UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-Q


(Mark One)


[X]  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934


                  FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2006


                                       OR


[ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
     EXCHANGE ACT OF 1934


                         Commission File Number 1-13237


                                   CHARTERMAC
         (Exact name of Registrant as specified in its Trust Agreement)


            DELAWARE                                             13-3949418
(State or other jurisdiction of                             (I.R.S. Employer
  incorporation or organization)                             Identification No.)


 625 MADISON AVENUE, NEW YORK, NEW YORK                            10022
(Address of principal executive offices)                         (Zip Code)

                                 (212) 317-5700
               Registrant's telephone number, including area code

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer [X] Accelerated filer [ ] Non-accelerated
filer [ ]

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As  of  July  31,  2006,  there  were  51,571,729   outstanding  shares  of  the
registrant's shares of beneficial interest.


<PAGE>



                                TABLE OF CONTENTS

                                   CHARTERMAC

                                    FORM 10-Q

<TABLE>
<CAPTION>

                                                                                                                PAGE
<S>                  <C>               <C>                                                                       <C>
PART I
                     Item 1.           Financial Statements                                                       3
                     Item 2.           Management's Discussion and Analysis of Financial Condition and
                                           Results of Operations                                                 28
                     Item 3.           Quantitative and Qualitative Disclosures about Market Risk                45
                     Item 4.           Controls and Procedures                                                   46

PART II
                     Item 1.           Legal Proceedings                                                         47
                     Item 1A.          Risk Factors                                                              47
                     Item 2.           Unregistered Sales of Equity Securities and Use of Proceeds               47
                     Item 3.           Defaults Upon Senior Securities                                           47
                     Item 4.           Submission of Matters to a Vote of Security Holders                       48
                     Item 5.           Other Information                                                         48
                     Item 6.           Exhibits                                                                  48

SIGNATURES                                                                                                       50

</TABLE>


                                       2
<PAGE>



                          PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

                           CHARTERMAC AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>

                                                                          June 30,      December 31,
                                                                           2006             2005
                                                                        -----------     -----------
                                                                        (Unaudited)

                                               ASSETS
<S>                                                                     <C>             <C>
Mortgage revenue bonds-at fair value                                    $ 2,413,949     $ 2,294,787
Other investments                                                           370,351         298,590
Cash and cash equivalents                                                   116,181         161,295
Restricted cash                                                              20,452          34,025
Goodwill and intangible assets, net                                         436,169         439,175
Loan to affiliate                                                            27,042              --
Other assets, net                                                           144,667         144,670
Investments held by consolidated partnerships                             3,109,031       3,025,762
Other assets of consolidated partnerships                                   665,898         580,524
                                                                        -----------     -----------

Total assets                                                            $ 7,303,740     $ 6,978,828
                                                                        ===========     ===========

                                LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Financing arrangements                                               $ 1,600,778     $ 1,429,692
   Preferred shares of subsidiary (subject to mandatory
    repurchase)                                                             273,500         273,500
   Notes payable                                                            408,337         304,888
   Accounts payable, accrued expenses and other liabilities                 164,680         179,275
   Notes payable and other liabilities of consolidated  partnerships      1,365,076       1,627,556
                                                                        -----------     -----------

Total liabilities                                                         3,812,371       3,814,911
                                                                        -----------     -----------

Minority interests in consolidated subsidiaries                             253,191         262,274
                                                                        -----------     -----------
Preferred shares of subsidiary (not subject to mandatory
   repurchase)                                                              104,000         104,000
                                                                        -----------     -----------
Partners' interests in consolidated partnerships                          2,156,653       1,747,808
                                                                        -----------     -----------

Commitments and contingencies

Shareholders' equity:
   Beneficial owners equity:
     4.4% Convertible CRA preferred shares; no par value; 2,160
        shares issued and outstanding in 2006 and 2005                      104,498         104,498
     Convertible CRA shares; no par value; 6,552 shares issued
       and outstanding in 2006 and 2005                                     100,714         104,369
     Special preferred voting shares; no par value (14,825
      shares issued and outstanding in 2006 and 14,885 shares
      issued and outstanding in 2005)                                           149             150
     Common shares; no par value (160,000 shares authorized;
       52,474 issued and 52,093 outstanding in 2006 and 52,309
       issued and 51,988 outstanding in 2005)                               723,591         752,042
   Restricted shares granted                                                     --          (4,193)
   Treasury shares of beneficial interest - common, at cost
    (381 shares in 2006 and 321 shares in 2005)                              (8,124)         (7,135)
   Accumulated other comprehensive income                                    56,697         100,104
                                                                        -----------     -----------
Total shareholders' equity                                                  977,525       1,049,835
                                                                        -----------     -----------

Total liabilities and shareholders' equity                              $ 7,303,740     $ 6,978,828
                                                                        ===========     ===========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                    (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                      Three Months Ended           Six Months Ended
                                                            June 30,                    June 30,
                                                    -----------------------     -----------------------
                                                      2006          2005          2006           2005
                                                    ---------     ---------     ---------     ---------
<S>                                                 <C>           <C>           <C>           <C>
Revenues:
   Mortgage revenue bond interest income            $  39,217     $  37,061     $  75,739     $  73,428
   Other interest income                                6,580         3,279        12,519         6,842
   Fee income                                          18,272        24,404        34,343        34,284
   Other revenues                                       5,796         6,584        11,158         9,818
   Revenues of consolidated partnerships                9,366         7,152        17,611        12,054
                                                    ---------     ---------     ---------     ---------
     Total revenues                                    79,231        78,480       151,370       136,426
                                                    ---------     ---------     ---------     ---------

Expenses:
   Interest expense                                    24,085        14,351        41,193        24,931
   Interest expense of consolidated partnerships        5,611         6,133        12,557        13,022
   Interest expense - distributions to preferred
     shareholders of subsidiary                         4,725         4,725         9,449         9,449
   General and administrative                          39,861        33,068        72,427        59,280
   Depreciation and amortization                       14,615         9,469        23,528        17,165
   Loss on impairment of assets                         2,271         1,098         2,271         1,098
   Other expenses of consolidated partnerships         16,258        13,618        31,539        24,665
                                                    ---------     ---------     ---------     ---------
     Total expenses                                   107,426        82,462       192,964       149,610
                                                    ---------     ---------     ---------     ---------

Loss before other income                              (28,195)       (3,982)      (41,594)      (13,184)

Equity and other income                                 3,548           552         4,058         1,076
Gain on sale of loans and repayment of mortgage
  revenue bonds                                         2,538         5,229         7,968         6,924
Loss on investments held by consolidated
partnerships                                          (77,930)      (66,623)     (140,079)     (116,562)
                                                    ---------     ---------     ---------     ---------

Loss before allocations and income taxes             (100,039)      (64,824)     (169,647)     (121,746)

Income allocated to preferred shareholders of
subsidiary                                             (1,557)       (1,556)       (3,113)       (3,112)
Minority interests in consolidated subsidiaries,
  net of tax                                           (1,651)       (7,881)       (7,530)      (13,946)
Loss allocated to partners of consolidated
partnerships                                          107,090        93,370       195,871       164,333
                                                    ---------     ---------     ---------     ---------

Income before income taxes                              3,843        19,109        15,581        25,529
Income tax benefit                                        405           335         3,324         8,700
                                                    ---------     ---------     ---------     ---------

Net  income
                                                    $   4,248     $  19,444     $  18,905     $  34,229
                                                    =========     =========     =========     =========

Allocation of net income to:
   4.4% Convertible CRA preferred shareholders      $   1,188     $      --     $   2,376     $      --
   Common shareholders                                  2,595        17,243        14,557        30,353
   Convertible CRA shareholders                           465         2,201         1,972         3,876
                                                    ---------     ---------     ---------     ---------
Total                                               $   4,248     $  19,444     $  18,905     $  34,229
                                                    =========     =========     =========     =========

Net income per share:
   Basic                                            $    0.05     $    0.34     $    0.28     $    0.59
                                                    =========     =========     =========     =========
   Diluted                                          $    0.05     $    0.33     $    0.28     $    0.59
                                                    =========     =========     =========     =========

Weighted average shares outstanding:
   Basic                                               58,639        57,890        58,609        57,856
                                                    =========     =========     =========     =========
   Diluted                                             58,919        58,274        58,961        58,271
                                                    =========     =========     =========     =========

Dividends declared per share                        $    0.42     $    0.41     $    0.84     $    0.82
                                                    =========     =========     =========     =========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                            Six Months Ended June 30,
                                                                            -------------------------
                                                                               2006           2005
                                                                            ----------     ----------
<S>                                                                         <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                               $  18,905      $  34,229
   Adjustments to reconcile net income to net cash provided by operating
    activities:
   Gain on repayment of mortgage revenue bonds                                   (912)          (903)
   Loss on impairment of assets                                                 2,271          1,098
   Depreciation and amortization                                               23,528         17,165
   Equity in income of unconsolidated entities                                 (4,058)        (1,076)
   Income allocated to preferred shareholders of subsidiary                     3,113          3,113
   Income allocated to minority interests in consolidated subsidiaries          7,531         13,946
   Gain on sale of mortgages                                                   (5,924)        (7,134)
   Non-cash compensation expense                                                3,468          3,836
   Other non-cash expense                                                       1,597          1,448
   Deferred taxes                                                                  --         (9,815)
   Distributions received from equity investees                                 2,255          1,110
   Reserves for bad debt                                                       14,227         10,869
   Changes in operating assets and liabilities:
    Mortgage loans held for sale                                              (66,771)       (33,539)
    Loan to affiliate                                                         (27,042)         4,600
    Deferred revenues                                                           3,796          5,216
    Restructuring costs payable                                                 1,995             --
    Receivables                                                               (27,939)       (24,554)
    Other assets                                                               (8,569)        3,639
    Accounts payable, accrued expenses and other liabilities                  (18,986)        11,941
                                                                            ---------      ---------

Net cash (used in) provided by operating activities                           (77,515)        35,189
                                                                            ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Principal amortization and repayments of mortgage revenue bonds             42,346         34,357
   Mortgage revenue bond acquisitions and fundings                           (213,866)      (166,781)
   Investments in notes receivable                                             (1,986)            --
   Repayments of notes receivable                                              27,584             --
   Acquisitions, net of cash acquired                                             (31)          (290)
   Loans to Capri Capital                                                          --         (6,000)
   Advances to partnerships                                                   (82,726)       (57,377)
   Collection of advances to partnerships                                      70,157         66,542
   Deferred investment acquisition costs, net of reimbursements                   573           (259)
   Decrease (increase) in cash and cash equivalents - restricted               13,573         (8,285)
   Investing in marketable securities                                         (23,116)        (1,194)
   Other investing activities                                                  (1,467)         1,498
                                                                            ---------      ---------

Net cash used in investing activities                                        (168,959)      (137,789)
                                                                            ---------      ---------

</TABLE>

                                   (continued)

                                       5
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (IN THOUSANDS)
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                Six Months Ended June 30,
                                                                               ---------------------------
                                                                                  2006            2005
                                                                               -----------     -----------
<S>                                                                            <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                                   (51,830)        (47,802)
   Distributions to preferred shareholders of subsidiary                            (3,113)         (3,113)
   Distributions to Special Common Unit and Special Membership Unit holders        (17,821)        (17,303)
   Proceeds from financing arrangements                                          1,007,298         260,325
   Repayments of financing arrangements                                           (836,212)       (115,213)
   Increase in notes payable                                                       102,481          28,435
   Issuance of common and convertible CRA shares                                        --             771
   Minority interest contribution                                                    3,300              --

   Retirement of SCUs and special preferred voting shares                             (723)             (1)
   Treasury stock purchases                                                           (137)         (1,946)
   Deferred financing costs                                                         (1,883)           (185)
                                                                               -----------     -----------

Net cash provided by financing activities                                          201,360         103,969
                                                                               -----------     -----------

Net (decrease) increase in cash and cash equivalents                               (45,114)          1,369
Cash and cash equivalents at the beginning of the year                             161,295          71,287
                                                                               -----------     -----------

Cash and cash equivalents at the end of the period                             $   116,181     $    72,656
                                                                               ===========     ===========

Acquisition activity:

   Redemption of preferred stock and advances                                  $     7,170     $        --
   Conversion of note receivable                                                        --          70,000
   Assets acquired                                                                  (8,565)        (90,530)
   Liabilities assumed                                                               1,364          20,240
                                                                               -----------     -----------
Net cash paid for acquisitions                                                 $       (31)    $      (290)
                                                                               ===========     ===========

Non-cash investing and financing activities:
        Share grants                                                           $     3,570     $     1,286
                                                                               -----------     -----------
        Conversion of SCUs and SMUs to common shares                           $     1,426     $       800
                                                                               -----------     -----------
        Treasury stock purchases via employee withholding                      $       573     $     1,946
                                                                               -----------     -----------

</TABLE>


     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 1 - BASIS OF PRESENTATION

The unaudited condensed  consolidated  financial statements include the accounts
of CharterMac,  its wholly owned and majority owned subsidiary statutory trusts,
other  non-trust  subsidiary  companies it controls  and  entities  consolidated
pursuant to the adoption of FASB  Interpretation  No. 46(R) ("FIN  46(R)").  All
intercompany  accounts and transactions  have been eliminated in  consolidation.
Unless  otherwise  indicated,  "the  Company",  "we",  "our" and  "us",  as used
throughout   this   document,   refers  to  CharterMac   and  its   consolidated
subsidiaries.   For  the  entities   identified   throughout  this  document  as
"consolidated partnerships", the financial information included is as of and for
the periods ended March 31, 2006, the latest practical date available.

During  June  2006,  we  created a new  subsidiary,  Centerbrook  Financial  LLC
("Centerbrook")  to provide  credit  intermediation  products to the  affordable
housing finance  industry.  We own 90% of  Centerbrook's  direct parent and IXIS
Capital Markets North America Inc. ("IXIS") owns the remainder.

The accompanying  interim financial statements have been prepared without audit.
In the opinion of management,  the financial  statements contain all adjustments
(consisting of only normal  recurring  adjustments)  necessary to present fairly
the financial  statements of the interim  periods.  Given the seasonal nature of
our  business,  the  operating  results  for  the  interim  periods  may  not be
indicative of the results for the full year.

Certain  information and footnote  disclosures  normally  included in the annual
consolidated   financial  statements  prepared  in  accordance  with  accounting
principles generally accepted in the United States of America ("GAAP") have been
condensed  or  omitted.   It  is  suggested  that  these   unaudited   condensed
consolidated  financial  statements be read in conjunction with the consolidated
financial  statements  and notes thereto  included in our Form 10-K for the year
ended  December  31,  2005.  That filing on Form 10-K  contains a summary of our
significant  accounting  policies.  There have been no material changes to these
items  since  December  31,  2005,  nor  have  there  been  any  new  accounting
pronouncements  pending  adoption  that would have a  significant  impact on our
unaudited  condensed  consolidated  financial  statements,  except as  indicated
below.

We are responsible for the unaudited condensed consolidated financial statements
included  in this  document.  Our  unaudited  condensed  consolidated  financial
statements  are prepared on the accrual basis of  accounting in accordance  with
GAAP. The  preparation of financial  statements in conformity with GAAP requires
us to make estimates and assumptions  that affect the reported amounts of assets
and liabilities  and the disclosure of contingent  assets and liabilities at the
date of the financial statements as well as the reported amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.

Certain  amounts from prior years have been  reclassified to conform to the 2006
presentation.

NEW ACCOUNTING PRONOUNCEMENTS

During the first quarter of 2006, we adopted  Statement of Financial  Accounting
Standards No. 123(R),  SHARE-BASED  PAYMENT  ("SFAS No.  123(R)") which replaces
SFAS No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION  ("SFAS No. 123"). Among
other things,  SFAS No. 123(R) requires that companies record the value of stock
option grants as compensation expense,  while SFAS No. 123 allowed disclosure of
the impact  instead of recording  the  expense.  As we had been  accounting  for
share-based  payments as an expense  following the fair value provisions of SFAS
No. 123, the impact of adopting  this  standard was not material to us. See also
Note 13.

In November  2005,  the FASB issued Staff Position 115 / 124 - 1, THE MEANING OF
OTHER-THAN-TEMPORARY  IMPAIRMENT AND ITS APPLICATION TO CERTAIN INVESTMENTS. The
Staff Position clarified,  among other matters,  the determination as to when an
unrealized loss on debt securities  should be reflected in the income  statement
as opposed to accumulated other comprehensive income and was effective as of the
first quarter of 2006.  Application of the Staff Position had no material impact
on our results of operations.

In March 2006, the FASB issued Statement of Financial  Accounting  Standards No.
156,  ACCOUNTING  FOR  SERVICING  OF FINANCIAL  Assets  ("SFAS No.  156").  This
statement  stipulates the accounting for mortgage  servicing rights ("MSRs") and
requires  that they be recorded  initially  at fair value.  The  statement  also
permits,  but does not require,  that we may  subsequently  record those MSRs at
fair value with changes in fair value recognized in the statement of operations.
Alternatively, we may continue to amortize the MSRs over their projected service
periods.  We will adopt SFAS No. 156, as required,  in the first quarter of 2007
and do not expect any material  impact in our financial  statements as we intend
to continue amortization of our MSRs.

In June 2006, the FASB issued  Interpretation  48, ACCOUNTING FOR UNCERTAINTY IN
INCOME TAXES. The Interpretation sets a standard for recognizing tax benefits in
a company's  income  statement based on a determination  whether it is likely or


                                       7
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



not that the position would withstand  audit,  without regard for the likelihood
of an audit taking place.  Assuming a position meets the  "more-likely-than-not"
threshold,  the Interpretation also prescribes  measurement  standards requiring
determination  of how much of the tax position  would  ultimately  be allowed if
challenged.  The Interpretation  will be effective in the first quarter of 2007.
We are currently  determining the impact of the  Interpretation on our financial
statements.

NOTE 2 - ACQUISITIONS

Effective  March 1, 2006,  we  acquired  Capri Real Estate  Services  from Capri
Capital Advisors LLC ("CCA"),  and renamed it CharterMac Real Estate  Securities
("CRES").  CRES is a manager of hedge  funds and other  funds  concentrating  on
investing  in  securities  of  publicly  traded  real  estate  trusts  operating
companies.

The  consideration  paid was approximately  $7.3 million,  subject to additional
consideration  based on growth of assets under  management by CRES.  The initial
consideration  included the redemption of the preferred interest we held in CCA,
valued at $4.1 million, plus approximately $3.2 million of costs and advances we
had made to CCA with respect to this business (see Note 4).

We accounted for the acquisition as a purchase and, accordingly, we included the
results of operations in the condensed  consolidated  financial  statements from
the  acquisition  date. We allocated our cost of the acquisition on the basis of
the estimated fair values of the assets and liabilities  assumed.  The excess of
the purchase price over the net of the amounts  assigned to the assets  acquired
and  liabilities  assumed  was  recognized  as goodwill  of  approximately  $6.1
million.  Certain  allocations  are preliminary as of June 30, 2006, and will be
refined prior to March 2007.

Pro forma  information is not presented,  as this acquisition is not material to
our revenues, net income or assets.

In June 2006, we announced our intent to acquire ARCap Investors, LLC ("ARCap").
The transaction is subject to ARCap shareholder approval (see Notes 4 and 19).

