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 SEPTEMBER 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  October  31,  2006,  there  were  51,295,584  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                                            36
              Item 3.     Quantitative and Qualitative Disclosures about Market Risk           56
              Item 4.     Controls and Procedures                                              57

PART II
              Item 1.     Legal Proceedings                                                    59
              Item 1A.    Risk Factors                                                         59
              Item 2.     Unregistered Sales of Equity Securities and Use of Proceeds          60
              Item 3.     Defaults Upon Senior Securities                                      60
              Item 4.     Submission of Matters to a Vote of Security Holders                  60
              Item 5.     Other Information                                                    60
              Item 6.     Exhibits                                                             60

SIGNATURES                                                                                     61

</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>

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

                                               ASSETS
<S>                                                                     <C>             <C>
Cash and cash equivalents                                               $   142,240     $   161,295
Restricted cash                                                              14,301          34,025
Mortgage revenue bonds-at fair value                                      2,505,706       2,294,787
Other investments                                                           291,541         298,590
Goodwill and intangible assets, net                                         552,677         439,175
Other assets, net                                                           185,798         144,670
Investments held by consolidated partnerships                             4,577,835       3,025,762
Other assets of consolidated partnerships                                   730,293         580,524
                                                                        -----------     -----------

Total assets                                                            $ 9,000,391     $ 6,978,828
                                                                        ===========     ===========

                                LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Financing arrangements                                               $ 1,730,629     $ 1,429,692
   Preferred shares of subsidiary (subject to mandatory
    repurchase)                                                             273,500         273,500
   Notes payable                                                            399,837         304,888
   Accounts payable, accrued expenses and other liabilities                 244,443         179,275
   Notes payable and other liabilities of consolidated
    partnerships                                                          2,369,289       1,627,556
                                                                        -----------     -----------

Total liabilities                                                         5,017,698       3,814,911
                                                                        -----------     -----------

Minority interests in consolidated subsidiaries                             251,940         262,274
                                                                        -----------     -----------
Preferred shares of subsidiary (not subject to mandatory
   repurchase)                                                              104,000         104,000
                                                                        -----------     -----------
Partners' interests in consolidated partnerships                          2,627,758       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                                      99,470         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;
       52,603 issued and 51,315 outstanding in 2006 and 52,309
       issued and 51,988 outstanding in 2005)                               718,470         752,042
     Restricted shares granted                                                   --          (4,193)
   Treasury shares of beneficial interest - common, at cost
    (1,288 shares in 2006 and 321 shares in 2005)                           (25,393)         (7,135)
   Accumulated other comprehensive income                                   101,801         100,104
                                                                        -----------     -----------
Total shareholders' equity                                                  998,995       1,049,835
                                                                        -----------     -----------

Total liabilities and shareholders' equity                              $ 9,000,391     $ 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           Nine Months Ended
                                                                     September 30,               September 30,
                                                                -----------------------     -----------------------
                                                                  2006          2005           2006          2005
                                                                ---------     ---------     ---------     ---------
<S>                                                             <C>           <C>           <C>           <C>
Revenues:
   Mortgage revenue bond interest income                        $  39,370     $  36,096     $ 115,109     $ 109,524
   Other interest income                                            7,570         3,986        20,089        10,828
   Fee income                                                      29,027        24,402        63,370        58,686
   Other revenues                                                   7,243         7,011        18,401        16,829
   Revenues of consolidated partnerships                           23,809         7,349        41,420        19,403
                                                                ---------     ---------     ---------     ---------
     Total revenues                                               107,019        78,844       258,389       215,270
                                                                ---------     ---------     ---------     ---------

Expenses:
   Interest expense                                                25,457        13,490        66,650        38,421
   Interest expense of consolidated partnerships                   12,982         6,342        25,539        19,364
   Interest expense - distributions to preferred
     shareholders of subsidiary                                     4,724         4,724        14,173        14,173
   General and administrative                                      43,678        30,370       116,105        89,650
   Depreciation and amortization                                   11,033        16,302        34,561        33,467
   Write-off of intangible assets                                   2,547            --         2,547            --
   Loss on impairment of assets                                       394           804         2,665         1,902
   Other expenses of consolidated partnerships                     18,480        14,285        50,019        38,950
                                                                ---------     ---------     ---------     ---------
     Total expenses                                               119,295        86,317       312,259       235,927
                                                                ---------     ---------     ---------     ---------

Loss before other income                                          (12,276)       (7,473)      (53,870)      (20,657)

Equity and other (loss) income                                     (3,320)          414           738         1,490
Gain on sale or repayment of loans and mortgage
     revenue bonds                                                  8,289         3,962        16,257        10,886
Loss on investments held by consolidated partnerships             (68,996)      (65,353)     (209,075)     (181,915)
                                                                ---------     ---------     ---------     ---------

Loss before allocations and income taxes                          (76,303)      (68,450)     (245,950)     (190,196)

Income allocated to preferred shareholders of subsidiary           (1,556)       (1,557)       (4,669)       (4,669)
Minority interests in consolidated subsidiaries, net of tax        (5,771)       (7,626)      (13,301)      (21,572)
Loss allocated to partners of consolidated partnerships           105,434        91,295       301,305       255,628
                                                                ---------     ---------     ---------     ---------

Income before income taxes                                         21,804        13,662        37,385        39,191
Income tax (provision) benefit                                     (7,233)        5,016        (3,909)       13,716
                                                                ---------     ---------     ---------     ---------

Net income
                                                                $  14,571     $  18,678     $  33,476     $  52,907
                                                                =========     =========     =========     =========

Allocation of net income to:
   4.4% Convertible CRA preferred shareholders                  $   1,188     $     832     $   3,564     $     832
   Common shareholders                                             12,011        15,832        26,568        46,185
   Convertible CRA shareholders                                     1,372         2,014         3,344         5,890
                                                                ---------     ---------     ---------     ---------
Total                                                           $  14,571     $  18,678     $  33,476     $  52,907
                                                                =========     =========     =========     =========

Net income per share:
   Basic                                                        $    0.23     $    0.31     $    0.51     $    0.90
                                                                =========     =========     =========     =========
   Diluted                                                      $    0.23     $    0.31     $    0.51     $    0.89
                                                                =========     =========     =========     =========

Weighted average shares outstanding:
   Basic                                                           58,015        58,059        58,409        57,927
                                                                =========     =========     =========     =========
   Diluted                                                         58,396        58,366        58,830        58,234
                                                                =========     =========     =========     =========

Dividends declared per share
                                                                $    0.42     $    0.41     $    1.26     $    1.23
                                                                =========     =========     =========     =========

</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>

                                                                            Nine Months Ended September 30,
                                                                            -------------------------------
                                                                                 2006              2005
                                                                            --------------     ------------
<S>                                                                           <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                 $  33,476          $  52,907
   Adjustments to reconcile net income to net cash provided by operating
    activities:
   Depreciation and amortization                                                 34,561             33,467
   Income allocated to minority interests in consolidated subsidiaries           13,301             21,572
   Income allocated to preferred shareholders of subsidiary                       4,669              4,669
   Gain on repayment of loans and mortgage revenue bonds                         (1,879)            (1,930)
   Loss on impairment of assets                                                   2,665              1,902
   Write-off of intangible assets                                                 2,547                 --
   Equity in income of unconsolidated entities                                     (738)            (1,490)
   Distributions received from equity investees                                   4,469              1,664
   Mortgage servicing rights                                                     (7,046)            (9,666)
   Non-cash compensation expense                                                 12,583              5,983
   Deferred taxes                                                                 3,153            (12,312)
   Reserves for bad debts                                                        28,038             16,091
   Other non-cash income                                                         (1,368)            (1,890)
   Changes in operating assets and liabilities:
    Mortgage loans held for sale                                                 94,668            (45,794)
    Deferred revenues                                                            16,645             11,113
    Interest, fees and other receivables                                        (70,354)           (63,120)
    Loan to affiliate                                                                --              4,600
    Other assets                                                                 (6,042)             7,322
    Accounts payable, accrued expenses and other liabilities                     34,290              8,012
                                                                              ---------          ---------

Net cash provided by operating activities                                       197,638             33,100
                                                                              ---------          ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Mortgage revenue bond acquisitions and fundings                             (298,285)          (225,159)
   Principal amortization and repayments of mortgage revenue bonds               82,091             84,210
   Acquisitions, net of cash acquired                                          (262,800)              (290)
   Investments in notes receivable                                               (1,986)                --
   Repayments of notes receivable                                                48,732                 --
   Advances to partnerships                                                    (119,350)           (97,181)
   Collection of advances to partnerships                                       126,781            104,742
   Loans to Capri Capital                                                            --             (8,011)
   Decrease (increase) in cash and cash equivalents - restricted                 19,881             (8,552)
   Investments in marketable securities                                         (23,428)                --
   Return of capital from equity investee                                        11,667                 --
   Deferred investment acquisition costs, net of reimbursements                  (5,334)               528
   Other investing activities                                                   (23,743)            (7,900)
                                                                              ---------          ---------

Net cash used in investing activities                                          (445,774)          (157,613)
                                                                              ---------          ---------

</TABLE>

                                   (continued)

     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>



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

<TABLE>
<CAPTION>

                                                                 Nine Months Ended September 30,
                                                                 -------------------------------
                                                                    2006                2005
                                                                 -----------         -----------
<S>                                                              <C>                 <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from financing arrangements                            1,243,413             315,310
   Repayments of financing arrangements                             (974,989)           (155,360)
   Increase (decrease) in notes payable                               93,982              (1,082)
   Distributions to shareholders                                     (77,822)            (71,747)
   Distributions to minority interest holders                        (26,681)            (25,963)
   Distributions to preferred shareholders of subsidiary              (4,669)             (4,669)
   Treasury stock purchases                                          (17,822)             (2,479)
   Issuance of preferred shares                                           --             108,000
   Minority interest contribution                                      3,300                  --
   Proceeds from stock options exercised                                  --                 248
   Retirement of minority interests                                     (723)                 (2)
   Deferred financing costs                                           (8,908)             (3,190)
                                                                 -----------         -----------

Net cash provided by financing activities                            229,081             159,066
                                                                 -----------         -----------

Net (decrease) increase in cash and cash equivalents                 (19,055)             34,553
Cash and cash equivalents at the beginning of the year               161,295              71,287
                                                                 -----------         -----------

Cash and cash equivalents at the end of the period               $   142,240         $   105,840
                                                                 ===========         ===========

Acquisition activity:

   Conversion of existing investments                            $    13,997         $    70,000
   Non-cash minority interests issued                                  4,859               7,500
   Assets acquired                                                  (345,047)            (90,530)
   Liabilities assumed                                                63,391              16,940
   Minority interests redeemed                                            --              (4,200)
                                                                 -----------         -----------
Net cash paid for acquisitions                                   $  (262,800)        $      (290)
                                                                 ===========         ===========

Non-cash investing and financing activities:
        Share grants                                             $    39,150         $     1,494
                                                                 -----------         -----------
        Conversion of SCUs and SMUs to common shares             $     1,954         $     3,271
                                                                 -----------         -----------
        Issuance of SMUs in exchange for investment              $        --         $    11,576
                                                                 -----------         -----------
        Cancellation of acquisition - related SMUs               $    (2,497)        $        --
                                                                 -----------         -----------
        Treasury stock purchases via employee withholding        $       436         $     2,479
                                                                 -----------         -----------

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       6
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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 certain of the entities identified throughout this document as
"consolidated partnerships", the financial information included is as of and for
the periods ended June 30, 2006,  the latest  practical date available (see Note
10).

During  June  2006,  we  created a new  subsidiary,  Centerbrook  Financial  LLC
("Centerbrook") to provide credit intermediation products to the housing finance
industry.  We own 90% of  Centerbrook's  direct parent and IXIS Capital  Markets
North America Inc. ("IXIS"),  an unrelated party, owns the remainder.  In August
2006, we acquired ARCap Investors, L.L.C. ("ARCap") (see Note 2).

The accompanying interim condensed  consolidated  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,  except with respect to policies  associated with
ARCap as discussed  below. New accounting  pronouncements  pending adoption that
may have a significant impact on our unaudited condensed  consolidated financial
statements are also described 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.

ADDITIONS TO SIGNIFICANT ACCOUNTING POLICIES

The following represent new significant  accounting policies to the Company as a
result of the ARCap acquisition:

   INVESTMENT SECURITIES

   We hold  investments  in  resecuritization  certificates,  and funds  that we
   consolidate   hold  commercial   mortgage-backed   securities   ("CMBS")  and
   resecuritization certificates. We classify these investments as available for
   sale as we may sell them or dispose of them prior to  maturity.  As such,  we
   carry these investments at their estimated fair values, and report unrealized
   gains and losses in other  comprehensive  income.  We evaluate any unrealized
   losses to determine  if the declines in fair value are  other-than-temporary;
   if so, the decline in fair value is recorded as an impairment to the security
   and charged to  earnings.  We  generally  estimate the fair value of the CMBS
   based on market prices provided by certain dealers who make a market in these
   financial instruments. The market for the classes of CMBS that our funds hold
   may lack  liquidity and have limited  market  volume.

   We adjust the  amortized  cost of  securities  for  accretion of discounts to
   maturity. We compute accretion using the  effective-interest  method over the
   expected life of the securities  based on our estimates  regarding the timing
   and  amount of cash  flows  from the  underlying  collateral.  The timing and
   amount of actual cash flows may differ from these  estimates.  We include the
   accretion  of these  discounts  in other  interest  income  on the  condensed
   consolidated statements of income.


                                       7
<PAGE>



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



   The yield to maturity on CMBS and  resecuritization  certificates depends on,
   among  other  things,  the  rate  and  timing  of  principal  payments,   the
   pass-through  rate,  and interest rate  fluctuations.  Our  subordinate  CMBS
   interests and  resecuritization  certificates  provide  credit support to the
   more senior  interests of the related  commercial  securitization.  Cash flow
   from  the  mortgages  underlying  the  CMBS  interests  and  resecuritization
   certificates  generally is allocated  first to the senior  interests and then
   among the other CMBS interests and resecuritization  certificates in order of
   relative  seniority.  To the extent that there are defaults and unrecoverable
   losses on the  underlying  mortgages  that result in reduced cash flows,  the
   most  subordinate  CMBS interest and  resecuritization  certificate will bear
   this loss first, with excess losses borne by the remaining CMBS interests and
   resecuritization certificates in order of relative subordination.

   DEFERRED REVENUE

   We record  loan  commitment  fees as  deferred  revenue  net of direct  costs
   associated  with  closing the  related  loan and  recognize  them as interest
   income using the effective-interest method over the life of the related loan,
   in accordance with SFAS No. 91, ACCOUNTING FOR  NONREFUNDABLE  FEES AND COSTS
   ASSOCIATED  WITH  ORIGINATING  OR ACQUIRING  LOAN AND INITIAL DIRECT COSTS OF
   LEASES.

   RESALE AND REPURCHASE AGREEMENTS

   We  account  for   transactions  involving  purchases  of   securities  under
   agreements  to  resell  (reverse  repurchase  agreements or reverse repos) or
   sales of securities  under  agreements to repurchase  (repurchase  agreements
   or repos)  as  collateralized  financing  liabilities,  except when we do not
   have an agreement to sell  (or purchase) the same or substantially  the  same
   securities before maturity at a fixed or determinable price.

NEW ACCOUNTING PRONOUNCEMENTS

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.  The Staff Position was
effective as of the first quarter of 2006. Application of the Staff Position had
no material impact on our results of operations.

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 March 2006, the FASB issued Statement of Financial  Accounting  Standards No.
156, ACCOUNTING FOR SERVICING OF FINANCIAL Assets ("SFAS No. 156"). SFAS No. 156
stipulates the accounting for mortgage  servicing  rights  ("MSRs") and requires
that they be recorded  initially at fair value.  SFAS No. 156 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
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.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No. 157, FAIR VALUE MEASUREMENTS,  which established a framework for calculating
the  fair  value of  assets  and  liabilities  as  required  by  numerous  other
accounting  pronouncements,  and  expands  disclosure  requirements  of the fair
values of certain assets and  liabilities.  The statement is effective as of our
2008 fiscal year.  We are  currently  evaluating  the impact,  if any,  that the
adoption of this Statement will have on our financial statements.


                                       8
<PAGE>



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



NOTE 2 - ACQUISITIONS AND DISPOSITION

A.  ARCAP

On August 15, 2006, we acquired all of the membership interests in ARCap that we
had not previously  owned (see Note 4). ARCap is a fund manager  specializing in
the acquisition, management and servicing of high-yield CMBS. The total purchase
price of approximately $275.0 million included:

     o    cash of approximately $263.3 million, including transaction costs;
     o    267,755  Special Common  Interests  ("SCIs") of a subsidiary (see Note
          11) with a value of approximately $4.9 million; and
     o    the remaining  basis of our prior  investment in ARCap  (approximately
          $6.8 million),  which had been reduced by distributions  accounted for
          as returns of capital.

Of the total purchase  price,  $22.5 million has been placed into escrow,  which
amounts will be released based on certain  future events,  some of which are not
under our  control.  Should the events not under our control  occur,  up to $7.5
million of the amount held back could  revert to us.  These  contingencies  will
expire by 2008.

The cash portion of the acquisition and associated acquisition costs were funded
by a new credit  facility (see Note 7). In connection with the  acquisition,  we
also  issued  approximately  1.7  million  restricted  common  shares  to  ARCap
employees (see Note 13).

