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

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 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)


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

           Securities registered pursuant to Section 12(b) of the Act:
                          SHARES OF BENEFICIAL INTEREST

                   Name of each exchange on which registered:
                             NEW YORK STOCK EXCHANGE

           Securities registered pursuant to Section 12(g) of the Act:

                                      NONE

Indicate by check mark if the  registrant is a well-known  seasoned  issuer,  as
defined in Rule 405 of the Securities Act. Yes[X] No [ ]

Indicate  by  check  mark if the  registrant  is not  required  to file  reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]

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 if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]

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]

The  aggregate  market  value of common  equity  held by  non-affiliates  of the
registrant as of June 30, 2006 was approximately $950,633,340.

As of  February  23,  2007  there  were  51,404,234  outstanding  shares  of the
registrant's shares of beneficial interest.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III:  Those  portions of the  registrant's  Proxy  Statement for the Annual
Meeting to be held in June 2007 which are incorporated into Items 10, 11, 12, 13
and 14.


<PAGE>



TABLE OF CONTENTS

                                   CHARTERMAC

                           ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>

                                                                                                 PAGE
<S>          <C>          <C>                                                                    <C>
PART I
             Item 1.      Business                                                                 4
             Item 1A.     Risk Factors                                                            12
             Item 1B.     Unresolved Staff Comments                                               30
             Item 2.      Properties                                                              30
             Item 3.      Legal Proceedings                                                       30
             Item 4.      Submission of Matters to a Vote of Security Holders                     30

PART II
             Item 5.      Market for Registrant's Common Equity, Related Stockholder Matters
                              and Issuer Purchases of Equity Securities                           31
             Item 6.      Selected Financial Data                                                 33
             Item 7.      Management's Discussion and Analysis of Financial Condition and
                              Results of Operations                                               33
             Item 7A.     Quantitative and Qualitative Disclosures about Market Risks             55
             Item 8.      Financial Statements and Supplementary Data                             60
             Item 9.      Changes in and Disagreements with Accountants on Accounting and
                              Financial Disclosure                                               131
             Item 9A.     Controls and Procedures                                                131
             Item 9B.     Other Information                                                      131

PART III
             Item 10.     Directors, Executive Officers and Corporate Governance                 132
             Item 11.     Executive Compensation                                                 132
             Item 12.     Security Ownership of Certain Beneficial Owners and Management and
                              Related Stockholder Matters                                        132
             Item 13.     Certain Relationships and Related Transactions, and Director
                              Independence                                                       132
             Item 14.     Principal Accounting Fees and Services                                 132

PART IV
             Item 15.     Exhibits and Financial Statement Schedules                             133

SIGNATURES                                                                                       139

</TABLE>

                                       2
<PAGE>



                      CAUTIONARY STATEMENT FOR PURPOSES OF
                         THE "SAFE HARBOR" PROVISIONS OF
              THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995



This  Annual  Report on Form 10-K  contains  forward-looking  statements.  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 real estate markets;
     o    competition with other companies;
     o    interest rate fluctuations;
     o    general economic and business conditions;
     o    environmental/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.

We caution you not to place undue reliance on these forward-looking  statements,
which reflect our view only as of the date of this annual report on Form 10-K.


                                       3
<PAGE>



                                     PART I
ITEM 1.  BUSINESS.

General
-------

We are  CharterMac,  a statutory  trust created  under the laws of Delaware.  We
conduct substantially all of our business through our subsidiaries.  For ease of
readership,  however, the term "we" (as well as "us", "our" or "the Company") as
used  throughout this document may mean a subsidiary or the business as a whole,
while the term "parent trust" refers only to CharterMac as a stand-alone entity.

Through our subsidiaries and funds which they manage, we are one of the nation's
leading  real  estate  finance and  investing  companies.  We are  strategically
positioned  in the center of users of capital  and  providers  of capital in the
commercial and multifamily real estate industry. We provide capital solutions to
real estate developers and owners, as well as investment  products to retail and
institutional investors.

We commenced  operations in October 1997 and have since expanded through several
acquisitions.

Additional Information
----------------------

Additional  information  about  CharterMac  beyond what is included in this Form
10-K,  including  our CODE OF  BUSINESS  CONDUCT  AND ETHICS,  is  available  at
www.chartermac.com.  As soon as  reasonably  practicable  after such material is
electronically  filed  with,  or  furnished  to,  the  Securities  and  Exchange
Commission ("SEC") we make available, on or through our website, free of charge:

     o    our annual report on Form 10-K;
     o    our quarterly reports on Form 10-Q;
     o    our current reports on Form 8-K; and
     o    amendments  to those  reports  filed or furnished  pursuant to Section
          13(a) or 15(d) of the Exchange Act.

You may also read and copy these materials at the SEC's Public Reference Room at
450 Fifth Street, NW, Washington, DC 20549, or obtain them by calling the SEC at
1-800-SEC-0300.  The SEC  also  maintains  an  Internet  website  that  contains
reports,  proxy  and  information  statements  and other  information  regarding
issuers that file electronically with the SEC at www.sec.gov.  We will provide a
copy of any of the foregoing documents upon request.

None of the information on our website that is not otherwise expressly set forth
or incorporated by reference in the Form 10-K is a part of this Form 10-K.

Business Overview
-----------------

Through our subsidiaries and funds which they manage, we are a full-service real
estate finance and investing  company.  Our  subsidiaries  have direct financing
relationships   with   approximately  875  real  estate  developers  and  owners
throughout   the  country  and  we  have  strong   relationships   with  various
institutional  investors,  pension funds and endowments.  We provide an array of
products  and operate  from a fully  integrated  platform,  which  enables us to
originate,  underwrite  and  manage  the risk of most  transactions  in which we
provide debt or equity. Our platform offers us several  competitive  advantages,
including:

     o    THE  ABILITY  TO   CROSS-SELL   FINANCING   PRODUCTS.   Frequently  on
          transactions,  we  offer  more  than  one  component  of a  property's
          capital;
     o    THE ABILITY TO ORIGINATE THE TRANSACTION  WHOLESALE,  which enables us
          to capture  substantially  all of the financing fees  associated  with
          each transaction;
     o    THE ABILITY TO CONTROL THE CREDIT QUALITY OF THE UNDERLYING  PROPERTY.
          By working  directly  with the  property's  owner and by managing  the
          risks of the  underlying  asset,  our credit losses have  historically
          been low; and
     o    THE ABILITY TO PROVIDE PRODUCTS AND SERVICES THROUGHOUT THE PROPERTY'S
          FINANCING LIFE CYCLE.


                                       4
<PAGE>



Operating Segments
------------------

We operate in four business segments:

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

          This segment may also include loans to and other  investments in other
          business or funds involved in real estate or real estate finance. Such
          investments  have  included our  pre-acquisition  investment  in ARCap
          Investors, LLC ("ARCap").

     2.   FUND MANAGEMENT, which includes:

          o    Tax Credit Fund  Sponsorship  -  Subsidiaries  that  sponsor real
               estate   investment   funds  that  primarily   invest  equity  in
               Low-Income Housing Tax Credit ("LIHTC") properties. Many of these
               partnerships  are  included  in  our  Consolidated   Partnerships
               segment.  In exchange for sponsoring and managing these funds, we
               receive fee income for providing asset management,  underwriting,
               origination and other services;
          o    High Yield CMBS Fund Sponsorship - Subsidiaries  that sponsor and
               manage  funds that invest in high yield real  estate  instruments
               including B-Notes, bridge loans, mezzanine loans and subordinated
               interests  associated with Commercial  Mortgage Backed Securities
               ("CMBS"),   commercial   real   estate   mortgages   and  similar
               investments,  which partnerships are included in our Consolidated
               Partnerships   segment.   These   subsidiaries   also  hold,  for
               investment,  investments  like the ones held by sponsored  funds.
               These   subsidiaries   earn  income  and  promotes   from  equity
               investments in the sponsored funds and interest income from their
               investments;
          o    Direct Loan Fund  Sponsorship  - Equity  investment in ARCap Real
               Estate Special Situations Mortgage Fund, LLC ("ARESS") from which
               we earn income and promotes from our equity  investment.  We also
               manage  the  operations  of  ARESS,  which  is  included  in  our
               Consolidated Partnerships segment;
          o    Equity Fund Sponsorship  -Membership interest in CharterMac Urban
               Capital  LLC  ("CUC"),  an  investment  fund with the  California
               Public  Employees   Retirement  System  ("CalPERS")  as  majority
               investor,  focusing on investments  in multifamily  properties in
               major urban markets.  Our  membership  interest in CUC includes a
               co-investment  obligation  amounting to 2.5% of capital invested.
               The CUC fund generates  income and cash flow  predominantly  from
               asset management fees and promote income;
          o    Advisory  Services - Subsidiaries  that provide advisory services
               to the parent trust,  other  subsidiaries of ours and to American
               Mortgage  Acceptance  Company ("AMAC"),  an affiliated,  publicly
               traded real estate investment trust; and
          o    Credit  Intermediation - Subsidiaries  that participate in credit
               intermediation   transactions,   including   those  that  provide
               specified  returns to  investors in LIHTC equity funds and credit
               intermediation to our Portfolio Investing businesses, in exchange
               for fees.

     3.   MORTGAGE  BANKING,  which  includes  subsidiaries  that  originate and
          underwrite predominantly multifamily mortgage loans on behalf of third
          parties, including:

          o    The Federal National Mortgage Association ("Fannie Mae");
          o    The Federal Home Loan Mortgage Corporation ("Freddie Mac");
          o    The Federal Housing Authority ("FHA");
          o    The Government National Mortgage Association ("GNMA");
          o    ARESS and AMAC; and
          o    Insurance companies and conduits.

          In exchange for these activities, we receive origination fees.

          This segment also includes  subsidiaries that provide  multifamily and
          commercial  loan servicing for third parties and special  servicing on
          CMBS  securitizations  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


                                       5
<PAGE>



          modification  fees. We also earn interest income on escrow and reserve
          balances held on loans we service.

     4.   CONSOLIDATED  PARTNERSHIPS,  which include  primarily the LIHTC equity
          funds and debt 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 (see Note 1 to the  consolidated
          financial statements). This segment also includes CMBS and Direct Loan
          funds we sponsor in which we have minority interests but for which our
          subsidiaries are general partners.

Comparative  segment financial  information for 2006, 2005 and 2004 is presented
in Note 20 to the consolidated financial statements.

1. PORTFOLIO INVESTING

We conduct most of our portfolio  investing through our CharterMac Equity Issuer
Trust I and  CharterMac  Equity Issuer Trust II  subsidiaries.  Throughout  this
document,  we will refer to both of these  subsidiaries  collectively as "Equity
Issuer".

As of December 31, 2006, our revenue bond portfolio includes direct and indirect
interests  in  mortgage   revenue   bonds  with  an  aggregate   fair  value  of
approximately  $2.8 billion (prior to $397.3 million of eliminations  related to
bonds issued by partnerships we consolidate),  secured by affordable multifamily
properties  containing  56,048  units  located in 30 states and the  District of
Columbia. While most of these mortgage revenue bonds generate tax-exempt income,
certain of them generate taxable income.  The taxable mortgage revenue bonds are
held at the parent trust.

Our Portfolio Investing business generates most of its income and cash flow from
a positive  spread  between the interest  earned from our mortgage  revenue bond
portfolio and the cost of capital we use to purchase the bonds.  We occasionally
receive participating  interest on certain mortgage revenue bonds which is equal
to a  percentage  of net  property  cash  flow  of the net  sale or  refinancing
proceeds.  We also  receive  fees  from  borrowers  for the  acquisition  of new
mortgage revenue bonds.

The acquisition of mortgage revenue bonds requires capital. In addition to using
a portion of our operating  cash flows,  we obtain such capital by  securitizing
most of the bonds we purchase and by issuing equity securities.

For  more  information  on  our  securitization  activity,  see  Note  8 to  our
consolidated  financial  statements.  For  information  regarding  issuances  of
preferred shares of Equity Issuer and our common and preferred shares, see Notes
13 and 14 to our consolidated financial statements.

This segment may also include loans to and other investments in other businesses
or funds involved in real estate or real estate finance.  Such  investments have
included our pre-acquisition investment in ARCap.

2. FUND MANAGEMENT

Our Fund Management segment includes:

     o    Tax Credit Fund Sponsorship;
     o    High Yield CMBS Fund Sponsorship;
     o    Direct Loan Fund Sponsorship;
     o    Equity Fund Sponsorship;
     o    Advisory Services; and
     o    Credit Intermediation.

TAX CREDIT FUND SPONSORSHIP
---------------------------

We conduct our tax credit fund  sponsorship  activities  through our  CharterMac
Capital LLC ("CharterMac Capital") subsidiary.


                                       6
<PAGE>



CharterMac  Capital is one of the nation's  largest sponsors of LIHTC investment
funds, having raised nearly $8.1 billion in equity from institutional and retail
investors.  As a sponsor of over 130 public and private  real estate  investment
programs, CharterMac Capital has provided financing for over 1,300 properties in
46 states, Puerto Rico and the District of Columbia.

In  a  typical  LIHTC  investment  fund,  investors  acquire  a  direct  limited
partnership interest in an "upper-tier" investment  partnership.  The investment
partnership,  in turn,  invests as a limited partner in one or more "lower-tier"
operating  partnerships which own and operate  multifamily  properties.  Limited
partners in the upper-tier  partnerships are most often corporations,  which are
able to  utilize  the tax  benefits  associated  with the LIHTC  granted  to the
lower-tier  partnership  and usually  derive limited  economic  benefit from the
investment  other than  these  expected  tax  credits  and tax  losses  from the
lower-tier  partnership's  operation  of  the  properties.  In  some  cases,  in
conjunction with the disposition of the funds' investments, the limited partners
may receive an additional return.

We often  borrow  cash from our credit  facility  lender to  acquire  lower-tier
partnership investments. This arrangement enables us to obtain and hold suitable
investments for a fund until it has admitted  investors and obtained  investment
capital. As a result, we are better able to provide investment  opportunities to
the  funds we  sponsor  when  investment  capital  is  available.  When we admit
investors to a fund, the fund  simultaneously  (in most cases) pays us an amount
sufficient to enable us to repay the monies we borrowed,  and the fund is either
admitted as a limited  partner of the  lower-tier  operating  partnership in our
place or the credit facility lender releases its lien on the fund's assets.

Tax credit fund sponsorship generates income and cash flow predominantly from:

     o    organization  and offering fees we earn in connection with the capital
          raising and sponsorship of investment programs,  which we receive upon
          the closing of a fund;
     o    fees  associated  with  acquisition  activity of each fund we sponsor,
          which we receive at the time of the acquisition; and
     o    partnership  management  and asset  management  fees  associated  with
          ongoing  administration  of  investment  programs we advise,  which we
          receive  either  at the  time a fund  closes  or over  several  years,
          depending upon the terms of the partnership agreements.

HIGH YIELD CMBS FUND SPONSORSHIP
--------------------------------

We conduct our high yield CMBS fund sponsorship  activities  through ARCap which
we wholly  acquired in August  2006.  ARCap  serves as managing  member for four
funds which invest in high yield real estate instruments ("CMBS Partnerships").

CMBS are publicly and privately traded bond issues backed by pools of commercial
real estate  mortgages.  These  securities  are rated by  nationally  recognized
rating agencies such as Fitch Ratings Ltd. ("Fitch"),  Standard & Poor's ("S&P")
and Moody's Investor Services ("Moody's"). The senior tranche of a bond issue is
the highest rated security,  typically "AAA" while more junior tranches  receive
lower  ratings  down to the most junior  class  which is not rated.  "High yield
CMBS"  is the  component  of  CMBS  issues  rated  "BB+"  and  lower  (including
non-rated)  tranches.  The  purchase  of  high  yield  CMBS  is  similar  to the
acquisition of real estate equity  investments in that there is a heavy emphasis
on the  performance  and expected cash flows of the real estate.  In the case of
high yield CMBS, a CMBS offering  includes  hundreds of individual loans secured
by hundreds of discrete real estate  projects.  Our funds provide access to this
market to investors without requiring the investors to incur the cost to develop
the infrastructure and personnel needed to make knowledgeable investments in the
high yield CMBS market.

High yield CMBS fund sponsorship  generates  income and cash flow  predominantly
from:

     o    participating income from our equity interest in the funds; and
     o    promotes we earn, based on certain events in the fund life-cycle.

DIRECT LOAN FUND SPONSORSHIP
----------------------------

We own 5% of ARESS and we manage its operations.  ARESS commenced  operations in
May 2006 and our management and partial ownership commenced upon our acquisition
of ARCap.


                                       7
<PAGE>



ARESS  invests in bridge loans  secured by first  mortgages for the refinance of
commercial  properties  with  existing  loans,  subordinate  interests  in first
mortgages  ("B-notes")  and  subordinate  loans  secured  by  interests  in  the
borrowing entity  ("mezzanine  loans").  Bridge loans are typically  utilized to
provide financing to a borrower who intends to reposition its property,  whether
through  rehabilitation  or preparation for sale.  These loans typically carry a
variable  rate of  interest,  although  fixed rate  bridge  loans may be made in
certain circumstances. The spread will vary depending upon the market, the risk,
the  borrower  and the  security.  B-notes  and  mezzanine  loans  are a growing
component of real estate capitalization and access to them on the open market is
extremely competitive.

Direct Loan fund sponsorship generates income and cash flow predominantly from:

     o    participating  income we earn from our equity  interest  in the funds;
          and
     o    promotes we earn, based on certain events in the fund life-cycle.

EQUITY FUND SPONSORSHIP
-----------------------

CUC is an  investment  fund with CalPERS as the majority  investor,  focusing on
investments  in multifamily  properties in major urban  markets.  Our membership
interest in CUC includes a co-investment obligation amounting to 2.5% of capital
invested. As of December 31, 2006, CUC had $121.9 million in assets.

Our investment in and management of the CUC fund generates  income and cash flow
predominantly from asset management fees and promote income.

ADVISORY SERVICES
-----------------

CharterMac Capital and its subsidiaries provide management and advisory services
to the parent trust and other subsidiaries of CharterMac, as well as to AMAC.

Providing services to CharterMac subsidiaries generates income and cash flows in
this segment from:

     o    fees  associated  with  asset  management  services  provided  to  the
          Portfolio  Investing  segment with regard to the investments it holds;
          and
     o    fees  associated  with the  origination  of certain  mortgages  by our
          Mortgage Banking segment.