NOTE 3 - MORTGAGE REVENUE BONDS

A. SUMMARY

The following table summarizes our mortgage revenue bond portfolio:

<TABLE>
<CAPTION>

                                                   June 30,         December 31,
          (In thousands)                             2006               2005
----------------------------------                -----------       -----------
<S>                                               <C>               <C>
Amortized cost basis                              $ 2,584,117       $ 2,417,185
Gross unrealized gains                                 75,415           116,541
Gross unrealized losses                               (24,030)          (11,424)
                                                  -----------       -----------
Subtotal/fair value                                 2,635,502         2,522,302
  Less: eliminations (1)                             (221,553)         (227,515)
                                                  -----------       -----------
Total fair value per balance sheet                $ 2,413,949       $ 2,294,787
                                                  ===========       ===========

</TABLE>

(1)  These bonds are either  recorded as  liabilities  on the balance  sheets of
     certain  consolidated  partnerships  or are recorded as liabilities of real
     estate owned and are therefore eliminated in consolidation.


                                       8
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The fair  value  and gross  unrealized  losses of our  mortgage  revenue  bonds,
aggregated  by length of time that  individual  bonds have been in a  continuous
unrealized loss position, is summarized in the table below:

<TABLE>
<CAPTION>

                                         Less than      12 Months
(Dollars in thousands)                   12 Months       or More          Total
----------------------                   ---------      ---------       --------
<S>                                       <C>            <C>            <C>
JUNE 30, 2006

Number of bonds                                 97             27            124
Fair value                                $714,807       $137,067       $851,874
Gross unrealized loss                     $ 18,317       $  5,713       $ 24,030

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

DECEMBER 31, 2005

Number of bonds                                 36             55             91
Fair value                                $253,063       $327,183       $580,246
Gross unrealized loss                     $  6,775       $  4,649       $ 11,424

</TABLE>

The unrealized  losses related to these mortgage revenue bonds are due primarily
to changes in interest  rates,  in that we calculate  present  values based upon
future  cash flows from the bonds and  discount  these cash flows at the current
rate on our  recent  bond  issuances;  as  rates  rise,  the  fair  value of our
portfolio  decreases.  We have the  intent and  ability  to hold these  bonds to
recovery  and  have  therefore  concluded  that  these  declines  in  value  are
temporary.

The following summarizes the maturity dates of mortgage revenue bonds we held as
of June 30, 2006:

<TABLE>
<CAPTION>

                                                                           Weighted
                                           Outstanding                      Average
        (In thousands)                     Bond Amount     Fair Value    Interest Rate
------------------------------             -----------     ----------    -------------
<S>                                        <C>             <C>                <C>
Due in less than one year                  $    2,807      $    2,809         8.03%
Due between one and five years                 29,621          29,530         6.10
Due after five years                        2,552,098       2,603,163         6.68
                                           ----------      ----------       ------
Total / weighted average                    2,584,526       2,635,502         6.67%
                                                                            ======
   Less: eliminations (1)                    (226,574)       (221,553)
                                           ----------      ----------
Total                                      $2,357,952      $2,413,949
                                           ==========      ==========

</TABLE>

(1)   These bonds are either  recorded as  liabilities  on the balance sheets of
      certain  consolidated  partnerships or are recorded as liabilities of real
      estate owned and are therefore eliminated in consolidation.

B. PORTFOLIO ACTIVITY

The following table summarizes our acquisition activity for the six months ended
June 30, 2006:

<TABLE>
<CAPTION>
                                                                 Weighted         Weighted
                                                                  Average          Average
                                                      Face     Construction       Permanent
             (In thousands)                          Amount    Interest Rate    Interest Rate
---------------------------------------             --------   -------------    -------------
<S>                                                 <C>             <C>             <C>
Construction/rehabilitation  properties             $203,776        6.66%           6.20%
Additional funding of existing bonds                  10,090        5.38            5.45
                                                    --------      ------          ------
    Total                                           $213,866        6.60%           6.17%
                                                    ========      ======          ======

</TABLE>


                                       9
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The  following  table  summarizes  mortgage  revenue bonds repaid during the six
months ended June 30, 2006:

<TABLE>
<CAPTION>
                                             Net Book                  Realized
         (In thousands)                        Value      Proceeds   Gains (Losses)
---------------------------------            --------     --------   -------------
<S>                                           <C>          <C>          <C>
Participating, stabilized                     $17,810      $18,728      $   918
Non-participating, stabilized                  11,814       11,808           (6)
Non-participating, not stabilized               1,450        1,450           --
                                              -------      -------      -------
Total                                         $31,074      $31,986      $   912
                                              =======      =======      =======

</TABLE>

C. SECURITIZED OR PLEDGED ASSETS

At June 30, 2006,  mortgage  revenue bonds with an aggregate  fair value of $2.4
billion  were  securitized  or pledged as  collateral  in relation to  financing
arrangements.  Of these,  21 bonds  with a fair  value of  approximately  $221.6
million are eliminated in consolidation as noted in the tables above.

D. IMPAIRMENT

During the second quarter of 2006 we recognized  impairment of mortgage  revenue
bonds in light of substandard performance at four underlying properties. For one
of the  properties,  we reached an agreement with the general partner whereby he
relinquished  control of the  property,  and for another we revised the terms of
the bond to reduce the interest rate. In the aggregate,  we recorded  charges of
approximately $1.9 million with respect to mortgage revenue bond investments.

See also Note 18 regarding  the status of other  mortgage  revenue  bonds in our
portfolio  for  which  we have  assumed  the  general  partner  interest  in the
associated property-level partnership.

NOTE 4 - OTHER INVESTMENTS

Investments other than mortgage revenue bonds consisted of:

<TABLE>
<CAPTION>

                                                           June 30,    December 31,
                  (In thousands)                             2006         2005
--------------------------------------------------         --------    -----------
<S>                                                        <C>          <C>
Investment in equity interests in LIHTC properties         $ 59,082     $ 46,985
Investment in properties under development                    4,771        4,300
Investment in ARCap                                          22,865       19,874
CCA loans and preferred stock                                20,150       26,884
Mortgage loans held for sale                                220,807      153,277
Notes receivable                                              6,000       32,670
Marketable securities                                        24,370        1,249
Other                                                        12,306       13,351
                                                           --------     --------
   Total other investments                                 $370,351     $298,590
                                                           ========     ========

</TABLE>

The balance of "CCA loans and  preferred  stock" at December 31, 2005,  included
$4.1 million of  preferred  stock that was redeemed and $2.7 million of advances
that were forgiven as part of the purchase price of CRES (see Note 2).

At December 31, 2005, "Notes receivable"  included a $26.0 million investment in
a mortgage loan in which we had co-invested  with American  Mortgage  Acceptance
Company ("AMAC"), an affiliated, publicly traded real estate investment trust we
manage (which  invested $5.0 million  pursuant to a  Subordinated  Participation
Agreement). During April 2006, we sold the investment to AMAC at its approximate
par value and  subsequently  assigned the fair value hedge  associated  with the
investment (see Note 8).

Marketable  securities at June 30, 2006,  include  $23.0 million of  investments
Centerbrook  maintained in cash  accounts with  maturities in excess of 90 days.
"Other"  includes $5.0 million invested in a fund we sponsor through CRES, which
we do not consolidate in our financial statements.

In June 2006,  we announced  our intent to acquire the  membership  interests in
ARCap that we do not currently own (see Note 19).


                                       10
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets consisted of the following:

<TABLE>
<CAPTION>
                                                       June 30,        December 31,
       (In thousands)                                    2006             2005
------------------------------                         --------        -----------
<S>                                                    <C>              <C>
Goodwill                                               $241,298         $235,684
Other intangible assets, net                            135,224          141,301
Mortgage servicing rights, net                           59,647           62,190
                                                       --------         --------

Total                                                  $436,169         $439,175
                                                       ========         ========

</TABLE>

A. GOODWILL

The following table provides information regarding goodwill by segment:

<TABLE>
<CAPTION>

                                            Fund         Mortgage
       (In thousands)                    Management      Banking        Total
----------------------------             ----------     ---------     ---------
<S>                                      <C>            <C>           <C>
Balance at December 31, 2005             $ 197,937      $  37,747     $ 235,684
Additions                                    6,133             --         6,133
Reductions                                    (519)            --          (519)
                                         ---------      ---------     ---------
Balance at June 30, 2006                 $ 203,551      $  37,747     $ 241,298
                                         =========      =========     =========

</TABLE>

The increase in Fund Management goodwill relates to the acquisition of CRES (see
Note 2). The reduction in Fund Management  goodwill  pertained to the conversion
of SCUs,  the  deferred  tax  impact of which  served to  effectively  lower the
purchase  price  of  CharterMac  Capital  LLC  ("CharterMac  Capital")  which we
acquired in 2003.

B. OTHER INTANGIBLE ASSETS

The components of other identified intangible assets are as follows:

<TABLE>
<CAPTION>

                                           Estimated
                                             Useful
                                              Life              Gross               Accumulated
              (In thousands)               (in Years)       Carrying Amount         Amortization                  Net
-----------------------------------------  ----------   ----------------------  ---------------------   ----------------------
                                                        June 30,  December 31,  June 30,  December 31,  June 30,   December 31,
                                                          2006        2005        2006       2005         2006        2005
                                                        --------  ------------  --------  -----------   --------   -----------
<S>                                             <C>     <C>         <C>         <C>         <C>         <C>         <C>
Amortized identified intangible assets:
  Partnership service  contracts                 9.4    $ 47,300    $ 47,300    $ 13,246    $ 10,718    $ 34,054    $ 36,582
  Transactional relationships                   16.5     104,900     103,000      22,205      17,864      82,695      85,136
  General partner interests                      9.0       5,100       5,100       1,485       1,201       3,615       3,899
  Joint venture developer relationships          5.0       4,800       4,800       2,515       2,035       2,285       2,765
  Mortgage banking broker relationships          5.0       1,080       1,080         288         180         792         900
  Other identified intangibles                   9.3       4,427       4,427       3,417       3,181       1,010       1,246
                                            --------    --------    --------    --------    --------    --------    --------
Subtotal/weighted average life                  13.7     167,607     165,707      43,156      35,179     124,451     130,528
                                            ========

Unamortized identified intangible assets:
  Mortgage banking licenses and approvals
   with no expiration                                     10,773      10,773          --          --      10,773      10,773
                                                        --------    --------    --------    --------    --------    --------

Total identified intangible assets                      $178,380    $176,480    $ 43,156    $ 35,179    $135,224    $141,301
                                                        ========    ========    ========    ========    ========    ========

</TABLE>
<TABLE>
<CAPTION>

                                   Three Months Ended          Six Months Ended
                                         June 30,                  June 30,
                                   -------------------       -------------------
                                    2006         2005         2006         2005
                                   ------       ------       ------       ------
<S>                                <C>          <C>          <C>          <C>
Amortization expense               $4,053       $4,170       $7,977       $8,340
                                   ======       ======       ======       ======

</TABLE>


                                       11
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The amortization of "other identified  intangibles"  (approximately $473,000 per
year) is included as a reduction  to mortgage  revenue bond  interest  income as
they pertain to the acquisition of such bond investments.

NOTE 6 - OTHER ASSETS

The components of other assets were as follows:

<TABLE>
<CAPTION>

                                                        June 30,     December 31,
                  (In thousands)                          2006          2005
----------------------------------------------------    ---------    -----------
<S>                                                     <C>           <C>
Deferred financing and other costs                      $  26,291     $  38,059
Less: Accumulated amortization                             (6,350)      (14,031)
                                                        ---------     ---------

Net deferred costs                                         19,941        24,028

Real estate owned, net                                     35,712        35,608

Interest receivable                                        17,851        16,964
Fees receivable, net                                       24,121        30,774
Due from unconsolidated partnerships, net                   2,945         2,576
Furniture, fixtures and leasehold improvements, net         8,740         8,178
Income tax receivable                                       6,896         4,276
Interest rate swaps at fair value (see Note 8)              7,390         4,857
Deferred taxes                                                915         1,849
PRS/CRG advances                                            6,649         9,961
Other                                                      13,507         5,599
                                                        ---------     ---------

Total                                                   $ 144,667     $ 144,670
                                                        =========     =========

</TABLE>

In connection with the restructuring of our securitization programs (see Note 7)
we wrote off the unamortized  balance of deferred  financing costs pertaining to
the  terminated  programs.  As a result,  we recorded  incremental  amortization
expense of $3.4 million during the second quarter of 2006.

We had classified our real estate owned as "Held for Sale" upon our  foreclosure
of the properties  securing  mortgage revenue bonds. As we have not yet sold the
properties,  we have  reclassified  them as  "Held  and  Used"  and  recorded  a
retroactive depreciation charge of $934,000 in the second quarter of 2006, as if
we had depreciated them since the May 2005 foreclosure.

The  advances  due from  PRS/CRG  related  to the  financial  difficulties  of a
developer  and  our  subsequent  actions  to  protect  our  investments  in  the
properties that were under development (see Note 18). The above balances are net
of eliminations  with liabilities of consolidated  partnerships of $13.3 million
and $3.9 million at June 30, 2006 and December 31, 2005, respectively.

NOTE 7 - FINANCING ARRANGEMENTS AND NOTES PAYABLE

The CharterMac  Mortgage  Capital  ("CMC")  warehouse line was amended to permit
temporary  overadvances  through August 29, 2006 of up to $125.0 million in June
2006 (in addition to the $125.0 million base borrowing amount) pursuant to terms
arranged  with Bank of America.  This  facility has been extended to August 2006
and is subject to annual renewal.

Our Capri  acquisition line with Bank of America was increased to $110.0 million
in May 2006. The term of this facility has been extended to August 2006.

Upon its launch in June 2006, Centerbrook entered into a $30 million senior debt
facility and a $125 million mezzanine debt facility,  maturing in June 2036. The
senior debt facility is provided by IXIS and one of our subsidiary companies and
generally bears interest, at our discretion, at:


                                       12
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



(1)  1.40% plus the higher of
          a.   the Prime Rate, or
          b.   the federal funds effective rate, as defined, plus 1/2%; or
(2)  LIBOR plus 0.40% depending on the type of loan.

The mezzanine  debt facility is provided by Citibank,  N.A. and generally  bears
interest, at our discretion, at:

(1)  2.25% plus the higher of
          a.   the Prime Rate, or
          b.   the federal funds effective rate, as defined, plus 1/2%, or
(2)  LIBOR plus 1.25% depending on the type of loan.

Upon  the  launch  of  Centerbrook,   we  also   restructured   several  of  our
securitization  programs  whereby  Centerbrook  is now the  provider  of  credit
intermediation,  as supported by IXIS. As a result,  we terminated  our programs
through  MBIA  and  created  a  similar  structure  through  Goldman  Sachs.  In
connection with the termination of the MBIA program,  we paid approximately $1.4
million in termination fees (included in general and administrative expense) and
$1.9 million of other costs (recorded in interest expense) in the second quarter
of 2006.

NOTE 8 - DERIVATIVE INSTRUMENTS

As of June 30, 2006,  we had interest rate swaps with varying  expiration  dates
and an aggregate notional amount of $450.0 million, which are designated as cash
flow hedging  instruments which hedge the interest payments on our variable-rate
securitizations.  These swaps are  recorded at fair value,  with changes in fair
value  recorded  in  accumulated  other  comprehensive  income to the extent the
hedges  are  effective  in  achieving   offsetting  cash  flows.  There  was  no
ineffectiveness  in the  hedging  relationships  during  the  periods  reported.
Amounts in accumulated  other  comprehensive  income will be  reclassified  into
earnings in the same period and during which the hedged  forecasted  transaction
affects   earnings.   Since  we  are  hedging  the  interest   payments  on  our
variable-rate  securitizations,  the  forecasted  transactions  are the interest
payments.

We expect  all of the swaps will be highly  effective  in  achieving  offsetting
changes in cash flows throughout their terms.

We also had an interest  rate swap with a notional  amount of $26.0 million that
hedged the change in the fair value of a $26.0 million investment. This swap was
assigned to AMAC when we sold AMAC the related investment (see Note 4). Prior to
its  assignment,  we did not elect to apply hedge  accounting  to this swap and,
therefore, the change in its fair value was included in net income.

Interest rate swaps for which we were in a net settlement liability position are
recorded in accounts  payable,  accrued expenses and other liabilities and those
for  which we are in a net  settlement  asset  position  are  recorded  in other
assets. The amounts recorded were as follows:

<TABLE>
<CAPTION>

                                                       June 30,         December 31,
                                                       --------         -----------
    (In thousands)                                       2006              2005
----------------------                                 --------         -----------
<S>                                                     <C>               <C>
Net liability position                                  $   --            $  208
Net asset position                                      $7,390            $4,857

</TABLE>

Interest expense included the following expense (income) related to our swaps:

<TABLE>
<CAPTION>

                                               Three months ended       Six months ended
                                                    June 30,                June 30,
                                              -------------------     -------------------
              (In thousands)                    2006        2005        2006        2005
------------------------------------------    -------     -------     -------     -------
<S>                                           <C>         <C>         <C>         <C>
Interest expense                              $     3     $   536     $    36     $ 1,886
Interest income                                  (631)        (90)       (749)        (58)
Change in fair value of free standing swap        547          --        (203)         --
                                              -------     -------     -------     -------
Total                                         $   (81)    $   446     $  (916)    $ 1,828
                                              =======     =======     =======     =======

</TABLE>


                                       13
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



We estimate that  approximately $1.5 million of the net unrealized gain included
in accumulated  other  comprehensive  income will reduce interest expense within
the next twelve months.

NOTE 9 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts  payable,  accrued  expenses  and other  liabilities  consisted  of the
following:

<TABLE>
<CAPTION>

                                                          June 30,    December 31,
                (In thousands)                              2006          2005
-----------------------------------------------           --------    ------------
<S>                                                       <C>           <C>
Deferred revenues                                         $ 73,099      $ 70,025
Distributions payable                                       41,127        41,080
Accounts payable                                            15,792        22,314
Salaries and benefits                                       10,272        15,816
Accrued fund organization and offering expenses             10,876         9,562
Restructuring costs                                          1,995            --
Other                                                       11,519        20,478
                                                          --------      --------

Total                                                     $164,680      $179,275
                                                          ========      ========

</TABLE>

The accrued  restructuring  costs pertain to integration actions with respect to
the  planned  acquisition  of ARCap (see Note 19).  We  recorded  these costs in
general  and  administrative  expenses  in the  second  quarter  of  2006  which
comprised the following:

<TABLE>
<CAPTION>

                                              Fund         Mortgage
                                            Management     Banking
       (In thousands)                        Segment        Segment       Total
--------------------------                  ----------     --------       ------
<S>                                           <C>           <C>           <C>
Employee termination costs                    $  580        $1,251        $1,831
Lease termination costs                           --           164           164
                                              ------        ------        ------
Total                                         $  580        $1,415        $1,995
                                              ======        ======        ======

</TABLE>

All of these costs will require cash expenditures  although none were paid prior
to June 30, 2006. We anticipate that the restructuring  will be completed by the
end of the first quarter of 2007 and do not anticipate  increases to the amounts
detailed above.

NOTE 10 - CONSOLIDATED PARTNERSHIPS

Assets and liabilities of consolidated partnerships consisted of:

<TABLE>
<CAPTION>

                                                      June 30,       December 31,
           (In thousands)                               2006             2005
------------------------------------                 ----------      ------------
<S>                                                  <C>              <C>
Investments in property partnerships                 $3,109,031       $3,025,762

Land, buildings and improvements,
   net of accumulated depreciation                      344,547          329,869
Cash                                                    246,316          172,622
Other assets                                             75,035           78,033
                                                     ----------       ----------
    Subtotal                                            665,898          580,524
                                                     ----------       ----------

Total assets                                         $3,774,929       $3,606,286
                                                     ==========       ==========

Notes payable                                        $  488,627       $  565,877
Due to property partnerships                            742,784          896,031
Other liabilities                                       133,665          165,648
                                                     ----------       ----------

Total liabilities                                    $1,365,076       $1,627,556
                                                     ==========       ==========

</TABLE>


                                       14
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



Of the notes payable balance, at June 30, 2006, $379.7 million are guaranteed by
certain equity partners of the investment funds. Per partnership agreements, the
equity  partners  are also  obligated to pay the  principal  and interest on the
notes.  The  remaining  balance  of $108.9  million is  collateralized  with the
underlying properties of the consolidated  operating  partnerships.  All of this
debt is non-recourse to the Company.

