investments in TruPS or entities created to hold TruPS if Taberna does not invest in sufficient qualifying real estate assets. Taberna will continue to originate and invest in TruPS and in REIT-eligible assets, such as mortgage loans, RMBS and CMBS. If Taberna fails to make sufficient investments in qualifying real estate assets, such as mortgage loans and debt securities secured by real estate, Taberna will likely fail to maintain its REIT qualification, which could cause Taberna to be subject to significant taxes and RAIT to fail to maintain its REIT qualification and be subject to significant taxes. REIT qualifying investments typically are lower yielding than Taberna’s expected returns on TruPS. Accordingly, maintaining sufficient amounts of REIT qualifying investments could result in reduced returns for RAIT’s shareholders after the merger.

Furthermore, if income inclusions from Taberna’s foreign TRSs are determined not to qualify for the REIT 95% gross income test, Taberna could fail to qualify as a REIT, or even if it did not fail to qualify as a REIT, Taberna could be subject to a penalty tax. In addition, Taberna would need to invest in sufficient qualifying assets, or sell some of its interests in its foreign TRSs to ensure that the income recognized by Taberna from its foreign TRSs does not exceed 5% of Taberna’s gross income. See “The tax treatment of income inclusions from Taberna’s foreign TRSs or other foreign corporations that are not qualified REIT subsidiaries for purposes of the REIT gross income requirements is unclear. If such income were determined not to qualify for the 95% gross income test, Taberna could fail to qualify as a REIT or could be subject to a penalty tax.”

Failure to procure adequate capital and funding would adversely affect Taberna’s results and may, in turn, negatively affect its ability to pay distributions to RAIT following the merger.

Taberna depends upon the availability of adequate funding and capital for its operations. The failure to secure acceptable financing could reduce Taberna’s taxable income because its investments would no longer generate the same level of net interest income with an insufficient amount of funding or an increase in funding costs. A reduction in Taberna’s net taxable income would have an adverse effect on its liquidity and its ability to pay distributions to RAIT following the merger. There can be no assurance that any, or sufficient, funding or capital will be available to Taberna in the future on terms that are acceptable to Taberna. In addition, if the minimum distribution required to maintain Taberna’s REIT qualification becomes large relative to its cash flow due to its taxable income exceeding its cash flow from operations, then Taberna could be forced to borrow funds, sell assets or raise capital on unfavorable terms, if Taberna is able to at all, in order to maintain its REIT qualification. In the event that Taberna cannot obtain sufficient funding on acceptable terms, there may be a negative impact on its ability to pay distributions to RAIT following the merger.

Taberna’s business requires a significant amount of cash, and if such cash is not available, its business and financial performance and, therefore, the business and financial performance of RAIT following the merger, will be significantly harmed.

Taberna requires a substantial amount of cash to fund its investments, to pay expenses and to hold assets. Taberna also needs cash to meet its working capital, minimum REIT distribution requirements, debt obligations and other needs. Most of Taberna’s borrowing arrangements allow the lenders to make margin calls, which

means that Taberna could be required to make cash payments to its lenders in the event that there is a decline in the market value of the assets that collateralize its debt, the terms of its short-term debt become less attractive or for other reasons.

Taberna expects that its primary sources of working capital and cash will consist of:

There can be no assurance that Taberna will be able to generate a sufficient amount of cash from operations and financing activities to execute successfully its business strategy.

Taberna relies on a limited number of financing arrangements to finance its investments, and its business and financial performance and, therefore, the business and financial performance of RAIT following the merger, will be significantly harmed if those resources are no longer available to Taberna.

Pending the structuring of a CDO or other securitization, Taberna finances assets through borrowings under its warehouse and repurchase facilities. As of June 30, 2006, Taberna had four warehouse facilities in place with aggregate availability of $1.05 billion. Taberna’s lenders’ obligations to purchase assets or provide financing during a warehouse accumulation period are subject to certain conditions, independent of Taberna’s performance or the performance of the underlying assets. For example, prior to any acquisition by Taberna’s warehouse providers, the securities to be acquired must be approved by both the warehouse provider and Taberna and these securities must meet certain eligibility criteria as required by each warehouse provider. In addition, Taberna’s warehouse facilities are short-term facilities. Likewise, Taberna’s repurchase facilities are short-term and are dependent on Taberna’s counterparties’ ability to refinance Taberna’s obligations with a third party. As of June 30, 2006, Taberna had outstanding borrowings of approximately $175.3 million under outstanding repurchase agreements. If there is a disruption of the repurchase market generally, or if one of Taberna’s counterparties is itself unable to access the repurchase market, Taberna’s access to this source of liquidity could be adversely affected. In addition, if the regulatory capital requirements imposed on Taberna’s lenders change, its lenders may be required to increase significantly the cost of the lines of credit that they provide to Taberna or reduce its borrowing limits. Finally, facilities with an aggregate availability of $814.0 million are subject to renegotiation with lenders as a result of the merger. There can be no assurance that Taberna will be able to renew or replace its financing arrangements when they expire, or renegotiate these arrangements in connection with the merger, on terms that are acceptable to Taberna, or at all.

Taberna incurs a significant amount of secured debt to finance its portfolio, which may subject Taberna to an increased risk of loss, adversely affecting the return on its investments, reducing CAD to RAIT following the merger and possibly resulting in the foreclosure of its assets.

Taberna incurs a significant amount of debt to finance its operations, which could compound losses and reduce CAD to its shareholders, including to RAIT following the merger. As of June 30, 2006, Taberna’s outstanding consolidated indebtedness was approximately $8.3 billion. Taberna generally leverages its portfolio through the use of bank credit facilities, repurchase agreements, securitizations, including the issuance of CDOs, and other borrowings. The leverage Taberna employs will vary depending on its ability to obtain credit facilities, the loan-to-value and debt service coverage ratios of its assets, the yield on its assets, the targeted leveraged return Taberna expects from its portfolio and its ability to meet ongoing covenants related to its asset mix and financial performance. Taberna’s return on its investments and CAD to its shareholders, including to RAIT following the merger, may be reduced to the extent that changes in market conditions cause the cost of Taberna’s financing to increase relative to the income that Taberna can derive from the assets Taberna acquires.

Taberna’s debt service payments will reduce its net income available for distributions to its shareholders, including to RAIT following the merger. Moreover, Taberna may not be able to meet its debt service obligations. Substantially all of Taberna’s assets are pledged as collateral for its borrowings. In addition, the assets of Taberna’s consolidated CDOs collateralize the debt obligations of the CDOs and are not available to satisfy other creditors. To the extent that Taberna fails to meet its debt service obligations, Taberna risks the loss of some or all of its assets to foreclosure or sale to satisfy its debt obligations. Under repurchase agreements, Taberna’s lenders could take title to its assets and may have an ability to liquidate its assets through an expedited process. Currently, neither Taberna’s declaration of trust nor its bylaws impose any limitations on the extent to which Taberna may leverage its assets.

Taberna’s financing arrangements contain covenants that restrict its operations, and any default under these arrangements would inhibit its ability to grow its business and increase revenues.

Taberna’s financing arrangements contain extensive restrictions and covenants. Failure to meet or satisfy any of these covenants could result in an event of default under these agreements. These agreements also typically contain cross-default provisions so that an event of default under any agreement will trigger an event of default under other agreements, giving the lenders the right to declare all amounts outstanding under their particular credit agreement to be immediately due and payable, and enforce their rights by foreclosing on collateral pledged under these agreements.

Taberna’s financing arrangements also restrict its ability to, among other things:

Furthermore, certain of Taberna’s repurchase agreements, for example, require that Taberna satisfy certain covenants with respect to its financial condition and maintain its qualification as a REIT, and restrict its ability to make material changes to its business and to enter into transactions with affiliates.

These restrictions may interfere with Taberna’s ability to obtain financing or to engage in other business activities. Furthermore, Taberna’s default under any of its credit agreements could have a material adverse effect on its business, financial condition, liquidity and results of operations.

Taberna’s hedging transactions may not completely insulate Taberna from interest rate risk.

Subject to maintaining Taberna’s qualification as a REIT, Taberna enters into certain hedging transactions to limit its exposure to changes in interest rates and therefore may expose itself to risks associated with such transactions. Taberna has entered into, and expects to continue to enter into, interest rate swap agreements. Taberna may also utilize instruments such as forward contracts and interest rate caps, collars and floors to seek to hedge against fluctuations in the relative values of its portfolio positions from changes in market interest rates. Hedging against a decline in the values of Taberna’s portfolio positions does not eliminate the possibility of fluctuations in the values of such positions or prevent losses if the values of such positions decline. However, such hedging can establish other positions designed to gain from those same developments, thereby offsetting the decline in the value of such portfolio positions. Such hedging transactions may also limit the opportunity for gain if the values of the portfolio positions should increase. Moreover, it may not be possible to hedge against an interest rate fluctuation that is so generally anticipated that Taberna is not able to enter into a hedging transaction at an acceptable price.

The success of Taberna’s hedging transactions will depend on its ability to structure and execute effective hedges for the assets Taberna holds. Therefore, while Taberna may enter into such transactions to seek to reduce

interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if Taberna had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged may vary. Moreover, for a variety of reasons, Taberna may not establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent Taberna from achieving the intended hedge and expose Taberna to risk of loss.

For accounting purposes, Taberna’s interest in its warehouse facilities is reflected in its financial statements as a non-hedge derivative and is recorded at fair value in its financial statements. Changes in the fair value of this non-hedge derivative are reflected in Taberna’s earnings. Changes in fair value can be caused by changes in interest rates that are not fully hedged. To the extent that Taberna fails to hedge fully against adverse fluctuations in interest rates, its earnings will be impacted.

Accounting for hedges under GAAP is extremely complicated. Taberna may fail to qualify for hedge accounting in accordance with GAAP, which could have a material effect on its earnings. The interest rate hedge agreements that Taberna used to hedge fluctuations in interest rates associated with certain CDO notes payable did not qualify for hedge accounting during the three-month period ended March 31, 2006 and for the period from April 28, 2005 through December 31, 2005. Although Taberna had an unrealized gain of $37.3 million and $19.6 million on such hedges during the six-month period ended June 30, 2006 and for the period from Taberna’s inception through December 31, 2005, respectively, which had a positive impact on its earnings, such gains can quickly reverse based on movements in interest rates.

While Taberna uses hedging to mitigate some of its interest rate risk, Taberna’s failure to completely insulate its portfolio from interest rate risk may cause greater volatility in its earnings and RAIT’s earnings following the merger.

Hedging against interest rate exposure may adversely affect Taberna’s earnings, which could adversely affect CAD to RAIT following the merger.

Taberna’s hedging activity varies in scope based on the level and volatility of interest rates, the type of portfolio investments held, and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect Taberna because, among other things:

Taberna’s hedging activity may adversely affect its earnings, which could adversely affect CAD to its shareholders, including to RAIT following the merger.

Taberna’s ability to utilize TRSs, and consequently its ability to grow its fee-generating businesses and invest in CDOs, will be limited by its election to be taxed as a REIT, which may adversely affect returns to its shareholders, including RAIT following the merger.

Overall, no more than 20% of the value of a REIT’s assets may consist of securities of one or more TRSs. Taberna Capital, Taberna Securities, Taberna Funding LLC, which we refer to as Taberna Funding, and Taberna’s non-U.S. corporate subsidiaries are TRSs. Taberna expects to own interests in additional TRSs in the future, particularly in connection with its CDO transactions. However, Taberna’s ability to invest in CDOs that are structured as TRSs and to grow or expand the fee-generating businesses of Taberna Capital and Taberna Securities, as well as the business of Taberna Funding and future TRSs Taberna may form, will be limited by Taberna’s need to meet this 20% test, which may adversely affect returns to Taberna’s shareholders, including RAIT following the merger. As of June 30, 2006, the aggregate estimated fair value of Taberna’s investments in TRSs was approximately 12.3% of the value of its gross assets.

If Taberna fails to achieve adequate operating cash flow, its ability to make distributions to its shareholders (including RAIT after the merger) will be adversely affected.

As a REIT, Taberna must distribute at least 90% of its REIT taxable income to its shareholders, determined without regard to the deduction for dividends paid and excluding net capital gain. Taberna’s ability to make and sustain cash distributions is based on many factors, including the return on its investments, operating expense levels and certain restrictions imposed by Maryland law. Some of the factors are beyond Taberna’s control and a change in any such factor could affect its ability to pay future distributions, including to RAIT following the merger. No assurance can be given as to Taberna’s ability to pay distributions. From time to time, Taberna may not have sufficient cash to meet the distribution requirements due to timing differences between (1) the actual receipt of cash, including receipt of distributions from Taberna’s subsidiaries and (2) the inclusion of items in Taberna’s income for U.S. federal income tax purposes. If Taberna does not have sufficient cash available to pay required distributions, Taberna might have to borrow funds or sell assets to raise funds, which could adversely impact its business.

Taberna operates in a highly competitive market which may have a material adverse effect on the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger.

Taberna is subject to significant competition in seeking opportunities to provide financing to REITs and other real estate companies and in making other real estate-related investments. Taberna competes with many third parties engaged in finance and real estate investment activities, including other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, lenders, governmental bodies and other entities. Taberna is aware that third parties have recently raised substantial funds, or are seeking to raise funds, in order to offer TruPS products to Taberna’s target customers. These third parties include firms that have traditionally offered TruPS products to banks and insurance companies. Taberna expects that competition, particularly in its TruPS business, will continue to increase, and that other companies and funds with investment objectives similar to Taberna’s may be organized in the future. Some of these competitors have, or in the future may have, substantially greater financial resources than Taberna does and generally may be able to accept more risk. They may also enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, competition may lead Taberna to pay a greater portion of the origination fees that Taberna expects to collect in its future origination activities to third-party investment banks and brokers that introduce TruPS issuers to Taberna in order to continue to generate new business from these sources.

Competition may limit the number of suitable investment opportunities offered to Taberna. It may also result in higher prices, lower yields and a narrower spread of yields over Taberna’s borrowing costs, making it

more difficult for Taberna to acquire new investments on attractive terms and reducing the fee income Taberna realizes from the origination, structuring and management of CDOs.

Cohen Bros. will compete with Taberna upon the termination of the non-competition agreement between Taberna and Cohen Bros. Cohen Bros. is a diversified financial services company with significant experience in originating TruPS and other preferred equity securities and structuring and managing securitizations or CDOs involving such securities. This agreement terminates on the earliest to occur of (a) the date mutually agreed upon by both parties; (b) the occurrence of a change of control of Taberna; (c) April 28, 2008; or (d) the date that Daniel G. Cohen’s employment as Taberna’s chief executive officer is terminated by Taberna without cause. The merger with RAIT will constitute a change of control under the non-competition agreement. Accordingly, Cohen Bros. has agreed to waive its termination right as a result of the merger under this agreement.

Taberna may not be able to acquire eligible securities for CDO issuances or other securitizations on favorable economic terms, and may not be able to structure CDOs and other securitizations on attractive terms. The assets acquired by Taberna’s warehouse providers at its direction or financed using repurchase agreements may not be suitable for a future CDO transaction, which may require Taberna to seek more costly financing for its investments or to liquidate assets.

Taberna acquires real estate securities and mortgage loans and finances them on a long-term basis through the issuance of CDOs and other types of securitizations. Under Taberna’s TruPS warehouse facilities, Taberna directs the acquisition of securities by banks that are its warehouse providers. However, Taberna’s warehouse providers have the right to decline to acquire the securities Taberna identifies. Taberna deposits cash and other collateral, which is held in escrow by the warehouse providers to cover its share of losses in the event that such securities need to be liquidated. The warehouse providers then purchase the securities and hold them on their balance sheet. Taberna’s lenders have the right to liquidate assets acquired under its warehouse facilities upon the occurrence of certain events, such as a default or a decline in credit quality that may lead to a default. Taberna will share in losses suffered by its lenders in the event of a liquidation, generally up to the value of the collateral Taberna maintains with the lenders, and its ability to replace short-term debt financing of its assets with more permanent long-term financing may be impaired. Taberna is subject to the risk that, during the period that its financing arrangements are available, a sufficient amount of eligible assets cannot be acquired to maximize the efficiency of a CDO issuance or other securitization and the risk that the assets acquired by its warehouse providers may not be suitable for a CDO issuance. In addition, disruptions in the capital markets generally, or in the securitization markets, specifically, may make the issuance of a CDO or another securitization transaction less attractive or even impossible. If Taberna is unable to securitize its assets, or if doing so is not economical, Taberna may be required to seek other forms of potentially less attractive financing or to liquidate assets at a price that could result in a loss of all or a portion of the cash and other collateral backing its purchase commitment.

Taberna could suffer losses beyond its committed capital under its warehouse facilities in certain circumstances.

Certain of Taberna’s warehouse facilities provide that if the warehouse provider experiences losses upon the liquidation of assets and Taberna or a Taberna affiliate have engaged in intentional misconduct or fraud, or become insolvent, then Taberna is liable for all losses suffered by the warehouse providers. Any such losses could harm the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger.

The use of CDO financings with over-collateralization requirements may have a negative impact on Taberna’s cash flow and may trigger certain termination provisions in the related collateral management agreements.

The terms of the CDOs Taberna structures generally provide that the principal amount of assets must exceed the principal balance of the related securities issued by them by a certain amount, commonly referred to as “over-collateralization.” The CDO terms provide that, if certain delinquencies and/or losses exceed the specified levels

based on the analysis by the rating agencies (or any financial guaranty insurer) of the characteristics of the assets collateralizing the CDO securities, the required level of over-collateralization may be increased or may be prevented from decreasing as would otherwise be permitted if losses or delinquencies did not exceed those levels. In addition, a failure by a CDO in which Taberna holds equity interests to satisfy an over-collateralization test typically results in accelerated distributions to the holders of the senior debt securities issued by the CDOs. Taberna’s equity holdings are subordinate in right of payment to the debt securities issued by the CDOs in which Taberna invests. Other tests (based on delinquency levels or other criteria) may restrict Taberna’s ability to receive cash distributions from assets collateralizing the CDO securities. There can be no assurance that the performance tests will be satisfied. In advance of completing negotiations with the rating agencies or other key transaction parties on Taberna’s future CDOs, there can be no assurance of the actual terms of the CDO delinquency tests, over-collateralization terms, cash flow release mechanisms or other significant factors regarding the calculation of net income to Taberna. Failure to obtain favorable terms with regard to these matters may materially and adversely affect Taberna’s net income. In addition, collateral management agreements typically provide that if certain over-collateralization tests are failed, the collateral management agreement may be terminated by a vote of the security holders. If the assets held by CDOs fail to perform as anticipated, Taberna’s earnings may be adversely affected, and its over-collateralization or other credit enhancement expenses associated with its CDO financings will increase.

Taberna’s future CDOs and other securitizations will be collateralized with real estate securities, and any adverse market trends that affect these real estate securities are likely to adversely affect its CDOs and other securitizations.

Taberna expects that its future CDO issuances and other securitizations will be backed by TruPS and mortgage loans and, possibly, other preferred securities, RMBS, CMBS or other real estate-related securities. Any adverse market trends that affect the value of these types of securities will adversely impact the value of Taberna’s interests in its CDOs and other securitizations. Such trends could include declines in real estate values in certain geographic markets or sectors, underperformance of real estate securities issued in a particular year, or changes in U.S. federal income tax laws that could affect the performance of securities issued by REITs and other real estate operating companies.

An increase in Taberna’s borrowing costs relative to the interest Taberna receives on its investments may adversely affect its profitability, which may decrease the amount of CAD to RAIT after the merger.

As Taberna’s warehouse facilities or other short-term borrowing instruments mature, Taberna will be required either to enter into new financing arrangements or to sell certain of its portfolio investments. An increase in short-term interest rates at the time that Taberna seeks to enter into new financing arrangements would reduce the spread between returns on its portfolio investments and the cost of its borrowings. This change in interest rates would adversely affect returns on Taberna’s portfolio investments that are subject to prepayment risk, including its mortgage-backed securities investments, which might reduce earnings and, in turn, CAD to RAIT following the merger. Repurchase agreements in the aggregate principal amount of $175.3 million will mature in July 2007. Subsequent to June 30, 2006, Taberna has entered into one repurchase agreement. Taberna has approximately $771 million of indebtedness outstanding under such repurchase agreement, which expires in one year. As of June 30, 2006, Taberna also had four warehouse facilities with $1.05 billion of borrowing capacity, of which two $150 million facilities mature in January 2007, a $250 million facility will mature in February 2007 and a $500 million facility will mature in April 2007.

Representations and warranties made by Taberna in loan sales and securitizations may subject Taberna to liability that could result in loan losses and could harm the operating results of Taberna and, therefore, RAIT following the merger.

In connection with securitizations, Taberna makes representations and warranties regarding the mortgage-related assets transferred into securitization trusts. The trustee in the securitizations has recourse to Taberna with

respect to the breach of the representations and warranties regarding the loans made at the time such mortgage-related assets are transferred. While Taberna generally has recourse to its loan originators for any such breaches, there can be no assurance of the originators’ abilities to honor their respective obligations. Taberna attempts to generally limit the potential remedies of the trustee to the potential remedies Taberna has against the originators from whom Taberna acquired the mortgage loans. However, in some cases, the remedies available to the trustee may be broader than those available to Taberna against the originators of the mortgage-related assets and, in the event the trustee enforces its remedies against Taberna, Taberna may not always be able to enforce whatever remedies are available to Taberna against its originators. Furthermore, if Taberna discovers, prior to the securitization of a loan, that there is any fraud or misrepresentation with respect to the mortgage and the originator fails to repurchase the mortgage, then Taberna may not be able to sell the mortgage or may have to sell the mortgage at a discount.

Loss of Taberna’s management team or the ability to attract and retain key employees could result in a material adverse effect on its business and, therefore, the business of RAIT following the merger.

Taberna’s success depends to a significant extent on the continued services of its management team. Taberna does not maintain “key person” life insurance for any of its personnel. The loss of the services of any of Taberna’s senior managers could have a material adverse effect on Taberna’s business, financial condition, liquidity and results of operations.

The real estate finance business is very labor-intensive. Taberna depends on its management team to attract customers for its financing by, among other things, developing relationships with issuers, financial institutions and others. These relationships can lead to repeat and referral business. The market for skilled personnel is highly competitive and has historically experienced a high rate of turnover. Due to the nature of Taberna’s business, Taberna competes for qualified personnel not only with companies in its business, but also in other sectors of the financial services industry. Competition for qualified personnel may lead to increased hiring and retention costs. Taberna cannot guarantee that it will be able to attract or retain qualified personnel at reasonable costs or at all. If Taberna is unable to attract or retain a sufficient number of skilled personnel at manageable costs, it could harm the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger.

Taberna is highly dependent on information systems and third parties, and systems failures could significantly disrupt its business, which may, in turn, negatively affect its ability to pay distributions.

Taberna’s business is highly dependent on communications and information systems. Any failure or interruption of Taberna’s systems could cause delays or other problems in its activities, which could have a material adverse effect on its operating results and negatively affect its ability to pay distributions, including to RAIT following the merger. As of the date of this joint proxy statement-prospectus, Taberna has not experienced a material system failure interruption.

Taberna receives collateral management fees for services provided by Taberna Capital in connection with Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI. Taberna expects to receive similar fees for future CDO transactions. If a collateral management agreement is terminated or if the securities serving as collateral for a CDO are prepaid, the collateral management fees will be reduced or eliminated.

Taberna Capital receives collateral management fees for acting as the collateral manager of CDOs, including Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI. If all the notes issued by a CDO for which Taberna Capital acts as collateral manager are redeemed, or if the collateral management agreement is otherwise terminated, Taberna will no longer receive collateral management fees. In general, a

collateral management agreement may be terminated both with and without cause at the direction of holders of specified supermajority principal amount of the notes issued by the CDO. This is the case with the Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI collateral management agreements. Furthermore, such fees are based on the total amount of collateral held by the CDOs. If the securities serving as collateral for a CDO are prepaid or go into default, Taberna will receive lower collateral management fees than expected.

An increase in current interest rates could make Taberna’s TruPS product a less attractive financing option for REITs and real estate operating companies.

The pricing of Taberna’s TruPS product is based on London Inter-Bank Offered Rate, or LIBOR, which is a variable rate. Taberna believes that this LIBOR-based pricing is currently attractive to mid-size REITs and real estate operating companies, in part, because it results in lower funding costs for issuers, based upon current interest rates. However, an increase in current interest rates would have a corresponding increase in funding costs and could make Taberna’s LIBOR-based TruPS less attractive to REITs and real estate operating companies as compared to other financing alternatives. A decrease in the demand for Taberna’s TruPS product would have a material adverse effect on the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger.

Taberna did not receive independent third-party appraisals, valuations or fairness opinions in connection with the acquisition of Taberna Capital from a wholly-owned subsidiary of the parent company of Cohen Bros., and Taberna Securities from Cohen Bros. Therefore, the terms of these acquisitions may have been more favorable to Taberna than if Taberna had acquired Taberna Capital and Taberna Securities from unaffiliated third parties because the consideration paid for Taberna Capital and Taberna Securities may have exceeded their respective fair market values.

Taberna acquired Taberna Capital from a wholly-owned subsidiary of Cohen Bros.’ parent company and Taberna Securities from Cohen Bros. in exchange for an aggregate of 2.0 million of Taberna’s common shares with a value of $20.0 million, based upon a per share price equal to the initial offering price of Taberna’s common shares in Taberna’s initial private placement that closed in April 2005. These acquisitions were not negotiated at arm’s length, and the terms may not have been as favorable to Taberna as they would have been if Taberna had acquired Taberna Capital and Taberna Securities from unaffiliated parties due to possible conflicts of interest. In addition, Taberna did not receive any independent third-party appraisals, valuations or fairness opinions in connection with these acquisitions, and the consideration paid for Taberna Capital and Taberna Securities may have exceeded their respective fair market values.

Taberna depends upon Cohen Bros. and its affiliates to provide Taberna with various services and if Taberna’s shared facilities and services agreement with Cohen Bros. is terminated, Taberna may not be able to timely replace these services on terms favorable to Taberna.

Under the shared facilities and services agreement that Taberna entered into with Cohen Bros., Cohen Bros. agreed to provide Taberna directly or through its subsidiaries, with office space and common facilities at Cohen Bros.’ corporate offices and various services, including assistance with structuring and managing Taberna’s investments in mortgage loans and other mortgage-backed securities, accounting support and cash management services, administrative services and other transitional services as necessary following the consummation of Taberna’s initial private placement. Taberna relies on Cohen Bros. to provide these facilities and services, and Taberna has no in-house capability to handle these services independent of Cohen Bros. Taberna may also sub-lease space from Cohen Bros. in the long term.

other mortgage-backed securities, Taberna would pay Cohen Bros. an annual fee of 10 basis points on the amount of the investments, subject to a minimum fee of $250,000 per year and a maximum fee of $750,000 per year. In respect of accounting support and cash management services and administrative and other transitional services, Taberna paid Cohen Bros. for the cost of providing those services plus 10% of such cost, including a monthly rental fee of $17,500 for office space and facilities. The shared facilities and services agreement was renewed on July 2006 through June 30, 2008. The renewed agreement provides that in respect of services relating to structuring and managing Taberna’s investments in CMBS and RMBS, Taberna will pay Cohen Bros. an annual fee ranging from 2 to 20 basis points on the amount of the investments, based on the rating of the security. For investments in residential whole loans, Taberna will pay Cohen Bros. an annual fee of 1.5 basis points on the amount of the investments. In respect of software licensing, human resources and administrative and other services, Taberna will continue to pay Cohen Bros. for the cost of providing those services plus 10% of such cost. Taberna and Cohen Bros. are negotiating a separate sub-lease agreement for the shared office space and facilities. Through June 30, 2006, Taberna incurred $1.1 million of expenses under the shared facilities and services agreement.

If the shared facilities and services agreement is terminated, Taberna will have to obtain such services on Taberna’s own or hire employees to perform them. Taberna may not be able to replace these services or hire such employees in a timely manner or on terms, including cost and level of expertise, that are as favorable as those Taberna received from Cohen Bros.

Certain agreements with Cohen Bros. and its affiliates were negotiated in the context of Taberna’s formation and were not the result of arm’s length negotiations between independent parties.

The shared facilities and services agreement with Cohen Bros., Taberna’s broker-dealer services agreement with Cohen Bros. & Company, LLC, or CB&C, and Taberna’s non-competition agreement with Cohen Bros., as well as the Taberna Capital and Taberna Securities acquisition agreements, were negotiated in the context of Taberna’s formation. At the time these agreements were negotiated, Cohen Bros. was Taberna’s sole shareholder, and these agreements were therefore not the result of arm’s length negotiations between independent parties. As a result, the terms of these agreements may not have been as favorable to Taberna as they would have been if Taberna had negotiated these agreements with unaffiliated third parties due to possible conflicts of interests. Through June 30, 2006, CB&C had retained $32.4 million of origination fees pursuant to the broker-dealer services agreement. In addition, as of June 30, 2006, CB&C had earned $5.8 million of other fees in connection with the placement of debt and equity securities issued by Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI. As discussed above, Taberna has also paid substantial fees and consideration pursuant to the shared facilities and services agreement and the Taberna Capital and Taberna Securities acquisition agreements, and expect that substantial fees will continue to be paid pursuant to the shared facilities and services agreement.

Taberna is subject to potential conflicts of interest in its relationship with Cohen Bros. and its affiliates and with Taberna’s management team, in particular relating to the time such individuals may devote to other matters for Cohen Bros. and Alesco, and Taberna’s conflicts of interest policies may not successfully eliminate the influence of such conflicts.

Some members of Taberna’s, and following the merger, RAIT’s, senior management are not exclusively dedicated to Taberna’s, and following the merger, RAIT’s, affairs. Taberna’s chairman of the board and chief executive officer also serves as the chairman of Cohen Bros. and of Alesco, a recently-formed private REIT that invests in highly rated RMBS and CMBS, residential mortgage loans, TruPS issued by banks and insurance companies and collateralized loans issued by companies in a variety of industries. Taberna’s chairman of the board and chief executive officer has entered into an employment agreement with Taberna under which he has agreed to devote only such time to Taberna’s affairs as is reasonably necessary to perform his duties. This same arrangement will apply to RAIT following the merger. Taberna’s vice chairman of the board serves as the chief operating officer of Cohen Bros. and as the chief executive officer of Alesco. These potential conflicts of interest will continue to exist following the merger.

Taberna may compete with Alesco for certain investment opportunities. A wholly-owned subsidiary of Cohen Bros. is the manager of Alesco, and members of Taberna’s management team (which will be a part of RAIT’s management team following the merger) beneficially own, in the aggregate, approximately 5.0% of Alesco’s outstanding common shares of beneficial interest. While Alesco is prohibited, as an affiliate of Cohen Bros., from engaging in the businesses related to TruPS issued by REITs and real estate operating companies covered by Taberna’s non-competition agreement with Cohen Bros., Taberna and Alesco both intend to invest in residential mortgage loans, RMBS and CMBS, and Taberna may have other overlapping investment categories in the future. The interests of members of Taberna’s management in Alesco may create potential conflicts of interest to the extent that Taberna competes with Alesco for investment opportunities in assets other than TruPS issued by REITs and real estate operating companies. Taberna’s and RAIT’s conflict of interest policies may not successfully eliminate the influence of such conflicts.

In addition, pursuant to Taberna’s shared facilities and services agreement with Cohen Bros., certain employees of Cohen Bros. are co-employed by Cohen Bros. and Taberna for the duration of that agreement. There may be conflicts in prioritizing work that would not exist if such employees were exclusively employed by Taberna.

Under Taberna’s non-competition agreement with Cohen Bros., Cohen Bros. has agreed not to, directly or through controlled entities, compete with Taberna in the business of purchasing TruPS or other preferred equity securities from, or acting as placement agent for, REIT and real estate operating company issuers of TruPS or other preferred equity securities and not to act as collateral manager for securitizations or CDOs involving such securities. This non-competition agreement terminates on the earliest to occur of (a) the date mutually agreed upon by both parties; (b) the occurrence of a change of control of Taberna; (c) April 28, 2008; or (d) the date that Daniel G. Cohen’s employment as Taberna’s chief executive officer is terminated by Taberna without cause. The merger with RAIT will constitute a change of control under the non-competition agreement. Accordingly, Cohen Bros. has agreed to waive its termination right as a result of the merger under this agreement. Nevertheless, to the extent Taberna invests in, acts as placement agent for or acts as collateral manager for securitizations or CDOs involving securities other than TruPS or other preferred equity securities of REITs and real estate operating companies, Taberna may compete with Cohen Bros. or other Cohen Bros. investment vehicles with similar or overlapping investment or financing strategies and members of Taberna’s management may face conflicts of interest in allocating such opportunities between Taberna, on the one hand, and Cohen Bros. and its affiliates, on the other hand.

In the future, Taberna may enter into additional transactions with Cohen Bros. with the approval of the independent trustees of RAIT’s board. Taberna and RAIT may not negotiate with Cohen Bros. terms that are as favorable as they would be if such transactions were negotiated with independent third parties. Although Maryland law addresses certain conflicts of interest situations and Taberna’s and RAIT’s boards have adopted policies relating to conflicts of interest requiring, among other things, that all transactions in which trustees or executive officers have a material conflicting interest to Taberna’s and RAIT’s interests be approved by a majority of its disinterested trustees, Taberna’s and RAIT’s policies or Maryland law requirements may not be successful in eliminating the influence of such conflicts.

Maintenance of Taberna’s Investment Company Act exemption imposes limits on its operations.

Taberna intends to conduct its operations so that it is not required to register as an investment company under the Investment Company Act of 1940, or the Investment Company Act. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Excluded from the term “investment securities,” among other things, are securities issued by majority-owned subsidiaries that are not themselves

investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. Because Taberna is organized as a holding company that conducts its businesses primarily through majority-owned subsidiaries, the securities issued to Taberna by its subsidiaries that are excepted from the definition of “investment company” by Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities Taberna may own, may not have a combined value in excess of 40% of the value of its total assets on an unconsolidated basis. None of Taberna’s subsidiaries is an investment company or is currently relying on the exemptions provided under Section 3(c)(1) or 3(c)(7), and therefore Taberna’s ownership interests in its subsidiaries will not be deemed investment securities for purposes of the 40% test. Taberna must monitor its holdings to ensure that the value of its investment securities does not exceed 40% of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. This requirement limits the types of businesses in which Taberna may engage through these subsidiaries.

The determination of whether an entity is a majority-owned subsidiary of Taberna is made by Taberna. The Investment Company Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The Investment Company Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. Taberna treats companies, including CDO issuers, in which it owns at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test. Taberna has not requested the SEC to approve Taberna’s treatment of any company as a majority-owned subsidiary of Taberna and the SEC has not done so. If the SEC were to disagree with Taberna’s treatment of one or more companies, including CDO issuers, as majority-owned subsidiaries, Taberna would need to adjust its investment strategy and invest its assets in order to continue to pass the 40% test. Any such adjustment in its investment strategy could have a material adverse effect on Taberna.

A majority of Taberna’s subsidiaries are limited by the provisions of the Investment Company Act and the rules and regulations promulgated thereunder with respect to the assets in which they can invest to avoid being regulated as an investment company. For instance, Taberna’s subsidiaries that issue CDOs (e.g., Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI) generally will rely on Rule 3a-7, an exemption from the Investment Company Act provided for certain structured financing vehicles that pool income-producing assets and issue securities backed by those assets. Such structured financings may not engage in portfolio management practices resembling those employed by mutual funds. Accordingly, each Taberna CDO subsidiary that relies on Rule 3a-7 is subject to an indenture which contains specific guidelines and restrictions limiting the discretion of the CDO issuer. In particular, the indenture prohibits the CDO issuer from acquiring and disposing of assets primarily for the purpose of recognizing gains or decreasing losses resulting from market value changes. Certain sales and purchases of assets, such as dispositions of collateral that has gone into default or is at risk of imminent default, may be made so long as they do not violate the guidelines contained in each indenture and are not based primarily on changes in market value. The proceeds of permitted dispositions may be reinvested in collateral that is consistent with the credit profile of the CDO under specific and predetermined guidelines. In addition, absent obtaining further guidance from the SEC, substitutions of assets may not be made solely for the purpose of enhancing the investment returns of the holders of the equity securities issued by the CDO issuer. As a result of these restrictions, Taberna’s CDO subsidiaries may suffer losses on their assets and Taberna may suffer losses on its investments in its CDO subsidiaries.

Taberna’s subsidiaries that hold real estate assets (e.g., Taberna Realty Holdings Trust and the mortgage loan securitization trusts that are wholly owned by Taberna Loan Holdings I, LLC) rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act because each of these entities owns legal title to whole residential mortgage loans. In order to qualify for this exemption, at least 55% of a subsidiary’s portfolio must be comprised of mortgages and other liens on and interests in real estate (collectively, “qualifying assets”) and at least 80% of the subsidiary’s portfolio must be comprised of real estate-related assets. Qualifying assets include mortgage loans, mortgage-backed securities that represent the entire ownership in a

pool of mortgage loans and other interests in real estate. Accordingly, these restrictions will limit the ability of these subsidiaries to invest directly in TruPS, mortgage-backed securities that represent less than the entire ownership in a pool of mortgage loans, unsecured debt and preferred securities issued by REITs and real estate companies or in assets not related to real estate. As of the date of this joint proxy statement-prospectus, Taberna Realty Holdings Trust’s assets consist exclusively of whole residential mortgage loans to which it has legal title. Taberna Loan Holdings I, LLC’s investments consist exclusively of its holdings in the securities of five wholly-owned subsidiaries. Each of these subsidiaries’ assets consists exclusively of whole residential mortgage loans to which it has legal title and the unilateral right to foreclose. Taberna believes that each of these entities is exempt from registration as an investment company pursuant to Section 3(c)(5)(C) under the Investment Company Act. Taberna’s subsidiaries that engage in operating businesses (e.g., Taberna Securities and Taberna Capital) are not subject to the Investment Company Act. To the extent Taberna Realty Holdings Trust, Taberna Loan Holdings I, LLC or another subsidiary of Taberna invests in other types of assets such as RMBS, CMBS and mezzanine loans, Taberna will not treat such assets as qualifying real estate assets for purposes of determining the subsidiary’s eligibility for the exemption provided by Section 3(c)(5)(C) unless such treatment is consistent with the guidance of the SEC as set forth in non-action letters, interpretative guidance or an exemptive order.

If the combined value of the investment securities issued to Taberna by its subsidiaries that are excepted by Section 3(c)(1) or 3(c)(7) of the Investment Company Act, together with any other investment securities Taberna may own, exceeds 40% of its total assets on an unconsolidated basis, Taberna may be deemed to be an investment company. If Taberna fails to maintain an exemption, exception or other exclusion from registration as an investment company, Taberna could, among other things, be required either (a) to substantially change the manner in which Taberna conducts its operations to avoid being required to register as an investment company or (b) to register as an investment company, either of which could have an adverse effect on Taberna and the market price of its common shares. If Taberna were required to register as an investment company under the Investment Company Act, Taberna would become subject to substantial regulation with respect to its capital structure (including its ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), portfolio composition, including restrictions with respect to diversification and industry concentration and other matters.

Taberna has not received a no-action letter from the SEC regarding how its investment strategy fits within the exclusion from regulation under the Investment Company Act that it is using. To the extent that the SEC provides more specific or different guidance regarding, for example, the treatment of assets as qualifying real estate assets or real estate-related assets, Taberna may be required to adjust its investment strategy accordingly. Any additional guidance from the SEC could provide additional flexibility to Taberna, or it could further inhibit its ability to pursue the investment strategy Taberna has chosen, which could have a material adverse effect on Taberna and RAIT and significantly reduce the expected benefits of the merger.

Taberna may become subject to liability and incur increased expenditures as a result of its prior restatement of its unaudited consolidated financial statements.

In November 2005, Taberna determined, following consultation with its independent registered public accounting firm, to correct its accounting policy with respect to the treatment of fees paid to Taberna for services rendered in structuring CDOs that Taberna consolidates as part of its financial statements and, in connection with this correction, to restate its unaudited financial statements for the period from April 28, 2005 through June 30, 2005. Under Taberna’s corrected accounting policy, Taberna eliminates in consolidation both the fees paid to Taberna by consolidated CDO issuers for structuring services and the deferred costs associated with those fees. Prior to this determination, Taberna had made available, to purchasers in its second private placement, which closed in August 2005, and on its website, unaudited financial statements for the period ended June 30, 2005 that included in consolidation these fees and associated deferred costs.

The effects of this correction of Taberna’s policy are that Taberna neither recognizes CDO structuring fees as revenue nor does Taberna record the associated deferred costs as an asset that would have been amortized as

interest expense over the estimated life of the respective consolidated CDO, although Taberna Capital will be subject to income taxes on structuring fees in the year in which the fees are received. The restatement decreased Taberna’s net income for the period ended June 30, 2005 from net income of $0.24 per common share to a net loss of $0.04 per common share, but it did not impact its taxable income.

The restatement of Taberna’s previously issued financial statements could expose Taberna to liabilities if Taberna were unable to successfully defend any claims relating to such restatement brought against Taberna. For example, purchasers in Taberna’s second private placement, or qualified institutional buyers that purchased Taberna’s shares in the PORTAL Market^®, or PORTAL, during the period when Taberna’s prior financial statements were made available on its website, may seek to bring claims against Taberna alleging a violation of Rule 10b-5 under the Securities Exchange Act of 1934, as amended, or the Exchange Act. While Taberna would vigorously defend any claims, defense of such claims could cause the diversion of management’s attention and resources, and Taberna could be required to pay damages to settle such claims if any such claims are not resolved in its favor. It is not possible at this time to project whether any claim will be made or the amount of liability, if any, Taberna might incur in connection with the restatement. Even if resolved in Taberna’s favor, such claims could cause Taberna to incur significant legal and other expenses. Moreover, Taberna may be the subject of negative publicity relating to the financial statement inaccuracies and resulting restatement and negative reactions from its shareholders, creditors or others with whom Taberna does business.

The accounting rules applicable to certain of Taberna’s transactions are highly complex and require the application of significant judgment and assumptions by its management. In addition, changes in accounting interpretations or assumptions could impact our financial statements. Taberna has undertaken remediation efforts for deficiencies in its internal controls over financial reporting.

Accounting rules for transfers of financial assets, hedging transactions, securitization transactions, consolidation of variable interest entities, or VIEs, and other aspects of Taberna’s operations are highly complex and require the application of judgment and assumptions by management. These complexities could lead to delay in preparation of financial information. In addition, changes in accounting interpretations or assumptions could impact Taberna’s financial statements.

In connection with its audit of Taberna’s consolidated financial statements for the year ended December 31, 2005, Taberna and its independent registered public accounting firm identified deficiencies in its internal control over financial reporting that are “material weaknesses” as defined by standards established by the Public Company Accounting Oversight Board. The deficiencies related to (i) Taberna’s and the predecessor entities’ accounting for hedging arrangements and (ii) the predecessor entities’ accounting for a tax election made by them prior to the consummation of Taberna’s initial private placement. Taberna has restated the financial statements of its predecessor entities to correct the accounting for the tax election and the hedging matter. Taberna has engaged an unaffiliated firm that specializes in hedging activity to assist in the execution and documentation of its hedging activities; however, there can be no assurance that Taberna’s internal control over financial reporting will not be subject to material weaknesses in the future.

Taberna’s failure to maintain a broker-dealer license in the various jurisdictions in which Taberna does business could have a material adverse effect on its business, financial condition, liquidity and results of operations.

The NASD has granted Taberna’s membership application for a broker-dealer license for Taberna Securities. Taberna also is required to maintain licenses with state securities regulators. Failure to maintain Taberna Securities’ licenses as a broker-dealer with the NASD and applicable state regulators would prevent Taberna from originating securities and supplementing its revenue with origination fees paid to Taberna Securities by the issuers of TruPS. In that event, Taberna may need to re-engage CB&C or a third-party broker-dealer to act as an originator and to permit CB&C or a third-party broker-dealer to retain origination fees as CB&C has previously done under Taberna’s broker-dealer services agreement. If Taberna Securities is unable to receive origination fees, Taberna would have less CAD to RAIT after the merger.

Taberna may not realize gains or income from its investments and may realize losses.

Taberna seeks to generate both current income and capital appreciation. However, Taberna’s investments may not appreciate in value and, in fact, may decline in value, and the financings that Taberna originates and the securities that Taberna invests in may default on interest and/or principal payments. Accordingly, Taberna may not be able to realize gains or income from its investments and may realize losses. Any gains that Taberna does realize may not be sufficient to offset any other losses Taberna experiences. Any income that Taberna realizes may not be sufficient to offset its expenses.