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.  We valued
intangible assets based on appraisals by independent valuation firms. The excess
of the  purchase  price over the net amounts  assigned  to the assets  acquired,
including identified intangibles,  and the liabilities assumed was recognized as
goodwill of approximately  $111.5 million.  Allocations are preliminary and will
be refined prior to August 2007.

The following table  summarizes the assets acquired and the liabilities  assumed
in connection with the ARCap acquisition (in thousands):

<TABLE>
<CAPTION>

<S>                                                                   <C>
Cash and cash equivalents                                             $     720
Restricted cash                                                             156
Other investments                                                       132,746
Other intangible assets                                                  18,908
Deferred costs and other assets                                          16,062
Net assets of consolidated partnerships                                  45,504

Financing arrangements                                                  (32,513)
Accounts payable, accrued expenses and other liabilities                (18,023)
                                                                      ---------

Net assets acquired                                                   $ 163,560
                                                                      =========

</TABLE>

Pro Forma results of operations  assuming we had  consummated the acquisition on
January 1, 2005, are as follows:

<TABLE>
<CAPTION>

                                              Three Months Ended      Nine Months Ended
                                                 September 30,          September 30,
                                             --------------------    -------------------
(In thousands, except per share amounts)       2006        2005        2006       2005
----------------------------------------     --------    --------    --------   --------
<S>                                          <C>         <C>         <C>        <C>
Total revenues                               $126,281    $110,773    $346,536   $306,977
Net income                                   $ 26,929    $ 45,049    $ 69,493   $ 80,404
Net income per share:
   Basic                                     $   0.44    $   0.76    $   1.13   $   1.37
   Diluted                                   $   0.42    $   0.73    $   1.09   $   1.35

</TABLE>

                                       9
<PAGE>



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



B.  CHARTERMAC REAL ESTATE SECURITIES

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.  The  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.

In October 2006, we decided to cease operations at CRES. As part of an agreement
with CRES' founder,  certain  convertible  SMUs that we had issued (see Note 11)
will be returned and others held in escrow will be  cancelled.  In addition,  he
will  assume  CRES'  line of credit and we will bear the cost of  operating  the
business until the closure is completed.  In connection with this agreement,  we
reduced  goodwill  by $2.5  million  for the  cancellation  of the SMUs  held in
escrow. We also recognized a goodwill  impairment  charge of approximately  $0.9
million to account for the portion of our total  investment  in and  advances to
CRES that we do not expect to recover and wrote-off the $1.6 million unamortized
balance of other  intangible  assets  recognized at the time of the acquisition.
While we expect  there will be  incremental  charges  relating  to closing  this
business, the costs are not expected to be material.

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


NOTE 3 - MORTGAGE REVENUE BONDS

A. SUMMARY

The following table summarizes our mortgage revenue bond portfolio:

<TABLE>
<CAPTION>

                                                 September 30,      December 31,
           (In thousands)                            2006               2005
-----------------------------------              -------------      ------------
<S>                                               <C>               <C>
Amortized cost basis                              $ 2,638,890       $ 2,417,185
Gross unrealized gains                                122,151           116,541
Gross unrealized losses                               (17,804)          (11,424)
                                                  -----------       -----------
Subtotal/fair value                                 2,743,237         2,522,302
  Less: eliminations (1)                             (237,531)         (227,515)
                                                  -----------       -----------
Total fair value per balance sheet                $ 2,505,706       $ 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.


                                       10
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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>
SEPTEMBER 30, 2006

Number of bonds                     52             52            104
Fair value                    $344,869       $372,666       $717,535
Gross unrealized loss         $  8,487       $  9,317       $ 17,804

                              --------------------------------------
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 September 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                $    10,218      $    10,223         6.36%
Due between one and five years                54,493           53,278         6.58
Due after five years                       2,574,753        2,679,736         6.66
                                         -----------      -----------      -------
Total / weighted average                   2,639,464        2,743,237         6.65%
                                                                           =======
   Less: eliminations (1)                   (236,797)        (237,531)
                                         -----------      -----------
Total                                    $ 2,402,667      $ 2,505,706
                                         ===========      ===========

</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 nine months
ended September 30, 2006 (excluding bonds refinanced during the period):

<TABLE>
<CAPTION>

                                                               Weighted        Weighted
                                                                Average         Average
                                                    Face     Construction      Permanent
            (In thousands)                         Amount    Interest Rate   Interest Rate
--------------------------------------            --------   -------------   -------------
<S>                                               <C>              <C>            <C>
Construction/rehabilitation properties            $285,745         6.51%          6.04%
Additional funding of existing bonds                12,540         5.30           5.36
                                                  --------      -------        -------
    Total                                         $298,285         6.46%          6.01%
                                                  ========      =======        =======

</TABLE>


                                       11
<PAGE>



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



The following  table  summarizes  mortgage  revenue bonds repaid during the nine
months ended September 30, 2006 (excluding bonds refinanced during the period):

<TABLE>
<CAPTION>

                                             Net Book                    Realized
        (In thousands)                         Value      Proceeds    Gains (Losses)
---------------------------------            ---------    ---------   --------------
<S>                                           <C>          <C>           <C>
Participating, stabilized                     $17,810      $18,725       $   915
Non-participating, stabilized                  21,753       21,585          (168)
Non-participating, not stabilized              19,436       19,182          (254)
                                              -------      -------       -------
Total                                         $58,999      $59,492       $   493
                                              =======      =======       =======

</TABLE>

C. SECURITIZED OR PLEDGED ASSETS

At September 30, 2006,  mortgage  revenue bonds with an aggregate  fair value of
$2.2 billion were  securitized or pledged as collateral in relation to financing
arrangements.  Of these,  21 bonds  with a fair  value of  approximately  $237.5
million are eliminated in consolidation as noted in the tables above.

D. IMPAIRMENT

During 2006, we recognized  approximately  $2.7 million of mortgage revenue bond
impairment  charges  in  light  of  substandard  performance  at six  underlying
properties.  For one of the properties, we reached an agreement with the general
partner whereby he relinquished  control of the property,  and for two others we
revised the terms of the bonds to reduce the interest rates.

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, and Note 19 regarding others for which we
will be assuming the general partnership interest.

NOTE 4 - OTHER INVESTMENTS

Investments other than mortgage revenue bonds consisted of:

<TABLE>
<CAPTION>

                                                         September 30, December 31,
                  (In thousands)                             2006          2005
--------------------------------------------------       ------------  -----------
<S>                                                        <C>          <C>
Investment in equity interests in LIHTC properties         $ 39,083     $ 46,985
Investment in properties under development                    4,771        4,300
Investment in ARESS                                           1,469           --
CCA loans and preferred stock                                    --       26,884
Investment in CUC                                               238           --
Mortgage loans held for sale                                 58,637      153,277
Resecuritization certificates                               103,922           --
Notes receivable                                             47,032       32,670
Marketable securities                                        24,731        1,249
Investment in ARCap                                              --       19,874
Other                                                        11,658       13,351
                                                           --------     --------
   Total other investments                                 $291,541     $298,590
                                                           ========     ========

</TABLE>

A. ARESS

We own approximately 5% of ARCap Real Estate Special  Situations  Mortgage Fund,
LLC  ("ARESS")  which  commenced  operations  in May 2006.  We account  for this
investment under the equity method due to our ability to exercise influence over
its operations.

B. CCA AND CUC

The balance of "CCA loans and preferred stock" at December 31, 2005,  included a
participating  loan which was convertible into a 49% ownership  interest in CCA.
In September  2006,  CCA repaid the loan in full and paid us an additional  $6.0
million to terminate our rights  relating to the  conversion of the loan into an
ownership  interest.  As part  of  this  agreement,  CCA  transferred  to us its


                                       12
<PAGE>



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



interest in Capri Urban Capital LLC, which we renamed  CharterMac  Urban Capital
LLC ("CUC").  CUC is an entity through which we now provide investment  advisory
services to CalPERS,  focusing on  investments  in  multifamily  and  commercial
properties  in major  urban  markets.  We  recognized  the value of the  general
partner  interest in CUC  (approximately  $900,000) as an intangible  asset (see
Note 5).  Our  general  partner  interest  includes a  co-investment  obligation
amounting to 2.5% of capital invested (see Note 18). We recorded a total gain on
the transaction of approximately $6.9 million, including the termination payment
and the value of the intangible asset.

The balance of "CCA loans and  preferred  stock" also  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).

C. MORTGAGE LOANS HELD FOR SALE

The  balance of mortgage  loans held for sale  fluctuates  based on  origination
volume and the timing of  corresponding  sales.  The  December  31, 2005 balance
reflects a high level of December 2005 origination volume,  which mortgages were
sold in the first quarter of 2006.

D. RESECURITIZATION CERTIFICATES

Resecuritization  certificates we hold (not including the  certificates  held at
the fund  level  detailed  in Note 10) were  comprised  of the  following  as of
September 30, 2006:

<TABLE>
<CAPTION>

                                                 Accreted               Percentage of
      (In thousands)                   Face        Cost     Fair Value   Fair Value
---------------------------          --------    ---------  ----------  -------------
<S>                                  <C>         <C>         <C>            <C>
Security rating:
   AAA interest only                 $     --    $ 17,647    $ 23,010        22.1%
   AAA                                 26,150      13,257      25,360        24.4
   BBB+                                12,536       4,947       9,062         8.7
   BBB                                  9,402       3,379       6,169         6.0
   BBB-                                 9,402       2,918       5,605         5.4
   BB+                                 24,454       3,722      12,376        11.9
   BB                                   8,501       1,097       3,460         3.3
   BB-                                 11,635       1,310       4,043         3.9
   B+                                  13,273         701       2,836         2.7
   B                                   11,487         570       1,772         1.7
   B-                                  11,635         532       1,643         1.6
   Non-rated                           75,526         164       8,090         7.8
   Non-rated interest only                 --         249         496         0.5
                                     --------    --------    --------     -------
                                     $214,001    $ 50,493    $103,922       100.0%
                                     ========    ========    ========     =======

</TABLE>

E. NOTES RECEIVABLE

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 had invested an additional $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).

Notes  receivable  at September 30, 2006  primarily  represent the fair value of
investments in  first-mortgage  and mezzanine  loans  originated  through ARCap,
including a $27.3 million co-investment with AMAC.

F. MARKETABLE SECURITIES

Marketable   securities  at  September  30,  2006,  included  $23.3  million  of
investments Centerbrook maintained in cash accounts with maturities in excess of
90 days.


                                       13
<PAGE>



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



G. INVESTMENT IN ARCAP AND OTHER

In August 2006, we acquired the  interests in ARCap which we had not  previously
owned (see Note 2) and incorporated our basis in the previous  investment in the
purchase price.

Other  investments at September 30, 2006,  and December 31, 2005,  included $5.0
million  invested  in a  fund  we  sponsored  through  CRES,  which  we  do  not
consolidate  in  our  condensed  consolidated  financial  statements.   We  will
liquidate this  investment in the fourth quarter of 2006 in connection  with our
closure of CRES (see Note 2).  See Note 19 regarding subsequent liquidation.

NOTE 5 - GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill and other intangible assets consisted of the following:

<TABLE>
<CAPTION>

                                         September 30,    December 31,
        (In thousands)                       2006             2005
------------------------------           ------------     ------------
<S>                                        <C>              <C>
Goodwill                                   $349,418         $235,684
Other intangible assets, net                130,471          141,301
Mortgage servicing rights, net               72,788           62,190
                                           --------         --------

Total                                      $552,677         $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                                  106,337         11,405       117,742
Reductions                                  (4,008)            --        (4,008)
                                         ---------      ---------     ---------
Balance at September 30, 2006            $ 300,266      $  49,152     $ 349,418
                                         =========      =========     =========

</TABLE>

The increase in goodwill for both segments  relates to the  acquisitions of CRES
(in Fund  Management) and ARCap (in Fund  Management and Mortgage  Banking) (see
Note 2). The reduction in Fund Management  goodwill  pertained to the conversion
of SCUs (see Note 13), as the deferred tax impact of such  conversion  served to
effectively  lower the purchase  price of  CharterMac  Capital LLC  ("CharterMac
Capital")  which we acquired in 2003.  In addition,  we reduced Fund  Management
goodwill by approximately $3.4 million in connection with the planned closure of
CRES (see Note 2).


                                       14
<PAGE>



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



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
-----------------------------------------       ----------   --------------------------   --------------------------
                                                             September 30,  December 31,  September 30,  December 31,
                                                                 2006           2005          2006           2005
                                                             ------------   -----------   ------------   -----------
<S>                                                  <C>       <C>           <C>            <C>            <C>
Amortized identified intangible assets:
  Partnership service contracts                       9.4      $ 47,300      $ 47,300       $ 14,510       $ 10,718
  Transactional relationships                        16.7       103,000       103,000         24,155         17,864
  General partner interests                           9.0         6,016         5,100          1,626          1,201
  Joint venture developer relationships               5.0         4,800         4,800          2,755          2,035
  Mortgage banking broker relationships               5.0         1,080         1,080            342            180
  Other identified  intangibles                       9.3         4,427         4,427          3,537          3,181
                                                 --------      --------      --------       --------       --------
Weighted average life/subtotal                       13.7       166,623       165,707         46,925         35,179
                                                 ========

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

Total identified intangible assets                             $177,396      $176,480       $ 46,925       $ 35,179
                                                               ========      ========       ========       ========

<CAPTION>




             (In thousands)                                Net
-----------------------------------------       --------------------------
                                                September 30,  December 31,
                                                    2006           2005
                                                ------------   -----------
<S>                                                <C>           <C>
Amortized identified intangible assets:
  Partnership service contracts                    $ 32,790      $ 36,582
  Transactional relationships                        78,845        85,136
  General partner interests                           4,390         3,899
  Joint venture developer relationships               2,045         2,765
  Mortgage banking broker relationships                 738           900
  Other identified  intangibles                         890         1,246
                                                   --------      --------
Weighted average life/subtotal                      119,698       130,528


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

Total identified intangible assets                 $130,471      $141,301
                                                   ========      ========

</TABLE>
<TABLE>
<CAPTION>

                                   Three Months Ended        Nine Months Ended
                                      September 30,             September 30,
                                  --------------------      --------------------
                                    2006         2005         2006         2005
                                  -------      -------      -------      -------
<S>                               <C>          <C>          <C>          <C>
Amortization expense              $ 3,769      $ 4,297      $11,746      $12,637
                                  =======      =======      =======      =======

</TABLE>

The amortization of "other identified  intangibles"  (approximately $476,000 per
year) is included as a reduction  to mortgage  revenue bond  interest  income as
they pertain to the acquisition of such bond investments.

In the  third  quarter  of 2006,  we wrote off  approximately  $1.6  million  of
unamortized  transactional  relationships  assets  associated  with our  planned
closure of CRES (see Note 2).


                                       15
<PAGE>



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



NOTE 6 - OTHER ASSETS

The components of other assets were as follows:

<TABLE>
<CAPTION>

                                                        September 30,  December 31,
                   (In thousands)                           2006           2005
------------------------------------------------------  ------------   -----------
<S>                                                      <C>            <C>
Deferred financing and other costs                       $  34,951      $  38,059
Less: Accumulated amortization                              (5,499)       (14,031)
                                                         ---------      ---------

Net deferred costs                                          29,452         24,028

Real estate owned, net of accumulated depreciation of
     $1.1 million in 2006                                   33,652         35,608

Interest receivable                                         22,116         16,964
Fees receivable, net                                        31,713         30,774
Deposits receivable                                         18,235             98
Due from unconsolidated partnerships, net                   11,605          2,576
PRS/CRG advances                                            11,627          9,961
Furniture, fixtures and leasehold improvements, net          8,707          8,178
Income tax receivable                                        4,323          4,276
Interest rate swaps at fair value (see Note 8)               2,373          4,857
Deferred taxes                                                  --          1,849
Other                                                       11,995          5,501
                                                         ---------      ---------

Total                                                    $ 185,798      $ 144,670
                                                         =========      =========

</TABLE>

A. DEFERRED FINANCING AND OTHER COSTS

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. In connection  with
refinancing our lines of credit at the time of the ARCap  acquisition (see Notes
2 and 7) we wrote  off the  unamortized  balance  of  deferred  financing  costs
pertaining  to  the  terminated  lines  (approximately  $141,000)  and  recorded
deferred costs of approximately $9.3 million related to the new facilities.

B. REAL ESTATE OWNED

We had  classified  our real estate owned as "Held for  placeCitySale"  upon our
foreclosure of the properties  securing  mortgage revenue bonds in 2005. As GAAP
sale recognition was not achieved within one year, we 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.  In September 2006, we sold the properties to a third-party to whom
we provided new debt  financing and to whom funds that we  consolidate  provided
equity financing.  As such, we did not consider the transaction to be a sale for
accounting purposes.

C. DEPOSITS RECEIVABLE

The balance  consists  primarily of collateral  deposits  pertaining to new debt
facilities we entered into in 2006 (see Note 7).

D. PRS/CRG ADVANCES

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 $17.4 million
at September 30, 2006 and $3.9 million at December 31, 2005.