NOTE 11 - MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES

Minority interests in consolidated subsidiaries consisted of the following:

<TABLE>
<CAPTION>

                                                        June 30,      December 31,
         (In thousands)                                   2006            2005
--------------------------------                        --------      ------------
<S>                                                     <C>             <C>
Convertible Special Common Units
   ("SCUs") of a subsidiary                             $239,789        $250,866
Convertible Special Membership
   Units ("SMUs") of a subsidiary                         10,102          11,408
Other                                                      3,300              --
                                                        --------        --------

Total                                                   $253,191        $262,274
                                                        ========        ========

</TABLE>

Income allocated to minority interests was as follows:

<TABLE>
<CAPTION>

                              Three Months Ended            Six Months Ended
                                   June 30,                     June 30,
                            ----------------------        ----------------------
 (In thousands)               2006           2005          2006            2005
----------------            -------        -------        -------        -------
<S>                         <C>            <C>            <C>            <C>
SCUs                        $ 1,632        $ 7,826        $ 7,361        $13,891
SMUs                             19             55            169             55
                            -------        -------        -------        -------

Total                       $ 1,651        $ 7,881        $ 7,530        $13,946
                            =======        =======        =======        =======

</TABLE>

In the first quarter of 2006,  the holder of 20,000 SCUs  converted the units to
an equivalent number of common shares.  During the second quarter, the holder of
an additional  40,000 SCUs converted the units, for which we paid  approximately
$723,000 in cash and holders of approximately 48,600 SMUs converted the units to
an equivalent  number of common shares.  We also redeemed the special  preferred
voting shares related to the converted SCUs at par ($0.01 per share).

"Other" minority  interests  represent the 10% interest in Centerbrook  owned by
IXIS.

NOTE 12 - COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) was as follows:

<TABLE>
<CAPTION>

                                                                          Six months Ended
                                                                              June 30,
                                                                       ---------------------
                         (In thousands)                                  2006         2005
-------------------------------------------------------------------    --------     --------
<S>                                                                    <C>          <C>
Net income                                                             $ 18,905     $ 34,229
Net unrealized gain (loss) on interest rate derivatives                   2,189         (963)
Net unrealized gain on marketable securities and equity investments         455           52
Net unrealized gain (loss) on mortgage revenue bonds:
   Unrealized (loss) gain during the period                             (45,139)       5,180
   Reclassification adjustment for net gain included in net income         (912)        (903)
                                                                       --------     --------
Comprehensive (loss) income                                            $(24,502)    $ 37,595
                                                                       ========     ========

</TABLE>


                                       15
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 13 - SHARE BASED COMPENSATION

A. THE PLAN

As approved by shareholders in 1997 and amended and restated in 2003, we have an
Amended and Restated Incentive Share Plan (the "Plan"),  the purpose of which is
to:

     o    attract and retain qualified persons as trustees and officers; and
     o    provide  incentive and more closely  align the financial  interests of
          our  employees,  officers  and  trustees  with  the  interests  of our
          shareholders  by  providing  them  with a  financial  interest  in our
          success.

The  Compensation  Committee  of our  board of  trustees  administers  the Plan.
Pursuant to the Plan, the maximum number of common shares that may be awarded is
the lesser of:

     o    10% of the number of total shares  outstanding  (which includes equity
          that is  convertible  into common  shares) as of December 31 preceding
          issuances of such awards; and
     o    the limits  prescribed by the national  security  exchange or national
          quotation system on which the shares may then be listed.

The Plan allows for the  issuance of share  options,  restricted  share  grants,
share appreciation rights, restricted and deferred shares, performance units and
performance shares.

B. SHARE OPTIONS

On January 1, 2006, we adopted SFAS No.  123(R).  Since we previously  accounted
for our  stock-based  compensation  plans as an  expense  under  the fair  value
provisions  of SFAS No.  123,  our  adoption  did not  significantly  impact our
financial position or our results of operations.

All options  granted have an exercise  price equal to or greater than the market
price of our common  shares on the grant date.  The  maximum  option term is ten
years from the date of grant and options  granted  pursuant to the Plan may vest
immediately  upon  issuance  or over a  period  determined  by our  compensation
committee.

In 2006, we granted the following options pursuant to the Plan:

<TABLE>
<CAPTION>

                                                      Weighted
                                       Weighted       Average
                     Weighted Average   Average       Vesting
         Number       Exercise Price     Term          Period
         -------     ----------------  ---------    ------------
         <S>              <C>          <C>            <C>
         544,000          $21.78       7.4 years      2.1 years

</TABLE>

We used the following weighted average  assumptions in the Black-Scholes  option
pricing model to determine fair values of options granted:

Risk free interest rate                                4.42%
Expected years until exercise                          1.71
Expected stock volatility                             23.14%
Dividend yield                                         8.11%


                                       16
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The following  table  summarizes  share option activity for the six months ended
June 30, 2006:

<TABLE>
<CAPTION>

                                                                       Weighted
                                                                        Average
                                                            Weighted   Remaining     Aggregate
                                                             Average  Contractual    Intrinsic
                                                            Exercise     Term          Value
                                                 Options      Price    (in years)  (in thousands)
                                              ---------------------------------------------------
<S>                                            <C>           <C>          <C>         <C>
Outstanding at beginning of year                1,510,341    $20.42

Granted                                           544,000     21.78
Forfeited / expired                                    --        --
Exercised                                              --        --
                                              ---------------------------------------------------
Outstanding at end of period                    2,054,341    $20.78       7.5         $1,115
                                              ===================================================

Vested and expected to vest at end of period    2,054,341    $20.78       7.5         $1,115
                                              ===================================================

Exercisable at end of period                      779,351    $21.16       6.3         $  557
                                              ===================================================

Fair value of options granted during the
  period (in thousands)                        $     852
                                              ==========

Compensation cost recorded (in thousands)      $     502
                                              ==========

</TABLE>

The  aggregate  intrinsic  value in the table above  represents  the  difference
between our closing common share price on June 30, 2006, and the exercise price,
multiplied  by the number of "in the money"  options.  This  amount  will change
based on the fair market value of our common shares.

The following table summarizes  information about share options  outstanding and
exercisable at June 30, 2006:

<TABLE>
<CAPTION>

                                              Weighted
                                              Average
                                             Remaining
                            Number        Contractual Life        Number
  Exercise Price          Outstanding        (in Years)         Exercisable
  --------------          -----------     ----------------      -----------
      <S>                  <C>                     <C>            <C>
      $11.56                  51,576               3.8             51,576
      $17.56                   2,250               6.2              2,250
      $17.78                 800,000               7.4            200,000
      $21.18                 159,510               0.7            159,510
      $21.61                  20,000               8.9              6,667
      $22.03                 384,490               9.5                 --
      $24.44                 636,515               8.5            359,348
                          ----------          --------          ---------
                           2,054,341               6.3            779,351
                          ==========          ========          =========

</TABLE>


                                       17
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



C. NON-VESTED SHARES AND SCUS

The following table summarizes  information about non-vested shares and SCUs for
the six months ended June 30, 2006:

<TABLE>
<CAPTION>

                                                      Weighted                 Weighted
                                                       Average                  Average
                                         Non-vested  Grant Date  Non-vested   Grant Date
                                           shares    Fair Value     SCUs      Fair Value
                                        ------------------------ ------------------------
<S>                                       <C>        <C>           <C>        <C>
Non-vested at January 1, 2006             241,194    $   20.25     310,400    $   17.92
Granted                                   237,330        20.54          --           --
Vested                                     89,367        20.02          --           --
Forfeited                                  12,996        20.81          --           --
                                        ------------------------ ------------------------
Non-vested at June 30, 2006               376,161    $   20.47     310,400    $   17.92
                                        ======================== ========================

</TABLE>

D. UNAMORTIZED COSTS AND SHARES AVAILABLE FOR GRANT

As of June 30, 2006, there was $4.8 million of total  unrecognized  compensation
cost related to non-vested  share-based  compensation  grants. This unrecognized
compensation is expected to be recognized over a weighted-average  period of 1.2
years.

As of June 30,  2006,  there were  approximately  4.1  million  options or share
grants available for issuance under the Plan.

NOTE 14 - STOCK REPURCHASE PLAN

During the second  quarter  2006,  in  connection  with our existing  program to
repurchase  up to  1,500,000  of our common  shares,  we  entered  into a 10b5-1
trading plan to facilitate  the  purchases of shares under this program.  During
the six months ended June 30, 2006, we  repurchased  29,400 shares at an average
price of $18.79 per share,  including  shares we purchased prior to implementing
the 10b5-1 plan.

NOTE 15 - EARNINGS PER SHARE

For basic EPS, the number of shares includes  common and  Convertible  Community
Reinvestment Act Preferred Shares ("Convertible CRA Shares"), as the Convertible
CRA Shares  have the same  economic  benefits as common  shares.  Income for the
calculation  represents net income less dividends for the 4.4%  Convertible  CRA
Preferred Shares.

Diluted  EPS  is  calculated   using  the  weighted  average  number  of  shares
outstanding  during the period  plus the  additional  dilutive  effect of common
share  equivalents.  The  dilutive  effect  of  outstanding  share  options  and
non-vested share grants is calculated using the treasury stock method.  The 4.4%
Convertible  CRA Preferred  Shares and our  subsidiaries'  SCUs and SMUs are not
included in the calculation as their assumed conversions would be antidilutive.

<TABLE>
<CAPTION>

                                                     Three Months Ended June 30, 2006    Six months Ended June 30, 2006
                                                     ---------------------------------  ---------------------------------
     (In thousands, except per share amounts)         Income      Shares     Per Share   Income       Shares    Per Share
-------------------------------------------------    ---------   ---------   ---------  ---------    --------   ---------
<S>                                                  <C>            <C>       <C>       <C>            <C>      <C>
Net income                                           $   4,248                          $  18,905
Preferred dividends                                      1,188                              2,376
                                                     ---------                          ---------
Net income allocable to shareholders  (Basic EPS)        3,060      58,639    $   0.05     16,529      58,609   $    0.28
                                                                              ========                          =========
Effect of dilutive securities                               --         280                     --         352
                                                     ---------   ---------              ---------    --------
Diluted EPS                                          $   3,060      58,919    $   0.05  $  16,529      58,961   $    0.28
                                                     =========   =========    ========  =========    ========   =========

</TABLE>


                                       18
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



<TABLE>
<CAPTION>

                                                     Three Months Ended June 30, 2005    Six months Ended June 30, 2005
                                                     ---------------------------------  ---------------------------------
     (In thousands, except per share amounts)         Income      Shares     Per Share   Income       Shares    Per Share
-------------------------------------------------    ---------   ---------   ---------  ---------    --------   ---------
<S>                                                  <C>            <C>       <C>       <C>            <C>      <C>
Net income                                           $  19,444                          $  34,229
Preferred dividends                                         --                                 --
                                                     ---------                          ---------
Net income allocable to shareholders  (Basic EPS)       19,444      57,890    $   0.34     34,229      57,856   $    0.59
                                                                              ========                          =========
Effect of dilutive securities                               --         384                     --         415
                                                     ---------   ---------              ---------    --------
Diluted EPS                                          $  19,444      58,274    $   0.33  $  34,229      58,271   $    0.59
                                                     =========   =========    ========  =========    ========   =========

</TABLE>

NOTE 16 - RELATED PARTY TRANSACTIONS

General and administrative expenses include shared services fees paid or payable
to The Related Companies, L.P. ("TRCLP"), a company controlled by our chairman.

In  addition,  a  subsidiary  of  TRCLP  earned  fees  for  performing  property
management  services for various  properties  held in investment  funds which we
manage and are included in "other expenses of consolidated partnerships".

We collect asset management, incentive management and expense reimbursement fees
from AMAC. These fees are included in fund sponsorship income. We entered into a
new  agreement,  effective  as of April 2006 whereby the basis of certain of the
fees we earn have  changed,  although we do not expect the fees earned to differ
significantly from the previous agreement absent the effect of AMAC's growth.

In June 2004, we entered into an unsecured  revolving  credit facility with AMAC
to provide it up to $20.0 million, bearing interest at LIBOR plus 3.0%, which is
to be used by  AMAC  to  purchase  new  investments  and for  general  corporate
purposes.  In April 2006,  we increased the facility to $50.0 million and, as of
June 30, 2006, there was approximately $27.0 million advanced to AMAC under this
facility.  Income we earn from this  facility  is  included  in "other  interest
income". In the opinion of management, the terms of this facility are consistent
with those of loan transactions with independent third parties.

During 2006, our Mortgage Banking subsidiaries originated over $151.0 million in
loans on behalf of AMAC and received  approximately $924,000 of mortgage banking
fees from the  borrowers.  We record these fees in "Fee income" in the condensed
consolidated statements of income.

Fees paid to TRCLP and income earned from AMAC was as follows:

<TABLE>
<CAPTION>

                                                  Three Months Ended   Six Months Ended
                                                       June 30,            June 30,
                                                  ------------------   ----------------
                  (In thousands)                    2006      2005      2006      2005
-----------------------------------------------    ------    ------    ------    ------
<S>                                                <C>       <C>       <C>       <C>
Shared service fee expense                         $  153    $  123    $  316    $  262
TRCLP property management services expense         $1,025    $  822    $2,056    $1,800
AMAC asset management, incentive management and
   expense reimbursement fee income                $  824    $  635    $1,780    $1,500
AMAC credit facility interest income               $  745    $   --    $  745    $   73

</TABLE>


                                       19
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 17 - BUSINESS SEGMENTS

We operate in four business segments:

1.   Portfolio Investing,  which includes  subsidiaries that invest in primarily
     tax-exempt  first  mortgage  revenue bonds issued by various state or local
     governments,  agencies or  authorities  and other  investments  designed to
     produce federally  tax-exempt  income. The proceeds of the mortgage revenue
     bonds are used to finance the new construction, substantial rehabilitation,
     acquisition,  or refinancing of affordable  multifamily  housing throughout
     the United States.

     Through  this  segment,  we also  invest  in  other  entities,  such as our
     preferred and common  investments in ARCap, our participating  loan to CCA,
     our preferred  investment in CCA prior to the  acquisition of CRES, and our
     investments in funds that CCA and CRES sponsor.

2.   Fund Management, which includes:

     o    Subsidiaries  that sponsor real estate  equity  investment  funds that
          primarily invest in LIHTC  properties.  In exchange for sponsoring and
          managing  these  funds,  we receive  fee income  for  providing  asset
          management, underwriting, origination and other services;
     o    A subsidiary that provides advisory services to AMAC;
     o    Subsidiaries that participate in credit  intermediation  transactions,
          including  those for pools of mortgage  loans and providing  specified
          returns to investors in LIHTC equity funds, in exchange for fees; and
     o    A hedge fund  management  subsidiary  that provides  pension  advisory
          services.

3.   Mortgage  Banking,  which includes  subsidiaries that originate and service
     primarily multifamily mortgage loans on behalf of third parties, including:

     o    Fannie Mae;
     o    Freddie Mac;
     o    the FHA;
     o    AMAC; and
     o    Insurance companies and conduits.

     In exchange for these  activities,  we receive  origination  and  servicing
     fees.

4.   Consolidated  Partnerships,  primarily  the LIHTC  equity  funds we sponsor
     through  the  Fund  Management  segment's  subsidiaries  and  which  we are
     required to  consolidate  in  accordance  with FIN 46(R),  as well as other
     partnerships we control but in which we have little or no equity interest.

Segment results include all direct and contractual revenues and expenses of each
segment and  allocations of indirect  expenses based on specific  methodologies.
These reportable  segments are strategic  business units that primarily generate
revenue  streams  that  are  distinctly  different  and  are  generally  managed
separately.

The  table  below  includes  Cash  Available  for  Distribution  ("CAD"),  and a
reconciliation  from CAD to net income,  as the performance  measure used by our
chief decision-maker to allocate resources among the segments.


                                       20
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The following table provides more information regarding our segments:

<TABLE>
<CAPTION>

                                                     Three Months Ended           Six Months Ended
                                                          June 30,                    June 30,
                                                  -----------------------     -----------------------
                (In thousands)                       2006          2005          2006          2005
----------------------------------------------    ---------     ---------     ---------     ---------
<S>                                               <C>           <C>           <C>           <C>
REVENUES
   Portfolio Investing                            $  49,933     $  42,295     $  93,924     $  82,027
   Fund Management                                   28,616        32,982        51,540        49,399
   Mortgage Banking                                  13,391        11,561        26,642        17,432
   Consolidated Partnerships                          9,366         7,152        17,611        12,054
   Elimination of intersegment transactions         (22,075)      (15,510)      (38,347)      (24,486)
                                                  ---------     ---------     ---------     ---------
Consolidated Revenues                             $  79,231     $  78,480     $ 151,370     $ 136,426
                                                  =========     =========     =========     =========

CAD
   Portfolio Investing                            $  24,254     $  25,622     $  48,686     $  53,736
   Fund Management                                   13,165        23,131        13,648        26,286
   Mortgage Banking                                   2,268         5,373         6,030         5,161
                                                  ---------     ---------     ---------     ---------
   Total Segment CAD                                 39,687        54,126        68,364        85,183
   Preferred dividends                               (1,188)           --        (2,376)           --
   Subsidiary equity distributions                   (8,860)       (8,660)      (17,765)      (17,300)
   Dividends on subsidiary preferred stock           (6,281)       (6,281)      (12,561)      (12,561)
   Current tax benefit (expense)                        591          (781)        3,542          (781)
                                                  ---------     ---------     ---------     ---------
   Consolidated CAD                                  23,949        38,404        39,204        54,541
   Fees deferred for GAAP (1)                       (10,574)      (14,292)       (9,420)      (18,722)
   Depreciation and amortization expense            (14,615)       (9,469)      (23,528)      (17,165)
   Mortgage revenue bond yield adjustments (2)         (468)          360          (631)          850
   Gain on sale of loans (3)                          2,190         5,012         6,813         6,649
   Loss on impairment of assets                      (2,271)       (1,098)       (2,271)       (1,098)
   Tax adjustment (4)                                  (187)        1,116          (219)        9,481
   Non-cash compensation (5)                         (1,061)       (1,576)       (3,413)       (3,534)
   Difference between subsidiary equity
    distributions and income allocated to
    subsidiary equity holders (6)                     7,209           779        10,234         3,354
   Preferred dividends                                1,188            --         2,376            --
   Other, net                                        (1,112)          208          (240)         (127)
                                                  ---------     ---------     ---------     ---------
Consolidated Net Income                           $   4,248     $  19,444     $  18,905     $  34,229
                                                  =========     =========     =========     =========

DEPRECIATION AND AMORTIZATION
   Portfolio Investing                            $   4,966     $     793     $   5,754     $   1,754
   Fund Management                                    4,541         5,014         8,924         9,611
   Mortgage Banking                                   5,108         3,662         8,850         5,800
   Consolidated Partnerships                             --            --            --            --
   Elimination of intersegment transactions              --            --            --            --
                                                  ---------     ---------     ---------     ---------
Consolidated Depreciation and Amortization        $  14,615     $   9,469     $  23,528     $  17,165
                                                  =========     =========     =========     =========

</TABLE>

(1)  Represents  the net  difference  between  fees  received  at the  time of a
transaction  that  are  recognized  immediately  for CAD but  are  deferred  and
recognized over time for GAAP accounting (e.g.: fund sponsorship fees recognized
over the  relevant  service  periods)  or upon a later  event  (such as mortgage
origination fees recognized upon settlement of a loan sale).
(2) Represents the  adjustment  for  amortization  of bond discounts or premiums
that are recognized  immediately  for CAD but are deferred and  recognized  over
time for GAAP  accounting,  as well as the difference  between  actual  interest
income received and income recognized under the effective yield method.
(3) Represents non-cash gain recognized on sale of mortgage loans when servicing
rights are retained and gains on sales of mortgage revenue bonds.
(4) Represents the difference  between the tax benefit recorded and the net cash
amount we expect to pay or receive in relation to the current period.
(5) Represents the add-back of amortization of costs  recognized for share-based
compensation.
(6)  Represents  the  difference  between  actual  distributions  to SCU and SMU
holders  (which is based on the common share  distribution  rate) and accounting
allocation of earnings,  which is based on the  represented  portion of combined
common, CRA and subsidiary equity in allocating GAAP net income.