While these fees are eliminated in consolidation,  our segment results presented
elsewhere  in this  document  reflect  these  fees as earned  (see  MANAGEMENT'S
DISCUSSION  AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF  OPERATIONS  and
Note 20 to the consolidated financial statements).

AMAC  is a  publicly  traded  real  estate  investment  trust  that  focuses  on
originating  and acquiring  mortgage loans secured by multifamily and commercial
properties  throughout  the  United  States.  AMAC  also  invests  in  uninsured
mezzanine  loans,   construction  loans,  first  mortgage  loans,   subordinated
interests in first  mortgage  loans and bridge  loans.  As of December 31, 2006,
AMAC  had  $721.0  million  in  assets  and a  total  market  capitalization  of
approximately $140.8 million.

Providing management to AMAC generates income and cash flow predominantly from:

     o    acquisition fees paid by the borrowers upon the closing of a loan that
          we originate for AMAC;
     o    management fees based on shareholders' equity; and
     o    incentive  management fees received  annually if AMAC achieves certain
          earnings and distribution benchmarks.

CREDIT INTERMEDIATION
---------------------

We  conduct  our  credit   intermediation   activities   primarily  through  our
Centerbrook  Holdings LLC ("Centerbrook")  subsidiary which commenced operations
in June 2006 and through our Charter Mac Corporation ("CM Corp.") subsidiary. We
own 90% of Centerbrook and IXIS Capital Markets North America Inc. ("IXIS"),  an
unrelated  party,  owns the  remainder.  IXIS has been  issued  warrants  which,
generally, may be exercised beginning June 2009 and if exercised, would increase
IXIS' ownership percentage to 19%.


                                       8
<PAGE>



What we refer to as "credit intermediation" falls into several categories:

     o    using  credit  default  swaps to support  the  credit of the  mortgage
          revenue bonds in our securitization programs;
     o    using  credit  default  swaps to  provide a  specified  rate of return
          during the life of an LIHTC fund we sponsor. These transactions may be
          for the  construction  period  or the  operation  period  of a pool of
          properties,   or  for  the  combined   periods.   These   transactions
          historically have involved supporting  obligations of a primary credit
          support provider;
     o    supporting  a  developer's  credit  during  the  construction   and/or
          lease-up phase of a property; and
     o    supporting a  developer's  credit  following  the  stabilization  of a
          property for the operational period.

While  historically  CM Corp.  has  supported the  commitments  of a third-party
primary  intermediator,  we expect  that  Centerbrook  may  fulfill  the primary
intermediator role in future transactions.

Centerbrook's total volume of credit intermediation activity since its inception
in June 2006 totals approximately $1.1 billion, predominantly in connection with
securitizations  in the Portfolio  Investing  segment.  While  Centerbrook  will
initially be involved in credit  intermediation  for  transactions  in which our
subsidiaries are involved,  it will also seek to provide these services to third
party customers.

Upon its  launch,  Centerbrook  was  capitalized  with equity by us and IXIS and
entered  into a senior debt  facility and a mezzanine  debt  facility to provide
capital to support its business lines.

This segment generates income and cash flows from credit intermediation fees and
from interest income on cash invested.  Credit intermediation fees are generally
recognized over the applicable risk-weighted periods.

3. MORTGAGE BANKING

Our Mortgage Banking activities include the following:

     o    originating mortgage loans; and
     o    servicing mortgage loans we originate and loans for third parties.

ORIGINATIONS
------------

We conduct our mortgage  origination  activity  primarily through our subsidiary
CharterMac  Mortgage  Capital Corp.  ("CMC"),  a  full-service,  direct mortgage
banking firm specializing in originating,  underwriting,  and servicing mortgage
loans for multifamily and commercial properties nationwide. CMC also manages the
operations of another  subsidiary,  CharterMac  Mortgage  Partners  Corporation,
which  originates  and  services  certain  Freddie  Mac loans.  Throughout  this
document, we will refer to "CMC" as encompassing our entire mortgage origination
operations.

Our mortgage originations operations include:

     o    closing and delivering  multifamily  mortgages to Fannie Mae under its
          Delegated  Underwriter  and  Servicer  ("DUS")  program.   Fannie  Mae
          delegates the  responsibility for originating,  underwriting,  closing
          and delivering  multifamily mortgage loans to the DUS lenders. In most
          cases,  the DUS lenders  share the risk of loss on the mortgage  loans
          with Fannie Mae.  Under the DUS program,  upon  obtaining a commitment
          from Fannie Mae with regard to a particular  loan,  Fannie Mae commits
          to  acquire  or credit  enhance  the  mortgage  loan  based upon CMC's
          underwriting,  and (in the case of loss  sharing  loans) CMC agrees to
          bear a  portion  of the risk of  potential  losses  in the  event of a
          default.  Fannie Mae  commitments may be made to acquire and/or credit
          enhance  the  mortgage  loan  from CMC for cash or in  exchange  for a
          mortgage-backed security backed by the mortgage loan;
     o    closing and delivering  multifamily mortgages to Freddie Mac under the
          Freddie Mac Program Plus ("Program  Plus") and Delegated  Underwriting
          Initiative  ("DUI")  programs.  These  programs are similar to the DUS
          program, although Program Plus does not involve loss sharing;
     o    originating mortgages for AMAC and ARESS;
     o    acting as an approved seller for Ginnie Mae;


                                       9
<PAGE>



     o    originating loans as a leading  commercial loan correspondent for Wall
          Street conduits and life insurance companies; and
     o    acting as an approved loan processor for the FHA.

Mortgage  loans we  originate  for  Fannie  Mae,  Freddie  Mac or Ginnie Mae are
generally  closed in CMC's name,  using cash borrowed  from a warehouse  lender.
Following  closing  of a loan,  the loan  documentation  and an  assignment  are
delivered to the mortgagor,  or a document custodian on its behalf, and the cash
purchase  price or  mortgage-backed  security is delivered to us. This may occur
from one week to three months following the closing of the loan. We use the cash
received to repay the warehouse loans or we sell the mortgage-backed  securities
for cash pursuant to prior  agreements  and use that cash to repay the warehouse
loans.  We do not retain any  interest in any of the  mortgage  loans except for
mortgage servicing rights ("MSRs") and certain contingent  liabilities under the
loss-sharing arrangements with Fannie Mae and Freddie Mac.

SERVICING
---------

We service many of the loans we originate and  sub-service  loans  originated by
other firms. We also provide primary and interim loan servicing to third parties
and serve as the named special servicer on CMBS  securitizations in which either
ARCap, or the funds ARCap manages, invest.

Our mortgage  banking  activities  generate  income and cash flow  predominantly
from:

     o    origination fees;
     o    assumption and modification fees;
     o    ongoing  fees for  servicing a majority of the loans we  originate  as
          well as other loans that we sub-service. Servicing fees include a loss
          sharing  premium for loans  originated  for Fannie Mae (and in certain
          cases, Freddie Mac);
     o    liquidation fees;
     o    prepayment penalties, generally associated with refinancing; and
     o    interest earned on amounts held in escrow.

4. CONSOLIDATED PARTNERSHIPS

In accordance with accounting rules regarding consolidation,  we consolidate the
balance  sheets and  operations  of  numerous  funds  that we sponsor  and other
partnerships that we manage.

Consolidated Partnerships consist of four 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");
     o    CMBS Partnerships we sponsor, which we initially consolidated upon the
          ARCap acquisition in August 2006; and
     o    a Direct Loan Partnership we manage and consolidate (ARESS),  which we
          initially consolidated following our acquisition of ARCap.

While  we  have  little  or  no  equity  interest  in  the  LIHTC  and  Property
Partnerships,  we control them for reasons  associated with our role in managing
them and the nominal equity interests of our executive officers. With respect to
the CMBS and Direct Loan  Partnerships,  we do own minority  interest of varying
degrees,  but all less  than  25%.  While  our  Fund  Management  and  Portfolio
Investing  segments  earn fees or interest  from  certain of these  consolidated
partnerships, we consider the partnerships as a separate business for management
purposes.

The high yield CMBS funds finance their investments through equity contributions
from their  investors,  and from proceeds from repurchase  facility  agreements.
Once the high yield CMBS funds  accumulate  investments of  appropriate  number,
size and  diversity,  the  repurchase  agreement  financing is replaced with CDO
financing, which provides long-term nonrecourse, matched term funding secured by
the CMBS investments.

ARESS finances its investments  through equity  contributions  from its members,
and from proceeds under repurchase facility  agreements.  ARESS also maintains a
subscription  line credit  facility,  which is  collateralized  by the remaining


                                       10
<PAGE>



uncalled  capital  commitments  of its  members  and  may  be  used  to  acquire
investments or for general working capital purposes.

For a  more  detailed  discussion,  see  Note 1 to  the  consolidated  financial
statements.

Competition
-----------

We face  increasing  levels of competition  both in terms of new competitors and
new competing products. From time to time, we may be in competition with private
investors,  investment banks, mortgage banking companies,  lending institutions,
Government  Sponsored  Enterprises  ("GSEs") such as Fannie Mae and Freddie Mac,
mutual  funds,  domestic  and  foreign  credit  intermediators,  bond  insurers,
investment  partnerships  and other  entities with  objectives  similar to ours.
Although  we  operate  in a  competitive  environment,  competitors  focused  on
providing all of our custom-designed programs are relatively few. Specifically:

     o    our Portfolio  Investing  business  competes  directly with commercial
          banks,  GSEs,  real estate  finance  companies  and others  seeking to
          invest in tax-exempt mortgage revenue bonds;
     o    our Fund Management  business competes directly with others seeking to
          raise  capital for tax  advantaged  funds,  some of which offer credit
          intermediation  for their funds.  We also  compete  with  regional and
          national  banks that directly  acquire LIHTC  investments,  high yield
          CMBS debt  instruments  and joint venture equity as well as with other
          real estate fund management companies;
     o    our Mortgage Banking business is in competition with 24 other licensed
          DUS lenders which originate  multifamily mortgages on behalf of Fannie
          Mae, 30 other Freddie Mac Program Plus lenders,  four other  companies
          that participate in the DUI program as well as numerous banks, finance
          companies  and others  that  originate  mortgages  for  investment  or
          resale; and
     o    our credit  intermediation  business is in competition with investment
          banks, insurance companies and other credit intermediation companies.

Some of these competitors have  substantially  greater financial and operational
resources than we do. In addition,  affiliates of some of our managing  trustees
have formed,  and may continue to form, various entities to engage in businesses
that may be  competitive  with us,  but,  at this  time,  there is no other such
business that has all of our real estate  financing and investing  products (see
RISKS RELATED TO INVESTING IN OUR COMPANY in Item 1A below). However, we feel we
can effectively compete due to:

     o    our on-going relationships with developers and other users of capital;
     o    our unified product platform; and
     o    our efforts to continually  develop new products that will  complement
          our existing  diversified  real estate finance and investment  product
          offerings.

Financing and Equity
--------------------

As noted in the segment  descriptions  above, we typically fund the expansion of
our  business  through  a  combination  of  operating  cash  flows,   short-term
borrowings,  securitizations,  repurchase  agreements,  long-term borrowings and
equity issuances. These funding vehicles are described in detail in MANAGEMENT'S
DISCUSSION AND ANALYSIS - LIQUIDITY AND CAPITAL  RESOURCES and in Notes 8, 9, 13
and 14 to our consolidated financial statements.

Tax Matters
-----------

We are a Delaware  statutory  trust and a significant  portion of our revenue is
non-taxable. Further, for federal income tax purposes, the parent trust and many
of our  subsidiaries  (including  all that  constitute  our Portfolio  Investing
segment) are treated as  partnerships  that are not subject to income taxes.  We
pass  through  our  income,   including  federally  tax-exempt  income,  to  our
shareholders for inclusion in their tax returns. We derive a substantial portion
of our income from  ownership of first  mortgage  multifamily  housing  "Private
Activity  Bonds." The interest from these bonds is generally exempt from regular
federal income tax. However,  the Tax Reform Act of 1986 classified this type of
interest for bonds issued after  August 7, 1986,  as a tax  preference  item for
individual  and  corporate   alternative  minimum  tax  ("AMT")  purposes.   The
percentage of our tax-exempt  interest  income subject to AMT was  approximately
94% for the year ended  December 31, 2006,  compared to 93% in 2005 and 2004. We
expect the  percentage to increase over time as older pre-AMT  mortgage  revenue
bonds are  repaid.  As a result of AMT,  the  percentage  of our income  that is
exempt from federal income tax may be different for each shareholder.


                                       11
<PAGE>



Through CM Corp. and its subsidiaries,  which  collectively  operate much of our
Fund  Management  and all of our Mortgage  Banking  businesses,  we also conduct
businesses  that  generate  income for which we pay income  taxes.  In addition,
through  ARCap and its  subsidiaries  we generate  income that is taxable to our
shareholders,  since such income is included in income of the parent trust. That
income is passed through to our shareholders, as noted above.

Governance
----------

We are governed by a board of trustees  comprised of thirteen managing trustees,
seven of whom are independent. Our board of trustees has five committees:

     (1)  Audit;
     (2)  Compensation;
     (3)  Nominating/Governance;
     (4)  Capital Markets; and
     (5)  Investment.

In accordance with New York Stock Exchange guidelines,  the Audit,  Compensation
and Nominating/Governance committees consist entirely of independent trustees.

Employees
---------

Our subsidiaries had  approximately  500 employees at December 31, 2006, none of
whom were parties to any collective bargaining agreement.

Regulatory Matters
------------------

Our  Mortgage   Banking   business  is  subject  to  various   governmental  and
quasi-governmental  regulations.  As noted above, CMC is licensed or approved to
service and/or  originate and sell mortgage loans under Fannie Mae, Freddie Mac,
Ginnie Mae and FHA  programs.  FHA and Ginnie Mae are  agencies  of the  Federal
government  and  Fannie  Mae  and  Freddie  Mac are  federally-chartered  public
corporations.  These agencies  require CMC to meet minimum net worth and capital
requirements  and to comply with other  reporting  requirements.  Mortgage loans
made under these  programs are also required to meet the  requirements  of these
programs. In addition,  under Fannie Mae's DUS program, CMC has the authority to
originate loans without a prior review by Fannie Mae and is required to share in
the losses on loans originated  under this program.  If CMC fails to comply with
the  requirements  of these  programs,  the agency can  terminate its license or
approval. In addition, Fannie Mae and Freddie Mac have the authority under their
guidelines  to terminate a lender's  authority to  originate  and service  their
loans  for any  reason.  If CMC's  authority  is  terminated  under any of these
programs,  it would prevent CMC from  originating or servicing  loans under that
program.  As a condition for receiving  Fannie Mae and Freddie Mac's approval of
our  acquisitions of the businesses  comprising the Mortgage  Banking segment we
are required to guarantee such business' obligations under these programs.

ITEM 1A. RISK FACTORS.

As with any business,  we face a number of risks.  If any of the following risks
occur, our business,  prospects,  results of operations and financial  condition
would likely suffer. We have grouped these risk factors into several categories,
as follows:

     1.   General Risks Related to Our Business
     2.   Risks Related to Our Portfolio Investing Business
     3.   Risks Related to Our Fund Management Business
     4.   Risks Related to Our Mortgage Banking Business
     5.   Risks Related to Application of Tax Laws
     6.   Risks Related to Investing in Our Company


                                       12
<PAGE>



1. GENERAL RISKS RELATED TO OUR BUSINESS

THERE ARE RISKS ASSOCIATED WITH THE PROPERTIES UNDERLYING OUR FINANCING PRODUCTS
AND INVESTMENTS THAT COULD ADVERSELY AFFECT OUR NET INCOME AND CASH FLOWS

Through our subsidiaries, we derive a large portion of our earnings by:

     o    investing in mortgage revenue bonds;
     o    sponsoring funds that provide equity to LIHTC properties;
     o    sponsoring  funds that originate or acquire direct  mortgage loans and
          high yield CMBS or joint venture equity; and
     o    originating and servicing mortgages.

With respect to  affordable  housing  properties,  in many cases we are both the
sponsor of the fund and the holder of the debt secured by the property  which is
indirectly  owned by the fund. In addition,  we also support credit on behalf of
developers,  provide  specified  investment  returns to the investors in certain
equity  funds we sponsor  and issue other  credit  support  associated  with the
performance of a property.

Our  success  depends  in  large  part  on the  performance  of  the  properties
underlying our financing and investing products and,  therefore,  subjects us to
various types and degrees of risk, including the following:

     o    the property securing our debt might not generate sufficient income to
          meet its operating expenses and payments on its related debt;
     o    local,  regional or national economic  conditions may limit the amount
          of rent that can be charged for rental units at the properties and may
          result in a  reduction  in rent  payments  or the  timeliness  of rent
          payments or a reduction in occupancy levels;
     o    federal LIHTCs and local, state and federal housing subsidy or similar
          programs which apply to many of the properties impose rent limitations
          that could adversely  affect the ability to increase rents to generate
          the funds  necessary to maintain the  properties in proper  condition,
          which is particularly  important  during periods of rapid inflation or
          declining market value of such properties;
     o    if a bond or other  investment  defaults,  the  value of the  property
          securing  such  investment  (plus,  for  properties  that have availed
          themselves of the federal  LIHTC,  the remaining  value of such LIHTC)
          may be less than the unamortized principal amount of the investment;
     o    there are certain types of losses (generally of a catastrophic nature,
          such as earthquakes,  floods,  terrorism, wars and toxic mold or other
          environmental   conditions)  which  are  either   uninsurable  or  not
          economically insurable;
     o    under various laws,  ordinances and regulations,  an owner or operator
          of real estate is liable for damages caused by or the costs of removal
          or remediation of certain  hazardous or toxic substances  released on,
          above, under or in such real estate. These laws often impose liability
          whether or not the owner knew of, or was responsible for, the presence
          of such hazardous or toxic  substances.  As a result,  the entities we
          sponsor  which own real  estate,  and the  owners  of the real  estate
          securing our investments, could be required to pay for such damages or
          removal or remediation costs; and
     o    a guarantor may be unable to fulfill its obligations.

All of these  conditions  and events may increase the  possibility  that,  among
other things:

     o    a property owner may be unable to meet its obligations to us as holder
          of its debt;
     o    a  property  owner  may  default  on a  mortgage  for  which we have a
          loss-sharing obligation;
     o    a fund may not be able to pay our fees;
     o    a fund may not generate  the return that we have  committed to provide
          and we may be called upon to satisfy the promised return;
     o    our promotes from fund  management  may be subject to recapture if the
          funds do not reach overall investment hurdles; and
     o    we could lose our invested capital and/or anticipated future revenue.