Increases in interest rates could negatively affect the value of Taberna’s investments, which could result in reduced earnings or losses and negatively affect CAD to its shareholders.

While Taberna seeks to match-fund the interest rates of its assets with liabilities as much as possible, changes in the general level of interest rates may affect its net interest income, which is the difference between the interest income earned on its interest-earning assets and the interest expense incurred on its interest-bearing liabilities. Changes in the level of interest rates also can affect, among other things, Taberna’s ability to successfully implement its investment strategy and the value of its assets.

Currently, U.S. interest rates remain very low by historical standards. In the event of a significant rising interest rate environment and/or economic downturn, defaults on Taberna’s assets may increase and result in losses that would adversely affect its liquidity and operating results. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political conditions, and other factors beyond Taberna’s control.

Taberna’s operating results depend in large part on differences between the income from its assets, net of credit losses, and its financing costs. Taberna anticipates that, in most cases, for any period during which its assets are not match-funded with its liabilities, the income from such assets will respond more slowly to interest rate fluctuations than the cost of its borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may significantly influence Taberna’s net income. Increases in these rates will tend to decrease Taberna’s net income and market value of its assets. Interest rate fluctuations resulting in Taberna’s interest expense exceeding interest income would result in operating losses for Taberna.

As of June 30, 2006, the aggregate principal amount of Taberna’s variable rate debt was approximately $3.6 billion, or 43% of its total liabilities, exclusive of the impact of its interest rate hedging activities. For a detailed discussion of Taberna’s exposure to interest rate risk, see “Taberna Management’s Discussion and Analysis of Financial Condition and Results of Operations—Quantitative and Qualitative Disclosures About Market Risk.”

Most of Taberna’s investments may be recorded at fair value as determined in good faith by its management and, as a result, there may be uncertainty as to the value of these investments.

Most of Taberna’s investments may be in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. Taberna will value these investments quarterly at fair value as determined in good faith by its management. Because such valuations are inherently uncertain, may fluctuate over short periods of time and may be based on estimates, Taberna’s determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of Taberna common shares could be adversely affected if Taberna’s determinations regarding the fair value of these investments are materially higher than the values that Taberna ultimately realizes upon their disposal.

The lack of liquidity in Taberna’s investments may adversely affect its business.

Taberna makes investments in securities issued by private companies and other illiquid investments. A portion of these securities may be subject to legal and other restrictions on resale or will otherwise be less liquid

than publicly traded securities. The illiquidity of Taberna’s investments may make it difficult for Taberna to sell such investments if the need arises.

A prolonged economic slowdown, a recession or declining real estate values could impair Taberna’s investments and harm its operating results.

Many of Taberna’s investments may be susceptible to economic slowdowns or recessions, which could lead to financial losses in its investments and a decrease in revenues, net income and assets. Unfavorable economic conditions also could increase Taberna’s funding costs, limit its access to the capital markets or result in a decision by lenders not to extend credit to Taberna. These events could prevent Taberna from increasing investments and harm its operating results.

Taberna’s investment portfolio of residential mortgage loans has, and its future investments may have, material geographic concentrations. Any adverse market or economic conditions in those regions may have a disproportionately adverse effect on the ability of Taberna’s customers to make their loan payments.

As of June 30, 2006, approximately 43.1% of Taberna’s investment portfolio of residential mortgage loans, based on outstanding principal balances, represented loans secured by properties located in California. In the future, Taberna may acquire other investments that also have material geographic concentrations.

Adverse market or economic conditions in a particular state or region where Taberna has significant investments may disproportionately increase the risk that borrowers in that region are unable to make their mortgage payments. In addition, the market value of the real estate securing those mortgage loans could be adversely affected by adverse market and economic conditions in that region. Also, the properties securing Taberna’s loans in California may be adversely affected by natural disasters that occur in that state, such as earthquakes, wildfires, floods and mudslides. Any sustained period of increased payment delinquencies, foreclosures or losses caused by adverse market or economic conditions or natural disasters in that state or geographic region could adversely affect Taberna’s net interest income from loans in its investment portfolio and its ability to make distributions to RAIT.

Preferred equity investments in REITs and real estate operating companies may involve a greater risk of loss than traditional debt financing and specific risks relating to particular issuers.

Taberna may invest in preferred securities, other than TruPS, of REITs and real estate operating companies, depending upon its ability to finance such assets in accordance with its financing strategy. As of the date of this joint proxy statement-prospectus, Taberna has made no such preferred equity investments. Preferred equity investments involve a higher degree of risk than traditional debt financing due to a variety of factors, including that such investments are subordinate to debt and are not secured by property underlying the investment. Furthermore, should an issuer of preferred equity default on Taberna’s investment, Taberna would only be able to proceed against the issuer, and not the property owned by the issuer and underlying its investment. In most cases, a preferred equity holder has no recourse against an issuer for a failure to pay stated dividends; rather, unpaid dividends typically accrue and the preferred shareholder maintains a liquidation preference in the event of a liquidation of the issuer of the preferred securities. There can be no assurance that an issuer would have sufficient assets to satisfy any liquidation preference to which Taberna may be entitled. As a result, Taberna may not recover some or all of its investments in preferred equity securities.

Taberna’s investments in REIT securities involve special risks relating to the particular REIT issuer of the securities, including the qualification of the issuer as a REIT, and the financial condition and business outlook of the issuer. Investments in preferred equity securities of REITs would represent qualifying real estate assets for purposes of the REIT asset tests Taberna must meet on a quarterly basis and would generate income which represents qualifying income for purposes of the 75% REIT gross income test which Taberna must meet on an annual basis in order to maintain its qualification as a REIT, but only if the issuer of those securities is itself a

qualified REIT. If the issuer fails to maintain its qualification as a REIT, the securities issued by that issuer will no longer be qualifying real estate assets, and the income will no longer be qualifying income for purposes of the 75% REIT gross income test, in each case for purposes of maintaining Taberna’s REIT qualification, subjecting Taberna’s REIT qualification to risk.

Taberna’s investments in unsecured REIT securities are subject to the risks of investing in subordinated real estate-related securities, which may result in losses to Taberna.

REITs generally are required to invest substantially in operating real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments. Taberna’s investments in TruPS and other REIT securities are also subject to the risks described below with respect to mortgage-backed securities and similar risks, including (i) risks of delinquency and foreclosure, and the resulting risks of loss, (ii) the dependence upon the successful operation of and net income from real property, (iii) risks generally incident to interests in real property, and (iv) risks that may be presented by the type and use of a particular property. Unsecured REIT securities are generally subordinated to other obligations of the issuer and are not secured by property underlying the investment.

Investments in REIT securities are also subject to risks of: (i) limited liquidity in the secondary trading market, (ii) substantial market price volatility resulting from changes in prevailing interest rates, (iii) subordination to the prior claims of banks and other senior lenders to the issuer, (iv) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest premature redemption proceeds in lower yielding assets, (v) the possibility that earnings of the REIT issuer may be insufficient to meet its debt service and dividend obligations and (vi) the declining creditworthiness and potential for insolvency of the issuer of such REIT securities during periods of rising interest rates and economic downturn. These risks may adversely affect the value of outstanding REIT securities and the ability of the issuers of such securities to repay principal and interest or make dividend payments.

Taberna’s investments in the equity securities of CDOs involve significant risks, including that CDO equity holders receive distributions from the CDO only if the CDO generates enough income to first pay the holders of its debt securities and its expenses.

Taberna currently invests in the equity securities of five CDOs, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI and Taberna may invest in the equity securities of other CDOs. A CDO is a special purpose vehicle that purchases collateral (such as bank loans or asset-backed securities) that is expected to generate a stream of interest or other income. The CDO issues various classes of securities that participate in that income stream, typically one or more classes of debt instruments and a class of equity securities. The equity is usually entitled to all of the income generated by the CDO after the CDO pays all of the interest and principal due on the debt securities and its expenses. However, little or no income will be available to the holders of the CDO equity if there are defaults by the issuers of the underlying collateral and those defaults exceed a certain amount. If sufficient defaults occur, the value of Taberna’s investment in the CDO’s equity could decrease substantially or be eliminated entirely. In addition, the equity securities of CDOs are generally illiquid, and because these equity securities represent a leveraged investment in the CDO’s assets, the value of the equity securities will generally have greater fluctuations than the values of the underlying collateral.

Taberna’s investments in CDOs and other securitizations are exposed to greater uncertainty and risk of loss than investments in higher grade securities in these CDOs and securitizations.

When Taberna securitizes assets such as TruPS and residential mortgage loans, the various tranches of investment grade and non-investment grade debt obligations and equity securities have differing priorities and rights to the cash flows of the underlying assets being securitized. Taberna structures its CDOs and other securitization transactions to enable Taberna to place debt and equity securities with investors in the capital markets at various pricing levels based on the credit position created for each tranche of debt and equity

securities. The higher rated debt tranches have priority over the lower rated debt securities and the equity securities issued by the particular securitization vehicle to payments of interest and principal using the cash flows from the collateral assets. The relative cost of capital increases as each tranche of capital becomes further subordinated, as does the associated risk of loss if cash flows from the assets are insufficient to repay fully interest and principal or pay dividends.

Since Taberna invests in the “BBB,” “BB,” “B” and unrated debt and equity classes of CDOs and other securitizations, Taberna is in a “first loss” position because the rights of the securities that Taberna holds are subordinate in right of payment and in liquidation to the rights of higher rated debt securities issued by the securitization vehicles. Accordingly, Taberna may incur significant losses on its investments in these securities. As of June 30, 2006, Taberna owned $148.3 million of CDO preference shares, $95.6 million of CDO debt securities rated “BBB” or “BB,” and $218.3 million of subordinated debt and equity in its residential mortgage loan securitizations. Taberna’s aggregate investments in its consolidated CDOs represented approximately 59% of its equity capital, based upon its beneficiaries’ equity at June 30, 2006. These investments bear a greater risk of loss than the senior debt securities that have been sold to third-party investors in each of Taberna’s CDOs and other securitizations. In the event of default, Taberna may not be able to recover all of its investment in these securities. In addition, Taberna may experience significant losses if the underlying portfolio has been overvalued or if the values subsequently decline and, as a result, less collateral is available to satisfy interest, principal and dividend payments due on the related securities. The prices of lower credit quality securities are generally less sensitive to interest rate changes than higher rated investments, but are more sensitive to economic downturns or developments specific to a particular issuer. An economic downturn, for example, could cause a decline in the price of lower credit quality securities because the ability of obligors on the underlying assets to make principal, interest and dividend payments may be impaired. In such an event, existing credit support in the securitization structure may be insufficient to protect Taberna against loss of its principal or equity in these securities.

Prepayment rates on TruPS, mortgage loans or mortgage-backed securities could negatively affect the value of Taberna’s investments, which could result in reduced earnings or losses and negatively affect CAD to RAIT following the merger.

The value of the TruPS, mortgage loans, mortgage-backed securities and, possibly, other securities in which Taberna invests may be adversely affected by prepayment rates. For example, higher than expected prepayment rates will likely result in interest-only securities retained by Taberna in its mortgage loan securitizations and securities that Taberna acquires at a premium to diminish in value. Prepayment rates are influenced by changes in current interest rates and a variety of economic, geographic and other factors beyond Taberna’s control, and consequently, such prepayment rates cannot be predicted with certainty.

Borrowers tend to prepay their financings faster when interest rates decline. In these circumstances, Taberna would have to reinvest the money received from the prepayments at the lower prevailing interest rates. Conversely, borrowers tend not to prepay on their financings when interest rates increase. Consequently, Taberna would be unable to reinvest money that would have otherwise been received from prepayments at the higher prevailing interest rates. This volatility in prepayment rates may affect Taberna’s ability to maintain targeted amounts of leverage on its investment portfolio and may result in reduced earnings or losses for Taberna and negatively affect CAD to its shareholders. As of the date of this joint proxy statement-prospectus, none of Taberna’s CDOs has experienced any prepayments of the underlying collateral and approximately 8% of Taberna’s residential mortgage loans have been prepaid.

The guarantees of principal and interest related to the mortgage-backed securities in which Taberna may invest provided by the Federal National Mortgage Association, the Federal Home Loan Mortgage Corporation or the Government National Mortgage Association do not protect investors against prepayment risks.

The mortgage loans in which Taberna invests and the mortgage loans underlying the mortgage and asset-backed securities in which Taberna invests are subject to delinquency, foreclosure and loss, which could result in losses to Taberna that may result in reduced earnings or losses and negatively affect the CAD to RAIT following the merger.

As of June 30, 2006, Taberna held investments in residential mortgage loans that had an aggregate unpaid principal balance of approximately $4.2 billion. Residential mortgage loans are secured by single-family residential property and are subject to risks of delinquency, foreclosure and loss. The ability of a borrower to repay a loan secured by a residential property is dependent upon the income or assets of the borrower. A number of factors, including a general economic downturn, acts of God, terrorism, social unrest and civil disturbances, may impair borrowers’ abilities to repay their loans. Asset-backed securities are bonds or notes backed by loans and/or other financial assets. The ability of a borrower to repay these loans or other financial assets is dependent upon the income or assets of these borrowers.

Commercial mortgage loans are secured by multi-family or commercial property and are subject to risks of delinquency and foreclosure, and risks of loss that are greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically depends primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower’s ability to repay the loan may be impaired. Net operating income of an income-producing property can be affected by, among other things: tenant mix, success of tenant businesses, property management decisions, property location and condition, competition from comparable types of properties, changes in laws that increase operating expense or limit rents that may be charged, any need to address environmental contamination at the property, the occurrence of any uninsured casualty at the property, changes in national, regional or local economic conditions and/or specific industry segments, declines in regional or local real estate values, declines in regional or local rental or occupancy rates, increases in interest rates, real estate tax rates and other operating expenses, changes in governmental rules, regulations and fiscal policies, including environmental legislation, acts of God, terrorism, social unrest and civil disturbances.

In the event of any default under a mortgage loan held directly by Taberna, Taberna will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on its cash flow from operations. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on Taberna’s anticipated return on the foreclosed mortgage loan. RMBS evidence interests in or are secured by pools of residential mortgage loans and CMBS evidence interests in or are secured by a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, the mortgage-backed securities Taberna invests in are subject to all of the risks of the underlying mortgage loans. In addition, residential mortgage borrowers are not typically prevented by the terms of their mortgage loans from prepaying their loans in whole or in part at any time. Borrowers prepay their mortgages for many reasons, but typically, when interest rates decline, borrowers tend to prepay at faster rates. To the extent that the underlying mortgage borrowers in any of Taberna’s mortgage loan pools or the pools underlying any of its mortgage-backed securities prepay their loans, Taberna will likely receive funds that will have to be reinvested, and Taberna may need to reinvest those funds at less desirable rates of return.

Although Taberna intends to focus on real estate-related asset-backed securities, there can be no assurance that Taberna will not invest in other types of asset-backed securities to the extent such investments would be consistent with maintaining its qualification as a REIT.

Taberna may be exposed to environmental liabilities with respect to properties to which Taberna takes title.

In the course of its business, Taberna may take title to real estate, and, if Taberna does take title, Taberna could be subject to environmental liabilities with respect to these properties. In such a circumstance, Taberna may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation, and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. If Taberna ever becomes subject to significant environmental liabilities, the business, financial condition, liquidity and results of operations of Taberna and, therefore, RAIT following the merger could be materially and adversely affected.

Investments in mezzanine loans involve greater risks of loss than senior loans secured by income-producing properties.

Taberna may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, Taberna may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy its mezzanine loan. If a borrower defaults on Taberna’s mezzanine loan or debt senior to its loan, or in the event of a borrower bankruptcy, Taberna’s second mortgage or mezzanine loan will be satisfied only after the senior debt. As a result, Taberna may not recover some or all of its investments. In addition, second mortgages and mezzanine loans may have higher loan-to-value ratios than conventional first mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal.

Taberna may make investments in non-U.S. dollar denominated securities, which will be subject to currency rate exposure and the uncertainty of foreign laws and markets.

As of the date of this joint proxy statement-prospectus, Taberna has not invested in securities denominated in foreign currencies. Taberna may, however, purchase these securities in the future, including TruPS issued by foreign issuers. Taberna expects that its exposure, if any, would be principally to the British pound, the Euro and the Canadian dollar. A change in foreign currency exchange rates may have an adverse impact on returns on Taberna’s non-dollar denominated investments. Although Taberna may hedge its foreign currency risk subject to the REIT income qualification tests, Taberna may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.

Taberna may enter into derivative contracts that could expose it to contingent liabilities in the future.

Part of Taberna’s investment strategy involves entering into derivative contracts like the interest rate swaps Taberna uses to limit its exposure to interest rate movements. Most of Taberna’s derivative contracts require it to fund cash payments upon the early termination of a derivative agreement caused by an event of default or other early termination event. The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. In addition, some of Taberna’s derivative arrangements require that Taberna maintains specified percentages of cash collateral with the counterparty to fund its potential liabilities under the derivative contract. Taberna may have to make cash payments in order to maintain the required percentage of collateral with the counterparty. These economic losses would be reflected in Taberna’s results of operations, and its ability to fund these obligations would depend on the liquidity of its assets and access to capital at the time. The need to fund these obligations could adversely impact Taberna’s financial condition.

Taberna’s due diligence may not reveal all of an entity’s liabilities and may not reveal other weaknesses in their business.

Before originating an investment for, or making an investment in, an entity, Taberna will assess the strength and skills of the entity’s management and other factors that Taberna believes will determine the success of the investment. In making the assessment and otherwise conducting customary due diligence, Taberna expects to rely on the resources available to it and, in some cases, an investigation by third parties. This process is particularly important and subjective with respect to newly organized entities because there may be little or no information publicly available about the entities. As a result, there can be no assurance that Taberna’s due diligence processes will uncover all relevant facts or that any investment will be successful.

Complying with REIT requirements may cause Taberna to forgo otherwise attractive opportunities.

To qualify as a REIT, Taberna must continually satisfy various tests regarding the sources of its income, the nature and diversification of its assets, the amounts Taberna distributes to its shareholders and the ownership of its common shares. In order to satisfy these tests, Taberna may be required to forgo investments it might otherwise make. Accordingly, compliance with the REIT requirements may hinder Taberna’s investment performance.

In particular, at least 75% of Taberna’s assets at the end of each calendar quarter must consist of real estate assets, government securities, and cash or cash items. For this purpose, “real estate assets” generally include interests in real property, such as land, buildings, leasehold interests in real property, stock of other entities that qualify as REITs, interests in mortgage loans secured by real property, investments in stock or debt instruments during the one-year period following the receipt of new capital and regular or residual interests in a real estate mortgage investment conduit, or REMIC. In addition, the amount of securities of a single issuer that Taberna holds must generally not exceed either 5% of the value of Taberna’s gross assets or 10% of the vote or value of such issuer’s outstanding securities.

Certain of the assets that Taberna holds or intends to hold, including TruPS and unsecured loans to REITs or other entities, will not be qualified real estate assets for the purposes of the REIT asset tests. In addition, although preferred equity securities of REITs (which would not include TruPS) should generally be treated as qualified real estate assets, this will require that (i) they are treated as equity for U.S. tax purposes, and (ii) their issuers maintain their qualification as REITs. CMBS and RMBS securities should generally qualify as real estate assets. However, to the extent that Taberna owns non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities issued by corporations that are not secured by mortgages on real property, those securities will likely not be qualifying real estate assets for purposes of the REIT asset tests.

Taberna generally will be treated as the owner of any assets that collateralize a securitization transaction to the extent that it retains all of the equity of the securitization vehicle and does not make an election to treat such securitization vehicle as a TRS, as described in further detail below.

As noted above, in order to comply with the REIT asset tests and 75% gross income test, at least 75% of Taberna’s assets and 75% of its gross income must be derived from qualifying real estate assets, whether or not such assets would otherwise represent its best investment alternative. For example, since neither TruPS nor equity in corporate entities that hold TruPS, such as CDOs, will be qualifying real estate assets, Taberna must hold substantial investments in qualifying real estate assets, including mortgage loans and CMBS and RMBS securities, which typically have lower yields than TruPS.

A REIT’s net income from prohibited transactions is subject to a 100% penalty tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including any

mortgage loans, held in inventory or primarily for sale to customers in the ordinary course of business. The prohibited transaction tax may apply to any sale by Taberna of assets to a CDO and to any sale by Taberna of CDO securities, and therefore may limit its ability to sell assets to or equity in CDOs and other assets.

It may be possible to reduce the impact of the prohibited transaction tax and the holding of assets not qualifying as real estate assets for purposes of the REIT asset tests by conducting certain activities, holding non-qualifying REIT assets or engaging in CDO transactions through Taberna’s TRSs, subject to certain limitations as described below. To the extent that Taberna engages in such activities through TRSs, the income associated with such activities may be subject to full U.S. federal corporate income tax.

Taberna’s qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the issuers of the REIT securities in which Taberna invests maintaining their REIT qualification and the accuracy of legal opinions rendered to or statements made by the issuers of securities, including CDOs, in which Taberna invests.

When purchasing securities issued by REITs, Taberna may rely on opinions of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such issuer qualifies as a REIT for U.S. federal income tax purposes and whether such securities represent debt or equity securities for U.S. federal income tax purposes, and therefore to what extent those securities constitute REIT real estate assets for purposes of the REIT asset tests and produce income which qualifies under the 75% REIT gross income test. In addition, when purchasing CDO equity, Taberna may rely on opinions of counsel regarding the qualification of the CDO for exemption from U.S. corporate income tax. The inaccuracy of any such opinions or statements may adversely affect Taberna’s REIT qualification and/or result in significant corporate-level tax. In addition, if the issuer of any REIT equity securities in which Taberna invests were to fail to maintain its qualification as a REIT, the securities of such issuer held by Taberna will fail to qualify as real estate assets for purposes of maintaining its REIT qualification and the income generated by such securities will not represent qualifying income for purposes of the 75% REIT gross income test and therefore could cause Taberna to fail to qualify as a REIT.

The “taxable mortgage pool” rules may subject RAIT to U.S. federal income tax, increase the tax liability of RAIT’s shareholders and limit the manner in which Taberna effects securitizations.

Taberna has entered, and will likely continue to enter, into transactions that result in Taberna or a portion of its assets being treated as a “taxable mortgage pool” for U.S. federal income tax purposes. Specifically, Taberna has securitized portfolios of mortgage loans and will likely in the future securitize RMBS or CMBS assets that Taberna acquires and such securitizations will result in Taberna owning interests in a taxable mortgage pool. Taberna has entered, and expect to continue to enter, into such transactions at the REIT level. To the extent that all or a portion of Taberna is treated as a taxable mortgage pool, or Taberna makes investments or enter into financing and securitization transactions that give rise to Taberna being considered to own an interest in one or more taxable mortgage pools, a portion of its net taxable income may be characterized as “excess inclusion income” and allocated to its shareholders and, after the merger, RAIT’s shareholders, generally in the same manner as if the taxable mortgage pool were a REMIC. Excess inclusion income is an amount, with respect to any calendar quarter, equal to the excess, if any, of (i) income allocable to the holder of a residual interest in a REMIC, during such calendar quarter over (ii) the sum of amounts allocated to each day in the calendar quarter equal to its ratable portion of the product of (a) the adjusted issue price of the interest at the beginning of the quarter multiplied by (b) 120% of the long-term federal tax rate (determined on the basis of compounding at the close of each calendar quarter and properly adjusted for the length of such quarter). The U.S. Treasury Department has issued guidance on the tax treatment of shareholders of a REIT that owns an interest in a taxable mortgage pool.

RAIT is taxed at the highest corporate income tax rate on the excess inclusion income arising from a taxable mortgage pool of Taberna that is allocable to the percentage of its shares held by “disqualified organizations,”

which are generally certain cooperatives, governmental entities and tax-exempt organizations that are exempt from tax on unrelated business taxable income, or UBTI, under Section 512 of the Internal Revenue Code. RAIT believes that disqualified organizations own and will continue to own its shares. Because this tax, after the merger, would be imposed on RAIT, all of RAIT’s shareholders, including shareholders that are not disqualified organizations, would bear a portion of the tax cost associated with the classification of Taberna or a portion of its assets as a taxable mortgage pool.

If a shareholder is a tax-exempt entity and not a disqualified organization, then this excess inclusion income would be fully taxable as UBTI. If a shareholder is a foreign person, it would be subject to U.S. federal income tax withholding on this income without reduction or exemption pursuant to any otherwise applicable income tax treaty. If the shareholder is a REIT, regulated investment company (“RIC”), common trust fund or other pass-through entity, its allocable share of excess inclusion income would be considered excess inclusion income of such entity and such entity will be subject to tax at the highest corporate tax rate on any excess inclusion income allocated to their owners that are disqualified organizations. In addition, to the extent Taberna and, after the merger, RAIT realizes excess inclusion income and allocates it to shareholders, this income cannot be offset by net operating losses of its shareholders. Accordingly, shareholders should be aware that Taberna expects to engage in transactions that will likely result in a significant portion of its dividend income to RAIT being considered excess inclusion income.

Moreover, if Taberna sells equity interests in a taxable mortgage pool securitization (or debt securities that might be considered to be equity interests for tax purposes), such securitization would be treated as a corporation for U.S. federal income tax purposes, and would potentially be subject to corporate income tax. In addition, this characterization would alter Taberna’s REIT income and asset test calculations and would adversely affect its compliance with those requirements, and therefore adversely affect RAIT’s compliance with those requirements. The tax consequences of such a characterization could effectively prevent Taberna from using certain techniques to maximize its returns from securitization transactions.

Finally, if Taberna and, after the merger, RAIT fails to qualify as a REIT, these taxable mortgage pool securitizations will be treated as separate taxable corporations for U.S. federal income tax purposes.

The tax treatment of income inclusions from Taberna’s foreign TRSs or other foreign corporations that are not qualified REIT subsidiaries for purposes of the REIT gross income requirements for REITs is unclear. If such income were determined not to qualify for the 95% gross income test, Taberna could fail to qualify as a REIT or could be subject to a penalty tax.

Taberna is required to include in its income, in certain cases, even without the receipt of actual distributions, earnings from its foreign TRSs or other foreign corporations that are not qualified REIT subsidiaries, including from its equity investments in CDOs. Taberna treats certain of these income inclusions as qualifying income for purposes of the 95% gross income test applicable to REITs but not for purposes of the REIT 75% gross income test. Because there is no clear precedent with respect to the qualification of such income for purposes of the REIT gross income tests, there can be no assurance that the Internal Revenue Service, or IRS, will not assert a contrary position. In the event that such income was determined not to qualify for the 95% gross income test, Taberna could fail to qualify as a REIT. Even if such income does not cause Taberna to fail to qualify as a REIT because of certain relief provisions, Taberna would be subject to a penalty tax with respect to such income because such income, together with other non-qualifying income earned by Taberna, has exceeded and will exceed 5% of its gross income. This penalty tax, if applicable, would be calculated by multiplying the amount by which Taberna’s non-qualifying income exceeds 5% of Taberna’s total gross income by a fraction intended to reflect Taberna’s profitability. Based upon Taberna’s current estimates of its sources of income and profitability for 2006, the estimated potential amount of such tax is approximately $6.0 million. Such amount is based on current estimates and actual amounts, if any, will depend upon Taberna’s investments, sources of income and profitability in any particular year. In addition, if such income was determined not to qualify for the 95% gross income test, Taberna would need to invest in sufficient qualifying assets, or sell some of its interests in its foreign TRSs or other foreign corporations that are not qualified REIT subsidiaries to ensure that the income recognized by Taberna from its foreign TRSs or such other foreign corporations does not exceed 5% of Taberna’s gross income.

The failure of a mezzanine loan or a loan subject to a repurchase agreement to qualify as a real estate asset could adversely affect RAIT’s or Taberna’s ability to qualify as a REIT.

RAIT has acquired and Taberna and RAIT may acquire mezzanine loans, which are loans secured by an equity interest in a partnership or a limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying real estate income for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. RAIT has acquired and Taberna and RAIT may acquire mezzanine loans that may not meet all of the requirements of this safe harbor. In the event RAIT or Taberna own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests, and if such a challenge were sustained, RAIT or Taberna could fail to qualify as a REIT.

In addition, RAIT and Taberna have entered into and intend to enter into sale and repurchase agreements under which RAIT and Taberna nominally sell certain of their mortgage assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. RAIT and Taberna believe that they have been and will be treated for U.S. federal income tax purposes as the owner of the mortgage assets that are the subject of any such agreement notwithstanding that they may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that RAIT or Taberna did not own the mortgage assets during the term of the sale and repurchase agreement, in which case RAIT’s or Taberna’s ability to qualify as a REIT would be adversely affected.

If Taberna fails to qualify as a REIT, its dividends will not be deductible, and Taberna will be subject to corporate level tax on its net taxable income. This would reduce the cash available to make distributions to RAIT after the merger and would likely adversely affect the ability of RAIT to qualify as a REIT, and may have significant adverse consequences on the value of RAIT common shares.

Taberna believes that it has been organized and operated in a manner that will allow it to qualify as a REIT. Taberna has not requested and does not plan to request a ruling from the IRS that it qualifies as a REIT and the statements in this joint proxy statement-prospectus are not binding on the IRS or any court. Qualification as a REIT involves the application of highly technical and complex Internal Revenue Code provisions, for which there are only limited judicial and administrative interpretations. The determination of various factual matters and circumstances not entirely within Taberna’s control may also affect its ability to qualify as a REIT. In order to qualify as a REIT, Taberna must satisfy a number of requirements, including requirements regarding the composition of its assets and sources of its gross income. Also, Taberna must make distributions to RAIT following the merger aggregating annually at least 90% of its net taxable income, excluding net capital gains. In addition, Taberna’s ability to satisfy the requirements to qualify as a REIT depends in part on the actions of third parties over which Taberna has no control or limited influence, including in cases where Taberna owns an equity interest in an entity that is classified as a partnership or REIT for U.S. federal income tax purposes. As an example, to the extent Taberna invests in preferred equity securities of other REIT issuers, its qualification as a REIT will depend upon the continued qualification of such issuers as REITs under the Internal Revenue Code. Accordingly, unlike an investment in other REITs, an investment in Taberna may be subject to additional risk regarding its ability to qualify and maintain its qualification as a REIT. There can be no assurance that Taberna will be successful in operating in a manner that will allow it to qualify as a REIT. In addition, legislation, new regulations, administrative interpretations or court decisions may adversely affect Taberna’s investors, Taberna’s ability to qualify as a REIT or the desirability of an investment in a REIT relative to other investments.

If Taberna fails to qualify as a REIT or loses its qualification as a REIT at any time, it will face serious tax consequences that would substantially reduce the funds available for distribution to its shareholders (including RAIT following the merger) for each of the years involved because:

In addition, if Taberna fails to qualify as a REIT, Taberna will not be required to make distributions to its shareholders (including RAIT following the merger), and all distributions to shareholders (including RAIT following the merger) will be subject to tax as regular corporate dividends to the extent of its current and accumulated earnings and profits. Moreover, if Taberna fails to qualify as a REIT, its taxable mortgage pool securitizations will be treated as separate taxable corporations for U.S. federal income tax purposes. Finally, if Taberna fails to qualify as a REIT following the merger, RAIT would likely fail to qualify as a REIT.

Even if Taberna qualifies as a REIT for U.S. federal income tax purposes, it will be required to pay U.S. federal, state and local taxes on its income and property. In addition, Taberna’s domestic TRSs are fully taxable corporations that will be subject to taxes on their income, and they may be limited in their ability to deduct interest payments made to Taberna. Taberna also will be subject to a 100% penalty tax on certain amounts if the economic arrangements among Taberna and its TRSs are not comparable to similar arrangements among unrelated parties or if Taberna receives payments for inventory or property held for sale to customers in the ordinary course of business. Taberna may be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool that is allocable to Taberna’s shares held by “disqualified organizations.” In addition, under certain circumstances Taberna could be subject to a penalty tax if it fails to meet certain REIT requirements but nonetheless maintains its qualification as a REIT. For example, Taberna may be required to pay a penalty tax with respect to income earned by it in connection with its CDO equity in the event such income is determined not to be qualifying income for purposes of the REIT 95% gross income test but Taberna is otherwise able to remain qualified as a REIT. To the extent that Taberna or its TRSs are required to pay U.S. federal, state or local taxes, Taberna will have less CAD to its shareholders (including RAIT following the merger).

Failure to make required distributions would subject Taberna to tax, which would reduce CAD to its shareholders (including RAIT after the merger).

In order to qualify as a REIT, Taberna must distribute to its shareholders each calendar year at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. To the extent that Taberna satisfies the 90% distribution requirement, but distributes less than 100% of its net taxable income, Taberna will be subject to U.S. federal corporate income tax. In addition, Taberna will incur a 4% nondeductible excise tax on the amount, if any, by which its distributions in any calendar year are less than the sum of:

Taberna intends to distribute its net income to its shareholders in a manner intended to satisfy the 90% distribution requirement and to avoid both corporate income tax and the 4% nondeductible excise tax. There is no

requirement that Taberna’s domestic TRSs, such as Taberna Capital, Taberna Securities and Taberna Funding, distribute their after-tax net income to Taberna and such TRSs may, to the extent consistent with maintaining Taberna’s qualification as a REIT, determine not to make any current distributions to Taberna. However, Taberna’s non-U.S. TRSs, such as Taberna Equity Funding, Ltd., Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI, will generally be deemed to distribute their earnings to Taberna on an annual basis for U.S. federal income tax purposes, regardless of whether such TRSs actually distribute their earnings.

Taberna’s taxable income may substantially exceed its net income as determined by GAAP because, for example, expected capital losses will be deducted in determining its GAAP net income, but may not be deductible in computing its taxable income. In addition, Taberna may invest in assets including the equity of CDO entities that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets, referred to as phantom income. Although some types of phantom income are excluded to the extent they exceed 5% of Taberna’s net income in determining the 90% distribution requirement, Taberna will incur corporate income tax and the 4% nondeductible excise tax with respect to any phantom income items if Taberna does not distribute those items on an annual basis. As a result of the foregoing, Taberna may generate less cash flow than taxable income in a particular year. In that event, Taberna may be required to use cash reserves, incur debt, or liquidate non-cash assets at rates or times that it regards as unfavorable in order to satisfy the distribution requirement and to avoid U.S. federal corporate income tax and the 4% nondeductible excise tax in that year.

If Taberna’s CDOs or its subsidiary Taberna Capital (Bermuda) Ltd., which we refer to as Taberna Bermuda, are subject to U.S. federal income tax at the entity level, it would greatly reduce the amounts those entities would have available to distribute to Taberna and pay their creditors.

Taberna’s CDOs Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI are organized as Cayman Islands companies. There is a specific exemption from U.S. federal income tax for non-U.S. corporations that restrict their activities in the United States to trading stock and securities (or any activity closely related thereto) for their own account whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or other agent. Taberna intends that Taberna II, Taberna III, Taberna IV, Taberna V, and Taberna VI and any other of its non-U.S. CDOs that are TRSs will rely on that exemption or otherwise operate in a manner so that they will not be subject to U.S. federal income tax on their net income at the entity level. Taberna Bermuda is a wholly-owned subsidiary of Taberna organized under the laws of Bermuda that is expected to provide subadvisory services to Taberna Capital and will receive a fee from Taberna Capital for its services. Taberna Bermuda intends to operate in a manner so that it will not be subject to U.S. federal income tax on its net income. If the IRS were to succeed in challenging the tax treatment of Taberna’s CDOs or Taberna Bermuda, it could greatly reduce the amount that those CDOs and Taberna Bermuda would have available to distribute to Taberna and to pay to their creditors. Any reduced distributions to Taberna would reduce amounts available for distribution to RAIT and its shareholders and would adversely affect RAIT’s earnings.

Taberna’s ownership of and relationship with its TRSs will be limited, and a failure to comply with the limits would jeopardize its REIT qualification and may result in the application of a 100% excise tax.

A REIT may own up to 100% of the stock of one or more TRSs. A TRS may hold assets and earn income that would not be qualifying assets or income if held or earned directly by a REIT. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 20% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis.

Taberna Capital, Taberna Securities and Taberna Funding will pay U.S. federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to Taberna but will not be

required to be distributed to Taberna. For the period from April 28, 2005 through December 31, 2005, Taberna’s TRSs paid $5.0 million of after-tax distributions of net income to Taberna. For the six months ended June 30, 2006, Taberna’s TRSs paid $13.5 million of after-tax distributions of net income to Taberna.

The value of the securities that Taberna holds in its TRSs may not be subject to precise valuation. Accordingly, there can be no assurance that Taberna will be able to comply with the 20% limitation discussed above or avoid application of the 100% excise tax discussed above.

Compliance with REIT requirements may limit Taberna’s ability to hedge effectively.

The REIT provisions of the Internal Revenue Code limit Taberna’s ability to hedge mortgage-backed securities, preferred securities and related borrowings. Except to the extent provided by the regulations promulgated by the U.S. Treasury Department, or the Treasury regulations, any income from a hedging transaction Taberna enters into in the normal course of its business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in the Treasury regulations before the close of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of such a transaction, will not constitute gross income for purposes of the 95% gross income test (and will generally constitute non-qualifying income for purposes of the 75% gross income test). To the extent that Taberna enters into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. As a result, Taberna might have to limit its use of advantageous hedging techniques or implement those hedges through TRSs. This could increase the cost of Taberna’s hedging activities or expose it to greater risks associated with changes in interest rates than it would otherwise want to bear.

Taberna may be subject to adverse legislative or regulatory tax changes that could reduce the market price of its common shares.

At any time, the U.S. federal income tax laws or regulations governing REITs or the administrative interpretations of those laws or regulations may be amended. Taberna cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. Taberna and, following the merger, RAIT, could be adversely affected by any such change in, or any new, U.S. federal income tax law, regulation or administrative interpretation.

This section contains information for RAIT shareholders about the special shareholder meeting RAIT has called to consider and approve the issuance of RAIT common shares as consideration in the merger. RAIT is mailing this joint proxy statement-prospectus to you, as a RAIT shareholder, on or about November 7, 2006. Together with this joint proxy statement-prospectus, RAIT is also sending a notice of the RAIT special meeting, and a form of proxy that RAIT’s board of trustees is soliciting for use at the special meeting and at any adjournments, postponements or continuations of the meeting. The special meeting will be held on Monday, December 11, 2006 at 10:00 a.m., Eastern time, at Crowne Plaza Hotel, 1800 Market Street, Philadelphia, PA 19103.

At the RAIT special meeting, shareholders will vote upon the approval of the issuance of RAIT common shares as consideration in the merger. RAIT shareholders may also be asked to vote on a proposal to adjourn, postpone or continue the special meeting to permit the further solicitation of proxies. Finally, RAIT shareholders may also be asked to vote on the transaction of such other business as may properly come before the special meeting or any adjournment, postponement or continuation of the special meeting.

RAIT’s board is presently unaware of any other matters that may be presented for action at the special meeting. If other matters do properly come before the special meeting, however, RAIT intends that shares represented by proxies in the form accompanying this joint proxy statement-prospectus will be voted by and at the discretion of the persons named as proxies on the proxy card or their substitutes.

RAIT shareholders should complete and return the proxy card accompanying this joint proxy statement-prospectus to ensure that their vote is counted at the special meeting, regardless of whether they plan to attend the special meeting. If you are a registered shareholder (that is, you hold shares directly registered in your own name), you may also authorize your proxy by telephone or via the Internet by following the instructions described on your proxy card. If your RAIT common shares are held in nominee or “street name,” you will receive separate voting instructions from your broker or nominee, which will be included with your proxy materials. Most brokers and nominees offer telephone and Internet voting, but the availability of and procedures for these alternatives will depend on the arrangements established by each particular broker or nominee.

If you are a registered RAIT shareholder, you can revoke your proxy at any time before the vote is taken at the special meeting by submitting to RAIT’s corporate secretary written notice of revocation or a properly executed proxy of a later date, or by attending the special meeting and voting in person. Attendance at the special meeting will not by itself constitute revocation of a proxy. Written notices of revocation and other communications about revoking RAIT proxies should be addressed to:

RAIT Investment Trust c/o RAIT Partnership, L.P. 1818 Market Street, 28th Floor Philadelphia, PA 19103 Attn.: Secretary

If your shares are held in nominee or “street name,” you should contact your broker or other nominee regarding the revocation of proxies.

All RAIT common shares represented by valid proxies RAIT receives through this solicitation, and not revoked before they are exercised, will be voted in the manner specified on the proxies. If you make no specification on your proxy card, your proxy will be voted “FOR” approval of the issuance of RAIT common

shares as consideration in the merger and, if a vote is taken on the matter, “FOR” the adjournment of the meeting to solicit additional proxies. However, brokers who hold RAIT common shares in nominee or “street name” for customers who are the beneficial owners of those shares may not give a proxy to vote those shares without specific instructions from those customers.

The issuance of RAIT common shares as consideration in the merger requires the approval of the holders of a majority of RAIT common shares voting at the special meeting, provided that a majority of the outstanding common shares vote on the matter. Abstentions and broker non-votes will have no effect on the result of the vote. RAIT’s board urges RAIT shareholders to complete, date and sign the accompanying proxy and return it promptly in the enclosed, postage-paid envelope or, alternatively, to authorize your proxy via the telephone or the Internet by following the instructions described on your proxy card.

RAIT will bear the entire cost of soliciting proxies from its shareholders, except that RAIT and Taberna have agreed to each pay one-half of the costs and expenses of printing and mailing this joint proxy statement-prospectus and all filing fees relating to the merger paid to the SEC. In addition to soliciting proxies by mail, RAIT will request banks, brokers and other record holders to send proxies and proxy material to the beneficial owners of RAIT common shares and secure their voting instructions, if necessary. RAIT will reimburse those banks, brokers and record holders for their reasonable fees and expenses in taking those actions. RAIT also has made arrangements with The Altman Group to assist in soliciting proxies for the merger and the special meeting and in communicating with shareholders and has agreed to pay The Altman Group $6,000 plus expenses for its services. If necessary, RAIT also may use several of its regular employees, who will not be specially compensated, to solicit proxies from its shareholders, either personally or by telephone, the Internet, telegram, fax, letter or special delivery letter.

In accordance with Maryland law, RAIT’s bylaws and the rules of the NYSE, RAIT has fixed the close of business on October 20, 2006 as the record date for determining the RAIT shareholders entitled to notice of and to vote at the special meeting. Only RAIT shareholders of record at the close of business on the record date are entitled to notice of the special meeting and any adjournments, postponements or continuations of the special meeting, and only RAIT common shareholders of record at the close of business on the record date are entitled to vote at the special meeting and any adjournments, postponements or continuations of the special meeting. At the close of business on the record date, there were 28,161,470 RAIT common shares outstanding, held by approximately 643 holders of record. The presence in person or by proxy of a majority of common shares outstanding on the record date will constitute a quorum for purposes of conducting business at the special meeting. On each matter properly submitted for consideration at the special meeting, you are entitled to one vote for each outstanding common share of RAIT you held as of the close of business on the record date.

If you have any shares in RAIT’s Dividend Reinvestment Plan, the enclosed proxy represents the number of shares you had in that plan on the record date for RAIT’s special meeting, as well as the number of shares directly registered in your name on the record date.

RAIT common shares present in person at the special meeting but not voting, and RAIT common shares for which RAIT has received proxies indicating that their holders have abstained, will be counted as present at the special meeting for purposes of determining whether there is a quorum for transacting business at the special meeting. Shares represented by proxies returned by a broker holding the shares in “street name” will be counted for purposes of determining whether a quorum exists, even if those shares are not voted by their beneficial owners on matters where the broker cannot vote the shares in its discretion (so-called “broker non-votes”).

RAIT’s board of trustees has approved and declared advisable the merger. The RAIT board believes that the merger is in the best interests of RAIT and its shareholders, and unanimously recommends that RAIT shareholders vote “FOR” approval of the issuance of RAIT common shares as consideration in the merger.

See “The Merger—Recommendation of RAIT’s Board and Its Reasons for the Merger” for a more detailed discussion of the RAIT board’s recommendation.

To reduce the expenses of delivering duplicate proxy materials to RAIT shareholders, RAIT is relying upon SEC rules that permit us to deliver only one joint proxy statement-prospectus to multiple shareholders who share an address unless we receive contrary instructions from any shareholder at that address. If you share an address with another shareholder and have received only one joint proxy statement-prospectus, you may write or call us as specified below to request a separate copy of this joint proxy statement-prospectus and we will promptly send it to you at no cost to you. For future RAIT shareholder meetings, you may request separate copies of our proxy materials, or request that we send only one set of these materials to you if you are receiving multiple copies, by contacting us at: RAIT Investment Trust, c/o RAIT Partnership, L.P., 1818 Market Street, 28th Floor, Philadelphia, PA 19103, or by telephoning us at 215-861-7900, Attention: Andres Viroslav, Vice President and Director of Corporate Communications.