                                       21
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 18 - COMMITMENTS AND CONTINGENCIES

PRS/CRG

PRS Companies  ("PRS") and Capitol Realty Group ("CRG") were sponsors of certain
LIHTC  partnerships  for which we hold  mortgage  revenue  bonds and/or to which
investment funds we sponsor have contributed equity. Information with respect to
these partnerships is set forth in the table on page 24. A construction  company
affiliate of PRS also served as general contractor for those partnerships.

Due to  financial  difficulties  experienced  by PRS,  we  ceased  our  business
dealings with them and, among other provisions of an agreement  reached in April
2005,  assumed the general partner interest in certain of the "PRS Partnerships"
indicated in the table on page 24.

Also in April 2005,  affiliates of ours  acquired,  by  assignment,  the general
partnership  interests owned by CRG in five of the "CRG Partnerships"  indicated
in the table on page 24. We sought control of the CRG  Partnerships  because PRS
was  the  construction  general  contractor  for  those  partnerships  and  PRS'
financial  difficulties caused construction finance shortfalls that have created
liquidity problems for those partnerships. We entered into settlement agreements
that provided for, among other things:

     o    a non-revolving line of credit from us to be used to stabilize the CRG
          Partnerships   which  is  collateralized  by  contractual   rights  to
          development  fees to CRG and its  affiliates to receive fees and other
          consideration.  This includes  interim loans to satisfy amounts due to
          subcontractors,   material   suppliers  and  other  vendors  providing
          materials and/or services on the CRG projects;
     o    reaffirmation of various guarantee agreements;
     o    the  assignment  of the  interests  in  the  CRG  Partnerships  to our
          affiliates;
     o    an operating  agreement,  whereby an affiliate of CRG will operate the
          CRG projects subject to our discretion; and
     o    various releases by and amongst the CRG Settlement parties,  excluding
          any reaffirmation of guaranty  agreements and any other exclusions set
          forth in the CRG Settlement Agreements.

The  CRG  Settlement  Agreements  also  provide  that  the  general  partnership
interests  will be returned to CRG if they provide us with a letter of credit to
secure advances made and/or such advances are paid in full by a date certain.

Additionally,  there were two other projects, for which PRS was the construction
company--O'Fallon and Peine Lakes (the "GCG Partnerships").  With respect to the
O'Fallon  project,  in August 2005 the Gundaker  Commercial  Group,  Inc and its
affiliates  ("GCG")  and our  affiliates  negotiated  a letter of  intent  which
provides for:

     o    additional mortgage debt financing by an affiliate of ours;
     o    the assignment of a portion of our affiliates interest in the O'Fallon
          Partnership to an affiliate of GCG;
     o    the execution of a new construction contract; and
     o    amendments to several fee agreements.

With  respect  to the  Peine  Lakes  project,  it  continues  to move  along its
construction phase and is now substantially  complete.  GCG has assumed the full
general partner interest and agreed to fund  approximately $1.0 million into the
Peine Partnership to aid in any cost overruns and any amounts due and owing as a
result of the action of PRS on the  project.  Should cost  overruns  exceed $1.0
million,  we will share in the excess in return  for a partial  general  partner
interest.

In addition  to the PRS  Partnerships,  CRG  Partnerships  and GCG  Partnerships
described  above, we own bonds that finance other  partnerships in which PRS was
the  general  partner  or in which CRG is the  general  partner  and PRS was the
construction  general contractor.  These partnerships are also summarized in the
table on page 24. On those deals in which our funds are not the equity  sponsor,
we will  look to the  respective  equity  investor  to  take  control,  complete
construction and stabilize the partnerships.  Absent a satisfactory  resolution,
we may  exercise our  available  remedies to protect our  investments.  In those
situations, there is substantial equity in the form of LIHTCs in addition to the
real estate, both of which are our collateral.

There can be no assurance  that a bankruptcy by or against PRS or its affiliates
may not give rise to additional claims concerning these partnerships.


                                       22
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



Our potential exposure falls into three categories as follows:

         Cash  required  to  bring  the  properties to break-even operation - As
               of June 30,  2006,  advances  outstanding  totaled  approximately
               $20.0 million either to the partnerships or through the revolving
               line of  credit  to the CRG  partnerships.  These  advances,  and
               additional  loans, are assessed  periodically for  collectibility
               and the impact on the potential  impairment of existing  mortgage
               revenue  bonds.  Given  existing  loan-to-value  ratios  and  the
               variability of the likelihood of funding, we cannot yet determine
               the  ultimate  amount of any such loans.  At  present,  we do not
               anticipate that any such loans would require a charge to expense.
               We  currently  estimate  that we will not need to  advance  funds
               materially  in excess of advances  outstanding  at June 30, 2006.
               This estimate is based upon our ongoing analyses and may increase
               due to unforeseen  construction  delays and other factors,  while
               the  amount  may  be  reduced  by  additional   contributions  by
               investors (which may generate  additional tax credits),  reserves
               at the property level,  syndication of state tax credits or other
               factors.

         Potential impact on  mortgage  revenue  bonds - Our  current  estimate,
              based on available  information,  is that expected cash flows from
              the underlying  properties are sufficient to provide debt service.
              As a result, we do not believe that there is  other-than-temporary
              impairment of any of the affected bonds.

         Potential cost to provide  specified  yields - As noted in the table on
              page 24, ten of the  partnerships  in question  are part of equity
              funds for which we are obligated to provide  specified  yields. As
              construction  delays are likely to reduce the  expected  yields of
              the properties  themselves,  performance of the funds is likely to
              be  impacted  as  well.  The  obligations,  however,  provide  for
              expected  yields  on  pools  of  properties,  some  of  which  are
              performing  above expected levels and the funds  themselves  often
              provide for adjustors  that may mitigate the negative  impact that
              would arise from the construction delays over the guarantee period
              covered  by the  agreements.  Our  current  estimate  given  these
              factors,  and assuming that the property level  partnerships  meet
              their obligations under existing partnership  agreements,  is that
              no exposure under these agreements is probable at this time.

With  respect  to one  property  in early  stages  of  construction,  we  halted
construction  and have since exercised our right to foreclosure as holder of the
first mortgage and plan to sell the property at our current carrying value after
recognizing a write-down in the second quarter of 2005.

With respect to another  property in the early stages of  construction,  we have
likewise determined that construction should not be continued.  We do not hold a
bond with respect to this property,  but a fund we sponsored provided equity. We
have received  preliminary  bids to sell our general partner and limited partner
interests that would allow us to fully recover the fund's  investment.  As such,
we expect no loss with respect to this property.

We  consolidated  the  partnerships  for  which  we  have  assumed  the  general
partnership  interests (except for the GCG  Partnerships,  which do not give our
affiliates operational control of the partnerships) effective April 2005.


                                       23
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



The partnerships in question are summarized as follows:

<TABLE>
<CAPTION>
                                                                                                        (In thousands)
                                                                                                   --------------------------
                              CharterMac     CharterMac                                                         Fair Value of
                               Holds or        Capital                                                Loan        Mortgage
                               Will Hold      Sponsored   Included in    CharterMac       Third     Amounts        Revenue
                               Mortgage        Fund is      Credit        Capital        Parties   Upon Full        Bonds
                                Revenue        Equity    Intermediated    Holds GP      Provided      Draw      Oustanding at
                   Number        Bond          Partner       Funds        Interest       Equity       Down      June 30, 2006
                   ------     -----------    ----------- --------------  ----------     ---------  ---------    -------------
<S>                  <C>          <C>             <C>         <C>            <C>           <C>      <C>           <C>
PRS
  PARTNERSHIPS
Construction          1            1              --          --             --             1       $ 12,500      $ 12,487
Lease-Up              9            8               5           3              5             4         99,300        97,820
Rehab                 2            2               1           1              1             1         30,400        31,374
Stabilized            2            2              --          --             --             2         18,575        18,602
                   ----------------------------------------------------------------------------------------------------------
Subtotal             14           13               6           4              6             8        160,775       160,283
                   ----------------------------------------------------------------------------------------------------------

CRG
  PARTNERSHIPS
Construction          1            1               1          --              1            --          7,130            --
Lease-Up              3            1               3           2              1            --         10,524        10,530
Rehab                 3            3               3           3              3            --         71,497        72,237
Stabilized           --           --              --          --             --            --             --            --
                   ----------------------------------------------------------------------------------------------------------
Subtotal              7            5               7           5              5            --         89,151        82,767
                   ----------------------------------------------------------------------------------------------------------

GCG
  PARTNERSHIPS
Construction          1            1               1           1             --            --         14,600        14,600
Lease-Up              1            1               1          --             --            --         13,170        13,170
Rehab                --           --              --          --             --            --             --            --
Stabilized           --           --              --          --             --            --             --            --
                   ----------------------------------------------------------------------------------------------------------
Subtotal              2            2               2           1             --            --         27,770        27,770
                   ----------------------------------------------------------------------------------------------------------

Total                23           20              15          10             11             8       $277,696      $270,820
                   ==========================================================================================================
Total eliminated in consolidation                                                                   $155,401      $149,654
                                                                                                 ============================

</TABLE>

FORWARD TRANSACTIONS

At June 30, 2006, our Mortgage Banking  subsidiaries had forward  commitments of
approximately  $264.7  million for mortgages to be funded in 2006 and later.  As
each lending  commitment has an associated sale  commitment,  the fair values of
these  commitments  offset  each other and,  as a result,  we record no asset or
liability.  In addition,  those  subsidiaries  had commitments to sell mortgages
totaling $214.8 million.  Approximately $194.3 million of this amount was funded
as of June 30, 2006, and is included in "Other  Investments"  as "Mortgage Loans
Held for Sale". The balance of approximately $20.5 million is to be funded later
in 2006.

We have  entered  into  transactions  to  purchase  mortgage  revenue  bonds  at
predetermined  prices  and  interest  rates,  but  only if  construction  of the
property is completed.  These forward commitments create derivative  instruments
under  SFAS No.  133,  which  have been  designated  as a cash flow hedge of the
anticipated  funding of the  mortgage  revenue  bonds and are  recorded  at fair
value,  with changes in fair value recorded in other  accumulated  comprehensive
income until the mortgage  revenue bonds are funded.  The total potential amount
we could be required to fund is $31.9 million.

Additionally,  we have certain  other bonds that we fund on an as needed  basis.
The remaining balance to be funded on these drawdown bonds is approximately $9.1
million at June 30, 2006.


                                       24
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



MORTGAGE BANKING LOSS SHARING AGREEMENT

Pursuant  to a master  loss  sharing  agreement  under the Fannie Mae  Delegated
Underwriting  and Servicing  ("DUS")  program,  we assume  responsibility  for a
portion of any loss that may result from borrower defaults,  based on Fannie Mae
loss sharing formulas. At June 30, 2006, all but one of our loans sold to Fannie
Mae consisted of Level I loans,  meaning, in most cases, that we are responsible
for the first 5% of the unpaid principal balance and a portion of any additional
losses to a maximum of 20% of the original principal  balance;  Fannie Mae bears
any remaining loss.  Pursuant to this agreement,  we are responsible for funding
100% of mortgagor  delinquency  (principal  and interest) and servicing  (taxes,
insurance and foreclosure  costs) advances until the amounts  advanced exceed 5%
of the unpaid  principal  balance  at the date of  default.  Thereafter,  we may
request  interim  loss  sharing  adjustments  which allow us to fund 25% of such
advances until final settlement under the agreement.

We also participate in loss sharing  transactions  under Freddie Mac's Delegated
Underwriting  Initiative  ("DUI")  program  whereby we originate  loans that are
purchased by Freddie Mac. The aggregate of all loans we may originate under this
program can not exceed $100.0 million.  Under the terms of our master  agreement
with Freddie Mac, we are obligated to reimburse Freddie Mac for a portion of any
loss that may result from borrower defaults on DUI transactions. For such loans,
if a default  occurs,  our share of the loss will be the first 5% of the  unpaid
principal  balance  and 25% of the next 20% of the  remaining  unpaid  principal
balance  to a maximum  of 10% of the  unpaid  principal  balance.  The loss on a
defaulted loan is calculated as the unpaid principal amount due, unpaid interest
due and default resolutions costs (taxes,  insurance,  operation and foreclosure
costs) less recoveries.

Our  maximum  exposure  at June 30,  2006,  pursuant  to these  agreements,  was
approximately $873.2 million  (representing what we would owe in accordance with
the loss sharing  percentages with Fannie Mae and Freddie Mac described above if
every loan  defaulted),  although  this amount is not  indicative  of our actual
potential  losses. We maintain an allowance for loan losses for loans originated
under these product lines at a level that, in management's judgment, is adequate
to  provide  for  estimated   losses.   At  June  30,  2006,  that  reserve  was
approximately $12.9 million, which, we believe,  represents our actual potential
losses at that time.

As of June 30, 2006, our Mortgage Banking  subsidiaries  maintained,  collateral
consisting  of treasury  notes,  and Fannie Mae and Freddie  Mac  securities  of
approximately  $1.5 million and a money market  account of  approximately  $11.4
million,  which is included in  restricted  cash in the  condensed  consolidated
balance  sheet,  to  satisfy  the Fannie Mae  collateral  requirements  of $12.9
million.

We are also  required  by the master  agreement  with  Freddie  Mac to provide a
letter of  credit  in the  amount of 8% of the  original  principal  balance  as
collateral security for payment of the reimbursement obligation. A reimbursement
agreement with the Bank of America to provide a master letter of credit covering
the  collateral  requirement  up to $8.0  million  covers  this letter of credit
requirement.  At June 30, 2006,  commitments under this reimbursement  agreement
totaled $2.5 million.

MORTGAGE POOL CREDIT INTERMEDIATION

In December 2001, we completed a credit intermediation  transaction with Merrill
Lynch Capital Services, Inc. ("MLCS"). Pursuant to the terms of the transaction,
we assumed  MLCS's first loss position on a pool of tax-exempt  weekly  variable
rate  multifamily  mortgage  loans.  TRCLP  has  provided  us with an  indemnity
covering  50% of any losses  that we incur as part of this  transaction.  As the
loans  mature or prepay,  the first loss  exposure  and the fees we receive  are
reduced.  The latest maturity date on any loan in the portfolio  occurs in 2009.
Fannie  Mae and  Freddie  Mac have  assumed  the  remainder  of the real  estate
exposure after the first loss position.  In connection with the transaction,  we
have posted  collateral,  initially  in an amount equal to 50% of the first loss
amount,  which may be reduced to 40% if certain post closing conditions are met.
Our maximum  exposure under the terms of the transaction as of June 30, 2006, is
approximately $7.4 million.

We  performed  due  diligence  on  each  property  in  the  pool,  including  an
examination  of  loan-to-value  and debt service  coverage both on a current and
"stressed"  basis. We analyzed the portfolio on a "stressed" basis by increasing
capitalization  rates and assuming an increase in the low floater bond rate.  As
of June 30, 2006, the  credit-intermediated  properties are performing according
to their  contractual  obligations  and we do not  anticipate  any  losses to be
incurred on this  guarantee.  Should our  analysis of risk of loss change in the
future, a provision for probable loss might be required  pursuant to SFAS No. 5,
ACCOUNTING FOR CONTINGENCIES ("SFAS No. 5").


                                       25
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



YIELD TRANSACTIONS

We have entered into several credit  intermediation  agreements with either IXIS
Financial   Products,   Inc.   ("IXIS")  or  Merrill   Lynch  (each  a  "Primary
Intermediator") to provide  agreed-upon rates of return for pools of multifamily
properties each owned by a local partnership which in turn, is majority-owned by
a fund sponsored by CharterMac Capital. In return, we have or will receive fees,
generally at the start of each credit  intermediation  period. There are a total
of 11 outstanding agreements to provide the specified returns:

     o    through the construction and lease-up phases of the properties;
     o    for the period from the  completion of the  construction  and lease-up
          phases through the operating phase of the properties; or
     o    covering both periods.

Total potential exposure pursuant to these transactions is approximately  $787.2
million,  assuming the funds achieve no return whatsoever.  We have analyzed the
expected operations of the underlying properties and believe there is no risk of
loss at this time, as we have never yet been called upon to make payments  under
these  agreements.  Should our analysis of risk of loss change in the future,  a
provision for possible losses might be required pursuant to SFAS No. 5. The fair
value of these obligations, representing the deferral of the fee income over the
obligation  periods,  was $20.0  million  as of June 30,  2006.  This  amount is
included in deferred revenues on our condensed consolidated balance sheet. Refer
also  to  PRS  /  CRG  above,   regarding   potential  exposure  under  existing
obligations.

Some of the property-level  partnerships have financed their properties with the
proceeds of our mortgage revenue bonds. In a portion of these cases, the Primary
Intermediator has required that those mortgage revenue bonds be deposited into a
trust pursuant to which the mortgage  revenue bonds were divided into senior and
subordinated  interests  with  approximately  50% of each mortgage  revenue bond
being  subordinated.  We have financed  these senior trust interest using credit
intermediation  from the  Primary  Intermediator  as part of the  P-FLOATs/RITES
securitization  program.  We use the remaining  subordinate  trust  interests as
collateral  in this  program.  In connection  with these  transactions,  we have
posted $585.7 million as collateral with a Primary  Intermediator in the form of
either cash or mortgage revenue bonds as of June 30, 2006.

OTHER

We have entered into several transactions pursuant to the terms of which we will
provide credit support to construction lenders for project completion and Fannie
Mae conversion.  In some instances,  we have also agreed to acquire subordinated
bonds to the extent the construction  period bonds do not fully convert. We also
provide payment, operating deficit, recapture and replacement reserve guarantees
as business  requirements for developers to obtain construction  financing.  Our
maximum  aggregate  exposure  relating to these  transactions  is  approximately
$231.1  million  as of June  30,  2006.  The fair  value  of these  obligations,
representing  the deferral of the fee income over the  obligation  periods,  was
$1.3  million as of June 30,  2006.  To date,  we have had  minimal  exposure to
losses  under  these   transactions   and   anticipate  no  material   liquidity
requirements in satisfaction of any guarantee issued.

OTHER CONTINGENCIES

At June 30,  2006,  we had unused  letters  of credit  totaling  $43.0  million,
including  the $8.0  million  described  in the  MORTGAGE  BANKING  LOSS SHARING
AGREEMENTS above.