This could decrease the fair value of our  investments,  lower the fair value of
assets we pledge as collateral,  impair our ability to generate new business and
affect our net income and cash flows.


                                       13
<PAGE>



WE MAY SUFFER ADVERSE CONSEQUENCES FROM CHANGING INTEREST RATES

Because a large  portion of the debt we owe is  variable  rate,  an  increase in
interest  rates  could  negatively   affect  our  net  income  and  cash  flows.
Additionally, increasing interest rates may:

     o    reduce the fair value of our  investments or the  investments of funds
          we  manage,  including  our  fixed-rate  mortgage  revenue  bonds  and
          residual interests in securitization transactions;
     o    decrease the amount we could realize on the sale or financing of those
          investments;
     o    reduce the income and promotes from funds that we manage;
     o    result  in  a  reduction  in  the  number  of  properties   which  are
          economically feasible to finance;
     o    reduce the demand for  financing,  which  could  limit our  ability to
          invest in mortgage revenue bonds or to structure transactions, thereby
          reducing fees and interest we receive;
     o    increase our borrowing costs;
     o    restrict our access to capital;
     o    cause  investors  to  find  alternative   investments  that  are  more
          attractive than the equity funds we sponsor; and
     o    adversely  affect the amount of cash  available  for  distribution  to
          shareholders.

Since a  significant  portion  of our  investments  are  residual  interests  in
mortgage  revenue bonds or other securities whose cash flow is first used to pay
senior  securities with  short-term  floating  interest  rates,  any increase in
short-term  interest  rates will  increase  the amount of  interest  paid on the
senior  securities  and  reduce  the net cash  flow in our  Portfolio  Investing
business.

Conversely,  a decrease in interest rates may lead to the refinancing of some of
the debt we own if lockout  periods  have ended.  We may not be able to reinvest
the  proceeds of any such  refinancing  at the same  interest  rates as the debt
refinanced.  Additionally,  falling interest rates may prompt historical renters
to become  homebuyers,  in turn potentially  reducing the demand for multifamily
rental  housing.  Further,  a portion of our net income is generated by interest
income we earn on mortgage escrow deposits.  If interest rates were to decrease,
our net income in the Mortgage Banking segment would decrease as well.

Furthermore,  strategies  we may follow to address  these  risks  carry risks of
their own, including, but not limited to:

     o    the potential inability to refinance  variable-rate debt at terms that
          we find acceptable;
     o    alternate  sources of fixed rate or lower  cost  financing  may not be
          available to us;
     o    the risk that interest rate swap  counterparties  may default on their
          obligations to us;
     o    we may not be able to match the  duration  or reset  periods of assets
          and  liabilities  that we want to  alleviate  the  effect of  changing
          rates; and
     o    other efforts to manage risks related to changes in interest rates may
          not be successful.

If a change in  interest  rates  causes the  consequences  described  above,  or
otherwise  negatively  affects us, the result could adversely affect our ability
to generate net income or cash flows to make distributions and other payments in
respect of our shares.

THE  INABILITY TO MAINTAIN OUR RECURRING  FEE  ARRANGEMENTS  AND TO GENERATE NEW
TRANSACTION FEES COULD HAVE A NEGATIVE IMPACT ON OUR NET INCOME AND CASH FLOWS

Two revenue  sources in our Fund  Management  segment are the  transaction  fees
generated by our  sponsorship  of new  investment  programs and  recurring  fees
payable  by  existing  and  future  programs.  Transaction  fees  are  generally
"up-front" fees that are generated:

     o    by the sponsorship of new investment programs; and
     o    upon investment of the capital raised in an investment program.

Recurring fees are generated by the ongoing operation of investment  programs we
sponsor,  some of which have finite  lives.  The  termination  of one or more of
these recurring fee arrangements, or the inability to sponsor new programs which
will generate new recurring and  transaction  fees,  would reduce net income and
cash flows.  There can be no assurance that existing  recurring fee arrangements
will not be reduced or  terminated  or that we will be able to realize  revenues
from new investment programs.


                                       14
<PAGE>



Likewise, the two principal revenue streams in our Mortgage Banking business are
fees we earn for originating loans and ongoing fees we earn for servicing loans.
A decline  in  origination  volume  or the loss or  termination  of a  servicing
arrangement  could  adversely  affect our results of  operations  and reduce net
income and cash flows.  There can be no assurance  that  existing  recurring fee
arrangements  will  not be  reduced  or  terminated  or  that we will be able to
realize revenues from new business.

WE RELY UPON  RELATIONSHIPS  WITH KEY  INVESTORS  AND  DEVELOPERS  WHICH MAY NOT
CONTINUE

We  rely  upon  relationships  with  key  investors  and  developers.  If  these
relationships  do not continue,  or if we are unable to form new  relationships,
our ability to generate  revenue will be adversely  affected.  In 2006, five key
investors  provided  approximately  76.6% of the  equity  capital  raised by tax
credit  syndication  programs  we  sponsored,  with  Fannie Mae and  Freddie Mac
together providing  approximately 32.4% of the equity capital. In addition,  ten
key developers provided approximately 45.5% of the LIHTC properties for which we
arranged equity financing in 2006. Further,  Fannie Mae and Freddie Mac were the
purchasers of 58.5% of the loans  originated by our Mortgage Banking business in
2006, while AMAC was the purchaser of 34.7% of the loans it originated.

There can be no assurance  that we will be able to continue to do business  with
these key investors and  developers  or that new  relationships  will be formed.
Developers  may also  experience  financial  difficulties  that would,  in turn,
reduce the amount of business we transact with them. If developers were to fail,
it could also lead to some of the adverse  consequences  listed under the "THERE
ARE RISKS ASSOCIATED WITH THE PROPERTIES  UNDERLYING OUR FINANCING  PRODUCTS AND
INVESTMENTS  THAT COULD ADVERSELY  AFFECT OUR NET INCOME AND CASH FLOWS" section
above.

We also rely upon  relationships  with  providers of products in which we invest
(e.g.  CMBS) and  investors  who  invest in the funds  which we  manage.  If our
relationships  with  CMBS  issuers,  Wall  Street  firms,  banks  and  insurance
companies who create and sell high yield debt  products  were to  terminate,  we
might not be able to obtain  product for our own balance sheet or funds which we
manage.

By reason of their  regulated  status,  certain of our investors have regulatory
incentives  to invest in our  sponsored  investment  programs in addition to the
economic return from such investments. A change in such regulations could result
in determinations by such investors to seek other investment opportunities.

REVENUES FROM OUR FEE-GENERATING ACTIVITIES AND OTHER INCOME FROM CERTAIN OF OUR
FINANCING  AND  INVESTING  PRODUCTS  ARE LESS  PREDICTABLE  THAN  THOSE FROM OUR
MORTGAGE  REVENUE BOND  INVESTMENTS AND COULD RESULT IN A DECREASE IN NET INCOME
AND CASH FLOWS,  FLUCTUATIONS  IN OUR SHARE PRICE AND A REDUCTION IN THE PORTION
OF OUR INCOME THAT IS TAX-EXEMPT

In 2006,  approximately  21.7% of the revenue we  recognized in our statement of
income was derived from  fee-generating  service  activities through our taxable
subsidiaries. Fee-generating businesses are inherently less predictable than the
ownership of mortgage  revenue  bonds,  and there can be no  assurance  that the
fee-generating  activities will be profitable.  Additionally,  in 2006, 32.0% of
our income  before  income taxes was  generated by equity  income we earned from
funds we sponsor through ARCap. A significant portion of equity income we expect
to  generate  from  these  funds is based on  "promotes"  that we earn,  and the
occurrence of events that would trigger such earnings is not in our control.  In
addition,  the net  income  and cash  flows  generated  by our  Fund  Management
business  has  historically  fluctuated  between  quarters  due to  the  typical
variability in the timing of fund  sponsorships  and  investments  made by those
funds as well as  promotes  we earn from  certain  of those  investments.  These
fluctuations could be perceived negatively and, therefore,  adversely affect our
share  price.  Refer to Note 19 to our  consolidated  financial  statements  for
quarterly financial information.

In addition,  the portion of our  distributions  that is  excludable  from gross
income for federal  income tax purposes  could decrease based on the size of our
future taxable business.  Our taxable  subsidiaries do not currently  distribute
dividend income to the parent trust but rather reinvest it in their  businesses.
If we invest in a larger  percentage of taxable  investments,  or if our taxable
subsidiaries were to distribute  dividend income to the parent trust, the result
would likely be that the taxable  portion of our overall income would  increase.
Also,  the  CMBS  fund  sponsorship  portion  of our  Fund  Management  business
generates income, most of which is taxable, and that income is passed through to
the parent trust. As that business  continues to grow, the percentage of our net
income  distributed to  shareholders  that is federally  tax-exempt  will likely
decrease.


                                       15
<PAGE>



HEIGHTENED COMPETITION MAY ERODE OUR EARNINGS

We are subject to competition in all of our business lines, as described in Item
1. -  BUSINESS  -  COMPETITION.  As  competition  increases,  we may  experience
compression  in the level of  profits  we earn on our  various  investments  and
financing products due to, among other things:

     o    Reductions in the rate of interest we earn on mortgage revenue bonds;
     o    Reductions  in  the  rates  of  origination  and  servicing  fees  for
          mortgages;
     o    Reductions in the rate of fees we earn from  originating  and managing
          funds; and
     o    Lower  levels of  discounts  at which  high-yield  investments  may be
          purchased.

As we often borrow funds to make investments, rising interest rates may compound
this issue. Absent cost reductions,  such compression may not permit us to enjoy
the margins we have achieved historically, thereby lowering our revenues and net
income.

THE ATTRACTIVENESS OF REAL ESTATE AS AN INVESTMENT MAY DECLINE

Real estate underlies all of our business lines, whether by direct investment or
by virtue of sponsoring funds that are associated with real estate.  While often
viewed  as an  attractive  investment  sector,  there is no  guarantee  that the
investors  in the  funds  we  sponsor  will  continue  to  allocate  capital  to
investments  associated  with real estate.  Should there be a general decline in
capital invested in the sector, our ability to sponsor funds would be diminished
and the income we earn from these activities would decline.

2. RISKS RELATED TO OUR PORTFOLIO INVESTING BUSINESS

WE HAVE NO RECOURSE  AGAINST STATE OR LOCAL  GOVERNMENTS OR PROPERTY OWNERS UPON
DEFAULT OF OUR  MORTGAGE  REVENUE  BONDS OR UPON THE  BANKRUPTCY  OF AN OWNER OF
PROPERTIES SECURING OUR MORTGAGE REVENUE BONDS

Although state or local  governments or their agencies or authorities  issue the
mortgage  revenue bonds we purchase,  the mortgage revenue bonds are not general
obligations of any state or local  government.  No  government,  as an issuer of
these bonds,  is liable to make payments on the mortgage  revenue bonds,  nor is
the taxing  power of any  government  pledged  for the payment of  principal  or
interest on the mortgage revenue bonds. An assignment by the issuing  government
agency or authority of the mortgage loan in favor of a bond trustee on behalf of
us, or in some cases,  an assignment  directly to the  bondholder,  secures each
mortgage revenue bond we own. The mortgage loan is also secured by an assignment
of rents. Following the time that the properties securing the mortgage loans are
placed into service and achieve stabilized  occupancy,  the underlying  mortgage
loans are  non-recourse  to the property  owner,  other than customary  recourse
carve-outs   for  bad  acts,   such  as  fraud  and   breach  of   environmental
representations  and  covenants.  Accordingly,  the  revenue  derived  from  the
operation of the properties  securing the mortgage revenue bonds that we own and
amounts  derived  from  the  sale,  refinancing  or  other  disposition  of  the
properties  are the sole sources of funds for payment of principal  and interest
on the mortgage revenue bonds.

Our  revenue  may  be  adversely  affected  by the  bankruptcy  of an  owner  of
properties  securing the mortgage  revenue  bonds that we directly or indirectly
own. An owner of properties under bankruptcy  protection may be able forcibly to
restructure its debt service  payments and stop making debt service  payments to
us,  temporarily  or  otherwise.  Our rights in this  event  would be defined by
applicable law.

WE ARE SUBJECT TO CONSTRUCTION  COMPLETION AND  REHABILITATION  RISKS THAT COULD
ADVERSELY AFFECT OUR EARNINGS

As of December 31, 2006,  mortgage revenue bonds with an aggregate fair value of
approximately  $277.5  million were secured by  affordable  multifamily  housing
properties  which  are still in  various  stages of  construction  and  mortgage
revenue bonds with an aggregate fair value of approximately  $488.6 million were
secured  by  affordable  multifamily  housing  properties  which are  undergoing
substantial  rehabilitation.  Construction and/or substantial  rehabilitation of
such properties  generally lasts  approximately  12 to 24 months.  The principal
risk  associated  with this type of  lending  is the risk of  non-completion  of
construction or rehabilitation which may arise as a result of:

     o    underestimated construction or rehabilitation costs;
     o    delays;
     o    failure to obtain governmental approvals; and


                                       16
<PAGE>



     o    adverse  weather  and other  unpredictable  contingencies  beyond  the
          control of the developer.

If construction  and/or  rehabilitation of a property is not timely completed as
required  in the  mortgage  loan  documents,  we, as the holder of the  mortgage
revenue bonds secured by such mortgage,  may incur certain costs and be required
to invest additional capital in order to preserve our investment.

THE  PROPERTIES  SECURING  CERTAIN  OF OUR  MORTGAGE  REVENUE  BONDS,  WHICH ARE
CURRENTLY IN CONSTRUCTION,  LEASE-UP OR  REHABILITATION  STAGES,  MAY EXPERIENCE
FINANCIAL  DISTRESS  IF THEY DO NOT MEET  OCCUPANCY  AND DEBT  SERVICE  COVERAGE
LEVELS SUFFICIENT TO STABILIZE SUCH PROPERTIES,  NEGATIVELY AFFECTING OUR ASSETS
AND EARNINGS

As of December 31, 2006,  mortgage  revenue bonds in our  portfolio  with a fair
value of  approximately  $1.6 billion were secured by mortgages on properties in
construction,   lease-up  or  rehabilitation   stages.  The  lease-up  of  these
underlying  properties may not be completed on schedule or at  anticipated  rent
levels,  resulting  in a greater  risk that they may go into  default than bonds
secured by mortgages on properties  that are fully  leased-up.  Should a bond go
into default,  we may not receive  interest  income,  which would reduce our net
income and cash flows.  Moreover,  there can be no assurance that the underlying
property will achieve expected occupancy or debt service coverage levels.

CERTAIN OF OUR MORTGAGE  REVENUE  BONDS WE AND OUR  SUBSIDIARIES  HOLD HAVE BEEN
PLEDGED

A significant portion of our mortgage revenue bond portfolio has been pledged as
collateral  in connection  with our  securitizations  and credit  intermediation
activities  and we may not have full  access to them  until we exit the  related
programs.  The fair value of the pledged  bonds varies from time to time.  As of
December 31, 2006,  the fair value of all pledged bonds was  approximately  $2.3
billion.

RISK ASSOCIATED WITH  SECURITIZATION  COULD ADVERSELY  AFFECT OUR NET INCOME AND
CASH FLOWS

Through  securitizations,   we  seek  to  enhance  our  overall  return  on  our
investments and to generate  proceeds that,  along with operating cash flows and
equity offering proceeds,  facilitate the acquisition of additional investments.
In our  variable  rate  securitizations,  a bank or  another  type of  financial
institution  provides  liquidity to the  purchasers  of senior  interests in our
mortgage  revenue bonds.  They also provide certain credit  intermediation  with
respect to the underlying revenue bond, which enables the senior interests to be
sold to investors seeking  investments with credit ratings of at least "A" short
term and "AA" long term.  The  liquidity  facilities  are generally for one-year
terms and are renewable annually. If the credit strength of either the liquidity
or credit intermediation  providers deteriorates,  we anticipate that the return
on the residual  interests would decrease,  negatively  affecting our net income
and subsequent executions.  In addition, if we are unable to renew the liquidity
or credit  intermediation  facilities,  we would be  forced to find  alternative
(possibly more expensive)  facilities,  to repurchase the underlying bonds or to
liquidate the underlying bonds and our investment in the residual interests.  If
we were forced to liquidate an investment, we would recognize gains or losses on
the liquidation,  which might be significant depending on market conditions.  As
of December 31, 2006:

     o    Merrill  Lynch  provided   liquidity  for  senior  interests  with  an
          aggregate  amount of $403.4  million  in the  P-FLOATs/RITES  program.
          There is a risk that the  program may not be renewed at the end of its
          current term;
     o    Goldman  Sachs  provided   liquidity  for  senior  interests  with  an
          aggregate   amount   of   $944.8   million   in  the   Goldman   Sachs
          Floats/Residuals  program. There is a risk that the program may not be
          renewed at the end of its current term; and
     o    Primary   credit    intermediation   on   the    P-FLOATs/RITES    and
          Floaters/Residuals programs is generally provided by Centerbrook, with
          IXIS  serving  as  the  secondary  credit  intermediator.  In  certain
          circumstances  Merrill  Lynch or IXIS  are the  primary  or  secondary
          credit intermediator.

OTHER  PARTIES  HAVE THE FIRST RIGHT TO CASH FLOW FROM OUR  SECURITIZED  REVENUE
BOND INVESTMENTS

Because of our  utilization of  securitizations,  our interests in a significant
portion of our mortgage  revenue bond  investments  are  subordinated  or may be
junior in right of payment to other senior securities. There are risks in owning
"junior residual  interests" that could adversely affect our net income and cash
flows, including:


                                       17
<PAGE>



     o    the risk that borrowers may not be able to make payments, resulting in
          us,  as  the  holder  of  the  junior  residual  interests,  receiving
          principal  and  interest  payments  that are less than  expected or no
          payment at all;
     o    the risk  that  short-term  interest  rates  may  rise  significantly,
          increasing  the amounts  payable to the  holders of the  floating-rate
          senior interests created through our  securitizations and reducing the
          amounts payable to us as holder of the junior residual interests; and
     o    the risk that the  holders of the  senior  mortgage  revenue  bonds or
          senior interests may control the ability to enforce remedies, limiting
          our ability to take actions that might protect our interests.