This section contains information about the special meeting of Taberna shareholders called to consider and approve the merger. This joint proxy statement-prospectus is being mailed to Taberna shareholders on or about November 7, 2006. Together with this joint proxy statement-prospectus, Taberna is also sending to you a form of proxy that Taberna’s board is soliciting for use at the special meeting and at any adjournments, postponements or continuations of the meeting. The special meeting will be held on Monday, December 11, 2006 at 10:00 a.m., Eastern time, at The Pyramid Club, 1735 Market Street, 52nd Floor, Philadelphia, PA, 19103.

At the Taberna special meeting, shareholders will vote upon the approval of the merger. Taberna shareholders may also be asked to vote upon a proposal to adjourn, postpone or continue the special meeting to permit the further solicitation of proxies. Finally, Taberna shareholders may also be asked to vote on the transaction of such other business as may properly come before the special meeting or any adjournment, postponement or continuation of the special meeting.

Taberna’s board is presently unaware of any other matters that may be presented for action at the special meeting. If other matters do properly come before the special meeting, however, Taberna intends that shares represented by proxies in the form accompanying this joint proxy statement-prospectus will be voted by and at the discretion of the persons named as proxies on the proxy card or their substitutes.

Taberna shareholders should complete and return the proxy card accompanying this joint proxy statement-prospectus to ensure that their vote is counted at the special meeting, regardless of whether they plan to attend the special meeting. If you are a registered Taberna shareholder (that is, you hold Taberna common shares directly registered in your own name), you may also authorize a proxy by telephone or through the Internet by following the instructions described on your proxy card. If your Taberna common shares are held in nominee or “street name,” you will receive separate voting instructions from your broker or nominee, which will be included with your proxy materials. Most brokers and nominees offer telephone and Internet voting, but the availability of and procedures for these alternatives will depend on the arrangements established by each particular broker or nominee.

If you are a registered Taberna shareholder, you can revoke your proxy at any time before the vote is taken at the special meeting by submitting to Taberna’s corporate secretary written notice of revocation or a properly executed proxy of a later date, or by attending the special meeting and voting in person. Attendance at the special meeting will not by itself constitute revocation of a proxy. Written notices of revocation and other communications about revoking Taberna proxies should be addressed to:

If your shares are held in nominee or “street name,” you should contact your broker or other nominee regarding the revocation of proxies.

All Taberna common shares represented by valid proxies Taberna receives through this solicitation, and not revoked before they are exercised, will be voted in the manner specified on the proxies. If you make no specification on your proxy card, your proxy will be voted “FOR” approval of the merger and, if a vote is taken on the matter, “FOR” the adjournment of the meeting to solicit additional proxies. However, brokers who hold Taberna common shares in nominee or “street name” for customers who are the beneficial owners of those shares may not give a proxy to vote those shares on the merger without specific instructions from those customers.

In order to approve the merger, the holders of a majority of the outstanding Taberna common shares entitled to vote must vote in favor of the proposal.

Abstentions and broker non-votes will have the same effect as votes against approval of the merger. Therefore, Taberna’s board urges Taberna shareholders to complete, date and sign the accompanying proxy and return it promptly in the enclosed, postage-paid envelope or, alternatively, to authorize your proxy via the telephone or through the Internet.

Taberna shareholders should not send in any share certificates with their proxy card. The exchange agent will mail a transmittal letter with instructions for the surrender of share certificates to Taberna shareholders as soon as practicable after the merger is completed.

Taberna will bear the entire cost of soliciting proxies from its shareholders, except that Taberna and RAIT have agreed to each pay one-half of the costs and expenses of printing and mailing this joint proxy statement-prospectus and all filing fees relating to the merger paid to the SEC. If necessary, subject to applicable law, Taberna may also use several of its regular employees, who will not be specially compensated, to solicit proxies from its shareholders, either personally or by telephone, the Internet, telegram, fax, letter or special delivery letter.

In accordance with Maryland law and Taberna’s bylaws, Taberna has fixed the close of business on October 20, 2006 as the record date for determining the Taberna shareholders entitled to notice of and to vote at the special meeting. Only Taberna shareholders of record at the close of business on the record date are entitled to notice of the special meeting and any adjournments, postponements or continuations of the special meeting, and only Taberna shareholders of record at the close of business on the record date are entitled to vote at the special meeting or any adjournments, postponements or continuations of the special meeting. At the close of business on the record date, there were 44,353,973 Taberna common shares outstanding, held by approximately 503 holders of record. The presence in person or by proxy of a majority of common shares outstanding on the record date will constitute a quorum for purposes of conducting business at the special meeting. On each matter properly submitted for consideration at the special meeting, you are entitled to one vote for each outstanding common share of Taberna you held as of the close of business on the record date.

Taberna common shares present in person at the special meeting but not voting, and Taberna common shares for which Taberna has received proxies indicating that their holders have abstained, will be counted as present at the special meeting for purposes of determining whether there is a quorum for transacting business at the special meeting. Shares represented by proxies returned by a broker holding the shares in “street name” will be counted for purposes of determining whether a quorum exists, even if those shares are not voted by their beneficial owners on matters where the broker cannot vote the shares in its discretion (so-called “broker non-votes”).

Taberna’s board of trustees has approved and declared advisable the merger. The Taberna board believes that the merger is in the best interests of Taberna and its shareholders, and unanimously recommends that Taberna shareholders vote “FOR” approval of the merger.

See “The Merger—Recommendation of Taberna’s Board and Its Reasons for the Merger” for a more detailed discussion of the Taberna board’s recommendation with regard to the merger.

The following discussion describes certain material information about the merger. We urge you to read this entire joint proxy statement-prospectus carefully for a more complete understanding of the merger.

RAIT’s and Taberna’s boards of trustees have approved and declared advisable the merger. The merger agreement provides for combining our companies through the merger of Taberna with RT Sub, a newly-formed subsidiary of RAIT, with Taberna as the surviving entity.

In the merger, Taberna shareholders have the right to receive 0.5389 of a RAIT common share for each Taberna common share. RAIT common shares issued and outstanding at completion of the merger will remain outstanding and RAIT share certificates will be unaffected by the merger. Following the merger, RAIT’s common shares will continue to trade on the NYSE under the symbol “RAS” and RAIT will operate under the name RAIT Financial Trust.

See “The Merger Agreement” for additional and more detailed information regarding the legal document that governs the merger, including information about the conditions to the merger and the provisions for terminating or amending the merger agreement.

Taberna filed a registration statement on Form S-11 with the SEC in November 2005 seeking to register securities for a possible IPO. Betsy Z. Cohen, Chairman and Chief Executive Officer of RAIT, first began to consider a possible combination of RAIT and Taberna upon reviewing Taberna’s filings with the SEC in contemplation of its proposed IPO. In particular, Betsy Z. Cohen focused on Taberna’s strength in the CDO field, where RAIT did not materially participate, and the fact that RAIT’s assets would permit Taberna to reduce over time a portion of its large portfolio of lower yielding residential mortgage loans, which it held to maintain its qualification as a REIT. She first raised the concept of a combination of the two companies with her son Daniel G. Cohen, Chairman and Chief Executive Officer of Taberna, in April 2006, and the two discussed the concept, given the relative sizes and contributions of the two companies, of a book value to book value merger of equals of the two companies. Taberna’s registration statement was undergoing SEC review in April 2006 when Betsy Z. Cohen approached Daniel G. Cohen about a possible business combination with Taberna.

Daniel G. Cohen advised Taberna’s board of trustees that the concept of a combination had been broached by Betsy Z. Cohen and that senior management believed the concept merited further consideration in light of RAIT’s senior and mezzanine loan origination capabilities and its cultural focus on credit underwriting, which Taberna’s management believed to be similar to Taberna’s approach to lending. The Taberna board of trustees established a special committee comprised solely of Taberna’s independent trustees on April 26, 2006 and authorized the Taberna special committee to evaluate the merits of a possible transaction with RAIT or any other business combination or similar transaction involving Taberna and any other party, negotiate the terms of any such transaction, consider such alternatives as the Taberna special committee deemed appropriate and make a recommendation to Taberna’s board of trustees as to whether any such transaction or alternative would be in the best interests of Taberna and its shareholders. The Taberna special committee was authorized to retain its own financial and legal advisors and to make a recommendation to the full board after completing its strategic review. Clifford Chance US LLP, Taberna’s legal counsel in connection with the registration statement on Form S-11, remained engaged by Taberna’s board of trustees to advise Taberna in connection with the potential transaction with RAIT.

The Taberna special committee held its initial meeting on April 26, 2006 and retained the law firm of Pepper Hamilton LLP to act as its legal advisor. During the next several days, members of the Taberna special committee interviewed several financial advisory firms and subsequently retained Merrill Lynch to act as

exclusive financial advisor to the Taberna special committee. On May 5, 2006, Betsy Z. Cohen and Scott F. Schaeffer, President and Chief Operating Officer of RAIT, made a presentation to the Taberna special committee regarding RAIT’s business. Representatives of Merrill Lynch and Pepper Hamilton LLP attended this presentation.

The Taberna special committee directed Merrill Lynch to evaluate alternatives available to Taberna, including a transaction with RAIT, continued pursuit of an IPO and a transaction with a third party other than RAIT. The Taberna special committee placed no limitations on Merrill Lynch’s consideration of these alternatives.

Because of the relationship between Betsy Z. Cohen and Daniel G. Cohen, the special committee of the RAIT board of trustees was established on April 28, 2006 comprised solely of RAIT’s independent trustees and given sole authority to negotiate the terms and conditions of a possible transaction with Taberna, and consider whether the proposed terms were fair to and in the best interests of RAIT and its shareholders, reject any proposed transaction determined not to be fair or in the best interests of RAIT and its shareholders and, based on the foregoing, make a recommendation to the board of trustees of RAIT. RAIT and the special committee of the RAIT board of trustees retained Sullivan & Cromwell LLP as its special counsel. In the beginning of May 2006, members of the RAIT special committee met with potential financial advisors, and subsequently the RAIT special committee retained UBS as its financial advisor.

Following its initial meeting on April 28, 2006, the RAIT special committee met four times through May 11, 2006, at which meetings the RAIT special committee interviewed Daniel G. Cohen, discussed the retention of a financial advisor and was updated as to the due diligence reviews conducted by RAIT and Taberna. On May 5, 2006, RAIT and Taberna entered into mutual confidentiality agreements, and their respective representatives began their due diligence investigations of RAIT and Taberna. On May 8, 2006, Sullivan & Cromwell LLP distributed a draft merger agreement to Pepper Hamilton LLP and on May 9, 2006, Sullivan & Cromwell LLP distributed a draft merger agreement to Clifford Chance US LLP. On May 12, 2006, the RAIT special committee interviewed separately Raphael Licht, Executive Vice President, Chief Administrative Officer, Chief Legal Officer and Secretary of Taberna, Jack Salmon, Executive Vice President, Chief Financial Officer and Treasurer of Taberna, Scott Schaeffer, President and Chief Operating Officer of RAIT and Kenneth Frappier, Senior Vice President, Portfolio and Risk Management of RAIT. At each interview, the RAIT special committee inquired into the executive’s business background, asked the executive to describe his current role at Taberna or RAIT and requested the executive to describe how he thought RAIT and Taberna, as a combined company, would enhance RAIT’s performance, and to raise any issues the executive saw in connection with the proposed integration of the two companies. At the meetings held by the RAIT special committee after May 5, 2006 through May 11, 2006, UBS updated the RAIT special committee as to the status of the business and financial due diligence process between RAIT and Taberna. On May 18, 2006, UBS also provided the RAIT special committee with an overview of the commercial mortgage REIT industry.

The Taberna special committee and its financial and legal advisors met four times between May 8, 2006 and May 22, 2006. Messrs. Cohen, Salmon and Licht attended the May 8, 2006 and May 22, 2006 meetings. During a meeting on May 22, 2006, Merrill Lynch reported the results of Merrill Lynch’s strategic review to the Taberna special committee. As part of this report, representatives of Merrill Lynch discussed quantitative and qualitative considerations relating to an IPO, a merger with RAIT, a merger with a party other than RAIT and a sale for cash to a party other than RAIT. Merrill Lynch reviewed with the Taberna special committee the limited number of third parties which could offer strategic benefits to Taberna and its shareholders in a merger or have the financial resources to complete a cash acquisition. The Taberna special committee had not requested that Merrill Lynch contact any third parties to solicit proposals from them primarily because the Taberna special committee wished to preserve the confidentiality of the proposed transaction with RAIT as premature disclosure could have adversely affected an agreement being reached with RAIT. Based on the Taberna special committee’s discussions with Merrill Lynch, and after considering Merrill Lynch’s views regarding the potential interest of such third parties in a merger or acquisition transaction with Taberna, the Taberna special committee concluded that neither a cash acquisition of Taberna by a third party nor a merger with an entity other than RAIT on relatively attractive terms was likely. Following Merrill Lynch’s report and discussion among the independent trustees and their financial and

legal advisors, the Taberna special committee directed Merrill Lynch to prepare a non-binding term sheet outlining preliminary terms of a possible business combination transaction between Taberna and RAIT. Among other items, the preliminary term sheet proposed an exchange ratio of 0.58 of a RAIT common share for one Taberna common share, which represented a premium to both book value and current trading values as indicated by trading of Taberna common shares on PORTAL. The Taberna special committee also assessed the merits and challenges of an IPO and requested that management of Taberna arrange a call for the full Taberna board of trustees with Friedman, Billings & Ramsey Co., Inc., or FBR, the lead underwriter of Taberna’s proposed IPO, to discuss the outlook for the potential IPO.

On May 25, 2006, Taberna delivered a preliminary term sheet with respect to the possible merger and, on May 30, 2006, RAIT’s special committee met, together with its financial advisor, to discuss the terms of Taberna’s preliminary term sheet. At this meeting, UBS noted that the proposed exchange ratio did not appear to reflect a book-to-book merger of equals valuation.

On May 26, 2006, Taberna’s board of trustees met by conference call with representatives of FBR and senior management of Taberna. During the call, representatives of FBR and senior management of Taberna provided an update on the state of the capital markets, Taberna’s market position and other factors relevant to the possible IPO. Following discussion, the Taberna special committee met to further discuss the merits and challenges of an IPO versus the merits and challenges of a business combination with RAIT and concluded that the execution risks of successfully completing an IPO were greater than the risks associated with the merger with RAIT, assuming satisfactory completion of merger negotiations. The primary execution risk the Taberna special committee considered was that an IPO would be subject to then-prevailing market conditions over which Taberna would have no control. Factors that could influence market receptivity to an IPO over which Taberna would have no control principally include the state of the U.S. economy generally, the state of the real estate industry, investors’ appetite for IPOs generally, and IPOs of specialty finance REITs in particular, and the interest rate environment.

On May 26, 2006, representatives of Sullivan & Cromwell LLP, Pepper Hamilton LLP and Clifford Chance US LLP began negotiations with respect to the draft merger agreement distributed by Sullivan & Cromwell LLP on May 8, 2006. On May 31, 2006, representatives of Sullivan & Cromwell LLP discussed with the RAIT special committee the terms of the proposed merger agreement including matters raised by counsel to Taberna and its special committee, Clifford Chance US LLP and Pepper Hamilton LLP. On June 1, 2006, the RAIT special committee interviewed separately Mitchell Kahn, Executive Vice President of Taberna, and Plamen Mitrikov, Executive Vice President—Asset Management of Taberna. Later on June 1, 2006, the RAIT special committee met and instructed its financial advisor to convey to Taberna’s financial advisor the special committee’s position that the exchange ratio should be based on a book-to-book valuation.

Over the next six days, RAIT’s and Taberna’s legal and financial advisors discussed various aspects of the possible merger, including the exchange ratio, the termination fee, and the terms of the prohibition on soliciting other acquisition proposals. The terms of the merger were finalized during the afternoon of June 8, 2006. During this period, the parties and their legal advisors also engaged in negotiation of employment agreements for the senior executives of Taberna which are substantially identical to such executives’ existing employment agreements with Taberna, the terms of which are described under “The Merger Agreement—Interests of Certain Persons in the Merger—Employment Agreements.” The discussions concerning these agreements centered on the titles and responsibilities of such employees following the merger, the fact that RAIT did not wish the executives to have a “change in control” triggered under their existing agreements with Taberna and the fact that the employees wished to have an employment agreement with RAIT, rather than Taberna, upon the merger. RAIT required that the senior executives agree to waive their rights under their existing employment agreements with Taberna to receive cash severance payments if they elected to terminate their employment with RAIT within six months after the closing of the merger. RAIT also required that Cohen Bros. agree to waive its right to terminate its existing non-competition agreement with Taberna as a result of the merger. On June 5, 2006, the RAIT special committee again interviewed Daniel G. Cohen, and, later on that same day, met and received an update from its legal and financial advisors on the matters under negotiation.

The Taberna special committee held several more meetings during the period from May 26, 2006 through June 6, 2006 during which the advisors to the Taberna special committee updated the committee on the status of

negotiations and open business and legal issues. During a meeting on June 2, 2006, the Taberna special committee and representatives of Merrill Lynch and Pepper Hamilton LLP discussed several topics, including the response of RAIT to the preliminary term sheet previously submitted by Taberna and, in particular, RAIT’s position that the exchange ratio should be based upon the relative book values of the two companies. After discussions among the Taberna special committee members and representatives of Merrill Lynch, the Taberna special committee determined that an exchange ratio of 0.5389, reflecting the relative book values of the two companies, would be acceptable. The Taberna special committee assessed the proposed exchange ratio versus the indicative share prices of $11.00 to $13.00 in the IPO alternative previously communicated to the Taberna special committee by representatives of Merrill Lynch as well as other analyses that the Taberna special committee discussed with representatives of Merrill Lynch, including comparable companies analysis, discounted dividend analysis, contribution analysis and relative market values of RAIT and Taberna common shares. Finally, the Taberna special committee noted that the proposed exchange ratio would be consistent with a “merger of equals” transaction, taking into account other aspects of the transaction, including (i) the exchange ratio implied by trading values of RAIT and Taberna common shares, (ii) that following the merger RAIT’s board of trustees would be composed of five individuals designated by RAIT and four individuals designated by Taberna; the Chairman of the combined company would come from RAIT, the Chief Executive Officer would come from Taberna, and the remaining members of senior management would come from both RAIT and Taberna; and (iii) the merger agreement contained mutual representations and warranties, mutual non-solicitation provisions and mutual termination fee provisions. Following these discussions, the Taberna special committee confirmed its previous conclusions about the IPO and other transaction alternatives and determined not to pursue these alternatives. The Taberna special committee also determined that an exchange ratio based on relative book values of the two companies was fair to the holders of Taberna common shares, more consistent with the “merger of equals” nature of the transaction than the exchange ratio initially proposed in early negotiations by the Taberna special committee, and more likely than the Taberna special committee’s initial proposal to be accepted by RAIT. The Taberna special committee therefore authorized Merrill Lynch to proceed to negotiate a final exchange ratio of 0.5389 of a RAIT common share for each Taberna common share.

On June 7, 2006 the Taberna special committee met in person with their financial and legal advisors, representatives of senior management and representatives of Clifford Chance US LLP. Pepper Hamilton LLP reviewed with the trustees the standard of conduct applicable to trustees of a Maryland real estate investment trust. Representatives of Clifford Chance US LLP reported on the due diligence investigation of RAIT conducted on behalf of Taberna, the material terms of the merger agreement, the disclosure schedules being delivered by RAIT in connection with the merger agreement, the employment agreements being entered into by Taberna’s executives with RAIT and the waivers of certain benefits being executed by those executives. Following these presentations and discussions among the trustees, representatives of Merrill Lynch reviewed the financial terms of the proposed transaction and orally advised the Taberna special committee of Merrill Lynch’s opinion, subsequently confirmed in writing on June 8, 2006 that, as of that date and based upon, and subject to the assumptions made and qualifications and limitations set forth in the written opinion, the consideration to be received by the holders of Taberna’s common shares pursuant to the merger agreement was fair, from a financial point of view, to such holders.

On June 8, 2006, the Taberna special committee met via conference call with the other trustees and recommended that the full board approve the merger and approve and adopt the merger agreement, among other resolutions. Representatives of Merrill Lynch confirmed their oral fairness opinion to the full board of trustees. Taberna’s board of trustees unanimously approved the merger and the other transactions contemplated by the merger agreement.

RAIT’s board of trustees met in the afternoon of Thursday, June 8, 2006. At this meeting, Daniel Promislo, chairman of the RAIT special committee, and representatives of Sullivan & Cromwell LLP and UBS reviewed the status of discussions and negotiations with Taberna and, together with members of RAIT’s management, discussed financial and business aspects of the transaction.

Representatives of Sullivan & Cromwell LLP advised the RAIT board of trustees (including its special committee) regarding certain legal matters related to the proposed transaction, including the duties of RAIT’s

trustees in connection with their consideration of the proposed merger agreement. Representatives of Sullivan & Cromwell LLP also presented to the board of trustees (including its special committee) information about the proposed merger agreement, including key terms relating to structure, covenants, and representations and warranties and the arrangements entered into with employees.

Following the Sullivan & Cromwell LLP presentation, UBS reviewed its financial analysis of the exchange ratio and rendered to RAIT’s special committee an oral opinion, which opinion was confirmed by delivery of a written opinion to the special committee, dated June 8, 2006, to the effect that, as of that date and based on and subject to various assumptions, matters considered and limitations described in its opinion, the exchange ratio was fair, from a financial point of view, to RAIT. Members of RAIT’s management and representatives of Sullivan & Cromwell LLP and UBS then responded to questions posed by the RAIT trustees.

The RAIT special committee then convened separately with representatives of Sullivan & Cromwell LLP and UBS. Following extensive discussion and response to trustee questions, upon motion duly made and seconded, the RAIT special committee unanimously agreed to recommend to the entire RAIT board of trustees approval of the merger agreement and the transactions contemplated by the merger agreement.

The entire RAIT board of trustees then reconvened and voted unanimously in favor of approving and declaring advisable the merger.

Promptly after the meetings of the RAIT special committee and the RAIT board of trustees, on June 8, 2006, RAIT and Taberna executed the merger agreement. Later that evening, RAIT and Taberna issued a joint press release announcing the transaction.

After careful consideration, at its meeting on June 8, 2006, RAIT’s board of trustees determined that the merger is in the best interests of RAIT and its shareholders. Accordingly, RAIT’s board, by a unanimous vote, approved and declared advisable the merger and unanimously recommends that RAIT shareholders vote “FOR” approval of the issuance of RAIT common shares as consideration in the merger. In evaluating the merger, RAIT’s board of trustees considered these factors, among others:

In addition, RAIT’s board of trustees considered the following factors that potentially created risks if the board decided to approve the merger:

RAIT’s board of trustees concluded that the anticipated benefits of combining with Taberna were likely to substantially outweigh the potential risks.

Although each member of RAIT’s board of trustees and RAIT’s special committee individually considered these and other factors, in view of the wide variety of factors considered in connection with its evaluation of the merger and the complexity of these matters, the board of trustees collectively did not find it useful, and did not attempt, to quantify, rank or otherwise assign relative weights to the factors considered. In considering these factors, individual trustees may have viewed the significance of individual factors differently. The board of trustees collectively made its determination with respect to the merger based on the conclusion reached by its members, in light of the factors that each of them considered appropriate, that the merger is in the best interests of RAIT and its shareholders.

RAIT’s board of trustees realized there can be no assurance about future results, including results expected or considered in the factors listed above, such as assumptions regarding earnings accretion. However, the board concluded the potential positive factors outweighed the potential risks of completing the merger.

It should be noted that this discussion of the RAIT board of trustees’ reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Forward-Looking Statements.”

At a meeting held on June 8, 2006, the Taberna special committee unanimously recommended to Taberna’s board of trustees that the merger be approved. At the same meeting, Taberna’s board of trustees unanimously determined that the merger is advisable, and directed that a proposal to approve the merger be submitted to Taberna’s shareholders at a special meeting of shareholders.

In reaching their respective determinations, the Taberna special committee and the Taberna board of trustees considered a number of factors, including the following:

The Taberna special committee and the Taberna board of trustees also considered the following potentially negative factors in determining whether to approve the merger, including the following:

The above list of factors is not intended to be exhaustive, but does represent the principal factors considered by Taberna’s board of trustees. In view of the variety of factors considered by Taberna’s board of trustees and Taberna’s special committee and the complexity of these matters, Taberna’s board of trustees and Taberna’s special committee did not find it practicable to, and did not attempt to, quantify, rank or otherwise assign relative weights to the specific factors considered. Additionally, individual trustees may have assigned different weights to different factors. Accordingly, the board of trustees and the special committee viewed their respective recommendations as being based on the totality of the information presented to, and considered by, it. After taking into account the factors set forth above, the Taberna board of trustees and the special committee determined that the potential benefits of the merger substantially outweighed the potential negative factors.

It should be noted that this discussion of the Taberna board of trustees’ reasoning and all other information presented in this section is forward-looking in nature and, therefore, should be read in light of the factors discussed under the heading “Forward-Looking Statements.”

On June 8, 2006, at a meeting of RAIT’s board of trustees (which included its special committee) held to evaluate the proposed merger, UBS delivered to RAIT’s special committee an oral opinion, confirmed by delivery of a written opinion to the special committee dated June 8, 2006, to the effect that, as of that date and based on and subject to various assumptions, procedures followed, matters considered and limitations described in its opinion, the exchange ratio provided for in the merger was fair, from a financial point of view, to RAIT.

The full text of UBS’ opinion describes the assumptions made, procedures followed, matters considered and limitations on the review undertaken by UBS. This opinion is attached as Appendix B and is incorporated into this joint proxy statement-prospectus by reference. UBS’ opinion is directed only to the fairness, from a financial point of view, to RAIT of the exchange ratio provided for in the merger and does not address any other aspect of the merger. The opinion does not address the relative merits of the merger as compared to other business strategies or transactions that might be available to RAIT or RAIT’s underlying business decision to effect the merger. The opinion does not constitute a recommendation to any shareholder as to how such shareholder should vote or act with respect to the merger. Holders of RAIT common shares are encouraged to read this opinion carefully in its entirety. The summary of UBS’ opinion described below is qualified in its entirety by reference to the full text of its opinion.

In connection with its review, with RAIT’s special committee’s consent, UBS did not assume any responsibility for independent verification of any of the information provided to or reviewed by UBS for the purpose of its opinion and, with RAIT’s special committee’s consent, UBS relied on that information being complete and accurate in all material respects. In addition, with RAIT’s special committee’s consent, UBS did

not make any independent evaluation or appraisal of any of the assets or liabilities, contingent or otherwise, of RAIT or Taberna, and was not furnished with any evaluation or appraisal. With respect to the financial forecasts, estimates, assumptions, synergies and pro forma effects referred to above, UBS assumed, at RAIT’s special committee’s direction, that they were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the managements of RAIT and Taberna as to the future performance and capital raising activities of RAIT and Taberna and such synergies and pro forma effects. In addition, UBS assumed, with RAIT’s special committee’s approval, that those financial forecasts and estimates, including with respect to capital raising and synergies, would be achieved at the times, in the amounts and on the terms projected. UBS also assumed, with RAIT’s special committee’s consent, that the merger would qualify for federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. UBS’ opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and information made available to UBS as of, the date of its opinion, including, among other things, the closing price of RAIT common shares on June 7, 2006.

At RAIT’s special committee’s direction, UBS was not asked to, and it did not, offer any opinion as to the terms, other than the exchange ratio to the extent expressly specified in UBS’ opinion, of the merger agreement or the form of the merger. UBS expressed no opinion as to what the value of RAIT common shares will be when issued pursuant to the merger or the price at which RAIT common shares will trade at any time. In rendering its opinion, UBS assumed, with RAIT’s special committee’s consent, that (i) RAIT, RT Sub and Taberna would comply with all material terms of the merger agreement and (ii) the merger would be consummated in accordance with the terms of the merger agreement without any adverse waiver or amendment of any material term or condition of the merger agreement. UBS also assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the merger would be obtained without any material adverse effect on RAIT, Taberna and/or the merger. UBS was advised by the respective managements of RAIT and Taberna that RAIT and Taberna each has been operated in conformity with the requirements for qualification as a REIT for federal income tax purposes since its formation as a REIT and further assumed, with RAIT’s special committee’s consent, that the merger would not adversely affect the status or operations of RAIT and Taberna as a REIT. Except as described above, RAIT imposed no other instructions or limitations on UBS with respect to the investigations made or the procedures followed by UBS in rendering its opinion.

In connection with rendering its opinion to RAIT’s special committee, UBS performed a variety of financial and comparative analyses which are summarized below. The following summary is not a complete description of all analyses performed and factors considered by UBS in connection with its opinion. The preparation of a financial opinion is a complex process involving subjective judgments and is not necessarily susceptible to partial analysis or summary description. With respect to the selected public companies analyses summarized below, no company used as a comparison is either identical or directly comparable to RAIT or Taberna. These analyses necessarily involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading values of the companies concerned.

UBS believes that its analyses and the summary below must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying UBS’ analyses and opinion. None of the analyses performed by UBS was assigned greater significance or reliance by UBS than any other. UBS arrived at its ultimate opinion based on the results of all analyses undertaken by it and assessed as a whole. UBS did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis for purposes of its opinion.

The estimates of the future performance of RAIT and Taberna provided by RAIT’s management or derived from public sources in or underlying UBS’ analyses are not necessarily indicative of future results or values, which may be significantly more or less favorable than those estimates. In performing its analyses, UBS considered industry performance, general business and economic conditions and other matters, many of which are beyond the control of RAIT and Taberna. Estimates of the financial value of companies do not necessarily purport to be appraisals or reflect the prices at which companies actually may be sold.

The exchange ratio was determined through negotiation between RAIT and Taberna and the decision to enter into the merger was solely that of RAIT’s special committee and RAIT’s board of trustees. UBS’ opinion and financial analyses were only one of many factors considered by RAIT’s special committee in its evaluation of the merger and should not be viewed as determinative of the views of RAIT’s special committee, RAIT’s board of trustees or management with respect to the merger or the exchange ratio provided for in the merger.

The following is a brief summary of the material financial analyses performed by UBS and reviewed with RAIT’s special committee in connection with its opinion relating to the proposed merger. The financial analyses summarized below include information presented in tabular format. In order to fully understand UBS’ financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of UBS’ financial analyses.

UBS compared selected financial data of Taberna with selected financial data, to the extent publicly available, of the following seven selected publicly held commercial mortgage finance REITs and three selected publicly held REITs which also hold non-real estate assets, referred to as multi-asset class REITs:

UBS reviewed, among other things, closing stock prices of the selected companies on June 7, 2006 as multiples of calendar years 2006 and 2007 estimated earnings per share, referred to as EPS, and FFO per share and as a multiple of book value per share as of March 31, 2006. UBS then compared these multiples with multiples of calendar years 2006 and 2007 estimated EPS and CAD, per share and book value per share as of March 31, 2006 derived for Taberna based on the per share value of the merger consideration of $13.68 implied by the exchange ratio of 0.5389x and the closing price of RAIT common shares on June 7, 2006. Financial data of the selected companies were based on publicly available research analysts’ estimates, public filings and other publicly available information. Financial data of Taberna were based on internal estimates of Taberna’s management and public filings made by Taberna in connection with its previously proposed IPO. This analysis indicated the following implied low, median and high multiples for the selected companies, as compared to the multiples implied for Taberna based on the implied per share value of the merger consideration:

UBS performed a discounted cash flow analysis of Taberna to calculate the estimated present value of the cash dividends to common shareholders that Taberna could make on a stand-alone basis over calendar years 2006 through 2008 based on internal estimates of Taberna’s management, which estimates reflected, among other things, (i) quarterly and annual dividend distributions by Taberna and (ii) an IPO in the third fiscal quarter of 2006 and subsequent follow-on public offerings in 2007 and 2008, in each case priced at a higher premium to book value per share than the preceding offering. UBS also calculated a range of implied terminal values for Taberna by applying to Taberna’s annualized fourth quarter calendar year 2008 estimated dividend a range of terminal dividend yields ranging from 9.0% to 11.0%, which terminal dividend yield range was derived taking into consideration average historical dividend yields of the selected companies referred to above under “Taberna Financial Analyses—Selected Public Companies Analysis.” The cash flows and terminal values were then discounted to present value as of June 30, 2006 using discount rates ranging from 11.5% to 15.5%, which discount rate range was derived taking into consideration the estimated cost of equity for Taberna. This analysis indicated the following implied per share equity reference range for Taberna, as compared to the implied per share value of the merger consideration based on the exchange ratio of 0.5389x and the closing price of RAIT common shares on June 7, 2006:

UBS compared selected financial and stock market data of RAIT with selected financial and stock market data, to the extent publicly available, of the selected companies referred to above under “Taberna Financial Analyses—Selected Public Companies Analysis.” UBS reviewed, among other things, closing stock prices of the selected companies on June 7, 2006 as multiples of calendar years 2006 and 2007 estimated EPS and FFO per share and as a multiple of book value per share as of March 31, 2006. UBS then compared these multiples with multiples of calendar years 2006 and 2007 estimated EPS and CAD per share and book value per share as of March 31, 2006 derived for RAIT based on the closing price of RAIT common shares on June 7, 2006. Financial data of the selected companies were based on publicly available research analysts’ forecasts, public filings and other publicly available information. Estimated financial data of RAIT were based both on internal forecasts prepared by RAIT’s management, referred to below as “management forecasts,” and publicly available research analysts’ forecasts, referred to below as “street forecasts.” Other financial data of RAIT were based on RAIT’s public filings. This analysis indicated the following implied low, median and high multiples for the selected companies, as compared to the multiples implied for RAIT based on the closing price of RAIT common shares on June 7, 2006:

UBS performed a discounted cash flow analysis of RAIT to calculate the estimated present value of the cash dividends to common shareholders that RAIT could make on a stand-alone basis over calendar years 2006 through 2008 based on internal estimates of RAIT’s management, which estimates reflected, among other things, (i) quarterly and annual dividend distributions by RAIT and (ii) a follow-on public offering in 2008. UBS also calculated a range of implied terminal values for RAIT by applying to RAIT’s annualized fourth quarter calendar year 2008 estimated dividend a range of terminal dividend yields ranging from 9.0% to 11.0%, which terminal dividend yield range was derived taking into consideration average historical dividend yields of the selected companies referred to above under “Taberna Financial Analyses—Selected Public Companies Analysis.” The cash flows and terminal values were then discounted to present value as of June 30, 2006 using discount rates ranging from 11.5% to 15.5%, which discount rate range was derived taking into consideration the estimated cost of equity for RAIT. This analysis indicated the following implied per share equity reference range for RAIT, as compared to the closing price of RAIT common shares on June 7, 2006:

UBS compared the implied per share value of the merger consideration with the implied per share equity reference range for Taberna described above under “Taberna Financial Analyses—Discounted Cash Flow Analysis” after taking into account the implied value of potential synergies resulting from the merger attributable to RAIT based on the implied percentage equity ownership of RAIT’s shareholders in the combined company immediately upon consummation of the merger. UBS calculated an implied value range of such potential synergies by subtracting the aggregate stand-alone equity values implied for Taberna and RAIT derived from the stand-alone discounted cash flow analyses described above under “Taberna Financial Analyses—Discounted Cash Flow Analysis” and “RAIT Financial Analyses—Discounted Cash Flow Analysis” from the aggregate equity values implied for Taberna and RAIT on a combined basis. The aggregate equity values for Taberna and RAIT on a combined basis were derived from a discounted cash flow analysis performed utilizing the same terminal dividend yield and discount rate ranges as described in such stand-alone discounted cash flow analyses, which ranges were derived taking into consideration, in the case of terminal dividend yields, average historical dividend yields of the selected companies referred to above under “Taberna Financial Analyses—Selected Public Companies Analysis” and, in the case of discount rates, the estimated cost of equity for Taberna and RAIT on a combined basis. Financial data of RAIT and Taberna, including estimated synergies, were based on internal estimates of the managements of RAIT and Taberna, which estimates reflected, among other things, (i) quarterly and annual dividend distributions by the combined company and (ii) follow-on public offerings in 2006, 2007 and 2008, in each case priced at a higher premium to book value per share than the preceding offering. This analysis indicated the following implied per share equity reference range for Taberna with potential synergies, as compared to the implied per share value of the merger consideration based on the exchange ratio of 0.5389x and the closing price of RAIT common shares on June 7, 2006:

UBS analyzed the potential pro forma effect of the merger on RAIT’s estimated EPS and CAD per share in calendar years 2006 through 2008, both before and after giving effect to potential synergies anticipated by the

managements of RAIT and Taberna to result from the merger. UBS also analyzed the potential pro forma effect of the merger on RAIT’s book value per share and tangible book value per share as of March 31, 2006. Financial data of RAIT and Taberna, including estimated synergies, were based on internal estimates of the managements of RAIT and Taberna and public filings. Based on the exchange ratio provided for in the merger and the closing price of RAIT common shares on June 7, 2006, this analysis indicated that:

Actual results are likely to vary from the internal estimates, including estimated synergies, utilized and the analysis thereof, and the variations may be material.

RAIT has agreed to pay UBS for its financial advisory services in connection with the merger an aggregate fee estimated to be approximately $4.5 million, comprised of payments made in quarterly installments during UBS’ engagement totaling $200,000, an opinion fee of $1.5 million payable in connection with UBS’ opinion and a transaction fee of approximately $2.8 million contingent upon the consummation of the merger. In addition, RAIT has agreed to reimburse UBS for its reasonable expenses, including fees, disbursements and other charges of counsel, and to indemnify UBS and related parties against liabilities, including liabilities under federal securities laws, relating to, or arising out of, its engagement. In the ordinary course of business, UBS, its successors and affiliates may hold or trade, for their own accounts and the accounts of their customers, securities of RAIT and/or Taberna and, accordingly, may at any time hold a long or short position in such securities.

RAIT’s special committee selected UBS as its financial advisor in connection with the merger because UBS is an internationally recognized investment banking firm with substantial experience in similar transactions. UBS is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities and private placements.

A special committee of the board of trustees of Taberna engaged Merrill Lynch to act as its financial advisor in connection with the proposed merger and to render an opinion as to whether the consideration to be received by holders of Taberna common shares pursuant to the merger was fair, from a financial point of view, to such holders.

On June 7, 2006, at the request of the special committee of the board of trustees of Taberna, Merrill Lynch provided its oral opinion to the special committee of the board of trustees of Taberna, subsequently confirmed in writing on June 8, 2006, that, as of that date, and based upon and subject to the assumptions made, matters considered and qualifications and limitations set forth in the written opinion (which are described below), the consideration to be received by holders of Taberna common shares pursuant to the merger agreement was fair, from a financial point of view, to such holders.

The full text of the written opinion of Merrill Lynch, dated June 8, 2006, which sets forth the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Merrill Lynch, is attached to this joint proxy statement-prospectus as Appendix C. The following summary of Merrill Lynch’s opinion is qualified in its entirety by reference to the full text of the opinion. You are urged to read and should read the entire opinion carefully.

The Merrill Lynch opinion is addressed to the special committee of the board of trustees of Taberna and only addresses the fairness, from a financial point of view as of the date of the opinion, of the consideration to be received by holders of Taberna common shares pursuant to the merger. The opinion does not address the merits of the underlying decision by Taberna to engage in the merger and does not constitute, nor should it be construed as, a recommendation to any holder of Taberna common shares as to how such holder should vote with respect to the proposed merger or any other matter. In addition, Merrill Lynch was not asked to address nor does its opinion address the fairness to, or any other consideration of, the holders of any class of securities, creditors or other constituencies of Taberna, other than the holders of Taberna common shares.

In preparing its opinion, Merrill Lynch assumed and relied on the accuracy and completeness of all information supplied or otherwise made available to Merrill Lynch, discussed with or reviewed by or for Merrill Lynch, or publicly available, and did not assume any responsibility for independently verifying such information or undertaking an independent evaluation or appraisal of any of the assets or liabilities of Taberna or RAIT and was not furnished with any such evaluation or appraisal, nor did Merrill Lynch evaluate the solvency or fair value of Taberna or RAIT under any state or federal law relating to bankruptcy, insolvency or similar matters. In addition, Merrill Lynch has not assumed any obligation to conduct any physical inspection of the properties or facilities of Taberna or RAIT. With respect to the financial forecast information and the potential pro forma impact of the merger furnished to or discussed with Merrill Lynch by Taberna or RAIT, Merrill Lynch assumed that such information was reasonably prepared and reflected the best currently available estimates and judgment of Taberna’s or RAIT’s management as to the expected future financial performance of Taberna or RAIT, as the case may be. Merrill Lynch further assumed that the final form of the merger agreement will be substantially similar to the last draft they reviewed.

The opinion of Merrill Lynch was necessarily based upon market, economic and other conditions as they existed and could be evaluated on, and on the information made available to Merrill Lynch as of, the date of its opinion.

In connection with the preparation of its opinion, Merrill Lynch was not authorized by Taberna or the special committee of the board of trustees of Taberna to solicit, nor did Merrill Lynch solicit third-party indications of interest for the acquisition of all or any part of Taberna.

The following is a summary of the material financial and comparative analyses performed by Merrill Lynch that were presented to the special committee of the board of trustees of Taberna in connection with its opinion. The financial analyses summarized below include information presented in tabular format. In order to fully understand Merrill Lynch’s financial analyses, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses. Considering the data described below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the analyses, could create a misleading or incomplete view of Merrill Lynch’s financial analyses.

Using publicly available information, Merrill Lynch performed an analysis of selected public companies that share some characteristics with Taberna. Merrill Lynch analyzed the following companies:

Merrill Lynch reviewed financial information, including the following for each of the selected comparable companies:

Based on Merrill Lynch’s substantial experience in similar transactions, the reference range for each of LQA Dividend Yield, 2006E Dividend Yield and Price/Book Value was determined by taking into account certain assumptions and judgments in evaluating the comparable companies, including the degree to which such companies shared certain characteristics with Taberna.

Using the reference ranges described above and (i) the dividend per common share for the quarter ended March 31, 2006 of $0.35, (ii) the projected 2006 dividend per common share of $1.39 and (iii) the book value per common share of $9.29 (based on common equity of $412.0 million and 44.3 million fully-diluted common shares outstanding as of March 31, 2006), the analysis indicated a range of implied prices per Taberna common share of approximately $12.50 to $15.50.

No company considered in the foregoing analysis is identical to Taberna. In evaluating comparable companies, Merrill Lynch made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of Taberna. Mathematical analysis (such as determining the median) is not in itself a meaningful method of using comparable company data.

Taberna was in the process of registering an IPO of Taberna common shares at the time it began its discussions with RAIT. Merrill Lynch used Taberna’s projected 2006 dividend per common share of $1.39 to determine the implied value of Taberna common shares in an IPO using dividend yield rates in the range of 9.0% to 10.0% and an initial public offering discount in the range of 15.0% to 20.0%. This analysis indicated a range of implied prices per Taberna common share of approximately $11.00 to $13.00.

Merrill Lynch performed a discounted dividend analysis for Taberna. Merrill Lynch calculated the discounted dividend values for Taberna as the sum of the net present values of:

The estimated dividends per share were based on certain financial projections for the years 2006 through 2008 prepared by Taberna’s management. The terminal value of Taberna common shares was calculated based on projected book value per share at the end of 2009 and price/book value multiples ranging from 1.3x to 1.5x. Merrill Lynch applied discount rates ranging from 11.0% to 13.0%, which are rates Merrill Lynch views as the appropriate range for a company with Taberna’s risk characteristics.

Based on the above assumptions, Merrill Lynch determined that the present value of Taberna’s common shares ranged from approximately $13.00 to $14.50.

Using publicly available information, Merrill Lynch performed an analysis of selected public companies that share some characteristics with RAIT. Merrill Lynch analyzed the following companies:

Merrill Lynch reviewed financial information including the following for each of the selected comparable companies:

Using the reference ranges described above and (i) the dividend per common share for the quarter ended March 31, 2006 of $0.61, (ii) the projected 2006 dividend per common share of $2.56 and (iii) the book value per common share of $17.24 (based on common equity of $465 million and 28.1 million fully-diluted common shares outstanding as of March 31, 2006), the analysis indicated a range of implied prices per common share of RAIT of approximately $25.00 to $28.50.

No company considered in the foregoing analysis is identical to RAIT. In evaluating comparable companies, Merrill Lynch made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond the control of RAIT. Mathematical analysis (such as determining the median) is not in itself a meaningful method of using comparable company data.