We are subject to routine litigation and administrative  proceedings  arising in
the ordinary  course of business.  Management does not believe that such matters
will have a  material  adverse  impact on our  financial  position,  results  of
operations or cash flows.


                                       26
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                  JUNE 30, 2006
                                   (UNAUDITED)



NOTE 19 - SUBSEQUENT EVENTS

Proposed Acquisition
--------------------

In June 2006, we announced our intent to acquire ARCap Investors,  LLC ("ARCap")
in which we  currently  have a 10.7%  interest  (see Note 4).  The  transaction,
subject  to  ARCap  shareholder   approval,   calls  for  net  consideration  of
approximately  $258.6 million, of which approximately  $253.6 million is payable
in cash and $5.0  million in  convertible  common  share  equivalent  securities
(similar to our convertible SMUs).

In  connection  with the  acquisition,  we would also issue  approximately  $1.7
million of CharterMac restricted shares to existing ARCap employees.

Financing
---------

In July 2006,  we reached an agreement to enter into a $350.0  million  six-year
term loan and a separate $150.0 million revolving credit facility.  The proceeds
will be used to pay the cash portion of the proposed  acquisition  consideration
and to retire existing financing arrangements and notes payable (see Note 7).


                                       27
<PAGE>



ITEM 2. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

Forward-Looking Statements
--------------------------

Certain   statements  made  in  this  report  may  constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
These  forward-looking  statements  are not  historical  facts,  but  rather our
beliefs and expectations and are based on our current  expectations,  estimates,
projections,  beliefs and assumptions about our Company and industry. Words such
as  "anticipates,"   "expects,"   "intends,"   "plans,"   "believes,"   "seeks,"
"estimates"  and similar  expressions  are intended to identify  forward-looking
statements.  These  statements are not guarantees of future  performance and are
subject to risks,  uncertainties and other factors, some of which are beyond our
control,  are  difficult  to predict  and could cause  actual  results to differ
materially from those expressed or forecasted in the forward-looking statements.
Some of these risks include, among other things:

     o    adverse  changes in the real  estate  markets  including,  among other
          things, competition with other companies;
     o    interest rate fluctuations;
     o    general  economic and  business  conditions,  which will,  among other
          things,  affect the availability and credit  worthiness of prospective
          tenants,  lease rents and the terms and  availability of financing for
          properties financed by mortgage revenue bonds we own;
     o    environment/safety requirements;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our investments;
     o    risk of default  associated with the mortgage  revenue bonds and other
          securities held by us or our subsidiaries;
     o    risks associated with providing credit intermediation;
     o    risk of loss under mortgage banking loss sharing agreements;
     o    the risk that  relationships with key investors and developers may not
          continue;
     o    our ability to generate fee income may not continue; and
     o    risks related to the form and structure of our financing arrangements.

These  risks  are  more  fully  described  in our Form  10-K for the year  ended
December  31,  2005.  We  caution  you not to  place  undue  reliance  on  these
forward-looking  statements,  which reflect our view only as of the date of this
report.

Factors Affecting Comparability
-------------------------------

We acquired Capri Capital Limited Partnership  ("CCLP") in March 2005. Operating
results in our Portfolio Investing segment prior to the acquisition date include
interest income on a loan made to CCLP in July 2004.  Following the acquisition,
operating results of CCLP are included in our Mortgage Banking segment.

During  June 2006,  we created  our  Centerbrook  subsidiary  to provide  credit
intermediation products to the affordable housing finance industry. Our majority
ownership of Centerbrook  will enable us to  prospectively  retain a significant
portion of the fees that we would have paid to third party credit providers.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2006 AND 2005

The following is a summary of our operations for the three months ended June 30,
2006 and 2005:

<TABLE>
<CAPTION>

                                           % of                       % of
      (In thousands)           2006      Revenues       2005        Revenues    % Change
--------------------------    -------    --------      -------      --------    --------
<S>                           <C>         <C>          <C>          <C>          <C>
Revenues                      $79,231     100.0 %      $78,480      100.0  %       1.0 %
Income before income taxes    $ 3,843       4.9 %      $19,109       24.3  %     (79.9)%
Net income                    $ 4,248       5.4 %      $19,444       24.8  %     (78.2)%

</TABLE>


                                       28
<PAGE>



Increases in Portfolio  Investing and Mortgage  Banking  revenues were partially
offset by a decrease  in Fund  Management  revenues  caused by the timing of the
fund  sponsorship  business.  Despite  revenue gains and an  incremental  equity
income   pick-up  of   approximately   $3.3  million   resulting  from  a  large
resecuritization   gain  realized  by  ARCap  (for  which  we   recognized   our
proportionate  share),  income before income taxes and net income decreased from
prior period as these gains were more than offset by:

     o    an increase in interest expense,  due to higher amount of debt as well
          as an increase in our average borrowing rate period over period;
     o    start-up  costs for  Centerbrook  operations and  restructuring  costs
          relating  to  integration  actions  in  anticipation  of the  proposed
          acquisition of ARCap (see Note 19 to condensed  consolidated financial
          statements);
     o    termination fees and other costs associated with the  restructuring of
          our securitization programs upon the launch of Centerbrook,  including
          writing off deferred financing costs; and
     o    a retroactive depreciation charge for real estate owned.

Incremental  costs in the second quarter as described above related to corporate
initiatives were as follows:

<TABLE>
<CAPTION>

                                                                       (In thousands)     Where recorded
                                                                       --------------     --------------
<S>                                                                        <C>            <C>
Centerbrook start-up costs                                                 $ 3,758        General and administrative
Restructuring costs in anticipation of ARCap acquisition                     1,995        General and administrative
Restructuring of securitization programs - incremental interest expense      1,915        Interest expense
Restructuring of securitization programs - termination fee                   1,420        General and administrative
Restructuring of securitization programs - write-off of deferred costs       3,398        Depreciation and amortization
                                                                           -------
                                                                            12,486
Tax effect                                                                    (752)
                                                                           -------
  Net incremental costs                                                    $11,734
                                                                           =======

</TABLE>

REVENUES

Our revenues were as follows:

<TABLE>
<CAPTION>

                                                 For the Three Months Ended June 30,
                                                 -----------------------------------
           (In thousands)                           2006        2005       % Change
-------------------------------------             -------     -------      --------
<S>                                               <C>         <C>             <C>
Mortgage revenue bond interest income             $39,217     $37,061         5.8 %

Other interest income                               6,580       3,279       100.7

Fee income:
   Mortgage banking                                 7,744       7,778        (0.4)
   Fund sponsorship                                 9,062      14,849       (39.0)
   Credit intermediation                            1,466       1,777       (17.5)
                                                  -------     -------       -----
Total fee income                                   18,272      24,404       (25.1)

Other revenues:
   Construction service fee                         1,102         962        14.6
   Expense reimbursements                             240       1,470       (83.7)
   Rental income of real estate owned               2,056         962       113.7
   Administration fees                                575         512        12.3
   Prepayment penalties                             1,234       1,545       (20.1)
   Other                                              589       1,133       (48.0)
                                                  -------     -------       -----
Total other revenues                                5,796       6,584       (12.0)

Subtotal                                           69,865      71,328        (2.1)
                                                  -------     -------       -----

Revenues of consolidated partnerships               9,366       7,152        31.0
                                                  -------     -------       -----
   Total revenues                                 $79,231     $78,480         1.0 %
                                                  =======     =======       =====

</TABLE>

Mortgage  revenue  bond  interest  income  increased  due to an  increase in the
average  portfolio  balance over the comparable  period  although the growth was
partially offset by a higher level of eliminations  following the  consolidation
of a group of property level  partnerships  in mid-2005.  Fund  sponsorship  fee
income  variances  primarily  relate to a decrease in equity invested during the
current  quarter  and are  detailed in the  discussions  of results for the Fund
Management segment.


                                       29
<PAGE>



Other  interest  income  includes  income from temporary  investments,  interest
earned on Mortgage  Banking escrow  balances and interest  earned on our loan to
CCA. The increase compared to the 2005 period relates to:

     o    the expansion of the Mortgage  Banking business due to the acquisition
          of CCLP and the increase in origination volume; and
     o    higher cash balances (predominantly escrow accounts we manage) coupled
          with increasing market interest rates for temporary investments.

Rental income of real estate owned  pertains to the  operations of properties on
which we foreclosed  during the second quarter of 2005. The 2006 period includes
a full quarter of  operations  while the 2005 results  represent  only a partial
period.

Revenue of consolidated  partnerships increased due to an increase in the number
of those partnerships over the past year.  Results of consolidated  partnerships
are also discussed below.

Offsetting  the  revenue  gains is the  elimination  of  revenues  earned by our
subsidiaries in transactions with partnerships we have consolidated but in which
we have  virtually no equity  interest.  Although the amounts are  eliminated in
consolidation,  the net losses  recognized by those  partnerships  in connection
with these  transactions  are absorbed by their equity  partners;  as such,  the
elimination in consolidation has an insignificant impact on our net income.

In the second quarters of 2006 and 2005, the following  amounts were eliminated,
as they represented transactions between consolidated partnerships and our other
component businesses:

<TABLE>
<CAPTION>

                                               For the Three Months Ended June 30,
                                               -----------------------------------
           (In thousands)                         2006        2005       % Change
-------------------------------------           --------    --------     --------
<S>                                             <C>         <C>             <C>
Mortgage revenue bond interest income           $  2,748    $  1,520        80.8%
Other interest income                                 52         (62)     (183.9)
Fund sponsorship fees                             11,091      11,515        (3.7)
Credit intermediation fees                           939         845        11.1
Other revenues                                     1,829         330       454.2
                                                --------    --------       -----

Total                                           $ 16,659    $ 14,148        17.7%
                                                ========    ========       =====

</TABLE>

EXPENSES

Our expenses were as follows:

<TABLE>
<CAPTION>

                                                     For the Three Months Ended June 30,
                                                     ----------------------------------
                  (In thousands)                        2006        2005      % Change
--------------------------------------------------    --------    --------    --------
<S>                                                   <C>         <C>            <C>
Interest expense                                      $ 24,085    $ 14,351       67.8%
Interest expense - preferred shares of subsidiary        4,725       4,725         --

Salaries and benefits                                   18,059      16,879        7.0
Fund origination and property acquisition expenses       3,487       6,193      (43.7)
Operating costs of real estate owned                     1,840         588      212.9
Restructuring costs                                      1,995          --        --
Other general and administrative                        14,480       9,408       53.9
                                                      --------    --------      -----
   Subtotal                                             39,861      33,068       20.5
                                                      --------    --------      -----

Depreciation and amortization                           14,615       9,469       54.3
Loss on impairment of assets                             2,271       1,098      106.8
                                                      --------    --------      -----

   Subtotal                                             85,557      62,711       36.4

Interest expense of consolidated partnerships            5,611       6,133       (8.5)
Other expenses of consolidated partnerships             16,258      13,618       19.4
                                                      --------    --------      -----

Total expenses                                        $107,426    $ 82,462       30.3%
                                                      ========    ========      =====

</TABLE>

The  increase in interest  expense  reflects  the higher  amount of average debt
outstanding  (approximately $1.9 billion and $1.4 billion in the second quarters
of 2006 and 2005,  respectively)  to fund continuing  mortgage  revenue bond and
LIHTC investments and mortgage originations.  In addition, our average borrowing
rate  increased in 2006 as compared to 2005 as a result of increases in the Bond
Market  Association  Municipal Swap Index ("BMA") and LIBOR rates in both years.


                                       30
<PAGE>



The effect of rate increases was tempered,  however,  by the interest rate swaps
that we have in place, all of which are now "in the money". One swap that was in
effect in the 2005 period,  however,  has since expired.  Our average  borrowing
rate  increased to 4.6% in the second quarter of 2006 as compared to 4.1% in the
second quarter of 2005.

The increase in salaries and benefits expense primarily relates to the continued
growth of our component businesses.

Fund origination and property  acquisition  expenses represent costs incurred in
connection with  originating  tax-credit  equity  investment funds and acquiring
properties for those investment funds. The decrease compared to last year is the
result  of a lower  level  of  fund  sponsorship  activity  in  2006  (see  FUND
MANAGEMENT section below for related revenue discussion).

Operating costs of real estate owned relates to properties we foreclosed upon in
May 2005 in connection with three of our mortgage revenue bonds. The 2006 period
represents a full quarter's worth of operating  costs compared to  approximately
seven weeks during 2005.

The increase in other general and administrative  expenses primarily result from
start-up costs for Centerbrook  operations and termination  fees associated with
restructuring  of our  securitization  programs.  Restructuring  costs relate to
integration actions in anticipation of the ARCap acquisition (see Notes 9 and 19
to condensed consolidated financial statements). These costs are detailed in the
table on page 29.

Depreciation and amortization expenses were higher in the 2006 period, primarily
due to increased  amortization of mortgage  servicing  rights following the CCLP
acquisition and the expansion of the Mortgage Banking  business,  a write-off of
deferred   financing  costs  in  connection  with  the   restructuring   of  our
securitization  programs  in June  2006 as well  as  recognizing  a  retroactive
depreciation  charge for real estate owned which was reclassified  from held for
sale  to  held  and  used  (see  Note  6  to  condensed  consolidated  financial
statements).  These were partially  offset by the absence of  amortization  of a
sizable intangible asset that we wrote off at the end of 2005.

Expenses of the consolidated  partnerships  increased due to the increase in the
number  of  consolidated  entities  due  to  the  incremental  fund  sponsorship
activity.  Virtually all of the expenses of the  consolidated  partnerships  are
absorbed by their equity partners; as such, they have an insignificant impact on
our net income.

OTHER ITEMS

<TABLE>
<CAPTION>

                                                    For the Three Months Ended June 30,
                                                   -------------------------------------
                (In thousands)                        2006         2005        % Change
-----------------------------------------------    ---------     ---------     ---------
<S>                                                <C>           <C>             <C>
Equity and other income                            $   3,548     $     552       542.8 %

Gain on sale of loans                              $   2,517     $   4,317       (41.7)%
Gain on repayment of mortgage revenue bonds               21           912       (97.7)
                                                   ---------     ---------     -------
Gain on repayment of mortgage revenue bonds and
   sale of loans                                   $   2,538     $   5,229       (51.5)%
                                                   ---------     ---------     -------

Income allocated to preferred shareholders of
   subsidiary                                      $  (1,557)    $  (1,556)        0.1 %
                                                   ---------     ---------     -------

Income allocated to SCUs                           $  (1,632)    $  (7,826)      (79.1)%
Income allocated to SMUs                                 (19)          (55)      (65.5)
                                                   ---------     ---------     -------
  Total income allocated to minority interests     $  (1,651)    $  (7,881)     (79.17)%

Loss allocated to partners of consolidated
   partnerships                                    $ 107,090     $  93,370        14.7 %

</TABLE>

Equity and other income  primarily  includes income from our investment in ARCap
offset by losses from tax  advantaged  investment  vehicles  similar to those we
sponsor.  The 2006 period includes  incremental  equity income of  approximately
$3.3 million  relating to our  proportionate  share of a large  resecuritization
gain realized by ARCap.

Gains  related to  mortgage  revenue  bonds and loans  fluctuate  in relation to
relative  activity  levels  in the  Portfolio  Investing  and  Mortgage  Banking
businesses. See RESULTS BY SEGMENT below.

The  income  allocation  to  SCUs  and  SMUs  of  subsidiaries   represents  the
proportionate  share of after-tax  income  attributable to holders of subsidiary
equity as if they were all converted to common  shares.  The decrease in 2006 as
compared to 2005 is due to the decline in period  earnings and the conversion of
units during the past twelve months.

The loss  allocation to partners of  consolidated  partnerships  represents  the
operating  losses  of  those   partnerships,   of  which  we  have  absorbed  an
insignificant portion (approximately $2,000).


                                       31
<PAGE>



Results by Segment
------------------

PORTFOLIO INVESTING

The table below shows  selected  information  regarding our Portfolio  Investing
activities:

<TABLE>
<CAPTION>

                                                              For the Three Months Ended June 30,
                                                            --------------------------------------
                     (In thousands)                            2006          2005         % Change
--------------------------------------------------------    ----------    ----------      --------
<S>                                                         <C>           <C>               <C>
New mortgage revenue bond acquisitions                      $  120,801    $   39,080        209.1 %
Funding of mortgage revenue bonds acquired in prior
  years                                                         10,090         1,800        460.6
Acquisitions related to prior period forward commitments        22,300        14,150         57.6
                                                            ----------    ----------      -------
Total acquisition and funding activity                      $  153,191    $   55,030        178.4 %

Mortgage revenue bonds repaid                               $    5,075    $   18,922        (73.2)

Average portfolio balance (fair value)                      $2,431,420    $2,214,540          9.8 %

Weighted average permanent interest rate of bonds
  acquired                                                        6.19 %        5.47 %
Weighted average yield of portfolio                               7.01 %        7.08 %
Average borrowing rate (includes effect of swaps)                 4.36 %        3.72 %
Average BMA rate                                                  3.55 %        2.64 %
                                                            ----------    ----------

Mortgage revenue bond interest income (1)                   $   42,614    $   38,954          9.4 %
Other interest income (1)                                        4,670         1,088        329.2
Prepayment penalties                                                 5            61        (91.8)
Rental income of real estate owned                               2,056           961        113.9
Other revenues (1)                                                 588         1,231        (52.2)
                                                            ----------    ----------      -------
                                                            $   49,933    $   42,295         18.1 %
                                                            ==========    ==========      =======

Interest expense and securitization fees (1)                $   24,197    $   12,971         86.5 %
Loss on impairment of assets                                $    2,271    $    1,098        106.8%
Gain on repayments of mortgage revenue bonds                $       21    $      912        (97.8)%
                                                            ----------    ----------      -------

</TABLE>

(1) Prior to intersegment eliminations.

The increase in mortgage  revenue bond  interest  income is primarily due to the
increased  investment base resulting from new bonds funded during later quarters
of 2005 and first six months of 2006.

Rental income of real estate owned  pertains to the  operations of properties on
which we foreclosed  during the second quarter of 2005. The 2006 period includes
a full quarter of  operations  while the 2005 results  represent  only a partial
period.

While the decline in interest rates of bonds acquired has gradually  lowered the
average  yield of our  portfolio,  we continue to earn a positive  spread on our
portfolio.  Corresponding with an increase in the average portfolio balance, our
level of  securitizations  increased and, along with a higher average  borrowing
rate,  resulted in the increase in interest expense and securitization  fees. In
addition, the restructuring of our securitization programs in the second quarter
of 2006 resulted in incremental interest costs of $1.9 million.

While our  borrowing  costs have been  increasing  along with market  rates,  we
expect  the   commencement  of  Centerbrook,   our  new  credit   intermediation
subsidiary, will help enable us to retain a significant portion of fees which we
historically have paid to third parties. In addition, we anticipate  Centerbrook
will  enable us to obtain  better  leverage  against  our  assets  and lower our
average cost of capital.