OUR MORTGAGE REVENUE BONDS MAY BE CONSIDERED USURIOUS

State  usury  laws  establish  restrictions,  in certain  circumstances,  on the
maximum rate of interest that may be charged by a lender and impose penalties on
parties making  usurious  loans,  including  monetary  penalties,  forfeiture of
interest  and  unenforceability  of the debt.  There is a risk that our mortgage
revenue  bonds  could be found to be usurious  as a result of  uncertainties  in
determining  the  maximum  legal  rate of  interest  in  certain  jurisdictions,
especially  with respect to mortgage  revenue bonds that bear  participating  or
otherwise contingent interest.  Therefore,  the amount of interest to be charged
and the return on our  mortgage  revenue  bonds  would be limited by state usury
laws and we may have to agree to defer or reduce the amount of interest that can
be paid in any particular year  (potentially to zero).  Some states may prohibit
the  compounding  of interest,  in which case we may have to agree to forego the
compounding feature of our mortgage revenue bonds originated in those states.

OUR INVESTMENTS IN MORTGAGE REVENUE BONDS LACK LIQUIDITY

Our investments in mortgage  revenue bonds lack a regular trading market.  There
is no limitation in our trust agreement or otherwise as to the percentage of our
investments  that may be illiquid and we expect to continue to invest in assets,
substantially  all of which will be illiquid  securities.  If a situation arises
where we require additional cash, we could be forced to liquidate some or all of
our  investments  on  unfavorable  terms (if any sale is  possible)  that  could
substantially reduce the amount of distributions  available and payments made in
respect of our shares.

MORTGAGE  REVENUE  BONDS MAY GO INTO  DEFAULT  FROM TIME TO TIME AND  NEGATIVELY
AFFECT OUR NET INCOME AND CASH FLOWS

Properties  underlying  our  mortgage  revenue  bonds may  experience  financial
difficulties  from time to time,  which  could  cause  certain  of our  mortgage
revenue  bonds to go into  default.  Were that to occur,  we might take remedial
action such as,  among other  things,  entering  into a work-out or  forbearance
agreement  with the owner of the property or exercising  our rights with respect
to  the  collateral   securing  such  mortgage   revenue  bond,   including  the
commencement of mortgage foreclosure proceedings. In addition, in the event that
we were to successfully foreclose the mortgage on the underlying property, it is
likely that,  during the period that we or an affiliate  owned both the property
and the defaulted bond, we, as holder of the defaulted bond,  would be deemed to
be a related party to a "substantial user" of the property underlying such bond.
As a result,  during such  period,  the interest we receive on the bond would be
taxable.   See  "SUBSTANTIAL   USER"  LIMITATION  within  "RISKS  ASSOCIATED  TO
APPLICATION OF TAX LAWS" below.

3. RISKS RELATED TO OUR FUND MANAGEMENT BUSINESS

THERE ARE RISKS ASSOCIATED WITH CREDIT INTERMEDIATION AND COMMITMENTS TO PROVIDE
SPECIFIED RATES OF RETURN THAT EXPOSE US TO LOSSES

Through our taxable  subsidiaries,  we provide  credit  intermediation  to third
parties for a fee. If such third parties default on their  obligations for which
we provided credit intermediation,  our loss would likely be in an amount far in
excess  of the fee  paid  to us for  providing  the  service.  We  also  provide
specified internal rates of return to investors in partnerships designed to pass
through tax benefits,  including LIHTCs,  to investors.  In connection with such
transactions  we might be required to advance funds to ensure that the investors
do not lose their  expected tax benefits  and, if the internal rate of return to
investors  falls  below the  specified  level,  we would be  required  to make a
payment so that the  specified  rate of return  will be  achieved.  Our  maximum
potential  liability  pursuant to those transactions is detailed in MANAGEMENT'S
DISCUSSION  AND  ANALYSIS - OFF BALANCE  SHEET  ARRANGEMENTS  and Note 21 to the
consolidated financial statements.


                                       18
<PAGE>



THERE IS A RISK OF  ELIMINATION  OF, OR CHANGES TO,  GOVERNMENTAL  PROGRAMS THAT
COULD LIMIT OUR PRODUCT OFFERINGS

A  significant  portion of our Fund  Management  revenues  is  derived  from the
syndication of partnership  interests in partnerships  that invest in properties
eligible for LIHTCs which are a provision of the Internal  Revenue Code of 1986,
as amended (the "Code").

Section 42 of the Code  authorizes  federal  LIHTCs for  affordable  multifamily
rental housing.  Under this program,  a project either receives an allocation of
federal LIHTCs from an agency designated by the government of the state in which
the project is located or the project is entitled to the LIHTCs by reason of its
being  financed by volume cap  mortgage  revenue  bonds.  There are two types of
credits:

     o    4% credits - for new  buildings and existing  buildings  financed with
          mortgage  revenue  bonds that receive an allocation of the volume cap,
          or for new and existing buildings  financed with below-market  federal
          financing  that  receive an  allocation  of federal  LIHTCs from state
          agencies; and
     o    9% credits - for new  buildings  that receive an allocation of federal
          LIHTCs from state agencies.

The credits are taken over a period of 10 years,  which can span over an 11-year
operating  period.  The credit  amount is based on the  qualified  basis of each
building,  which is based upon the adjusted basis of the building  multiplied by
the percentage of units in the building leased to low-income tenants.

In order to qualify for the federal LIHTC,  the property must comply with either
of the  20/50  or 40/60  tests  that  apply to  tax-exempt  bonds.  However,  in
addition,  the  amount  of rent that may be  charged  to  qualifying  low-income
tenants  cannot exceed 30% of the "imputed  income" for each unit,  i.e., 30% of
the imputed  income of a family  earning 50% or 60% of area  median  income,  as
adjusted for family size. Failure to comply continuously with these requirements
throughout  the 15 year  recapture  period  could  result in a recapture  of the
federal LIHTCs.  In addition,  if the rents from the property are not sufficient
to pay debt service on the mortgage revenue bonds or other financing  secured by
the property and a default ensues,  the initial borrower could lose ownership of
the project as the result of  foreclosure  of the mortgage.  In such event,  the
initial  equity  investors  would no longer  be  entitled  to claim the  federal
LIHTCs, but the foreclosing lender could claim the remaining LIHTCs provided the
project  continues to be operated in accordance with the requirements of Section
42. As a result,  there is a strong  incentive for the federal LIHTC investor to
ensure  that the  development  is current  on debt  service  payments  by making
additional capital contributions or otherwise.

With respect to most of the properties,  substantially all the multifamily units
are rented to individuals or families earning no greater than 60% of area median
income  and,  thus,  substantially  all of the  qualified  basis  may be used to
determine the amount of the federal  LIHTC.  This maximizes the amount of equity
raised  from the  purchasers  of the  federal  LIHTCs for each  development  and
provides for the maximum  amount of rent that can be obtained from tenants where
there is currently strong occupancy demand.

Investors in CharterMac  Capital LIHTC  sponsored  funds are usually Fortune 500
corporations  that  have  projected  long-term  positive  tax  positions.  These
investors  generally become limited partners in the CharterMac Capital sponsored
fund which, in turn, invests as a limited partner in the  developer/owner of the
affordable  housing property.  The CharterMac Capital sponsored fund contributes
to the  developer/owner  the  negotiated  equity paid over time.  In the case of
properties utilizing 4% credits,  this contribution will usually provide between
25% and  35% of the  costs  of the  development.  For  properties  utilizing  9%
credits,  this contribution will usually provide between 45% and 55% of the cost
of the development.

Although  LIHTCs are a part of the Code,  Congress  could  repeal or modify this
legislation  at any  time or  modify  the tax  laws so that  the  value of LIHTC
benefits is reduced. If such legislation is repealed or adversely  modified,  we
would no longer be able to pursue this portion of our business strategy.

CERTAIN AGREEMENTS  PURSUANT TO WHICH WE EARN FEES HAVE FINITE TERMS AND MAY NOT
BE RENEWED WHICH COULD NEGATIVELY AFFECT OUR NET INCOME AND CASH FLOWS

We receive  fees  pursuant to an advisory  agreement  with AMAC,  an  affiliated
company.  This advisory  agreement is subject to annual  renewal and approval by
the  independent  trustees of AMAC and there is no guarantee  that the agreement
will be renewed.


                                       19
<PAGE>



We also receive fees from investment funds we sponsor.  These funds generally do
not  require or  authorize  their  investors  to approve  the funds'  management
arrangements with us; instead, we will generally acquire  controlling  interests
in the entities which control these funds. However,  these interests are subject
to the  fiduciary  duty of the  controlling  entity  to the  investors  in those
programs,  which may affect our ability to  continue to collect  fees from those
funds. Furthermore, the organizational documents of certain of these funds allow
for the  investors,  at their option,  to remove the entity  controlled by us as
general  partner or  managing  member  without  cause.  Although  the funds will
generally be required to pay fair market value if they exercise this right,  our
right to receive future fees would  terminate and there can be no assurance that
the payment will fully compensate us for this loss. Finally, many of these funds
typically have finite periods in which they are scheduled to exist,  after which
they are  liquidated.  The termination of a fund will result in a termination of
the fees we receive from it.

OUR ROLE AS A SPONSOR OF INVESTMENT  FUNDS AND  CO-DEVELOPER OF LIHTC PROPERTIES
EXPOSES US TO RISKS OF LOSS

In  connection  with the  sponsorship  of  investment  funds and  joint  venture
activities for co-development of LIHTC properties,  we act as a fiduciary to the
investors in our  syndication  programs  and are often also  required to provide
performance guarantees. We advance funds to acquire interests in property-owning
partnerships for inclusion in investment programs and, at any point in time, the
amount of funds  advanced can be material.  Recovery of these amounts is subject
to our ability to attract investors to new investment funds or, if investors are
not found, the sale of the partnership  interests in the underlying  properties.
We could also be liable to investors in investment programs and third parties as
a result of  serving as general  partner or special  limited  partner in various
investment  funds.  In addition,  even when we are not required to do so, we may
advance funds to allow  investment  funds to meet their expenses and/or generate
the expected tax benefits to investors.

FUNDS  MAY  NOT  GENERATE  SUFFICIENT  CASH TO PAY  FEES  DUE TO US,  WHICH  MAY
NEGATIVELY IMPACT OUR NET INCOME AND CASH FLOWS

Much of the  revenue in our Fund  Management  business  is earned from fees that
upper-tier funds we sponsor pay to our subsidiaries for services rendered. These
funds are dependent upon the cash flows of lower-tier partnerships in which they
invest  to  generate  their  own cash  flows  that are used to pay such fees for
services,  such as asset  management  and advisory  services.  As the lower-tier
partnerships are susceptible to numerous operational risks (see "THERE ARE RISKS
ASSOCIATED WITH THE PROPERTIES UNDERLYING OUR FINANCING PRODUCTS AND INVESTMENTS
THAT  COULD  ADVERSELY  AFFECT  OUR NET  INCOME  AND  CASH  FLOWS"  above),  the
upper-tier funds may not collect sufficient cash to pay the fees they owe to us.
If we do not receive these fees, the negative impact on our cash flows,  and our
net income if we determine the fees are not collectible, could negatively impact
our business.

4. RISKS RELATED TO OUR MORTGAGE BANKING BUSINESS

THERE ARE RISKS OF LOSS  ASSOCIATED  WITH OUR  MORTGAGE  ORIGINATIONS  WHICH MAY
NEGATIVELY IMPACT OUR NET INCOME AND CASH FLOWS

In our DUS program, we originate loans through one of our subsidiaries which are
thereafter  purchased or credit enhanced by Fannie Mae. For most of these loans,
we retain a first loss position with respect to loans that we originate and sell
under this program. For these loss sharing loans, we assume responsibility for a
portion of any loss that may result from borrower defaults,  based on the Fannie
Mae loss  sharing  formulas,  and risk  Levels  I, II,  or III.  Of the 865 loss
sharing loans in this program as of December 31, 2006,  all but one were Level I
loans. For such loans, if a default occurs,  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; any remaining loss is borne by
Fannie  Mae.  In Level II and  Level III  loans we carry a higher  loss  sharing
percentage.

Under the terms of our master  loss  sharing  agreement  with Fannie Mae, 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,  for Level I loans,  we may request  interim  loss sharing
adjustments  which allow us to fund 25% of such advances until final  settlement
under the master loss sharing  agreement.  No interim  sharing  adjustments  are
available for Level II and Level III loans.

We also participate in loss sharing transactions under Freddie Mac's DUI program
whereby we originate loans that are purchased by Freddie Mac.


                                       20
<PAGE>



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  "first loss" exposure under the DUS and DUI programs is detailed in
MANAGEMENT'S  DISCUSSION AND ANALYSIS - OFF BALANCE SHEET  ARRANGEMENTS and Note
21 to the consolidated financial statements.

CHANGES IN EXISTING  GOVERNMENT  SPONSORED AND FEDERAL  MORTGAGE  PROGRAMS COULD
NEGATIVELY AFFECT OUR MORTGAGE BANKING BUSINESS

Our  ability  to  generate  revenue  through  mortgage  sales  to  institutional
investors  largely depends on programs  sponsored by Fannie Mae and Freddie Mac,
which  facilitate  the issuance of  mortgage-backed  securities in the secondary
market. Any  discontinuation  of, or significant  reduction in, the operation of
those  programs  could have a material  adverse  effect on our mortgage  banking
business and results of operations.  Also, any significant adverse change in the
level of activity in the secondary market or the underwriting  criteria of these
entities would reduce our revenues.

THE LOSS OF OUR  RELATIONSHIPS  WITH GSES AND RELATED  ENTITIES COULD  ADVERSELY
AFFECT OUR BUSINESS

Our agreements  with Fannie Mae and Freddie Mac afford us a number of advantages
and may be canceled by the counterparty  for cause.  Cancellation of one or more
of these  agreements  would  have a  material  adverse  affect on our  operating
results and could result in further  disqualification with other counterparties,
loss of technology and other materially adverse consequences.

AS A MORTGAGE LENDER, WE MUST COMPLY WITH NUMEROUS LICENSING  REQUIREMENTS,  AND
OUR INABILITY TO REMAIN IN COMPLIANCE  WITH SUCH  REQUIREMENTS  COULD  ADVERSELY
AFFECT OUR OPERATIONS AND OUR REPUTATION GENERALLY

Like other  mortgage  banking  companies,  we must  comply  with the  applicable
licensing and other regulatory requirements of each jurisdiction in which we are
authorized to lend. These requirements are complex and vary from jurisdiction to
jurisdiction. From time to time we are subject to examination by regulators and,
if  it is  determined  that  we  are  not  in  compliance  with  the  applicable
requirements,  we  may be  fined,  and  our  license  to  lend  in  one or  more
jurisdictions may be suspended or revoked.

IF OUR LOAN SERVICING PORTFOLIO  DECREASES,  OUR NET INCOME AND CASH FLOWS WOULD
BE NEGATIVELY AFFECTED

A large  portion of our  revenues in the  Mortgage  Banking  business  relate to
recurring  fees for servicing  mortgages we originate or those for which we have
sub-servicing  agreements.  Loans in our  portfolio  are  subject  to  maturity,
prepayments, defaults and refinancing after which we may not recapture the loan.
Upon these events,  our portfolio would decline,  depriving us of the associated
revenue stream.  This, in turn, would negatively  affect our net income and cash
flows.

PROPOSED  CHANGES TO ACCOUNTING  RULES COULD  ADVERSELY  AFFECT OUR REPORTED NET
INCOME

During 2005, the Financial  Accounting Standards Board issued proposed revisions
to its Standard No. 140,  ACCOUNTING  FOR  TRANSFERS  AND SERVICING OF FINANCIAL
ASSETS AND  EXTINGUISHMENTS  OF  LIABILITIES,  which governs the accounting for,
among  other  things,   the  origination   and  sale  of  mortgage  loans.   One
interpretation  of the  proposed  changes  may call into  question  whether  the
mortgages we originate and sell under the DUS and DUI programs may be recognized
as sales for accounting  purposes.  Should that interpretation  become a part of
any  final  accounting  standard  issued,  it is  possible  that we may  have to
continue  to carry such loans on our  balance  sheet as assets,  account for the
proceeds  received as debt and not recognize  certain  mortgage  banking fees as
revenues  upon  the  sale as we do  currently.  Such  accounting  changes  would
decrease our reported net income,  which may negatively  affect our share price.
In addition,  the potential decline in net income and the likely increase in our
level of reported debt may cause non-compliance with debt covenants.


                                       21
<PAGE>



Additionally,  other changes  contemplated  could  eliminate the  designation of
"Qualified  Special Purpose Entities"  ("QSPEs") which are a standard element of
securitization transactions,  particularly within the CMBS industry. Should such
a change be effected,  there could be a negative  impact on our Fund  Management
business.

5. RISKS RELATED TO APPLICATION OF TAX LAWS

OUR CLASSIFICATION AS A PUBLICLY TRADED PARTNERSHIP NOT TAXABLE AS A CORPORATION
IS NOT FREE FROM DOUBT AND COULD BE CHALLENGED

We, and all of our Portfolio Investing subsidiaries,  operate as partnerships or
are disregarded for federal income tax purposes.  This allows us to pass through
our income,  including our federally  tax-exempt  income,  and deductions to our
shareholders.  The listing of our common  shares on the New York Stock  Exchange
causes us to be treated as a "publicly  traded  partnership"  for federal income
tax purposes. We and our counsel,  Paul, Hastings,  Janofsky & Walker LLP ("Paul
Hastings"),  believe that we have been and are properly treated as a partnership
for federal income tax purposes.  However,  the Internal Revenue Service ("IRS")
could  challenge  our  partnership  status  and we could  fail to  qualify  as a
partnership in years that are subject to audit or in future years. Qualification
as  a  partnership   involves  the  application  of  numerous   technical  legal
provisions. For example, a publicly traded partnership is generally taxable as a
corporation unless 90% or more of its gross income is "qualifying" income (which
includes interest,  dividends, real property rents, gains from the sale or other
disposition of real property, gain from the sale or other disposition of capital
assets  held for the  production  of interest or  dividends,  and certain  other
items).  We have  represented  that in all prior years of our existence at least
90% of our gross  income was  qualifying  income  and we intend to  conduct  our
operations  in a  manner  such  that  at  least  90% of our  gross  income  will
constitute  qualifying  income in the  current  year and in the  future.  In the
opinion of Paul  Hastings,  although  the issue is not free from doubt,  we have
been and are properly treated as a partnership for federal income tax purposes.