                                       16
<PAGE>



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



NOTE 7 - FINANCING ARRANGEMENTS AND NOTES PAYABLE

A.   SECURITIZATION PROGRAMS

Upon the launch of  Centerbrook  in June 2006,  we  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
securitization  relationship with MBIA and created a new program through Goldman
Sachs with a structure similar to our P-FLOATS  program.  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.

In August 2006, we closed a $455.0 million  fixed-rate  securitization.  In this
transaction,  we sold fixed rate certificates  secured by a pool of our mortgage
revenue bonds.  These  certificates  have a weighted average life of 8 years and
incur  interest  at a weighted  average  fixed-rate  of 4.6%.  As with our other
programs, we retained residual certificates  associated with the securitization.
The proceeds of this transaction  were used to pay down existing  securitization
liabilities.

Details of the fixed-rate securitization certificates issued are as follows:

<TABLE>
<CAPTION>

                        Amount
    Series          (in thousands)     Initial Rate     Remarketing Date
---------------     --------------     ------------     ----------------
     <S>               <C>                 <C>             <C>
     A-1               $300,000            4.54%           August 2013
     A-2               $155,000            4.72%           August 2016
                       --------

    Total              $455,000
                       ========

</TABLE>

B.  CMC WAREHOUSE LINE

The CharterMac  Mortgage  Capital  ("CMC")  warehouse line was amended to permit
temporary over-advances through October 2006 of up to $75.0 million (in addition
to the $100.0  million base  borrowing  amount)  pursuant to terms arranged with
Bank of America.  The term of this  facility  has been  extended to November 14,
2006 and we expect to enter into a further extension of this line.

C.  CENTERBROOK FACILITIES

Upon its launch in June 2006,  Centerbrook  entered into a $30.0 million  senior
debt facility and a $125.0 million  mezzanine  debt  facility,  maturing in June
2036.  The senior debt  facility is provided by  Citibank,  N.A.  and one of our
subsidiary companies and it generally bears interest, at our discretion, at:

     (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.

D. REVOLVING CREDIT FACILITY AND TERM LOAN

In August 2006, in  connection  with our  acquisition  of ARCap (see Note 2), we
entered into a loan commitment with various lenders.  The commitment  provides a
$250.0 million term loan (the "Term Loan"),  which matures in August 2012, and a
$250.0 million revolving credit facility (the "Credit Facility"),  which matures
in August 2009.  We also have the ability,  no more than twice,  to increase the
maximum  amounts  available under either the Term Loan and/or Credit Facility by
$200.0 million. This ability expires in August 2008.


                                       17
<PAGE>



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



All or a portion of the Credit Facility and the Term Loan bear interest,  at our
discretion, at either:

     (1)  the Prime Rate set by Bank of  America,  N.A.  (the "Base  Rate") plus
          0.25%, or
     (2)  LIBOR plus 2.5% for the Term Loan, or a margin  ranging from 1.625% to
          1.875%  depending  on the ratio of "funded debt to adjusted  CAD",  as
          defined in the credit agreement, for the Credit Facility.

Proceeds from the Term Loan and Credit Facility were used to purchase ARCap (see
Note 2) and to repay and  terminate the CMC  Acquisition  Line,  the  CharterMac
Capital Warehouse Line and the Capri Acquisition Lines.

E.  REPURCHASE AGREEMENTS

At September 30, 2006, we were a party to five  repurchase  agreements with five
counterparties  that provide total  commitments of $280.0 million,  although the
maximum  amount  available to borrow under each facility is limited by the value
of the pledged  collateral.  As of September 30, 2006, we borrowed $48.4 million
under these  agreements  and had the  ability to borrow  $42.7  million  without
pledging  additional  collateral.  As of September  30, 2006,  the fair value of
collateral  pledged was $121.4 million.  Interest rates range from 5.7% to 6.1%.
Of the  amounts  outstanding,  $19.5  million  matures in 24  months,  and $28.9
million  has no  specified  maturity  date,  although  it may be called upon six
months' notice by the counterparty.

NOTE 8 - DERIVATIVE INSTRUMENTS

As of September  30, 2006,  we had interest  rate swaps with varying  expiration
dates and an aggregate  notional amount of $725.0 million,  which are designated
as cash flow  hedging  instruments  which  hedge the  interest  payments  on our
variable-rate  securitizations  and credit  facility.  In addition to the $450.0
million  notional amount of swaps we had outstanding as of December 31, 2005, we
entered  into a new  interest  rate swap at the time of  refinancing  our credit
facilities  (see Note 7). The new swap has a notional  amount of $275.0 million,
an expiration date of August 2009, a fixed rate of 5.25% and the counterparty is
Wachovia.

We record all of these  swaps at fair value and record  changes in fair value in
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 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 Notes 4 and 16).
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>

                                                  September 30,     December 31,
                                                  ------------      ------------
           (In thousands)                             2006              2005
-------------------------------------             ------------      ------------
<S>                                                  <C>               <C>
Net liability position                               $2,257            $  208
Net asset position                                   $2,373            $4,857

</TABLE>


                                       18
<PAGE>



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



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

<TABLE>
<CAPTION>

                                              Three months ended       Nine months ended
                                                  September 30,           September 30,
                                              --------------------    --------------------
             (In thousands)                     2006        2005        2006        2005
------------------------------------------    --------    --------    --------    --------
<S>                                           <C>         <C>         <C>         <C>
Interest expense                              $    --     $   798     $    35     $ 2,684
Interest income                                  (727)        (53)     (1,475)       (111)
Change in fair value of free standing swap
   assigned to AMAC                                --          --        (203)         --
                                              -------     -------     -------     -------

Total                                         $  (727)    $   745     $(1,643)    $ 2,573
                                              =======     =======     =======     =======

</TABLE>

We estimate that  approximately $3.0 million of the net unrealized gain included
in accumulated  other  comprehensive  income will reduce interest expense within
the next twelve months.

Certain of our consolidated  partnerships also had interest rate swaps accounted
for as hedges as of September 30, 2006 (see Note 10).

NOTE 9 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

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

<TABLE>
<CAPTION>

                                                      September 30,    December 31,
            (In thousands)                                2006             2005
--------------------------------------                ------------     -----------
<S>                                                     <C>             <C>
Deferred revenues                                       $ 84,708        $ 70,025
Distributions payable                                     41,492          41,080
Accounts payable                                          58,804          22,314
Salaries and benefits                                     24,075          15,816
Accrued fund organization and offering
expenses                                                  13,976           9,562
Derivatives                                                2,257             208
Restructuring costs                                        1,182              --
Other                                                     17,949          20,270
                                                        --------        --------

Total                                                   $244,443        $179,275
                                                        ========        ========

</TABLE>

The accrued  restructuring  costs pertain to integration actions with respect to
the  acquisition  of ARCap (see Note 2). We recorded  these costs in general and
administrative  expenses in the second  quarter of 2006.  A roll  forward of the
restructuring costs is as follows:

<TABLE>
<CAPTION>

                                             Fund         Mortgage
                                           Management      Banking
           (In thousands)                   Segment        Segment        Total
-------------------------------------      ----------    ---------      --------
<S>                                         <C>           <C>           <C>
Employee termination costs
   Balance at June 30, 2006                 $   580       $ 1,251       $ 1,831
   Payments                                    (120)         (144)         (264)
   Adjustments                                 (171)         (378)         (549)
                                            -------       -------       -------
   Balance at September 30, 2006                289           729         1,018
                                            -------       -------       -------

Lease termination costs
   Balance at June 30, 2006                      --           164           164
   Payments                                      --            --            --
                                            -------       -------       -------
   Balance at September 30, 2006                 --           164           164
                                            -------       -------       -------

Total                                       $   289       $   893       $ 1,182
                                            =======       =======       =======

</TABLE>


                                       19
<PAGE>



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



Adjustments  represent  the  reversal of amounts due to  employee  attrition  in
advance of severance  dates or amounts  reclassified  as retention  bonuses.  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

Consolidated Partnerships consist of three groups:

     o    Funds   we   sponsor   to   syndicate   LIHTC   Investments    ("LIHTC
          Partnerships");
     o    Property  level  partnerships  for which we have  assumed  the role of
          general partner ("Property Partnerships"); and
     o    Funds we  sponsor  to  syndicate  investments  in CMBS and  associated
          resecuritization  trusts ("CMBS  Partnerships")  that were  associated
          with the ARCap acquisition in August 2006.

Financial information for the LIHTC and Property Partnerships are as of June 30,
2006, the latest practical date.  Information with respect to CMBS  partnerships
is as of September 30, 2006.

Assets and liabilities of consolidated partnerships consisted of:

<TABLE>
<CAPTION>

                                                           September 30, 2006           December 31, 2005
                                                --------------------------------------- -----------------
                                                 LIHTC and                                 LIHTC and
                                                  Property        CMBS                      Property
                (In thousands)                  Partnerships  Partnerships     Total      Partnerships
---------------------------------------------   ------------  ------------  -----------   ------------
<S>                                              <C>           <C>           <C>           <C>
Investments in property partnerships             $3,343,243    $       --    $3,343,243    $3,025,762
Investments in CMBS - available for sale                 --       625,870       625,870            --
Investments in resecuritization
   certificates  - available for sale                    --       594,701       594,701            --
Other investments                                        --        14,021        14,021            --
                                                 ----------    ----------    ----------    ----------
Investments held by consolidated partnerships     3,343,243     1,234,592     4,577,835     3,025,762
                                                 ----------    ----------    ----------    ----------

Land, buildings and improvements,  net
   of accumulated depreciation                      367,327            --       367,327       329,869
Cash                                                233,282        14,129       247,411       172,622
Other assets                                         94,898        20,657       115,555        78,033
                                                 ----------    ----------    ----------    ----------
Other assets of consolidated partnerships           695,507        34,786       730,293       580,524
                                                 ----------    ----------    ----------    ----------

Total assets                                     $4,038,750    $1,269,378    $5,308,128    $3,606,286
                                                 ==========    ==========    ==========    ==========

Financing arrangements                           $       --    $  687,694    $  687,694    $       --
Notes payable                                       498,185            --       498,185       565,877
Due to property partnerships                        832,480            --       832,480       896,031
Repurchase agreements                                    --       184,700       184,700            --
Other liabilities                                   156,783         9,447       166,230       165,648
                                                 ----------    ----------    ----------    ----------

Total liabilities                                $1,487,448    $  881,841    $2,369,289    $1,627,556
                                                 ==========    ==========    ==========    ==========
</TABLE>
<TABLE>
<CAPTION>

Other operating expenses of consolidated partnerships consisted of:

                                                   Three Months Ended            Nine Months Ended
                                                      September 30,                 September 30,
                                                 ------------------------    ------------------------
                                                    2006          2005          2006          2005
                                                 ----------    ----------    ----------    ----------
<S>                                              <C>           <C>           <C>           <C>
Interest expense                                 $   12,982    $    6,342    $   25,539    $   19,364
Asset management fees                                 5,079         5,430        15,604        16,206
Property operating expenses                           3,998         2,592        11,286         7,268
General and administrative expenses                   3,586         2,725        11,684         6,837
Depreciation and amortization                         5,817         3,538        12,445         8,639
                                                 ----------    ----------    ----------    ----------

Total other operating expenses                   $   31,462    $   20,627    $   76,558    $   58,314
                                                 ==========    ==========    ==========    ==========

</TABLE>


                                       20
<PAGE>



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



Investments in CMBS included within consolidated  partnerships were comprised of
the following as of September 30, 2006:

<TABLE>
<CAPTION>

                                           Accreted                     Percentage of
   (In thousands)              Face          Cost        Fair Value       Fair Value
-------------------------------------------------------------------------------------
<S>                        <C>            <C>            <C>                <C>
Security rating:
   BBB-                    $  106,723     $  100,417     $  100,967          16.13%
   BB+                        108,094         91,711         92,482          14.78
   BB                         129,402        106,546        106,802          17.07
   BB-                        131,875         92,299         93,316          14.91
   B+                          67,071         41,647         42,807           6.84
   B                           66,323         37,629         39,649           6.33
   B-                          86,180         39,521         46,260           7.39
   Non-rated                  312,433         92,026        103,587          16.55
                           ----------     ----------     ----------      ---------
                           $1,008,101     $  601,796     $  625,870         100.00%
                           ==========     ==========     ==========      =========

</TABLE>

Investments  in  resecuritization   certificates  included  within  consolidated
partnerships were comprised of the following as of September 30, 2006:

<TABLE>
<CAPTION>

                                                Accreted                Percentage of
       (In thousands)                 Face        Cost     Fair Value     Fair Value
-------------------------------------------------------------------------------------
<S>                                 <C>         <C>         <C>             <C>
Security rating:
   AAA                              $111,900    $ 95,968    $109,215         18.36%
   AA                                 66,600      57,541      65,756         11.06
   A                                  47,000      40,977      46,865          7.88
   A-                                 23,900      21,289      24,282          4.08
   BBB+                               66,800      60,345      68,629         11.54
   BBB                                61,138      53,302      57,373          9.65
   BBB-                              109,781      97,906     110,951         18.66
   BB+                                88,114      46,621      61,668         10.37
   BB                                 12,158       3,547       6,770          1.14
   BB-                                12,157       3,187       6,092          1.02
   B+                                 21,073       4,890       9,372          1.58
   B                                  11,347       1,869       3,596          0.60
   B-                                 12,158       1,510       2,918          0.49
   Non-rated                         184,598       7,991      16,426          2.76
   Non-rated interest only                --       4,796       4,788          0.81
                                    --------    --------    --------     ---------
                                    $828,724    $501,739    $594,701        100.0%
                                    ========    ========    ========     ========

</TABLE>

At September 30, 2006,  eight  repurchase  agreements with three  counterparties
provided total commitments of $495.0 million. As of September 30, 2006, the CMBS
Partnerships had borrowed $184.7 million under these  repurchase  agreements and
had the ability to borrow an additional $5.9 million without pledging additional
collateral.  As of September 30, 2006, the fair value of collateral  pledged was
$258.5 million. Interest rates range from 5.4% to 6.1%.

Of the LIHTC Partnerships  notes payable balance,  at September 30, 2006, $371.9
million are guaranteed by certain equity partners of the investment funds. Under
the  partnership  agreements,  the equity partners are also obligated to pay the
principal and interest on the notes. The remaining  balance of $127.0 million is
collateralized  with the  underlying  properties of the  consolidated  operating
partnerships. All of this debt is non-recourse to us.

The financing  arrangements of the CMBS  partnerships  consist of three separate
collateralized debt obligation  offerings,  with weighted average interest rates
ranging from 4.7% to 8.7% and weighted average  remaining  maturities of 5 years
to 9 years. All of this debt is non-recourse to the CMBS funds.

The  CMBS  partnerships  have  entered  into  amortizing  forward-starting  swap
agreements to mitigate their  proportionate  share of the risk of changes in the
interest-related cash outflows on the next contemplated long-term debt issuance.
Some of these swaps are  designated  as hedges  under FAS 133,  while others are
not.


                                       21
<PAGE>



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



At September  30, 2006,  those swaps not  designated  as hedges,  had a combined
notional balance of $144.3 million,  a maturity of January 1, 2017, and interest
rates ranging from 4.91% to 5.75%, and were in a net liability  position of $2.9
million.

At September 30, 2006, those swaps designated as hedges had a combined  notional
balance of $128.3  million,  a maturity of January 1, 2017,  and interest  rates
ranging  from  4.91% to  5.75%,  and were in a net  liability  position,  in the
aggregate,  of approximately $2.7 million. These swaps were all determined to be
effective,  so the entire  change in the fair value of the swaps was included in
other comprehensive income of the CMBS partnerships.

NOTE 11 - MINORITY INTERESTS IN CONSOLIDATED SUBSIDIARIES

Minority interests in consolidated subsidiaries consisted of the following:

<TABLE>
<CAPTION>

                                              September 30,   December 31,
         (In thousands)                           2006            2005
---------------------------------             -------------   ------------
<S>                                              <C>             <C>
Convertible Special Common Units
   ("SCUs") of a subsidiary                      $236,865        $250,866
Convertible Special Membership
   Units ("SMUs") of a subsidiary                   6,994          11,408
Convertible Special Common
   Interests ("SCIs") of a
   subsidiary                                       4,882              --
Other                                               3,199              --
                                                 --------        --------

Total                                            $251,940        $262,274
                                                 ========        ========

</TABLE>

Income allocated to minority interests, net of tax, was as follows:

<TABLE>
<CAPTION>

                         Three Months Ended               Nine Months Ended
                            September 30,                    September 30,
                      -------------------------        -------------------------
(In thousands)          2006             2005            2006             2005
--------------        --------         --------        --------         --------
<S>                   <C>              <C>             <C>              <C>
SCUs                  $  5,725         $  7,467        $ 13,085         $ 21,358
SMUs                       118              159             288              214
SCIs                        29               --              29               --
Other                     (101)              --            (101)              --
                      --------         --------        --------         --------

Total                 $  5,771         $  7,626        $ 13,301         $ 21,572
                      ========         ========        ========         ========

</TABLE>

A. SCUS

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

B. SMUS

During 2006, the holders of approximately  75,000 SMUs converted the units to an
equivalent number of common shares.

In  connection  with the closure of CRES (see Note 2) we cancelled  114,000 SMUs
valued at  approximately  $2.5 million and  reversed  the balance from  minority
interests to goodwill as of September 30, 2006.