Merrill Lynch performed a discounted dividend analysis for RAIT. Merrill Lynch calculated the discounted dividend values for RAIT as the sum of the net present values of:

The estimated dividends per share were based on certain financial projections for the years 2006 through 2008 prepared by RAIT’s management. The terminal value of RAIT common shares was calculated based on projected book value per share at the end of 2009 and price/book value multiples ranging from 1.3x to 1.5x. Merrill Lynch applied discount rates ranging from 10.0% to 12.0%, which are rates Merrill Lynch views as the appropriate range for a company with RAIT’s risk characteristics.

Based on the above assumptions, Merrill Lynch determined that the present value of RAIT common shares ranged from approximately $27.00 to $30.00.

Using financial forecasts and synergies projections of Taberna and RAIT provided by their respective managements, and assuming the merger is completed at the exchange ratio of 0.5389, Merrill Lynch reviewed the pro forma effects of the merger including comparisons of estimated earnings per share under generally accepted accounting principles (referred to below as GAAP EPS), dividends per share and tangible book value per share of the resulting combined company to the stand-alone projections for Taberna and RAIT. For purposes of this analysis, Merrill Lynch analyzed the projected GAAP EPS for 2006 and the projected dividends per share for 2006 as if the merger was completed as of March 31, 2006.

The analysis indicated that the merger could be accretive to Taberna’s projected GAAP EPS and estimated dividends per share in calendar years 2006 through 2008. The analysis also indicated that the merger could be dilutive to RAIT’s projected GAAP EPS in calendar years 2006 through 2008 and accretive to RAIT’s estimated dividends per share in calendar years 2006 through 2008. In addition, the analysis indicated that, pro forma for the merger, the tangible book value per share of each of Taberna and RAIT would decrease. Actual results may vary from projected results and the variations may be material.

Merrill Lynch performed a pro forma contribution analysis and analyzed implied ratios of RAIT common shares per Taberna common share based on various financial metrics. Using publicly available financial data, as well as Taberna’s and RAIT’s management estimates, Merrill Lynch calculated the relative contribution percentage of Taberna and RAIT to the combined entity, based on common equity, the aggregate dividend paid in the first quarter of 2006 (which is referred to below as 1Q 2006 Dividend), the aggregate dividend paid in the second quarter of 2006 (which is referred to below as 2Q 2006 Dividend) and the projected aggregate 2006 dividend (which is referred to below as 2006E Dividend). In addition, Merrill Lynch analyzed implied exchange ratios based on the relative market values of Taberna and RAIT as of June 6, 2006.

Based on these metrics, Merrill Lynch calculated the exchange ratios which would result in a pro forma ownership equal to the contribution percentage (assuming a 100% stock transaction) for each of these metrics.

Merrill Lynch used the implied share prices from its Comparable Companies Analysis, Discounted Dividend Analysis, and Contribution Analysis for both Taberna and RAIT, in order to calculate a range of implied exchange ratios. The range of implied exchange ratios was calculated by dividing the implied low share price of Taberna by the implied high share price of RAIT for each of these analyses (but not the IPO valuation analysis), and by dividing the implied high share price of Taberna by the implied low share price of RAIT for each of the analyses. Each range of implied exchange ratios was compared to 0.5389, the exchange ratio specified in the merger agreement for calculating the merger consideration.

The analysis yielded the following results as compared to the exchange ratio specified in the merger agreement:

The summary set forth above summarizes the material analyses performed by Merrill Lynch but does not purport to be a complete description of the analyses performed by Merrill Lynch in arriving at its opinion. The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial or summary description. Accordingly, Merrill Lynch believes that its analyses must be considered as a whole and that selecting portions of its analyses and the factors considered by Merrill Lynch, without considering all analyses and factors, could create an incomplete view of the processes underlying the Merrill Lynch opinion. Merrill Lynch did not assign relative weights to any of its analyses in preparing its opinion.

Pursuant to a letter agreement between Taberna and Merrill Lynch, dated as of May 5, 2006, Taberna agreed to pay Merrill Lynch for the following financial advisory services rendered: (i) a presentation fee of $500,000 for Merrill Lynch’s presentation to Taberna with respect to strategic alternatives available to Taberna, payable upon delivery of the presentation, (ii) an opinion fee of $1 million payable upon delivery of an opinion to Taberna’s special committee, (iii) a transaction fee of $2.5 million payable upon merger completion (less any fees previously paid), and (iv) if the merger agreement is terminated and RAIT pays Taberna a termination fee, 15% of the termination fee received by Taberna. Taberna also agreed, among other things, to reimburse Merrill Lynch for certain expenses incurred in connection with the services provided by Merrill Lynch and to indemnify Merrill Lynch and certain related persons and entities for certain liabilities, including liabilities under the U.S. federal securities laws, related to or arising out of its engagement. Merrill Lynch has, in the past, provided brokering services to introduce REITs to Taberna’s funding sources, and has also structured CDOs that are managed by Taberna or certain of its affiliates and placed the securities in such CDOs. Merrill Lynch has also acted as initial purchaser in a 144A private equity offering for an affiliate of Taberna, Alesco. The aggregate approximate fees received by Merrill Lynch in the last two years for the services it rendered to Taberna as described above were $111.3 million (excluding fees in connection with the merger) and $125.4 million to Cohen Bros. and Alesco.

Merrill Lynch may continue to provide such services to Taberna and has received, and may receive, fees for the rendering of such services. In addition, in the ordinary course of business, Merrill Lynch may actively trade Taberna’s common shares and other securities, as well as RAIT common shares and other securities of RAIT, for its own account and for the accounts of its customers and, accordingly, Merrill Lynch may at any time hold a long or short position in such securities.

The special committee of the board of trustees of Taberna selected Merrill Lynch to deliver its opinion because of Merrill Lynch’s reputation as an internationally recognized investment banking firm with substantial experience in transactions similar to the merger and because Merrill Lynch is familiar with Taberna and its business. As part of Merrill Lynch’s investment banking business, Merrill Lynch is continually engaged in the valuation of businesses and their securities in connection with mergers and acquisitions, leveraged buyouts, negotiated underwritings, secondary distributions of listed and unlisted securities and private placements.

The following discussion describes the material provisions of the merger agreement. We urge you to read the merger agreement, which is attached as Appendix A and incorporated by reference into this joint proxy statement-prospectus, carefully and in its entirety. This summary may not contain all of the information about the merger agreement that is important to you. The merger agreement has been included to provide you with information regarding its terms. It is not intended to provide any other factual information about RAIT or Taberna.

The representations and warranties described below and included in the merger agreement were made by each of RAIT and Taberna to the other. These representations and warranties were made as of specific dates and are subject to important exceptions, limitations and supplemental information contained in the confidential disclosure letters provided by each of RAIT and Taberna to the other in connection with the signing of the merger agreement, including a contractual standard of materiality different from that generally applicable under U.S. federal securities laws. In addition, the representations and warranties may have been included in the merger agreement for the purpose of allocating risk between RAIT and Taberna, rather than to establish matters as facts. Accordingly, you should not rely on the representations and warranties in the merger agreement as characterizations of the actual state of facts about RAIT or Taberna, and you should read the information provided elsewhere in this joint proxy statement-prospectus and in the documents incorporated by reference into this joint proxy statement-prospectus for information regarding RAIT and Taberna and their respective businesses. See “Where You Can Find More Information.”

Subject to the terms and conditions of the merger agreement, and in accordance with Maryland law, at completion of the merger, RT Sub will merge with and into Taberna, with all of Taberna common shares being exchanged for RAIT common shares. Taberna will be the surviving entity and will continue its existence under the laws of Maryland as a subsidiary of RAIT. Taberna’s declaration of trust will be the declaration of trust of the surviving entity, and Taberna’s bylaws will be the bylaws of the surviving entity. After completion of the merger, former Taberna shareholders will own approximately 46% of the outstanding RAIT common shares and current RAIT shareholders will own approximately 54% of the outstanding RAIT common shares. See “Comparison of the Rights of RAIT Shareholders and Taberna Shareholders.” In order to maintain Taberna’s qualification as a REIT, at the time of the merger, RT Sub will have outstanding non-voting preferred stock, approximately 83% of which will be owned by RAIT and the balance of which will be owned by 125 individual private individuals, none of whom is affiliated with RAIT or Taberna, which will be converted into Taberna preferred shares in the merger.

Betsy Z. Cohen, Edward S. Brown, S. Kristin Kim, Arthur Makadon, and Daniel Promislo, who presently serve on RAIT’s board of trustees, will remain on the RAIT board at completion of the merger, and Daniel Cohen, Frank A. Farnesi, John F. Quigley, III and Murray Stempel, III have been designated by Taberna to serve on RAIT’s board of trustees and will be elected upon the merger to serve until their respective successors are duly elected and qualified in accordance with RAIT’s declaration of trust and bylaws. All other prior members of Taberna’s and RAIT’s respective boards of trustees will resign upon completion of the merger. Non-employee members of Taberna’s board of trustees who are added to RAIT’s board of trustees will receive customary fees from RAIT for being a trustee in accordance with RAIT’s current policy for 2006. RAIT’s current policy for 2006 provides for:

A phantom unit is a right to receive one RAIT common share. The phantom units granted to non-management trustees vest immediately, have dividend equivalent rights and will be redeemed upon the earliest to occur of the first anniversary of the date of grant or a trustee’s termination of service. In previous years, RAIT has also paid a retention bonus to trustees, but it is under no obligation to do so in the future.

Any RAIT trustee who resigns in connection with the merger will receive only the regular compensation described above accrued through the date of his or her resignation. Under the terms of grants made under RAIT’s equity compensation plans, phantom shares and phantom units previously granted to a resigning trustee will be redeemed for the equivalent number of RAIT common shares. Stock options previously granted will terminate if not exercised within the earlier to occur of the six months following the date of the resignation or end of the option term.

RAIT Common Shares. Each RAIT common share and each preferred share of beneficial interest of RAIT outstanding at the time of the merger will remain outstanding and those shares will be unaffected by the merger.

Taberna Common Shares. In the merger, Taberna shareholders will receive 0.5389 of a RAIT common share for each Taberna common share. This exchange ratio is subject to customary and proportionate adjustments in the event of share splits, reverse share splits or similar events with respect to RAIT common shares before the merger is completed.

For example, if you own 100 Taberna common shares immediately prior to the merger, when the proposed merger is completed, you will receive:

The exchange ratio of 0.5389 reflects the book values of Taberna and RAIT and was calculated by dividing Taberna’s book value per share of $9.29 at March 31, 2006 by RAIT’s book value per share of $17.24 at March 31, 2006. The book value per share of each of Taberna and RAIT was determined by dividing the common shareholders’ equity by the number of common shares outstanding on a fully diluted basis. See “The Merger—Background of the Merger” for a discussion of the negotiations between RAIT’s and Taberna’s special committees of the exchange ratio.

Fixed Exchange Ratio Considerations. Because the exchange ratio with respect to the number of RAIT common shares to be issued as merger consideration is fixed and because the market price of RAIT common shares will fluctuate, the market value of the RAIT common shares that Taberna shareholders will receive in the merger may increase or decrease both before and after the merger.

Fixed exchange ratios, with no “collars,” are frequently used in “mergers of equals.” Such exchange ratios fix the percentage ownership of the parties in the combined company at the time the merger agreement is signed and symmetrically allocate the risks associated with movements in the price of the issuer’s shares. The use of a fixed exchange ratio is intended to capture the relative contribution of each company based on fundamental financial factors. In this respect, fixed exchange ratios reflect the intention to share risk and rewards generally presumed in stock-for-stock merger of equal transactions such as our proposed merger.

RAIT and Taberna believe that a fixed exchange ratio is appropriate in view of the long-term strategic purposes of the merger, including the goal to combine the companies into a platform that creates an opportunity for continued strong growth in CAD, and thus dividend growth. While a fixed exchange ratio exposes the recipient shareholders to a decline in nominal value if the price of the issuer’s shares falls in the period between announcement and closing, it also recognizes that RAIT’s ultimate value will not be determined by movements in its share price between announcement and closing, but by RAIT’s performance over time. RAIT and Taberna believe that concerns about short-term market fluctuations generally should not outweigh judgments about longer-term value.

Exchange Procedures. At completion of the merger, RAIT will deposit certificates representing the RAIT common shares to be issued under the merger agreement with an exchange agent, which will be American Stock Transfer & Trust Company, or another company selected by RAIT and reasonably acceptable to Taberna.

Promptly after completion of the merger, the exchange agent will mail a transmittal letter to Taberna shareholders. The transmittal letter will contain instructions about the surrender of Taberna common share certificates for RAIT common shares, and any cash to be paid instead of fractional RAIT common shares.

Taberna common share certificates should not be returned with the enclosed proxy card. They should not be forwarded to the exchange agent unless and until you receive a transmittal letter following completion of the merger.

Taberna common share certificates presented for transfer after completion of the merger will be canceled and exchanged for share certificates representing the applicable number of RAIT common shares. Any Taberna shareholder requesting that RAIT common shares be issued in a name other than that in which the certificate being surrendered is registered will have to pay to the exchange agent in advance any transfer taxes that may be owed.

After the merger, there will be no transfers of Taberna common shares on the share transfer books of Taberna.

All RAIT common shares into which Taberna common shares are converted upon the completion of the merger will be deemed issued as of that date. After that date, former Taberna shareholders of record will be entitled to vote, at any meeting of RAIT shareholders having a record date on or after the completion of the merger, the number of whole RAIT common shares into which their shares of Taberna have been converted, regardless of whether they have surrendered their Taberna share certificates. RAIT dividends having a record date on or after the completion of the merger will include dividends on RAIT common shares issued to Taberna shareholders in the merger. However, no dividend or other distribution payable to the holders of record of RAIT common shares after the completion of the merger will be distributed to the holder of any Taberna common share certificates until that holder physically surrenders all of his or her Taberna common share certificates as described above. Promptly after surrender, share certificates to which that holder is entitled, all undelivered dividends and other distributions, and cash to be paid instead of any fractional RAIT common shares, if applicable, will be delivered to that holder, in each case without interest.

No Fractional Shares Will Be Issued. RAIT will not issue fractional RAIT common shares in the merger. There will be no dividends or voting rights with respect to any fractional RAIT common shares. For each fractional RAIT common share that would otherwise be issued, RAIT will pay cash in an amount equal to the

fraction of a whole share that would otherwise have been issued, multiplied by the closing sale price of RAIT common shares on the NYSE on the trading day immediately preceding the date the merger is completed. No interest will be paid or accrued on the cash.

None of RAIT, Taberna or any other person will be liable to any former holder of Taberna common shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar laws.

Lost, Stolen or Destroyed Taberna Common Share Certificates. Taberna shareholders who have lost a certificate representing Taberna common shares, or whose certificate has been stolen or destroyed, will be issued the RAIT common shares payable under the merger agreement once such shareholder posts a bond in a customary amount to protect against any claim that may be made against RAIT about ownership of the lost, stolen or destroyed certificate.

No Transfer by RAIT Shareholders Required. RAIT shareholders will not be required to exchange certificates representing their RAIT common shares or otherwise take any action after completion of the merger. RAIT shareholders do not need to submit share certificates for common shares to RAIT, Taberna, the exchange agent or to any other person in connection with the merger.

For a description of RAIT common shares and a description of the differences between the rights of Taberna shareholders and RAIT shareholders, see “Description of RAIT Shares of Beneficial Ownership” and “Comparison of the Rights of RAIT Shareholders and Taberna Shareholders”.

The effective time of the merger will be the time set forth in the legal documents that we will file with the State Department of Assessments and Taxation of the State of Maryland, or the SDAT, on the date the merger is completed. We plan to complete the merger on the first business day after the satisfaction or waiver, where waiver is legally permissible, of the last remaining condition to the merger unless we agree to another date or time. See “—Conditions to Completion of the Merger.”

We anticipate that we will complete the merger during the fourth quarter of 2006. There can be no assurances as to whether or when the merger will be completed. If we do not complete the merger by December 15, 2006, either party may terminate the merger agreement without penalty unless the failure to complete the merger by this date is due to the failure of the party seeking to terminate the merger agreement to perform or observe its obligations under the merger agreement. See “—Conditions to Completion of the Merger.” In some cases, a party’s obligation to pay the other party the $18 million termination fee upon the occurrence of specified events may continue for a period of time after termination of the merger agreement. The termination fee is described under “—Termination Fee.”

The merger agreement contains representations and warranties of RAIT and Taberna to each other, as to, among other things:

Each of RAIT and Taberna has agreed, except as expressly contemplated by the merger agreement or as disclosed prior to the signing of the merger agreement, that it will not and will cause each of its subsidiaries not to, and will not agree to, without the other party’s consent:

Each of RAIT and Taberna has agreed that it will not initiate, solicit, encourage or knowingly facilitate inquiries or proposals with respect to, or engage in any negotiations concerning, or provide any confidential or nonpublic information or data to, or have any discussions with, any person relating to, any acquisition proposal.

However, if either RAIT or Taberna receives an unsolicited acquisition proposal and such party’s board of trustees concludes in good faith that it constitutes a superior proposal or would reasonably be likely to result in a superior proposal, such party may furnish nonpublic information and participate in negotiations or discussions to the extent that its board of trustees concludes in good faith (after considering the advice of outside counsel) that to do so does not contravene its statutory obligations. Before providing any nonpublic information, such party must enter into a confidentiality agreement with the third party no less favorable to it than the confidentiality agreement entered into by it with the other party.

For purposes of the merger agreement, the terms “acquisition proposal” and “superior proposal” have the following meanings:

Each party has agreed to cease immediately any activities, negotiations or discussions conducted before the date of the merger agreement with any other persons with respect to acquisition proposals. Each party has also agreed to notify the other within 24 hours of receiving any acquisition proposal and the substance of the proposal.

In addition, both parties have agreed to use all reasonable best efforts to obtain the required approvals from our respective shareholders. However, if either party’s board of trustees determines in good faith (after consultation with financial advisors and outside counsel) to accept or recommend a superior proposal, it may accept such superior proposal and withdraw its recommendation of the merger, provided before taking such action with respect to an acquisition proposal, it will give the other party at least three business days to respond to the proposal and will consider any amendment or modification to the merger agreement proposed by the other party.

In addition to the agreements we have described above, we have also agreed in the merger agreement to take several other actions, such as:

RAIT’s and Taberna’s obligations to complete the merger are subject to the satisfaction or written waiver, where permissible, of a number of conditions including the following:

As discussed below, if the merger is not completed on or before December 15, 2006, either RAIT or Taberna may terminate the merger agreement, unless the failure to complete the merger by that date is due to the failure of the party seeking to terminate the merger agreement to perform or observe its representations, warranties, covenants and agreements set forth in the merger agreement.

The merger agreement may be terminated at any time before or after the issuance of RAIT common shares is approved by RAIT shareholders and the merger is approved by Taberna shareholders:

There are certain circumstances where one party will be required to pay the other party a termination fee of $18 million. This payment is required in the event that: (i) if an acquisition proposal is made at least 30 days prior to a termination that occurs because the merger does not occur before December 15, 2006 or at least 10 days before shareholder approval is not received at a special meeting and the merger agreement is terminated for either of those reasons, and thereafter the recipient of proposal enters into an acquisition agreement within 12 months with the party making the proposal, (ii) a party terminates the merger agreement, after following the procedures required by the merger agreement, to accept a superior proposal or (iii) the merger agreement is terminated by a party because the other party changed or failed to reaffirm its recommendation of the merger, failed to hold a special meeting by December 15, 2006 or did not recommend against a tender of exchange offer for its shares, and such other party thereafter enters into an acquisition agreement within 12 months.

At any time before completion of the merger, either of us may, to the extent legally allowed, waive in writing any provision contained in the merger agreement. Subject to compliance with applicable law, we may amend the merger agreement by a written agreement at any time before or after RAIT or Taberna receives shareholder approval.

Other than as described below, neither RAIT nor Taberna is aware of any material U.S. federal or state regulatory requirements that must be complied with or approvals that must be obtained in connection with the merger.

Pursuant to the rules of the NASD, Taberna’s broker-dealer subsidiary, Taberna Securities, must obtain approval from the NASD of the change in control of Taberna Securities resulting from the merger. At least 30 days prior to completing the merger, Taberna Securities must file an application with the NASD for continuance in membership in light of the change of its control, and thereafter provide the NASD with information that may be required by the NASD during the NASD’s review process. Taberna can complete the merger after the 30-day notice period has expired and before the NASD has rendered a decision on the application for approval. During this period prior to approval, the NASD may place interim restrictions on Taberna Securities. In addition, the NASD may grant approval of the application subject to Taberna Securities’ agreement to certain restrictions on its business.

If the NASD does not render a decision within 180 days after a satisfactory notice has been filed or such later date as agreed to by Taberna Securities and the NASD, Taberna Securities may file a written notice with the NASD Board of Governors requesting a decision. Within seven days of Taberna Securities’ request, the NASD Board of Governors must either direct the appropriate NASD department to make a decision, or, if good cause is shown, extend the time for issuing a decision by no more than 30 days. If the NASD ultimately denies the application for continuance, Taberna Securities may be required to (1) submit a new application, (2) adhere to certain restrictions placed on its business operations by the NASD, (3) unwind the transaction or, if necessary, (4) withdraw its broker-dealer registration.

Material U.S. Federal Income Tax Consequences of the Merger to Taberna Shareholders

The following summary describes the anticipated material U.S. federal income tax consequences of the merger to holders of Taberna common shares. This discussion addresses only those Taberna shareholders that hold their Taberna common shares as a capital asset within the meaning of Section 1221 of the Internal Revenue Code and does not address all the U.S. federal income tax consequences that may be relevant to particular Taberna shareholders in light of their individual circumstances or to Taberna shareholders that are subject to special rules, such as:

The following summary is based upon the Internal Revenue Code, its legislative history, existing and proposed regulations thereunder and published rulings and decisions, all as currently in effect as of the date hereof, and all of which are subject to change, possibly with retroactive effect. Tax considerations under state, local and foreign laws, or U.S. federal laws other than those pertaining to income tax, are not addressed in this joint proxy statement-prospectus. Determining the actual tax consequences of the merger to you may be complex, and will depend on your specific situation and on factors that are not within our control. You should consult with your tax advisor as to the tax consequences of the merger to you based on your particular circumstances, including the applicability and effect of the alternative minimum tax and any state, local or foreign and other tax laws and of changes in those laws.

Tax Consequences of the Merger Generally. Completion of the merger is conditioned on, among other things, the receipt by each of Taberna and RAIT of opinions from Clifford Chance US LLP and Sullivan & Cromwell LLP, respectively, that for U.S. federal income tax purposes the merger will be treated as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code and that RAIT and Taberna will be treated as parties to such reorganization within the meaning of Section 368(b) of the Internal Revenue Code. These opinions will be based on certain assumptions and on representation letters provided by RAIT, Taberna and RT Sub to be delivered at the time of closing. Neither of these tax opinions will be binding on the IRS. Neither RAIT nor Taberna intends to request any ruling from the IRS as to the U.S. federal income tax consequences of the merger.

Provided the merger qualifies for U.S. federal income tax purposes as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the material U.S. tax consequences of the merger will be as follows:

Cash Received Instead of a Fractional Common Share of RAIT. A Taberna shareholder who receives cash instead of a fractional common share of RAIT will be treated as having received the fractional share pursuant to the merger and then as having exchanged the fractional share for cash in a redemption by RAIT. As a result, a Taberna shareholder will generally recognize gain or loss equal to the difference between the amount of cash received and the basis in his or her fractional share interest as set forth above. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for such shares is greater than one year. The deductibility of capital losses is subject to limitations.

Cash Received Upon Exercise of Appraisal Rights. A Taberna shareholder who receives a payment for its Taberna common shares upon exercise of such shareholder’s appraisal rights will recognize gain or loss equal to the difference between the cash received and the basis in its Taberna common shares. This gain or loss will generally be capital gain or loss, and will be long-term capital gain or loss if the shareholder’s holding period for such shares is greater than one year. The deductibility of capital losses is subject to limitations.

We urge you to consult your tax advisor about the particular tax consequences of the merger to you, including the effects of U.S. federal, state or local, or foreign and other tax laws.

Backup Withholding and Information Reporting. Payments of cash to a holder of Taberna common shares pursuant to the merger, instead of fractional common shares of RAIT, may, under certain circumstances, be subject to information reporting and backup withholding unless the holder provides proof of an applicable exemption or furnishes its taxpayer identification number, and otherwise complies with all applicable requirements of the backup withholding rules. Any amounts withheld from payments to a holder under the backup withholding rules are not additional tax and will be allowed as a refund or credit against the holder’s U.S. federal income tax liability, provided the required information is timely furnished to the IRS.

RAIT will treat the merger as a purchase by RAIT of Taberna under GAAP. Under the purchase method of accounting, the assets and liabilities of the company not surviving a merger are, as of completion of the merger, recorded at their respective fair values and added to those of the surviving company. Financial statements of the surviving company issued after completion of the merger reflect these values, but are not restated retroactively to reflect the historical financial position or results of operations of the company not surviving.

All unaudited pro forma financial information contained in this joint proxy statement-prospectus has been prepared using the purchase method to account for the merger. See “Selected Pro Forma Condensed Combined Financial Data of RAIT and Taberna.” The final allocation of the purchase price will be determined after the merger is completed and after completion of a thorough analysis to determine the fair values of Taberna’s tangible and identifiable intangible assets and liabilities. In addition, estimates related to restructuring and merger-related charges are subject to final decisions related to combining the companies. Accordingly, the final purchase accounting adjustments, restructuring and merger-related charges may be materially different from the unaudited pro forma adjustments presented in this joint proxy statement-prospectus. Any decrease in the net fair value of the assets and liabilities of Taberna as compared to the information shown in this joint proxy statement-prospectus will have the effect of increasing the amount of the purchase price allocable to goodwill.

RAIT has agreed to use its reasonable best efforts to list the RAIT common shares to be issued in the merger on the NYSE. It is a condition to completion of the merger that those shares be approved for listing on the NYSE, subject to official notice of issuance. Following the merger, RAIT expects that its common shares will continue to trade on the NYSE under the symbol “RAS,” although its name will be changed to RAIT Financial Trust.

Upon completion of the merger, RAIT intends to amend its declaration of trust to change its name to “RAIT Financial Trust,” so long as RAIT receives board approval of the name change and any regulatory approvals that may be required.

The merger agreement provides that each party will pay its own expenses in connection with the merger and the transactions contemplated by the merger agreement. However, RAIT and Taberna will divide equally the payment of all printing and mailing costs, filing fees and registration fees paid to the SEC in connection with the filing of this joint proxy statement-prospectus.

In order to equalize (as multiplied by the exchange ratio) and coordinate our dividends, Article VI of the merger agreement provides that prior to the completion of the merger, RAIT’s common dividend for the second quarter of 2006 was limited to $0.64 per share (Taberna’s second quarter dividend of $0.35 had already been paid) and a $0.62 RAIT second quarter dividend was paid. Unless otherwise mutually agreed to by RAIT and Taberna, RAIT’s common dividend for the third quarter of 2006 was limited to $0.65 per share and Taberna’s was limited to $0.35 per share under the merger agreement. Taberna’s third quarter dividend was payable to holders of record on the same record date as RAIT’s third quarter dividend, and RAIT and Taberna paid third quarter dividends at a mutually agreed upon proportionate rate of $0.72 and $0.39, respectively. Pursuant to the merger agreement, neither party may declare a fourth quarter dividend until after either the completion of the merger or the termination of the merger agreement. Because the REIT requirements for distributions are on an annual basis, these limitations on second and third quarter dividends would not affect the parties’ ability to satisfy their REIT distribution obligations.

In addition, RAIT may declare and pay regular quarterly dividends to the holders of its preferred shares of beneficial interest in the amount of $0.484375 per share on RAIT’s Series A cumulative redeemable preferred shares of beneficial interest and $0.5234375 per share on RAIT’s Series B cumulative redeemable preferred shares of beneficial interest.

For further information, please see “Price Range of Common Shares and Dividends.”

Some of Taberna’s trustees and executive officers have interests in the merger other than their interests as Taberna shareholders. The Taberna and RAIT boards were aware of these different interests and considered them, among other matters, in adopting the merger agreement and the transactions it contemplates.

Senior Executive Officers of Taberna and RAIT. When the merger is completed, Daniel G. Cohen will become the Chief Executive Officer of RAIT and Betsy Z. Cohen will serve as Chairman of RAIT. Betsy Z. Cohen and Scott F. Schaeffer, President and Chief Operating Officer of RAIT, waived their rights to terminate their existing employment agreements with RAIT for “good reason,” subject to entering into amended employment agreements with RAIT. In addition, four executive officers of Taberna have entered into employment agreements with RAIT, effective upon completion of the merger, and one executive officer has entered into an amendment to his employment agreement with Taberna that will become effective upon completion of the merger pursuant to which RAIT will assume the employment agreement and will become the employer thereunder. See “—Employment Agreements” below.

The following individuals currently serve as executive officers of Taberna and will serve as executive officers of RAIT following the merger. Mr. Cohen is also a trustee on Taberna’s board of trustees and will be nominated to serve on RAIT’s board of trustees following the merger.

Daniel G. Cohen, age 37. Mr. Cohen will become Chief Executive Officer of RAIT following the merger. Mr. Cohen is Taberna’s Chairman and Chief Executive Officer and has served as a member of Taberna Capital’s investment committee since 2005. He has also served as the chairman of Cohen Bros. and of Alesco since 2001 and 2006, respectively. Mr. Cohen has been chairman of the board of directors of The Bancorp, Inc., a publicly traded bank holding company, since 2000, served as chief executive officer for The Bancorp, Inc. from 1999 to 2000 and has served as a member of the board of directors of TRM Corporation, a consumer services company, since 2000 and as its chairman since 2003. From 1998 to 2000, Mr. Cohen served as the chief operating officer of Resource America Inc., or Resource America, a publicly traded asset management company with interests in energy, real estate and financial services. From 1997 to 1999, Mr. Cohen was a director of Jefferson Bank of Pennsylvania, a commercial bank acquired by Hudson United Bancorp in 1999.

Mitchell Kahn, 34. Mr. Kahn will become Co-President of RAIT following the merger. Mr. Kahn has been Taberna’s Executive Vice President and the President of Taberna Capital since March 2005. Prior to joining Taberna, Mr. Kahn was a managing director at Cohen Bros. from 2004 to 2005. Prior to joining Cohen Bros., Mr. Kahn was a senior associate at Cadwalader, Wickersham & Taft LLP, a law firm, from 1998 to 2004 where he specialized in real estate finance, acquisitions and dispositions and representation of REITs and real estate operating companies.

Raphael Licht, age 38. Mr. Licht will become Chief Legal Officer and Chief Administrative Officer of RAIT following the merger. Mr. Licht has been Taberna’s Chief Legal Officer and Secretary since March 2005 and Taberna’s Executive Vice President and Chief Administrative Officer since April 2006. Mr. Licht also served as the chief legal officer of Cohen Bros. from 2001 until April 2006. From 2000 until 2001, Mr. Licht served as general counsel at iATM global.net Corporation, an ATM software joint venture between TRM Corporation (affiliated with Mr. Cohen) and NCR Corporation. From 1997 until 2000, Mr. Licht was an associate with Morgan Lewis & Bockius LLP, a law firm, specializing in structured finance and securitizations. From 1996 until 1997, Mr. Licht was an associate at Ledgewood, a professional corporation, a law firm, specializing in real estate and securities law.

Plamen Mitrikov, age 32. Mr. Mitrikov will become Vice President, Asset Management of RAIT following the merger. Mr. Mitrikov has been Taberna’s Executive Vice President—Asset Management since April 4, 2006. From April 2003 to February 2006, Mr. Mitrikov held various positions, including that of vice president and director, in the Structured Credit Products Group at Merrill Lynch specializing in trust preferred and asset-backed securities CDOs. Prior to joining Merrill Lynch, Mr. Mitrikov worked at Credit Suisse First Boston and Prudential Securities Asset Finance. While at Credit Suisse First Boston, Mr. Mitrikov worked on structuring home-equity transactions in the Asset Finance Group until 2002, when he joined the CDO group and concentrated on trust preferred CDOs.

Jack E. Salmon, age 52. Mr. Salmon will become Chief Financial Officer of RAIT following the merger. Mr. Salmon has been Taberna’s Executive Vice President, Chief Financial Officer and Treasurer since March 2005. Mr. Salmon was employed by Cohen Bros. from January 2005 until Taberna commenced operations in April 2005. Mr. Salmon also serves as a member of Taberna Funding’s investment committee. From 2003 until joining Cohen Bros., he was a vice president and chief accounting officer of The Rubenstein Company, L.P., a diversified privately owned real estate company that owned a portfolio of office buildings with assets of approximately $1.0 billion during this period. From 1975 to 2003, Mr. Salmon worked in public accounting serving a variety of real estate and financial services companies, including public and privately held REITs, major real estate opportunity funds, developers and institutional investors in real estate. From 2002 to 2003, Mr. Salmon was a partner with KPMG LLP, an accounting firm. Mr. Salmon was a partner with Arthur Andersen LLP, an accounting firm, from 1989 to 2002. As a partner with Arthur Andersen LLP, Mr. Salmon had lead partner responsibility for REIT initial public offerings, due diligence engagements and SEC matters. He also advised multiple REITs on acquisitions, mergers and portfolio transactions involving over $2.0 billion of debt and equity offerings.

RAIT Board Positions. When the merger is completed, four individuals (including Daniel G. Cohen) will be designated by Taberna to serve on RAIT’s board of trustees and five individuals (including Betsy Z. Cohen) will be designated by RAIT to continue to serve on RAIT’s board. Non-employee members of Taberna’s board of trustees who are added to RAIT’s board of trustees will receive customary fees from RAIT for being a trustee in accordance with RAIT’s current policy. See “—RAIT Board Composition” above.

Indemnification and Insurance. The merger agreement provides that, upon completion of the merger, RAIT will, to the fullest extent permitted by law, indemnify, defend and hold harmless all present and former trustees, officers and employees of Taberna and its subsidiaries against all costs and liabilities arising out of actions or omissions occurring at or before completion of the merger to the same extent as trustees, officers and employees of Taberna and its subsidiaries are indemnified or have the right to advancement of expenses under Taberna’s or its subsidiaries’ declaration of trust and bylaws or equivalent charter documents, any indemnification agreements of Taberna or its subsidiaries and to the fullest extent permitted by law.

The merger agreement also provides that for a period of six years after completion of the merger, RAIT will provide trustees’ and officers’ liability insurance for the present and former trustees and officers of Taberna with respect to claims arising from facts or events occurring before the merger is completed, provided that RAIT is not obligated to pay more than 150% of present premiums to obtain such coverage.

Restricted Share Awards. Under the terms of Taberna’s 2005 equity incentive plan and the existing employment agreements between Taberna and its executives, Daniel G. Cohen, Mitchell Kahn, Jack E. Salmon, Raphael Licht, Plamen Mitrikov and James J. Sebra, all restrictions and risks of forfeiture applicable to restricted shares awarded under the 2005 equity incentive plan lapse or terminate upon the occurrence of a change of control of Taberna. The merger with RAIT will constitute a change of control under the 2005 equity incentive plan. Pursuant to their new employment agreements, Daniel G. Cohen, Taberna’s Chief Executive Officer, and Plamen Mitrikov, Taberna’s Executive Vice President—Asset Management, each agreed to waive the right to have the restrictions and risks of forfeiture terminate with respect to all of the restricted shares held by them, so that the restricted shares will continue to vest in accordance with their terms notwithstanding the merger. In addition, each of Taberna’s trustees, executive officers and employees who were awarded restricted shares pursuant to Taberna’s 2005 equity incentive plan on June 29, 2006 has agreed to waive the right to have the restrictions and risks of forfeiture terminate with respect to all of the restricted shares awarded to them on that date. The 693,333 restricted shares that were issued on June 29, 2006 will continue to vest post-merger in accordance with their terms notwithstanding the merger.

The total number and value of the restricted shares held by each of Taberna’s executive officers and trustees as to which all restrictions and forfeiture provisions will lapse or terminate as a result of the merger is as follows (based on the exchange ratio and the closing price of RAIT’s common shares on the NYSE on November 2, 2006):

Scott F. Schaeffer, President and Chief Operating Officer of RAIT, has been a member of Taberna Capital’s investment committee since 2005. As compensation for his services on Taberna’s investment committee, Mr. Schaeffer receives a fee of $25,000 and restricted common shares annually from Taberna. All of the 5,093 restricted Taberna common shares received by Mr. Schaeffer for his services rendered in 2005 will vest upon the completion of the merger. Mr. Schaeffer received 3,333 restricted Taberna common shares for his services to be rendered in 2006 and these shares will continue to vest post-merger as to one-twelfth of the total amount granted as of the end of each quarter for the three-year vesting period of the grant.

Employment Agreements. On June 8, 2006, RAIT entered into employment agreements, which become effective upon completion of the merger, with Messrs. Cohen, Salmon, Licht and Mitrikov. In addition, Mitchell Kahn entered into an amendment to his employment agreement with Taberna that will become effective upon the completion of the merger pursuant to which RAIT will assume the employment agreement and will become the employer thereunder. From and after the merger, these five executive officers are eligible to participate in the RAIT 2005 equity incentive plan.

These employment agreements are each for a three-year term commencing on the effective date of the merger (with the exception of Mr. Kahn’s agreement, which will terminate on April 28, 2008), and provide the following initial annual base salaries and titles with RAIT: Daniel G. Cohen, $600,000, Chief Executive Officer; Jack E. Salmon, $400,000, Chief Financial Officer (reporting to the Chief Executive Officer); Raphael Licht, $350,000, Chief Legal Officer and Chief Administrative Officer (reporting to the Chief Executive Officer); Plamen Mitrikov, $300,000, Vice President, Asset Management (reporting to the Chief Executive Officer); and Mitchell Kahn, $400,000, Co-President (reporting to the Chief Executive Officer). The employment agreements provide that each officer may be eligible for an annual bonus which will be awarded by the compensation committee of the RAIT board of trustees in its discretion, except that Raphael Licht is guaranteed a minimum bonus of $400,000 for the first year of his employment, payable no later than April 1, 2007, and Plamen Mitrikov is guaranteed a minimum bonus of $400,000 for the first year of his employment, payable no later than April 4, 2007 as long as he has not been terminated for cause prior to April 4, 2007. Any increase in salary for each of the five executives will also be subject to the discretion of the compensation committee; provided, however, that on January 1, 2007 and January 1, 2008, the salary for Mr. Cohen will be increased by no less than 10%; on the first and second anniversaries of the agreement, the salary for Mr. Licht will be increased by no less than 10%; and on January 1, 2007, the salary of Mr. Kahn will be increased by no less than 10%. At the end of the three-year term for the executive officers (or on April 28, 2008, in the case of Mr. Kahn), the employment agreements automatically extend for additional one-year periods unless either party terminates the agreement not later than three months prior to its expiration.

The employment agreements referred to above provide that the executive officers are eligible to receive the same benefits, including medical insurance coverage and retirement plan benefits in a 401(k) plan, to the same extent as other senior executives of RAIT, and such other benefits as are commensurate with their position. Participation in employee benefit plans will be subject to the terms of those benefit plans as in effect from time to time.

If an executive’s employment ends for any reason, RAIT will pay accrued salary, bonuses and incentive payments already awarded but not paid (including a pro rata bonus for the year of termination), and other existing obligations. In addition, if RAIT terminates an executive’s employment without “cause” (as defined in the applicable employment agreement) or if an executive terminates his employment for “good reason,” RAIT will be obligated to pay:

Additionally, in the event of a termination by RAIT for any reason other than for cause or by the executive for good reason, all of the outstanding equity-based awards (including options and restricted shares) granted to the executive will become fully vested, and the executive will have a period of two years in which to exercise all vested options.

In addition, if RAIT gives notice that the employment agreement will not be renewed at the end of the term, such executive will be entitled to (i) a cash payment equal to the payments described in the preceding paragraph and (ii) the full vesting of all outstanding equity-based awards.

Upon a “change of control” of RAIT (as defined in the applicable employment agreement), the five executive officers will become fully vested in their options and restricted shares. In addition, if the executive terminates employment within six months after a change of control, for any reason, the termination will be deemed to be for good reason. If payments become due as a result of a change of control and the excise tax imposed by Section 4999 of the Internal Revenue Code applies, the terms of the employment agreements require RAIT to pay the executive a “gross up” payment in the amount of this excise tax plus the amount of income and other taxes due as a result of the gross up payment.

Under these employment agreements, for an 18 month period (or 12 months in the case of Mr. Kahn), after the termination of the executive’s employment, the executives, other than Mr. Cohen, have agreed not to compete with RAIT, either by working with or investing in (subject to certain exceptions) enterprises engaged in a business substantially similar to RAIT’s business during the period of the executive’s employment with RAIT.

In connection with the new employment agreements entered into with RAIT by Messrs. Cohen, Kahn, Salmon, Licht and Mitrikov, each of these individuals has agreed to waive his rights under his existing employment agreement with Taberna to terminate his employment within six months of the merger and receive a lump sum severance payment. James J. Sebra, Taberna’s Vice President and Chief Accounting Officer, was not requested to waive this right and retains this right under his existing employment agreement with Taberna. If Mr. Sebra terminates his employment with Taberna or its successor within six months after the merger, (i) Mr. Sebra will be entitled to a single-sum payment of an amount equal to 1.5 times the sum of (x) his annual salary (at the rate in effect immediately prior to termination) plus (y) the highest bonus earned in the one year period prior to termination, and (ii) a majority of the outstanding unvested equity-based awards held by Mr. Sebra will vest.

The RAIT common shares that Taberna shareholders will own following the merger have been registered under the Securities Act. As a result, these RAIT common shares may be traded freely and without restriction by

you if you are not deemed to be an affiliate of RAIT, Taberna or the combined company under the Securities Act. An “affiliate” of RAIT, Taberna or the combined company, as defined by the rules under the Securities Act, is a person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, RAIT, Taberna or the combined company, as the case may be. Persons that are affiliates of RAIT or Taberna at the time the merger is submitted for vote of the Taberna shareholders or of the combined company following completion of the merger may not sell their RAIT common shares acquired in the merger except pursuant to an effective registration statement under the Securities Act or an applicable exemption from the registration requirements of the Securities Act, including Rules 144 and 145 under the Securities Act. Affiliates generally include trustees, directors, executive officers and beneficial owners of 10% or more of any class of capital stock.

This joint proxy statement-prospectus does not cover any resale of RAIT common shares received in the merger by any person that may be deemed to be an affiliate of Taberna, RAIT or the combined company. RAIT has agreed to file a shelf registration statement promptly following the completion of the merger to provide for the sale of RAIT common shares by any affiliate of Taberna who was entitled to registration rights from Taberna.

If the merger is completed, Taberna shareholders who do not vote for the approval of the merger and who otherwise comply with the provisions of Sections 3-201 et seq. of the Maryland General Corporation Law, or the MGCL, as applied to shareholders of a Maryland REIT, summarized below will be entitled to an appraisal by the Circuit Court for Baltimore City, Maryland of the “fair value” of their Taberna common shares. RAIT shareholders are not entitled to appraisal rights in connection with the merger.

To perfect their appraisal rights, Taberna shareholders must strictly comply with the procedures in Sections 3-201 et seq. Failure to strictly comply with these procedures will result in the loss of appraisal rights.

Under the MGCL, each holder of Taberna common shares will be entitled to demand and receive payment of the fair value of the holder’s shares in cash, if the holder:

Any written objection should be sent to Taberna. Any shareholder who fails to comply with all of the requirements described above will be bound by the terms of the merger. A demand for payment may be withdrawn only with the consent of Taberna. Fair value will be determined as of the close of business on the date of the Taberna shareholders vote on the merger.

Taberna will promptly deliver or mail to each dissenting shareholder written notice of the date of acceptance of the articles of merger for record by the SDAT. Taberna may also deliver or mail to each objecting shareholder a written offer to pay for his or her shares at a price deemed by Taberna to be the shares’ fair value. Within 50 days after acceptance of the articles of merger for record by the SDAT, either Taberna or any objecting shareholder who has not received payment for his or her shares may petition the Circuit Court for Baltimore City, Maryland, for an appraisal to determine the fair value of the shares. If the court finds that an objecting shareholder is entitled to appraisal of his or her shares, the court will appoint three disinterested appraisers to determine the fair value of the shares on terms and conditions the court determines proper, and appraisers will, within 60 days after appointment (or a longer period as the court may direct) file with the court and mail to each party to the proceeding their report stating their conclusion as to the fair value of the shares. Within 15 days after the filing of the report, any party may object to the report and request a hearing on the matter. The court will,

upon motion of any party, enter an order either confirming, modifying or rejecting the report and, if confirmed or modified, enter judgment directing the time within which payment must be made. If the appraisers’ report is rejected, the court may determine the fair value of the shares of the objecting shareholders or may remit the proceeding to the same or other appraisers. Any judgment entered pursuant to a court proceeding will include interest from the date of the shareholders’ vote on the action to which objection was made, unless the court finds that the shareholder’s refusal to accept a written offer to purchase the shares made by Taberna as described above was arbitrary and vexatious or not in good faith. Costs of the proceeding (not including attorneys’ fees) will be determined by the court and will be assessed against Taberna or, under certain circumstances, the objecting shareholder, or both.