In  determining  whether  interest is treated as  qualifying  income under these
rules,  interest income derived from a "financial business" and income and gains
derived by a "dealer" in  securities  are not treated as qualifying  income.  We
have  represented that we are acting as an investor with respect to our mortgage
revenue  bond  investments  and that we have not engaged in, and will not engage
in,  a  financial  business,  although  there  is  no  clear  guidance  on  what
constitutes a financial  business  under the tax law. We have taken the position
that  for  purposes  of  determining  whether  we are in a  financial  business,
portfolio  investing  activities  that  we  are  engaged  in  now  and  that  we
contemplate  engaging  in  prospectively  would not cause us to be  engaged in a
financial  business or to be considered a "dealer" in securities.  The IRS could
assert that our activities  constitute a financial  business.  If our activities
constitute (or as a result of increased volume  constitute) a financial business
or cause us to be treated  as a dealer,  there is a  substantial  risk that more
than 10% of our gross income would not constitute  qualifying  income.  We could
also be treated as if we were engaged in a financial  business if the activities
of CM Corp. and its  subsidiaries  were  attributed to us and were determined to
constitute a financial business. CM Corp.,  including its principal subsidiaries
CharterMac Capital and CMC, is subject to income tax on its income. Accordingly,
we believe the activities and income of CM Corp. and its  subsidiaries  will not
be attributed to CharterMac for purposes of determining CharterMac's tax status.
In addition,  in determining  whether interest is treated as qualifying  income,
interest  income  that is  determined  based  upon the  income or profits of any
person is not treated as qualifying income. A portion of the interest payable on
participating  interest bonds owned by us is determined based upon the income or
profits of the properties securing our investments.  Accordingly,  if we were to
receive  more  than  10%  of our  gross  income  in any  given  year  from  such
"contingent interest," the IRS could take the position that we should be treated
as a  publicly  traded  partnership  taxable as a  corporation.  There can be no
assurance  that such  monitoring  would be  effective in all events to avoid the
receipt of contingent interest and any other non-qualifying  income in any given
year that exceeds 10% of our gross income because  circumstances  outside of our
(or our subsidiaries) control could cause such a result.

If, for any reason,  less than 90% of our gross  income  constitutes  qualifying
income, items of income and deduction would not pass through to our shareholders
and our  shareholders  would be  treated  for  federal  income tax  purposes  as
stockholders  in a  corporation.  We  would be  required  to pay  income  tax at
corporate  rates  on any  portion  of our net  income  that  did not  constitute
tax-exempt income. In addition, a portion of our federally tax-exempt income may
be included in determining our alternative minimum tax liability.  Distributions
by us to our  shareholders  would  constitute  dividend  income  taxable to such
holders  to  the  extent  of our  earnings  and  profits,  which  would  include
tax-exempt  income, as well as any taxable income we might have, and the payment
of these  distributions  would not be deductible by us. These consequences would
have a  material  adverse  effect on us, our  shareholders  and the price of our
shares.


                                       22
<PAGE>



OUR  TREATMENT  OF INCOME FROM OUR RESIDUAL  INTERESTS  AS FEDERALLY  TAX-EXEMPT
COULD BE CHALLENGED

We hold, indirectly, residual interests in certain federally tax-exempt mortgage
revenue  bonds  through  securitization  programs,  such  as the  P-FLOATs/RITES
program,  which  entitle us to a share of the federally  tax-exempt  interest of
such mortgage  revenue bonds.  Special tax counsel have each rendered an opinion
to the effect that the issuer of the RITES and similar  instruments will each be
classified as a partnership  for federal  income tax purposes and the holders of
the  RITES  and  similar  instruments  will  be  treated  as  partners  of  each
partnership.  Consequently,  as the holder of the RITES and similar instruments,
we treat our share of the federally  tax-exempt income allocated and distributed
to us as federally tax-exempt income. However, it is possible that the IRS could
disagree with those conclusions and an alternative  characterization could cause
income from the RITES and similar  instruments to be treated as ordinary taxable
income. If such an assertion of an alternative  characterization  prevailed,  it
would materially adversely affect us and our shareholders.

THERE IS A RISK THAT THE IRS WILL  DISAGREE  WITH OUR  JUDGMENT  WITH RESPECT TO
ALLOCATIONS

We  use  various   accounting  and  reporting   conventions  to  determine  each
shareholder's  allocable share of income,  including any market discount taxable
as ordinary income, gain, loss and deductions. Our allocation provisions will be
respected for federal  income tax purposes  only if they are  considered to have
"substantial  economic effect" or are in accordance with the partners' "interest
in the  partnership."  There is no  assurance  that the IRS will  agree with our
various accounting methods, conventions and allocation provisions,  particularly
our allocation of adjustments to  shareholders  attributable  to the differences
between the  shareholders'  purchase  price of common shares and their shares of
our tax basis in our assets, pursuant to an election we made.

THE STRUCTURE OF OUR ACQUISITIONS COULD BE CHALLENGED

Our acquisitions of CharterMac Capital and other subsidiaries were structured to
prevent us from realizing active income from these businesses and effectively to
receive a tax deduction (via the  allocation of subsidiary  income) for payments
made to its selling principals. It is possible that the IRS could challenge this
structure, with material adverse consequences to us. First, the IRS could assert
that we, as the parent trust, are the owner of these  businesses,  in which case
the parent trust would  realize an amount of active  income from them that would
require  it  to  be  treated  as a  corporation  instead  of a  publicly  traded
partnership for income tax purposes. If the IRS prevailed,  we would be required
to pay taxes on that income,  thereby  reducing the amount  available  for us to
make distributions. As a result, it is likely that the value of our shares would
decline.  Second,  the IRS might assert that the Special Common Units  ("SCUs"),
Special  Membership Units ("SMUs") and Special Common Interests ("SCIs") held by
the selling  principals of the businesses and others are actually  shares of our
Company.  If this position  prevailed,  the  distributions  payable on the units
would not reduce the taxable income of CM Corp. In such event, CM Corp. would be
subject to increased tax, which could reduce our net income,  our cash flows and
our  distributions,  which could also result in a decrease in the portion of our
distributions  that is  excluded  from  gross  income  for  federal  income  tax
purposes.

THE TAXABILITY OF OUR INCOME DEPENDS UPON THE APPLICATION OF TAX LAWS THAT COULD
BE CHALLENGED

The following  discussion  relates only to the portion of our investments  which
generate federally tax-exempt income.

     TAX-EXEMPTION OF OUR MORTGAGE REVENUE BONDS

     On the date of original  issuance or re-issuance  of each mortgage  revenue
     bond,  nationally  recognized bond counsel or special tax counsel  rendered
     its  opinion to the effect  that,  based on the law in effect on that date,
     interest   on   such   mortgage    revenue   bonds   is   excludable   from
     federally-taxable  gross  income,  except with  respect to any revenue bond
     (other  than a  revenue  bond,  the  proceeds  of  which  are  loaned  to a
     charitable  organization described in Section 501(c)(3) of the Code) during
     any  period  in which it is held by a  "substantial  user" of the  property
     financed  with the proceeds of such  mortgage  revenue  bonds or a "related
     person" of such a  "substantial  user." Each opinion  speaks only as of the
     date it was delivered.  In addition,  in the case of mortgage revenue bonds
     which,  subsequent  to their  original  issuance,  have been  reissued  for
     federal tax  purposes,  nationally  recognized  bond counsel or special tax
     counsel  has  delivered  opinions  that  interest on the  reissued  bond is
     excludable from federally-taxable  gross income of the holder from the date
     of re-issuance  or, in some cases,  to the effect that the  re-issuance did
     not adversely affect the  excludability of interest on the mortgage revenue


                                       23
<PAGE>



     bonds from the gross income of the holders thereof.  However, an opinion of
     counsel has no binding  effect and there is no assurance  that the IRS will
     not contest these conclusions or, if contested, that they will be sustained
     by a court.

     The Code establishes  certain  requirements which must be met subsequent to
     the issuance and delivery of tax-exempt mortgage revenue bonds for interest
     on such mortgage revenue bonds to remain excludable from  federally-taxable
     gross income.  Among these continuing  requirements are restrictions on the
     investment  and use of the revenue bond proceeds and, for mortgage  revenue
     bonds  the  proceeds  of which  are  loaned  to a  charitable  organization
     described in Section  501(c)(3) of the Code, the continued exempt status of
     such  borrower.  In addition,  there is a requirement  that the property be
     operated as a rental property and that during the Qualified  Project Period
     (defined below) at least either:

     o    20% of the units  must be  rented to  individuals  or  families  whose
          income is less than 50% of the area  median  gross  income (the "20/50
          test"); or
     o    40% of the units  must be  rented to  individuals  or  families  whose
          income is less than 60% of the area  median  gross  income (the "40/60
          test");

     in each case with adjustments for family size. The Qualified Project Period
     begins when 10% of the units in the property are first occupied and ends on
     the latest of the date:

     (i)  which is 15 years after 50% of the units are occupied;
     (ii) on which all the bonds have been retired; or
     (iii) on which any assistance  provided under Section 8 of the U.S. Housing
          Act of 1937 terminates.

     Continuing  requirements also include regulatory  agreement  compliance and
     compliance with rules pertaining to arbitrage.  Each issuer of the mortgage
     revenue bonds, as well as each of the underlying borrowers,  has covenanted
     to  comply  with  certain  procedures  and  guidelines  designed  to ensure
     satisfaction of the continuing  requirements of the Code. Failure to comply
     with these  continuing  requirements  of the Code may cause the interest on
     such bonds to be includable in federally-taxable gross income retroactively
     to the date of  issuance,  regardless  of when such  noncompliance  occurs.
     Greenberg  Traurig,  LLP (also  referred to as "Greenberg  Traurig") as our
     bond counsel,  and Paul  Hastings,  as our  securities  counsel  (Greenberg
     Traurig  and Paul  Hastings  are  collectively  referred  to  herein as our
     "Counsel"),  have not, in connection  with this filing,  passed upon and do
     not assume any  responsibility  for, but rather have assumed the continuing
     correctness  of,  the  opinions  of bond  counsel or  special  tax  counsel
     (including   opinions  rendered  by  Greenberg  Traurig)  relating  to  the
     exclusion from  federally-taxable  gross income of interest on the mortgage
     revenue  bonds and have not  independently  verified  whether any events or
     circumstances have occurred since the date such opinions were rendered that
     would adversely affect the conclusions set forth herein.

     "SUBSTANTIAL USER" LIMITATION

     Interest on a mortgage  revenue bond we own, other than a bond the proceeds
     of which are  loaned to a  charitable  organization  described  in  Section
     501(c)(3) of the Code,  will not be excluded  from gross income  during any
     period in which we are a "substantial user" of the properties financed with
     the  proceeds  of such  mortgage  revenue  bond or a "related  person" to a
     "substantial user."

     A "substantial  user"  generally  includes any underlying  borrower and any
     person  or entity  that uses the  financed  properties  on other  than a de
     minimis basis. We would be a "related  person" to a "substantial  user" for
     this purpose if, among other things,

     o    the same  person or entity  owned more than a 50%  interest in both us
          and in the properties financed with the proceeds of a bond owned by us
          or one of our subsidiaries; or
     o    we owned a partnership  or similar  equity  interest in the owner of a
          property  financed  with the  proceeds of a bond owned by us or one of
          our subsidiaries.

     Greenberg  Traurig has  reviewed  the  mortgage  revenue  bonds we own, the
     ownership of the obligors of our mortgage  revenue  bonds and the ownership
     of our shares and our subsidiaries'  shares,  and concurs in the conclusion
     that we are not  "substantial  users" of the  properties  financed with the
     proceeds of the mortgage  revenue bonds or related parties  thereto.  There
     can be no  assurance,  however,  that  the IRS  would  not  challenge  such


                                       24
<PAGE>



     conclusion. If such challenge were successful, the interest received on any
     bond for which we were treated as a "substantial user" or a "related party"
     thereto would be includable in federally taxable gross income.

     SECURITIZATION PROGRAMS AND REVENUE PROCEDURE 2003-84

     Many of the senior  interests  in our  securitization  programs are held by
     tax-exempt money-market funds. For various reasons, money market funds will
     only acquire and hold interests in securitization programs that comply with
     Revenue Procedure  2003-84,  which provides for exemption from Schedule K-1
     reporting  requirements for certain  partnerships.  Our counsel,  Greenberg
     Traurig, has advised us that the partnerships we use in our securitizations
     currently meet the  requirements of Revenue  Procedure  2003-84.  It is our
     intention to continue to meet those  requirements,  which include an income
     test and an expense test, on an ongoing  basis.  There can be no assurance,
     however,  that  unforeseen  circumstances  might  cause  one or more of our
     securitization  partnerships  to fail either the income test or the expense
     test, which would cause our  securitization  partnerships to have to comply
     with all of the  requirements of subchapter K of the Code. In the event one
     or more of our  securitization  partnerships  was forced to comply with the
     provisions  of  subchapter  K of the  Code,  it is  likely  that all of the
     tax-exempt  money  market  funds  that hold the senior  interests  in those
     securitizations  would  tender  their  positions.  This would  require  our
     remarketing agent to locate new purchasers, which were not tax-exempt money
     market funds,  for those  tendered  senior  interests.  This would probably
     result in an  increase  in the  distributions  to the holders of the senior
     interests,  which would reduce, dollar for dollar, the distributions on the
     residual  interests in the  securitizations,  which are owned by us through
     our subsidiaries.

     TAXABLE INCOME

     In our Portfolio  Investing  business,  we primarily  invest in investments
     that  produce  only  tax-exempt  income.  However,  the  IRS  may  seek  to
     re-characterize  a portion of our  tax-exempt  income as taxable  income as
     described above. If the IRS were successful,  a shareholder's  distributive
     share of such income  would be taxable to the  shareholder,  regardless  of
     whether  an amount of cash  equal to such  distributive  share is  actually
     distributed.  Any taxable  income would be allocated pro rata among our CRA
     Preferred  Shares,  our CRA Shares and our common shares.  We may also have
     taxable income in the form of market  discount or gain on the sale or other
     disposition of our investments, and we expect to own investments and engage
     in certain fee generating  activities  (through our subsidiaries) that will
     generate taxable income.

The following discussion relates only to our REIT subsidiary:

     ADVERSE  CONSEQUENCES  OF  FAILURE TO  MAINTAIN  REIT  STATUS  MAY  INCLUDE
     TAXATION OF A PORTION OF OUR EARNINGS NOT OTHERWISE TAXABLE

     ARCap REIT, Inc. ("ARCap REIT"), a subsidiary of ARCap, intends to continue
     to operate in a manner so as to  qualify as a REIT for  federal  income tax
     purposes.  If ARCap REIT were to fail to  qualify as a REIT in any  taxable
     year, it would be subject to federal  income tax  (including any applicable
     alternative  minimum tax) on its taxable income at regular corporate rates,
     and distributions to its stockholders  would not be deductible in computing
     its taxable  income.  Any such corporate tax liability could be substantial
     and would  reduce  the amount of cash  available  for  distribution  to our
     shareholders.  Unless  entitled to relief under  certain  provisions of the
     Code, ARCap REIT also would be disqualified from taxation as a REIT for the
     four taxable years  following the year during which it ceased to qualify as
     a REIT.

     ARCap REIT must  distribute  annually  at least 90% of its  taxable  income
     (excluding  any net  capital  gain) in order to be  exempt  from  corporate
     income  taxation of the earnings that it  distributes.  In addition,  ARCap
     REIT is subject to a 4% nondeductible  excise tax on the amount, if any, by
     which certain  distributions  it pays with respect to any calendar year are
     less than the sum of:

          1.   85% of its ordinary income for that year,
          2.   95% of its capital gain net income for that year; and
          3.   100% of its  undistributed  ordinary  income and capital gain net
               income from prior years.

     While  ARCap REIT  intends to make  distributions  to its  stockholders  to
     comply  with the 90%  distribution  requirement  and to be exempt  from the
     nondeductible  excise tax, differences in timing between the recognition of
     taxable  income  and the actual  receipt  of cash may  require it to borrow
     funds to meet this distribution requirement and to avoid the excise tax. In


                                       25
<PAGE>



     addition,  the  requirement  to  distribute  a  substantial  portion of its
     taxable income could cause ARCap REIT to:

          1.   distribute amounts that represent a return of capital;
          2.   distribute  amounts  that  would  otherwise  be spent on  capital
               expenditures or repayment of debt; or
          3.   distribute amounts that may be treated as excess inclusion income
               and accordingly,  unrelated  business taxable income in the hands
               of certain not-for-profit stockholders.

     To  qualify  as a  REIT,  ARCap  REIT  must  satisfy  certain  requirements
     concerning  the nature of its assets and  income,  which may  restrict  its
     ability to invest in various types of assets. Specifically:

          1.   at least  75% of  ARCap's  assets  must  consist  of real  estate
               assets,  cash and cash items, and certain government  securities,
               to ensure that the bulk of ARCap  REIT's  investments  are either
               equity or mortgage interests in real property; and
          2.   ARCap REIT will not be able to  acquire  securities  (other  than
               securities  that are treated as an  interest in real  property or
               interests in a taxable REIT subsidiary) of any single issuer that
               would  represent  either  more than 5% of the total  value of its
               assets or 10% of the voting  securities of such issuer, to ensure
               a diversification of ARCap REIT's non-real-property investments.

     In  addition,  to satisfy  the income  requirements  of a REIT,  ARCap REIT
     generally will be restricted to acquiring  assets that generate  qualifying
     income for  purposes of certain  income  tests.  These  restrictions  could
     affect adversely ARCap REIT's ability to optimize its portfolio of assets.

     CHANGES IN TAX LAWS REGARDING REITS COULD ADVERSELY AFFECT OUR NET INCOME

     Congress,  and to some extent the United States Department of Treasury,  as
     well as state  legislatures and regulatory  authorities,  could at any time
     adversely change the way in which a REIT and its stockholders are taxed, by
     imposing additional entity-level taxes, further restricting the permissible
     beneficial  ownership  and types of assets and income of a REIT,  requiring
     additional  distributions,  or  changing  the  law  in any  other  respect.
     Moreover,  such changes could apply retroactively.  Should any such changes
     be implemented, they would likely cause our net income to decline.