C. SCIS

In connection with our acquisition of ARCap (see Note 2), our subsidiary  issued
membership  interests in the form of 267,755  SCIs.  SCI holders are entitled to
distributions  at the same  time as,  and only if, we pay  distributions  on our
common shares.  SCI  distributions  are initially $1.72 per year,  subject to an
adjustment in the amount of 95% of the percentage  increases or decreases in the
dividends paid by us on our common shares.


                                       22
<PAGE>



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



Each holder of an SCI has the right to:

     o    Exchange all or a portion of their SCIs for cash; and
     o    Receive cash for any accrued but unpaid  distributions with respect to
          SCI's exchanged (not including  accrued and unpaid  distributions  for
          the quarterly period in which the exchange occurs).

Instead of cash, we may, at our  discretion,  exchange the SCIs (and any accrued
but unpaid  distributions) for common shares on a one-for-one basis,  subject to
anti-dilution adjustments.  We would issue the common shares at a price equal to
the  average  closing  market  price  of  our  common  shares  during  the  five
consecutive trading days immediately prior to the date when we receive notice of
intent to convert.

D. OTHER

"Other" minority  interests at September 30, 2006,  primarily  represent the 10%
interest in Centerbrook owned by IXIS.

NOTE 12 - COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) was as follows:

<TABLE>
<CAPTION>

                                                                         Nine months Ended
                                                                           September 30,
                                                                       ---------------------
                         (In thousands)                                  2006         2005
-------------------------------------------------------------------    --------     --------
<S>                                                                    <C>          <C>
Net income                                                             $ 33,476     $ 52,907
Net unrealized gain on interest rate derivatives                            579        2,296
Net unrealized gain on marketable securities and equity investments       2,513           29
Net unrealized gain (loss) on mortgage revenue bonds:
   Unrealized (loss) gain during the period                                (432)      25,629
   Reclassification adjustment for net gain included in net income         (963)      (1,930)
                                                                       --------     --------
Comprehensive income                                                   $ 35,173     $ 78,931
                                                                       ========     ========

</TABLE>

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.


                                       23
<PAGE>



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



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>         <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%

The following table  summarizes  share option activity for the nine months ended
September 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 January 1, 2006                                     1,510,341    $   20.42

Granted                                                              544,000        21.78
Forfeited / expired                                                       --           --
Exercised                                                                 --           --
                                                                  -----------------------------------------------------
Outstanding at end of period                                       2,054,341    $   20.78       7.3        $    2,183
                                                                  =====================================================

Vested and expected to vest at end of period                       2,054,341    $   20.78       7.3        $    2,183
                                                                  =====================================================

Exercisable at end of period                                         779,351    $   21.16       6.1        $      875
                                                                  =====================================================

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

Compensation cost recorded (in thousands)                         $     835
                                                                  ==========

</TABLE>

The  aggregate  intrinsic  value in the table above  represents  the  difference
between our closing  common share price on September 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.


                                       24
<PAGE>



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



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

<TABLE>
<CAPTION>

                                              Weighted
                                              Average
                                             Remaining
                            Number        Contractual Life       Number
      Exercise Price     Outstanding         (in Years)       Exercisable
      --------------     -----------      ----------------    -----------
<S>       <C>              <C>                     <C>            <C>
          $11.56              51,576               3.6             51,576
          $17.56               2,250               6.0              2,250
          $17.78             800,000               7.1            200,000
          $21.18             159,510               0.4            159,510
          $21.61              20,000               8.7              6,667
          $22.03             384,490               9.3                 --
          $24.44             636,515               8.3            359,348
                         -----------          --------        -----------
                           2,054,341               6.1            779,351
                         ===========          ========        ===========

</TABLE>

C. NON-VESTED SHARES AND SCUS

The following table summarizes  information about non-vested shares and SCUs for
the nine months ended September 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                                       2,039,731        19.64            --           --
Vested                                          192,966        20.17            --           --
Forfeited                                        15,391        20.84            --           --
                                             ----------    ---------    ----------    ---------
Non-vested at September 30, 2006              2,072,568    $   19.65       310,400    $   17.92
                                             ==========    =========    ==========    =========
Compensation cost recorded (in thousands)    $    8,127
                                             ==========

</TABLE>

The  non-vested  shares  granted  in  2006  include  approximately  1.7  million
associated  with the ARCap  acquisition  (see Note 2). In  addition,  we granted
approximately 56,000 that vested immediately.

D. UNAMORTIZED COSTS AND SHARES AVAILABLE FOR GRANT

As of  September  30,  2006,  there  was  $34.9  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 3.2 years.

As of September 30, 2006, there were  approximately 2.2 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 nine months ended  September 30, 2006, we  repurchased  921,060 shares at an
average  price of $18.99  per  share,  including  shares we  purchased  prior to
implementing the 10b5-1 plan.


                                       25
<PAGE>



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



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'  convertible equity units
(see Note 13) are not included in the  calculation as their assumed  conversions
would be antidilutive.

<TABLE>
<CAPTION>

                                                    Three Months Ended September 30, 2006    Nine months Ended September 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                                          $14,571                                  $33,476
Preferred dividends                                   1,188                                    3,564
                                                    -------                                  -------
Net income allocable to shareholders (Basic EPS)     13,383         58,015       $  0.23      29,912         58,409         0.51
                                                                                 =======                                  ======
Effect of dilutive securities                            --            381                        --            421
                                                    -------        -------                   -------        -------
Diluted EPS                                         $13,383         58,396       $  0.23     $29,912         58,830         0.51
                                                    =======        =======       =======     =======        =======       ======

</TABLE>
<TABLE>
<CAPTION>

                                                    Three Months Ended September 30, 2005    Nine months Ended September 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                                          $18,678                                  $52,907
Preferred dividends                                     832                                      832
                                                    -------                                  -------
Net income allocable to shareholders  (Basic EPS)    17,846         58,059       $  0.31      52,075         57,927       $ 0.90
                                                                                 =======                                  ======
Effect of dilutive securities                            --            307                        --            307
                                                    -------        -------                   -------        -------
Diluted EPS                                         $17,846         58,366       $  0.31     $52,075         58,234       $ 0.89
                                                    =======        =======       =======     =======        =======       ======

</TABLE>

NOTE 16 - RELATED PARTY TRANSACTIONS

A. RELATED

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

In  addition,  a  subsidiary  of Related  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".

B. AMAC

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  April  2006,  we sold an  investment  to  AMAC,  for  which  AMAC had held a
subordinated  co-investment  interest (see Note 4). In connection with the sale,
we  also  transferred  an  interest  rate  swap we had  accounted  for as a free
standing  derivative  (see Note 8). We sold the investment for its par value and
recognized no gain or loss on the transaction.

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.  As of
September  30,  2006,  there were no  advances  to AMAC  outstanding  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 $347.1 million in
loans on behalf of AMAC and  received  approximately  $1.9  million of  mortgage
banking  fees from the  borrowers.  We record  these fees in "Fee income" in the


                                       26
<PAGE>



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



condensed consolidated statements of income.

During 2006, we funded a first mortgage note in the approximate  amount of $27.3
million as part of a refinancing of one of AMAC's loans. The note is included in
other investments (see Note 4).

In connection with our acquisition of ARCap, we paid approximately $24.5 million
of the purchase price to AMAC for its membership interests in ARCap based on the
contractual price paid to all shareholders.

In August 2006, AMAC entered into a  co-investment  agreement with ARESS whereby
both will participate equally in investment opportunities that are originated by
our subsidiaries and which meet mutual investment criteria.

C. INCOME STATEMENT IMPACT

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

<TABLE>
<CAPTION>

                                                  Three Months Ended   Nine Months Ended
                                                     September 30,       September 30,
                                                  ------------------   -----------------
                (In thousands)                      2006      2005      2006      2005
------------------------------------------------   ------    ------    ------    -------
<S>                                                <C>       <C>       <C>       <C>
Shared service fee expense                         $  154    $  122    $  471    $  392
Related property management services expense       $1,116    $  839    $3,216    $2,200
AMAC asset management, incentive management and
   expense reimbursement fee income                $3,348    $2,000    $5,128    $3,500
AMAC credit facility interest income               $  360    $   --    $1,105    $   73

</TABLE>

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  invested in other  entities,  such as our
     pre-acquisition   preferred   and   common   investments   in  ARCap,   our
     pre-termination  participating loan to CCA, our preferred investment in CCA
     prior  to the  acquisition  of  CRES,  our  co-investment  in CUC  and  our
     investment in a fund that CRES sponsors, which we are due to liquidate.

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 sponsor and manage funds that invest in subordinated
          interests  associated with CMBS,  commercial real estate mortgages and
          similar investments.  These subsidiaries will also sometimes hold, for
          investment,  investments such as the ones held by the sponsored funds.
          These   subsidiaries  earn  income  from  equity  investments  in  the
          sponsored funds and interest income from their investments; and
     o    Subsidiaries that participate in credit  intermediation  transactions,
          including  those for pools of  mortgage  loans and  provide  specified
          returns to investors in LIHTC equity funds, in exchange for fees.

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

     o    Fannie Mae;
     o    Freddie Mac;
     o    the FHA;
     o    AMAC; and


                                       27
<PAGE>



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



     o    Insurance companies and conduits.

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

     This segment  also  includes  subsidiaries  that  provide  multifamily  and
     commercial  loan servicing for third parties and we also serve as the named
     special servicer on CMBS securitization in which either we, or the funds we
     manage,  invest. In exchange for these services, we earn a variety of fees,
     including  base  servicing  fees,  liquidation  fees,  and  assumption  and
     modification  fees.  We also earn  interest  income on escrow  and  reserve
     balances held on loans we service.

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.
     This segment also  includes CMBS funds we sponsor in which we have minority
     interests but for which our subsidiaries are general partners.

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.


                                       28
<PAGE>



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



The following table provides more information regarding our segments:

<TABLE>
<CAPTION>

                                                  Three Months Ended          Nine Months Ended
                                                     September 30,               September 30,
                                               ------------------------    ------------------------
             (In thousands)                       2006          2005          2006          2005
-------------------------------------------    ----------    ----------    ----------    ----------
<S>                                            <C>           <C>           <C>           <C>
REVENUES
   Portfolio Investing                         $  48,058     $  43,278     $ 141,982     $ 125,305
   Fund Management (1)                            43,590        31,609        95,130        81,008
   Mortgage Banking (1)                           17,165        13,424        43,807        30,856
   Consolidated Partnerships (2)                  23,809         7,349        41,420        19,403
   Elimination of intersegment transactions      (25,603)      (16,816)      (63,950)      (41,302)
                                               ---------     ---------     ---------     ---------
Consolidated Revenues                          $ 107,019     $  78,844     $ 258,389     $ 215,270
                                               =========     =========     =========     =========

CAD
   Portfolio Investing                         $  29,147     $  25,528     $  77,645     $  79,900
   Fund Management (1)                            31,106        21,055        44,757        44,814
   Mortgage Banking (1)                            6,839          (656)       12,870         6,637
                                               ---------     ---------     ---------     ---------
   Total Segment CAD                              67,092        45,927       135,272       131,351
   Preferred dividends                            (1,188)         (832)       (3,564)         (832)
   Subsidiary equity distributions                (8,849)       (8,644)      (26,614)      (25,944)
   Dividends on subsidiary preferred stock        (6,281)       (6,281)      (18,842)      (18,842)
   Current tax benefit (expense)                  (7,169)        2,471        (3,627)        1,690
                                               ---------     ---------     ---------     ---------
   Consolidated CAD                               43,605        32,641        82,625        87,423
   Fees deferred for GAAP (3)                    (14,394)       (3,302)      (23,814)      (21,758)
   Depreciation and amortization expense,
    including write-off of intangible assets     (13,580)      (16,302)      (37,108)      (33,467)
   Interest income yield adjustments (4)          (3,651)           77        (4,098)          660
   Gain on sale of loans (5)                       2,188         3,718         9,001        10,367
   Loss on impairment of assets                     (395)         (803)       (2,665)       (1,902)
   Tax adjustment (6)                                (63)        2,546          (282)       12,027
   Non-cash compensation (7)                      (9,169)       (1,523)      (12,583)       (5,299)
   Difference between subsidiary equity
    distributions and income allocated to
    subsidiary equity holders (8)                  2,978         1,018        13,212         4,372
   Non-cash equity income                          6,402          (200)        5,754          (234)
   Preferred dividends                             1,188           832         3,564           832
   Other, net                                       (538)          (24)         (130)         (114)
                                               ---------     ---------     ---------     ---------
Consolidated Net Income                        $  14,571     $  18,678     $  33,476     $  52,907
                                               =========     =========     =========     =========

DEPRECIATION AND AMORTIZATION (9)
   Portfolio Investing                         $     658     $   2,941     $   6,412     $   4,695
   Fund Management (1)(9)                          7,166         4,694        16,090        14,305
   Mortgage Banking (1)                            5,756         8,667        14,606        14,467
   Consolidated Partnerships                          --            --            --            --
   Elimination of intersegment transactions           --            --            --            --
                                               ---------     ---------     ---------     ---------
Consolidated Depreciation and Amortization     $  13,580     $  16,302     $  37,108     $  33,467
                                               =========     =========     =========     =========

</TABLE>
<TABLE>
<CAPTION>

                                               September 30, 2006    December 31, 2005
                                               ------------------    -----------------
<S>                                               <C>                   <C>
IDENTIFIABLE ASSETS
   Portfolio Investing                            $ 4,981,279           $ 5,487,596
   Fund Management (1)                              2,644,200               800,684
   Mortgage Banking (1)                               299,298               345,225
   Consolidated partnerships (2)                    4,044,634             3,610,031
   Elimination of intersegment balances            (2,969,020)           (3,264,708)
                                                  -----------           -----------
Consolidated                                      $ 9,000,391           $ 6,978,828
                                                  ===========           ===========

</TABLE>

(1) Includes ARCap as of August 2006.
(2) Includes funds sponsored by ARCap as of August 2006.
(3)  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).


                                       29
<PAGE>



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



(4) Represents the  adjustment  for  amortization  of bond discounts or premiums
that are recognized immediately for CAD but are deferred and recognized overtime
for GAAP  accounting,  as well as the difference  between actual interest income
received and income recognized under the effective yield method.
(5) Represents non-cash gain recognized on sale of mortgage loans when servicing
rights are retained and gains on sales of mortgage revenue bonds.
(6) 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.
(7) Represents the add-back of amortization of costs  recognized for share-based
compensation and non-cash compensation related to fund earnings.
(8) Represents the difference  between actual  distributions to SCU, SMU and SCI
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.
(9) 2006 includes write-off of intangible assets.

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 32. 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 32.

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 32. 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 operated the CRG
          projects; 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 execution of a new construction contract; and
     o    amendments to several fee agreements.

We anticipate that we will advance  approximately  an additional $2.3 million to
the O'Fallon project during the fourth quarter of 2006.

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.


                                       30
<PAGE>



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



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 32. 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.

Our potential exposure falls into three categories as follows:

         CASH REQUIRED TO BRING THE PROPERTIES TO BREAK-EVEN OPERATION -  As  of
              September 30, 2006,  advances  outstanding  totaled  approximately
              $29.0 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  September  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 32, 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
likewise determined that construction should not be continued. We did not hold a
bond with respect to this  property,  but a fund we sponsored  provided  equity.
Subsequent to September  30, 2006, we completed the sale of our general  partner
and limited partner interests and have recovered the fund's investment.

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.


                                       31
<PAGE>



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



The partnerships in question are summarized as follows:

<TABLE>
<CAPTION>

                                                                                                          (In thousands)
                                                                                                   -----------------------------
                                                                                                                   Fair Value of
                               CharterMac     CharterMac                                                             Mortgage
                                Holds or       Capital                                               Loan             Revenue
                               Will Hold      Sponsored   Included in   CharterMac     Third        Amounts            Bonds
                                Mortgage       Fund is       Credit      Capital      Parties      Upon Full       Oustanding at
                                Revenue         Equity   Intermediated   Holds GP    Provided        Draw          September 30,
                   Number         Bond         Partner       Funds       Interest     Equity         Down              2006
                   ------      -----------    ---------- -------------- ----------   --------      ---------       -------------
<S>                  <C>           <C>            <C>          <C>          <C>         <C>        <C>               <C>
PRS
  PARTNERSHIPS
Construction         --            --             --           --           --          --         $      --         $      --
Lease-Up             10             9              5            3            5           5           103,861           102,713
Rehab                 2             2              1            1            1           1            30,400            32,474
Stabilized            2             2             --           --           --           2            18,437            18,554
                   -----------------------------------------------------------------------------------------------------------
Subtotal             14            13              6            4            6           8           152,698           153,741
                   -----------------------------------------------------------------------------------------------------------

CRG
  PARTNERSHIPS
Construction          1             1              1           --            1          --             7,130                --
Lease-Up              4             2              4            3            2          --            20,019            20,351
Rehab                 2             2              2            2            2          --            61,934            63,508
Stabilized           --            --             --           --           --          --                --                --
                   -----------------------------------------------------------------------------------------------------------
Subtotal              7             5              7            5            5          --            89,083            83,859
                   -----------------------------------------------------------------------------------------------------------

GCG
  PARTNERSHIPS
Construction          1             1              1            1           --          --            14,600            14,600
Lease-Up              1             1              1           --           --          --            13,170            13,789
Rehab                --            --             --           --           --          --                --                --
Stabilized           --            --             --           --           --          --                --                --
                   -----------------------------------------------------------------------------------------------------------
Subtotal              2             2              2            1           --          --            27,770            28,389
                   -----------------------------------------------------------------------------------------------------------

Total                23            20             15           10           11           8         $ 269,551         $ 265,989
                   ===========================================================================================================
Total eliminated in consolidation                                                                  $ 155,333         $ 152,502
                                                                                                   ===========================

</TABLE>

ERC, INC.