At any time after the filing of a petition for appraisal, the court may require any dissenting shareholder to submit his or her certificates representing Taberna common shares to the clerk of the court for notation of the pendency of the appraisal proceedings. To receive payment, whether by agreement with Taberna or pursuant to a judgment, the shareholder must surrender the share certificates endorsed in blank and in proper form for transfer. A shareholder demanding payment for shares will cease to have any rights as a shareholder with respect to the shares except the right to receive payment of the fair value of the shares. The shareholder’s rights may be restored only upon the withdrawal, with the consent of Taberna, of the demand for payment, the failure of either party to file a petition for appraisal within the time required, a determination of the court that the shareholder is not entitled to an appraisal, or the abandonment or rescission of the merger.

This summary of the rights of dissenting shareholders does not purport to be a complete statement of the procedures to be followed by shareholders desiring to exercise their dissenters’ rights. The preservation and exercise of dissenters’ rights are conditioned on strict adherence to the applicable provisions of the MGCL. Each shareholder desiring to exercise dissenters’ rights should refer to Sections 3-201 et seq., entitled “Rights of Objecting Stockholders,” of the MGCL, a copy of which is attached as Appendix D to this joint proxy statement-prospectus, for a complete statement of the shareholder’s rights and the steps which must be followed in connection with the exercise of those rights.

OR SHOULD BE DELIVERED TO THE SECRETARY AT THE TABERNA SPECIAL MEETING BEFORE THE VOTE ON THE MERGER.

RAIT common shares are listed on the NYSE and traded under the symbol “RAS.” The following table shows the high and low reported sales prices per RAIT common share on the NYSE composite transactions reporting system, and the quarterly cash dividends declared per RAIT common share for the periods indicated.

Past price performance is not necessarily indicative of likely future performance. Because market prices of RAIT common shares will fluctuate, you are urged to obtain current market prices for RAIT common shares.

RAIT Series A preferred shares are listed on the NYSE and traded under the symbol “RAS PrA.” The Series A preferred shares were issued in the first and second quarter of 2004. RAIT declared a dividend per share of $0.0625 on the Series A preferred shares for the portion of the first quarter of 2004 they were outstanding. In each subsequent quarter, RAIT has declared and paid the specified dividend per share of $0.484375. No dividends are currently in arrears on the Series A preferred shares.

RAIT Series B preferred shares are listed on the NYSE and traded under the symbol “RAS PrB.” The Series B preferred shares were issued in the fourth quarter of 2004. RAIT declared a dividend per share of $0.4952957 on the Series B preferred shares for the portion of the fourth quarter of 2004 they were outstanding. In each subsequent quarter, RAIT has declared and paid the specified dividend per share of $0.5234375. No dividends are currently in arrears on the Series B preferred shares.

There is no public trading market for Taberna common shares, although the Taberna common shares are eligible for reporting in PORTAL, a subsidiary of The NASDAQ Stock Market, Inc., which facilitates the secondary sales of eligible unregistered securities to qualified institutional buyers in accordance with Rule 144A under the Securities Act.

On July 11, 2005, Taberna’s board of trustees declared an initial distribution of $0.24 per Taberna common share that was paid on July 29, 2005 to shareholders of record as of July 21, 2005. On October 21, 2005, Taberna’s board of trustees declared a quarterly distribution of $0.30 per Taberna common share that was paid on November 8, 2005 to shareholders of record as of October 31, 2005. On January 20, 2006, Taberna’s board of trustees declared a quarterly distribution of $0.30 per Taberna common share that was paid on February 9, 2006

to shareholders of record as of January 30, 2006. On April 20, 2006, Taberna’s board of trustees declared a quarterly distribution of $0.35 per Taberna common share that was paid on May 11, 2006 to shareholders of record as of May 1, 2006. From inception through June 30, 2006, Taberna distributed a total of $1.19 per Taberna common share to its shareholders.

Both RAIT and Taberna believe they qualify as REITs. As REITs, each of RAIT and Taberna is required to distribute at least 90% of its annual net taxable income, excluding net capital gain, in order to maintain its REIT qualification. RAIT will continue its qualification as a REIT following the merger, and we believe the merger will provide for potential growth in dividends. Pending the merger, the timing of our respective dividends will be coordinated so that the dividends are paid on the same date and Taberna’s dividends will approximate RAIT’s dividends multiplied by the 0.5389 exchange ratio, as described under “The Merger Agreement—Dividends.”

RAIT is a self-managed and self-advised Maryland real estate investment trust. RAIT conducts its operations through RAIT Partnership, L.P., a limited partnership that owns substantially all of RAIT’s assets. RAIT’s wholly-owned subsidiaries, RAIT General, Inc. and RAIT Limited, Inc., are the sole general partner and sole limited partner, respectively, of RAIT Partnership, L.P.

RAIT’s principal executive offices are located at c/o RAIT Partnership, L.P., 1818 Market Street, 28th Floor, Philadelphia, PA 19103 and its telephone number is (215) 861-7900.

Taberna is a self-managed and self-advised Maryland real estate investment trust that intends to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2005. Taberna was formed in 2005 and commenced operations upon the closing of an initial private placement of its common shares in April 2005. Taberna provides financing for REITs and other real estate operating companies and invests in real estate-related assets with the objective of generating attractive risk-adjusted returns and cash distributions for its shareholders.

Taberna’s principal executive office is located at Cira Centre, 2929 Arch Street, 17th Floor, Philadelphia, PA 19104 and its phone number is (215) 701-9566.

As a result of the merger, Taberna shareholders will receive RAIT common shares. Your rights as shareholders of RAIT will be governed by Maryland law and the declaration of trust and bylaws of RAIT. We urge you to read the applicable provisions of Maryland law and RAIT’s declaration of trust and bylaws.

The following description of material terms of RAIT’s shares of beneficial interest does not purport to be complete and is qualified in its entirety by reference to RAIT’s declaration of trust and bylaws, which documents are incorporated by reference as exhibits to the registration statement of which this joint proxy statement-prospectus is a part, and to the applicable provisions of the MGCL and the Maryland statute governing REITs formed under the laws of Maryland, which we refer to as the Maryland REIT Law.

Under RAIT’s declaration of trust, RAIT may issue up to 200,000,000 common shares and 25,000,000 preferred shares of beneficial interest. As of the date of this joint proxy statement-prospectus, RAIT had outstanding 28,161,947 common shares, 2,760,000 7.75% Series A cumulative redeemable preferred shares of beneficial interest and 2,258,300 8.375% Series B cumulative redeemable preferred shares of beneficial interest. The RAIT common shares to be issued in the merger will be fully paid and non-assessable. See “Legal Opinions.” RAIT’s board of trustees may amend its declaration of trust by a majority vote to increase or decrease the aggregate number of RAIT’s authorized shares, to establish any series of RAIT’s shares or to increase or decrease the number of shares in any class that RAIT has authority to issue.

Subject to the preferential rights of any preferred shares of beneficial interest outstanding, the ownership limitations described in “Restrictions on Ownership and Transfer” below, and the right of RAIT’s board of trustees to establish separate classes of common shares and determine their rights and preferences, RAIT common shares have the following characteristics:

RAIT’s declaration of trust specifies the vote required for RAIT’s security holders to take certain actions. The affirmative vote of a majority of the outstanding voting shares is required before RAIT’s board of trustees may take any action to revoke RAIT’s election to be taxed as a REIT. A trustee may be removed by a two-thirds vote of RAIT’s outstanding voting shares. RAIT’s declaration of trust may be amended by a majority vote of RAIT’s outstanding voting shares except that provisions relating to the trustees, the ownership limitation, amendments to the declaration of trust and RAIT’s dissolution and termination may only be amended by a two-thirds vote of RAIT’s outstanding voting shares. RAIT’s shareholders may vote to terminate RAIT by a two-thirds vote of RAIT’s outstanding voting shares. A majority of all the votes entitled to be cast on the matter is required in order for RAIT to merge into another entity, consolidate with one or more other entities into a new entity or sell, lease, exchange or otherwise transfer all or substantially all of its property.

RAIT’s outstanding Series A cumulative redeemable preferred shares of beneficial interest and Series B cumulative redeemable preferred shares of beneficial interest rank senior to RAIT common shares with respect to dividend rights, redemption rights and rights upon our voluntary or involuntary liquidation, dissolution or winding up. No cash dividends may be paid on RAIT common shares unless full cumulative dividends due on these preferred shares of beneficial interest have been paid (other than any payment necessary to maintain RAIT’s qualification as a REIT). If RAIT liquidates, dissolves or winds up, holders of the preferred shares have the right to receive $25.00 per share, plus accrued and unpaid dividends (whether or not declared) to and including the date of payment, before any payments are made to the holders of RAIT common shares. Holders of the preferred shares generally will have no voting rights, unless their preferred dividends are in arrears for six or more quarterly periods (whether or not consecutive). Whenever such a preferred dividend default exists, the preferred shareholders, voting as a single class, have the right to elect two additional trustees to RAIT’s board of trustees. This right continues until all dividends accumulated on the preferred shares have been fully paid or authorized and declared and a sum sufficient for the payment thereof set aside for payment. The term of office of each trustee elected by preferred shareholders expires upon cure of the preferred dividend default. As of the date of this joint proxy statement-prospectus, no dividends on these preferred shares of beneficial interest are in arrears.

RAIT’s board of trustees may authorize the issuance of additional series of preferred shares of beneficial interest with voting or conversion rights that could adversely affect the voting power or other rights of RAIT common shareholders. The issuance of preferred shares of beneficial interest, while providing flexibility in connection with possible acquisitions and other trust purposes, could have the effect of delaying or preventing a change in control, and may cause the market price of RAIT common shares to decline or impair the voting and other rights of the holders of RAIT common shares.

To qualify as a REIT under the Internal Revenue Code, RAIT must meet several requirements regarding the number of RAIT’s shareholders and concentration of ownership of RAIT’s shares. RAIT’s declaration of trust contains provisions that restrict the ownership and transfer of RAIT’s shares to assist RAIT in complying with these Internal Revenue Code requirements. RAIT refers to these restrictions as the “ownership limitation.”

However, Resource America, which was RAIT’s sponsor at the time of RAIT’s formation, may own up to 15%, in number of shares or value, of RAIT common shares. Resource America has advised RAIT that it did not own any RAIT common shares as of the date of this joint proxy statement-prospectus.

Ownership of RAIT’s shares is subject to attribution rules under the Internal Revenue Code which may result in a person being deemed to own shares held by other persons. RAIT’s board of trustees may waive the ownership limitation if it determines that such ownership will not jeopardize RAIT’s qualification as a REIT. As a condition of such waiver, the board of trustees may require an opinion of counsel satisfactory to it or undertakings or representations from the applicant with respect to preserving RAIT’s REIT qualification. RAIT required no such waiver or opinion with respect to Resource America’s ownership rights since they arise from specific provisions of RAIT’s declaration of trust.

Any person who acquires shares in violation of the ownership limitation must notify RAIT immediately and provide RAIT with any information RAIT may request in order to determine the effect of the acquisition on

RAIT’s qualification as a REIT. The ownership limitation will not apply if the board of trustees determines that it is no longer in RAIT’s best interest to qualify as a REIT. Otherwise, the ownership limitation may be changed only by an amendment to RAIT’s declaration of trust by a vote of two-thirds of RAIT’s outstanding voting shares.

RAIT’s declaration of trust provides that if any purported transfer of shares results in

the transfer will be of no force or effect as to the excess number of shares and the purported transferee or owner will cease to own any right or interest in the excess shares.

Shares exceeding the ownership limitation transfer automatically, by operation of law, to a trust, the beneficiary of which will be a qualified charitable organization selected by RAIT. The trustee of the trust will be designated by RAIT and must be unaffiliated with RAIT and the prohibited transferee. The trustee must sell the excess shares to a qualified person and distribute the sales proceeds to the prohibited owner. Where excess shares result from an event other than a transfer, or from a transfer for no consideration, such as a gift, the trustee will sell the excess shares to a qualified person and distribute to the prohibited owner an amount equal to the lesser of the market price of the excess shares on the date they became excess shares or the sales proceeds received by the trust for the excess shares, and can exercise all voting rights with respect to the excess shares.

RAIT may purchase the shares for 90 days following the transfer of the shares to the trust. The net sale proceeds will be paid to the prohibited transferee.

Every owner of more than 5% (or any lower percentage set by U.S. federal income tax laws) of RAIT’s outstanding shares must file a completed questionnaire with RAIT containing information regarding his or her ownership. In addition, each shareholder must, upon demand, disclose in writing any information RAIT may request in order to determine the effect, if any, of such shareholder’s actual and constructive ownership of shares on RAIT’s qualification as a REIT and to ensure compliance with the ownership limitation.

The transfer agent for RAIT common shares is American Stock Transfer & Trust Company.

Possible Anti-Takeover Effect of Certain Provisions of RAIT’s Declaration of Trust and Bylaws

The provisions of RAIT’s declaration of trust regarding the removal of trustees, the restrictions on ownership and transfer of shares and the provision of RAIT’s bylaws requiring that RAIT receive advance notice of any person to be nominated by a shareholder for election as a trustee for the nominee to be eligible for election could have the effect of delaying, deterring or preventing a transaction or a change in control that might involve a premium price for shareholders or that the shareholders otherwise may believe to be desirable.

The Maryland REIT Law, Taberna’s declaration of trust and Taberna’s bylaws currently govern the rights of holders of Taberna common shares. The Maryland REIT Law, RAIT’s declaration of trust and RAIT’s bylaws presently govern the rights of the holders of RAIT common shares. Upon completion of the merger, Taberna shareholders will receive RAIT common shares in exchange for their Taberna common shares, and, as a result, the rights of former holders of Taberna common shares will be governed by Maryland REIT Law, RAIT’s declaration of trust and RAIT’s bylaws.

The following discussion summarizes material differences between the rights of Taberna shareholders and the rights of RAIT shareholders. It is not a complete summary of the provisions affecting, and the differences between, the rights of Taberna shareholders and RAIT shareholders and is subject to and qualified in its entirety by reference to the Maryland REIT Law, the Taberna declaration of trust and bylaws and the RAIT declaration of trust and bylaws.

The following is a summary of the material U.S. federal income tax considerations relating to RAIT’s and Taberna’s qualification and taxation as REITs and the acquisition, holding, and disposition of RAIT common shares. For purposes of this section, under the heading “Material U.S. Federal Income Tax Considerations,” references to “RAIT” means only RAIT Investment Trust and not its subsidiaries or other lower-tier entities, except as otherwise indicated and “Taberna” means only Taberna Realty Finance Trust and not its subsidiaries or other lower-tier entities, except as otherwise indicated. We have used the terms “we” and “our” where the discussion applies to both Taberna and RAIT, or where the context makes it clear, to the combined company following the merger. Where any description is relevant exclusively to RAIT or Taberna, or applies differently to RAIT or Taberna, the name of the specific entity being described is used for purposes of such description. This summary is based upon the Internal Revenue Code, the Treasury regulations, current administrative interpretations and practices of the IRS (including administrative interpretations and practices expressed in private letter rulings which are binding on the IRS only with respect to the particular taxpayers who requested and received those rulings) and judicial decisions, all as currently in effect and all of which are subject to differing interpretations or to change, possibly with retroactive effect. No assurance can be given that the IRS would not assert, or that a court would not sustain, a position contrary to any of the tax consequences described below. No advance ruling has been or will be sought from the IRS regarding any matter discussed in this summary. The summary is also based upon the assumption that the operation of the company, and of its subsidiaries and other lower-tier and affiliated entities, will, in each case, be in accordance with its applicable organizational documents. This summary is for general information only, and does not purport to discuss all aspects of U.S. federal income taxation that may be important to a particular shareholder in light of its investment or tax circumstances or to shareholders subject to special tax rules, such as:

This summary assumes that shareholders will hold RAIT common shares as capital assets, which generally means as property held for investment.

THE U.S. FEDERAL INCOME TAX TREATMENT OF HOLDERS OF RAIT COMMON SHARES DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT AND INTERPRETATIONS OF COMPLEX PROVISIONS OF U.S. FEDERAL INCOME TAX LAW FOR WHICH NO CLEAR PRECEDENT

OR AUTHORITY MAY BE AVAILABLE. IN ADDITION, THE TAX CONSEQUENCES OF HOLDING RAIT COMMON SHARES FOR ANY PARTICULAR SHAREHOLDER WILL DEPEND ON THE SHAREHOLDER’S PARTICULAR TAX CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR TAX ADVISOR REGARDING THE U.S. FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX CONSEQUENCES TO YOU, IN LIGHT OF YOUR PARTICULAR INVESTMENT OR TAX CIRCUMSTANCES, OF ACQUIRING, HOLDING, AND DISPOSING OF RAIT COMMON SHARES.

RAIT elected to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ended December 31, 1998. Taberna intends to elect to be taxed as a REIT under the Internal Revenue Code commencing with its taxable year ended December 31, 2005. Each of RAIT and Taberna believes that it has been organized and operated in a manner that will allow it to qualify for taxation as a REIT under the Internal Revenue Code, and RAIT and Taberna intend to continue to be organized and operated in such a manner.

The law firm of Ledgewood, a professional corporation, has acted as RAIT’s REIT tax counsel and the law firm of Clifford Chance US LLP has acted as Taberna’s counsel. It is a condition to the merger that (i) Ledgewood deliver an opinion to Taberna that commencing with its taxable year ended December 31, 1998, RAIT has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that RAIT’s proposed method of operation will enable RAIT to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code and (ii) Clifford Chance US LLP deliver an opinion to RAIT that commencing with its taxable year ended December 31, 2005, Taberna has been organized and operated in conformity with the requirements for qualification and taxation as a REIT under the Internal Revenue Code and that Taberna’s proposed method of operation will enable Taberna to meet the requirements for qualification and taxation as a REIT under the Internal Revenue Code. It must be emphasized that these opinions are based on various assumptions relating to RAIT’s and Taberna’s organization and operation, including that all factual representations and statements set forth in all relevant documents, records and instruments are true and correct, all actions described in this joint proxy statement-prospectus are completed in a timely fashion and that RAIT and Taberna will at all times operate in accordance with the method of operation described in RAIT’s and Taberna’s organizational documents and this joint proxy statement-prospectus, and is conditioned upon factual representations and covenants made by RAIT’s and Taberna’s management teams, boards of trustees and affiliated entities, regarding their organization, assets, present and future conduct of their business operations, the fair market value of their investments in TRSs and other assets, and other items regarding their ability to meet the various requirements for qualification as a REIT, and assumes that such representations and covenants are accurate and complete and they will take no action inconsistent with their qualifications as REITs. In addition, to the extent RAIT and Taberna have made or will make certain investments, such as investments in preferred equity securities of REITs, or whole loan mortgage, CMBS, or RMBS securitizations, the accuracy of such opinions will also depend on the accuracy of certain opinions rendered to RAIT and Taberna in connection with such transactions. While each of RAIT and Taberna believe that it has been organized and operated so that it will qualify as a REIT, given the highly complex nature of the rules governing REITs, the ongoing importance of factual determinations and the possibility of future changes in RAIT’s or Taberna’s circumstances, applicable law, or interpretations thereof, no assurance can be given by RAIT or Ledgewood, or Taberna or Clifford Chance US LLP that RAIT or Taberna, respectively, will qualify as a REIT for any particular year. Such firms will have no obligation to advise RAIT or Taberna or the holders of RAIT common shares of any subsequent change in the matters stated, represented or assumed or of any subsequent change in the applicable law or interpretations thereof. RAIT shareholders should be aware that opinions of counsel are not binding on the IRS, and no assurance can be given that the IRS will not challenge the conclusions set forth in such opinions.

Each of RAIT’s and Taberna’s qualification and taxation as a REIT depends on its ability to meet, on a continuing basis, through actual results of operations, distribution levels and diversity of share ownership, various qualification requirements imposed upon REITs by the Internal Revenue Code, the compliance with which will not be reviewed by Ledgewood or Clifford Chance. In addition, RAIT’s and Taberna’s ability to

qualify as a REIT may depend in part upon the operating results, organizational structure and entity classification for U.S. federal income tax purposes of certain entities in which RAIT and Taberna invest, which could include entities that have made elections to be taxed as REITs, the qualification of which will not have been reviewed by such firms. RAIT’s and Taberna’s ability to qualify as a REIT also requires that RAIT and Taberna satisfy certain asset and income tests, some of which depend upon the fair market values of assets directly or indirectly owned by RAIT and Taberna or which serve as security for loans made by RAIT and Taberna. Such values may not be susceptible to a precise determination. Accordingly, no assurance can be given that the actual results of RAIT’s and Taberna’s operations for any taxable year will satisfy the requirements for qualification and taxation as a REIT.

As indicated above, qualification and taxation of each of RAIT and Taberna as a REIT depends upon RAIT’s and Taberna’s ability to meet, on a continuing basis, various qualification requirements imposed upon REITs by the Internal Revenue Code. The material qualification requirements are summarized below, under “—Requirements for Qualification—General.” References to “our” or “we” with regard to the requirements for qualification and taxation as a REIT, described below, means requirements for qualification and taxation that each of RAIT and Taberna must meet. While RAIT and Taberna intend to operate so that each qualifies as a REIT, no assurance can be given that the IRS will not challenge RAIT’s or Taberna’s qualification as a REIT or that either RAIT or Taberna will be able to operate in accordance with the REIT requirements in the future. See “—Failure to Qualify.” In addition, the failure of Taberna to qualify as a REIT would likely result in RAIT’s failure to qualify as a REIT.

Provided that we qualify as a REIT, we will generally be entitled to a deduction for dividends that we pay and, therefore, will not be subject to U.S. federal corporate income tax on our net taxable income that is currently distributed to our shareholders. This treatment substantially eliminates the “double taxation” at the corporate and shareholder levels that results generally from investment in a corporation. Rather, income generated by a REIT generally is taxed only at the shareholder level, upon a distribution of dividends by the REIT.

For tax years through 2010, shareholders who are individual U.S. shareholders (as defined below) are generally taxed on corporate dividends at a maximum rate of 15% (the same as long-term capital gains), thereby substantially reducing, though not completely eliminating, the double taxation that has historically applied to corporate dividends. With limited exceptions, however, dividends received by individual U.S. shareholders (as defined below) from us or from other entities that are taxed as REITs will continue to be taxed at rates applicable to ordinary income, which will be as high as 35% through 2010.

Net operating losses, foreign tax credits and other tax attributes of a REIT generally do not pass through to the shareholders of the REIT, subject to special rules for certain items, such as capital gains, recognized by REITs. See “—Taxation of Shareholders.”

If we qualify as a REIT, we will nonetheless be subject to U.S. federal income tax in the following circumstances:

The Internal Revenue Code defines a REIT as a corporation, trust or association:

(2) the beneficial ownership of which is evidenced by transferable shares or by transferable certificates of beneficial interest;

(3) that would be taxable as a domestic corporation but for the special Internal Revenue Code provisions applicable to REITs;

(4) that is neither a financial institution nor an insurance company subject to specific provisions of the Internal Revenue Code;

(6) in which, during the last half of each taxable year, not more than 50% in value of the outstanding shares is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include specified entities);

(7) which meets other tests described below, including with respect to the nature of its income and assets and the amount of its distributions; and

(8) that makes an election to be a REIT for the current taxable year or has made such an election for a previous taxable year that has not been terminated or revoked.

The Internal Revenue Code provides that conditions (1) through (4) must be met during the entire taxable year, and that condition (5) must be met during at least 335 days of a taxable year of 12 months, or during a proportionate part of a shorter taxable year. Conditions (5) and (6) do not need to be satisfied for the first taxable year for which an election to become a REIT has been made. Our declarations of trust provides restrictions regarding the ownership and transfer of our shares, which are intended to assist in satisfying the share ownership requirements described in conditions (5) and (6) above. For purposes of condition (6), an “individual” generally includes a supplemental unemployment compensation benefit plan, a private foundation or a portion of a trust permanently set aside or used exclusively for charitable purposes, but does not include a qualified pension plan or profit sharing trust.

To monitor compliance with the share ownership requirements, we are generally required to maintain records regarding the actual ownership of our shares. To do so, we must demand written statements each year from the record holders of significant percentages of our shares, in which the record holders are to disclose the actual owners of the shares (i.e., the persons required to include in gross income the dividends paid by us). A list of those persons failing or refusing to comply with this demand must be maintained as part of our records. Failure by us to comply with these record-keeping requirements could subject us to monetary penalties. If we satisfy these requirements and have no reason to know that condition (6) is not satisfied, we will be deemed to

have satisfied such condition. A shareholder that fails or refuses to comply with the demand is required by the Treasury regulations to submit a statement with its tax return disclosing the actual ownership of the shares and other information.

In addition, a corporation generally may not elect to become a REIT unless its taxable year is the calendar year. We satisfy this requirement.

Ownership of Partnership Interests. In the case of a REIT that is a partner in a partnership, the Treasury regulations provide that the REIT is deemed to own its proportionate share of the partnership’s assets and to earn its proportionate share of the partnership’s gross income based on its pro rata share of its capital interest in the partnership for purposes of the asset and gross income tests applicable to REITs, as described below. However, solely for purposes of the 10% value test, described below, the determination of a REIT’s interest in partnership assets will be based on the REIT’s proportionate interest in any securities issued by the partnership, excluding for these purposes, certain excluded securities as described in the Internal Revenue Code. In addition, the assets and gross income of the partnership generally are deemed to retain the same character in the hands of the REIT. Thus, our proportionate share of the assets and items of income of partnerships in which we own an equity interest is treated as assets and items of income for purposes of applying the REIT requirements described below. Consequently, to the extent that we directly or indirectly hold a preferred or other equity interest in a partnership, the partnership’s assets and operations may affect our ability to qualify as a REIT, even though we may have no control or only limited influence over the partnership.

Disregarded Subsidiaries. If a REIT owns a corporate subsidiary that is a “qualified REIT subsidiary,” that subsidiary is disregarded for U.S. federal income tax purposes, and all assets, liabilities and items of income, deduction and credit of the subsidiary are treated as assets, liabilities and items of income, deduction and credit of the REIT, including for purposes of the gross income and asset tests applicable to REITs, as summarized below. A qualified REIT subsidiary is any corporation, other than a TRS (as described below), that is wholly owned by a REIT, by other disregarded subsidiaries or by a combination of the two. Single member limited liability companies that are wholly owned by a REIT are also generally disregarded as separate entities for U.S. federal income tax purposes, including for purposes of the REIT gross income and asset tests. Disregarded subsidiaries, along with partnerships in which we hold an equity interest, are sometimes referred to herein as “pass-through subsidiaries.” We expect that we will hold our assets and conduct our operations, in part, through qualified REIT subsidiaries and disregarded subsidiaries. Accordingly, all assets, liabilities, and items of income, deduction and credit of each such subsidiary will be treated as our assets, liabilities, and items of income, deduction, and credit.

In the event that a disregarded subsidiary ceases to be wholly owned by us—for example, if any equity interest in the subsidiary is acquired by a person other than us or another disregarded subsidiary of us—the subsidiary’s separate existence would no longer be disregarded for U.S. federal income tax purposes. Instead, it would have multiple owners and would be treated as either a partnership or a taxable corporation. Such an event could, depending on the circumstances, adversely affect our ability to satisfy the various asset and gross income tests applicable to REITs, including the requirement that REITs generally may not own, directly or indirectly, more than 10% of the value or voting power of the outstanding securities of another corporation. See “—Asset Tests” and “—Gross Income Tests.”

Taxable REIT Subsidiaries. A REIT may jointly elect with a non-REIT subsidiary corporation, whether or not wholly owned, to treat the subsidiary corporation as a TRS. The separate existence of a TRS or other taxable corporation, unlike a disregarded subsidiary as discussed above, is not ignored for U.S. federal income tax purposes. Accordingly, such an entity would generally be subject to corporate income tax on its earnings, which may reduce the cash flow generated by us and our subsidiaries in the aggregate and its ability to make distributions to its shareholders.

RAIT has made a TRS election with respect to RAIT Advisors, Inc., and Taberna has made a TRS election with respect to Taberna Capital, Taberna Securities, Taberna Funding, Taberna Equity, Taberna Bermuda, Taberna II, Taberna III, Taberna IV, Taberna V, and anticipates it will make a TRS election with respect to Taberna VI. It is expected that we will make additional TRS elections, including with respect to future non-U.S. entities that issue equity interests to us pursuant to CDO securitizations. The Internal Revenue Code and the Treasury regulations provide a specific exemption from U.S. federal income tax to non-U.S. corporations that restrict their activities in the United States to trading in shares and securities (or any activity closely related thereto) for their own account whether such trading (or such other activity) is conducted by the corporation or its employees through a resident broker, commission agent, custodian or other agent. Certain U.S. shareholders (as defined below) of such a non-U.S. corporation are required to include in their income currently their proportionate share of the earnings of such a corporation, whether or not such earnings are distributed. Taberna Equity, Taberna II, Taberna III, Taberna IV, Taberna V and most likely, Taberna VI, and certain additional CDO entities in which we may invest and with which we will jointly make a TRS election will be organized as Cayman Islands companies and will either rely on such exemption or otherwise operate in a manner so that they will not be subject to U.S. federal income tax on their net income. Taberna Bermuda also intends to operate in a manner so that it will not be subject to U.S. federal income tax on its net income. Therefore, despite such contemplated status of such CDO entities and Taberna Bermuda as TRSs, we expect that such entities should generally not be subject to U.S. federal corporate income tax on their earnings. However, we will be required to include in our income, in certain cases, even without the receipt of actual distributions, on a current basis, the earnings of such CDO entities. This could affect our ability to comply with the REIT gross income tests and distribution requirement. See “—Gross Income Tests” and “—Annual Distribution Requirements.”

A REIT is not considered the owner of the assets of a TRS or other subsidiary corporation or (until dividends are paid by the TRS to the REIT) the recipient of any income that a domestic TRS earns. Rather, the shares issued by the subsidiary is an asset in the hands of the REIT, and the REIT generally recognizes as income the dividends, if any, that it receives from a domestic TRS. However, we will generally be required to include in income on a current basis the earnings of a CDO entity that is a non-U.S. TRS as described in the preceding paragraph. This treatment can affect the gross income and asset test calculations that apply to us, as described below. Because a REIT does not include the assets and, in the case of a domestic TRS, income of such subsidiary corporations in determining the REIT’s compliance with the REIT requirements, such entities may be used by a REIT to undertake indirectly activities that the REIT rules might otherwise preclude it from doing directly or through pass-through subsidiaries or render commercially unfeasible (for example, activities that give rise to certain categories of income such as non-qualifying hedging or prohibited transaction income). If dividends are paid to us by one or more of our TRSs, other than a non-U.S. TRS as described in the preceding paragraph, then a portion of the dividends that we distribute to U.S. individual shareholders generally will be eligible for taxation at preferential qualified dividend income tax rates rather than at ordinary income rates. See “—Taxation of Shareholders—Taxation of Taxable U.S. Shareholders” and “—Taxation of Shareholders—Distributions.”

Certain restrictions imposed on TRSs are intended to ensure that such entities will be subject to appropriate levels of U.S. federal income taxation. First, a TRS may not deduct interest payments made in any year to an affiliated REIT to the extent that such payments exceed, generally, 50% of the TRS’s adjusted taxable income for that year (although the TRS may carry forward to, and deduct in, a succeeding year the disallowed interest amount if the 50% test is satisfied in that year). In addition, if amounts are paid to a REIT or deducted by a TRS due to transactions between a REIT, its tenants and/or a TRS, that exceed the amount that would be paid to or deducted by a party in an arm’s-length transaction, the REIT generally will be subject to an excise tax equal to 100% of such excess. Rents we receive that include amounts for services furnished by one of our TRSs to any of its tenants will not be subject to the excise tax if such amounts qualify for the safe harbor provisions contained in the Internal Revenue Code. Safe harbor provisions are provided where (1) amounts are excluded from the definition of impermissible tenant service income as a result of satisfying the 1% de minimis exception; (2) a TRS renders a significant amount of similar services to unrelated parties and the charges for such services are substantially comparable; (3) rents paid to us from tenants that are not receiving services from the TRS are substantially comparable to the rents paid by our tenants leasing comparable space that are receiving such

services from the TRS and the charge for the services is separately stated; or (4) the TRS’s gross income from the service is not less than 150% of the TRS’s direct cost of furnishing the service.

Taberna has elected with each of Taberna Capital, Taberna Securities, Taberna Funding, Taberna Equity, Taberna Bermuda, Taberna III, Taberna IV and Taberna V, and expects to elect with Taberna VI, for those subsidiaries to be treated as TRSs for U.S. federal income tax purposes. In addition, Taberna II, which is a subsidiary of Taberna Equity, is therefore also a TRS of Taberna. RAIT has elected with RAIT Advisors, Inc. to treat RAIT Advisors, Inc. as a TRS for U.S. federal tax purposes. We may form additional TRSs in the future. To the extent that any such TRSs pay any taxes, they will have less CAD to us. If dividends are paid by a taxable domestic TRS, such as Taberna Capital, Taberna Securities or Taberna Funding, to Taberna, then the dividends we designate and pay to our shareholders who are individuals, up to the amount of dividends we receive from such entities, generally will be eligible to be taxed at the reduced 15% maximum U.S. federal rate applicable to qualified dividend income. See “—Taxation of Shareholders—Taxation of Taxable U.S. Shareholders.” Currently, we anticipate that each of Taberna Capital, Taberna Securities and Taberna Funding will retain its after tax income, if any, subject to compliance with the 20% asset test applicable to Taberna’s aggregate ownership of TRSs. See “—Asset Tests.”

The shares that Taberna holds in Taberna Capital have a tax basis below the basis such shares would have had if Taberna purchased such shares at their agreed value in connection with the completion of its initial private placement of common shares and related transactions, which we refer to as Taberna’s formation transactions. If Taberna were to sell these shares, the gain that it would recognize would be in excess of the amount of gain that would have been recognized had it purchased such shares in a taxable transaction. Accordingly, such a sale could result in the generation of a significant amount of income that would not qualify for the REIT 75% gross income test and an increased distribution requirement and, accordingly, could adversely affect Taberna’s ability to qualify as a REIT. See the discussion under “—Gross Income Tests” and “—Annual Distribution Requirements.” In addition, such a sale would result in a larger portion of RAIT’s dividend being subject to tax as a capital gain dividend as opposed to a return of capital.

Taxable Mortgage Pools. An entity, or a portion of an entity, may be classified as a taxable mortgage pool under the Internal Revenue Code if:

Under the Treasury regulations, if less than 80% of the assets of an entity (or a portion of an entity) consist of debt obligations, these debt obligations are considered not to comprise “substantially all” of its assets, and therefore the entity would not be treated as a taxable mortgage pool.

Taberna’s securitizations of mortgage loans are likely classified as taxable mortgage pool securitizations. As we continue to make significant investments in mortgage loans, CMBS or RMBS securities, we will likely continue to engage in securitization structures, similar to these securitizations whereby we convey one or more pools of real estate mortgage loans to a trust, which issues several classes of mortgage-backed bonds having different maturities, and the cash flow on the real estate mortgage loans will be the sole source of payment of principal and interest on the several classes of mortgage-backed bonds. As with Taberna’s securitizations through December 31, 2005, we would likely not make a REMIC election with respect to such securitization transactions, and, as a result, each such similar transaction would also be a taxable mortgage pool securitization.

A taxable mortgage pool generally is treated as a corporation for U.S. federal income tax purposes. However, special rules apply to a REIT, a portion of a REIT, or a qualified REIT subsidiary that is a taxable mortgage pool. If a REIT owns directly, or indirectly through one or more qualified REIT subsidiaries or other

entities that are disregarded as a separate entity for U.S. federal income tax purposes, 100% of the equity interest in the taxable mortgage pool, the taxable mortgage pool will be a qualified REIT subsidiary and, therefore, ignored as an entity separate from the parent REIT for U.S. federal income tax purposes and would not generally affect the qualification of the REIT. Rather, the consequences of the taxable mortgage pool classification would generally, except as described below, be limited to the REIT’s shareholders. See “—Excess Inclusion Income.”

If we own less than 100% of the ownership interests in a subsidiary that is a taxable mortgage pool or fail to qualify as a REIT, the foregoing rules would not apply. Rather, the subsidiary would be treated as a corporation for U.S. federal income tax purposes, and would potentially be subject to corporate income tax. In addition, this characterization would alter our REIT income and asset test calculations and could adversely affect our compliance with those requirements. We do not expect that we will form any subsidiary in which we own some, but less than all, of the ownership interests that would become a taxable mortgage pool, and we intend to monitor the structure of any taxable mortgage pools in which we have an interest to ensure that they will not adversely affect our REIT qualification.

In order to maintain our qualification as a REIT, we must satisfy two gross income tests annually. First, at least 75% of our gross income for each taxable year, excluding gross income from “prohibited transactions,” must be derived from investments relating to real property or mortgages on real property, including “rents from real property,” dividends received from other REITs, interest income derived from mortgage loans secured by real property (including certain types of mortgage-backed securities), and gains from the sale of real estate assets, as well as income from certain kinds of temporary investments. Second, at least 95% of our gross income in each taxable year, excluding gross income from prohibited transactions, must be derived from some combination of income that qualifies under the 75% gross income test described above, as well as other dividends, interest, and gain from the sale or disposition of shares or securities, which need not have any relation to real property.

For purposes of the 75% and 95% gross income tests, a REIT is deemed to have earned a proportionate share of the income earned by any partnership, or any limited liability company treated as a partnership for U.S. federal income tax purposes, in which it owns an interest, which share is determined by reference to its capital interest in such entity, and is deemed to have earned the income earned by any qualified REIT subsidiary.

Interest Income. Interest income constitutes qualifying mortgage interest for purposes of the 75% gross income test to the extent that the obligation is secured by a mortgage on real property. If we receive interest income with respect to a mortgage loan that is secured by both real property and other property and the highest principal amount of the loan outstanding during a taxable year exceeds the fair market value of the real property on the date that we acquired or originated the mortgage loan, the interest income will be apportioned between the real property and the other property, and its income from the loan will qualify for purposes of the 75% gross income test only to the extent that the interest is allocable to the real property. Even if a loan is not secured by real property or is undersecured, the income that it generates may nonetheless qualify for purposes of the 95% gross income test.

To the extent that the terms of a loan provide for contingent interest that is based on the cash proceeds realized upon the sale of the property securing the loan (a “shared appreciation provision”), income attributable to the participation feature will be treated as gain from sale of the underlying property, which generally will be qualifying income for purposes of both the 75% and 95% gross income tests, provided that the property is not inventory or dealer property in the hands of the borrower or us.

To the extent that we derive interest income from a loan where all or a portion of the amount of interest payable is contingent, such income generally will qualify for purposes of the gross income tests only if it is based upon the gross receipts or sales and not the net income or profits of any person. This limitation does not apply, however, to a mortgage loan where the borrower derives substantially all of its income from the property from the leasing of substantially all of its interest in the property to tenants, to the extent that the rental income derived by the borrower would qualify as rents from real property had it been earned directly by us.

Any amount includible in our gross income with respect to a regular or residual interest in a REMIC generally is treated as interest on an obligation secured by a mortgage on real property. If, however, less than 95% of the assets of a REMIC consists of real estate assets (determined as if we held such assets), we will be treated as receiving directly its proportionate share of the income of the REMIC.

Among the assets that RAIT holds and that we may hold are mezzanine loans secured by equity interests in a pass-through entity that directly or indirectly owns real property, rather than a direct mortgage on the real property. IRS Revenue Procedure 2003-65 provides a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from it will be treated as qualifying real estate income for purposes of the 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. Moreover, the mezzanine loans that RAIT holds and that we may acquire in the future do not and may not meet all of the requirements for reliance on this safe harbor. Hence, there can be no assurance that the IRS will not challenge the qualification of our mezzanine loans as real estate assets or the interest generated by these loans as qualifying income under the 75% gross income test. To the extent RAIT has made or we make corporate mezzanine loans, such loans will not qualify as real estate assets and interest income with respect to such loans will not be qualifying income for the 75% gross income test.

We believe that the interest, original issue discount, and market discount income that we receive from our mortgage-related securities generally will be qualifying income for purposes of both gross income tests. However, to the extent that we own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities that are not secured by mortgages on real property or interests in real property, the interest income received with respect to such securities generally will be qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. In addition, the loan amount of a mortgage loan that we own may exceed the value of the real property securing the loan. In that case, a portion of the income from the loan will be qualifying income for purposes of the 95% gross income test, but not the 75% gross income test.

Dividend Income. We may receive distributions from TRSs or other corporations that are not REITs or qualified REIT subsidiaries. These distributions will generally be classified as dividend income to the extent of the earnings and profits of the distributing corporation. Such distributions will generally constitute qualifying income for purposes of the 95% gross income test, but not the 75% gross income test. Any dividends received by us from a REIT (including dividends RAIT receives from Taberna, provided Taberna qualifies as a REIT) will be qualifying income in our hands for purposes of both the 95% and 75% gross income tests. Taberna treats, and we intend to treat, certain income inclusions received with respect to equity investments in non-U.S. TRSs as qualifying income for purposes of the 95% gross income test but not the 75% gross income test. See “—Effect of Subsidiary Entities—Taxable REIT Subsidiaries.” Because there is no clear precedent with respect to the qualification of such income for purposes of the REIT gross income tests, no assurance can be given that the IRS will not assert a contrary position. In the event that such income was determined not to qualify for the 95% gross income test, we could fail to qualify as a REIT. See “—Failure to Qualify.” Even if such income does not cause us to fail to qualify as a REIT because of certain relief provisions, Taberna would be subject to a penalty tax with respect to such income because such income, together with other non-qualifying income it receives, has exceeded and will exceed 5% of Taberna’s gross income. See “—Failure to Satisfy the Gross Income Tests.” To the extent RAIT invests in such non-U.S. TRSs, and such income inclusions, together with RAIT’s other non-qualifying income, exceed 5% of RAIT’s gross income, RAIT will be subject to similar risks. In addition, if such income was determined not to qualify for the 95% gross income test, we would need to invest in sufficient qualifying assets, or sell some of its interests in its foreign TRSs or other corporations that are not REITs or qualified REIT subsidiaries to ensure that the income recognized by us from its foreign TRSs or other such corporations does not exceed 5% of its gross income.

Hedging Transactions. We may enter into hedging transactions with respect to one or more of our assets or liabilities. Hedging transactions could take a variety of forms, including interest rate swaps or cap agreements,

options, futures contracts, forward rate agreements or similar financial instruments. Except to the extent provided by the Treasury regulations, any income from a hedging transaction we enter into in the normal course of its business primarily to manage risk of interest rate or price changes or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets, which is clearly identified as specified in the Treasury regulations before the close of the day on which it was acquired, originated, or entered into, including gain from the sale or disposition of such a transaction, will not constitute gross income for purposes of the 95% gross income test (and will generally constitute non-qualifying income for purposes of the 75% gross income test). To the extent that we enter into other types of hedging transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the gross income tests. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT.

Rents from Real Property. To the extent that we own real property or interests therein, rents we receive will qualify as “rents from real property” in satisfying the gross income tests described above only if several conditions are met, including the following. If rent attributable to personal property leased in connection with real property is greater than 15% of the total rent received under any particular lease, then all of the rent attributable to such personal property will not qualify as rents from real property. The determination of whether an item of personal property constitutes real or personal property under the REIT provisions of the Internal Revenue Code is subject to both legal and factual considerations and is therefore subject to different interpretations.

In addition, in order for rents received by us to qualify as “rents from real property,” the rent must not be based in whole or in part on the income or profits of any person. However, an amount will not be excluded from rents from real property solely by being based on a fixed percentage or percentages of sales or if it is based on the net income of a tenant which derives substantially all of its income with respect to such property from subleasing of substantially all of such property, to the extent that the rents paid by the subtenants would qualify as rents from real property, if earned directly by us. Moreover, for rents received to qualify as “rents from real property,” we generally must not operate or manage the property or furnish or render certain services to the tenants of such property, other than through an “independent contractor” who is adequately compensated and from which we derive no income, or through a TRS, as discussed below. We are permitted, however, to perform services that are “usually or customarily rendered” in connection with the rental of space for occupancy only and are not otherwise considered rendered to the occupant of the property. In addition, we may directly or indirectly provide non-customary services to tenants our properties without disqualifying all of the rent from the property if the payment for such services does not exceed 1% of the total gross income from the property. In such a case, only the amounts for non-customary services are not treated as rents from real property and the provision of the services does not disqualify the related rent. Moreover, we are permitted to provide services to tenants through a TRS without disqualifying the rental income received from tenants for purposes of the REIT gross income tests.