6. RISKS RELATED TO INVESTING IN OUR COMPANY

BECAUSE  WE  HOLD  MOST  OF  OUR  INVESTMENTS  THROUGH  OUR  SUBSIDIARIES,   OUR
SHAREHOLDERS  ARE EFFECTIVELY  SUBORDINATED TO THE LIABILITIES AND EQUITY OF OUR
SUBSIDIARIES

We hold most of our investments  through our  subsidiaries.  Because we own only
common equity of our subsidiaries,  we, and therefore holders of our shares, are
effectively  subordinated to the debt obligations,  preferred equity, SCUs, SMUs
and  SCIs  of  our  subsidiaries,   which  at  December  31,  2006,   aggregated
approximately $3.1 billion.  In particular,  the holders of the preferred shares
of one of our Equity Issuer  subsidiaries  are entitled to receive  preferential
distributions  with respect to revenues generated by mortgage revenue bonds held
directly or  indirectly  by it, which  constitute a  substantial  portion of our
assets.   Similarly,   holders  of  senior   interests   created   through   our
securitization programs have a superior claim to the cash flow from the mortgage
revenue bonds  deposited in such  programs.  Accordingly,  a portion of the cash
flow from our investments  will not be available for  distribution on our common
shares. Likewise if we pay a common dividend:

     o    holders of SCUs issued by our CharterMac  Capital  Company LLC ("CCC")
          subsidiary  are entitled to receive  preferential  distributions  with
          respect to the earnings of CharterMac Capital;
     o    holders  of  SMUs  issued  by  our CM  Investor  LLC  ("CM  Investor")
          subsidiary  are entitled to receive  preferential  distributions  with
          respect to the earnings of CM Investor; and
     o    holders of SCIs issued by our ARCap subsidiary are entitled to receive
          preferential distributions with respect to the earnings of ARCap.

Those earnings,  therefore,  may not be available for distribution to our common
shareholders.


                                       26
<PAGE>



WE DEPEND UPON THE SERVICES OF OUR EXECUTIVE OFFICERS

We and our subsidiaries  depend upon the services of our executive  officers and
other individuals who comprise our executive management team. All decisions with
respect to the  management  and  control of our  Company  and our  subsidiaries,
subject  to  the  supervision  of our  board  of  trustees  (or  the  applicable
subsidiary's board), are currently made by these key officers.  The departure or
the loss of the  services  of any of these  key  officers  or a large  number of
senior  management  personnel and other employees could have a material  adverse
effect on our ability to operate our business effectively and our future results
of operations.

OUR BOARD OF TRUSTEES CAN CHANGE OUR BUSINESS POLICIES UNILATERALLY

Our board of trustees  may amend or revise our business  plan and certain  other
policies without  shareholder  approval.  Therefore,  our  shareholders  have no
control over changes in our  policies,  including  our  business  policies  with
respect  to  acquisitions,   financing,   growth,   debt,   capitalization   and
distributions, which are determined by our board of trustees.

THERE ARE POSSIBLE ADVERSE EFFECTS ARISING FROM SHARES AVAILABLE FOR FUTURE SALE

Our board of trustees is permitted to offer additional equity or debt securities
of our Company and our  subsidiaries  in exchange  for money,  property or other
consideration.  Our ability to sell or exchange such  securities  will depend on
conditions  then  prevailing in the relevant  capital markets and our results of
operations,  financial  condition,  investment portfolio and business prospects.
Subject to New York Stock Exchange rules which require shareholder  approval for
certain  issuances  of  securities  and as  long  as the  issuance  is  made  in
accordance with our trust agreement,  the issuance of such additional securities
will not be subject  to the  approval  of our  shareholders  and may  negatively
affect the resale price of our shares. Shareholders will not have any preemptive
rights in connection  with the issuance of any  additional  securities we or our
subsidiaries may offer and any of our equity offerings would cause dilution of a
shareholder's investment in us.

THE FORMER OWNERS OF CHARTERMAC  CAPITAL AND MEMBERS OF OUR MANAGEMENT TEAM HAVE
SIGNIFICANT VOTING POWER ON MATTERS SUBMITTED TO A VOTE OF OUR SHAREHOLDERS, AND
THEIR INTERESTS MAY BE IN CONFLICT WITH THE INTERESTS OF OUR OTHER SHAREHOLDERS

In connection with our acquisition of CharterMac  Capital,  we issued to each of
its selling  principals  one special  preferred  voting  share for each SCU they
received.  Our special  preferred voting shares have no economic  interest,  but
entitle  each  holder  to one vote per  special  preferred  voting  share on all
matters  subject  to a vote of the  holders of our common  shares.  The  selling
principals of CharterMac  Capital who received  special  preferred voting shares
include members of our executive  management team (Mr. Hirmes and Mr. Schnitzer)
and a subsidiary of The Related Companies,  L.P. ("TRCLP"),  which is controlled
by Mr. Ross, the chairman of our board of trustees.

Mr.  Schnitzer and Mr.  Hirmes have also received  share grants from the Company
that are entitled to vote during the vesting  periods,  as have other members of
our executive management team. As a result of the special preferred voting share
issuance,  additional  common shares  directly or  indirectly  owned by them and
share grants we have made, members of our executive management team and Mr. Ross
in the  aggregate  directly  or  indirectly  owned  voting  shares  representing
approximately  20.7% of our voting power as of December 31,  2006.  As such,  if
they vote as a block, such  shareholders  will have significant  voting power on
all matters submitted to a vote of our common shareholders.

Also, because three of the selling principals of CharterMac Capital serve as our
managing trustees,  there are ongoing conflicts of interest when we are required
to  determine  whether or not to take  actions to enforce  our rights  under the
various  agreements  entered  into in  connection  with the  CharterMac  Capital
acquisition. While any material decisions involving these persons are subject to
the vote of a majority of our  independent  trustees,  such decisions may create
conflicts between us and these persons.

In addition,  we have some obligations to these former owners which will require
us to make  choices as to how we operate  our  business  which may affect  those
obligations.  For example,  we have guaranteed the payment to all holders of the
SCUs of all but $5.0  million  of the  distributions  they  would  otherwise  be
entitled to receive under the operating  agreement of CCC. In addition,  we have
agreed to share cash flow from  investment  programs  so that we and  certain of
these former owners can receive payment of deferred fees. Further, TRCLP and its


                                       27
<PAGE>



affiliates   currently   engage  in  businesses   which  compete  with  us.  The
non-competition covenants contained in a future relations agreement entered into
by TRCLP and its  affiliates in connection  with our  acquisition  of CharterMac
Capital  prohibit  TRCLP and its  affiliates  from  competing  with any business
currently engaged in by us other than in specified areas, including:

     o    providing  credit  intermediation  on debt products secured by "80/20"
          multifamily housing properties; and
     o    providing  mezzanine financing to multifamily housing properties other
          than so-called "tax credit properties."

There can be no assurance that we and TRCLP and its affiliates  will not compete
for similar products and opportunities in these areas in the future.

NO  ASSURANCE  CAN BE GIVEN THAT OUR  SHAREHOLDERS  WILL BE ENTITLED TO THE SAME
LIMITATION ON PERSONAL  LIABILITY AS  STOCKHOLDERS OF PRIVATE  CORPORATIONS  FOR
PROFIT

We are governed by the laws of the State of Delaware.  Under our trust agreement
and  the  Delaware  Statutory  Trust  Act,  as  amended  ("Delaware  Act"),  our
shareholders  will be entitled  to the same  limitation  of  personal  liability
extended to stockholders of private  corporations for profit organized under the
General  Corporation Law of the State of Delaware.  In general,  stockholders of
Delaware  corporations  are not  personally  liable for the payment of corporate
debts and obligations,  and are liable only to the extent of their investment in
the  Delaware  corporation.  However,  a  shareholder  may be  obligated to make
certain payments provided for in our trust agreement and bylaws.  The properties
securing our  investments  are dispersed in numerous  states and the District of
Columbia.  In  jurisdictions  which  have  not  adopted  legislative  provisions
regarding statutory trusts similar to those of the Delaware Act, questions exist
as to whether such  jurisdictions  would recognize a statutory  trust,  absent a
state  statute,  and whether a court in such  jurisdiction  would  recognize the
Delaware Act as  controlling.  If not, a court in such  jurisdiction  could hold
that our  shareholders are not entitled to the limitation of liability set forth
in our trust  agreement  and the Delaware Act and, as a result,  are  personally
liable for our debts and obligations.

OUR ANTI-TAKEOVER PROVISIONS MAY DISCOURAGE THIRD-PARTY PROPOSALS

Certain  provisions of our trust agreement may have the effect of discouraging a
third party from making an  acquisition  proposal  for our  Company.  This could
inhibit a change in control of our Company under  circumstances  that could give
our  shareholders  the  opportunity  to realize a premium  over  then-prevailing
market prices. Such provisions include the following:

     ADDITIONAL CLASSES AND SERIES OF SHARES

     Our trust  agreement  permits  our board of  trustees  to issue  additional
     classes or series of beneficial  interests and to establish the preferences
     and  rights  of any such  securities.  Thus,  our board of  trustees  could
     authorize the issuance of beneficial  interests  with terms and  conditions
     which  could  have  the  effect  of   discouraging   a  takeover  or  other
     transaction.

     STAGGERED BOARD

     Our board of trustees is divided into three  classes of managing  trustees.
     The terms of the first,  second and third classes will expire in 2008, 2009
     and 2007, respectively. Managing trustees for each class will be chosen for
     a three-year  term upon the  expiration of the current class' term. The use
     of a staggered  board makes it more  difficult for a third-party to acquire
     control over us.

SALES IN THE PUBLIC  MARKET OF OUR COMMON  SHARES  ISSUABLE IN EXCHANGE  FOR OUR
SCUS, SMUS AND SCIS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR SHARES

Future sales of  substantial  amounts of our common  shares in the public market
could adversely affect  prevailing  market prices of our shares.  As of December
31, 2006, approximately 14.8 million common shares remained issuable in exchange
for the SCUs we issued, approximately 278,000 common shares remained issuable in
exchange for the SMUs we issued,  approximately  268,000 common shares  remained
issuable  in  exchange  for the SCIs we issued  and we have  granted  restricted
common shares of which  approximately  2.1 million were unvested at December 31,
2006.  When these shares vest and/or  convert,  their sale in the public  market
could, and depending upon the number of involved, likely would, adversely affect


                                       28
<PAGE>



prevailing  market  prices of our  shares and our  ability  to raise  additional
capital  through the equity  markets.  As of December  31,  2006,  TRCLP and its
owners indirectly held approximately 10.2 million SCUs and approximately 543,000
common shares which,  subject to some  exceptions,  are not subject to a lock-up
agreement. In addition,  former executives of our Company held approximately 2.0
million  SCUs as of  December  31,  2006.  These SCUs are not subject to lock-up
agreements and may be converted to common shares at any time.

IF WE HAD TO REGISTER UNDER THE INVESTMENT  COMPANY ACT, THERE COULD BE NEGATIVE
CONSEQUENCES TO OUR INVESTMENT STRATEGY

Neither we nor our subsidiaries are registered under the Investment  Company Act
of 1940,  as amended (the  "Investment  Company  Act") and we may not be able to
conduct our activities as we currently do if we were required to so register.

At  all  times,  we  intend  to  conduct  our  activities,   and  those  of  our
subsidiaries, so as not to become regulated as an "investment company" under the
Investment  Company  Act.  Even if we are not an  investment  company  under the
Investment  Company Act, we could be subject to regulation  under the Investment
Company Act if a  subsidiary  of ours were deemed to be an  investment  company.
There are a number of possible exemptions from registration under the Investment
Company  Act that we  believe  apply  to us and our  subsidiaries  and  which we
believe  make it  possible  for us not to be subject to  registration  under the
Investment Company Act.

For example,  the  Investment  Company Act exempts  entities that are "primarily
engaged in the business of purchasing or otherwise acquiring mortgages and other
liens on and  interests  in real  estate,"  which  we  refer  to as  "qualifying
interests." Under current  interpretations  by the SEC staff, one of the ways in
which our  subsidiaries  can qualify for this  exemption is to maintain at least
55% of their assets  directly in  qualifying  interests  and the balance in real
estate-type interests. We believe our subsidiaries can rely on this exemption or
another exemption from registration.

The requirement that our subsidiaries maintain 55% of their assets in qualifying
interests  (or satisfy  another  exemption  from  registration)  may inhibit our
ability to acquire certain kinds of assets or to securitize additional interests
in the future.  If any of our  subsidiaries  fail to qualify for exemption  from
registration as an investment  company and we, in turn, are required to register
as an investment company, our ability to maintain our financing strategies would
be  substantially  reduced,  and we would be unable to conduct  our  business as
described herein. Such a failure to qualify could have a material adverse effect
upon our ability to make distributions to our shareholders.

AN INABILITY TO RAISE CAPITAL OR ACCESS FINANCING ON FAVORABLE TERMS, OR AT ALL,
COULD ADVERSELY AFFECT OUR GROWTH

A major  aspect of our business  plan  includes the  acquisition  of  additional
mortgage revenue bonds, which requires capital.  We typically fund the expansion
of our  business  through a  combination  of  operating  cash flows,  short-term
borrowings,  securitizations,  repurchase agreements and long-term borrowings. A
failure to renew our existing  facilities,  to increase  our capacity  under our
existing facilities or to add or new or replacement debt facilities could have a
material  adverse  effect on our  business,  financial  condition and results of
operations.  See the description of our existing  facilities under "MANAGEMENT'S
DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF  OPERATIONS -
LIQUIDITY AND CAPITAL RESOURCES."

We also raise capital by periodically offering securities issued by us or one or
more of our  subsidiaries.  Our  ability  to raise  capital  through  securities
offerings is subject to risks, including:

     o    conditions then prevailing in the relevant capital markets;
     o    our results of operations,  financial condition,  investment portfolio
          and business prospects;
     o    the timing and amount of  distributions  to the  holders of our shares
          which could negatively affect the price of a common share; and
     o    the  amount  of  securities  that  are  structurally   senior  to  the
          securities being sold.


                                       29
<PAGE>



ITEM 1B. UNRESOLVED STAFF COMMENTS.

None

ITEM 2.  PROPERTIES.

We lease the office space in which our  headquarters  are located at 625 Madison
Avenue, New York, NY. The leases expire in 2017.

We also lease office space in other locations as follows:

     o    Jersey City, NJ - An office facility; the lease expires in 2010.
     o    Morristown, NJ - An office facility; the lease expires in 2007.
     o    Bethesda, MD - An office facility; the lease expires in 2009.
     o    Irvine, CA - An office facility; the lease expires in 2011.
     o    San Francisco, CA - An office facility; the lease expires in 2012.
     o    Boston, MA - An office facility; the lease expires in 2011.
     o    Irving, TX - An office facility; the leases expires in 2016.
     o    Chicago, IL - An office facility; the lease expires in 2009.
     o    San Rafael, CA - An office facility; the lease expires in 2008.

We believe  that these  facilities  are suitable  for current  requirements  and
contemplated future operations.

ITEM 3.  LEGAL PROCEEDINGS.

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

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

There were no matters  submitted to  shareholders  for voting  during the fourth
quarter of 2006.


                                       30
<PAGE>



                                     PART II


ITEM 5. MARKET FOR REGISTRANT'S  COMMON EQUITY,  RELATED STOCKHOLDER MATTERS AND
        ISSUER PURCHASES OF EQUITY SECURITIES.

Market Information
------------------

Our common shares have been listed on the New York Stock  Exchange since January
10, 2006,  under the symbol "CHC".  From October 1, 1997, until January 9, 2006,
they were traded on the American Stock Exchange under the same symbol.  Prior to
October 1, 1997,  there was no established  public trading market for our common
shares.

The high and low prices for each  quarterly  period of the last two years during
which our common shares were traded were as follows:

<TABLE>
<CAPTION>

                                       2006                       2005
                             -----------------------     -----------------------
Quarter Ended                   Low           High          Low           High
-------------                ---------     ---------     ---------     ---------
<S>                          <C>           <C>           <C>           <C>
March 31                     $   19.52     $   22.65     $   20.65     $   24.50
June 30                      $   16.86     $   20.13     $   20.30     $   22.49
September 30                 $   18.10     $   21.05     $   20.43     $   23.37
December 31                  $   19.52     $   21.76     $   18.50     $   23.02

</TABLE>

The last reported sale price of our common shares on the New York Stock Exchange
on February 23, 2007, was $20.70.

Holders
-------

As of  February  23,  2007,  there were  2,798  registered  shareholders  owning
51,404,234 common shares.

Distributions
-------------

After providing for distributions to our 4.4% Convertible  Preferred Shares, our
net income is allocated pro rata among the common shares and the Convertible CRA
Shares (see Note 14 to the consolidated financial  statements).  The Convertible
CRA  Shares  rank on par with the common  shares  with  respect  to rights  upon
liquidation,  dissolution  or  winding  up of our  Company,  although  both  are
subordinate  to our  4.4%  Convertible  CRA  Preferred  shares.  Quarterly  cash
distributions during the years ended December 31, 2006 and 2005 were as follows:

<TABLE>
<CAPTION>

                                                                   Total Amount
                                          Date         Per         Distributed
Cash Distribution for Quarter Ended       Paid        Share       (In thousands)
-----------------------------------     --------     --------     --------------
<S>                                     <C>          <C>             <C>
March 31, 2006                           5/15/06     $   0.42        $24,764
June 30, 2006                            8/14/06         0.42         24,806
September 30, 2006                      11/14/06         0.42         25,175
December 31, 2006                        2/14/07         0.42         25,201
                                                     --------        -------
Total for 2006                                       $   1.68        $99,946
                                                     ========        =======

March 31, 2005                           5/13/05     $   0.41        $23,729
June 30, 2005                            8/12/05         0.41         23,766
September 30, 2005                      11/14/05         0.41         23,843
December 31, 2005                        2/14/06         0.42         24,587
                                                     --------        -------
Total for 2005                                       $   1.65        $95,925
                                                     ========        =======

</TABLE>


                                       31
<PAGE>



There are no material legal  restrictions  upon our present or future ability to
make  distributions  in accordance with the provisions of our Second Amended and
Restated  Trust  Agreement.  We do not  believe  that  the  financial  covenants
contained in our and our subsidiaries'  secured  indebtedness or in the terms of
the preferred shares issued by Equity Issuer will have any adverse impact on our
ability to make distributions in the normal course of business to our common and
Convertible CRA shareholders.  Future distributions will be at the discretion of
the  trustees  based upon  evaluation  of our actual cash flows,  our  financial
condition,  capital  requirements  and such other  factors as our trustees  deem
relevant.