See Note 19 for  discussion  of  potential  exposure  related  to the  financial
difficulties of another developer.

FORWARD TRANSACTIONS

At September 30, 2006, our Mortgage Banking subsidiaries had forward commitments
of approximately $307.7 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 $69.3 million. Approximately $58.6 million of this amount was funded as
of September 30, 2006, and is included in "Other Investments" as "Mortgage Loans
Held for Sale". The balance of approximately $10.7 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 by the end of 2007.


                                       32
<PAGE>



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



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
$20.5 million at September 30, 2006.

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 September 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 September 30, 2006,  pursuant to these  agreements,  was
approximately $821.2 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  September  30,  2006,  that  reserve was
approximately $13.0 million, which, we believe,  represents our actual potential
losses at that time.

As  of  September  30,  2006,  our  Mortgage  Banking  subsidiaries  maintained,
collateral  consisting  of  treasury  notes,  and  Fannie  Mae and  Freddie  Mac
securities  of  approximately  $1.6  million  and  a  money  market  account  of
approximately  $12.5  million,  which  is  included  in  restricted  cash in the
condensed  consolidated  balance  sheet,  to satisfy  the Fannie Mae  collateral
requirements of $13.0 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  September  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.  Related 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 September  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 September  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").


                                       33
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               SEPTEMBER 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 13 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  $962.9
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 $24.7 million as of September 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 from which senior and  subordinated  trust  certificates  were issued with
approximately  50% of  these  trust  certificates  being  subordinated.  We have
financed a portion of these senior and subordinated trust  certificates  through
our fixed rate  securitization  transaction (see Note 7). By placing these bonds
into this trust  structure we have  restricted our ability to foreclose on these
bonds without the consent of the Primary Intermediator.

OTHER CONTINGENT LIABILITIES

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
$261.2  million as of September 30, 2006.  The fair value of these  obligations,
representing  the deferral of the fee income over the  obligation  periods,  was
$1.1 million as of September 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.

At September  30, 2006,  we had unused  letters of credit  totaling $8.0 million
described in the MORTGAGE BANKING LOSS SHARING Agreements above.

LEGAL CONTINGENCIES

Claims have been asserted against  subsidiaries of the Company in three separate
but  interrelated  lawsuits  relating  to two  properties  that have the same or
affiliated  developers  for which we have  provided  debt and equity  financing.
Those claims  allege,  among other things,  (i) breach of fiduciary  duty;  (ii)
breach of the implied covenant of good faith and fair dealing; (iii) intentional
misrepresentation,  fraud and deceit; (iv) negligent misrepresentation;  and (v)
tortious  interference with contracts.  The claims in one of the three lawsuits,
however, were voluntary dismissed without prejudice.

One of the remaining lawsuits seeks completely unspecified damages and the other
remaining  lawsuit  does not  specify  the total  damages  sought,  but  alleges
potential losses of $10.0 - 15.0 million. The Company's  subsidiaries have filed
answers  denying  the  material   allegations  of  those  claims  and  asserting
affirmative  defenses and their own claims and  counterclaims  in those actions.
Although one of the lawsuits is presently  scheduled  for trial in January 2007,
the parties  have  entered  into  stipulations  to adjourn the trial date and to


                                       34
<PAGE>



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



provide for coordinated  pretrial proceedings in the two cases. The parties have
jointly made or will  shortly be jointly  making  applications  to each Court to
implement  the parties'  agreements  concerning  scheduling  and other  pretrial
proceedings.

The parties have engaged in  preliminary  settlement  discussions  and expect to
continue those discussions seeking a global resolution of all of these disputes.
If such a  settlement  cannot be  achieved,  our  subsidiaries  intend to defend
vigorously the claims asserted  against them and to prosecute  vigorously  their
own claims and counterclaims.

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.

OTHER FUNDING COMMITMENTS

CUC

Our general  partnership  interest in CUC (see Note 4) includes a  co-investment
obligation amounting to 2.5% of capital invested. Based upon the current funding
limit  of  CUC,  our  remaining   commitment  as  of  September  30,  2006,  was
approximately  $1.5  million  which is required to be funded prior to August 31,
2007.

INVESTMENTS IN CMBS PARTNERSHIPS & ARESS

We participate as co-investor in the CMBS funds we sponsor.  As of September 30,
2006, our remaining  unfunded  capital  commitments  were $16.5 million to ARESS
(see Note 4) and $4.1 million to CMBS Partnerships.

NOTE 19 - SUBSEQUENT EVENTS

CRES

In October 2006, we decided to cease operations at CRES. As part of an agreement
with CRES' founder,  certain  convertible  SMUs that we had issued (see Note 11)
will be returned and others held in escrow will be  cancelled.  In addition,  he
will  assume  CRES'  line of credit and we will bear the cost of  operating  the
business  until  the  closure  is  completed.  While  we  expect  there  will be
incremental  charges  relating  to  closing  this  business,  the  costs are not
expected to be  material.  In November  2006,  we  liquidated  our $5.0  million
investment (see Note 4).

ERC, INC.

In connection  with the financial  difficulties  experienced by a developer,  in
October  2006,  we assumed the general  partner  interests in 18 property  level
partnerships  (in which the  developer  was the general  partner) to protect our
investments.  Funds we consolidate had provided equity for all of these property
partnerships. Of the 18 partnerships, 17 were financed by mortgage revenue bonds
we had issued and two of the properties are in the construction phase.

None of the mortgage revenue bonds in question,  with an aggregate fair value of
$159.3  million as of September 30, 2006,  were deemed to be impaired as of that
date nor have there been  subsequent  indications of impairment.  We expect that
the equity of the applicable  property  partnerships  is sufficient to cover the
estimated costs to complete the two properties under  construction.  We may have
to  advance  funds  to the  partnerships  to cover  operating  costs  until  the
properties achieve stabilization,  which amounts we do not expect to exceed $1.5
million.  We anticipate that future equity payments due the partnerships will be
sufficient to repay the advances.


                                       35
<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,  the terms and  availability  of financing  for
          properties  financed  by  mortgage  revenue  bonds  we own  and  other
          properties which we may finance as well as the ability of borrowers to
          service debt which we may 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    risk of loss from direct and indirect investments in CMBS;
     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, and in Part II, Item 1.A. RISK FACTORS, in this document.  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
-------------------------------

In August 2006, we acquired ARCap.  Prior to the  acquisition  date, we recorded
equity  earnings  on  our  10.7%  equity  investment  in  ARCap.  Following  the
acquisition,  operating  results of ARCap are  included in our Fund  Management,
Mortgage  Banking  and  Consolidated  Partnerships  segments.  In  addition,  we
incurred  restructuring costs associated with planned integration activities and
incurred increased non-cash  compensation costs following the acquisition due to
non-vested share grants.

In  September  2006,  we  terminated  our  financial  relationship  with CCA. In
connection  with  the  termination,   we  recognized   one-time  gains  totaling
approximately  $6.9 million.  We have also decided to close our CRES  subsidiary
and we  recorded  intangible  asset  impairment  charges of  approximately  $2.5
million in the third quarter of 2006.

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.  We
have incurred various start-up costs in connection with this subsidiary in 2006.

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.


                                       36
<PAGE>



RESULTS OF OPERATIONS
---------------------

THREE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
----------------------------------------------

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

<TABLE>
<CAPTION>

                                          % of                      % of
      (In thousands)            2006    Revenues       2005       Revenues    % Change
--------------------------    --------  --------     --------     --------    --------
<S>                           <C>        <C>         <C>           <C>         <C>
Revenues                      $107,019   100.0 %     $ 78,844      100.0 %      35.7 %
Income before income taxes    $ 21,804    20.4 %     $ 13,662       17.3 %      59.6 %
Net income                    $ 14,571    13.6 %     $ 18,678       23.7 %     (22.0)%

</TABLE>

Fund Management and Mortgage Banking revenues increased as a result of the ARCap
acquisition as detailed in the relevant  RESULTS BY SEGMENT below.  All segments
of our business also experienced  revenue  increases over the 2005 period due to
an increased  investment base and the timing of fund sponsorship activity in our
Fund Management segment.

In addition to increased  revenues,  income before income taxes benefited from a
$6.9  million  fee  paid to us by CCA to  terminate  our  rights  relating  to a
participating loan which was convertible into an ownership interest in CCA.

Net income  decreased  despite the increase in income  before income taxes as we
incurred  income tax expense  during the 2006 quarter  compared to an income tax
benefit  during 2005.  The tax provision in the 2006 period  relates to a higher
level  of  current  taxable  income  from  the Fund  Management  segment  due to
increased fund sponsorship  activity,  coupled with an increase in the valuation
allowance against deferred tax assets (see INCOME TAXES).

REVENUES

Our revenues were as follows:

<TABLE>
<CAPTION>

                                              For the Three Months Ended September 30,
                                              ---------------------------------------
           (In thousands)                         2006         2005       % Change
-------------------------------------           --------     --------     --------
<S>                                             <C>          <C>            <C>
Mortgage revenue bond interest income           $ 39,370     $ 36,096         9.1 %

Other interest income                              7,570        3,986        89.9

Fee income:
   Mortgage banking                                9,158        7,895        16.0
   Fund sponsorship                               18,803       15,053        24.9
   Credit intermediation                           1,066        1,454       (26.7)
                                                --------     --------     -------
Total fee income                                  29,027       24,402        19.0

Other revenues:
   Construction service fee                        1,175        1,185        (0.8)
   Expense reimbursements                            989        1,155       (14.4)
   Rental income of real estate owned                907        1,210       (25.0)
   Administration fees                               570          513        11.1
   Prepayment penalties                            2,645        2,515         5.2
   Other                                             957          433       121.0
                                                --------     --------     -------
Total other revenues                               7,243        7,011         3.3

Subtotal                                          83,210       71,495        16.4
                                                --------     --------     -------

Revenues of consolidated partnerships             23,809        7,349       224.0
                                                --------     --------     -------

   Total revenues                               $107,019     $ 78,844        35.7 %
                                                ========     ========     =======

</TABLE>

A large  portion  of the  revenue  increase  was due to the  ARCap  acquisition.
Adjusting  to include  ARCap in the entire 2006 period and in the 2005  quarter,
revenues would have increased approximately 14.0%

Mortgage  revenue  bond  interest  income  increased  due to an  increase in the
average  portfolio  balance over the  comparable  period.  Mortgage  banking fee
income  increased  primarily due to mortgage  servicing fees earned by the newly
acquired ARCap business.  Fund sponsorship fee income variances primarily relate
to an increase in equity invested during the current quarter and are detailed in
the discussions of results for the Fund Management segment below.


                                       37
<PAGE>



Other  interest  income  includes  income from temporary  investments,  interest
earned on Mortgage  Banking escrow  balances and interest  earned on our loan to
CCA prior to the loan repayment in September 2006. The increase  compared to the
2005 period relates to:

     o    interest  generated  by  CMBS  resecuritization  certificates  we hold
          through ARCap; and
     o    higher cash balances  (predominantly the escrow accounts) coupled with
          increasing market interest rates for temporary investments.

Revenues of consolidated partnerships increased due to:

     o    an  increase  in  the  number  of  LIHTC   Partnerships  due  to  fund
          sponsorship activity;
     o    an increase in the number of Property  Partnerships over the past year
          which we have taken control of to protect our investments; and
     o    CMBS  partnerships  consolidated as part of the ARCap acquisition (see
          Note 10).

Results of consolidated partnerships are also discussed below.

Offsetting  the  revenue  gains is the  elimination  of  revenues  earned by our
subsidiaries  in  transactions  with  LIHTC and  Property  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 third 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 September 30,
                                              ---------------------------------------
            (In thousands)                         2006        2005      % Change
---------------------------------------           -------     -------    --------
<S>                                               <C>         <C>          <C>
Mortgage revenue bond interest income             $ 1,785     $ 1,135       57.3%
Other interest income                                  53         165      (67.9)
Fund sponsorship fees                              14,829       9,737       52.3
Credit intermediation fees                            863         731       18.1
Other revenues                                      1,615         902       79.0
                                                  -------     -------     ------

Total                                             $19,145     $12,670       51.1%
                                                  =======     =======     ======

</TABLE>


                                       38
<PAGE>



EXPENSES

Our expenses were as follows:

<TABLE>
<CAPTION>

                                                     For the Three Months Ended September 30,
                                                     ---------------------------------------
                  (In thousands)                          2006          2005      % Change
---------------------------------------------------    ---------     ---------    --------
<S>                                                    <C>           <C>            <C>
Interest expense                                       $  25,457     $  13,490       88.7%
Interest expense - preferred shares of subsidiary          4,724         4,724         --

Salaries and benefits                                     26,842        17,077       57.2
Fund origination and property acquisition expenses         5,481         2,468      122.1
Operating costs of real estate owned                         934         1,011       (7.6)
Restructuring costs                                         (549)           --         --
Other general and administrative                          10,970         9,814       11.8
                                                       ---------     ---------    -------
   Subtotal                                               43,678        30,370       43.8
                                                       ---------     ---------    -------

Depreciation and amortization                             11,033        16,302      (32.3)
Write-off of intangible asset                              2,547            --         --
Loss on impairment of assets                                 394           804      (51.0)
                                                       ---------     ---------    -------

   Subtotal                                               87,833        65,690       33.7

Interest expense of consolidated LIHTC and Property
   partnerships                                            6,199         6,342       (2.2)
Interest expense of consolidated CMBS partnerships         6,783            --         --
Other expenses of consolidated LIHTC and Property
   partnerships                                           18,344        14,285       28.4
Other expenses of consolidated CMBS partnerships             136            --         --
                                                       ---------     ---------    -------

Total expenses                                         $ 119,295     $  86,317       38.2%
                                                       =========     =========    =======

</TABLE>

The  increase in interest  expense  reflects  the higher  amount of average debt
outstanding  (approximately  $2.1 billion and $1.4 billion in the third quarters
of 2006 and  2005,  respectively)  to fund  the  ARCap  acquisition,  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.  The  effect of rate  increases  was  tempered,
however, by a new fixed rate securitization  program and the interest rate swaps
that we have in place,  most of which are "in the  money".  One swap that was in
effect in the 2005 period,  however,  has since expired.  Our average  borrowing
rate  increased to 4.2% in the third  quarter of 2006 as compared to 3.8% in the
third quarter of 2005.

The  increase  in  salaries  and  benefits  expense  primarily  relates  to  the
approximately  100  employees  added upon the ARCap  acquisition,  the continued
growth of our component businesses and approximately $3.4 million of incremental
non-cash compensation cost related to shares issued in connection with the ARCap
acquisition.  Of the incremental  amount,  approximately $1.1 million related to
shares that vested  immediately.  In addition,  salaries  and benefits  includes
approximately $3.9 million for deferred  participation  compensation  related to
CMBS funds we sponsor.

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 increase compared to last year is the
result  of a  higher  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.

Restructuring  costs relate to integration  actions in anticipation of the ARCap
acquisition.  During the quarter,  an adjustment was recorded to reverse amounts
due to employee  attrition in advance of  severance  dates as well as the amount
reclassified  as retention  bonuses (see Note 9). The increase in other  general
and  administrative  expenses  primarily  results from  management  fees paid by
Centerbrook to IXIS.

Depreciation and amortization expenses were lower in the 2006 period,  primarily
due to decreased amortization of mortgage servicing rights (see Mortgage Banking
section) and the absence of amortization of a sizable  intangible  asset that we
wrote off at the end of 2005.

Write-off  of  intangible  assets  represents  a goodwill  impairment  charge of
approximately $0.9 million to account for the portion of our total investment in
and advances to CRES that we do not expect to recover and the  write-off of $1.6
million in unamortized  other CRES intangible  assets  recognized at the time of
its acquisition.


                                       39
<PAGE>



Other expenses of the consolidated LIHTC and Property 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
LIHTC and Property  partnerships are absorbed by their equity partners; as such,
they have an insignificant impact on our net income.

Expenses  of  consolidated  CMBS  partnerships  represent  funds we  sponsor  to
syndicate  investments in CMBS and  associated  resecuritization  trusts.  These
items were  incorporated  into our  financial  results upon our  acquisition  of
ARCap.