                                       32
<PAGE>



FUND MANAGEMENT

The  table  below  shows  selected  information  regarding  our Fund  Management
activities:

<TABLE>
<CAPTION>

                                                 For the Three Months Ended June 30,
                                                 ----------------------------------
              (In thousands)                       2006         2005      % Change
-------------------------------------------       -------     --------    --------
<S>                                               <C>         <C>          <C>
Equity raised                                     $308,051    $421,182     (26.9)%
Equity invested by investment funds (1)           $220,911    $307,067     (28.1)%

Fees based on equity raised                       $  3,981    $  5,760     (30.9)%
Fees based on equity invested                     $  9,229    $ 13,460     (31.4)%

Fees based on management of other entities:
   Asset management and partnership fees          $  7,109    $  6,921       2.7 %
   Construction fees                                 1,102         962      14.6
   Investment origination fees                         155         290     (46.6)
   Other                                                --          60        --
                                                  --------    --------     -----
   Subtotal                                          8,366       8,233       1.6
                                                  --------    --------     -----

Total fund sponsorship fees (2)                     21,576      27,453     (21.4)

Credit intermediation fees (2)                       2,406       2,622      (8.2)
Expense reimbursement (2)                            3,612       2,258      60.0
Other interest income (2)                              246          60     310.0 %
Other revenues (2)                                     776         589      31.7
                                                  --------    --------     -----
  Total                                           $ 28,616    $ 32,982     (13.2)%
                                                  ========    ========     =====

</TABLE>

(1)  Excludes warehoused  properties that have not yet closed into an investment
     fund.
(2)  Prior to intersegment eliminations.

Our  Fund  Management  activities  generate  origination  and  acquisition  fees
associated with sponsoring  tax-credit equity investment funds and for assisting
the funds in acquiring assets, which we recognize when the equity is invested by
the investment  fund. We also receive  partnership and asset management fees for
the  services  we  perform  for the  funds  once  they are  operating,  which we
recognize over the service periods.  As many of our revenues are recognized over
time following the sponsorship of a new fund, many of the 2006 increases  relate
to the funds closed since the end of the second quarter of 2005.

FEES BASED ON EQUITY RAISED

We earn  Organization  and Offering  ("O&O") service and partnership  management
fees based upon the level of equity we raise for  tax-credit  equity funds.  O&O
fees are realized immediately while we earn the partnership management fees over
five-year periods.  O&O fees decreased  approximately 36% in 2006 as compared to
the same  period  in 2005  primarily  due to the  decrease  in  amount of equity
raised.  In addition,  the mix of fund  sponsorships  served to decrease the fee
realization  rate due to a higher  proportion of  "corporate"  funds included in
equity  raised for the 2006 period.  Although the level of equity  raised in the
2006 period fell short of the 2005 level,  we anticipate  that full-year  equity
raising  activity  in 2006  to  exceed  that  of the  prior  year.  Related  O&O
acquisition  expenses were also  comparatively down in-line with the decrease in
revenue.

FEES BASED ON EQUITY INVESTED

We earn property acquisition fees and acquisition  allowance fees based upon the
level of fund equity invested,  which varies due to the timing of fund closures.
While we acquire  properties on an ongoing basis  throughout the year, we do not
recognize  revenue until we place the property in a sponsored  fund.  Therefore,
delays in timing of a fund  closure may impact the level of revenues  recognized
in a given period.

The decrease in fees is greater than the decrease of equity invested  because of
a lower fee rate realized, stemming from changes in the mix of funds originated,
in that we sponsored a proportionally  higher level of "corporate"  funds in the
2006 period.

FEES BASED ON MANAGEMENT OF OTHER ENTITIES

Asset management and partnership fees increased in 2006, primarily  attributable
to the higher level of assets under  management  and an  improvement of the cash
position  of  certain  investment  funds,  allowing  us  to  collect  additional
management   fees  in  2006  which  we  did  not  previously   recognize   until
collectibility was reasonably assured.


                                       33
<PAGE>



OTHER REVENUES

Credit intermediation,  expense reimbursement and other revenues in this segment
consist  largely of service  fees  charged to entities  (including  consolidated
partnerships) managed by these subsidiaries and fluctuate with the growth of the
number of those entities and their cash flows.

MORTGAGE BANKING

The table  below shows  selected  information  regarding  our  Mortgage  Banking
activities:

<TABLE>
<CAPTION>

                                                       For the Three Months Ended June 30,
                                                      -------------------------------------
                  (In thousands)                         2006            2005      % Change
--------------------------------------------------    -----------     -----------  --------
<S>                                                   <C>             <C>             <C>
Originations                                          $   458,047     $   336,981     35.9 %
Mortgage portfolio at June 30                         $ 9,180,858     $ 9,022,353      1.8 %
Fair value of mortgage servicing rights at June 30    $    59,647     $    75,212    (20.7)%
                                                      -----------     -----------   ------

Mortgage origination fees (1)                         $     2,683     $     2,033     32.0 %
Mortgage servicing fees (1)                                 5,161           5,378     (4.0)
Assumption fees (1)                                           (27)            367   (107.4)
                                                      -----------     -----------   ------
Total fee income                                            7,817          7, 778      0.5 %

Interest income (1)                                         3,993           2,070     92.9
Prepayment penalties (1)                                    1,228           1,484    (17.3)
Other revenues (1)                                            353             229     54.1
                                                      -----------     -----------    -----
                                                      $    13,391     $    11,561     15.8 %
                                                      ===========     ===========    =====

Gain on sale of mortgages                             $     2,713     $     4,619    (41.3)%
                                                      ===========     ===========    =====

</TABLE>

(1)  Prior to intersegment eliminations.

Originations for the three months ended June 30 are broken down as follows:

<TABLE>
<CAPTION>

 (In thousands)          2006      % of total        2005     % of total
-----------------      --------    ----------      --------   ----------
<S>                    <C>            <C>          <C>            <C>
Fannie Mae             $213,318       46.6  %      $199,135       59.1  %
Freddie Mac              39,390        8.6           11,275        3.3
Conduit and other       205,339       44.8          126,571       37.6
                       --------     ------         --------    -------
Total                  $458,047      100.0  %      $336,981      100.0  %
                       ========     ======         ========    =======

</TABLE>

The  increase in mortgage  origination  fees for the  quarter was  generally  in
proportion  to the  increase  in  originations  although  the  average  rate  of
origination   fees  was  impacted  by  the  higher   proportion   of  non-agency
originations.  Although  Fannie Mae  originations  increased over the prior year
period,  they  represented a lower  proportion  of the total.  This was due to a
sharp increase in conduit  originations  as we continued to pursue business that
does not warrant agency execution in response to market demand and a large level
of loans originated on behalf of AMAC.

Despite the  increased  origination  volume and the  increase in the  portfolio,
servicing fee income  declined in the 2006 period as a result of steady  erosion
of the servicing fee rate, also due to the higher proportion of non-agency loans
in the portfolio.  This trend has also affected the level of mortgage  servicing
rights,  as write-offs in connection  with the prepayment of mortgages at higher
servicing  rates are  replaced  with new  assets  generating  lower fee  streams
Generally, as our prepayments have increased, our mortgage servicing rights have
decreased.

Interest income relates primarily to that earned on escrow balances.  The income
increase  resulted  from higher  account  balances  and  increased  market rates
earned.  The  decrease  in  prepayment  penalties  relates  to a lower  level of
refinancing activity in the current quarter as compared to last year.

Despite a higher  level of mortgage  originations,  gain on sale of mortgages in
the  current  year  period  was lower  than in the prior  year due to  appraisal
adjustments  recognized in 2005 following the acquisition of CCLP. Excluding the
prior year  adjustment,  gain on sale of mortgages  increased in 2006 consistent
with the originations volume.


                                       34
<PAGE>



CONSOLIDATED PARTNERSHIPS

The results of consolidated  partnerships  reflected in our financial statements
are for entities we control according to the definitions of FIN 46(R), and other
partnerships we control, but in which we have no equity interest or, in the case
of 14  partnerships,  an  insignificant  equity  interest.  Our Fund  Management
segment  earns  fees  from  many of the  entities,  however,  and our  Portfolio
Investing  business  earns  interest on mortgage  revenue  bonds for which these
partnerships are the obligors.  The consolidated  partnerships are primarily tax
credit  equity  investment  funds we sponsor  and  manage,  while the others are
property  level  partnerships  for  which we have  assumed  the role of  general
partner.

The increased revenue,  expense,  equity loss and allocation amounts in 2006 are
due principally to the origination of nine funds in the past year.

As third party investors hold virtually all of the equity partnership  interests
in these  entities,  we allocate  all results of  operations  to those  partners
except for  approximately  $2,000,  representing  our  nominal  ownership.  As a
result, the consolidation of these  partnerships has an insignificant  impact on
our net income.

SIX MONTHS ENDED JUNE 30, 2006 AND 2005

The following is a summary of our  operations  for the six months ended June 30,
2006 and 2005:

<TABLE>
<CAPTION>

                                            % of                       % of
      (In thousands)            2006      Revenues       2005        Revenues     % Change
--------------------------    --------    --------     --------      --------     --------
<S>                           <C>          <C>         <C>           <C>           <C>
Revenues                      $151,370     100.0 %     $136,426      100.0  %      11.0 %
Income before income taxes    $ 15,581      10.3 %     $ 25,529       18.7  %     (39.0)%
Net income                    $ 18,905      12.5 %     $ 34,229       25.1  %     (44.8)%

</TABLE>

Compared to 2005, the 2006 period benefited from the continued  expansion of all
of our  businesses  and a full six months of operations for CCLP in the Mortgage
Banking  segment as compared to only four months in 2005. In addition,  revenues
in 2006 include $17.6 million generated by consolidated partnerships compared to
$12.1  million in 2005.  Offsetting  the  revenue  gains is the  elimination  of
revenues earned by our  subsidiaries in transactions  with  partnerships we have
consolidated  but in which we have  virtually no equity  interest.  Although the
amounts are  eliminated  in  consolidation,  the net losses  recognized by those
partnerships in connection with these  transactions are absorbed by their equity
partners;  as such, the elimination in consolidation has an insignificant impact
on our net income.

Despite  revenue gains,  overall growth of other income in our Mortgage  Banking
business and an equity income pick-up of  approximately  $3.3 million  resulting
from a large resecuritization gain realized by ARCap, (for which we recorded our
proportionate  share),  income before income taxes and net income decreased from
prior period. These gains were more than offset by:

     o    an increase in interest expense,  due to higher amount of debt as well
          as an increase in our average borrowing rate period over period;
     o    an  increase  in  general  and  administrative  expenses  due  to  the
          acquisition of CCLP;
     o    start-up costs in commencing  Centerbrook operations and restructuring
          costs  relating to  integration  actions  with respect to the proposed
          acquisition of ARCap (see Note 19 to condensed  consolidated financial
          statements);
     o    termination fees and other costs associated with the  restructuring of
          our securitization programs upon the launch of Centerbrook,  including
          a write-off of deferred financing costs; and
     o    a retroactive depreciation charge for real estate owned.

Incremental  costs in 2006 as described  above related to corporate  initiatives
(the majority of which were recorded in the second quarter) were as follows:

<TABLE>
<CAPTION>

                                                                       (In thousands)     Where recorded
                                                                       --------------     --------------
<S>                                                                        <C>            <C>
Centerbrook start-up costs                                                 $ 4,313        General and administrative
Restructuring costs in anticipation of ARCap acquisition                     1,995        General and administrative
Restructuring of securitization programs - incremental interest expense      1,915        Interest expense
Restructuring of securitization programs - termination fee                   1,420        General and administrative
Restructuring of securitization programs - write-off of deferred costs       3,398        Depreciation and amortization
                                                                           -------
                                                                            13,041
Tax effect                                                                    (863)
                                                                           -------
  Net incremental costs                                                    $12,178
                                                                           =======
</TABLE>


                                       35
<PAGE>



REVENUES

Our revenues were as follows:

<TABLE>
<CAPTION>

                                                 For the Six Months Ended June 30,
                                                -----------------------------------
           (In thousands)                         2006         2005        % Change
-------------------------------------           --------     --------      --------
<S>                                             <C>          <C>              <C>
Mortgage revenue bond interest income           $ 75,739     $ 73,428         3.1 %

Other interest income                             12,519        6,842        83.0

Fee income:
   Mortgage banking                               15,598       12,155        28.3
   Fund sponsorship                               15,576       18,628       (16.4)
   Credit intermediation                           3,169        3,501        (9.5)
                                                --------     --------       -----
Total fee income                                  34,343       34,284         0.2

Other revenues:
   Construction service fee                        2,250        1,832        22.8
   Expense reimbursements                          1,467        2,929       (49.9)
   Rental income of real estate owned              3,097          962       221.9
   Administration fees                               976          846        15.4
   Prepayment penalties                            2,046        1,799        13.7
   Other                                           1,322        1,450        (8.8)
                                                --------     --------       -----
Total other revenues                              11,158        9,818        13.6

Subtotal                                         133,759      124,372         7.5
                                                --------     --------       -----

Revenues of consolidated partnerships             17,611       12,054        46.1
                                                --------     --------       -----

   Total revenues                               $151,370     $136,426        11.0 %
                                                ========     ========       =====

</TABLE>

Mortgage  revenue  bond  interest  income  increased  due to an  increase in the
average  portfolio  balance over the comparable  period  although the growth was
partially offset by a higher level of eliminations  following the  consolidation
of a group of property  level  partnerships  in mid-2005.  Fee income  variances
primarily  relate to  continued  growth of  Mortgage  Banking  businesses  and a
decrease in the level of equity invested by our Fund Management business (due to
timing of fund  originations) and are detailed in the discussions of results for
the Fund Management and Mortgage Banking segments below.

Other  interest  income  includes  income from temporary  investments,  interest
earned on Mortgage  Banking escrow  balances and interest earned on our loans to
CCA (and CCLP in 2005). The increase from the 2005 period relates to:

     o    the expansion of the Mortgage  Banking business due to the acquisition
          of CCLP and the increase in origination volume; and
     o    higher cash balances (predominantly escrow accounts we manage) coupled
          with increasing market interest rates for temporary investments.

Rental income of real estate owned  pertains to the  operations of properties on
which we foreclosed  during the second quarter of 2005. The 2006 period includes
a full six months of operations while the 2005 results  represent only a partial
period.

The increase in prepayment  penalties is principally  due to higher  refinancing
volume in the Mortgage Banking business.

Revenue of consolidated  partnerships increased due to an increase in the number
of those partnerships over the past year.  Results of consolidated  partnerships
are also discussed below.

In the first half of 2006 and 2005, the following  amounts were  eliminated,  as
they represented  transactions between  consolidated  partnerships and our other
component businesses:

<TABLE>
<CAPTION>

                                                  For the Six Months Ended June 30,
                                                 ----------------------------------
            (In thousands)                         2006         2005       % Change
-------------------------------------            --------     --------     --------
<S>                                              <C>          <C>            <C>
Mortgage revenue bond interest income            $ 4,287      $ 1,780        140.8 %
Other interest income                                105          103          1.9
Fund sponsorship fees                             20,105       18,019         11.6
Credit intermediation fees                         1,751        1,560         12.2
Other revenues                                     3,064          677        352.6
                                                 -------      -------        -----

Total                                            $29,312      $22,139         32.4 %
                                                 =======      =======        =====

</TABLE>


                                       36
<PAGE>



EXPENSES

Our expenses were as follows:

<TABLE>
<CAPTION>

                                                      For the Six Months Ended June 30,
                                                      ---------------------------------
                   (In thousands)                       2006        2005       % Change
--------------------------------------------------    --------    --------     --------
<S>                                                   <C>         <C>            <C>
Interest expense                                      $ 41,193    $ 24,931       65.2 %
Interest expense - preferred shares of subsidiary        9,449       9,449         --

Salaries and benefits                                   37,961      33,500       13.3
Fund origination and property acquisition expenses       5,720       6,955      (17.8)
Operating costs of real estate owned                     2,639         588      348.8
Restructuring costs                                      1,995          --         --
Other general and administrative                        24,112      18,237       32.2
                                                      --------    --------      -----
   Subtotal                                             72,427      59,280       22.2
                                                      --------    --------      -----

Depreciation and amortization                           23,528      17,165       37.1
Loss on impairment of assets                             2,271       1,098      106.8
                                                      --------    --------      -----

   Subtotal                                            148,868     111,923       33.0

Interest expense of consolidated partnerships           12,557      13,022       (3.6)
Other expenses of consolidated partnerships             31,539      24,665       27.9
                                                      --------    --------      -----

Total expenses                                        $192,964    $149,610       29.0 %
                                                      ========    ========      =====

</TABLE>

The  increase in interest  expense  reflects  the higher  amount of average debt
outstanding  (approximately  $1.9 billion and $1.3 billion for the first half of
2006 and 2005,  respectively) to fund continuing mortgage revenue bond and LIHTC
investments and mortgage  originations.  In addition, our average borrowing rate
increased  in 2006 as compared to 2005 as a result of increases in BMA and LIBOR
rates in both years. The effect of rate increases was tempered,  however, by the
interest rate swaps that we have in place,  all of which are now "in the money".
One swap in effect in the 2005 period,  however,  has since expired. Our average
borrowing  rate  increased  to 4.3% for the six months  ended  June 30,  2006 as
compared to 3.7% for the 2005 period.

The  increases  in salaries and  benefits  expense  relates to the growth of our
component  businesses as well as the  acquisition  of CCLP in March 2005,  which
doubled the size of our Mortgage Banking business. The 2006 period also includes
approximately   $800,000  of  severance   related  costs   associated  with  the
elimination of certain executive positions during the first quarter.

Fund origination and property  acquisition  expenses represent costs incurred in
connection with  originating  tax-credit  equity  investment funds and acquiring
properties for those investment funds. The decrease compared to last year is the
result  of a lower  level  of  fund  sponsorship  activity  in  2006  (see  FUND
MANAGEMENT section below for related revenue discussion).

Operating  costs of real estate owned relates to properties  foreclosed  upon in
May 2005 in connection with three of our mortgage revenue bonds. The 2006 period
represents a full six months worth of operating costs compared to  approximately
seven weeks during 2005.

The increase in other general and  administrative  expenses  primarily  resulted
from start-up costs for Centerbrook  operations and termination  fees associated
with restructuring of our securitization programs. Restructuring costs relate to
integration and actions in anticipation  of the ARCap  acquisition  (see Notes 9
and 19 to  condensed  consolidated  financial  statements).  These  costs are as
detailed in the table on page 35.

Depreciation and amortization expenses were higher in the 2006 period, primarily
due to higher  amortization  of mortgage  servicing  rights  following  the CCLP
acquisition and the expansion of the Mortgage Banking  business,  a write-off of
previously  deferred  fees in  connection  with  the  restructuring  of  certain
securitization  programs upon the launch of Centerbrook as well as recognizing a
retroactive  depreciation  charge for real estate  owned which was  reclassified
from  held  for  sale to held and used  (see  Note 6 to  condensed  consolidated
financial   statements).   These  were  partially   offset  by  the  absence  of
amortization of a sizable intangible asset that we wrote off at the end of 2005.

Expenses of the consolidated  partnerships  increased due to the increase in the
number  of  consolidated  entities  due  to  the  incremental  fund  sponsorship
activity.  Virtually all of the expenses of the  consolidated  partnerships  are
absorbed by their equity partners; as such, they have an insignificant impact on
our net income.