Rental income will qualify as rents from real property only to the extent that we do not directly or constructively own, (1) in the case of any tenant which is a corporation, shares possessing 10% or more of the total combined voting power of all classes of shares entitled to vote, or 10% or more of the total value of shares of all classes of shares of such tenant, or (2) in the case of any tenant which is not a corporation, an interest of 10% or more in the assets or net profits of such tenant. However, rental payments from a TRS will qualify as rents from real property even if we own more than 10% of the combined voting power of the TRS if at least 90% of the property is leased to unrelated tenants and the rent paid by the TRS is substantially comparable to the rent paid by the unrelated tenants for comparable space.

Failure to Satisfy the Gross Income Tests. We intend to monitor our sources of income, including any non-qualifying income received by us , so as to ensure our compliance with the gross income tests. If we fail to satisfy one or both of the 75% or 95% gross income tests for any taxable year, we may still qualify as a REIT for the year if we are entitled to relief under applicable provisions of the Internal Revenue Code. These relief provisions will generally be available if our failure to meet these tests was due to reasonable cause and not due to

willful neglect and, following the identification of such failure, we set forth a description of each item of its gross income that satisfies the gross income tests in a schedule for the taxable year filed in accordance with the Treasury regulations. It is not possible to state whether we would be entitled to the benefit of these relief provisions in all circumstances. If these relief provisions are inapplicable to a particular set of circumstances involving it, we will not qualify as a REIT. As discussed above under “—Taxation of REITs in General,” even where these relief provisions apply, a tax would be imposed upon the profit attributable to the amount by which Taberna fails to satisfy the particular gross income test multiplied by a fraction intended to reflect its profitability.

We, at the close of each calendar quarter, must also satisfy four tests relating to the nature of our assets. First, at least 75% of the value of our total assets must be represented by some combination of “real estate assets,” cash, cash items, U.S. government securities and, under some circumstances, shares or debt instruments purchased with new capital. For this purpose, real estate assets include interests in real property, such as land, buildings, leasehold interests in real property, shares of other corporations that qualify as REITs (including Taberna shares owned by RAIT, provided Taberna qualifies as a REIT) and certain kinds of mortgage-backed securities and mortgage loans. Assets that do not qualify for purposes of the 75% test are subject to the additional asset tests described below.

The second asset test is that the value of any one issuer’s securities owned by us may not exceed 5% of the value of our gross assets. Third, we may not own more than 10% of any one issuer’s outstanding securities, as measured by either voting power or value. Fourth, the aggregate value of all securities of TRSs held by us may not exceed 20% of the value of our gross assets.

The 5% and 10% asset tests do not apply to securities of TRSs and qualified REIT subsidiaries. The 10% value test does not apply to certain “straight debt” and other excluded securities, as described in the Internal Revenue Code, including but not limited to any loan to an individual or an estate, any obligation to pay rents from real property and any security issued by a REIT. In addition, (a) a REIT’s interest as a partner in a partnership is not considered a security for purposes of applying the 10% value test; (b) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership if at least 75% of the partnership’s gross income is derived from sources that would qualify for the 75% REIT gross income test; and (c) any debt instrument issued by a partnership (other than straight debt or other excluded security) will not be considered a security issued by the partnership to the extent of the REIT’s interest as a partner in the partnership.

For purposes of the 10% value test, “straight debt” means a written unconditional promise to pay on demand on a specified date a sum certain in money if (i) the debt is not convertible, directly or indirectly, into shares, (ii) the interest rate and interest payment dates are not contingent on profits, the borrower’s discretion, or similar factors other than certain contingencies relating to the timing and amount of principal and interest payments, as described in the Internal Revenue Code and (iii) in the case of an issuer which is a corporation or a partnership, securities that otherwise would be considered straight debt will not be so considered if we, and any of our “controlled TRSs” as defined in the Internal Revenue Code, hold any securities of the corporate or partnership issuer which: (a) are not straight debt or other excluded securities (prior to the application of this rule), and (b) have an aggregate value greater than 1% of the issuer’s outstanding securities (including, for the purposes of a partnership issuer, our interest as a partner in the partnership).

After initially meeting the asset tests at the close of any quarter, we will not lose our qualification as a REIT for failure to satisfy the asset tests at the end of a later quarter solely by reason of changes in asset values. If we fail to satisfy the asset tests because we acquire securities during a quarter, we can cure this failure by disposing of sufficient non-qualifying assets within 30 days after the close of that quarter. If we fail the 5% asset test, or the 10% vote or value asset tests at the end of any quarter and such failure is not cured within 30 days thereafter, we

may dispose of sufficient assets (generally within six months after the last day of the quarter in which our identification of the failure to satisfy these asset tests occurred) to cure such a violation that does not exceed the lesser of 1% of its assets at the end of the relevant quarter or $10,000,000. If we fail any of the other asset tests or its failure of the 5% and 10% asset tests is in excess of the de minimis amount described above, as long as such failure was due to reasonable cause and not willful neglect, we are permitted to avoid disqualification as a REIT, after the 30 day cure period, by taking steps including the disposition of sufficient assets to meet the asset test (generally within six months after the last day of the quarter in which our identification of the failure to satisfy the REIT asset test occurred) and paying a tax equal to the greater of $50,000 or the highest corporate income tax rate (currently 35%) of the net income generated by the non-qualifying assets during the period in which we fail to satisfy the asset test.

We expect that the assets and mortgage-related securities that we own generally will be qualifying assets for purposes of the 75% asset test. However, to the extent that we own non-REMIC collateralized mortgage obligations or other debt instruments secured by mortgage loans (rather than by real property) or secured by non-real estate assets, or debt securities issued by corporations that are not secured by mortgages on real property, those securities may not be qualifying assets for purposes of the 75% asset test. In addition, to the extent we own the equity of a TruPS securitization and do not make a TRS election with respect to such entity, we will be deemed to own such TruPS, which will not be a qualifying real estate asset for purposes of the 75% asset test described above. we believe that our holdings of securities and other assets will be structured in a manner that will comply with the foregoing REIT asset requirements and intend to monitor compliance on an ongoing basis. Moreover, values of some assets may not be susceptible to a precise determination and are subject to change in the future. Furthermore, the proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some circumstances, which could affect the application of the REIT asset tests. As an example, if we were to make an investment in preferred securities or other equity securities of a REIT issuer that were determined by the IRS to represent debt securities of such issuer, such securities would also not qualify as real estate assets. Accordingly, there can be no assurance that the IRS will not contend that its interests in subsidiaries or in the securities of other issuers (including REIT issuers) cause a violation of the REIT asset tests.

RAIT has acquired and Taberna and RAIT may acquire mezzanine loans, which are loans secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan, if it meets each of the requirements contained in the Revenue Procedure, will be treated by the IRS as a real estate asset for purposes of the REIT asset tests, and interest derived from the mezzanine loan will be treated as qualifying real estate income for purposes of the REIT 75% income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. RAIT has acquired and Taberna and RAIT may acquire mezzanine loans that may not meet all of the requirements for reliance on this safe harbor. In the event RAIT or Taberna own a mezzanine loan that does not meet the safe harbor, the IRS could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset and income tests, and if such a challenge were sustained, RAIT or Taberna could fail to qualify as a REIT.

RAIT and Taberna have entered into and intend to enter into sale and repurchase agreements under which RAIT and Taberna nominally sell certain of their mortgage assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. RAIT and Taberna believe that they have been and will be treated for U.S. federal income tax purposes as the owner of the mortgage assets that are the subject of any such agreement notwithstanding that they may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that RAIT or Taberna did not own the mortgage assets during the term of the sale and repurchase agreement, in which case RAIT’s or Taberna’s ability to qualify as a REIT would be adversely affected.

In order to qualify as a REIT, we are required to make distributions, other than capital gain dividends, to our shareholders in an amount at least equal to:

(b) the sum of specified items of non-cash income that exceeds a percentage of its income.

These distributions must be paid in the taxable year to which they relate or in the following taxable year if such distributions are declared in October, November or December of the taxable year, are payable to shareholders of record on a specified date in any such month and are actually paid before the end of January of the following year. Such distributions are treated as both paid by us and received by each shareholder on December 31 of the year in which they are declared. In addition, at its election, a distribution for a taxable year may be declared before we timely file its tax return for the year and be paid with or before the first regular dividend payment after such declaration, provided that such payment is made during the 12-month period following the close of such taxable year. These distributions are taxable to our shareholders in the year in which paid, even though the distributions relate to its prior taxable year for purposes of the 90% distribution requirement.

In order for distributions to be counted towards our distribution requirement and to provide us with a tax deduction, they must not be “preferential dividends.” A dividend is not a preferential dividend if it is pro rata among all outstanding shares within a particular class and is in accordance with the preferences among different classes of shares as set forth in our organizational documents.

To the extent that we distribute at least 90%, but less than 100%, of our “REIT taxable income,” as adjusted, we will be subject to tax at ordinary corporate tax rates on the retained portion. In addition, we may elect to retain, rather than distribute, our net long-term capital gains and pay tax on such gains. In this case, we could elect to have our shareholders include their proportionate share of such undistributed long-term capital gains in income and receive a corresponding credit for their proportionate share of the tax paid by us. Our shareholders would then increase the adjusted basis of their shares in us by the difference between the designated amounts included in their long-term capital gains and the tax deemed paid with respect to their proportionate shares.

If we fail to distribute during each calendar year at least the sum of (a) 85% of our REIT ordinary income for such year, (b) 95% of our REIT capital gain net income for such year and (c) any undistributed taxable income from prior periods, we will be subject to a 4% excise tax on the excess of such required distribution over the sum of (x) the amounts actually distributed (taking into account excess distributions from prior periods) and (y) the amounts of income retained on which we have paid corporate income tax. We intend to make timely distributions so that we are not subject to the 4% excise tax.

It is possible that we, from time to time, may not have sufficient cash to meet the distribution requirements due to timing differences between (a) the actual receipt of cash, including receipt of distributions from our subsidiaries and (b) the inclusion of items in income by us for U.S. federal income tax purposes including the inclusion of items of income from CDO entities in which we hold an equity interest. See “—Effect of Subsidiary Entities—Taxable REIT Subsidiaries.” In the event that such timing differences occur, in order to meet the distribution requirements, it might be necessary to arrange for short-term, or possibly long-term, borrowings or to pay dividends in the form of taxable in-kind distributions of property.

We may be able to rectify a failure to meet the distribution requirements for a year by paying “deficiency dividends” to shareholders in a later year, which may be included in our deduction for dividends paid for the

earlier year. In this case, we may be able to avoid losing our qualification as a REIT or being taxed on amounts distributed as deficiency dividends. However, we will be required to pay interest and a penalty based on the amount of any deduction taken for deficiency dividends.

If we own a residual interest in a REMIC, we may realize excess inclusion income. If we are deemed to have issued debt obligations having two or more maturities, the payments on which correspond to payments on mortgage loans owned by us, such arrangement will be treated as a taxable mortgage pool for U.S. federal income tax purposes. See “—Effect of Subsidiary Entities—Taxable Mortgage Pools.” If all or a portion of us is treated as a taxable mortgage pool, our qualification as a REIT generally should not be impaired. However, to the extent that all or a portion of us is treated as a taxable mortgage pool, or we make investments or enter into financing and securitization transactions, such as our five mortgage loan securitizations through December 31, 2005, that give rise to us being considered to own an interest in one or more taxable mortgage pools, a portion of our REIT taxable income may be characterized as excess inclusion income and allocated to our shareholders, generally in a manner set forth under the applicable Treasury regulations. We expect that such financing and securitization transactions will result in a significant portion of our income being considered excess inclusion income. The U.S. Treasury Department has issued guidance on the tax treatment of shareholders of a REIT that owns an interest in a taxable mortgage pool. Excess inclusion income is an amount, with respect to any calendar quarter, equal to the excess, if any, of (i) income allocable to the holder of a residual interest in a REMIC during such calendar quarter over (ii) the sum of amounts allocated to each day in the calendar quarter equal to its ratable portion of the product of (a) the adjusted issue price of the interest at the beginning of the quarter multiplied by (b) 120% of the long term federal rate (determined on the basis of compounding at the close of each calendar quarter and properly adjusted for the length of such quarter). Our excess inclusion income would be allocated among RAIT’s shareholders that hold our stock in record name in proportion to dividends paid to such shareholders. A shareholder’s share of any excess inclusion income:

The manner in which excess inclusion income would be allocated among shares of different classes of shares is not clear under current law. Tax-exempt investors, foreign investors and taxpayers with net operating losses should carefully consider the tax consequences described above and should consult their tax advisors with respect to excess inclusion income.

Net income derived from a prohibited transaction is subject to a 100% tax. The term “prohibited transaction” generally includes a sale or other disposition of property (other than foreclosure property) that is held as inventory or primarily for sale to customers in the ordinary course of a trade or business by a REIT, by a pass-through entity in which the REIT holds an equity interest or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to the REIT. We intend to conduct our operations so that no asset owned by us or our pass-through subsidiaries will be held as inventory or for sale to customers in the

ordinary course of business. However, whether property is held “for sale to customers in the ordinary course of a trade or business” depends on the particular facts and circumstances. No assurance can be given that any particular property in which we hold a direct or indirect interest will not be treated as property held for sale to customers or that certain safe-harbor provisions of the Internal Revenue Code that prevent such treatment will apply. The 100% tax will not apply to gains from the sale of property by a TRS or other taxable corporation, although such income will be subject to tax in the hands of the corporation at regular U.S. federal corporate income tax rates.

Foreclosure property is real property and any personal property incident to such real property (1) that is acquired by a REIT as a result of the REIT having bid on the property at foreclosure or having otherwise reduced the property to ownership or possession by agreement or process of law after there was a default (or default was imminent) on a lease of the property or a mortgage loan held by the REIT and secured by the property, (2) for which the related loan or lease was acquired by the REIT at a time when default was not imminent or anticipated and (3) for which such REIT makes a proper election to treat the property as foreclosure property. REITs generally are subject to tax at the maximum corporate rate (currently 35%) on any net income from foreclosure property, including any gain from the disposition of the foreclosure property, other than income that would otherwise be qualifying income for purposes of the 75% gross income test. Any gain from the sale of property for which a foreclosure property election has been made will not be subject to the 100% tax on gains from prohibited transactions described above, even if the property would otherwise constitute inventory or property held for sale to customers in the ordinary course of business in the hands of the selling REIT. We do not anticipate that we will receive any income from foreclosure property that is not qualifying income for purposes of the 75% gross income test, but, if we do receive any such income, we intend to elect to treat the related property as foreclosure property.

In the event that we violate a provision of the Internal Revenue Code that would result in our failure to qualify as a REIT, specified relief provisions will be available to us to avoid such disqualification if (1) the violation is due to reasonable cause and not due to willful neglect, (2) we pay a penalty of $50,000 for each failure to satisfy the provision and (3) the violation does not include a violation under the gross income or asset tests described above (for which other specified relief provisions are available). This cure provision reduces the instances that could lead to our disqualification as a REIT for violations due to reasonable cause and not due to willful neglect. If we fail to qualify for taxation as a REIT in any taxable year and none of the relief provisions of the Internal Revenue Code apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. Distributions to our shareholders in any year in which we are not a REIT will not be deductible by us, nor will they be required to be made. In this situation, to the extent of current and accumulated earnings and profits, and, subject to limitations of the Internal Revenue Code, distributions to our shareholders will generally be taxable in the case of our shareholders who are individual U.S. shareholders (as defined below), at a maximum rate of 15%, and dividends in the hands of our corporate U.S. shareholders may be eligible for the dividends received deduction. In addition, our taxable mortgage pool securitizations will be treated as separate taxable corporations for U.S. federal income tax purposes. Unless we are entitled to relief under the specific statutory provisions, we will also be disqualified from re-electing to be taxed as a REIT for the four taxable years following a year during which qualification was lost. It is not possible to state whether, in all circumstances, we will be entitled to statutory relief.

Taxation of Taxable U.S. Shareholders. This section summarizes the taxation of U.S. shareholders that are not tax-exempt organizations. For these purposes, a U.S. shareholder is a beneficial owner of either Taberna common shares or RAIT common shares that for U.S. federal income tax purposes is:

If an entity or arrangement treated as a partnership for U.S. federal income tax purposes holds RAIT common shares, the U.S. federal income tax treatment of a partner generally will depend upon the status of the partner and the activities of the partnership. A partner of a partnership holding RAIT common shares should consult its tax advisor regarding the U.S. federal income tax consequences to the partner of the acquisition, ownership and disposition of RAIT common shares by the partnership.

Distributions. Provided that RAIT qualifies as a REIT, distributions made to RAIT’s taxable U.S. shareholders out of its current and accumulated earnings and profits, and not designated as capital gain dividends, will generally be taken into account by them as ordinary dividend income and will not be eligible for the dividends received deduction generally available to corporate U.S. shareholders. In determining the extent to which a distribution with respect to RAIT common shares constitutes a dividend for U.S. federal income tax purposes, RAIT’s earnings and profits will be allocated first to distributions with respect to RAIT’s preferred shares of beneficial interest and then to its common shares. Dividends received from REITs generally are not eligible to be taxed at the preferential qualified dividend income rates applicable to individual U.S. shareholders who receive dividends from regular corporations.

In addition, distributions from us that are designated as capital gain dividends will be taxed to U.S. shareholders as long-term capital gains, to the extent that they do not exceed the actual net capital gain of us for the taxable year, without regard to the period for which the U.S. shareholder has held its shares. To the extent that RAIT elects under the applicable provisions of the Internal Revenue Code to retain its net capital gains, U.S. shareholders will be treated as having received, for U.S. federal income tax purposes, RAIT’s undistributed capital gains as well as a corresponding credit for taxes paid by us on such retained capital gains. U.S. shareholders will increase their adjusted tax basis in our common shares by the difference between their allocable share of such retained capital gain and their share of the tax paid by us. Corporate U.S. shareholders may be required to treat up to 20% of some capital gain dividends as ordinary income. Long-term capital gains are generally taxable at maximum U.S. federal income tax rates of 15% (through 2010) in the case of U.S. shareholders who are individuals, and 35% for corporations. Capital gains attributable to the sale of depreciable real property held for more than 12 months are subject to a 25% maximum U.S. federal income tax rate for individual U.S. shareholders, to the extent of previously claimed depreciation deductions.

Distributions in excess of RAIT’s current and accumulated earnings and profits will not be taxable to a U.S. shareholder to the extent that they do not exceed the adjusted tax basis of the U.S. shareholder’s shares in respect of which the distributions were made, but rather will reduce the adjusted tax basis of these shares. To the extent that such distributions exceed the adjusted tax basis of an individual U.S. shareholder’s shares, they will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. In addition, any dividend declared by RAIT in October, November or December of any year and payable to a U.S. shareholder of record on a specified date in any such month will be treated as both paid by RAIT and received by the U.S. shareholder on December 31 of such year, provided that the dividend is actually paid by RAIT before the end of January of the following calendar year.

With respect to individual U.S. shareholders, RAIT may elect to designate a portion of its distributions paid to such U.S. shareholders as “qualified dividend income.” A portion of a distribution that is properly designated as qualified dividend income is taxable to non-corporate U.S. shareholders as capital gain, provided that the U.S.

shareholder has held the common shares with respect to which the distribution is made for more than 60 days during the 121-day period beginning on the date that is 60 days before the date on which such common shares became ex-dividend with respect to the relevant distribution. The maximum amount of RAIT’s distributions eligible to be designated as qualified dividend income for a taxable year is equal to the sum of:

(a) the qualified dividend income received by RAIT during such taxable year from non-REIT corporations that are subject to U.S. federal income tax;

(b) the excess of any “undistributed” REIT taxable income recognized during the immediately preceding year over the U.S. federal income tax paid by RAIT with respect to such undistributed REIT taxable income; and

(c) the excess of any income recognized during the immediately preceding year attributable to the sale of a built-in-gain asset that was acquired in a carry-over basis transaction from a non-REIT C corporation over the U.S. federal income tax paid by RAIT with respect to such built-in gain.

In addition, to the extent Taberna pays dividends to RAIT comprised of the above items, RAIT’s dividends should generally be treated as qualified dividend income.

Generally, dividends that we receive will be treated as qualified dividend income for purposes of (a) above if the dividends are received from a domestic corporation (other than a REIT or a RIC), such as Taberna Capital and Taberna Securities, which are subject to U.S. federal income tax, or a “qualifying foreign corporation” and specified holding period requirements and other requirements are met. We expect that any foreign corporate CDO entity in which it invests would not be a “qualifying foreign corporation,” and accordingly our distribution of any income with respect to such entities will not constitute “qualified dividend income.”

To the extent that RAIT has available net operating losses and capital losses carried forward from prior tax years, such losses may reduce the amount of distributions that must be made in order to comply with the REIT distribution requirements. See “—Taxation of REITs in General” and “—Annual Distribution Requirements.” Such losses, however, are not passed through RAIT shareholders and do not offset income of RAIT shareholders from other sources, nor do they affect the character of any distributions that are actually made by us, which are generally subject to tax in the hands of RAIT shareholders to the extent that we have current or accumulated earnings and profits.

Dispositions of RAIT Common Shares. In general, a U.S. shareholder will realize gain or loss upon the sale, redemption or other taxable disposition of RAIT common shares in an amount equal to the difference between the sum of the fair market value of any property and the amount of cash received in such disposition and the U.S. shareholder’s adjusted tax basis in the common shares at the time of the disposition. In general, a U.S. shareholder’s adjusted tax basis will equal the U.S. shareholder’s acquisition cost, increased by the excess of net capital gains deemed distributed to the U.S. shareholder (discussed above) less tax deemed paid on it and reduced by returns of capital. In general, capital gains recognized by individual U.S. shareholders upon the sale or disposition of RAIT common shares will be subject to a maximum U.S. federal income tax rate of 15% for taxable years through 2010, if the RAIT common shares are held for more than 12 months, and will be taxed at ordinary income rates (of up to 35% through 2010) if the RAIT common shares are held for 12 months or less. Gains recognized by U.S. shareholders that are corporations are subject to U.S. federal income tax at a maximum rate of 35%, whether or not classified as long-term capital gains. The IRS has the authority to prescribe, but has not yet prescribed, regulations that would apply a U.S. federal income tax rate of 25% (which is generally higher than the long-term capital gain tax rates for non-corporate holders) to a portion of capital gain realized by an individual holder on the sale of REIT shares that would correspond to the REIT’s “unrecaptured Section 1250 gain.” Capital losses recognized by a U.S. shareholder upon the disposition of RAIT common shares held for more than one year at the time of disposition will be considered long-term capital losses, and are generally available only to offset capital gain income of the U.S. shareholder but not ordinary income (except in the case of individuals, who may offset up to $3,000 of ordinary income each year). In addition, any loss upon a sale or

exchange of RAIT common shares by a U.S. shareholder who has held the shares for six months or less, after applying holding period rules, will be treated as a long-term capital loss to the extent of distributions received from RAIT that were required to be treated by the U.S. shareholder as long-term capital gain.

Passive Activity Losses and Investment Interest Limitations. Distributions made by us and gain arising from the sale or exchange by a U.S. shareholder of RAIT common shares will not be treated as passive activity income. As a result, U.S. shareholders will not be able to apply any “passive losses” against income or gain relating to its RAIT common shares. Distributions made by RAIT, to the extent they do not constitute a return of capital, generally will be treated as investment income for purposes of computing the investment interest limitation. A U.S. shareholder that elects to treat capital gain dividends, capital gains from the disposition of shares or qualified dividend income as investment income for purposes of the investment interest limitation will be taxed at ordinary income rates on such amounts.

Taxation of Tax-Exempt U.S. Shareholders. U.S. tax-exempt entities, including qualified employee pension and profit sharing trusts and individual retirement accounts, generally are exempt from U.S. federal income taxation. However, they are subject to taxation on their UBTI. While many investments in real estate may generate UBTI, the IRS has ruled that dividend distributions from a REIT to a tax-exempt entity do not constitute UBTI. Based on that ruling, and provided that (1) a tax-exempt U.S. shareholder has not held RAIT common shares as “debt financed property” within the meaning of the Internal Revenue Code (i.e., where the acquisition or holding of the property is financed through a borrowing by the tax-exempt shareholder), (2) the RAIT common shares are not otherwise used in an unrelated trade or business, and (3) RAIT and Taberna do not hold an asset that generates “excess inclusion income” (See “—Effect of Subsidiary Entities—Taxable Mortgage Pools” and “—Excess Inclusion Income”), distributions from RAIT and income from the sale of RAIT common shares should generally not be treated as UBTI to a tax-exempt U.S. shareholder. RAIT and Taberna expect to engage in transactions that result in a portion of RAIT’s dividend income being considered “excess inclusion income,” and accordingly, it is likely that a significant portion of RAIT’s dividends received by a tax-exempt shareholder will be treated as UBTI.

Tax-exempt U.S. shareholders that are social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts, and qualified group legal services plans exempt from U.S. federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of the Internal Revenue Code, respectively, are subject to different UBTI rules, which generally will require them to characterize distributions from RAIT as UBTI.

In certain circumstances, a pension trust (1) that is described in Section 401(a) of the Internal Revenue Code, (2) is tax exempt under Section 501(a) of the Internal Revenue Code, and (3) that owns more than 10% of RAIT’s shares could be required to treat a percentage of the dividends from RAIT as UBTI if RAIT is a “pension-held REIT.” RAIT will not be a pension-held REIT unless (1) either (A) one pension trust owns more than 25% of the value of RAIT’s shares, or (B) a group of pension trusts, each individually holding more than 10% of the value of RAIT’s shares, collectively owns more than 50% of such shares; and (2) RAIT would not have qualified as a REIT but for the fact that Section 856(h)(3) of the Internal Revenue Code provides that shares owned by such trusts shall be treated, for purposes of the requirement that not more than 50% of the value of the outstanding shares of a REIT is owned, directly or indirectly, by five or fewer “individuals” (as defined in the Internal Revenue Code to include certain entities) by the beneficiaries of such trusts. Certain restrictions on ownership and transfer of RAIT’s shares should generally prevent a tax-exempt entity from owning more than 10% of the value of its shares, or RAIT’s from becoming a pension-held REIT.

Tax-exempt U.S. shareholders are urged to consult their tax advisors regarding the U.S. federal, state, local and foreign tax consequences of owning our shares.

Taxation of Non-U.S. Shareholders. The following is a summary of certain U.S. federal income tax consequences of the acquisition, ownership and disposition of RAIT common shares applicable to non-U.S. shareholders of RAIT common shares. For purposes of this summary, a non-U.S. shareholder is a

beneficial owner of RAIT common shares that is not a U.S. shareholder. The discussion is based on current law and is for general information only. It addresses only selective and not all aspects of U.S. federal income taxation.

Ordinary Dividends. The portion of dividends received by non-U.S. shareholders payable out of RAIT’s earnings and profits that are not attributable to gains from sales or exchanges of U.S. real property interests, or USRPIs, and which are not effectively connected with a U.S. trade or business of the non-U.S. shareholder will generally be subject to U.S. federal withholding tax at the rate of 30%, unless reduced or eliminated by an applicable income tax treaty. Under some treaties, however, lower rates generally applicable to dividends do not apply to dividends from REITs. In addition, any portion of the dividends paid to non-U.S. shareholders that are treated as excess inclusion income will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate. As previously noted, we expect to engage in transactions that result in a portion of RAIT’s dividends being considered “excess inclusion income,” and accordingly, it is likely that a significant portion of RAIT’s dividends received by a non-U.S. shareholder will not be eligible for exemption from the 30% withholding tax or a reduced treaty rate.

In general, non-U.S. shareholders will not be considered to be engaged in a U.S. trade or business solely as a result of their ownership of RAIT shares. In cases where the dividend income from a non-U.S. shareholder’s investment in RAIT common shares is, or is treated as, effectively connected with the non-U.S. shareholder’s conduct of a U.S. trade or business, the non-U.S. shareholder generally will be subject to U.S. federal income tax at graduated rates, in the same manner as U.S. shareholders are taxed with respect to such dividends, and may also be subject to a 30% branch profits tax, after the application of the U.S. federal income tax, in the case of a non-U.S. shareholder-that is a corporation.

Non-Dividend Distributions. Unless (A) RAIT common shares constitute a USRPI or (B) either (1) if the non-U.S. shareholder’s investment in RAIT common shares is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder (in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain) or (2) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States (in which case the non-U.S. shareholder will be subject to a 30% tax on the individual’s net capital gain for the year), distributions by RAIT which are not dividends out of RAIT’s earnings and profits will not be subject to U.S. federal income tax. If it cannot be determined at the time at which a distribution is made whether or not the distribution will exceed current and accumulated earnings and profits, the distribution will be subject to withholding at the rate applicable to dividends. However, the non-U.S. shareholder may seek a refund from the IRS of any amounts withheld if it is subsequently determined that the distribution was, in fact, in excess of RAIT’s current and accumulated earnings and profits. If RAIT common shares constitute a USRPI, as described below, distributions by RAIT in excess of the sum of its earnings and profits plus the non-U.S. shareholder’s adjusted tax basis in the RAIT common shares will be taxed under the Foreign Investment in Real Property Tax Act of 1980, or FIRPTA, at the rate of tax, including any applicable capital gains rates, that would apply to a U.S. shareholder of the same type (e.g., an individual or a corporation), and the collection of the tax will be enforced by a withholding at a rate of 10% of the amount by which the distribution exceeds the shareholder’s share of RAIT’s earnings and profits.

Capital Gain Dividends. Under FIRPTA, a distribution made by RAIT to a non-U.S. shareholder, to the extent attributable to gains from dispositions of USRPIs held by RAIT directly or through pass-through subsidiaries, or USRPI capital gains, will be considered effectively connected with a U.S. trade or business of the non-U.S. shareholder and will be subject to U.S. federal income tax at the rates applicable to U.S. shareholders, without regard to whether the distribution is designated as a capital gain dividend. In addition, RAIT will be required to withhold tax equal to 35% of the amount of capital gain dividends to the extent the dividends constitute USRPI capital gains. Moreover, if a non-U.S. shareholder disposes of RAIT common shares during the 30-day period preceding a RAIT dividend payment, and such non-U.S. shareholder (or a person related to such non-U.S. shareholder) acquires or enters into a contract or option to acquire RAIT common shares within 61 days

of the first day of the 30-day period described above, and any portion of such dividend payment would, but for the disposition, be treated as a USRPI capital gain to such non-U.S. shareholder, then such non-U.S. shareholder shall be treated as having USRPI capital gain in an amount that, but for the disposition, would have been treated as USRPI capital gain. Distributions subject to FIRPTA may also be subject to a 30% branch profits tax when received by a non-U.S. holder that is a corporation. However, the 35% withholding tax will not apply to any capital gain dividend with respect to any class of RAIT shares which is regularly traded on an established securities market located in the United States if the non-U.S. shareholder did not own more than 5% of such class of shares at any time during the taxable year. Instead any capital gain dividend will be treated as a distribution subject to the rules discussed above under “—Taxation of Non-U.S. Shareholders” and “—Ordinary Dividends.” Also, the branch profits tax will not apply to such a distribution. A distribution is not a USRPI capital gain if we held the underlying asset solely as a creditor, although the holding of a shared appreciation mortgage loan would not be solely as a creditor. Capital gain dividends received by a non-U.S. shareholder from a REIT that are not USRPI capital gains generally are not subject to U.S. federal income or withholding tax, unless either (1) if the non-U.S. shareholder’s investment in our common shares is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder (in which case the non-U.S. shareholder will be subject to the same treatment as U.S. shareholders with respect to such gain) or (2) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States (in which case the non-U.S. shareholder will be subject to a 30% tax on the individual’s net capital gain for the year).

Dispositions of RAIT Common Shares. Unless RAIT common shares constitute a USRPI, a sale of the shares by a non-U.S. shareholder generally will not be subject to U.S. federal income taxation under FIRPTA. The shares will not be treated as a USRPI if less than 50% of RAIT’s assets throughout a prescribed testing period consist of interests in real property located within the United States, excluding, for this purpose, interests in real property solely in a capacity as a creditor. We do not expect that more than 50% of RAIT’s assets will consist of interests in real property located in the United States.

In addition, RAIT’s common shares will not constitute a USRPI if RAIT is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its outstanding shares is held directly or indirectly by non-U.S. shareholders. We believe that RAIT is, and expect RAIT to continue to be, a domestically controlled REIT and, therefore, the sale of RAIT common shares should not be subject to taxation under FIRPTA. However, because RAIT’s shares are widely held and publicly traded, we cannot assure investors that RAIT is or will remain a domestically controlled REIT. Even if RAIT does not qualify as a domestically controlled REIT, a non-U.S. shareholder’s sale of RAIT common shares nonetheless will generally not be subject to tax under FIRPTA as a sale of a USRPI, provided that (a) RAIT common shares owned are of a class that is “regularly traded,” as defined by the applicable Treasury regulations, on an established securities market, and (b) the selling non-U.S. shareholder owned, actually or constructively, 5% or less of the RAIT outstanding shares of that class at all times during a specified testing period.

If gain on the sale of RAIT common shares were subject to taxation under FIRPTA, the non-U.S. shareholder would be subject to the same treatment as a U.S. shareholder with respect to such gain, subject to applicable alternative minimum tax and a special alternative minimum tax in the case of non-resident alien individuals, and the purchaser of the shares could be required to withhold 10% of the purchase price and remit such amount to the IRS.

Gain from the sale of RAIT common shares that would not otherwise be subject to FIRPTA will nonetheless be taxable in the United States to a non-U.S. shareholder in two cases: (a) if the non-U.S. shareholder’s investment in RAIT common shares is effectively connected with a U.S. trade or business conducted by such non-U.S. shareholder, the non-U.S. shareholder will be subject to the same treatment as a U.S. shareholder with respect to such gain, or (b) if the non-U.S. shareholder is a nonresident alien individual who was present in the United States for 183 days or more during the taxable year and has a “tax home” in the United States, the nonresident alien individual will be subject to a 30% tax on the individual’s capital gain.

RAIT will report to its U.S. shareholders and the IRS the amount of dividends paid during each calendar year and the amount of any tax withheld. Under the backup withholding rules, a U.S. shareholder may be subject to backup withholding with respect to dividends paid unless the holder is a corporation or comes within other exempt categories and, when required, demonstrates this fact or provides a taxpayer identification number or social security number, certifies as to no loss of exemption from backup withholding and otherwise complies with applicable requirements of the backup withholding rules. A U.S. shareholder that does not provide his or her correct taxpayer identification number or social security number may also be subject to penalties imposed by the IRS. In addition, RAIT may be required to withhold a portion of capital gain distribution to any U.S. shareholder who fails to certify its non-foreign status.

RAIT must report annually to the IRS and to each non-U.S. shareholder the amount of dividends paid to such holder and the tax withheld with respect to such dividends, regardless of whether withholding was required. Copies of the information returns reporting such dividends and withholding may also be made available to the tax authorities in the country in which the non-U.S. shareholder resides under the provisions of an applicable income tax treaty. A non-U.S. shareholder may be subject to backup withholding unless applicable certification requirements are met.

Payment of the proceeds of a sale of RAIT common shares within the United States is subject to both backup withholding and information reporting unless the beneficial owner certifies under penalties of perjury that it is a non-U.S. shareholder (and the payor does not have actual knowledge or reason to know that the beneficial owner is a U.S. person) or the holder otherwise establishes an exemption. Payment of the proceeds of a sale of RAIT common shares conducted through certain United States related financial intermediaries is subject to information reporting (but not backup withholding) unless the financial intermediary has documentary evidence in its records that the beneficial owner is a non-U.S. shareholder and specified conditions are met or an exemption is otherwise established.

Backup withholding is not an additional tax. Any amounts withheld under the backup withholding rules may be claimed as a refund or a credit against such holder’s U.S. federal income tax liability, provided the required information is furnished to the IRS.

We and our subsidiaries and RAIT’s shareholders may be subject to state, local or foreign taxation in various jurisdictions, including those in which we or they transact business, own property or reside. We may own interests in properties located in a number of jurisdictions, and may be required to file tax returns in certain of those jurisdictions. The state, local or foreign tax treatment of us and our shareholders may not conform to the U.S. federal income tax treatment discussed above. Any foreign taxes incurred by us would not pass through to RAIT shareholders as a credit against their U.S. federal income tax liability. Prospective shareholders should consult their tax advisors regarding the application and effect of state, local and foreign income and other tax laws on an investment in RAIT common shares.

Taberna is a self-managed and self-advised Maryland real estate investment trust. Taberna provides financing for REITs and other real estate operating companies and invests in real estate-related assets with the objective of generating attractive risk-adjusted returns and cash distributions for its shareholders, although future distributions and capital appreciation are not guaranteed. Taberna focuses its activities in the following areas:

Taberna’s investments in the equity securities of CDO entities are junior in right of payment and in liquidation to the collaterized debt securities issued by the CDO entities. Taberna may also invest opportunistically from time to time in other types of investments such as mezzanine real estate loans, participations in mortgage loans, corporate tenant leases and equity interests in real estate.

So long as Taberna qualifies as a REIT, it generally will not be subject to U.S. federal corporate income tax on its net taxable income to the extent Taberna annually distributes that income to its shareholders, including RAIT following the merger; however, Taberna’s domestic TRSs are generally subject to U.S. federal, state and local income taxes on their earnings. Taberna expects to supplement earnings from its investments with fees received by its subsidiaries, including management fees received by Taberna Capital, which is one of its TRSs, for structuring and managing CDOs, and origination fees received by Taberna Securities, another domestic TRS and a registered broker-dealer, in connection with the origination of financing transactions. For the year ended December 31, 2005 and for the six months ended June 30, 2006, the total amount of fees received by Taberna Capital for structuring and managing CDOs and by Taberna Securities for originating financing transactions was $17.6 million and $28.9 million, respectively. A domestic TRS, such as Taberna Capital and Taberna Securities, may retain its net income; accordingly, there can be no assurance that RAIT, through Taberna, will cause Taberna’s domestic TRSs to distribute all or any portion of their income to Taberna for further distribution to RAIT following the merger. Structuring and management fees paid to Taberna Capital by CDOs that Taberna consolidates for financial reporting purposes will be eliminated in consolidation; however, Taberna Capital will be subject to income taxes on such fees in the year in which the fees are received.

Taberna was organized in March 2005 and completed private placements of its common shares in April and August 2005.

An important part of Taberna’s operating strategy is to identify, originate and acquire assets, such as TruPS, for possible sale or contribution to CDOs and to acquire other assets, such as mortgage loans and mortgage-backed securities, for investment. As of June 30, 2006, it had four warehouse facilities in an aggregate amount of

$1.05 billion relating to the acquisition of TruPS. Merrill Lynch International, an affiliate of Bear, Stearns & Co. Inc., or Bear Stearns, and German American Capital Corporation are the warehouse providers. During a warehouse accumulation period, the warehouse providers under the TruPS warehouse facilities purchase the TruPS and hold them on their balance sheet. Taberna deposits cash and other collateral, generally representing between 3% and 10% of the amount available under the facility, to be held in escrow by the warehouse providers and pledges other collateral to cover its share of losses should any TruPS need to be liquidated before being securitized through a CDO. The warehouse providers have the right to dispose of the securities in the event that a CDO is not formed or if an underlying security experiences a default or a decline in credit quality that may lead to a default. Taberna is paid the difference between the interest earned on the securities and the interest charged by the warehouse provider from the respective dates on which the securities are acquired. During the warehouse period, participation in its warehouse agreements is reflected in its financial statements as a non-hedge derivative, which is reflected at fair value, and any unrealized gain or loss is included in its results of operations. From inception through June 30, 2006, Taberna derived a majority of its consolidated net income from investments in TruPS and unrealized gains on interest rate hedges.

Taberna’s investments in TruPS or in corporate entities, such as CDOs, that hold TruPS are subject to limitations because Taberna conducts its business so as to qualify as a REIT and not be required to register as an investment company under the Investment Company Act. Neither TruPS nor equity in corporate entities, such as CDO entities, created to hold TruPS qualify as real estate assets for purposes of the REIT asset tests. The income received from these investments will not generally qualify as real estate-related income for purposes of the REIT gross income tests. Taberna must invest in a sufficient amount of qualifying real estate assets directly or through disregarded subsidiaries so that the value of those assets and the amount of gross income they generate, when compared to the value of the securities Taberna holds in TRSs and the dividends received and other income includable by Taberna in its gross income as a result of its TRS investments, together with any other non-qualifying REIT income Taberna earns or non-qualifying assets that Taberna owns, enables it to continue to satisfy the REIT requirements. Qualifying real estate assets typically generate less attractive returns than investments in TruPS or corporate entities holding TruPS. As of June 30, 2006, Taberna held interests in approximately $4.2 billion of mortgage loans, all of which are qualifying real estate assets and generate qualifying gross real estate income. While Taberna’s investments in mortgage loans generate less attractive returns than its investments in TruPS, Taberna must continue to invest in mortgage loans and in other qualifying real estate assets in order to maintain its qualification as a REIT. Taberna expects that its investments in mortgage loans and other qualifying real estate assets will generate most of Taberna’s gross income for U.S. federal income tax purposes, and that such income will be supplemented by net income inclusions from its investments in foreign TRSs and net income from its investments in domestic TRSs to the extent such net income is distributed to Taberna.

TruPS are fixed income securities that have characteristics of both debt and equity securities. TruPS are typically issued by a special purpose trust that lends the proceeds from the issuance of the TruPS to its parent company. The loan to the parent company is represented by a subordinated debenture with terms mirroring the terms of the TruPS. The special purpose trust uses the payments of interest and principal it receives on the debenture to pay interest, dividends and redemption amounts to the holders of the TruPS. The TruPS that were included in the Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI CDOs mature between 10 to 30 years from the date of issuance. TruPS generally are not callable by the issuer within the first five years of their issuance. If the parent company of an issuer of TruPS defaults on payments due on the debenture that correspond to the TruPS, the trustee under the indenture governing the debenture has the right to accelerate the entire principal amount of the debenture. If the trustee fails to do so, holders of the TruPS may accelerate the indebtedness. In certain circumstances where a subsidiary company issues the debenture that corresponds to the applicable TruPS, the obligations of such subsidiary under the debenture are guaranteed by its parent company. TruPS are not secured by any collateral and generally rank junior to an issuer’s existing senior debt securities in right of payment and in liquidation.

On April 28, 2005 and August 11, 2005, Daniel G. Cohen, Taberna’s chairman of the board and chief executive officer, purchased for $7.4 million in cash an aggregate of 700,000 of Taberna common shares at the offering prices of Taberna common shares in Taberna’s prior private placements, without payment of any placement fee to the placement agent. Taberna’s other executive officers and trustees, and other affiliated parties, purchased for approximately $1.6 million in cash an aggregate of 171,885 of Taberna common shares, at the respective offering prices less the placement fee, in Taberna’s prior private placements.

Cohen Bros. received the following material benefits in connection with Taberna’s formation transactions:

Taberna entered into an engagement letter, dated as of September 12, 2006 and supplemented as of October 18, 2006, with CB&C pursuant to which CB&C agreed to provide certain placement agency services to a CDO to be owned and managed by Taberna. In connection with the transaction contemplated by the engagement letter, Taberna entered into a credit agreement with an investment bank whereby the investment bank will provide up to $970.0 million of warehouse financing for purposes of acquiring real estate asset-backed securities and other REMIC interests. The loans obtained in the financing will bear interest at a rate of LIBOR plus a spread of 21 basis points and the credit agreement matures in April 2007.

In addition, prior to Taberna’s formation in April 2005, Cohen Bros. provided various management services to Taberna’s predecessor entities and allocated costs accordingly. As of December 2005, Taberna had a receivable from Cohen Bros. for income taxes incurred during the predecessor period. In March 2006, Taberna received $2.45 million from Cohen Bros. for income taxes incurred during the predecessor period.

Daniel G. Cohen, Taberna’s Chairman and Chief Executive Officer, indirectly owns approximately 60% of the ownership interests in Cohen Bros., James J. McEntee, III, Taberna’s Vice Chairman, owns approximately 7.7% of the ownership interests in Cohen Bros. and Raphael Licht, Taberna’s Executive Vice President, Chief Administrative Officer, Chief Legal Officer and Secretary, owns approximately 0.75% of the ownership interests in Cohen Bros.

RAIT plans to utilize the services of Cohen Bros. in connection with the placement of debt and equity securities.