OTHER ITEMS

<TABLE>
<CAPTION>

                                                    For the Three Months Ended September 30,
                                                    ----------------------------------------
                  (In thousands)                         2006          2005       % Change
--------------------------------------------------    ---------     ---------     --------
<S>                                                   <C>           <C>            <C>
Equity and other (loss) income                        $  (3,320)    $     414      (901.9)%

Gain on termination of CCA loan                       $   6,916     $      --          -- %
Gain on sale or repayment of loans                        1,322         2,935       (55.0)
Gain on repayment of mortgage revenue bonds                  51         1,027       (95.0)
                                                      ---------     ---------     -------
Gain on sale or repayment of mortgage revenue
   bonds and loans                                    $   8,289     $   3,962       109.2 %
                                                      ---------     ---------     -------

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

Income allocated to SCUs                              $  (5,725)    $  (7,467)      (23.3)%
Income allocated to SMUs                                   (118)         (159)      (25.8)
Income allocated to SCIs                                    (29)           --          --
Other                                                       101            --          --
                                                      ---------     ---------     -------
  Total income allocated to minority interests        $  (5,771)    $  (7,626)      (24.3)%

Loss allocated to partners of consolidated
   partnerships                                       $ 105,434     $  91,295        15.5 %

</TABLE>

Equity  and other  (loss)  income  decreased  since we no longer  recognize  our
proportionate  share of ARCap earnings  through equity income  subsequent to our
acquisition in August 2006. The loss for the quarter primarily relates to losses
from  tax  advantaged  investment  vehicles  similar  to those  we  sponsor  and
revisions   to   second   quarter   earning's   estimates   provided   by  ARCap
pre-acquisition.  Equity income from our  investment in CMBS funds is eliminated
in consolidation but positively impacts our net income. For the third quarter of
2006, this amount was approximately $9.6 million.  There is no comparable amount
in 2005 as this earnings stream began with our acquisition of ARCap.

Gain on termination  of CCA loan  represents the $6.0 million cash paid to us by
CCA to terminate  our rights  relating to  participating  loan and the estimated
value of the management interest in CUC that was assigned to us (see Note 4).

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,  SMUs and SCIs 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 SCIs were  issued in August 2006 in
connection with the ARCap  acquisition.  "Other" minority  interest  principally
represents the portion of Centerbrook owned by IXIS.

The loss  allocation to partners of  consolidated  partnerships  represents  the
operating losses of LIHTC and Property  partnerships,  of which we have absorbed
an insignificant  portion  (approximately  $3,000) and the majority ownership in
CMBS funds we sponsor.


                                       40
<PAGE>



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

PORTFOLIO INVESTING

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


<TABLE>
<CAPTION>
                                                            For the Three Months Ended September 30,
                                                            ----------------------------------------
                      (In thousands)                            2006          2005        % Change
---------------------------------------------------------    ----------    ----------     --------
<S>                                                          <C>           <C>              <C>
New mortgage revenue bond acquisitions                       $   81,969    $   48,978        67.4 %
Funding of mortgage revenue bonds acquired in prior years         2,450            --          --
Acquisitions related to prior period forward commitments             --         9,400          --
                                                             ----------    ----------      ------
Total acquisition and funding activity                       $   84,419    $   58,378        44.6 %

Mortgage revenue bonds repaid                                $   27,510    $   46,118       (40.3)%

Average portfolio balance (fair value)                       $2,628,252    $2,230,974        10.9 %

Weighted average permanent interest rate of bonds
  acquired                                                         5.61 %        5.54 %
Weighted average yield of portfolio                                6.57 %        6.78 %
Average borrowing rate (includes effect of swaps)                  4.12 %        3.29 %
Average BMA rate                                                   3.56 %        2.40 %
                                                             ----------    ----------

Mortgage revenue bond interest income (1)                    $   41,946    $   37,430        12.1 %
Other interest income (1)                                         3,739         3,692         1.3
Prepayment penalties                                                396           317        24.9
Rental income of real estate owned                                  907         1,210       (25.0)
Other revenues (1)                                                1,070           629        70.1
                                                             ----------    ----------      ------
                                                             $   48,058    $   43,278        11.0 %
                                                             ==========    ==========      ======

Interest expense and securitization fees (1)                 $   24,070    $   13,797        74.5 %
Loss on impairment of assets                                 $      395    $      803       (50.8)%
Gain on repayments of mortgage revenue bonds                 $       49    $    1,027       (95.2)%
Gain on termination of CCA loan                              $    6,916    $       --          -- %
                                                             ==========    ==========      ======

CAD                                                          $   29,147    $   25,528        14.2 %
                                                             ==========    ==========      ======

</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 the first nine 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.

While generally declining 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.

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.  In  addition,  the fixed rate  securitization  that we
entered into in the third quarter of 2006 should serve to temper our exposure to
interest rate increases (see Note 7).

The  level of  prepayment  penalties  we record as  income  can be  expected  to
increase  as  several  older,  higher-yielding  mortgage  revenue  bonds  in our
portfolio  reach the end of lock out periods.  We  anticipate an increase in the
level of these fees (as well as participating interest sometimes associated with
older bonds) in the near future. In particular,  we are in negotiations with one
borrower  that may  repay a bond  later in 2006 and we may  realize  incremental
income of more than $5.0 million upon repayment.

Impairment   losses  pertain  to  the   restructuring   of  bond  terms  or  the
deterioration  of  operations  that  indicate  that  full  balances  may  not be
recoverable.  We recognized impairment on two mortgage revenue bonds in the 2006
period and one in the 2005 period.


                                       41
<PAGE>



Third  quarter CAD for this  segment  increased  in 2006 over the 2005 period in
large  part due to the $6.0  million  cash  termination  fee  received  upon the
termination of the loan to CCA. This gain served to offset the higher  borrowing
costs from  steadily  increasing  interest  rates.  We expect that the effect of
borrowing  costs will be tempered in future periods by the expected cost savings
associated   with  the   involvement   of   Centerbrook   in  providing   credit
intermediation for our securitization  programs and the impact of the fixed rate
securitization program that we closed in August 2006.

FUND MANAGEMENT

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

<TABLE>
<CAPTION>

                                              For the Three Months Ended September 30,
                                              ---------------------------------------
               (In thousands)                       2006        2005     % Change
--------------------------------------------      --------    --------   --------
<S>                                               <C>         <C>         <C>
Equity raised by LIHTC funds                      $432,801    $275,524     57.1 %
Equity invested by LIHTC funds (1)                $388,268    $320,976     21.0 %

Fees based on equity raised (2)                   $  4,847    $  3,354     44.5 %
Fees based on equity invested (2)                 $ 17,294    $ 13,023     32.8 %

Fees based on management of other entities:
   Asset management and partnership fees (2)      $ 11,761    $  8,481     38.7 %
   Investment origination fees (2)                     114         169    (32.5)
   Other (2)                                            61          --       --
                                                  --------    --------    -----
   Subtotal                                         11,936       8,650     38.0
                                                  --------    --------    -----

Total fund sponsorship fees (2)                     34,077      25,027     36.2

Credit intermediation fees (2)                       2,898       2,186     32.6
Expense reimbursement (2)                            3,522       2,473     42.4
Construction fees (2)                                1,175       1,185     (0.8)
Other interest income (2)                              565          69    718.8
Other revenues (2)                                   1,353         669    102.2
                                                  --------    --------    -----
  Total                                           $ 43,590    $ 31,609     37.9 %
                                                  ========    ========    =====

Equity income from CMBS Funds (2)                 $  9,643    $     --       -- %
                                                  ========    ========    =====

  CAD                                             $ 31,106    $ 21,055     47.7 %
                                                  ========    ========    =====

</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 third 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 increased  approximately 33% in 2006 as compared to
the same period in 2005  primarily  due to the  increase in the amount of equity
raised,  which was partially offset by a decrease in the rate realized  stemming
from  heightened  competition  relating to certain  types of funds.  Related O&O
acquisition  expenses  also  increased  in line with the  increase  in  revenue.
Partnership management fees increased  approximately 68% over 2005 and relate to
additional funds closed since the end of the third quarter of 2005.

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.


                                       42
<PAGE>



The increase in fees is higher than the increase of equity invested because of a
higher fee rate realized, stemming from changes in the mix of funds originated.

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  as well as an increase in fees
earned from AMAC due to the gain AMAC realized  related to the sale of its ARCap
investment to us. These increases were partially  offset by the reduction of the
cash positions of certain  investment  funds over the prior year which prevented
us  from  recognizing  any  management  fees  for  these  funds  in  2006  since
collectibility is not reasonably assured.

OTHER REVENUES

Credit intermediation,  expense reimbursement and other revenues in this segment
consist  largely of service  fees  charged to entities  (including  consolidated
partnerships)  we manage  and  fluctuate  with the growth of the number of those
entities and their cash flows.  Credit  intermediation  fees also vary depending
upon the time an agreement is outstanding as we recognize a higher proportion of
revenues  in  the  early  years  of an  intermediation  period,  when  the  risk
associated with the agreement is greater.

EQUITY INCOME

We act as general  partner of the CMBS funds we sponsor and own a portion of the
funds.  Equity income in this segment  primarily  represents  our  proportionate
share of profits as well as other allocations for general partner services. This
category became a part of this segment upon the ARCap acquisition.

CAD for the third  quarter of 2006 exceeded  that of 2005 due  predominantly  to
higher  fund  sponsorship  activity  and  the  up-front  fees  received  in  the
transactions. In addition, the addition of equity income from CMBS funds to this
segment with the  acquisition of ARCap benefited the results as a portion of the
income  recognized is cash based.  These gains were  partially  offset by higher
infrastructure costs in expanding the business and initial costs associated with
ramping up the Centerbrook business.

MORTGAGE BANKING

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

<TABLE>
<CAPTION>

                                                           For the Three Months Ended September 30,
                                                           ---------------------------------------
                     (In thousands)                           2006           2005        % Change
-------------------------------------------------------    -----------    -----------    ---------
<S>                                                        <C>            <C>              <C>
Originations                                               $   444,842    $   491,593       (9.5)%
Mortgage portfolio at September 30                         $ 9,039,666    $ 8,874,898        2.2 %
Fair value of mortgage servicing rights at September 30    $    72,788    $    69,409       (4.9)%
                                                           -----------    -----------      -----

Mortgage origination fees (1)                              $     2,440    $     2,523       (3.3)%
Servicing fees (1)                                               6,603          5,189       27.3
Assumption fees (1)                                                219            183       19.7
                                                           -----------    -----------      -----
Total fee income                                                 9,262          7,895       17.3

Interest income (1)                                              5,477          3,206       70.8
Prepayment penalties (1)                                         2,249          2,198        2.3
Other revenues (1)                                                 177            125       41.6
                                                           -----------    -----------      -----
                                                           $    17,165    $    13,424       27.9 %
                                                           ===========    ===========      =====

Gain on sale of mortgages                                  $     1,420    $     3,059      (53.6)%
                                                           ===========    ===========      =====

CAD                                                        $     6,839    $      (656)        -- %
                                                           ===========    ===========      =====

</TABLE>

(1)  Prior to intersegment eliminations.

Including ARCap for the full comparable periods,  segment revenues for the third
quarter of 2006 would have  increased  approximately  7.9% from the 2005  level.
Despite lower origination  volume,  compression in origination fee rates and the
relatively modest growth in the servicing  portfolio,  overall revenues increase
due to increased interest income earned on escrow balances.


                                       43
<PAGE>



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

<TABLE>
<CAPTION>

  (In thousands)              2006           % of total           2005           % of total
------------------        ------------       ----------       -------------      ----------
<S>                       <C>                   <C>           <C>                    <C>
Fannie Mae                $    127,470           28.7  %      $     294,238           59.9  %
Freddie Mac                    125,450           28.2                45,255            9.2
CharterMac Direct              167,850           37.7                    --             --
Conduit and other               24,072            5.4               152,100           30.9
                          ------------       --------         -------------       --------
Total                     $    444,842          100.0  %      $     491,593           100.0  %
                          ============       ========         =============       =========

</TABLE>

The  decrease in mortgage  origination  fees for the  quarter was  generally  in
proportion  to the  decrease  in  originations  as well as the  average  rate of
origination  fees  being  impacted  by  the  higher   proportion  of  non-agency
originations.  Fannie Mae and  Conduit  originations  decreased  and  CharterMac
Direct originations  increased from the prior period because the loan production
staff focused its efforts on originating  loans for AMAC's  proprietary  lending
program,  CharterMac  Direct,  which was  launched  in late  2005.  Freddie  Mac
originations  increased  sharply  because we  completed  three  large  portfolio
transactions totaling $123 million in this quarter.

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  increase  in  prepayment  penalties  relates to a higher  level of
refinancing activity in the current quarter as compared to last year.

Gain on sale of mortgages  relates  directly to the value of mortgage  servicing
rights recorded when loans are sold. The mortgage servicing rights, in turn, are
valued  based  on  projected  servicing  revenues,  which  decreased  in 2006 as
compared to 2005 due to erosion of servicing fee rates for new originations.

Segment CAD for the three months ended  September 30, 2006,  was higher than the
comparable  2005 period due primarily to increased  servicing  fees and interest
income on escrow accounts.  Both of these were  attributable to the expansion of
our business as well as the acquisition of ARCap, and the higher interest income
was also due in part to  increasing  interest  rates  in 2005  and  2006.  These
factors were partially  offset by declining  origination  fees stemming from the
mix of  origination  activity as discussed  above.  We expect that the continued
expansion of this business and the expected  synergies from  combining  existing
operations with ARCap should benefit segment CAD in future periods.

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 13 LIHTC and Property Partnerships, an insignificant equity interest.

     LIHTC AND PROPERTY PARTNERSHIPS

     Our Fund Management  segment earns fees from many of the entities,  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 twelve 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   $3,000,   representing  our  nominal
     ownership.  As a result,  the  consolidation  of these  partnerships has an
     insignificant impact on our net income.

     CMBS PARTNERSHIPS

     CMBS Partnerships were incorporated upon our acquisition of ARCap.


                                       44
<PAGE>



NINE MONTHS ENDED SEPTEMBER 30, 2006 AND 2005
---------------------------------------------

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

<TABLE>
<CAPTION>

                                           % of                     % of
      (In thousands)            2006     Revenues      2005       Revenues     % Change
--------------------------    --------  ----------   --------    ----------   -----------
<S>                           <C>        <C>         <C>           <C>          <C>
Revenues                      $258,389   100.0 %     $215,270      100.0  %      20.0 %
Income before income taxes    $ 37,385    14.5 %     $ 39,191       18.2  %      (4.6)%
Net income                    $ 33,476    13.0 %     $ 52,907       24.6  %     (36.7)%

</TABLE>

Compared to 2005, the 2006 period  benefited from the acquisition of ARCap,  the
continued  expansion  of  all of  our  businesses  and a  full  nine  months  of
operations  for CCLP in the Mortgage  Banking  segment as compared to only seven
months in 2005. In addition, revenues in 2006 include $41.4 million generated by
consolidated  partnerships  compared to $19.4  million in 2005.  Offsetting  the
revenue  gains is the  elimination  of revenues  earned by our  subsidiaries  in
transactions  with LIHTC and Property  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 and a higher level of  pre-acquisition  equity income from
ARCap,  (for which we recorded our  proportionate  share),  income before income
taxes was less than the overall revenues increase. This was caused 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
          acquisitions of ARCap and CCLP;
     o    start-up costs in commencing  Centerbrook operations and restructuring
          costs  relating  to  integration  actions  with  respect  to the ARCap
          acquisition;
     o    intangible   assets  written  down  in  connection  with  our  planned
          disposition of CRES;
     o    termination fees and other costs associated with the  restructuring of
          our   securitization   programs  in  connection  with  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                      1,449      General and administrative

Restructuring of securitization programs - incremental interest expense       1,915      Interest expense

Restructuring of securitization programs - termination fees                   3,695      General and administrative

Restructuring of securitization programs - write-off of deferred costs        3,398      Depreciation and amortization
                                                                         ----------
                                                                             14,770
Tax effect                                                                   (1,619)
                                                                         ----------
  Net incremental costs                                                  $   13,151
                                                                         ==========

</TABLE>

Partially offsetting these factors,  income before income taxes benefited from a
$6.9  million  fee  paid to us by CCA to  terminate  our  rights  relating  to a
participating loan which was convertible into an ownership interest in CCA.

In addition to the above, net income decreased period over period as we incurred
income tax expense  during 2006  compared to an income tax benefit  during 2005.
The tax  provision  in the 2006  period  relates  to a higher  level of  current
taxable  income  from  the  Fund  Management   segment  due  to  increased  fund
sponsorship  activity,  coupled with a valuation  allowance against deferred tax
benefits (see INCOME TAXES).


                                       45
<PAGE>



REVENUES

Our revenues were as follows:

<TABLE>
<CAPTION>

                                              For the Nine Months Ended September 30,
                                              ---------------------------------------
           (In thousands)                         2006         2005       % Change
-------------------------------------           --------     --------     ---------
<S>                                             <C>          <C>            <C>
Mortgage revenue bond interest income           $115,109     $109,524         5.1 %

Other interest income                             20,089       10,828        85.5

Fee income:
   Mortgage banking                               24,756       20,050        23.5
   Fund sponsorship                               34,379       33,681         2.1
   Credit intermediation                           4,235        4,955       (14.5)
                                                --------     --------     -------
Total fee income                                  63,370       58,686         8.0

Other revenues:
   Construction service fee                        3,425        3,017        13.5
   Expense reimbursements                          2,456        4,084       (39.9)
   Rental income of real estate owned              4,004        2,172        84.3
   Administration fees                             1,546        1,359        13.8
   Prepayment penalties                            4,691        4,314         8.7
   Other                                           2,279        1,883        21.0
                                                --------     --------     -------
Total other revenues                              18,401       16,829         9.3

Subtotal                                         216,969      195,867        10.8
                                                --------     --------     -------

Revenues of consolidated partnerships             41,420       19,403       113.5
                                                --------     --------     -------

   Total revenues                               $258,389     $215,270        20.0 %
                                                ========     ========     =======

</TABLE>

A portion of the revenue increase was due to the ARCap acquisition. Adjusting to
include ARCap in the full  comparable  periods,  revenues  would have  increased
approximately 12.9%.