Securities authorized for issuance under equity compensation plans
------------------------------------------------------------------

The following table provides information related to our share incentive plans as
of December 31, 2006:

<TABLE>
<CAPTION>

                                                (a)                    (b)                        (c)

                                                                                         Number of securities
                                             Number of                                 remaining available for
                                         securities to be                               future issuance under
                                       issued upon exercise     Weighted-average         equity compensation
                                          of outstanding        exercise price of          plans (excluding
                                         options, warrants     outstanding options,    securities reflected in
                                            and rights         warrants and rights           column a) (1)
                                       --------------------    --------------------    -----------------------
<S>                                          <C>                    <C>                       <C>
Equity compensation plans
   approved by security holders              2,018,741              $   20.77                 3,794,017
Equity compensation plans not
   approved by security holders                     --                     --                        --
                                             ---------              ---------                 ---------

Totals                                       2,018,741              $   20.77                 3,794,017
                                             =========              =========                 =========

</TABLE>

(1)  Our  Incentive  Share  Plan  (see  Note  15 to the  consolidated  financial
     statements)   authorizes   us  to  issue   options  or  other   share-based
     compensation  equal to 10% of the total shares  outstanding  (as defined in
     the plan) as of  December  31 of the year  preceding  the  issuance  of new
     grants or options.

Securities purchased by us
--------------------------

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

<TABLE>
<CAPTION>

                                                            Purchases of Equity Securities

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

                                                                             Total number
                                        Total                                  of shares          Maximum number
                                      number of            Average         purchased as part   of shares that may yet
                                        shares           price paid           of publicly      be purchased under the
             Period                 purchased (1)         per share        announced program      plans or program
---------------------------------   ---------------    ----------------    -----------------   ----------------------
<S>                                     <C>              <C>                        <C>                <C>
October 1 - 31, 2006                        --           $     --                   --
November 1 - 30, 2006                   77,080              21.35                   --
December 1 - 31, 2006                   18,507              21.35                   --
                                      --------           --------             --------

Total                                   95,587           $  21.35                   --                 570,540
                                      ========           ========             ========              ==========

</TABLE>

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


                                       32
<PAGE>



Other  information  required by this item, as well as information  regarding our
share  repurchase  program  and  share  compensation  paid  to  our  independent
trustees,  is  included  in  Notes  14  and  15 to  our  consolidated  financial
statements.

ITEM 6.  SELECTED FINANCIAL DATA.

The information set forth below presents our selected financial data. Additional
financial information is set forth in the consolidated  financial statements and
notes thereto.

For the Years Ended December 31 (in thousands, except per share amounts):

<TABLE>
<CAPTION>

Operations                              2006 (1)         2005 (2)         2004 (3)         2003 (4)          2002
---------------------------------     -----------      -----------      -----------      -----------      -----------
<S>                                   <C>              <C>              <C>              <C>              <C>
Total revenues                        $   387,259      $   295,097      $   232,432      $   152,240      $   116,614

Income before income taxes            $    47,786      $    30,437      $    48,120      $    60,514      $    62,117

Net income                            $    41,294      $    59,014      $    65,363      $    66,586      $    60,833
Net income applicable to
  shareholders (5)                    $    36,542      $    56,994      $    65,363      $    61,248      $    55,905

Net cash provided by (used in):

  Operating activities                $    86,716      $       685      $   106,405      $    97,902      $    80,977
  Investing activities                $  (523,896)     $  (373,018)     $  (366,647)     $  (365,419)     $  (418,379)
  Financing activities                $   454,792      $   462,341      $   279,295      $   306,052      $   245,737

Net income per share (5)

  Basic                               $      0.63      $      0.98      $      1.19      $      1.31      $      1.31

  Diluted                             $      0.62      $      0.98      $      1.19      $      1.31      $      1.31

Financial position
---------------------------------

Total assets                          $ 9,688,516      $ 6,968,757      $ 5,737,221      $ 2,581,169      $ 1,852,868
Financing arrangements                $ 1,801,170      $ 1,429,692      $ 1,068,428      $   900,008      $   671,659

Notes payable                         $   591,165      $   304,888      $   174,454      $   153,350      $    68,556
Preferred shares of subsidiary:
  Subject to mandatory repurchase     $   273,500      $   273,500      $   273,500      $   273,500      $   273,500
  Not subject to mandatory
  repurchase                          $   104,000      $   104,000      $   104,000      $      --        $      --

Dividends
---------------------------------

Dividends declared per share (6)      $      1.68      $      1.65      $      1.57      $      1.37      $      1.26

</TABLE>

(1)  Includes  ARCap  beginning in August 2006,  and includes  $29.2  million of
     expense  (or $0.50 per basic and  diluted  share)  related  to a  valuation
     allowance  recorded  against  deferred  tax  assets  (see  Note  12 to  the
     consolidated financial statements).
(2)  Includes a $22.6 million  non-cash pre-tax charge ($12.3 million after tax,
     or $0.21 per basic and  diluted  share)  related  to the  write-off  of the
     "Related  Capital Company"  trade-name  intangible asset (see Note 5 to the
     consolidated financial statements).
(3)  Reflects  adoption  of  Interpretation  46(R),  CONSOLIDATION  OF  VARIABLE
     INTEREST  ENTITIES ("FIN  46(R)"),  as of March 31, 2004 (See Note 1 to the
     consolidated financial statements).
(4)  Includes CharterMac Capital beginning in November 2003.
(5)  Includes common shareholders and Convertible CRA shareholders.
(6)  Distributions per share are the same for both common shares and Convertible
     CRA shares.

ITEM 7. MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following Management's  Discussion and Analysis ("MD&A") is intended to help
the reader  understand  the results of  operations  and  financial  condition of
CharterMac.  MD&A  is  provided  as a  supplement  to,  and  should  be  read in
conjunction  with, our  consolidated  financial  statements and the accompanying
notes.

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

This MD&A contains forward-looking statements.  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


                                       33
<PAGE>



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  (described
more fully in Item 1A. of this filing on Form 10-K) include, among other things:

     o    adverse changes in real estate markets;
     o    competition with other companies;
     o    interest rate fluctuations;
     o    general economic and business conditions;
     o    environmental/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.

We caution you not to place undue reliance on these forward-looking  statements,
which reflect our view only as of the date of this annual report on Form 10-K.

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

ACQUISITIONS

In August 2006, we acquired ARCap.  Prior to the  acquisition  date, we recorded
equity  earnings  on our  10.7%  equity  investment  in ARCap  in our  Portfolio
Investing  segment.  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.

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.

ACCOUNTING CHANGES

The adoption of several accounting  pronouncements has affected our consolidated
financial statements.

Primarily due to our adoption of FIN 46(R) as of March 31, 2004, we  consolidate
more than 149  partnerships  (predominantly  investment funds we sponsor) in our
consolidated  financial  statements.  The  operating  results  for 2006 and 2005
include  a full  period  of  operations  for  these  entities,  as  well  as the
elimination of transactions between the entities and our subsidiaries.  In 2004,
the operating  results include only nine months' operating results as we adopted
this  accounting  standard as of March 31 of that year (see Notes 1 and 7 to the
consolidated financial statements).

The adoption of FIN 46(R) led to a significant  increase in the amount of assets
and  liabilities we record and also results in the  recognition of the operating
results of  partnerships  in which we have  virtually  no equity  interest,  the
elimination of transactions  between our businesses and those  partnerships  and
the allocation of their results to their investor partners.

OTHER ITEMS

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


                                       34
<PAGE>



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.

In September  2006, we terminated a loan  investment  and  recognized a one-time
gain  totaling  approximately  $6.9  million.  We also closed a  subsidiary  and
recorded goodwill and intangible asset impairment  charges of approximately $2.6
million in the third and fourth quarters of 2006.

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.
In 2005 and 2004, an income tax benefit was recognized.

At the end of 2005,  management  elected to discontinue  the use of the "Related
Capital Company" trade name, effective January 1, 2006. The decision resulted in
the non-cash  write-off of an intangible  asset recorded at the time we acquired
Related  Capital (now known as CharterMac  Capital).  The write-off  amounted to
$22.6 million and reduced net income by $12.3  million,  net of tax benefit,  or
$0.21 per basic and diluted share.

Results of Operations
----------------------

OVERVIEW

The following is a summary of our operations:

<TABLE>
<CAPTION>

                                                                                                              %           %
                                                                                                            Change     Change
                                                % of                     % of                     % of     2006 vs.   2005 vs.
  (In thousands)                  2006        Revenues     2005        Revenues     2004        Revenues     2005       2004
------------------             ---------      --------  ---------      --------  ---------      --------   --------   --------
<S>                            <C>             <C>      <C>             <C>      <C>             <C>       <C>        <C>
Total revenues                 $ 387,259       100.0%   $ 295,097       100.0%   $ 232,432       100.0%      31.2 %    27.0 %

Income before
  income taxes:
Income (loss)
  subject to tax                 (31,555)       (8.1)     (48,872)      (16.6)     (31,965)      (13.8)     (35.4)     52.9
Income not subject
  to tax                          79,341        20.5       79,309        26.9       80,085        34.5         --      (1.0)
                               ---------      ------    ---------      ------    ---------      ------     ------    ------
                                  47,786        12.3       30,437        10.3       48,120        20.7       57.0     (36.7)
Income tax
(provision)
benefit                           (6,492)       (1.7)      28,577         9.7       17,243         7.4     (122.7)     65.7

Net income                        41,294        10.7       59,014        20.0       65,363        28.1      (30.0)     (9.7)

</TABLE>

Our  consolidated  results  over the  three-year  period  reflect  our  changing
business focus from direct investing,  primarily generating recurring,  revenues
towards  growing the  business  through fund and asset  management  with a large
proportion of fee-based transaction income. This transition included:

     o    rapid  growth  of  our  taxable,   fee-based   business   through  the
          sponsorship  of  increasingly  larger and  greater  number of funds in
          2004, 2005 and 2006;
     o    approximately  doubling  our  Mortgage  Banking  business  through the
          acquisition of CCLP in 2005;
     o    commencement of Centerbrook in June 2006; and
     o    our acquisition of ARCap in August 2006 positively  impacting our Fund
          Management and Mortgage Banking segments.

Our  reported  revenues  do not  fully  reflect  the  growth  of the  individual
businesses due to the impact of consolidating sponsored investment partnerships,
as described  more fully below.  The  underlying  revenue  growth stems from the


                                       35
<PAGE>



introduction  of  new  products  such  as   variable-rate   bond  financing  and
loss-sharing mortgage loan originations for Freddie Mac.

Beyond the growth of our  businesses,  costs have also  increased  due to (among
other factors):

     o    increasing financing costs due to higher borrowing levels attendant to
          expansion and general increases in interest rates;
     o    the requirement  for  infrastructure  to support growth,  primarily in
          2004 and 2005, and the costs to operate acquired businesses;
     o    the costs associated with the creation of tax credit equity funds that
          vary  with  the  level  of fund  sponsorship  activity,  although  the
          majority  of such  costs are  reimbursed  and the  reimbursements  are
          recognized as revenue;
     o    start-up costs as well as termination and other costs  associated with
          the  restructuring of  securitization  programs in connection with the
          launch of Centerbrook; and
     o    restructuring  costs relating to  integration  actions with respect to
          the ARCap acquisition in 2006.

Along  with  the  compositional  changes  in  the  business,  we  are  now  also
increasingly  subject to  taxation,  although tax benefits may result based upon
the  annual  taxable  income or loss from  these  businesses.  The tax  benefits
recognized in 2004 and 2005 reflect the  increasing  proportion of these taxable
businesses and increased book losses of those  businesses.  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 assets as noted  above.  See also
INCOME TAXES below.

REVENUES

Our revenues for the years ended December 31 were as follows:

<TABLE>
<CAPTION>

                                                                 % Change                  % Change
                                                                 2006 vs.                  2005 vs.
           (In thousands)                  2006        2005        2005          2004        2004
-------------------------------------    --------    --------    --------      --------    --------
<S>                                      <C>         <C>           <C>         <C>           <C>
Mortgage revenue bond interest income    $156,500    $146,024        7.2 %     $132,075       10.6 %

Other interest income                      34,159      16,162      111.4          9,346       72.9

Fee income
Fund sponsorship                           44,739      50,982      (12.2)        45,564       11.9
Mortgage banking                           34,247      27,104       26.4         15,026       80.4
Credit intermediation                       5,215       6,694      (22.1)         8,476      (21.0)
                                         --------    --------    -------       --------    -------
Total fee income                           84,201      84,780       (0.7)        69,066       22.8

Other revenues
Prepayment penalties                        6,856       6,326        8.4          1,877      237.0
Construction service fees                   4,801       4,583        4.8          1,445      217.1
Rental income of real estate owned          5,918       3,860       53.3             --         --
Administration fees                         2,371       1,832       29.4          1,381       32.7
Expense reimbursements                      3,658       4,923      (25.7)         2,785       76.8
Other                                       5,057       2,511      101.4          2,244       11.9
                                         --------    --------    -------       --------    -------
Total other revenues                       28,661      24,035       19.2          9,732      147.0

Revenues of consolidated partnerships      83,738      24,096      247.5         12,213       97.3
                                         --------    --------    -------       --------    -------

Total revenues                           $387,259    $295,097       31.2 %     $232,432       27.0 %
                                         ========    ========    =======       ========    =======

</TABLE>

The  ARCap  acquisition  in  2006  and the  CCLP  acquisition  in  2005  drove a
significant   amount  of  our  annual   revenue   increase  in  2006  and  2005,
respectively.  Adjusting to include  ARCap  revenues  and CCLP  revenues for all
periods, our total revenues would have increased approximately 11.9% in 2006 and
8.6% in 2005.

As we  transition  to increase  our position as an asset and fund  manager,  the
revenue  fluctuations above are not necessarily  representative of the growth of
our businesses as we consolidate many  partnerships from which we earn revenues,
and as a result many transactions are eliminated in consolidation.  For example,
we eliminate  revenues earned by our subsidiaries in transactions with LIHTC and
Property  Partnerships  we have  consolidated  but in which we have virtually no


                                       36
<PAGE>



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. The consolidation also results in
the  elimination  of  revenues  earned  by  our  Portfolio  Investing  and  Fund
Management  subsidiaries for transactions  with the  partnerships.  The revenues
eliminated were as follows:

<TABLE>
<CAPTION>

                                                               % Change                % Change
                                                               2006 vs.                2005 vs.
          (In thounsands)                  2006       2005       2005       2004         2004
-------------------------------------    --------   --------   --------   --------     --------
<S>                                      <C>        <C>         <C>        <C>          <C>
Mortgage revenue bond interest income    $11,198    $ 3,555     215.0 %    $   581      511.9 %
Other interest income                        210        321     (34.6)         159      101.9
Fund sponsorship fees                     47,152     39,708      18.7       25,531       55.5
Credit intermediation fees                 3,789      3,152      20.2        1,609       95.9
Other revenues                             5,372      2,783      93.0        3,320      (16.2)
                                         -------    -------    ------      -------     ------
Total                                    $67,721    $49,519      36.8 %    $31,200       58.7 %
                                         =======    =======    ======      =======     =====

</TABLE>

These  amounts,  along with  revenues of  consolidated  partnerships,  increased
significantly  over  the  three  year  period  due  to  additional  partnerships
consolidated during the periods.

For discussion of individual revenue streams, see RESULTS BY SEGMENT below.

EXPENSES

Our expenses for the three years ended December 31 were as follows:

<TABLE>
<CAPTION>

                                                              % Change               % Change
                                                              2006 vs.               2005 vs.
          (In thounsands)                 2006       2005       2005        2004       2004
-------------------------------------   --------   --------   --------    --------   --------
<S>                                     <C>        <C>         <C>        <C>          <C>
Interest expense                        $ 97,055   $ 56,698     71.2 %    $ 30,932      83.3  %
                                        --------   --------   ------      --------    ------
Interest expense - preferred shares
  of subsidiary                           18,898     18,898       --        18,898       --
                                        --------   --------   ------      --------    ------

Salaries and benefits                     94,916     68,983     37.6        56,044      23.1
Fund origination and property
  acquisition expenses                    12,338     15,704    (21.4)       15,980      (1.7)
Operating costs of real estate owned       4,861      3,218     51.1            --        --
Restructuring costs                        1,446         --       --            --        --
Other general and administrative          52,087     40,708     28.0        29,282      39.0
                                        --------   --------   ------      --------    ------
  Subtotal                               165,648    128,613     28.8       101,306      27.0
                                        --------   --------   ------      --------    ------

Depreciation and amortization             47,527     44,195      7.5        30,407      45.3
Write off of intangible assets             2,644     22,567    (88.3)           --        --
Loss on impairment of assets               5,003      4,555      9.8           757     501.7
                                        --------   --------   ------      --------    ------
  Subtotal                               336,775    275,526     22.2       182,300      51.1
                                        --------   --------   ------      --------    ------

Interest expense of consolidated
  LIHTC and Property partnerships         25,989     26,322     (1.3)       21,395      23.0
Interest expense of consolidated CMBS
  and Direct Loan partnerships            21,937         --       --            --        --
                                        --------   --------   ------      --------    ------
                                          47,926     26,322     82.1        21,395      23.0
                                        --------   --------   ------      --------    ------
Other expenses of consolidated LIHTC
  and Property partnerships               75,479     49,810     51.5        30,519      63.2
Other expenses of consolidated CMBS
  and Direct Loan partnerships               467         --       --            --        --
                                        --------   --------   ------      --------    ------
                                          75,946     49,810     52.5        30,519      63.2
                                        --------   --------   ------      --------    ------
  Subtotal                               123,872     76,132     62.7        51,914      46.7
                                        --------   --------   ------      --------    ------

Total expenses                          $460,647   $351,658     31.0 %    $234,214      50.1 %
                                        ========   ========   ======      ========    ======

</TABLE>

The total amount of operating costs we recognize  increased  significantly  over
the three-year period due to increased investment activity and general expansion
of our businesses,  the CCLP acquisition in 2005, the ARCap  acquisition in 2006
and the amortization of intangible assets acquired.


                                       37
<PAGE>



The  increase in interest  expense  reflects the higher  borrowing  levels as we
expand our various business lines.  Significant  borrowings during 2006 and 2005
included those related to:

     o    our  acquisition  of ARCap in 2006,  for which the cash portion of the
          purchase price was approximately $263.3 million;
     o    acquisitions   and  fundings  of  mortgage   revenue  bonds   totaling
          approximately $419.9 million in 2006 and $443.5 million in 2005; and
     o    short-term  lending for mortgage loans prior to their sale to agencies
          and  conduits,  which  increased  markedly  in  2006  and  2005 as the
          business grew.