                                       37
<PAGE>



OTHER ITEMS

<TABLE>
<CAPTION>

                                                     For the Six Months Ended June 30,
                                                   ------------------------------------
                (In thousands)                       2006          2005        % Change
-----------------------------------------------    ---------     ---------     --------
<S>                                                <C>           <C>             <C>
Equity and other income                            $   4,058     $   1,076       277.1 %

Gain on sale of loans                              $   7,056     $   6,021        17.2 %
Gain on repayment of mortgage revenue bonds              912           903         1.0
                                                   ---------     ---------       -----
Gain on repayment of mortgage revenue bonds and
   sale of loans                                   $   7,968     $   6,924        15.1 %
                                                   ---------     ---------       -----

Income allocated to preferred shareholders of
   subsidiary                                      $  (3,113)    $  (3,112)         --
                                                   ---------     ---------       -----

Income allocated to SCUs                           $  (7,361)    $ (13,891)      (47.0)%
Income allocated to SMUs                                (169)          (55)      207.3
                                                   ---------     ---------       -----
  Total income allocated to minority interests     $  (7,530)    $ (13,946)      (46.0)%

Loss allocated to partners of consolidated
   partnerships                                    $ 195,871     $ 164,333        19.2 %

</TABLE>

Equity and other income primarily  includes income from our investment in ARCap,
offset by losses from tax  advantaged  investment  vehicles  similar to those we
sponsor.  The 2006 period includes equity income of  approximately  $3.3 million
relating to our proportionate share of a large resecuritization gain realized by
ARCap.

Gains  related to  mortgage  revenue  bonds and loans  fluctuate  in relation to
relative  activity  levels  in the  Portfolio  Investing  and  Mortgage  Banking
businesses. See RESULTS BY SEGMENT below.

The  income  allocation  to  SCUs  and  SMUs  of  subsidiaries   represents  the
proportionate  share of after-tax  income  attributable to holders of subsidiary
equity as if they were all converted to common  shares.  The decrease in 2006 as
compared to 2005 is due to the decline in period  earnings and the conversion of
units during the past twelve months.

The loss  allocation to partners of  consolidated  partnerships  represents  the
operating  losses  of  those   partnerships,   of  which  we  have  absorbed  an
insignificant portion (approximately $5,000).


                                       38
<PAGE>



Results by Segment
------------------

PORTFOLIO INVESTING

The table below shows  selected  information  regarding our Portfolio  Investing
activities:

<TABLE>
<CAPTION>

                                                              For the Six Months Ended June 30,
                                                             ------------------------------------
                      (In thousands)                            2006          2005       % Change
---------------------------------------------------------    ----------    ----------    --------
<S>                                                          <C>           <C>              <C>
New mortgage revenue bond acquisitions                       $  155,380    $  141,080        10.1 %
Funding of mortgage revenue bonds acquired in prior years        10,090        11,551       (12.6)
Acquisitions related to prior period forward commitments         48,396        14,150       242.0
                                                             ----------    ----------    --------
Total acquisition and funding activity                       $  213,866    $  166,781        28.2 %
Forward commitments issued but not funded                    $     --      $    8,000          --

Mortgage revenue bonds repaid                                $   31,983    $   19,381        65.0

Average portfolio balance (fair value)                       $2,402,410    $2,182,948        10.1 %

Weighted average permanent interest rate of bonds
  acquired                                                         6.17 %        6.04 %
Weighted average yield of portfolio                                6.77 %        6.95 %
Average borrowing rate (includes effect of swaps)                  3.95 %        3.41 %
Average BMA rate                                                   3.32 %        2.25 %
                                                             ----------    ----------

Mortgage revenue bond interest income (1)                    $   81,300    $   75,580         7.6 %
Other interest income (1)                                         8,182         3,512       133.0
Rental income of real estate owned                                3,097           962       221.9
Prepayment penalties                                                 10           124       (91.9)
Other revenues (1)                                                1,335         1,849       (27.8)
                                                             ----------    ----------    --------
                                                             $   93,924    $   82,027        14.5 %
                                                             ==========    ==========    ========

Interest expense and securitization fees (1)                 $   40,343    $   22,996        75.4 %
Loss on impairment of assets                                 $    2,271    $    1,098       106.8 %
Gain on repayments of mortgage revenue bonds                 $      912    $      903         0.7 %
                                                             ----------    ----------    --------

</TABLE>

(1)  Prior to intersegment eliminations.

The increase in mortgage  revenue bond  interest  income is primarily due to the
increased  investment base resulting from new bonds funded during later quarters
of 2005 and first six months of 2006,  although the volume of investment and the
decline in the interest rate of bonds acquired  reflects the challenging  market
conditions  experienced  since  2004,  such as  increased  competition  and some
potential investments not meeting our underwriting standards.

Rental income of real estate owned  pertains to the  operations of properties on
which we foreclosed  during the second quarter of 2005. The 2006 period includes
a full six months of operations while the 2005 results  represent only a partial
period.

While the decline in interest rates of bonds acquired has gradually  lowered the
average  yield of our  portfolio,  we continue to earn a positive  spread on our
portfolio.  Corresponding with an increase in the average portfolio balance, our
level of  securitizations  increased and, along with a higher average  borrowing
rate,  resulted in the increase in interest expense and securitization  fees. In
addition, the restructuring of our securitization programs in the second quarter
of 2006 resulted in incremental interest costs of $1.9 million.

While our  borrowing  costs have been  increasing  along with market  rates,  we
expect  the   commencement  of  Centerbrook,   our  new  credit   intermediation
subsidiary, will help enable us to retain a significant portion of fees which we
historically have paid to third parties. In addition, we anticipate  Centerbrook
will  enable us to obtain  better  leverage  against  our  assets  and lower our
average cost of capital.


                                       39
<PAGE>



FUND MANAGEMENT

The  table  below  shows  selected  information  regarding  our Fund  Management
activities:

<TABLE>
<CAPTION>

                                                  For the Six Months Ended June 30,
                                                  --------------------------------
               (In thousands)                       2006        2005      % Change
-------------------------------------------       --------    --------    --------
<S>                                               <C>         <C>          <C>
Equity raised                                     $368,957    $436,394     (15.5)%
Equity invested by investment funds (1)           $370,675    $431,009     (14.0)%

Fees based on equity raised                       $  6,215    $  6,750      (9.7)%
Fees based on equity invested                     $ 15,634    $ 18,590     (15.9)%

Fees based on management of other entities:
   Asset management and partnership fees          $ 14,054    $ 11,205      25.4 %
   Construction fees                                 2,250       1,832      22.8
   Investment origination fees                         155         325     (52.3)
   Other                                                --          60        --
                                                  --------    --------     -----
   Subtotal                                         16,459      13,422      22.6
                                                  --------    --------     -----

Total fund sponsorship fees (2)                     38,308      38,762      (1.2)

Credit intermediation fees (2)                       4,921       5,061      (2.8)
Expense reimbursement (2)                            6,520       4,479      45.6
Other interest income (2)                              366         127     188.2 %
Other revenues (2)                                   1,425         970      46.9
                                                  --------    --------     -----
  Total                                           $ 51,540    $ 49,399       4.3 %
                                                  ========    ========     =====

</TABLE>

(1)  Excludes warehoused  properties that have not yet closed into an investment
     fund.
(2)  Prior to intersegment eliminations.

Our  Fund  Management  activities  generate  origination  and  acquisition  fees
associated with sponsoring  tax-credit equity investment funds and for assisting
the funds in acquiring assets, which we recognize when the equity is invested by
the investment  fund. We also receive  partnership and asset management fees for
the  services  we  perform  for the  funds  once  they are  operating,  which we
recognize over the service periods.  As many of our revenues are recognized over
time following the sponsorship of a new fund, many of the 2006 increases  relate
to the funds closed since the end of the second quarter of 2005.

FEES BASED ON EQUITY RAISED

We earn  Organization  and Offering  ("O&O") service and partnership  management
fees based upon the level of equity we raise for  tax-credit  equity funds.  O&O
fees are realized immediately while we earn the partnership management fees over
five-year periods.  O&O fees decreased  approximately 20% in 2006 as compared to
the same  period  in 2005  primarily  due to the  decrease  in  amount of equity
raised.  In addition,  the mix of fund  sponsorships  served to decrease the fee
realization  rate due to a higher  proportion of  "corporate"  funds included in
equity  raised for the 2006 period.  Although the level of equity  raised in the
2006 period fell short of the 2005 level,  we anticipate  that full-year  equity
raising  activity  in 2006  to  exceed  that  of the  prior  year.  Related  O&O
acquisition  expenses were also  comparatively down in-line with the decrease in
revenue.

FEES BASED ON EQUITY INVESTED

We earn property acquisition fees and acquisition  allowance fees based upon the
level of fund equity invested,  which varies due to the timing of fund closures.
While we acquire  properties on an ongoing basis  throughout the year, we do not
recognize  revenue until we place the property in a sponsored  fund.  Therefore,
delays in timing of a fund  closure may impact the level of revenues  recognized
in a given period.

The decrease in fees is greater than the decrease of equity invested  because of
a lower fee rate realized, stemming from changes in the mix of funds originated,
in that we sponsored a proportionally  higher level of "corporate"  funds in the
2006 period.

FEES BASED ON MANAGEMENT OF OTHER ENTITIES

Asset management and partnership fees increased in 2006, primarily  attributable
to the higher level of assets under  management  and an  improvement of the cash
position  of  certain  investment  funds,  allowing  us  to  collect  additional
management   fees  in  2006  which  we  did  not  previously   recognize   until
collectibility was reasonably assured.


                                       40
<PAGE>



OTHER REVENUES

Credit intermediation,  expense reimbursement and other revenues in this segment
consist  largely of service  fees  charged to entities  (including  consolidated
partnerships) managed by these subsidiaries and fluctuate with the growth of the
number of those entities and their cash flows.

MORTGAGE BANKING

The table  below shows  selected  information  regarding  our  Mortgage  Banking
activities:

<TABLE>
<CAPTION>

                                                        For the Six Months Ended June 30,
                                                      ------------------------------------
                  (In thousands)                         2006          2005      % Change
--------------------------------------------------    ----------    ----------   ---------
<S>                                                   <C>           <C>            <C>
Originations                                          $  739,203    $  441,043     67.6 %
Mortgage portfolio at June 30                         $9,180,858    $9,022,353      1.8 %
Fair value of mortgage servicing rights at June 30    $   59,647    $   75,212    (20.7)%
                                                      ----------    ----------    -----

Mortgage origination fees (1)                         $    4,792    $    2,790     71.8 %
Mortgage servicing fees (1)                               10,198         8,702     17.2
Assumption fees (1)                                          682           663      2.9
                                                      ----------    ----------    -----
Total fee income                                          15,672        12,155     28.9

Interest income (1)                                        8,262         3,306    149.9
Prepayment penalties (1)                                   2,035         1,675     21.5
Other revenues (1)                                           673           296    127.4
                                                      ----------    ----------    -----
                                                      $   26,642    $   17,432     52.8 %
                                                      ==========    ==========    =====

Gain on sale of mortgages                             $    7,033    $    6,324     11.2 %
                                                      ==========    ==========    =====

</TABLE>

(1)  Prior to intersegment eliminations.

Originations for the six months ended June 30 are broken down as follows:

<TABLE>
<CAPTION>

  (In thousands)         2006     % of total       2005       % of total
------------------     --------   ----------    ----------    ----------
<S>                    <C>           <C>        <C>             <C>
Fannie Mae             $422,784       57.2 %    $  287,733       65.2 %
Freddie Mac              90,015       12.2          13,925        3.2
Conduit and other       226,404       30.6         139,385       31.6
                       --------     ------      ----------      -----
Total                  $739,203      100.0 %    $  441,043      100.0 %
                       ========     ======      ==========      =====

</TABLE>

Mortgage   origination   fees   increased  in  proportion  to  the  increase  in
originations.  The  higher  volume  of  originations  in  2006  resulted  from a
significant  increase in Fannie Mae  originations,  due to the CCLP  acquisition
(due to the fact that CCLP had  traditionally  conducted a large  portion of its
business  through Fannie Mae).  The 2006 period  includes a full two quarters of
CCLP  origination  as compared to only four months during the 2005 period as the
acquisition did not occur until March 2005. Conduit  originations also increased
sharply  as we  continued  to  pursue  business  that  does not  warrant  agency
execution in response to market demand and a large level of loans  originated on
behalf of AMAC.

The  increase in  servicing  fees is a result of the CCLP  acquisition  in March
2005. Adjusting for the impact of the acquisition,  servicing fee income in 2006
declined  approximately 0.8% as compared to the same period in 2005. The decline
is due to erosion of the  servicing  fee rate due to the  higher  proportion  of
non-agency  loans in the  portfolio.  This trend has also  affected the level of
mortgage  servicing  rights,  as write-offs in connection with the prepayment of
mortgages  at higher  servicing  rates are replaced  with new assets  generating
lower fee streams  Generally,  as our prepayments  have increased,  our mortgage
servicing rights have decreased.

Interest income relates primarily to that earned on escrow balances.  The income
increase  resulted  form higher  account  balances  and  increased  market rates
earned.  The  increase  in  prepayment  penalties  relates to a higher  level of
refinancing  activity in the current year. Both categories also increased due to
the CCLP acquisition.

Gain on sale of  mortgages  increased  in 2006 as  compared  to 2005  due to the
increased origination volume where we have retained mortgage servicing rights.


                                       41
<PAGE>



CONSOLIDATED PARTNERSHIPS

The results of consolidated  partnerships  reflected in our financial statements
are for entities we control according to the definitions of FIN 46(R), and other
partnerships we control, but in which we have no equity interest or, in the case
of 14  partnerships,  an  insignificant  equity  interest.  Our Fund  Management
segment  earns  fees  from  many of the  entities,  however,  and our  Portfolio
Investing  business  earns  interest on mortgage  revenue  bonds for which these
partnerships are the obligors.  The consolidated  partnerships are primarily tax
credit  equity  investment  funds we sponsor  and  manage,  while the others are
property  level  partnerships  for  which we have  assumed  the role of  general
partner.

The increased revenue,  expense,  equity loss and allocation amounts in 2006 are
due to the  origination of nine funds in the past year and the assumption of the
general partner  interests in 14 property level  partnerships  which occurred in
the second  quarter of 2005.  As a result,  for the six months  ending  June 30,
2006,  include a full period of activity for these property  level  partnerships
while the same period in 2005 only includes three months.

As third party investors hold virtually all of the equity partnership  interests
in these  entities,  we allocate  all results of  operations  to those  partners
except for  approximately  $5,000,  representing  our  nominal  ownership.  As a
result, the consolidation of these  partnerships has an insignificant  impact on
our net income.

INCOME TAXES
------------

A large majority of our pre-tax  income is derived from our Portfolio  Investing
businesses,  which are structured as partnership  entities; as such, income from
those  investments  is not  subject to income  taxes.  The Fund  Management  and
Mortgage  Banking  businesses are conducted in  corporations  and are subject to
income taxes.  Because the distributions paid on the minority interests in these
corporate  subsidiaries  effectively  provide a tax deduction,  as well as other
factors within these businesses, they often have losses for book purposes.

We provide for income taxes for these corporate  subsidiaries in accordance with
SFAS No. 109,  ACCOUNTING  FOR INCOME TAXES ("SFAS No. 109") which requires that
we recognize  deferred tax assets and  liabilities  for the expected  future tax
consequences of temporary  differences  between the financial statement carrying
amounts and the tax bases of assets and liabilities.

The  effective  tax rate on a  consolidated  basis for six months ended June 30,
2006 and 2005 was (21.3)% and (34.1)%,  respectively. The effective rate for our
corporate  subsidiaries  that were  subject to taxes was 15.6% and 54.6% for the
six months ended June 30, 2006 and 2005, respectively.

The tax benefit disclosed  relates to the book losses of the taxable  businesses
and the tax  deductible  distributions  on their  subsidiary  equity.  The lower
effective  rate in the  2006  period  is a result  of  recognizing  a  valuation
allowance against deferred tax assets.  Management  determined that, in light of
the projected  taxable losses in the corporate  subsidiaries for the foreseeable
future,  not all of the  deferred tax assets will likely be realized and hence a
valuation  allowance  was  provided.  As the  proportion  of our pre-tax  income
contributed by the businesses  generating taxable income and losses changes, the
resulting tax benefit or provision may appear  incongruous with our consolidated
income before income taxes.

RECENTLY ISSUED ACCOUNTING STANDARDS
------------------------------------

See  NEW  ACCOUNTING  PRONOUNCEMENTS  in  Note 1 to the  condensed  consolidated
financial statements.

INFLATION
---------

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

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

We fund our short-term  business needs  (including  investments)  primarily with
cash provided by  operations,  securitization  of  investments  and revolving or
warehouse  credit  facilities.  Our primary sources of capital to meet long-term
liquidity needs  (including  acquisitions)  are debt and various types of equity
offerings,  including equity of our subsidiaries.  We believe that our financing
capacity  and  cash  flow  from  current  operations  are  adequate  to meet our
immediate and long term liquidity requirements.  Nonetheless,  as business needs
warrant, we may issue other types of debt or equity in the future.

Debt and Securitizations
------------------------

Short-term liquidity provided by operations comes primarily from interest income
from  mortgage  revenue  bonds and  promissory  notes in  excess of the  related
financing  costs,  and fee income  receipts.  We  typically  generate  funds for
investment purposes from corresponding financing activities.


                                       42
<PAGE>



We have the following debt and  securitization  facilities to provide short-term
and long-term  liquidity:

     o    $250.0  million,  used for mortgage  banking  needs,  which matures in
          August 2006, and is renewable annually;
     o    $90.0 million,  used to acquire equity interests in property ownership
          entities  prior  to the  inclusion  of  these  equity  interests  into
          investments funds, which matures in October 2006;
     o    $110.0  million,  used  initially to provide the loans to CCA and CCLP
          and since used for general corporate purposes, which matures in August
          2006;
     o    $40.0  million,  established in connection  with the CMC  acquisition,
          which expires in December 2006; and
     o    securitizations  through the Merrill Lynch P-FLOATs/RITES  program and
          through  the  Goldman  Sachs  Floats/Residuals  program of a specified
          percentage  of the fair value of mortgage  revenue bonds not otherwise
          securitized or pledged as collateral.

As of June 30, 2006,  we had  approximately  $82.9  million  available to borrow
under these debt and securitization  facilities without exceeding limits imposed
by debt  covenants and our by-laws.  Although  certain of the  facilities  noted
above  mature  in 2006,  we  expect  to  renew,  replace  or  refinance  them as
necessary.  In connection with the proposed acquisition of ARCap (see Note 19 to
the condensed  consolidated  financial  statements)  we are in  negotiations  to
replace the maturing lines listed above (except for the mortgage  banking credit
line),  with a master  credit  facility  with these same  lenders as our current
lines.  We plan to enter into a $350.0  million  six-year term loan and a $150.0
million  revolving credit facility,  the term loan portion of which will be used
to pay the cash portion of the acquisition,  while the revolving credit facility
would be used to refinance the existing lines and for general business purposes.
While we believe that we will be able to do so,  there is no  assurance  that we
will achieve refinancing terms favorable to us.

Equity
------

We have the ability to issue  $500.0  million of equity  securities  pursuant to
registration  statements we have filed with the SEC. We currently  have no plans
to issue any such securities.

Liquidity Requirements after June 30, 2006
------------------------------------------

During August 2006, equity distributions will be paid as follows:

<TABLE>
<CAPTION>

                                                   (In thousands)
                                                   --------------
<S>                                                   <C>
Common/CRA shareholders                               $24,806
SCU/SMU holders                                         8,860
4.4% CRA Preferred shareholders                         1,188
Equity Issuer Preferred shareholders                    6,281
                                                      -------
Total                                                 $41,135
                                                      =======

</TABLE>

In addition,  as described in Note 19 to the  condensed  consolidated  financial
statements, we have announced our intent to acquire ARCap during 2006.

During  July  2006,   we  paid   approximately   $12.9   million  to  repurchase
approximately  683,000 of our common shares in the open market. See also Note 14
to the condensed consolidated financial statements.