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  Management  and
Mortgage Banking revenues also increased as a result of the ARCap acquisition as
detailed in the relevant RESULTS BY SEGMENT 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;
     o    interest  generated  by  CMBS  resecuritization  certificated  we hold
          through ARCap; and
     o    higher cash balances  (predominantly the escrow accounts) 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 nine 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:

     o    an  increase  in  the  number  of  LIHTC   Partnerships  due  to  fund
          sponsorship activity;
     o    an increase in the number of Property  Partnerships over the past year
          which we have taken control of to protect our investments; and
     o    CMBS partnerships consolidated as part of the ARCap acquisition.


                                       46
<PAGE>



In the  first  nine  months  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 Nine Months Ended September 30,
                                               --------------------------------------
           (In thousands)                           2006        2005     % Change
-------------------------------------             -------     -------    ---------
<S>                                               <C>         <C>           <C>
Mortgage revenue bond interest income             $ 6,072     $ 2,915       108.3 %
Other interest income                                 158         268       (41.0)
Fund sponsorship fees                              34,934      27,756        25.9
Credit intermediation fees                          2,615       2,291        14.1
Other revenues                                      4,678       1,579       196.3
                                                  -------     -------     -------

Total                                             $48,457     $34,809        39.2 %
                                                  =======     =======     =======

</TABLE>

EXPENSES

Our expenses were as follows:

<TABLE>
<CAPTION>

                                                    For the Nine Months Ended September 30,
                                                    ---------------------------------------
                  (In thousands)                         2006        2005     % Change
---------------------------------------------------    --------    --------   ---------
<S>                                                    <C>         <C>           <C>
Interest expense                                       $ 66,650    $ 38,421       73.5 %
Interest expense - preferred shares of subsidiary        14,173      14,173         --

Salaries and benefits                                    64,803      50,575       28.1
Fund origination and property acquisition expenses       11,201       9,423       18.9
Operating costs of real estate owned                      3,573       1,599      123.5
Restructuring costs                                       1,446          --         --
Other general and administrative                         35,082      28,053       25.1
                                                       --------    --------    -------
   Subtotal                                             116,105      89,650       29.5
                                                       --------    --------    -------

Depreciation and amortization                            34,561      33,467        3.3
Write-off of intangible assets                            2,547          --         --
Loss on impairment of assets                              2,665       1,902       40.1
                                                       --------    --------    -------

   Subtotal                                             236,701     177,613       33.3

Interest expense of consolidated LIHTC and Property
   partnerships                                          18,756      19,364       (3.1)
Interest expense of consolidated CMBS partnerships        6,783          --         --
Other expenses of consolidated LIHTC and Property
   partnerships                                          49,883      38,950       28.1
Other expenses of consolidated CMBS partnerships            136          --         --
                                                       --------    --------    -------

Total expenses                                         $312,259    $235,927       32.4 %
                                                       ========    ========    =======

</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 nine
months 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 a new fixed rate securitization  program and the interest rate swaps
that we have in place, most 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 nine months ended  September  30, 2006 as compared to
3.7% for the 2005 period.

The  increase  in  salaries  and  benefits  expense  primarily  relates  to  the
approximately  100  employees  added upon the ARCap  acquisition,  the continued
growth of our component businesses and approximately $3.4 million of incremental
non-cash compensation cost related to shares issued in connection with the ARCap
acquisition.  Of the incremental  amount,  approximately $1.1 million related to
shares that vested immediately. The 2006 period also includes approximately $1.0
million of severance  related costs  associated  with the elimination of certain
executive positions during the first quarter. In addition, salaries and benefits
includes  approximately  $3.9  million for deferred  participation  compensation
related to CMBS funds we sponsor.

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 increase compared to last year is the
result  of a  higher  level  of fund  sponsorship  activity  in 2006  (see  FUND
MANAGEMENT section below for related revenue discussion).


                                       47
<PAGE>



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 nine months worth of operating costs compared to approximately
five months during 2005.

The increase in other general and  administrative  expenses  primarily  resulted
from start-up costs for  Centerbrook  operations and  termination and other fees
associated with  restructuring  of our  securitization  programs.  Restructuring
costs relate to integration and actions in anticipation of the ARCap acquisition
net  of  amounts  reversed  in  the  third  quarter  (see  Note  9 to  condensed
consolidated financial statements).  These costs are as detailed in the table on
page 46.

Depreciation and amortization expenses were higher in the 2006 period, primarily
due to:

     o    higher  amortization of mortgage  servicing  rights following the CCLP
          acquisition and the expansion of the Mortgage Banking business;
     o    a  write-off  of  previously  deferred  fees in  connection  with  the
          restructuring  of certain  securitization  programs upon the launch of
          Centerbrook; and
     o    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.

The write-off of intangible  assets  represents a goodwill  impairment charge of
approximately $0.9 million to account for the portion of our total investment in
and advances to CRES that we do not expect to recover and the  write-off of $1.6
million in unamortized  other CRES intangible  assets  recognized at the time of
its acquisition.

Other expenses of the consolidated LIHTC and Property 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.

Expenses  of  consolidated  CMBS  partnerships  represent  funds we  sponsor  to
syndicate  investments in CMBS and  associated  resecuritization  trusts.  These
items were  incorporated  into our  financial  results upon our  acquisition  of
ARCap.

OTHER ITEMS

<TABLE>
<CAPTION>

                                                 For the Nine Months Ended September 30,
                                                 ---------------------------------------
                (In thousands)                       2006          2005      % Change
---------------------------------------------     ---------     ---------    ---------
<S>                                               <C>           <C>            <C>
Equity and other income                           $     738     $   1,490      (50.5)%

Gain on termination of CCA loan                   $   6,916     $      --         -- %
Gain on sale or repayment of loans                    8,378         8,956       (6.5)
Gain on repayment of mortgage revenue bonds             963         1,930      (50.1)
                                                  ---------     ---------     ------
Gain on sale or repayment of mortgage revenue
   bonds and loans                                $  16,257     $  10,886       49.3 %
                                                  ---------     ---------     ------

Income allocated to preferred shareholders of
   subsidiary                                     $  (4,669)    $  (4,669)        --
                                                  ---------     ---------     ------

Income allocated to SCUs                          $ (13,085)    $ (21,358)     (38.7)%
Income allocated to SMUs                               (288)         (214)      34.6
Income allocated to SCIs                                (29)           --         --
Other                                                   101            --         --
                                                  ---------     ---------     ------
  Total income allocated to minority interests    $ (13,301)    $ (21,572)     (38.3)%

Loss allocated to partners of consolidated
   partnerships                                   $ 301,305     $ 255,628       17.9 %

</TABLE>

Equity and other  income  primarily  includes  income  from our  pre-acquisition
investment in ARCap,  offset by losses from tax advantaged  investment  vehicles
similar to those we sponsor. The 2006 period includes approximately $2.9 million
of  pre-acquisition  ARCap income,  relating in large part to our  proportionate
share of a resecuritization  gain realized by ARCap in the second quarter.  This
category now primarily includes losses from tax advantaged  investment  vehicles
similar to those we sponsor.  Equity income from our investment in CMBS funds is
eliminated in consolidation but positively impacts our net income. For the third
quarter  of 2006,  this  amount  was  approximately  $9.6  million.  There is no
comparable  amount in 2005 as this earnings stream began with our acquisition of
ARCap.

Gain on termination  of CCA loan  represents the $6.0 million cash paid to us by
CCA to terminate  our rights  relating to  participating  loan and the estimated
value of the manager interest in CUC that was assigned to us (see Note 4).


                                       48
<PAGE>



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,  SMUs  SCIs 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 SCIs were  issued in August 2006 in
connection with the ARCap  acquisition.  "Other" minority  interest  principally
represents the portion of Centerbrook owned by IXIS.

The loss  allocation to partners of  consolidated  partnerships  represents  the
operating losses of LIHTC and Property  partnerships,  of which we have absorbed
an insignificant  portion  (approximately  $8,000) and the majority ownership in
CMBS funds we sponsor.

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

PORTFOLIO INVESTING

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

<TABLE>
<CAPTION>

                                                           For the Nine Months Ended September 30,
                                                           --------------------------------------
                      (In thousands)                           2006          2005       % Change
--------------------------------------------------------    ----------    ----------    --------
<S>                                                         <C>           <C>              <C>
New mortgage revenue bond acquisitions                      $  237,349    $  190,058        24.9 %
Funding of mortgage revenue bonds acquired in prior
  years                                                         12,540        11,551         8.6
Acquisitions related to prior period forward commitments        48,396        23,550       105.5
                                                            ----------    ----------    --------
Total acquisition and funding activity                      $  298,285    $  225,159        32.5 %
Forward commitments issued but not funded                   $       --    $    8,000          -- %

Mortgage revenue bonds repaid                               $   59,492    $   65,499        (9.2)%

Average portfolio balance (fair value)                      $2,523,155    $2,199,480        10.8 %

Weighted average permanent interest rate of bonds
  acquired                                                        6.01 %        5.98 %
Weighted average yield of portfolio                               6.58 %        6.89 %
Average borrowing rate (includes effect of swaps)                 4.03 %        3.36 %
Average BMA rate                                                  3.40 %        2.30 %
                                                            ----------    ----------

Mortgage revenue bond interest income (1)                   $  123,247    $  113,011         9.1 %
Other interest income (1)                                       11,921         7,203        65.5
Rental income of real estate owned                               4,004         2,171        84.4
Prepayment penalties                                               407           441        (7.7)
Other revenues (1)                                               2,403         2,479        (3.1)
                                                            ----------    ----------    --------
                                                            $  141,982    $  125,305        13.3 %
                                                            ==========    ==========    ========

Interest expense and securitization fees (1)                $   64,413    $   36,794        75.1 %
Loss on impairment of assets                                $    2,665    $    1,902        40.1 %
Gain on repayments of mortgage revenue bonds                $      958    $    1,930       (50.4)%
Gain on termination of CCA loan                             $    6,916    $       --          -- %
                                                            ==========    ==========    ========

CAD                                                         $   77,645    $   79,900        (2.8)%
                                                            ==========    ==========    ========

</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 nine 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 nine months of operations while the 2005 results represent only a partial
period.

While generally declining interest rates of bonds acquired has gradually lowered
the average yield of our portfolio, we continue to earn a positive spread on our


                                       49
<PAGE>



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.  In  addition,  the fixed rate  securitization  that we
entered  into in the third  quarter of 2006 (see Note 7) should  serve to temper
our exposure to interest rate increases.

The  level of  prepayment  penalties  we record as  income  can be  expected  to
increase  as  several  older,  higher-yielding  mortgage  revenue  bonds  in our
portfolio  reach the end of lock out periods.  We  anticipate an increase in the
level of these fees (as well as participating interest sometimes associated with
older bonds) in the near future. In particular,  we are in negotiations with one
borrower  that may  repay a bond  later in 2006 and we may  realize  incremental
income of more than $5.0 million upon repayment.

Other  interest  income  relates to  investments  other than  revenue  bonds and
interest  earned on excess cash loaned to other  subsidiaries of the company for
operational  needs.  The  higher  level of  income  in the 2006  period  relates
primarily to increased intercompany lending,  offset by a lower level of outside
investments  following  the  conversion  of loans to equity in relation to Capri
investments during 2005 and 2006.

Impairment   losses  pertain  to  the   restructuring   of  bond  terms  or  the
deterioration  of  operations  that  indicate  that  full  balances  may  not be
recoverable.  We recognized impairment on six mortgage revenue bonds in the 2006
period and three in the 2005 period.

CAD for  this  segment  declined  in 2006  from  the 2005  level  due to  higher
borrowing costs from steadily  increasing interest rates and charges recorded in
the second quarter of 2006 associated with  restructuring of our  securitization
programs.  These  factors  were  partially  offset  by  the  $6.0  million  cash
termination fee received upon the termination of the loan to CCA. We expect that
the effect of borrowing costs will be tempered in future periods by the expected
cost savings  associated with the involvement of Centerbrook in providing credit
intermediation for our securitization  programs and the impact of the fixed rate
securitization program that we closed in August 2006.

FUND MANAGEMENT

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

<TABLE>
<CAPTION>

                                               For the Nine Months Ended September 30,
                                               ---------------------------------------
               (In thousands)                       2006        2005     % Change
-------------------------------------------       --------    --------   ---------
<S>                                               <C>         <C>          <C>
Equity raised by LIHTC funds                      $801,758    $711,918      12.6 %
Equity invested by LIHTC funds (1)                $758,944    $751,985       0.9 %

Fees based on equity raised (2)                   $ 11,062    $ 10,104       9.5 %
Fees based on equity invested (2)                 $ 32,927    $ 31,613       4.2 %

Fees based on management of other entities:
   Asset management and partnership fees (2)      $ 25,815    $ 19,685      31.1 %
   Investment origination fees (2)                     269         494     (45.5)
   Other (2)                                            62          60       3.3
                                                  --------    --------   -------
   Subtotal                                         26,146      20,239      29.2
                                                  --------    --------   -------

Total fund sponsorship fees (2)                     70,135      61,956      13.2

Credit intermediation fees (2)                       7,819       7,246       7.9
Expense reimbursement (2)                           10,042       6,951      44.5
Construction fees (2)                                3,425       3,017      13.5
Other interest income (2)                              932         197     373.1
Other revenues (2)                                   2,777       1,641      69.2
                                                  --------    --------   -------
  Total                                           $ 95,130    $ 81,008      17.4 %
                                                  ========    ========   =======

Equity income from CMBS Funds (2)                 $  9,643    $     --        -- %
                                                  ========    ========   =======

  CAD                                             $ 44,757    $ 44,814      (0.1) %
                                                  ========    ========   =======

</TABLE>

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


                                       50
<PAGE>



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 third quarter of 2005.

FEES BASED ON EQUITY RAISED

We earn 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
were  consistent in 2006 as compared to the same period in 2005.  Although there
was an increase in the amount of equity raised, this was offset by a decrease in
the rate realized stemming from heightened competition relating to certain types
of funds.  Related O&O  acquisition  expenses  were also down  in-line  with the
decrease in revenue.  Partnership  management fees increased  approximately  71%
over 2005 and  related to  additional  funds  closed  since the end of the third
quarter of 2005.

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 increase in fees is greater than the increase of equity invested  because of
a  higher  fee  rate  realized,  stemming  from  changes  in the  mix  of  funds
originated.

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  as well as an increase in fees
earned from AMAC due to the gain AMAC realized  related to the sale of its ARCap
interest to us. These  increases were  partially  offset due to the reduction of
the cash  positions  of  certain  investment  funds  over the prior  year  which
prevented us from  recognizing any management fees for these funds in 2006 since
collectibility is not reasonably assured.

OTHER REVENUES

Credit intermediation,  expense reimbursement and other revenues in this segment
consist  largely of service  fees  charged to entities  (including  consolidated
partnerships)  we manage  and  fluctuate  with the growth of the number of those
entities and their cash flows.  Credit  intermediation  fees also vary depending
upon the time an agreement is outstanding as we recognize a higher proportion of
revenues  in  the  early  years  of an  intermediation  period,  when  the  risk
associated with the agreement is greater.

EQUITY INCOME

We act as general  partner of the CMBS funds we sponsor and own a portion of the
funds.  Equity income in this segment  primarily  represents  our  proportionate
share of profits as well as other allocations for general partner services. This
category became a part of this segment upon the ARCap acquisition.

CAD for the 2006 period was lower than that of 2005  despite the higher level of
fees  received in connection  with  increased  fund  sponsorship  activity.  The
decrease  resulted from  incremental  costs  recognized in the second quarter of
2005 in connection with the start up of Centerbrook and restructuring charges in
anticipation  of the ARCap  acquisition,  as well as a higher  level of  ongoing
infrastructure costs as we grow the business.  The 2006 period also included the
addition of equity  income from CMBS funds to this segment with the  acquisition
of ARCap as a portion of the income recognized is cash based.


                                       51
<PAGE>



MORTGAGE BANKING

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

<TABLE>
<CAPTION>

                                                          For the Nine Months Ended September 30,
                                                          ---------------------------------------
                     (In thousands)                           2006          2005       % Change
-------------------------------------------------------    ----------    ----------    --------
<S>                                                        <C>           <C>             <C>
Originations                                               $1,184,045    $  932,636       27.0 %
Mortgage portfolio at September 30                         $9,039,666    $8,874,898        2.2 %
Fair value of mortgage servicing rights at September 30    $   72,788    $   69,409        4.9 %
                                                           ----------    ----------    -------

Mortgage origination fees (1)                              $    7,231    $    5,313       36.1 %
Servicing fees (1)                                             16,801        13,890       21.0
Assumption fees (1)                                               901           847        6.4
                                                           ----------    ----------    -------
Total fee income                                               24,933        20,050       24.4

Interest income (1)                                            13,739         6,511      111.0
Prepayment penalties (1)                                        4,284         3,873       10.6
Other revenues (1)                                                851           422      101.2
                                                           ----------    ----------    -------
                                                           $   43,807    $   30,856       42.0 %
                                                           ==========    ==========    =======

Gain on sale of mortgages                                  $    8,453    $    9,382       (9.9)%
                                                           ==========    ==========    =======

CAD                                                        $   12,870    $    6,637       93.9 %
                                                           ==========    ==========    =======

</TABLE>

(1)  Prior to intersegment eliminations.