On April 28, 2005, Taberna entered into a non-competition agreement with Cohen Bros. pursuant to which Cohen Bros. agreed not to engage in purchasing from, or acting as placement agent for, issuers of TruPS or other preferred equity securities issued by REITs and other real estate operating companies. Cohen Bros. also agreed not to act as collateral manager for such CDOs or securitizations of such securities. In addition, Cohen Bros. agreed not to solicit Taberna’s executive officers to do anything that would violate Cohen Bros.’ non-competition covenant or to terminate their employment with Taberna or become employed by Cohen Bros., if not already so employed, during the term of the agreement.

The merger with RAIT will constitute a change of control of Taberna as defined in the non-competition agreement. Accordingly, Cohen Bros. has agreed to waive its termination right as a result of the merger under this agreement.

On April 28, 2005, Taberna acquired from Cohen Bros. or a wholly-owned subsidiary of Cohen Bros.’ parent company 100% of the ownership interests in each of Taberna Capital and Taberna Securities. Taberna consummated the acquisitions through mergers. Each of Taberna Capital and Taberna Securities separately merged with Taberna’s wholly-owned subsidiaries. Each of Taberna Capital and Taberna Securities survived the respective mergers as Taberna’s wholly-owned subsidiaries, and Taberna, together with Taberna Capital and Taberna Securities, respectively, elected to treat Taberna Capital and Taberna Securities as TRSs. In the mergers, Cohen Bros. received an aggregate of 2.0 million of Taberna common shares with a value of $20.0 million, based upon a per share price equal to the initial offering price of Taberna common shares in Taberna’s initial private placement, in exchange for its interests in Taberna Capital and Taberna Securities. At the time of the mergers, Taberna Capital’s and Taberna Securities’ assets consisted primarily of $5.0 million of cash which was pledged as collateral under Taberna’s initial TruPS warehouse facility, the collateral management agreement for Taberna I, and other intangible assets. Taberna Capital acts as the collateral manager for Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI under the terms of six separate collateral management agreements and receives an annual fee of approximately $2.8 million, $4.0 million, $3.0 million, $2.6 million, $2.8 million and $2.8 million respectively, for its services in these capacities for so long as the relevant collateral management agreement remains in effect. The fees payable under these agreements are based upon the amount of collateral held by the CDOs. Accordingly, these fees will decline if underlying collateral assets are prepaid.

On April 28, 2005, Taberna entered into the shared facilities and services agreement with Cohen Bros. pursuant to which Cohen Bros. agreed to provide Taberna, directly or through its subsidiaries, with the following facilities and services:

The initial shared facilities and services agreement, effective from April 2005 through April 2006, provided that, in respect of services relating to structuring and managing Taberna’s investments in mortgage loans and other mortgage-backed securities, Taberna would pay Cohen Bros. an annual fee of 10 basis points on the amount of the investments, subject to a minimum fee of $250,000 per year and a maximum fee of $750,000 per year. In respect of accounting support and cash management services and administrative and other transitional services, Taberna paid Cohen Bros. for the cost of providing those services plus 10% of such cost, including a monthly rental fee of $17,500 for office space and facilities. The shared facilities and services agreement was renewed on July 2006 through June 30, 2008. The renewed agreement provides that in respect of services relating to structuring and managing Taberna’s investments in CMBS and RMBS, Taberna will pay Cohen Bros. an annual fee ranging from 2 to 20 basis points on the amount of the investments, based on the rating of the security. For investments in residential whole loans, Taberna will pay Cohen Bros. an annual fee of 1.5 basis points on the amount of the investments. In respect of software licensing, human resources and administrative and other services, Taberna will continue to pay Cohen Bros. for the cost of providing those services plus 10% of such cost. Taberna and Cohen Bros. are negotiating a separate sub-lease agreement for the shared office space and facilities. The shared facilities and services agreement also contains provisions relating to termination, adjustment of fees and other customary matters. Cohen Bros. may only terminate the shared facilities and services agreement upon the expiration of the term of the agreement or if Taberna fails to materially perform its obligations under the agreement. Through June 30, 2006, Taberna incurred $1.1 million of expenses under the shared facilities and services agreement, which amount includes the annual fee on the amount of investments.

On April 28, 2005, Taberna entered into the broker-dealer services agreement with CB&C, a registered broker-dealer, under which CB&C agreed to perform, at Taberna’s request, any activities related to Taberna’s investment activities that could be performed only by a registered broker-dealer. Under this agreement, CB&C is entitled to retain any origination fees paid by third parties in respect of investments Taberna makes; provided, however, that CB&C will not charge origination fees exceeding 1.5% of the gross proceeds to such issuer per transaction. In addition, CB&C may engage third-party investment banks to originate collateral, and these banks will also receive a portion of the origination fees. This agreement may be terminated by Taberna at any time by giving CB&C 30 days’ written notice thereof. CB&C may terminate this agreement at any time after April 28, 2006 upon 30 days’ written notice to us. CB&C may not originate any investment on Taberna’s behalf except pursuant to the request and approval of a majority of Taberna’s independent trustees. Through June 30, 2006, CB&C had retained $32.4 million of origination fees pursuant to this agreement. Because Taberna Securities is now licensed to act as a broker-dealer, Taberna anticipates that CB&C will provide significantly fewer services under this agreement. Taberna has and Taberna may from time to time continue to utilize the services of CB&C to sell securities issued by Taberna’s CDO entities, and CB&C will earn customary market commissions for such services. As of June 30, 2006, CB&C had earned $5.8 million in connection with the placement of debt and equity securities issued by Taberna I, Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI.

Taberna leases its office space in New York pursuant to a lease agreement that has a ten year term and was assigned to it from Cohen Bros. in November 2005. Until September 30, 2006, Cohen Bros. occupied space together with Taberna. Total rent expense from the inception of the lease through June 30, 2006 was $338,000.

The minimum cash payments due under this lease are as follows by fiscal year: 2006—$550,000, 2007 through 2010—$825,000 per year and $4.6 million for the remaining term of the lease. Taberna was required to place a letter of credit totaling $1.1 million with the landlord as collateral for this lease agreement. The lease agreement expires in March 2016. Taberna occupied portions of the 10th and 23rd floors of its New York headquarters as a holdover tenant with Cohen Bros. subleasing the 10th floor from Taberna as Taberna’s tenant until September 2006. Under the lease agreement, Taberna was obligated to pay the landlord additional rent in the amount of 1.5 times the rental rate for the first 60 days of such holdover, and thereafter two times the rental rate for so long as Taberna occupied the office space as a holdover tenant. On June 5, 2006, the landlord agreed to accept, in lieu of holdover rent, $27,038 per month for the 10th floor and $19,345 per month for the 23rd floor, each from May 1, 2006 through and including the surrender of such premises by Taberna, provided that Taberna vacates the 23rd floor by August 1, 2006 and surrenders the 10th floor by November 1, 2006. Taberna vacated the 23rd floor prior to August 1, 2006 and Cohen Bros. surrendered the 10th floor on September 30, 2006.

The Bancorp, Inc. Taberna maintains cash balances in The Bancorp, Inc. Daniel G. Cohen, Taberna’s Chairman and Chief Executive Officer, is also the chairman of the board of directors of The Bancorp, Inc. In 2005, Taberna paid an officer of The Bancorp, Inc. $69,500 for due diligence services associated with Taberna’s purchase of certain pools of residential mortgages during that year. In addition, as of June 30, 2006, Taberna had $6.3 million of its cash and cash equivalents in accounts with The Bancorp, Inc. Most of Taberna’s cash and cash equivalents are held in savings accounts bearing interest at 3.0%, which earned $79,000 of interest during the six months ended June 30, 2006, and the remaining amount is held in non-interest bearing checking accounts. During the six months ended June 30, 2006, the average balance on deposit with The Bancorp, Inc. was $5.5 million.

The following table sets forth the compensation paid for the fiscal year ended December 31, 2005 to those executive officers of Taberna who will serve as executive officers of RAIT following the consummation of the merger:

See “The Merger Agreement—Interests of Certain Persons in the Merger—Employment Agreements” for a discussion of employment agreements entered into by employees of Taberna with RAIT in connection with the merger.

There has been no public trading market for Taberna common shares. Taberna common shares issued to qualified institutional buyers in connection with its April 2005 and August 2005 private placements are eligible for reporting in PORTAL, a subsidiary of The NASDAQ Stock Market, Inc., which facilitates secondary sales of eligible unregistered securities to qualified institutional buyers in accordance with Rule 144A under the Securities Act. Adopted under the Securities Act, PORTAL provides regulatory review of securities in connection with the clearance and settlement thereof via The Depository Trust Company. Taberna has been advised that the last sale of its common shares that was eligible for PORTAL had occurred on July 18, 2006, at a price of $15.00 per common share.

The following table shows the high and low sales prices for Taberna common shares since these common shares became eligible for trading on PORTAL during the periods indicated below:

The information above regarding PORTAL prices may not be complete because Taberna has access only to information regarding trades reported by Friedman, Billings, Ramsey & Co., Inc. and not trades reported by other broker-dealers. Moreover, broker-dealers are not required to report all trades to PORTAL.

As of October 20, 2006, Taberna had 44,353,973 common shares issued and outstanding which were held by one holder of record. The one holder of record is Cede & Co., which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of approximately 503 beneficial owners of its common shares.

The following table presents information regarding the beneficial ownership of Taberna’s common shares as of October 20, 2006, and the effect of the merger on the beneficial ownership, assuming a conversion ratio of one Taberna common share to 0.5389 of a RAIT common share, with respect to:

Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting power and investment power with respect to such shares.

The following table provides information as of June 30, 2006 with respect to compensation plans under which Taberna’s equity securities are authorized for issuance:

In April 2005, Taberna’s board of trustees adopted, and Taberna’s shareholder approved, the 2005 equity incentive plan in connection with the formation of Taberna immediately prior to the closing of its initial private placement. In October 2005, Taberna’s board of trustees amended the 2005 equity incentive plan to increase the number of shares issuable under the plan. As of the date of this joint proxy statement-prospectus, the total number of shares issuable under Taberna’s 2005 equity incentive plan is 3,192,853 shares, with an annual increase of 50,000 shares for the duration of the plan.

Pursuant to the merger agreement, RAIT is obligated to assume Taberna’s 2005 equity incentive plan and Taberna’s obligation under that plan. The 2005 equity incentive plan currently is administered by a compensation committee of Taberna’s board of trustees. Key employees, non-employee trustees, employee trustees, officers, advisors, consultants or other personnel of Taberna and its subsidiaries are eligible for awards under the 2005 equity incentive plan. Stock options, restricted shares, common shares, share appreciation rights, dividend equivalent rights, performance awards, phantom shares and other equity-based awards may be awarded by the compensation committee under this plan. Unless terminated earlier, Taberna’s 2005 equity incentive plan will terminate in 2015 but its terms will continue to govern unexpired awards. No new awards may be granted under the 2005 equity incentive plan after the tenth anniversary of the date that such plan was initially approved by Taberna’s board of trustees.

The following discussion should be read in conjunction with Taberna’s historical consolidated financial statements and related notes included elsewhere in this joint proxy statement-prospectus.

Taberna is a Maryland real estate investment trust that was formed on March 3, 2005. Accordingly, Taberna has had a limited operating history.

Taberna intends to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with its taxable year ended December 31, 2005. Taberna generally does not expect to be subject to U.S. federal income tax on its income to the extent it distributes that income to its shareholders and maintains its qualification as a REIT. Taberna makes and holds its investments and conducts its other operations through its subsidiaries, including TRSs, three of which TRSs are subject to U.S. federal, state and local income taxes on their earnings.

Taberna is a self-managed and self-advised real estate investment trust that focuses on three primary activities:

Taberna may also invest opportunistically from time to time in other types of investments such as mezzanine real estate loans, participations in mortgage loans, corporate tenant leases and equity interests in real estate. Taberna’s investment guidelines do not impose any limitations on the types of assets in which it may invest.

Set forth below is a discussion of certain aspects of its financial condition and results of operations that may be important to an investor in Taberna common shares.

backed securities, for investment. As of June 30, 2006, it had four warehouse facilities in an aggregate amount of $1.05 billion relating to the acquisition of TruPS. Merrill Lynch International, an affiliate of Bear Stearns, and German American Capital Corporation are the warehouse providers. During a warehouse accumulation period, the warehouse providers under the TruPS warehouse facilities purchase the TruPS and hold them on their balance sheet. Taberna deposits cash and other collateral, generally representing between 3% and 10% of the amount available under the facility, to be held in escrow by the warehouse providers and pledges other collateral to cover its share of losses should any TruPS need to be liquidated before being securitized through a CDO. Taberna has engaged affiliates of the warehouse providers to assist it in structuring the future CDOs that may acquire the collateral held by the warehouse providers. The warehouse providers have the right to dispose of the securities in the event that a CDO is not formed or if an underlying security experiences a default or a decline in credit quality that may lead to a default. Taberna is paid the difference between the interest earned on the securities and the interest charged by the warehouse provider from the respective dates on which the securities are acquired. During the warehouse period, participation in its warehouse agreements is reflected in its financial statements as a non-hedge derivative, which is reflected at fair value, and any unrealized gain or loss is included in its results of operations.

As of June 30, 2006, Taberna had approximately $175.3 million of indebtedness outstanding under various repurchase agreements. Taberna used the proceeds from the repurchase agreements to finance additional investments in its mortgage loan portfolio and to purchase securities issued in its mortgage loan securitizations. Its repurchase agreements generally have terms of 30 days. Taberna typically expects to renew its short-term arrangements or put new arrangements in place upon the expiration of existing agreements; however, there can be no assurance that it will be able to do so.

Taberna’s earnings are affected by a variety of industry and economic factors. These factors include:

In addition, a variety of factors relating to Taberna’s business may also impact its financial condition and operating performance. These factors include:

Taberna’s investment income is generated primarily from the net spread, or difference, between the interest income Taberna earns on its investment portfolio and the cost of its borrowings and hedging activities. Taberna’s net investment income will vary based upon, among other things, the difference between the interest rates earned on its various assets and the borrowing and hedging costs of the liabilities used to finance those investments. Taberna leverages its investments in an effort to enhance its potential returns. Leverage can enhance returns, but may also magnify losses.

The yield on Taberna’s assets may be affected by actual prepayment rates on the assets, which may differ from its expectations of prepayment rates. Prepayments on loans and securities may be influenced by changes in

market interest rates and a variety of economic, geographic and other factors beyond Taberna’s control, and consequently, prepayment rates cannot be predicted with certainty. To the extent Taberna has acquired assets at a premium or discount, a change in prepayment rates may further impact its anticipated yield. Under certain interest rate and prepayment scenarios, Taberna may fail to recoup fully its cost of acquisition of certain assets.

In periods of declining interest rates, prepayments on Taberna’s residential mortgage portfolio will likely increase. If Taberna is unable to reinvest the proceeds of prepayments at comparable yields, its net investment income is likely to decline. In periods of rising interest rates, prepayment rates on Taberna’s residential mortgage portfolio will likely decrease, causing the expected duration of these investments to be extended. If Taberna has appropriately match-funded its assets with liabilities related to its residential mortgage portfolio, an increase in interest rates should not materially impact its net investment income. However, if Taberna has not sufficiently match-funded these assets with liabilities, a rise in interest rates could cause Taberna’s net investment income to decrease as its borrowing and hedging costs increase while its interest income on those assets remains relatively constant during the fixed-rate periods of the hybrid adjustable rate mortgages. Depending on how close Taberna’s adjustable rate mortgages are to their interest rate reset date during their fixed-rate periods, a change in interest rates may not impact prepayment as expected.

While Taberna uses hedging to mitigate some of Taberna’s interest rate risk, it does not hedge all of its exposure to changes in interest rates and prepayment rates, as there are practical limitations on its ability to insulate its portfolio from all of the negative consequences associated with these changes.

Rising interest rate environment. Interest rates have been increasing since Taberna began operations in April 2005 and may continue to increase. With respect to its existing residential mortgage portfolio, which is mostly concentrated in 5/1 and 7/1 hybrid adjustable rate mortgages that bear fixed interest rates for an initial period of five or seven years and thereafter bear floating interest rates, Taberna does not expect interest rate increases to materially impact its net investment income, as Taberna has financed these investments through the issuance of mortgage-backed securities that bear fixed interest rates initially and then floating interest rates during periods corresponding to the fixed and floating interest rate periods of the underlying residential mortgage loan assets. Its investments in securities are comprised of TruPS, subordinated debentures, unsecured debt securities and CMBS held by its consolidated CDO entities. These securities bear fixed and floating interest rates. A large portion of these fixed-rate securities is hybrid instruments, which convert to floating rate securities after a five or ten year fixed-rate period. Taberna has financed these securities through the issuance of floating rate and fixed-rate CDO notes payable. A large portion of the CDO notes payable are floating rate instruments, and Taberna uses interest rate swaps to effectively convert this floating rate debt into fixed-rate debt during the period in which its investments in securities are paid at a fixed rate. By using this hedging strategy, Taberna believes it has effectively match-funded its assets with liabilities during the fixed-rate period of its investments in securities. An increase or decrease in interest rates will generally not impact its net investment income generated by its investments in securities. However, an increase or decrease in interest rates will affect the fair value of its investments in securities, which will generally be reflected in its financial statements as changes in other comprehensive income unless impairment of an investment occurs that is not temporary, in which case the impairment would be reflected as a charge against its earnings.

Prepayment rates. Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment rates are difficult to predict. Prepayment rates on Taberna’s assets also may be affected by other factors, including, without limitation, conditions in the housing, real estate and financial markets, general economic conditions and the relative interest rates on adjustable-rate and fixed-rate mortgage loans. Because interest rates may continue to increase, prepayment rates may fall. If interest rates begin to fall, triggering an increase in prepayment rates in Taberna’s current residential mortgage portfolio, which is heavily

weighted towards hybrid adjustable rate mortgages, Taberna’s net investment income relating to its residential mortgage portfolio would decrease.

Competition. Taberna expects to face increased competition for its targeted investments, particularly in the origination and acquisition of TruPS. Taberna is aware that third parties have recently raised substantial funds, or are seeking to raise funds, in order to offer TruPS products to its target customers. While Taberna expects that the size and growth of the market for the TruPS product will continue to provide it with a variety of investment opportunities, competition may have adverse effects on its business. Competition may limit the number of suitable investment opportunities offered to Taberna. Competition may also result in higher prices, lower yields and a narrower spread of yields over Taberna’s borrowing costs, making it more difficult for Taberna to acquire new investments on attractive terms and reducing the fee income Taberna realizes from the origination, structuring and management of CDOs. In addition, competition may lead it to pay a greater portion of the origination fees that Taberna expects to collect in its future origination activities to third-party investment banks and brokers that introduce TruPS issuers to it in order to continue to generate new business from these sources.

Taberna’s qualification as a REIT will have a significant impact on its capital allocation between various investment categories. The primary REIT rules that will impact Taberna’s investment activities include the following:

Taberna must invest in a sufficient amount of qualifying real estate assets directly or through disregarded subsidiaries so that the value of those assets and the amount of gross income they generate, when compared to the value of the securities Taberna holds in TRSs and the dividends received and other income includible by it in its gross income as a result of its TRS investments, together with any other non-qualifying REIT income Taberna earns, will enable it to continue to satisfy the REIT requirements. Taberna expects to satisfy the REIT income tests principally through the gross income generated by investments in qualifying real estate assets, such as Taberna’s residential mortgage loan portfolio and other REIT qualifying assets, together with distributions from its TRSs of income generated by their assets and operations.

In addition, the REIT rules provide that the aggregate value of securities Taberna holds in its TRSs cannot exceed 20% of the value of Taberna’s gross assets. As of June 30, 2006, the aggregate estimated fair value of its investments in TRSs was approximately 12.3% of the value of Taberna’s gross assets. This amount was determined by dividing the estimated fair value of the securities Taberna holds in its TRSs, which is net of third party liabilities and other indebtedness of the TRSs, by the fair value of its gross assets (which are primarily

comprised of its mortgage loan portfolio and such TRS securities). Taberna’s ability to operate and grow its TRS businesses while continuing to qualify as a REIT will depend on its ability to continue to make sufficient investments in qualifying real estate assets. Qualifying real estate investments typically are lower yielding than its expected yields from its TruPS related activities.

If Taberna is unable to identify and make sufficient investments in qualifying real estate assets, Taberna may be forced to slow the growth of the businesses conducted by its TRSs or, in the case of Taberna Securities, to re-engage CB&C or a third-party broker-dealer to perform broker-dealer related activities, such as originating TruPS, and permit CB&C or a third-party broker-dealer to retain fees for these activities. In addition, Taberna may be forced to dispose of a portion of its investments in TRSs, including investments in CDOs. If Taberna were to dispose of CDO securities, it may be subject to the tax on prohibited transactions. See “Risk Factors—Risks Related to Taberna’s Business”. Neither TruPS nor equity in corporate entities, such as CDOs, that hold TruPS currently qualify as real estate assets for purposes of the REIT asset tests and the income generated by such investments generally will not qualify as real estate-related income for the REIT gross income tests. Taberna must invest in qualifying real estate assets, such as mortgage loans and debt securities secured by real estate, to maintain its REIT qualification, and these assets typically generate less attractive returns than TruPS.

Taberna considers the accounting policies discussed below to be critical to an understanding of how it reports its financial condition and results of operations because their application places the most significant demands on the judgment of its management. With regard to these accounting policies, Taberna cautions that future events rarely develop exactly as expected and that management’s estimates may routinely require adjustments.

Its financial statements are prepared on the accrual basis of accounting in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires management to make use of estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from those estimates.

Revenue Recognition for Investment Income. Taberna recognizes interest income from its investments in debt securities and, to the extent it holds preferred equity securities, dividend income, and recognize revenue on the accrual basis of accounting over the estimated life of the underlying financial instrument investments on a yield to maturity basis.

Taberna recognizes interest income from interests in certain securitized financial assets on an estimated effective yield to maturity basis. Its management team estimates the current yield on the amortized cost of the investment based on estimated cash flows after considering prepayment and credit loss experience.

Revenue Recognition for Loan Origination Fees. Taberna originates investments in TruPS, real estate debt and preferred equity securities through Taberna Securities. Taberna recently completed the licensing process for Taberna Securities to become a broker-dealer. The origination fees are a direct cost of the issuers of the underlying securities. These origination fees, along with direct costs associated with the successful origination of securities, will be deferred and amortized as a component of net investment income using the effective interest method over the life of the related investments in accordance with Statement of Financial Accounting Standards No. 91, “Accounting for Nonrefundable Fees and Costs Associated with Originating or Acquiring Loans.”

Revenue Recognition for CDO Structuring Fees. Taberna Capital receives structuring fees for services rendered in connection with the formation of CDO securitization entities. The structuring fee is a contractual fee that is paid when the related services are completed. The structuring fee is a fee negotiated with the investment bank acting as placement agent for the CDO securities and is capitalized by the CDO securitization entity as a

deferred financing cost. From time to time, Taberna may decide to invest in the debt or equity securities issued by CDO securitization entities. Taberna evaluates its investment in these CDO entities under Financial Accounting Standards Board Interpretation No. 46R, “Consolidation of Variable Investment Entities,” or FIN 46R, to determine whether the entity is a VIE, and whether Taberna should consolidate the CDO entity. Upon consolidation, Taberna would eliminate the structuring fees earned by Taberna Capital as intercompany transactions. For the three months and six months ended June 30, 2006 and for the period from April 28, 2005 through December 31, 2005, the consolidated CDO entities had paid Taberna Capital $5.2 million, $11.2 million and $13.4 million, respectively, in structuring fees that have been eliminated in consolidation.

Revenue Recognition for Asset Management Fees. Taberna provides ongoing management services to CDO investment portfolios under cancelable management agreements. The management fees are an administrative cost of the CDO entity and are paid by the CDO administrative trustee on behalf of its investors. Taberna recognizes these management fees in income when earned and the fees are paid quarterly. Asset management fees from consolidated CDOs are eliminated in consolidation. For the three months and six months ended June 30, 2006 and for the period from April 28, 2005 through December 31, 2005, Taberna Capital earned $3.6 million, $6.4 million and $4.2 million, respectively, in asset management fees, of which Taberna eliminated $2.9 million, $5.0 million and $2.4 million, respectively, upon consolidation of CDOs of which it is the primary beneficiary.

Consolidation of Variable Interest Entities. When Taberna obtains an explicit or implicit interest in an entity, it evaluates the entity to determine if the entity is a VIE, and, if so, whether or not Taberna is deemed to be the primary beneficiary of the VIE, in accordance with FIN 46R. Generally, Taberna consolidates VIEs where it is deemed to be the primary beneficiary or non-VIEs which Taberna controls. The primary beneficiary of a VIE is the variable interest holder that absorbs the majority of the variability in the expected losses or receives the majority of the residual returns of the VIE. When determining the primary beneficiary of a VIE, Taberna considers the aggregate of its explicit and implicit variable interests as a single variable interest of the VIE. If its single variable interest absorbs the majority of the variability in the expected losses of the VIE or receives the majority of the VIE’s residual returns, Taberna is considered the primary beneficiary of the VIE. In the case of non-VIEs or VIEs where Taberna is not deemed to be the primary beneficiary and it does not control the entity, but has the ability to exercise significant influence over the entity, Taberna accounts for its investment under the equity method (i.e., at cost), increased or decreased by its share of the earnings or losses, less distributions. Taberna reconsiders its determination of whether an entity is a VIE and whether Taberna is the primary beneficiary of such VIE if certain events occur.

Taberna has determined that certain special purpose trusts formed by issuers of TruPS to issue such securities are VIEs, which Taberna refers to as Trust VIEs, and that the holder of the majority of the TruPS issued by the Trust VIEs would be the primary beneficiary of, and would consolidate, the Trust VIEs. In most instances, Taberna is the primary beneficiary of the Trust VIEs because it holds, either explicitly or implicitly, the majority of the TruPS issued by the Trust VIEs. Certain TruPS issued by Trust VIE entities are initially financed directly by CDOs or through its warehouse facilities. Under the warehouse agreements, Taberna is required to deposit cash collateral with the investment bank providing the warehouse facility and as a result, Taberna bears the first dollar risk of loss up to its collateral amount if an investment held under the warehouse facility is liquidated at a loss. This arrangement causes it to hold an implicit interest in the Trust VIEs that have issued the TruPS held by its warehouse providers. The primary assets of the Trust VIEs are subordinated debentures issued by the sponsors of the Trust VIEs in exchange for the TruPS proceeds. These subordinated debentures have terms that mirror the TruPS issued by the Trust VIEs. Upon consolidation of the Trust VIEs, these subordinated debentures, which are assets of the Trust VIEs, are included in its financial statements and the related TruPS are eliminated. In accordance with Emerging Issues Task Force Issue No. 85-1: “Classifying Notes Received for Capital Stock,” subordinated debentures issued to Trust VIEs as payment for common equity securities issued by Trust VIEs are recorded net of the common equity securities issued.

Transfers of Financial Assets and Extinguishment of Liabilities. Taberna accounts for transfers of financial assets and the extinguishment of related liabilities in accordance with Statement of Financial

Accounting Standards No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” as amended and interpreted, or SFAS No. 140, as either sales or financings. To the extent Taberna acquires assets that are treated as financings under SFAS No. 140, it records its investment at amortized cost and categorizes the investment as either a security-related receivable or mortgage-related receivable in its financial statements. One of the criteria that must be met for a transfer of financial assets to be treated as a sale is that the transferor must relinquish effective control over the assets and retain no continuing involvement with the assets. If Taberna is the primary beneficiary of a VIE that issues TruPS, and thereby consolidates the VIE, upon a subsequent transfer of the TruPS to a CDO entity in which Taberna invests or that it manages, Taberna may not qualify for sale accounting. In that event, Taberna would continue to consolidate the VIE assets. Although the warehouse obligations would be extinguished by the CDO’s purchase of the TruPS, the CDO debt obligations would be recorded in consolidation.

Taberna purchases portfolios of mortgage loans and finances the acquisition through short-term repurchase agreements pending the eventual transfer of these assets to wholly-owned, special purpose trust subsidiaries in an asset-backed mortgage securitization transaction that is treated as a financing under SFAS No. 140. If the initial purchase is financed by a repurchase agreement provided by the same financial institution that sold it the portfolio, the assets and repurchase obligations are recorded net of the indebtedness and Taberna reflects a residential mortgage derivative in its financial statements, with changes in the fair value of such derivative included in earnings on a quarterly basis. Upon securitization and sale of the investment grade portions of the securitized bonds, Taberna retains the subordinated and non-rated interests, as well as 100% of the equity ownership, and reflects the gross assets and securitized debt obligations in its consolidated financial statements pursuant to FIN 46R.

Investments. Taberna invests primarily in debt securities, residential mortgage portfolios and mortgage-related receivables and may invest in other types of real estate-related assets. Taberna accounts for its investments in securities under Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” as amended and interpreted, or SFAS No. 115, and designates each investment as a trading security, an available-for-sale security, or a held-to-maturity security based on management’s intent at the time of acquisition. Under SFAS No. 115, trading securities are recorded at their fair value each reporting period with fluctuations in fair value reported as a component of earnings. Available-for-sale securities are also recorded at their fair value with changes in their fair value reported as a component of other comprehensive income. Fair value is based primarily on Taberna management’s estimate of fair value, determined based upon quoted market prices from independent pricing sources when available for actively traded securities or discounted cash flow analyses developed by management using current interest rates and other market data for securities without an active market. Taberna management’s estimate of fair value is subject to a high degree of variability based upon market conditions and management assumptions. Upon the sale of an available-for-sale security, the realized gain or loss on the sale will be recorded as a component of earnings in the respective period. Held-to-maturity investments are carried at historical cost at each reporting period.

Taberna accounts for its investments in subordinated debentures owned by Trust VIEs that it consolidates as available-for-sale securities. These VIEs have no ability to sell, pledge, transfer or otherwise encumber the trust or the assets of the trust until such subordinated debenture’s maturity. If Taberna makes an investment in securities and determines that the transfer of the securities to it meets the criteria established by SFAS No. 140, Taberna accounts for the investment as a financing at amortized cost. Taberna’s investments in security-related receivables represent securities that were transferred to CDO securitization entities by transferors that maintain some level of continuing involvement with the securities.

Taberna accounts for its investments in residential mortgages and mortgage-related receivables at amortized cost. The carrying value of these investments are adjusted for origination discounts/premiums, nonrefundable fees and direct costs for originating loans which are amortized into income on a level yield basis over the terms of the loans.

Investments in mortgage-related receivables represent Taberna’s investments in residential mortgages, the legal title to which is held by its trust subsidiaries. Under SFAS No. 140, these residential mortgages are to be treated as a financing by the transferor. Mortgage-related receivables maintain all of the economic attributes of the underlying residential mortgages. All benefits or risks of that ownership inure to the trust subsidiary.

Taberna maintains an allowance for mortgage and mortgage-related loan losses based on Taberna management’s evaluation of known losses and other factors management considers to be relevant, including historical and industry loss experience, economic conditions and trends, estimated fair values and the quality of collateral.

Taberna uses its judgment to determine whether an investment has sustained an other-than-temporary decline in value. If Taberna determines that an investment has sustained an other-than-temporary decline in its value, the investment is written down to its fair value by a charge to earnings, and Taberna establishes a new cost basis for the investment. If a security that is available for sale sustains an other-than-temporary impairment, the identified impairment is reclassified from accumulated other comprehensive income to earnings, thereby establishing a new cost basis. Taberna’s evaluation of an other-than-temporary decline depends on the specific facts and circumstances involved. Factors that Taberna considers in determining whether an other-than-temporary decline in value has occurred include: the estimated fair value of the investment in relation to its cost basis; the financial condition of the related entity; and Taberna’s intent and ability to retain the investment for a sufficient period of time to allow for recovery in the fair value of the investment.

Accounting for Residential Mortgage Derivatives. Taberna invests in residential mortgage loans prior to securitization and uses variable rate repurchase agreements provided by investment banks to finance its investment. These repurchase agreements were provided by the same investment bank that sold the residential mortgage loans. Under Taberna’s repurchase agreements, these residential mortgage loans are transferred to the investment bank in exchange for short-term financing. Under SFAS No. 140, the initial transfer of residential mortgage loans from the investment bank to Taberna and subsequent transfer under the repurchase agreement financing provided by the same investment bank would not result in the mortgage loans being legally isolated from the investment bank. As a result, Taberna has accounted for its investment in residential mortgage loans net of the related repurchase agreement financing during such period. The fair value of this derivative includes all changes in the fair value of the residential mortgage loans and changes in the credit component of the repurchase agreements, net of changes in the fair value of interest rate hedging contracts, and Taberna’s net earnings from the residential mortgage loans prior to securitization are included in the statement of income as a change in the fair value of residential mortgage derivatives.

Accounting for Off-Balance Sheet Arrangements. Taberna maintains warehouse financing arrangements with various investment banks and engages in CDO securitizations. Prior to the completion of a CDO securitization, Taberna’s warehouse providers acquire investments in accordance with the terms of the warehouse facilities. Taberna is paid the difference between the interest earned on the investments and the interest charged by the warehouse providers from the dates on which the respective investments were acquired. Taberna bears the first dollar risk of loss, up to its warehouse deposit amount, if (i) an investment funded through the warehouse facility becomes impaired or (ii) a CDO is not completed by the end of the warehouse period, and in either case, the warehouse provider is required to liquidate the securities at a loss. These off-balance sheet arrangements are not consolidated by Taberna because its risk of loss is generally limited to the cash collateral held by the warehouse providers. However, since Taberna holds an implicit variable interest in many entities funded under its warehouse facilities, Taberna often does consolidate the Trust VIEs while the TruPS they issue are held on the warehouse lines. Taberna accounts for the cash deposit as restricted cash in its financial statements. The economic return earned from these warehouse facilities is considered a non-hedge derivative and is recorded at fair value in its financial statements. Changes in fair value are reflected in earnings in the respective period.

Accounting for Derivative Financial Instruments and Hedging Activities. Taberna may use derivative financial instruments to hedge all or a portion of the interest rate risk associated with its borrowings, consistent

with its intention to qualify as a REIT. Certain of the techniques used to hedge exposure to interest rate fluctuations may also be used to protect against declines in the market value of assets that result from general trends in debt markets. The principal objective of such agreements is to minimize the risks and/or costs associated with Taberna’s operating and financial structure as well as to hedge specific anticipated transactions. The counterparties to these contractual arrangements are major financial institutions with which Taberna and its affiliates may also have other financial relationships. In the event of nonperformance by the counterparties, Taberna is potentially exposed to credit loss. However, because of the high credit ratings of its counterparties, Taberna does not anticipate that any of the counterparties will fail to meet their obligations.

In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended and interpreted, or SFAS No. 133, Taberna measures each derivative instrument (including certain derivative instruments embedded in other contracts) at fair value and records it in the balance sheet as either an asset or liability. For derivatives designated as fair value hedges and derivatives not designated as hedges, the changes in fair value of both the derivative instrument and the hedged item are recorded in earnings. For a derivative designated as a cash flow hedge, the effective portions of changes in the fair value of the derivative are reported in other comprehensive income. Amounts included in accumulated other comprehensive income will be reclassified to earnings in the period the underlying hedged item affects earnings. Changes in the ineffective portions of hedges are recognized in earnings.

Income Taxes. Taberna intends to elect and qualify to be taxed as a REIT and to comply with the related provisions of the Internal Revenue Code. Accordingly, Taberna generally will not be subject to U.S. federal income tax to the extent of its current distributions to shareholders and as long as certain asset, income and share ownership tests are met. If Taberna were to fail to meet these requirements, it would be subject to U.S. federal income tax which could have a material adverse impact on its results of operations and amounts available for distribution to its shareholders. Management believes that all of the criteria to maintain Taberna’s REIT qualification has been met for the applicable periods in 2005 and will be met for the applicable periods in 2006, but there can be no assurance that these criteria have been met for these periods or will continue to be met in subsequent periods.

Taberna maintains various TRSs which may be subject to U.S. federal, state and local income taxes. From time to time, these TRSs generate taxable income from intercompany transactions. The TRS entities generate taxable revenue from fees for services provided to CDO entities. Some of these fees paid to the TRS entities are capitalized as deferred costs by the CDO entities. In consolidation, these fees are eliminated when the CDO entity is included in the consolidated group. Nonetheless, all income taxes are expenses and are paid by the TRSs in the year in which the taxable revenue is received. These income taxes are not eliminated when the related revenue is eliminated in consolidation.

Prior to April 28, 2005, the predecessor entities were single member limited liability companies wholly owned by Cohen Bros. or a subsidiary of Cohen Bros.’ parent company. Each of the predecessor entities elected to be treated as a corporation for local, state and U.S. federal income tax purposes. As a result, each predecessor entity was subject to U.S. federal and state income tax during the period from March 3, 2005 through April 27, 2005.

Taberna’s exposure to market risk results primarily from changes in interest rates and equity security prices. Taberna is exposed to credit risk and interest rate risk related to its investments in debt instruments, TruPS, subordinated debentures, other debt securities and real estate securities.

Taberna’s primary market risk is that it is exposed to interest rate risk. Interest rates may be affected by economic, geo-political, monetary and fiscal policy, market supply and demand and other factors generally outside its control, and such factors may be highly volatile. Its interest rate risk sensitive assets and liabilities and

financial derivatives will be typically held for long-term investment and not held for sale purposes. Taberna’s intent in structuring CDO transactions and other securitizations is to limit interest rate risk through its financing strategy of matching the terms of its investment assets with the terms of its liabilities and, to the extent necessary, through the use of hedging instruments. Taberna intends to reduce interest rate and funding risk, allowing it to focus on managing credit risk through its disciplined underwriting process and recurring credit analysis.

Taberna makes investments that are either floating rate or fixed rate. Its floating rate investments will generally be priced at a fixed spread over an index such as LIBOR that reprices either quarterly or every 30 days. Given the frequency of future price changes in Taberna’s floating rate investments, changes in interest rates are not expected to have a material effect on the value of these investments. Increases or decreases in LIBOR will have a corresponding increase or decrease in its interest income and the match-funded interest expense, thereby mitigating the net earnings impact on its overall portfolio. In the event that long-term interest rates increase, the value of Taberna’s fixed-rate investments would be diminished. Taberna may consider hedging this risk in the future if the benefit outweighs the cost of the hedging strategy. Such changes in interest rates would not have a material effect on the income from these investments. Generally, Taberna’s interest rate risk is minimal during the warehouse accumulation period as the warehouses are off-balance sheet arrangements. Such warehouse facilities utilize floating rate indebtedness to finance the accumulation of collateral securities and Taberna’s earnings are impacted by a fluctuation in interest rates that are not offset by corresponding interest rate swap agreements. Generally, this risk is minimal due to the short-term nature of the warehouse facilities.

Through June 30, 2006, Taberna entered into various interest rate swap agreements to hedge variable cash flows associated with CDO notes payable and repurchase agreements. These cash flow hedges have an aggregate notional value of $2.3 billion and are used to swap the variable cash flows associated with variable rate CDO notes payable and repurchase agreements into fixed-rate payments for five and ten year periods. As of June 30, 2006, the interest rate swaps had an aggregate asset fair value of $84.7 million. Changes in the fair value of the ineffective portions of interest rate swaps and interest rate swaps that were not designated as hedges under SFAS No. 133 are recorded in earnings.

The following table summarizes the change in net investment income for a 12-month period, and the change in the net fair value of Taberna’s investments and indebtedness assuming an instantaneous increase or decrease of 100 basis points in the LIBOR interest rate curve, both adjusted for the effects of its interest rate hedging activities:

Taberna seeks to manage its credit risk through the underwriting processes that it performs in advance of acquiring an investment and its ongoing credit analysis and monitoring procedures. The TruPS and other investments that Taberna considers for future CDO transactions and other securitizations will be subject to a similar credit analysis process and will require the approval of Taberna Capital’s investment committee prior to funding. Taberna Capital’s investment committee consists of Daniel G. Cohen and Scott F. Schaeffer.

Taberna makes investments that are denominated in U.S. dollars, or if made in another currency Taberna will enter into currency swaps to convert the investment into a U.S. dollar equivalent. Taberna may be unable to match the payment characteristics of the investment with the terms of the currency swap to fully eliminate all currency risk and such currency swaps may not be available on acceptable terms and conditions based upon a cost/benefit analysis.

To qualify as a REIT, Taberna is required to annually make distributions to its shareholders in an amount at least equal to 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains. In addition, to avoid certain U.S. federal excise taxes, Taberna is required to annually make distributions to its shareholders in an amount at least equal to certain designated percentages of its net taxable income. Because Taberna expects to make distributions based on the foregoing requirements, and not based on its earnings computed in accordance with GAAP, Taberna expects that its distributions may at times be more or less than its reported earnings as computed in accordance with GAAP.

Total taxable income and REIT taxable income are non-GAAP financial measurements, and do not purport to be an alternative to reported net income determined in accordance with GAAP as a measure of operating performance or to cash flows from operating activities determined in accordance with GAAP as a measure of liquidity. Taberna’s total taxable income represents the aggregate amount of taxable income generated by it and by its domestic and foreign TRSs. REIT taxable income is calculated under U.S. federal tax laws in a manner that, in certain respects, differs from the calculation of net income pursuant to GAAP. REIT taxable income excludes the undistributed taxable income of Taberna’s domestic TRSs, which is not included in REIT taxable income until distributed to Taberna. Subject to certain TRS value limitations, there is no requirement that Taberna’s domestic TRSs distribute their earnings to it. REIT taxable income, however, generally includes the taxable income of its foreign TRSs because Taberna will generally be required to recognize and report their taxable income on a current basis. Since Taberna is structured as a REIT and the Internal Revenue Code requires that Taberna distributes substantially all of its net taxable income in the form of distributions to its shareholders, Taberna believes that presenting investors with the information management uses to calculate Taberna’s net taxable income is useful to investors in understanding the amount of the minimum distributions that Taberna must make to its shareholders so as to comply with the rules set forth in the Internal Revenue Code. Because not all companies use identical calculations, this presentation of total taxable income and REIT taxable income may not be comparable to other similarly titled measures prepared and reported by other companies. The table below reconciles the differences between reported net income and total taxable income and REIT taxable income for the periods presented.

During the period from April 28, 2005 through December 31, 2005, Taberna distributed a total of $0.54 per common share, or an aggregate of $18.6 million, to its shareholders. During the six-month period ended June 30, 2006, Taberna distributed a total of $0.65 per common share, or an aggregate of $28.4 million, to its shareholders. Taberna’s distributions had the following tax characteristics for the period from April 28, 2005 through December 31, 2005: ordinary income—$0.30, qualified income—$0.15 and return of capital—$0.09.

Taberna commenced operations on April 28, 2005 upon the completion of Taberna’s formation transactions. For the period from March 3, 2005 through April 27, 2005, Taberna Capital was wholly owned by a subsidiary of Cohen Bros.’ parent company, and Taberna Securities was wholly owned by Cohen Bros. Each of Taberna

Capital and Taberna Securities initiated its operations on March 3, 2005 and was operated by Cohen Bros. or a wholly-owned subsidiary of Cohen Bros.’ parent company until Taberna acquired them on April 28, 2005. Taberna refers to the period of their operations from March 3, 2005 until April 27, 2005 as the predecessor period, and Taberna refers to Taberna Capital and Taberna Securities during this period as the predecessor entities.

In order to present useful information comparing Taberna’s 2006 results through June 30 with prior period results, Taberna has prepared the table below which shows the 2005 results by combining the results of the predecessor entities through April 27, 2005 with Taberna’s results beginning on April 28, 2005 when it commenced operations. The combined results are shown in the far left columns for each of the three- and six-month (beginning on March 3, 2005) periods ended June 30, 2005 and the components of the combined results are shown in the adjacent columns. The combined 2005 results are discussed in comparison to the results for the 2006 periods in the sections following the chart (the “Combined 2005 Period”):

Investment interest income increased approximately $124.2 million to approximately $126.9 million for the three month period ended June 30, 2006 from approximately $2.7 million in the Combined 2005 Period. The

increase was attributable to revenue received from the purchase of $4.0 billion in residential mortgages and mortgage-related receivables and the investment of $4.2 billion in securities and security-related receivables subsequent to June 30, 2005.

Investment interest expense increased approximately $109.0 million to approximately $111.3 million for the three month period ended June 30, 2006 from approximately $2.3 million in the Combined 2005 Period. The increase was attributable to interest cost incurred in the financing of our investments in residential mortgages and securities that occurred subsequent to June 30, 2005.

Provision for loan loss related to investments in residential mortgages and mortgage-related receivables was approximately $1.1 million for the three month period ended June 30, 2006.