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

Summary of Cash Flows
---------------------

For the six months  ended June 30,  2006,  there was a net  decrease in cash and
cash  equivalents  as  compared to a net  increase  during the  comparable  2005
period.  A larger increase in 2006 in cash provided by financing  activities was
more than offset by a larger  increase in cash used in investing  activities and
also by a significant decrease in operating cash flow.

Operating cash flows were lower in the 2006 period by a margin of $112.7 million
due primarily to:

     o    lower  net  income  in 2006 due in part to a high  level of costs  for
          corporate initiatives launched in 2006;
     o    a current year loan made to an affiliate as compared to the collection
          of a previously outstanding advance in 2005; and
     o    higher net fundings of mortgage loans.

Additionally,  the  timing of  receipts  and  payments  in  operating  asset and
liability accounts contributed to this decrease.


                                       43
<PAGE>



More cash was used in  investing  activities  in 2006 as  compared  to 2005 by a
margin of $31.2 million due to:

     o    a higher level of mortgage revenue bond acquisitions and fundings;
     o    net advances to  partnerships  in 2006 as compared to net  collections
          from partnerships in 2005; and
     o    our  2006  capitalization   requirements  for  Centerbrook  that  were
          invested in marketable securities.

These  factors were offset in part by an  investment  sold to AMAC in April 2006
and a decrease in  restricted  cash and cash  equivalents  due to the release of
collateral  requirements related to the MBIA securitization programs (which were
restructured in connection with launch of Centerbrook as discussed below).

Financing  inflows in the 2006 period were higher than in 2005 by $97.4 million.
The primary  reason for the higher  inflows in 2006 was increased net borrowings
during the current  period  including  those related to mortgage  loans held for
sale at period end and the  capitalization  of  Centerbrook.  Also  included  in
financing   activities   are  the  proceeds  and   repayments   related  to  the
restructuring  of our  securitization  programs in connection with the launch of
Centerbrook  whereby we  terminated  our  programs  through  MBIA and  created a
similar program through Goldman Sachs.

Commitments, Contingencies and Off Balance Sheet Arrangements
-------------------------------------------------------------

Note 18 to the condensed consolidated financial statements contains a summary of
our guarantees and off-balance sheet arrangements.

The following table reflects our maximum exposure and carrying amount as of June
30, 2006, for guarantees we and our subsidiaries have entered into:

<TABLE>
<CAPTION>

                                                        Maximum        Carrying
              (In thousands)                            Exposure        Amount
--------------------------------------------           ----------     ----------
<S>                                                    <C>            <C>
Repayment guarantees (1)                               $    3,602     $       --
Completion guarantees (1)                                  33,212             --
Development deficit guarantees (1)                         26,040            810
Operating deficit guarantees (1)                            7,234            236
ACC transition guarantees (1)                               3,245             --
Recapture guarantees (1)                                  109,196            236
Replacement reserve (1)                                     3,076             67
Guarantee of payment (1)                                   45,471             --
Mortgage pool credit intermediation (2)                     7,446             --
LIHTC credit intermediation (2)                           787,175         20,036
Mortgage banking loss sharing agreements (3)              873,220         12,943
                                                       ----------     ----------

                                                       $1,898,917     $   34,328
                                                       ==========     ==========

</TABLE>

(1) These guarantees generally relate to business requirements for developers to
obtain  construction  financing.  As part of our role as co-developer of certain
properties,  we issue these  guarantees in order to secure  properties as assets
for the funds we manage.  To date, we have had minimal  exposure to losses under
these   guarantees  and  anticipate  no  material   liquidity   requirements  in
satisfaction of any guarantee issued. The carrying values disclosed above relate
to the  fees we earn for the  transactions,  which we  recognize  as their  fair
values.

(2) We see these  transactions  as  opportunities  to expand our Fund Management
business by offering broad capital solutions to customers.  To date, we have had
minimal exposure to losses and anticipate no material liquidity  requirements in
satisfaction of any  arrangement.  The carrying values disclosed above relate to
the fees we earn for the transactions, which we recognize as their fair values.

(3) The loss  sharing  agreements  with  Fannie Mae and Freddie Mac are a normal
part of the DUS and DUI lender  programs  and afford a higher level of fees than
we earn for other comparable funding sources. The carrying value disclosed above
is our estimate of potential exposure under the guarantees, although any funding
requirements  for such exposure is based on the contractual  requirements of the
underlying  loans we sell to Fannie Mae and Freddie Mac, which vary as to amount
and duration, up to a maximum of 30 years.

The maximum  exposure  amount is not indicative of our expected losses under the
guarantees.


                                       44
<PAGE>



CONTRACTUAL OBLIGATIONS

The following table provides our commitments as of June 30, 2006, to make future
payments under our debt agreements and other contractual obligations:

<TABLE>
<CAPTION>

                                                                Payments due by period
                                           ------------------------------------------------------------------
                                                         Less than                                  More than
            (In thousands)                   Total         1 year       1-3 years     3-5 years      5 years
---------------------------------------    ----------    ----------    ----------    ----------    ----------
<S>                                        <C>           <C>           <C>           <C>           <C>
Notes payable (1)                          $  408,337    $  407,370    $      967    $       --    $       --
Notes payable of consolidated
   partnerships (2)                           488,627        78,015       121,632        27,671       261,309
Operating lease obligations                    67,280         6,699        13,381        12,261        34,939
Unfunded loan commitments (3)                 305,665       247,620        58,045            --            --
Financing arrangements (1)                  1,600,778     1,600,778            --            --            --
Preferred shares of subsidiary (subject
  to mandatory repurchase)                    273,500            --            --            --       273,500
                                           ----------    ----------    ----------    ----------    ----------

   Total                                   $3,144,187    $2,340,482    $  194,025    $   39,932    $  569,748
                                           ==========    ==========    ==========    ==========    ==========

</TABLE>

(1)  The amounts included in each category reflect the current expiration, reset
     or renewal date of each facility or security  certificate.  Management  has
     the  ability and intent to renew,  refinance  or  remarket  the  borrowings
     beyond their current due dates.

(2)  Of the notes payable of consolidated partnerships, $379.7 million relate to
     equity  subscriptions  and are guaranteed by certain equity partners of the
     investment funds. Per partnership agreements,  the equity partners are also
     obligated to pay the  principal  and interest on the notes.  The  remaining
     balance of $108.9 million is collateralized with the underlying  properties
     of  the  consolidated   operating   partnerships.   All  of  this  debt  is
     non-recourse to us.

(3)  Of  this  amount,  $264.7  million  represents  mortgage  loan  origination
     commitments with corresponding sale commitments.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We invest in certain financial instruments, primarily mortgage revenue bonds and
other bond related investments that are subject to various forms of market risk,
including  interest  rate risk.  We seek to prudently  and actively  manage such
risks to earn  sufficient  compensation to justify the undertaking of such risks
and to  maintain  capital  levels  which  are  commensurate  with  the  risks we
undertake.

The  assumptions  related to the  following  discussion  of market risk  involve
judgments   involving  future  economic  market  conditions,   future  corporate
decisions and other interrelating  factors, many of which are beyond our control
and all of which are difficult or  impossible to predict with precise  accuracy.
Although  we  believe  that  the  assumptions   underlying  the  forward-looking
information  are  reasonable,  any of the  assumptions  could be inaccurate and,
therefore,  there  can be no  assurance  that  the  forward-looking  information
included herein will prove to be accurate. Due to the significant  uncertainties
inherent in  forward-looking  information,  the  inclusion  of such  information
should not be regarded as our representation that our objectives and plans would
be achieved.

INTEREST RATE RISK
------------------

The nature of our  investments  and the  instruments  used to raise  capital for
their acquisition expose us to income and expense volatility due to fluctuations
in market  interest rates.  Market  interest rates are highly  sensitive to many
factors,  including governmental  policies,  domestic and international economic
and  political  considerations  and other factors  beyond our control.  A rising
interest rate environment could reduce the demand for multifamily tax-exempt and
taxable  financing,  which could limit our ability to invest in mortgage revenue
bonds or to  structure  transactions.  Conversely,  falling  interest  rates may
prompt historical renters to become homebuyers, in turn potentially reducing the
demand for multifamily housing.

Our exposure to interest rate is twofold:

     o    the potential  increase in interest expense on our variable rate debt;
          and
     o    the impact of interest rates on the fair value of our assets.


                                       45
<PAGE>



IMPACT ON EARNINGS

Our  investments  in mortgage  revenue  bonds  generally  bear interest at fixed
rates, or pay interest according to the cash flows of the underlying properties,
which do not fluctuate with changes in market interest rates.

In contrast,  payments required under our variable-rate  securitization programs
fluctuate  with  market  interest  rates  based on the BMA index and are  re-set
weekly or every 35 days. In addition,  we have variable-rate debt related to our
acquisition financing and our warehouse  facilities,  with rates based on LIBOR.
Other  long-term  sources of  capital,  such as our  preferred  shares of Equity
Issuer and our 4.4%  Convertible  CRA preferred  shares,  carry a fixed dividend
rate and as such, are not impacted by changes in market interest rates.

With the  exception  of $450.0  million of debt  hedged via  interest  rate swap
agreements,  the  full  amount  of our  liabilities  labeled  on  our  unaudited
condensed consolidated balance sheet as Financing Arrangements and Notes Payable
are  variable-rate  debt. We estimate that an increase of 1.0% in interest rates
would decrease our annual pre-tax income by approximately $15.6 million.

Conversely,  we have large escrow  balances  maintained by our Mortgage  Banking
business and we are entitled to the interest  earned on those  balances.  A 1.0%
increase  in interest  rates  would  therefore  increase  our pre-tax  income by
approximately $2.2 million.

We manage  interest rate risk through the use of interest  rate swaps,  interest
rate caps and forward bond origination commitments, as described in the notes to
our unaudited  condensed  consolidated  financial  statements.  In addition,  we
manage our exposure by striving for diversification in our businesses to include
those less susceptible to interest rate changes and by managing our leverage.

IMPACT ON VALUATION OF ASSETS

Changes in market  interest  rates would also impact the estimated fair value of
our  portfolio of mortgage  revenue  bonds.  We estimate the fair value for each
revenue bond as the present value of its expected  cash flows,  using a discount
rate for comparable tax-exempt investments.  Therefore, as market interest rates
for tax-exempt  investments  increase,  the estimated fair value of our mortgage
revenue bonds will generally  decline,  and a decline in interest rates would be
expected to result in an increase in their  estimated fair values.  For example,
we estimate that, using the same methodology used to estimate the portfolio fair
value  under  SFAS No.  115,  a 1%  increase  in  market  rates  for  tax-exempt
investments  would reduce the estimated  fair value of our portfolio of mortgage
revenue bonds by approximately  $141.1 million and a 1% decrease would result in
an increase of approximately $158.4 million. Changes in the estimated fair value
of the mortgage revenue bonds do not impact our reported net income,  net income
per share,  distributions  or cash  flows,  but are  reported as  components  of
accumulated other comprehensive income and affect reported shareholders' equity,
and  may  affect  our  borrowing   capability  to  the  extent  that  collateral
requirements are sometimes based on our asset values.

ITEM 4. CONTROLS AND PROCEDURES

(a)  EVALUATION OF DISCLOSURE  CONTROLS AND  PROCEDURES.  The Company  maintains
     disclosure  controls  and  procedures  that are  designed  to  ensure  that
     information  required to be disclosed in the reports that the Company files
     or submits under the  Securities  and Exchange Act is recorded,  processed,
     summarized,  and reported  within the time  periods  specified in the SEC's
     rules and forms,  and that such information is accumulated and communicated
     to the  Company's  management,  including its Chief  Executive  Officer and
     Chief  Financial  Officer,  as  appropriate,   to  allow  timely  decisions
     regarding required disclosures.

     As of the end of the period covered by this Quarterly  Report on Form 10-Q,
     the Company  carried out an evaluation,  under the supervision and with the
     participation  of the Company's  management,  including the Chief Executive
     Officer and Chief Financial Officer, of the effectiveness of the design and
     operation  of  our  disclosure  controls  and  procedures  pursuant  to the
     Securities and Exchange Act Rule 13a-15.  Based upon this  evaluation as of
     June 30, 2006, the Chief Executive Officer and Chief Financial Officer have
     concluded  that  the  Company's  disclosure  controls  and  procedures  are
     effective  to ensure  that  information  required  to be  disclosed  by the
     Company in the reports that the Company files or submits under the Exchange
     Act is  recorded,  processed,  summarized  and  reported,  within  the time
     periods  specified  in the SEC rules  and  forms,  and to ensure  that such
     information is accumulated and  communicated  to the Company's  management,
     including  the Chief  Executive  Officer and Chief  Financial  Officer,  as
     appropriate, to allow timely decisions regarding required disclosure.

(b)  INTERNAL  CONTROL  OVER  FINANCIAL  REPORTING.  There  have  not  been  any
     significant changes in our internal control over financial reporting during
     the fiscal  quarter  to which  this  report  relates  that have  materially
     affected,  or are  reasonably  likely to  materially  affect,  our internal
     control over financial reporting.


                                       46
<PAGE>



                           PART II. OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS

         We are subject to routine  litigation  and  administrative  proceedings
         arising in the ordinary course of business. Management does not believe
         that such matters will have a material  adverse impact on our financial
         position, results of operations or cash flows.

ITEM 1A. RISK FACTORS

         There have been no material changes to the risk factors as disclosed in
         our filing on form 10-K for the year ended December 31, 2005.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

         Securities purchased by us

         The following table presents  information related to our repurchases of
         our  equity  securities  during  the  second  quarter of 2006 and other
         information related to our repurchase program:

<TABLE>
<CAPTION>

                                    Purchases of Equity Securities

                        (a)              (b)             (c)                     (d)

                                                     Total number
                                                      of shares
                       Total          Weighted     purchased as part        Maximum number
                     number of         average        of publicly       of shares that may yet
                       shares        price paid     announced plans     be purchased under the
    Period          purchased (1)     per share       or programs          plans or programs
----------------    -------------    -----------   -----------------    ----------------------
<S>                    <C>              <C>            <C>                    <C>
April 1-30, 2006           --               --             --
May 1-31, 2006          7,200           $19.00          7,200
June 1-30, 2006        32,691            18.55         22,200
                     --------          -------       --------

Total                  39,891           $18.63         29,400                 1,462,200
                     ========          =======       ========                ==========

</TABLE>

(1) Some repurchases were in payment of tax withholding  obligations incurred by
holders  of newly  vested  restricted  shares  and  were  outside  of our  share
repurchase program.


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - None


                                       47
<PAGE>



ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

          We held our annual meeting of  shareholders  on June 13, 2006.  Nathan
          Gantcher,  Jerome Y.  Halperin,  Robert L.  Loverd and Stephen M. Ross
          were  elected as  trustees  for  three-year  terms  expiring  in 2009.
          Continuing to serve their  current  terms are the following  trustees:
          Alan P.  Hirmes,  Peter T.  Allen,  Jeff T. Blau,  Robert A.  Meister,
          Janice Cook Roberts, Andrew L. Farkas, Marc D. Schnitzer and Thomas W.
          White. The four individuals  elected, and the number of votes cast for
          and  abstaining,  with  respect to each of them,  were as follows  (no
          votes were cast "against"):

<TABLE>
<CAPTION>

                                             For               Abstain
                                          ----------          ---------
<S>                                       <C>                 <C>
Nathan Gantcher
  Common Shares                           48,236,870          1,007,066
  Restricted Common Shares                   245,119            135,656
  Special Preferred Voting Shares         13,369,941          1,495,370

Jerome Y. Halperin
  Common Shares                           46,089,388          3,154,548
  Restricted Common Shares                   245,119            135,656
  Special Preferred Voting Shares         13,369,941          1,495,370

Robert L. Loverd
  Common Shares                           48,252,749            991,187
  Restricted Common Shares                   245,119            135,656
  Special Preferred Voting Shares         13,369,941          1,495,370

Stephen M. Ross
  Common Shares                           46,256,355          2,987,581
  Restricted Common Shares                   245,119            135,656
  Special Preferred Voting Shares         13,369,941          1,495,370

</TABLE>

At the same meeting, an amendment to Section 6.1 of the Company's Second Amended
and Restated  Trust  Agreement  was passed to increase the number of  authorized
shares from 100,000,000 to 160,000,000. Votes cast were as follows:

<TABLE>
<CAPTION>

                                                 For              Abstain         Against
                                              ----------         ----------      ---------
<S>                                           <C>                <C>             <C>
Change in authorized shares amendment
  Common Shares                                2,598,543         24,371,618      2,273,774
  Restricted Common Shares                       245,119            135,656             --
  Special Preferred Voting Shares             13,369,941          1,495,370             --

</TABLE>

ITEM 5.  OTHER INFORMATION - None

ITEM 6.  EXHIBITS

        3.1(a) Amendment  No.  3   to   Second   Amended   and  Restated   Trust
               Agreement.*

         10.1  Limited  Liability  Company  Agreement  dated  June  28,  2006 of
               Centerbrook  Holdings LLC and IXIS  Financial  Products  Inc. and
               Charter Mac Corporation.*

         10.2  Unitholder and Warrant Agreement among Centerbrook  Holdings LLC,
               IXIS Financial  Products Inc. and Charter Mac Corporation,  dated
               as of June 28, 2006.*

         10.3  Limited Liability Company Agreement of Centerbrook Financial LLC,
               dated as of June 28, 2006.**

         10.4  Senior  Loan  Agreement  among  Centerbrook  Financial  LLC,  the
               lenders  that are party  thereto and  Citibank,  N.A.,  as senior
               agent, dated as of June 28, 2006.*

         10.5  Mezzanine Loan  Agreement  among  Centerbrook  Financial LLC, the
               lenders  that are party  thereto and  Citibank,  N.A.,  as senior
               agent, dated as of June 28, 2006.*


                                       48
<PAGE>



ITEM 6.  EXHIBITS (continued)

         10.6  Subordination and Security Agreement among Centerbrook  Financial
               LLC, Deutsche Bank Trust Company Americas, and Citibank, N.A., as
               senior agent and mezzanine agent, dated as of June 28, 2006.*

         10.7  Guarantee  Agreement among CharterMac and IXIS Financial Products
               Inc., dated as of June 28, 2006.*

         10.8  Right of First Refusal  Letter  Agreement  among  CharterMac  and
               Centerbrook Financial LLC, dated as of June 28, 2006.*

         10.9  Fee Letter  among IXIS  Capital  Markets  North  America Inc. and
               Centerbrook Holdings LLC, dated as of June 28, 2006.*

         10.10 Credit Support Swap between Charter Mac Origination  Trust 1 and
               Centerbrook Financial LLC.*

         31.1  Chief Executive Officer certification  pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002.*

         31.2  Chief Financial Officer certification  pursuant to Section 302 of
               the Sarbanes-Oxley Act of 2002.*

         32.1  Chief Executive Officer and Chief Financial Officer certification
               pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

          *    Filed herewith.

          **   Confidential treatment has been requested for certain portions of
               this Exhibit  pursuant to Rule 24b-2 of the  Securities  Exchange
               Act of 1934,  as amended,  which  portions have omitted and filed
               separately with the Securities and Exchange Commission.


                                       49
<PAGE>



                                   SIGNATURES



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



                                   CHARTERMAC
                                  (Registrant)



Date:  August 9, 2006          By: /s/ Marc D. Schnitzer
                                   ---------------------
                                   Marc D. Schnitzer
                                   Managing Trustee, Chief Executive Officer
                                   and President



Date:  August 9, 2006          By: /s/ Alan P. Hirmes
                                   ------------------
                                   Alan P. Hirmes
                                   Managing Trustee, Chief Financial Officer and
                                   Chief Operating Officer