Revenues  increased in this segment largely due to the acquisitions of ARCap and
CCLP. Including all businesses for the full periods, segment revenues would have
increased 12.6% in the first nine months of 2006 as compared to the 2005 period.

Originations for the nine months ended September 30 are broken down as follows:

<TABLE>
<CAPTION>

  (In thousands)        2006      % of total       2005      % of total
-----------------    ----------   ----------    ----------   ----------
<S>                  <C>             <C>        <C>             <C>
Fannie Mae           $  550,254       46.5 %    $  581,971       62.4 %
Freddie Mac             215,465       18.2          59,180        6.3
CharterMac Direct       319,050       26.9              --         --
Conduit and other        99,276        8.4         291,485       31.3
                     ----------    -------      ----------    -------
Total                $1,184,045      100.0 %    $  932,636      100.0 %
                     ==========    =======      ==========    ======

</TABLE>

Mortgage  origination fees generally  increased in proportion to the increase in
originations.  Fannie Mae and  Conduit  originations  decreased  and  CharterMac
Direct originations  increased from the prior period because the loan production
staff focused its efforts on originating  loans for AMAC's  proprietary  lending
program,  CharterMac  Direct,  which was  launched  in late  2005.  Freddie  Mac
originations  increased  sharply  because we  completed  three  large  portfolio
transactions totaling $123 million in the 2006 period.

The increase in  servicing  fees is partly a result of the CCLP  acquisition  in
March 2005 and the ARCap acquisition in August 2006. Adjusting for the impact of
the  acquisition,  servicing fee income in 2006 declined  approximately  6.3% 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  from 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  relates  directly to the value of mortgage  servicing
rights recorded when loans are sold. The mortgage servicing rights, in turn, are
valued  based  on  projected  servicing  revenues,  which  decreased  in 2006 as
compared to 2005 due to erosion of servicing fee rates for new originations.


                                       52
<PAGE>



Segment CAD for the first nine months of 2006 was higher than the same period in
2005 due  primarily to increased  servicing  fees and interest  income on escrow
accounts.  Both of these were  attributable  to the expansion of our business as
well as the acquisition of ARCap, and the higher interest income was also due in
part to increasing  interest  rates in 2005 and 2006. The increase was partially
offset  by  restructuring  costs  recorded  in the  second  quarter  of  2006 in
anticipation  of the ARCap  acquisition,  as well as a higher  level of  ongoing
infrastructure  costs as we grow the  business.  We  expect  that the  continued
expansion of this business and the expected  synergies from  combining  existing
operations with ARCap should benefit segment CAD in future periods.

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 13 partnerships, an insignificant equity interest.

     LIHTC AND PROPERTY PARTNERSHIPS

     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 nine  months  ending  September  30,  2006,  include  a full  period of
     activity for these  property  level  partnerships  while the same period in
     2005 only includes approximately six 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   $8,000,   representing  our  nominal
     ownership.  As a result,  the  consolidation  of these  partnerships has an
     insignificant impact on our net income.

     CMBS PARTNERSHIPS

     CMBS Partnerships were incorporated upon our acquisition of ARCap.

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,  however,  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 the
recognition of 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  Company  recognized  an income tax  provision  in the three and nine months
ended September 30, 2006,  compared to the income tax benefit for the comparable
periods in 2005.  The  effective tax rate on a  consolidated  basis for the nine
months  ended  dateMonth9Day30Year2006September  30,  2006 and 2005 was 9.8% and
(35.0)%,  respectively.  The effective rate for our corporate  subsidiaries that
were  subject  to  taxes  was  (20.5)%  and  57.4%  for the  nine  months  ended
dateMonth9Day30Year2006September 30, 2006 and 2005, respectively.

The income tax  provision or benefit is affected by the book income or losses of
the taxable  businesses and tax  deductible  distributions  on their  subsidiary
equity.  In 2006,  a current  tax  provision  (due to higher  currently  taxable
income) is coupled  with a  valuation  allowance  against  deferred  tax assets.
Management  determined  that,  in  light  of  projected  taxable  losses  in the
corporate  subsidiaries  for the  foreseeable  future,  all of the  deferred tax
assets will likely not 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.


                                       53
<PAGE>



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.

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

     o    $175.0  million,  used for mortgage  banking  needs,  which matures in
          November 2006, and we expect to enter into a further extension of this
          line;
     o    $250.0 million, used to acquire equity interests in property ownership
          entities  prior  to the  inclusion  of  these  equity  interests  into
          investment  funds,  as well as for  other  corporate  purposes,  which
          matures in August 2009;
     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; and
     o    repurchase  facilities  used  to fund  investments  by  ARCap  and its
          subsidiaries as well as for general business  purposes.  Of the $280.0
          million maximum borrowing amount, $91.1 million is currently available
          to borrow without pledging additional collateral.

As of September  30, 2006,  we had  approximately  $319.1  million  available to
borrow under these debt and  securitization  facilities without exceeding limits
imposed by debt  covenants  and our  by-laws  and  without  pledging  additional
collateral. Although the mortgage banking facility matures in 2006, we expect to
renew,  replace or refinance it. While we believe that we will be able to do so,
there is no assurance that we will achieve refinancing terms favorable to us.

In  addition  to the  credit  lines  detailed  above,  we have a $455.0  million
fixed-rate mortgage revenue bond securitization  program and $250.0 million term
loan,  both of which  began in 2006 and were fully  funded as of  September  30,
2006.  The  securitization  certificates  have a weighted  average term of eight
years and the term loan matures in 2012.

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 September 30, 2006
-----------------------------------------------

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

<TABLE>
<CAPTION>

                                                   (In thousands)
                                                   --------------
<S>                                                   <C>
Common/CRA shareholders                               $25,175
SCU/SMU/SCI holders                                     8,907
4.4% CRA Preferred shareholders                         1,188
Equity Issuer Preferred shareholders                    6,281
                                                      -------

Total                                                 $41,551
                                                      =======

</TABLE>

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.


                                       54
<PAGE>



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

For the nine months ended  September 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 operating  cash flow and cash provided by
financing  activities was more than offset by a larger  increase in cash used in
investing activities.

Operating cash flow in 2006 was $164.5 million higher than in 2005 due primarily
to a sharp reduction in the level of mortgage loans receivable  during 2006 as a
result of the high level of December 2005  originations that were not sold until
the first quarter of 2006. Conversely,  in the 2005 period, the increasing level
of originations following the CCLP acquisition resulted in a net addition to the
asset balance during the period. In addition,  liabilities increased in the 2006
period to a greater  extent than in 2005 due to higher  collections  of deferred
revenues in connection with fund origination activity.

Cash used in  investing  activities  was higher in 2006 as compared to 2005 by a
margin of $288.2 million due to:

     o    the ARCap acquisition;
     o    a higher level of mortgage revenue bond acquisitions and fundings; and
     o    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, a
decrease in restricted cash due to reduced  collateral when we restructured  our
securitization  programs  and  returns  of  capital  from  ARCap  prior  to  our
acquisition.

Financing  inflows in the 2006 period were higher than in 2005 by $70.0 million.
While  we  borrowed   through  a  new  credit  facility  to  finance  the  ARCap
acquisition,  the level of  financing  inflows  was offset by the  repayment  of
warehouse line  borrowings  associated with 2006 mortgage loan sales as noted in
the  discussion  of  operating  cash flows  above.  Also  included in  financing
activities are the proceeds and repayments  related to the  restructuring of our
securitization  programs and borrowings to capitalize  Centerbrook,  as noted in
the discussion of investing cash flow activities above.

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
September 30, 2006, for guarantees we and our subsidiaries have entered into:

<TABLE>
<CAPTION>

                                                        Maximum        Carrying
               (In thousands)                           Exposure        Amount
--------------------------------------------           ----------     ----------
<S>                                                    <C>            <C>
Stabilization guarantees (1)                           $   12,912     $       --
Completion guarantees (1)                                  23,902             --
Development deficit guarantees (1)                         37,566            679
Operating deficit guarantees (1)                            7,524            198
ACC transition guarantees (1)                               3,245             --
Recapture guarantees (1)                                  114,703            198
Replacement reserve (1)                                     3,120             57
Guarantee of payment (1)                                   58,191             --
Mortgage pool credit intermediation (2)                     7,446             --
LIHTC credit intermediation (2)                           962,935         24,678
Mortgage banking loss sharing agreements (3)              821,088         13,041
                                                       ----------     ----------

                                                       $2,052,632     $   38,851
                                                       ==========     ==========

</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.


                                       55
<PAGE>



(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.

CONTRACTUAL OBLIGATIONS

The following  table provides our  commitments as of September 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)(2)                       $  399,837    $   61,370    $   95,967    $    5,000    $  237,500
Notes payable of consolidated
   partnerships (3)                           498,912        28,372       149,072        27,896       293,572
Repurchase agreements of consolidated
  partnerships                                871,100       184,700         6,568       152,603       527,229
Operating lease obligations                    78,375         8,161        16,499        15,183        38,532
Unfunded investment commitments (4)           382,099       265,957       116,142            --            --
Financing arrangements (1)(2)               1,730,629     1,730,629            --            --            --
Preferred shares of subsidiary (subject
  to mandatory repurchase)                    273,500            --            --            --       273,500
                                           ----------    ----------    ----------    ----------    ----------

   Total                                   $4,234,452    $2,279,189    $  384,248    $  200,682    $1,370,333
                                           ==========    ==========    ==========    ==========    ==========

</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)  Recourse  debt  represents  principal  amount only.  The  weighted  average
     interest rate at period end, including the impact of our swaps, was 5.12%.

(3)  Of the notes payable of consolidated partnerships, $371.9 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 $127.0 million is collateralized with the underlying  properties
     of  the  consolidated   operating   partnerships.   All  of  this  debt  is
     non-recourse to us.

(4)  Of  this  amount,  $307.7  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.


                                       56
<PAGE>



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.

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 $725.0  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 $14.1 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 $2.5 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  $157.4 million and a 1% decrease would result in
an increase of approximately $176.5 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


                                       57
<PAGE>



        pursuant to the Securities and Exchange Act Rule 13a-15. Based upon this
        evaluation as of September  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.

        Management's  assessment does not include internal controls at ARCap, as
        the business was acquired in August 2006.  This  exclusion is considered
        appropriate using guidance  provided by the SEC in 'Management's  Report
        on Internal  Control  Over  Financial  Reporting  and  Certification  of
        Disclosure in Exchange Act Periodic Reports'.  We expect to grow in part
        through  acquisitions  and  joint  ventures.   To  the  extent  we  make
        acquisitions  or enter  into  combinations  or joint  ventures,  we face
        numerous risks and  uncertainties  combining or integrating the relevant
        businesses  and systems,  including the need to combine  accounting  and
        data  processing  systems  and  management  controls  and  to  integrate
        relationships with clients and business  partners.  In the case of joint
        ventures,  we are subject to additional risks and  uncertainties in that
        we may be dependent upon, and subject to liability, losses or reputation
        damage relating to,  systems,  controls and personnel that are not under
        our control. In addition,  conflicts or disagreements between us and our
        joint venture partners may negatively impact the benefits to be achieved
        by the joint venture.

(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.


                                       58
<PAGE>



                           PART II. OTHER INFORMATION



ITEM 1.  LEGAL PROCEEDINGS

         We have been named as  defendants  in three  separate but  interrelated
         lawsuits relating to two properties for which we have provided debt and
         equity financing, but associated with the same developers. The lawsuits
         allege,  among other things,  (i) breach of fiduciary duty; (ii) breach
         of  the  implied  covenant  of  good  faith  and  fair  dealing;  (iii)
         intentional   misrepresentation,   fraud  and  deceit;  (iv)  negligent
         misrepresentation; and (v) tortious interference with contracts.

         Two of the lawsuits  claim  unspecified  damages while the third claims
         damages of $10.0 - 15.0  million.  One suit (with  unspecified  damages
         claimed) is  scheduled  for trial in January  2007.  The time for us to
         respond to the other suits has not yet come.

         We have engaged in settlement  discussions  seeking a global resolution
         of all of these disputes.  If such a settlement cannot be achieved,  we
         intend  to  defend   vigorously   against  the  claims  and  to  assert
         counterclaims and other claims as necessary.

         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

         In addition to those detailed in our Annual Report on Form 10-K for the
         year ended December 31, 2005, we are now subject to additional risks as
         a result of our acquisition of ARCap.

         OUR INDIRECT INVESTMENTS IN SUBORDINATED CMBS ARE SUBJECT TO LOSSES.

         We manage funds that hold  investments in subordinated  CMBS and retain
         an ownership  interest in those funds. In addition we hold interests in
         ReREMICs which are securitizations of subordinated CMBS.

         ARCap  REIT,  Inc.  and  the  funds  it  manages  invest  primarily  in
         below-investment  grade CMBS. Typically,  these  below-investment grade
         securities  support  and are  subordinate  to the higher  rated  senior
         securities in the CMBS  transaction.  The rights of the holder of these
         subordinate  securities,  to  receive  distributions  on account of the
         underlying  mortgage loans are subordinate to the rights of the holders
         of the more senior  securities.  The yields to maturity on subordinated
         securities are extremely  sensitive to the default and loss  experience
         of the underlying  mortgage  loans,  the timing of any such defaults or
         losses,  the timing of principal  payments and other factors beyond our
         control.  Because these types of subordinated securities generally have
         no or very  limited  credit  support,  to the  extent  that  there  are
         realized losses on the mortgage loans,  the holder of subordinate  CMBS
         may not  recover the full  amount of or, in extreme  cases,  any of its
         initial  investments  in  such  subordinated  securities.   Any  losses
         incurred  by the  mortgage  pools in which  we have an  interest  would
         reduce our net income.

         The market value of ARCap REIT,  Inc.'s and the funds' CMBS investments
         fluctuate  materially  over time as the result of  changes in  mortgage
         spreads, treasury bond interest rates, capital market supply and demand
         factors,  and many other factors which affect  high-yield  fixed income
         products. These factors are out of our control, and could influence our
         and the funds' ability to obtain short-term financing on the CMBS.

         There may be occasions  when we, as the  managing  member of the funds,
         will  seek  to  dispose  of  selected  holdings  of  the  funds  and/or
         investments  held for our own account.  Non-rated  or below  investment
         grade CMBS  generally  are not actively  traded and may not provide the
         funds with liquidity of investment.  Therefore,  it may be difficult or
         impossible  to sell  the  funds'  securities  at a  price  that we deem
         acceptable.

         Upon the occurrence of certain events  generally  relating to a payment
         or  other  default  on a  mortgage  loan  or  events  relating  to  the
         insolvency of the mortgage  loan  borrower,  the special  servicer will
         order an updated appraisal and calculate an "appraisal  reduction" with
         respect to such mortgage loan. As a result of  calculating  one or more
         appraisal  reductions,  the amount of any required  interest advance by
         the Master  Servicer,  upon the  failure by the  borrower  to make such
         payments  with  respect to such  mortgage  loan,  will be reduced by an
         amount equal to interest on the amount of the appraisal reduction. This
         will have the effect of reducing  the amount of interest  available  to
         the most  subordinate  class of CMBS  outstanding.  Such  reductions in
         interest,  if they occur, may never be recovered.  Consequently,  ARCap
         REIT,  Inc.  and/or  the funds may suffer  reductions  in the amount of
         interest paid to them as holders of the high yield CMBS, and the income
         we recognize would be reduced accordingly.


                                       59
<PAGE>



         THE TAX  ADVANTAGES  ATTRIBUTABLE  TO  INVESTMENTS  MADE  THROUGH REITS
         DEPEND ON THE  CONTINUING  ABILITY OF SUCH ENTITIES TO  COMPLY WITH THE
         REQUIREMENTS FOR QUALIFICATION AS A REIT.

         ARCap REIT,  Inc.  and the lower tier REITs in which it invests in CMBS
         through its managed investment funds are relieved of federal income tax
         through  qualification as real estate investment trusts. In order to so
         qualify,  such entities  must meet numerous and complex  organizational
         and operational requirements, including those related to the amount and
         timing  of   distributions,   source  of  income  and   diversity   and
         distribution of share ownership.  Continued ability to comply with such
         REIT  qualification  requirements  is not  assured  and  failure  to so
         qualify (if not timely cured through available relief provisions in the
         federal  tax  code)  could  result in a  material  federal  income  tax
         liability  that  could  have  a  material   effect  on  the  amount  of
         distributions available to our investors.

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  third  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>
July 1-31, 2006                 608,378           $18.87             608,300
August 1-31, 2006               299,132            19.35             283,360
September 1-30, 2006             19,529            20.15                  --
                           ------------       ----------         -----------

Total                           927,039           $19.05             891,660                  570,540
                           ============       ==========         ===========            =============

</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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - None

ITEM 5.  OTHER INFORMATION - None

ITEM 6.  EXHIBITS


         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.


                                       60
<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:  November 13, 2006       By: /s/ Marc D. Schnitzer
                                   ---------------------
                                   Marc D. Schnitzer
                                   Managing Trustee, Chief Executive Officer
                                   and President



Date:  November 13, 2006       By: /s/ Alan P. Hirmes
                                   ------------------
                                   Alan P. Hirmes
                                   Managing Trustee, Chief Financial Officer and
                                   Chief Operating Officer