The change in fair value of free-standing derivatives increased approximately $2.9 million to approximately $5.0 million of income for the three month period ended June 30, 2006 from $2.1 million in the comparable 2005 period. This increase was primarily attributable to the increase of our average investments financed through warehouse facilities during the three months ended June 30, 2006 over the Combined 2005 Period.

The change in fair value of residential mortgage derivatives increased approximately $0.1 million for the three month period ended June 30, 2006.

Asset management fees were approximately $0.7 million for the three month period ended June 30, 2006 the same amount as during the Combined 2005 Period.

Total expenses increased approximately $2.6 million to approximately $5.1 million for the three month period ended June 30, 2006 from approximately $2.5 million in the comparable 2005 period. This increase is primarily the result of increased compensation expenses associated with the hiring of additional employees since June 30, 2005.

Compensation expense increased approximately $1.3 million to approximately $3.2 million for the three month period ended June 30, 2006 from approximately $1.9 million in the comparable 2005 period. This increase is attributable to additional compensation associated with new employees hired since June 30, 2005 and increased amortization of restricted shares that were awarded to various employees and trustees during July 2005 and June 2006 that did not exist in the Combined 2005 Period. These increases were offset by the capitalization of $0.7 million of compensation costs associated with the successful origination of securities during the three months ended June 30, 2006.

Shared services expense increased approximately $0.1 million to approximately $0.2 million for the three month period ended June 30, 2006 from approximately $0.1 million in the comparable 2005 period. The shared facilities and services agreement was entered into with Cohen Bros. on April 28, 2005. As such, the increase represents an entire quarter of shared facilities and services expense during the three month period ended June 30, 2006 as compared to a shorter period in the Combined 2005 Period.

General and administrative expenses increased approximately $1.2 million to approximately $1.7 million for the three month period ended June 30, 2006 from approximately $0.5 million in the comparable 2005 period. This increase is primarily due to an entire quarter of general and administrative costs during the three month period ended June 30, 2006 as compared to a shorter period in the Combined 2005 Period, and increases in rental and other occupancy costs for Taberna’s office space in New York that was leased in November 2005.

Interest and other income. Interest and other income increased approximately $2.4 million to approximately $2.6 million for the three month period ended June 30, 2006 from approximately $0.2 million in the comparable

2005 period. This increase is due to higher average cash balances invested with financial institutions with higher yielding interest bearing accounts during the three months ended June 30, 2006 as compared to the Combined 2005 Period.

Loss on sale of assets. Loss on sale of assets was approximately $17,000 for the three month period ended June 30, 2006 related to the sale of other securities during May 2006.

Unrealized gain on interest rate hedges. Taberna’s unrealized gains on interest rate hedges were approximately $1.2 million for the three month period ended June 30, 2006. During the three-months ended June 30, 2006, Taberna designated its interest rate swaps associated with CDO notes payable as hedges pursuant to SFAS No. 133. At designation, these interest rate swaps had a fair value not equal to zero. However, Taberna concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and determined that the hypothetical derivative method would be used in measuring any ineffectiveness. At June 30, 2006, Taberna updated its regression analysis and concluded that these hedging arrangements were still highly effective during their remaining term and used the hypothetical derivative method in measuring the ineffective portions of these hedging arrangements. As a result, Taberna recorded income of approximately $1.2 million associated with the ineffective portions of these hedging arrangements.

Merger-related costs. Merger-related costs were approximately $4.5 million for the three month period ended June 30, 2006. In June 2006, Taberna announced that it reached a definitive agreement to merge with and into RAIT. Under the proposed merger transaction, RAIT will be deemed to be the acquiror under purchase accounting pursuant to SFAS No. 141. As a result, Taberna’s costs associated with the proposed merger have been expensed as incurred.

Minority interest. Minority interest increased approximately $4.2 million to approximately $4.3 million for the three month period ended June 30, 2006 from approximately $0.1 million in the Combined 2005 Period and represents the portion of net income generated by consolidated entities that is not attributable to Taberna’s shareholders. This increase is the result of additional investments in securities since June 30, 2005 held by additional consolidated CDOs and the related investments made by third parties in the preference shares issued by such CDOs since June 30, 2005.

Provision for income taxes. Taberna’s domestic TRS entities are subject to U.S. federal and state income taxes. Provision for income taxes decreased approximately $0.6 million to approximately $2.0 million for the three month period ended June 30, 2006 from approximately $2.6 million in the comparable 2005 period. This decrease was primarily attributable to a decrease in the overall effective tax rates of Taberna’s domestic TRS entities. Certain Taberna management services and activities are being provided by foreign TRS entities in a foreign jurisdiction that does not incur income taxes on these activities.

Investment interest income increased approximately $241.7 million to approximately $244.6 million for the six month period ended June 30, 2006 from approximately $2.9 million in the Combined 2005 Period. The increase was attributable to revenue received from the original purchase of $4.0 billion in residential mortgages and mortgage-related receivables subsequent and the investment of $4.2 billion in securities and security-related receivables subsequent to June 30, 2005.

Investment interest expense increased approximately $214.6 million to approximately $217.1 million for the six month period ended June 30, 2006 from approximately $2.5 million in the Combined 2005 Period. The increase was attributable to interest cost incurred in the financing of Taberna’s investments in residential mortgages and securities that occurred subsequent to June 30, 2005.

Provision for loan loss related to investments in residential mortgages and mortgage-related receivables was approximately $2.2 million for the six month period ended June 30, 2006.

The change in fair value of free-standing derivatives increased approximately $7.7 million to approximately $8.9 million of income for the six month period ended June 30, 2006 from $1.2 million in the comparable 2005 period. This increase was primarily attributable to the increase of our investments financed through warehouse facilities during the three months ended June 30, 2006 over the amount financed during the Combined 2005 Period.

The change in fair value of residential mortgage derivatives increased approximately $0.5 million for the six month period ended June 30, 2006.

Asset management fees increased approximately $0.5 million to approximately $1.4 million for the six month period ended June 30, 2006 from approximately $0.9 million in the Combined 2005 Period. This increase is due to a full six months of asset management fees included for the six months ended June 30, 2006 as compared to a shorter period in the Combined 2005 Period.

Total expenses increased approximately $7.4 million to approximately $10.0 million for the six month period ended June 30, 2006 from approximately $2.6 million in the comparable 2005 period. This increase is primarily the result of increased compensation expenses associated with the hiring of additional employees since June 30, 2005 and increased general and administrative costs during a full period of Taberna’s operations in 2006.

Compensation expense increased approximately $4.3 million to approximately $6.2 million for the six month period ended June 30, 2006 from approximately $1.9 million in the Combined 2005 Period. This increase is attributable to additional compensation associated with new employees hired since June 30, 2005 and increased amortization of restricted shares that were awarded to various employees and trustees during July 2005 and June 2006 that did not exist in the Combined 2005 Period. These increases were offset by the capitalization of $0.7 million of compensation costs associated with the successful origination of securities during the three months ended June 30, 2006.

Shared services expense increased approximately $0.1 million to approximately $0.2 million for the three month period ended June 30, 2006 from approximately $0.1 million in the Combined 2005 Period. The shared facilities and services agreement was entered into with Cohen Bros. on April 28, 2005. As such, the increase represents an entire six months of shared facilities and services expense during the six month period ended June 30, 2006 as compared to a shorter period in the Combined 2005 Period.

General and administrative expenses increased approximately $3.0 million to approximately $3.6 million for the six month period ended June 30, 2006 from approximately $0.6 million in the Combined 2005 Period. This increase is primarily due to an entire six months of general and administrative costs during the six month period ended June 30, 2006 as compared to a shorter period in the Combined 2005 Period, and increases in rental and other occupancy costs for Taberna’s office space in New York that was leased in November 2005.

Interest and other income. Interest and other income increased approximately $4.4 million to approximately $4.6 million for the six month period ended June 30, 2006 from approximately $0.2 million in the comparable 2005 period. This increase is due to higher average cash balances invested with financial institutions in higher yielding interest bearing accounts during the three months ended June 30, 2006 as compared to the Combined 2005 Period.

Loss on sale of assets. Loss on sale of assets was approximately $17,000 for the three month period ended June 30, 2006 related to the sale of other securities during May 2006.

Unrealized gain on interest rate hedges. Taberna’s unrealized gains on interest rate hedges were approximately $37.3 million for the six month period ended June 30, 2006. Through March 31, 2006, Taberna did not designate as hedges its interest rate swaps associated with CDO notes payable. The change in fair value associated with these interest rate swaps that were not designated totaled $36.1 million during the three months March 31, 2006. As a result, the change in fair value of these interest rate swaps were recorded in income pursuant to SFAS No. 133. During the three-months ended June 30, 2006, Taberna designated its interest rate swaps associated with CDO notes payable as hedges pursuant to SFAS No. 133. At designation, these interest rate swaps had a fair value not equal to zero. However, Taberna concluded, at designation, that these hedging arrangements were highly effective during their term using regression analysis and that the hypothetical derivative method would be used in measuring any ineffectiveness. At June 30, 2006, Taberna updated its regression analysis and concluded that these hedging arrangements were still highly effective during their remaining term and recorded income of approximately $1.2 million associated with the ineffective portions of these hedging arrangements under the hypothetical derivative method during the three month period ended June 30, 2006.

Merger-related costs. Merger-related costs were approximately $4.5 million for the six month period ended June 30, 2006. In June 2006, Taberna announced that it reached a definitive agreement to merge with and into RAIT. Under the proposed merger transaction, RAIT will be deemed to be the acquiror under purchase accounting pursuant to SFAS No. 141. As a result, Taberna’s costs associated with the proposed merger have been expensed as incurred.

Minority interest. Minority interest increased approximately $23.4 million to approximately $23.5 million for the six month period ended June 30, 2006 from approximately $0.1 million in the Combined 2005 Period and represents the portion of net income generated by consolidated entities that is not attributable to Taberna’s shareholders. This increase is the result of additional investments in securities since June 30, 2005 held by consolidated CDOs and the related investments made by third parties in the preference shares issued by such CDOs since June 30, 2005.

Provision for income taxes. Taberna’s domestic TRS entities are subject to U.S. federal and state income taxes. Provision for income taxes increased approximately $2.2 million to approximately $6.3 million for the six month period ended June 30, 2006 from approximately $4.1 million in the comparable 2005 period. This increase was primarily attributable to a increased taxable income generated by the domestic TRS entities during the six months ended June 30, 2006 as compared to the Combined 2005 Period and was offset by a decrease in the overall effective tax rates of Taberna’s TRS entities. Certain Taberna management services and activities are being provided by foreign TRS entities in a foreign jurisdication that does not incur income taxes on these activities.

Liquidity is a measure of Taberna’s ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain investments, pay distributions and other general business needs. Taberna believes its available cash balances, funds available under its warehouse facilities and other financing arrangements, and cash flows from operations will be sufficient to fund its liquidity requirements for the next 12 months. Taberna may use short-term repurchase agreements, corporate lines of credit, term debt and other forms of generic financing to finance its operations. As of June 30, 2006, Taberna had an aggregate of $1.05 billion of financing available under four warehouse facilities to finance the acquisition of TruPS. Should its liquidity needs exceed Taberna’s available sources of liquidity, Taberna believes that its CDO and investment securities, in which it has invested, could be sold as part of CDO transactions, other securitizations or directly to raise additional cash. Taberna expects to continue to expand its business and may have to arrange for additional sources of capital through the issuance of debt or equity or additional bank borrowings to fund that growth. Taberna may not be able to obtain any additional financing at the times required and on terms and conditions

acceptable to it. If Taberna fails to obtain additional financing, the pace of its growth could be adversely affected although it believes that it will be able to meet its cash requirements for the next 12 months from available funds and cash flow from operations.

Taberna intends to meet these short-term liquidity requirements through the following:

As of June 30, 2006, Taberna maintained cash and cash equivalents of approximately $70.5 million. Taberna’s cash and cash equivalents were generated from the following activities:

Taberna’s principal source of cash flows since its inception on April 28, 2005 has been through financing activities.

Indebtedness. The following table summarizes Taberna’s indebtedness as of June 30, 2006.

Repurchase agreements. Taberna uses repurchase agreements to finance investments in mortgaged-backed securities. As these investments incur prepayments or change in fair value, Taberna is required to ratably reduce its borrowings outstanding under repurchase agreements. If the initial purchase is financed by a repurchase agreement provided by the same financial institution that sold Taberna the portfolio of assets, the assets and repurchase obligations are recorded net of the indebtedness, and Taberna reflects a residential mortgage derivative in its financial statements, with changes in the fair value of such derivative included in earnings on a quarterly basis. Taberna expects to re-negotiate and extend its repurchase agreements as they come due.

Mortgage loan securitizations. Taberna finances its investments in residential mortgages through securitizations of the mortgages. Through June 30, 2006, Taberna completed five securitizations of residential mortgage loans, which had aggregate unpaid principal balances of approximately $595.0 million, $1.1 billion, $1.1 billion, $927.4 million and $760.1 million, respectively, at the date of each securitization. Taberna contributes the mortgage loans to trusts that are wholly-owned by Taberna Loan Holdings I, LLC, one of its wholly-owned subsidiaries. Each trust issued debt securities rated “AAA” by Standard & Poor’s in the public capital markets. Each trust also issued classes of debt securities rated below “AAA,” all of which Taberna acquired and continues to hold. The securities that Taberna holds include all of the ownership certificates in the trusts and all of the securities rated from “AA” through “B,” together with non-rated and interest-only securities issued by the securitization vehicles. Taberna’s securities represent the first-dollar loss position in these securitizations, meaning that Taberna would suffer losses on its investment before the holders of the “AAA”-rated securities. Taberna accounts for these securitizations and similar securitizations that it expects to complete in the future as consolidated, secured borrowings for financial reporting and U.S. federal income tax purposes. Taberna records no gain on its transfer of the loans to the wholly-owned trusts.

Trust preferred obligations. Trust preferred obligations finance subordinated debentures acquired by Trust VIEs that are consolidated by Taberna for the portion of the total TruPS that are owned by entities outside the consolidated group. These trust preferred obligations bear interest at either variable or fixed rates until maturity, generally 30 years from the date of issuance. The Trust VIE entity has the ability to prepay the trust preferred obligation at any time, without prepayment penalty, after five years. Taberna does not control the timing or ultimate payment of the trust preferred obligations.

CDO notes payable. CDO notes payable represent notes payable issued by consolidated CDO entities that are used to finance the acquisition of TruPS, unsecured REIT notes and CMBS securities. Generally, CDO notes payable are comprised of various classes of notes payables, with each class bearing interest at variable or fixed rates.

On June 28, 2005, Taberna closed the Taberna II CDO, which provided up to 30-year financing for REITs and real estate operating companies. Taberna II received commitments for $953.8 million of CDO notes payable, all of which were issued to investors as of December 31, 2005. Taberna II also issued $89.0 million of preference shares upon closing. Taberna retained $15.5 million of subordinated notes and $47.0 million of common and preference shares of Taberna II, the issuer of the Taberna II CDO securities, excluding discounts.

The notes payable issued by Taberna II consist of 12 classes of notes bearing interest at spreads over the 90-day LIBOR ranging from 43 to 500 basis points or at fixed rates ranging from 4.7% to 7.2%. Some of the fixed-rate notes bear interest at a fixed rate for an initial period (ranging from five to ten years) and a floating rate for the remaining period based on 90-day LIBOR plus a spread over LIBOR ranging from 43 to 290 basis points.

On September 29, 2005, Taberna closed the Taberna III CDO, which provided up to 30-year financing for REITs and real estate operating companies. Taberna III received commitments for $724.5 million of CDO notes payable, all of which were issued to investors as of December 31, 2005. Taberna III also issued $55.1 million of preference shares upon closing. Taberna retained $40.0 million of subordinated notes and $30.3 million of common and preference shares of Taberna III, the issuer of the Taberna III CDO securities, excluding discounts.

The notes payable issued by Taberna III consist of 11 classes of notes bearing interest at spreads over the 90-day LIBOR ranging from 40 to 450 basis points or at fixed rates ranging from 4.8% to 5.9%. Some of the fixed-rate notes bear interest at a fixed rate for an initial period (ranging from five to ten years) and a floating rate for the remaining period based on 90-day LIBOR plus a spread over LIBOR ranging from 40 to 160 basis points.

On December 23, 2005, Taberna closed the Taberna IV CDO, which provided up to 30-year financing for REITs and real estate operating companies. Taberna IV received commitments for $630.2 million of CDO notes payable, all of which were issued to investors as of March 31, 2006. Taberna IV also issued $43.0 million of preference shares upon closing. Taberna retained $26.4 million of the subordinated CDO notes payable and $23.0 million of common and preference shares of Taberna IV, the issuer of the Taberna IV CDO securities, excluding discounts.

The notes payable issued by Taberna IV consist of 10 classes of notes bearing interest at spreads over the 90-day LIBOR ranging from 37 to 425 basis points or at fixed rates ranging from 5.9% to 7.7%. Some of the fixed-rate notes bear interest at a fixed rate for an initial period (ranging from five to ten years) and a floating rate for the remaining period based on 90-day LIBOR plus a spread over 90-day LIBOR of 145 basis points.

On March 29, 2006, Taberna closed the Taberna V CDO, which provided up to 30-year financing for REITs and real estate operating companies. Taberna V received commitments for $678.5 million of CDO notes payable, all of which were issued to investors as of June 30, 2006. Taberna V also issued $40.2 million of preference shares upon closing. Taberna retained $22.0 million of the common and preference shares of Taberna V, the issuer of the Taberna V CDO securities, excluding discounts. In May 2006, Taberna purchased $14.0 million of subordinated notes issued by Taberna V.

The notes payable issued by Taberna V consist of 10 classes of notes bearing interest at spreads over 90-day LIBOR ranging from 38 to 475 basis points or at fixed rates ranging from 6.6% to 9.8%. Some of the fixed-rate notes bear interest at a fixed rate for an initial period (ranging from five to 10 years) and a floating rate for the remaining period based on 90-day LIBOR plus spreads over 90-day LIBOR ranging from 145 to 475 basis points.

On June 27, 2006, Taberna closed the Taberna VI CDO, which provided up to 30-year financing for REITs and real estate operating companies. Taberna VI received commitments for $672.0 million of CDO notes payable, of which $582.0 million were issued to investors as of June 30, 2006. Taberna VI also issued $47.0 million of preference shares upon closing. Taberna retained $26.0 million of the common and preference shares of Taberna VI, the issuer of the Taberna VI CDO securities, excluding discounts.

The notes payable issued by Taberna VI consist of 11 classes of notes bearing interest at spreads over 90-day LIBOR ranging from 36 to 450 basis points or at fixed rates ranging from 6.8% to 10.0%. One class of the fixed-rate notes bears interest at a fixed rate for an initial five year period and a floating rate for the remaining period based on 90-day LIBOR plus a spread over 90-day LIBOR of 140 basis points.

As of June 30, 2006, the CDO notes payable are collateralized by $3.1 billion aggregate principal amount of TruPS and $477.7 million of principal amount of unsecured REIT notes and CMBS. A portion of the TruPS that collateralize CDO notes payable eliminate upon the consolidation of various Trust VIE entities that Taberna consolidates. The corresponding subordinated debentures of the Trust VIE entities are included as investments in securities in Taberna’s consolidated balance sheets.

Equity Financing. On April 28, 2005 and May 25, 2005, Taberna completed the sale of 19,861,940 common shares at an offering price of $10.00 per share in a private placement. Additionally, Taberna issued 2,000,000 common shares to Cohen Bros. as consideration for Taberna Capital. Taberna received proceeds from this private placement of $183.2 million, net of placement fees and offering costs, including approximately $5.0 million in cash acquired from Taberna Capital.

On August 11, 2005 and August 12, 2005, Taberna completed the sale of 20,700,000 common shares at an offering price of $12.00 per share in a private placement. Taberna received proceeds from this private placement of $230.1 million, net of placement fees and offering costs.

On July 11, 2005, Taberna’s board of trustees declared an initial distribution of $0.24 per common share totaling $5.5 million that was paid on July 29, 2005 to shareholders of record as of July 21, 2005.

On October 21, 2005, Taberna’s board of trustees declared a quarterly distribution of $0.30 per common share totaling $13.1 million that was paid on November 8, 2005 to shareholders of record as of October 31, 2005.

On January 20, 2006, Taberna’s board of trustees declared a quarterly distribution of $0.30 per common share totaling $13.1 million that was paid on February 9, 2006 to shareholders of record as of January 30, 2006.

On April 20, 2006, Taberna’s board of trustees declared a quarterly distribution of $0.35 per common share totaling $15.3 million that was paid on May 11, 2006 to shareholders of record as of May 1, 2006.

Taberna maintains arrangements with various investment banks regarding CDO securitizations and warehouse facilities. Prior to the completion of a CDO securitization, Taberna’s warehouse providers acquire investments in accordance with the warehouse facilities. Pursuant to the terms of the warehouse agreements, Taberna receives the difference between the interest earned on the investments acquired under the warehouse facilities and the interest accrued on the warehouse facilities from the date of the respective acquisitions. Under the warehouse agreements, Taberna is required to deposit cash collateral with the warehouse providers, and as a result, it bears the first dollar risk of loss up to its warehouse deposit if an investment held under the warehouse facility is liquidated at a loss. Upon the completion of a CDO securitization, the cash collateral held by the warehouse provider is returned to Taberna. The duration of a warehouse facility is generally nine months. These arrangements are deemed to be derivative financial instruments and are recorded by Taberna at fair value in each accounting period with the change in fair value recorded in earnings.

The $1.05 billion of TruPS warehouse facilities Taberna had in place as of June 30, 2006 constituted Taberna’s material off-balance sheet arrangements as of that date. As of June 30, 2006, affiliates of Merrill Lynch International, German American Capital Corporation and Bear Stearns had acquired, and were holding, $120.6 million, $40.0 million and $449.6 million, respectively, of TruPS pursuant to warehouse facilities.

A summary of Taberna’s warehouse facilities as of June 30, 2006 is as follows:

The financing costs of these warehouse facilities are based on one-month LIBOR plus a spread of 50 basis points.

During the three months and six months ended June 30, 2006 and for the period from April 28, 2005 through December 31, 2005, the changes in fair values of Taberna’s warehouse financing arrangements were $5.0 million, $8.9 million, and $10.2 million, respectively, and were recorded as a component of net investment income in the consolidated statements of income contained elsewhere in this joint proxy statement-prospectus.

As of June 30, 2006 Taberna owns a majority of the preference shares, a majority of the common shares and debt securities rated “BBB” or “BB” issued by Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI. Each of Taberna II, Taberna III, Taberna IV, Taberna V and Taberna VI is a VIE, as defined by FIN 46R, of which Taberna is a primary beneficiary, and, as a result, it consolidates each of these CDO entities for financial reporting purposes. Taberna does not own any portion of the debt or equity securities issued by Taberna I, is not the primary beneficiary of this CDO entity, and, accordingly, Taberna does not consolidate the accounts of Taberna I for financial reporting purposes.

Taberna believes that inflationary increases in operating expenses will generally be offset by future revenue increases from originating new securities and structuring and managing additional CDO transactions. Taberna believes that the risk that market interest rates may have on its floating rate debt instruments as a result of future increases caused by inflation is primarily offset by its financing strategy to match the terms of its investment assets with the terms of its liabilities and, to the extent necessary, through the use of hedging instruments.

The table below summarizes Taberna’s contractual obligations as of June 30, 2006.

Taberna’s investment objective is to make investments that produce attractive risk-adjusted returns and cash flow for distribution to its shareholders. Taberna pursues its investment objective primarily through its operating activities.

Taberna has no prescribed limitation on any particular investment type. Taberna’s investment policies and organizational documents do not restrict the amount of indebtedness Taberna may incur. Taberna pursues diverse investments that have the potential to generate favorable risk-adjusted returns, consistent with maintaining its qualification as a REIT for U.S. federal income tax purposes and its intention not to be required to register under the Investment Company Act. Taberna’s board of trustees has adopted general guidelines for its investments and borrowings to the effect that:

The independent trustees will review transactions on a quarterly basis to ensure compliance with the investment guidelines. In such a review, the independent trustees will rely primarily on information provided by Taberna’s executive officers. Any investment guidelines adopted by Taberna’s board of trustees may be changed by its board of trustees without the approval of its shareholders.

Securities or Interests in Persons Primarily Engaged in Real Estate Activities and Other Issuers

Subject to the percentage of ownership limitations and the asset and gross income tests necessary for REIT qualification, Taberna has invested and/or may invest in equity or debt securities of other REITs, other entities engaged in real estate activities or securities of other issuers. Taberna has invested and will continue to invest in various types of securities of or interests in persons primarily engaged in real estate activities, including REITs and real estate operating companies involved in various real estate sectors such as the office, industrial, retail, apartment, finance and mortgage sectors. Taberna’s investments in securities of these persons may include TruPS, preferred equity securities, RMBS, CMBS, fixed income securities issued by REITs or real estate CDOs.

Taberna has invested and will continue to invest in mortgages and other types of real estate interests consistent with maintaining its qualification as a REIT. Investments in real estate mortgages run the risk that one or more borrowers may default under these mortgages and that the collateral securing them may not be sufficient to enable Taberna to recoup its full investment.

Taberna may make direct or indirect equity investments in real estate. It may also participate with third parties in property ownership through joint ventures or other forms of co-ownership. These investments may permit Taberna to own interests in larger assets without unduly restricting diversification and to add flexibility in structuring its portfolio.

Equity investments may be subject to existing mortgage financing and other indebtedness or other financing or indebtedness as may be incurred in connection with acquiring or refinancing these investments. Debt service on such financing or indebtedness will have a priority over any distributions with respect to Taberna common shares. Investments are also subject to Taberna’s policy not to be treated as an investment company under the Investment Company Act.

Taberna leases the office space for its headquarters in Philadelphia under Taberna’s shared facilities and services agreement. Taberna leases its office space in New York pursuant to a lease agreement that has a ten year term and was assigned to it from Cohen Bros. in November 2005. Until September 30, 2006, Cohen Bros. occupied space together with Taberna. The minimum cash payments due under this lease are as follows by fiscal year from June 30, 2006: 2006—$413,000, 2007 through 2010—$825,000 per year and $4.6 million for the remaining term of the lease. Taberna was required to place a letter of credit totaling $1.1 million with the landlord as collateral for this lease agreement. Taberna’s New York lease expires in March 2016. Taberna occupied portions of the 10th and 23rd floors of its New York headquarters as a holdover tenant with Cohen Bros. subleasing the 10th floor from Taberna as Taberna’s tenant until September 2006. Under the lease agreement, Taberna was obligated to pay the landlord additional rent in the amount of 1.5 times the rental rate for the first 60 days of such holdover, and thereafter two times the rental rate for so long as Taberna occupied the office space as a holdover tenant. On June 5, 2006, the landlord agreed to accept $27,038 per month for the 10th floor and $19,345 per month for the 23rd floor, each from May 1, 2006 through and including the surrender of such premises by Taberna, provided that Taberna vacates the 23rd floor by August 1, 2006 and surrenders the 10th floor by November 1, 2006. Taberna vacated the 23rd floor prior to August 1, 2006 and Cohen Bros. surrendered the 10th floor on September 30, 2006. Taberna currently occupies the 11th floor pursuant to the terms discussed above.

If Taberna makes investments that are secured by real properties or if Taberna makes equity investments in real property, it will seek to ensure that the properties are covered by adequate insurance provided by reputable companies, with commercially reasonable deductibles, limits and policy specifications customarily carried for similar properties.

We conduct our operations so that we are not required to register as an investment company. Under Section 3(a)(1) of the Investment Company Act, a company is not deemed to be an “investment company” if:

Because we are a holding company that conducts our businesses through wholly-owned or majority-owned subsidiaries, the securities issued by our subsidiaries that are excepted from the definition of “investment company” under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act, together with any other investment securities we may own, may not have a combined value in excess of 40% of the value of our total assets on an unconsolidated basis. This requirement limits the types of businesses in which we may engage through our subsidiaries.

Because RAIT Partnership, L.P., and the two wholly-owned subsidiaries through which we hold 100% of the partnership interests in RAIT Partnership, L.P.—RAIT General Inc. and RAIT Limited, Inc.—will not be relying on Section 3(c)(1) or 3(c)(7) for their respective Investment Company Act exemptions, our investments therein will not constitute “investment securities” for purposes of the 40% Test.

RAIT Partnership, L.P., our subsidiary that holds, directly and through wholly-owned or majority-owned subsidiaries, substantially all of our assets intends to conduct its operations so that it is not required to register as an investment company in reliance on the exemption from Investment Company Act regulation provided under Section 3(c)(5)(C). RAIT Asset Holdings LLC, a wholly-owned subsidiary of RAIT Partnership, L.P., also intends to be exempt from Investment Company Act regulation under Section 3(c)(5)(C). RAIT Partnership may also from time to time rely on the exemption from Investment Company Act regulation provided under Section 3(c)(6).

Any entity relying on Section 3(c)(5)(C) for its Investment Company Act exemption must have at least 55% of its portfolio invested in qualifying real estate assets (which in general must consist of mortgage loans and other liens on and interests in real estate) and another 25% of its portfolio invested in other real estate-related assets. Based on no-action letters issued by the Staff of the SEC, we classify our investments in mortgage loans as qualifying real estate assets, as long as the loans are “fully secured” by an interest in real estate. That is, if the loan-to-value ratio of the loan is equal to or less than 100%, then we consider the loan a qualifying real estate asset. We do not consider loans with loan-to-value ratios in excess of 100% to be qualifying real estate assets that come within the 55% basket, but only real estate-related assets that come within the 25% basket. We treat our mezzanine loans as real estate-related assets that come within the 25% basket. The treatment of other investments as qualifying real estate assets and real estate-related assets, including equity investments in subsidiaries, is based on the characteristics of the underlying asset, in the case of a directly held investment, or the characteristics of the assets of the subsidiary, in the case of equity investments in subsidiaries.

Any entity relying on Section 3(c)(6) for its Investment Company Act exemption must be primarily engaged, directly or through majority-owned subsidiaries, in one or more specified businesses, including a business described in Section 3(c)(5)(C), or in one or more of such businesses (from which not less than 25% of its gross income during its last fiscal year was derived), together with an additional business or businesses other than investing, reinvesting, owning, holding or trading in securities. We believe that, as a result of RAIT Partnership’s Section 3(c)(5)(C) business, which provides substantially in excess of 25% of its gross income, and its business of arranging mortgage loans through its subsidiary RAIT Capital Corp., RAIT Partnership may also be able to rely on Section 3(c)(6) for its Investment Company Act exemption.

The determination of whether an entity is a majority-owned subsidiary of RAIT is made by us. The Investment Company Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The Investment Company Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat companies, including future CDO subsidiaries, in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% Test. We have not requested the SEC to approve our treatment of any company as a majority-owned subsidiary and the SEC has not done so. If the SEC were to disagree with our treatment of one or more subsidiaries, including future CDO subsidiaries, as majority-owned subsidiaries, we would need to adjust our investment strategy and invest our assets in order to continue to pass the 40% Test. Any such adjustment in our investment strategy could have a material adverse effect on us.

We have not sought a no-action letter from the SEC Staff regarding how certain of our investment strategies fit within the exclusions from regulation under the Investment Company Act that we and our subsidiaries are using or may use. To the extent that the SEC Staff provides more specific guidance regarding the treatment of assets as qualifying real estate assets or real estate-related assets, or regarding the application of Section 3(c)(6), we may be required to adjust our investment strategy accordingly. Any additional guidance from the SEC Staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen.

If we or our subsidiaries fail to maintain our exceptions or exemptions from the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use leverage), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. Compliance with the Investment Company Act will, accordingly, limit our ability to make certain investments.

The validity of the RAIT common shares to be issued in connection with the merger has been passed upon for RAIT by DLA Piper Rudnick Gray Cary US LLP, or DLA Piper. DLA Piper regularly serves as special

Maryland counsel to RAIT. RAIT’s REIT qualification has been passed upon for RAIT by Ledgewood, a professional corporation. Ledgewood regularly performs legal services for RAIT.

Certain matters related to the U.S. federal income tax consequences of the merger have been passed upon for RAIT by Sullivan & Cromwell LLP and for Taberna (as well as an opinion regarding Taberna’s REIT qualification) by Clifford Chance US LLP, respectively. Clifford Chance regularly performs legal services for Taberna.

The consolidated financial statements and financial statements schedules of RAIT and its subsidiaries as of December 31, 2005 and 2004 and for each of the three years in the period ended December 31, 2005 included in the Current Report on Form 8-K dated July 17, 2006 and RAIT’s management’s assessment of the effectiveness of internal control over financial reporting as of December 31, 2005 included in Form 10-K, which are incorporated by reference in this joint proxy statement-prospectus, have been audited by Grant Thornton LLP, an independent registered public accounting firm, as indicated in their reports which are incorporated by reference in this joint proxy statement-prospectus and given upon the authority of said firm as experts in auditing and accounting.

With respect to the unaudited interim financial information for the periods ended March 31, 2006 and 2005 and June 30, 2006 and 2005 incorporated by reference in this joint proxy statement-prospectus, Grant Thornton LLP has reported that they have applied limited procedures in accordance with professional standards for a review of such information. However, the reports of Grant Thornton LLP included in RAIT’s quarterly report for the quarter ended March 31, 2006 included in the Current Report on Form 8-K dated July 17, 2006 and included in RAIT’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006 and incorporated by reference herein, states that Grant Thornton LLP did not audit and does not express any opinion on that interim financial information. Accordingly, the degree of your reliance on this report on such information should be restricted in light of the limited nature of the review procedures applied. Grant Thornton LLP is not subject to the liability provisions of Section 11 of the Securities Act for their report on the unaudited interim financial information because that report is not a “report” or a “part” of the registration statement prepared or certified by the accountants within the meaning of Sections 7 and 11 of the Securities Act.

The consolidated financial statements and schedules of Taberna at December 31, 2005 and for the period from April 28, 2005 to December 31, 2005, and the financial statements of the predecessor entities for the period from March 3, 2005 to April 27, 2005, appearing in this joint proxy statement-prospectus, have been audited by Ernst & Young LLP, an independent registered public accounting firm, as set forth in their report thereon appearing elsewhere herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

If the merger is completed, Taberna shareholders will become shareholders of RAIT. Under rules promulgated by the SEC, holders of RAIT common shares who desire to submit proposals for inclusion in the proxy statement of RAIT for its 2007 annual meeting of shareholders, subject to compliance with the eligibility standards specified in such rules, must submit such proposals to the Secretary of RAIT by December 15, 2006. The proxy for the 2007 annual meeting of shareholders may confer discretionary authority to vote on any matters brought before that meeting where:

According to RAIT’s bylaws, trustees may be elected to the board upon being duly nominated by:

Shareholders who wish to submit their recommendations for trustee candidates to the Nominating Committee should send their written recommendation to RAIT’s executive offices, attention: Nominating Committee Chairman. These shareholders must represent that they are a shareholder of RAIT and will remain so through the date of the relevant annual meeting of shareholders of RAIT and include the written consent of the person so recommended to serve as a trustee if nominated and elected and to provide such information as the Nominating Committee may request and a description of their background and qualifications. All shareholder recommendations received by the Nominating Committee will be reviewed at the first meeting of the Nominating Committee held after receipt of the recommendation. The Nominating Committee will consider nominees recommended by security holders for the 2007 annual meeting if submitted as described above by December 15, 2006 in order that the submission may be considered at the meeting of the Nominating Committee scheduled for January 2007.

As of the date of this joint proxy statement-prospectus, RAIT’s board and Taberna’s board know of no matters that will be presented for consideration at either of their special meetings other than as described in this joint proxy statement-prospectus. RAIT and Taberna shareholders may, however, be asked to vote on a proposal to adjourn, postpone or continue their respective special meeting. RAIT and Taberna could use any adjournment, postponement or continuation of their special meeting for the purpose, among others, of allowing more time to solicit votes to approve the issuance of RAIT common shares as consideration in the merger or to approve the merger, respectively. If any other matters properly come before either of the RAIT or Taberna special meetings, or any adjournments, postponements or continuations of these meetings, and are voted upon, the enclosed proxies will be deemed to confer discretionary authority on the individuals that they name as proxies to vote the shares represented by these proxies as to any of these matters. The individuals named as proxies intend to vote or not to vote in accordance with the recommendation of the respective managements of RAIT and Taberna. However, proxies that indicate a vote against approval of the issuance of RAIT common shares as consideration in the merger or the approval of the merger will not be voted in favor of any adjournment, postponement or continuation of the relevant special meeting to solicit additional proxies to approve those proposals.

RAIT has filed a registration statement with the SEC under the Securities Act with respect to the RAIT common shares to be issued in the merger. The registration statement, including the attached exhibits and schedules, contains additional relevant information about RAIT, Taberna and the combined company and the common shares of these companies. The rules and regulations of the SEC allow us to omit some information included in the registration statement from this joint proxy statement-prospectus.

In addition, RAIT (File No. 1-14760) files reports, proxy statements and other information with the SEC under the Exchange Act. You may read and copy this information at the Public Reference Room of the SEC, 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

The SEC also maintains an Internet world wide web site that contains reports, proxy statements and other information about issuers, like RAIT, that file electronically with the SEC. The address of that site is http://www.sec.gov. RAIT’s address on the world wide web is http://www.raitinvestmenttrust.com, and Taberna’s address is http://www.tabernacapital.com. The information on our web sites is not a part of this joint proxy statement-prospectus.

You can also inspect reports, proxy statements and other information about RAIT at the offices of the NYSE, 20 Broad Street, New York, New York 10005.

The SEC allows RAIT to “incorporate by reference” information into this joint proxy statement-prospectus. This means that the companies can disclose important information to you by referring you to another document filed separately with the SEC. The information incorporated by reference is considered to be a part of this joint proxy statement-prospectus, except for any information that is superseded by information that is included directly in this joint proxy statement-prospectus.

This joint proxy statement-prospectus incorporates by reference the documents listed below that RAIT has previously filed with the SEC (other than the portions of those documents not deemed to be filed). They contain important information about RAIT and its financial condition.

RAIT incorporates by reference additional documents that it may file with the SEC pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act between the date of this joint proxy statement-prospectus and the dates of its special meeting (other than the portions of those documents not deemed to be filed). These documents include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements.

RAIT has supplied all information contained or incorporated by reference in this joint proxy statement-prospectus relating to RAIT, as well as all pro forma financial information, and Taberna has supplied all such information relating to Taberna.

You can obtain any of the documents incorporated by reference in this joint proxy statement-prospectus through RAIT, or from the SEC through the SEC’s Internet world wide web site at the address described above. Documents incorporated by reference are available from RAIT without charge, excluding any exhibits to those documents unless the exhibit is specifically incorporated by reference as an exhibit in this joint proxy statement-prospectus. You can obtain documents incorporated by reference in this joint proxy statement-prospectus by requesting them in writing or by telephone from RAIT at the following address:

If you would like to request documents, please do so by December 4, 2006 to receive them before the special meetings. If you request any incorporated documents from us, we will mail them to you by first class mail, or another equally prompt means, within one business day after we receive your request.

We have not authorized anyone to give any information or make any representation about the merger or our companies that is different from, or in addition to, that contained in this joint proxy statement-prospectus or in any of the materials that we have incorporated into this joint proxy statement-prospectus. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this joint proxy statement-prospectus or the solicitation of proxies is unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this joint proxy statement-prospectus does not extend to you. The information contained in this joint proxy statement-prospectus speaks only as of the date of this joint proxy statement-prospectus unless the information specifically indicates that another date applies.

RAIT claims the protection of the safe harbor for forward-looking statements provided in the Private Securities Litigation Reform Act of 1995. These forward-looking statements may be included or incorporated by reference in this filing, and include, but are not limited to, statements about the benefits of the business combination transaction involving RAIT and Taberna, including future financial and operating results and performance, statements about RAIT’s and Taberna’s plans, objectives, expectations and intentions with respect to future operations, products and services, and other statements that are not historical facts. These forward-looking statements are based upon the current beliefs and expectations of RAIT’s and Taberna’s management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond the control of RAIT and Taberna. In addition, these forward-looking statements are subject to assumptions with respect to future business strategies and decisions that are subject to change. Actual results may differ materially from the anticipated results discussed in these forward-looking statements.

The following factors, among others, could cause actual results to differ materially from the anticipated results or other expectations expressed in the forward-looking statements: those discussed and identified in public filings with the SEC made by RAIT and Taberna; the businesses of RAIT and Taberna may not be combined successfully, or such combination may take longer, be more difficult, time-consuming or costly to accomplish than expected; the expected growth opportunities and cost savings from the merger may not be fully realized or may take longer to realize than expected; the operating costs, customer losses and business disruption following the merger, including adverse effects on relationships with employees, may be greater than expected; adverse governmental or regulatory policies may be enacted; the loss of management and other key personnel; competition from other real estate investment trusts and other specialty finance vehicles; the inability to obtain adequate capital and other funding for operations at attractive rates or otherwise; fluctuations in interest rates and related hedging activities against such interest rates; covenants in financing arrangements applicable to RAIT and Taberna that may restrict business operations; failing to maintain qualification as REITs or penalty taxes that may be imposed on RAIT and Taberna under the REIT provisions of the Internal Revenue Code; the inability to acquire eligible securities for CDO and other securitization transactions on favorable economic terms; adverse market trends that affect real estate and other securities that are used as collateral in CDO and other securitizations; increases in borrowing costs relative to the interest received on RAIT and Taberna investments; failing to maintain exemptions under the Investment Company Act would subject us to additional restrictions; geographic concentrations in investment portfolios of residential mortgage loans could be adversely affected by economic factors unique to such concentrations; the market value of real estate that secures mortgage loans could diminish due to factors outside of our control such as natural disasters, neighborhood values, competitive overbuilding, weather, casualty losses, occupancy rates and other similar factors; Taberna relies heavily on issuing TruPS to obtain funds and any adverse fluctuations in that industry may adversely affect the combined company; and general business and economic conditions, which could adversely affect credit quality and loan originations.

You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this filing or the date of any document incorporated by reference in this filing. All subsequent written and oral forward-looking statements concerning the merger or other matters addressed in this filing and attributable to RAIT or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, RAIT undertakes no obligation to update these forward-looking statements to reflect events or circumstances after the date of this filing or to reflect the occurrence of unanticipated events.

For additional information about factors that could cause actual results to differ materially from those described in the forward-looking statements, please see the reports that RAIT has filed with the SEC under “Where You Can Find More Information.”

All subsequent written or oral forward-looking statements concerning the merger or other matters addressed in this joint proxy statement-prospectus and attributable to RAIT or any person acting on its behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section.

Neither RAIT’s nor Taberna’s independent registered public accounting firms have compiled, examined or otherwise applied procedures to the prospective financial information presented herein and, accordingly, do not express an opinion or any other form of assurance on such information or its achievability.

The following sets forth the unaudited pro forma condensed consolidated balance sheet of RAIT and Taberna as of June 30, 2006 and the unaudited pro forma condensed consolidated statements of income for the six-month period ended June 30, 2006 and for the year ended December 31, 2005. The unaudited pro forma condensed consolidated financial information is presented as if the merger occurred on June 30, 2006 for balance sheet purposes and as of the beginning of the periods presented for income statement purposes. Taberna commenced operations on April 28, 2005; therefore, Taberna’s results of operations include the period from April 28, 2005 through December 31, 2005 and for the six-month period ended June 30, 2006.

Although pro forma financial information is not a measurement of performance RAIT and Taberna believe that pro forma financial information is important because it gives effect to the merger as if the merger had become effective at the beginning of the period presented. The manner in which RAIT and Taberna calculate pro forma financial information may differ from similarly titled measures reported by other companies.

The unaudited pro forma condensed consolidated financial statements included in this joint proxy statement-prospectus are presented for informational purposes only. This information includes various estimates and may not necessarily be indicative of the financial condition or results of operations that would have occurred if the merger had been completed on the date or at the beginning of the period indicated or which may be obtained in the future. The unaudited pro forma condensed consolidated balance sheet and income statements and accompanying notes should be read in conjunction with the historical consolidated financial statements of RAIT and Taberna included or incorporated by reference in this joint proxy statement-prospectus.

The statements contained in this filing may include forward-looking statements within the meaning of the U.S. federal securities laws. Although RAIT believes that the expectations reflected in such forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be achieved. As forward-looking statements, these statements involve risks and uncertainties that could cause actual results to differ materially from the expected results. These risks and uncertainties include, but are not limited to, uncertainties affecting real estate businesses generally, risks relating to acquisition activities and risks relating to leasing and re-leasing activities. Additional information on factors, which could impact RAIT and the forward-looking statements contained herein, are detailed in RAIT’s filings with the SEC.

The following notes discuss the pro forma adjustments associated with the unaudited pro forma condensed consolidated balance sheet of RAIT Financial Trust as of June 30, 2006.