In addition to higher  borrowings,  interest  expense over the three year period
reflects an increase in the average  borrowing  rate,  resulting  primarily from
gradual  increases in the Bond Market  Association  Municipal Swap Index ("BMA")
and LIBOR rates over the three year period,  following  sharp  declines in prior
years. Interest expense also includes amounts paid and received pursuant to swap
agreements as part of our risk management strategy.

<TABLE>
<CAPTION>

       (Dollars in thousands)                 2006           2005           2004
------------------------------------       ----------     ----------     ----------
<S>                                              <C>            <C>            <C>
Average borrowing rate                            4.6 %          3.8 %          2.6 %
Average BMA rate                                 3.45 %         2.45 %         1.22 %
Average LIBOR rate                               5.13 %         3.46 %         1.54 %
Swap agreements - notional amount at
   December 31                             $  725,000     $  500,000     $   50,000

</TABLE>

The amount  reported  as  "interest  expense - preferred  shares of  subsidiary"
represents  dividends on the Equity Issuer  preferred shares that are subject to
mandatory  repurchase (see also OTHER ITEMS below regarding  dividends on shares
that are not subject to mandatory repurchase).

The  increase  in  salaries  and  benefits  expense in 2006 as  compared to 2005
primarily relates to:

     o    approximately 100 employees added upon the ARCap acquisition;
     o    incremental  non-cash  compensation cost of approximately $8.0 million
          related to shares issued in connection with the ARCap  acquisition (of
          the incremental  amount,  approximately $1.1 million related to shares
          that vested immediately);
     o    deferred  participation  compensation  of  approximately  $4.7 million
          related to CMBS funds we sponsor;
     o    severance related costs of approximately  $2.5 million associated with
          the elimination of certain executive positions during 2006; and
     o    continued growth of our component businesses.

The  increase in salaries  and  benefits  expense in 2005 as compared to 2004 is
primarily  related  to the  acquisition  of  CCLP in 2005  and the  addition  of
approximately  100  employees  at that time.  In  addition,  2005 also  includes
approximately  $3.2  million  of costs  related  to the  departure  of our Chief
Executive Officer and an executive of one of our subsidiaries.

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 (see FUND  MANAGEMENT  section below for
related revenue discussion).

Restructuring  costs relate to integration  initiatives  in connection  with the
ARCap acquisition.

Other general and administrative  expenses in many categories  increased in 2006
and 2005 due to the expansion of our businesses, increased occupancy needs and:

     o    the  acquisitions  of ARCap in 2006 and CCLP in 2005  which  increased
          infrastructure costs;
     o    start-up  costs  and   termination  and  other  fees  associated  with
          restructuring  of our  securitization  programs in connection with the
          launch of Centerbrook in 2006; and
     o    growth in  professional  fees due, in part, to auditing and compliance
          costs related to Sarbanes-Oxley implementation and legal costs related
          to protecting our interests in properties whose developers/contractors
          experienced  financial  problems  (see  Note  21 to  the  consolidated


                                       38
<PAGE>



          financial statements) and other properties on which we foreclosed (see
          Note 6 to the consolidated financial statements).

Depreciation and amortization expenses were higher in the 2006 and 2005 periods,
primarily due to:

     o    higher  amortization of mortgage  servicing  rights following the CCLP
          and ARCap  acquisitions  and the  expansion  of the  Mortgage  Banking
          business;
     o    a write-off of previously deferred fees in 2006 in connection with the
          restructuring  of certain  securitization  programs upon the launch of
          Centerbrook; and
     o    recognizing a retroactive  depreciation charge in 2006 for real estate
          owned which was reclassified  from held for sale to held and used (see
          Note 6 to the consolidated financial statements).

The  write-off of  intangible  assets in 2006  represents a goodwill  impairment
charge of  approximately  $1.0  million to account  for the portion of our total
investment in a subsidiary  that we did not recover upon  discontinuance  of the
business  and the  write-off  of $1.6 million in  unamortized  other  intangible
assets recognized at the time of its acquisition. The 2005 write-off pertains to
management's  decision at the end of 2005 to discontinue the use of the "Related
Capital Company" trade name when we renamed the subsidiary  CharterMac  Capital.
The absence of  amortization  during 2006  related to this  write-off  partially
offset the depreciation and amortization increases above.

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 year worth of operating costs compared to approximately  eight
months during 2005.

Loss on impairment of assets is discussed in PORTFOLIO INVESTING below.

The increases in the LIHTC and Property partnerships expense categories over the
three year  period are due to the  increase  in the number of such  partnerships
consolidated  due to the  incremental  fund  sponsorship  activity as well as an
increase in the number of Property  Partnerships  which we have taken control of
over the past two  years to  protect  our  investments  (see also Note 21 to the
consolidated  financial  statements).  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 and Direct Loan  partnerships  represent funds we
sponsor to syndicate investments in CMBS and associated resecuritization trusts,
along with a Direct Loan partnership we manage and consolidate. These items were
incorporated  into our financial  results  following our acquisition of ARCap in
August 2006.

OTHER ITEMS

<TABLE>
<CAPTION>

                                                                 % Change                  % Change
                                                                  2006 vs.                 2005 vs.
            (In thousands)                 2006         2005        2005         2004        2004
-------------------------------------   ---------    ---------   ----------   ---------    ---------
<S>                                     <C>          <C>           <C>        <C>           <C>
Equity and other income                 $   1,978    $   7,037     (71.9)%    $   3,442     104.4 %

Gain on termination of CCA loan         $   6,916    $      --        -- %    $      --        -- %
Gain on sale or repayment of mortgage
  revenue bonds and other assets            1,120        1,561     (28.3)           217     619.4
Gain on sale or repayment of loans         10,334        6,501      59.0          7,651     (15.0)
                                        ---------    ---------    ------      ---------    ------
Gain on sale or repayment of loans      $  18,370    $   8,062     127.9 %    $   7,868       2.5 %
  and mortgage revenue bonds

Income allocated to preferred
  shareholders of subsidiary            $  (6,225)   $  (6,225)       -- %    $  (3,942)     57.9 %

Income allocated to SCUs                $ (16,131)   $ (23,091)    (30.1)%    $ (28,174)    (18.0)%
Income allocated to SMUs                     (102)        (330)    (69.1)            --        --
Income allocated to SCI's                     (80)          --        --             --        --
Other                                         219           --        --           (194)       --
                                        ---------    ---------    ------      ---------    ------
Total income allocated to minority      $ (16,094)   $ (23,421)    (31.3)%    $ (28,368)    (17.4)%
  interests

Loss allocated to partners of
  consolidated partnerships             $ 401,377    $ 349,531      14.8 %    $ 219,950      58.9 %

</TABLE>


                                       39
<PAGE>



Equity and other income  decreased in the 2006 period as we no longer  recognize
equity income from our investment in ARCap after  completing our  acquisition in
August.  Subsequent  to the  ARCap  acquisition,  equity  and  other  income  is
comprised of income earned from property  development joint ventures,  offset by
losses from tax advantaged  investment vehicles similar to those we sponsor. The
sharp increase in 2005 relates to the level of joint venture investment activity
as several ventures approached  completion,  allowing us to realize our share of
development   income  and  gains  on  sale.  The  2005  increase  also  includes
incremental  dividends from  converting a portion of our ARCap  investment  from
preferred to common units.  Equity  income from our  investment in CMBS funds is
eliminated in  consolidation,  but positively  impacts our net income.  From the
date of acquisition  through  December 31, 2006,  this amount was  approximately
$15.3  million.  There is no comparable  amount in 2005 or 2004 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 a  participating  loan and the estimated
value of the manager  interest in CUC that was assigned to us (see Note 4 to the
consolidated financial statements).

The variance in gain on repayment of mortgage revenue bonds relates to the level
of repayments in the Portfolio  Investing segment.  Similarly,  the year-to-year
variations  in gains on sales or  repayment  of loans  are  attributable  to the
fluctuations  in the volume of  mortgage  originations.  See  RESULTS BY SEGMENT
below.

The  total of  "income  allocated  to  preferred  shareholders  of  subsidiary,"
increased in 2005 as compared to the 2004 period due to an additional  preferred
offering consummated in April 2004.

The income  allocation to SCUs and 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 and therefore  fluctuates
along  with net  income.  There was no income  allocated  to SMUs in 2004 as the
units were first  issued in May 2005;  likewise,  the SCIs were issued in August
2006 in connection with our ARCap acquisition. "Other" minority interest in 2006
principally  represents the portion of Centerbrook owned by IXIS. The amount for
2004  pertains  to the  portion of CMC that we did not  acquire  until the first
quarter of 2005.

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  $10,000) and the majority ownership in
CMBS funds we sponsor.

Income Taxes
------------

A large majority of our pre-tax  income is derived from our Portfolio  Investing
businesses,  which are structured as flow-through  entities.  Likewise, the CMBS
and Direct  Loan Fund  Sponsorship  businesses  which are  included  in our Fund
Management  segment are  similarly  structured.  As such,  the income from those
businesses does not subject us to income taxes.

The Fund Management  businesses  (other than those noted above) and the 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.  In
2005,  the other factors  include the $22.6  million  write-off of an intangible
asset (see EXPENSES above and Note 5 to the consolidated financial statements).

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 tax benefit  disclosed  in years prior to 2006 relates to the book losses of
the taxable businesses and the tax deductible  distributions on their subsidiary
equity.  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, as illustrated in Note 12 to the consolidated  financial  statements.  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


                                       40
<PAGE>



subsidiaries  for the  foreseeable  future,  all of the deferred tax assets will
likely not be realized and hence a valuation allowance was provided.

As noted above,  we  recognized  an income tax  provision in 2006 compared to an
income tax benefit for the  comparable  periods in 2005 and 2004.  The effective
tax rate on a consolidated  basis was 13.6% in 2006, (93.9)% in 2005 and (35.8)%
in 2004,  due to the factors noted above.  The effective  rate for our corporate
subsidiaries  that were subject to taxes was (20.6)% in 2006,  58.5% in 2005 and
54.4% in 2004. See Note 12 to the consolidated  financial statements for further
information regarding the effective tax rate.

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

PORTFOLIO INVESTING

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

<TABLE>
<CAPTION>

                                                                        % Change                    % Change
                                                                        2006 vs.                    2005 vs.
              (In thousands)                   2006          2005          2005         2004          2004
-----------------------------------------   ----------    ----------    ---------    ----------    ---------
<S>                                         <C>           <C>               <C>      <C>               <C>
New mortgage revenue bond acquisitions      $  298,875    $  378,746        (21.1)%  $  290,967         30.2 %
Funding of mortgage  revenue bonds
  acquired in prior years                       24,700         1,800           --        17,735        (89.9)
Acquisitions related to prior
  period forward commitments                    96,365        62,971         53.0        16,395        284.1
                                            ----------    ----------    ---------    ----------    ---------
Total acquisition and funding activity      $  419,940    $  443,517         (5.3)%  $  325,097         36.4 %
Forward commitments issued but not funded   $     --      $    8,000           -- %  $   88,676        (91.0)%

Mortgage revenue bonds repaid               $   83,746    $  104,279        (19.7)%  $   26,870        288.1 %

Average portfolio balance (fair
  value)                                    $2,560,548    $2,229,654         14.8 %  $1,946,433         14.6 %

Weighted average permanent interest
  rate of bonds acquired                          5.99%         6.19%                      6.26%
Weighted average yield of portfolio               6.72%         6.77%                      6.79%
Average borrowing rate (1)                        4.17%         3.65%                      2.51%
Average BMA rate                                  3.45%         2.45%                      1.22%

Mortgage revenue bond interest income (2)   $  170,273    $  150,222         13.3 %  $  132,815         13.1 %
Other interest income (2)                       19,894        10,602         87.6         7,100         49.3
Prepayment penalties                             1,662         1,176         41.3            30           --
Rental income of real estate owned               5,918         3,860         53.3            --           --
Other revenues (2)                               5,885         3,495         68.4         2,966         17.8
                                            ----------    ----------    ---------    ----------    ---------
                                            $  203,632    $  169,355         20.2 %  $  142,911         18.5 %
                                            ==========    ==========    =========    ==========    =========

Interest expense and securitization
  fees (2)                                  $   97,233    $   53,617         81.3 %  $   32,373         65.6 %

Loss on impairment of assets                $    5,003    $    4,555          9.8 %  $      757        501.7 %

Gain on termination of CCA loan             $    6,916    $       --           -- %  $       --           -- %
Gain on repayments of mortgage
  revenue bonds                             $    1,048    $    1,523        (31.2)%  $      217        601.8 %
                                            ----------    ----------    ---------    ----------    ---------

CAD                                         $  101,022    $  102,927         (1.9)%  $  106,317         (3.2)%
                                            ----------    ----------    ---------    ----------    ---------

</TABLE>

(1)  Includes  effect  of  swaps  and in  2006,  incremental  costs  related  to
     restructuring of our securitization programs.
(2)  Prior to intersegment eliminations.

The  increase in mortgage  revenue  bond  interest  income is  primarily  due to
expanding  our revenue  bond  portfolio  in 2005 and 2006,  although the rate of
investment has slowed due to challenging  market  conditions we have experienced
since 2004. Also included in mortgage revenue bond interest income is contingent
interest  of  approximately  $5.2  million  in 2006,  $2.6  million  in 2005 and
$230,000 in 2004, related to bonds prepaid during those years.

Other  interest  income in this  segment  is  predominantly  interest  income on
investments  other  than  mortgage  revenue  bonds  and  intercompany   interest
eliminated  in  consolidation.  The higher  level of income in the 2006 and 2005
periods  relates  primarily  to increased  intercompany  lending to utilize this
segment's cash flow,  offset by a lower level of outside  investments  following


                                       41
<PAGE>



the conversion of loans to equity in relation to the CCLP and ARCap acquisitions
in 2005 and 2006 and the CCA loan termination in 2006.

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.  In 2006, one borrower  prepaid a
bond resulting in a $1.0 million gain on repayment.

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  year of  operations  while  the 2005  results  represent  only a partial
period.

While the decline in interest rates for new  investments  has gradually  lowered
the average yield of our portfolio, from an income perspective, the low interest
rate  environment  has  been  favorable  for  us.  Although  the BMA  rate,  the
short-term  tax-exempt index,  increased markedly in 2006 and 2005, our weighted
average cost of debt associated with these investments,  taking our hedging into
effect,  continues to allow us to recognize spreads of several percentage points
between our cost of borrowing and the interest rates earned.  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  securitizations  in 2006 resulted in incremental  interest
costs of approximately $2.6 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.  Also, the fixed rate securitization we entered into in
2006 should serve to temper our exposure to interest rate increases.

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 eight  mortgage  revenue bonds in the
2006 period with seven underlying properties, four in the 2005 period with three
underlying  properties and one in the 2004 period with one underlying  property.
While the number of  impairments  increased in the 2006 period,  the losses have
declined in comparison with the growth rate of the portfolio.

CAD in this  segment  declined in 2006 from the 2005 period  level due to higher
borrowing costs from steadily  increasing interest rates and charges recorded in
2006 associated with restructuring of our securitization programs. These factors
were partially  offset by a $6.0 million cash  termination fee received upon the
termination of the loan to CCA and a sharply higher level of prepayment  penalty
income.  CAD  declined  in 2005 as  compared  to 2004 due  primarily  to  higher
borrowing costs from increasing  interest rates,  partially  offset by increased
interest income from revenue bond portfolio expansion from 2004 to 2005.


                                       42
<PAGE>



FUND MANAGEMENT

The  table  below  shows  selected  information  regarding  our Fund  Management
activities for the years ended December 31:

<TABLE>
<CAPTION>

                                                                        % Change                   % Change
                                                                         2006 vs.                   2005 vs.
              (In thousands)                     2006         2005        2005           2004         2004
-------------------------------------------   ----------   ----------   ---------     ----------   ---------
<S>                                           <C>          <C>              <C>       <C>              <C>

Equity raised by LIHTC funds                  $1,184,321   $1,131,274         4.7 %   $1,143,379        (1.1)%
Equity invested by LIHTC funds (1)            $1,113,289   $1,074,457         3.6 %   $  972,477        10.5 %

Fees based on equity raised (2)               $   14,739   $   16,211        (9.1)%   $   11,003        47.3 %
Fees based on equity invested (2)             $   46,737   $   45,733         2.2 %   $   41,970         9.0 %

Fees based on management of other entities:
Asset management and partnership fees (2)     $    29,53   $   28,888         2.2 %   $   18,632        55.0 %
Investment origination fees (2)                      377          592       (36.3)           590         0.3
Other (2)                                            101           60        68.3              1          --
                                              ----------   ----------   ---------     ----------   ---------
Subtotal                                          30,011       29,540         1.6         19,223        53.7
                                              ----------   ----------   ---------     ----------   ---------

Total fund sponsorship fees (2)                   91,487       91,484          --         72,196        26.7


Credit intermediation fees (2)                    11,475        9,845        16.6         10,085        (2.4)
Expense reimbursement (2)                         12,816        9,409        36.2          7,142        31.7
Construction fees (2)                              4,801        4,583         4.8          1,445       217.2
Other interest income (2)                          7,013          236          --            110       114.5
Other revenues (2)                                 3,773        2,195        71.9          1,685        30.3
                                              ----------   ----------   ---------     ----------   ---------
Total                                         $  131,365   $  117,752        11.6 %   $   92,663        27.1 %
                                              ----------   ----------   ---------     ----------   ---------

Equity income from CMBS and Direct
  Loan funds (2)                              $   15,284   $       --          -- %   $       --          -- %
                                              ----------   ----------   ---------     ----------   ---------

CAD                                           $   59,550   $   58,010         2.7 %   $   52,215        11.1 %
                                              ----------   ----------   ---------     ----------   ---------

</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  and  2005
increases relate to the funds closed in 2004 and 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
service fees are realized  immediately while we earn the partnership  management
fees over five-year periods.

Fees  earned for O&O  services  decreased  approximately  20.2% to $7.8  million
compared to $9.8 million in the 2005 period  primarily due a decrease in the fee
rate realized stemming from heightened  competition relating to certain types of
funds,  offset by an increase in equity  raised.  These same revenues  increased
approximately  3.5% compared to $9.5 million in the 2004 period primarily due to
the increase in the fee rate realized,  offset by a marginal  decrease in equity
raised.

Partnership  management fees revenues increased  approximately  30.2% in 2006 to
$6.9 million  compared to $5.3  million for the same period in 2005.  These same
revenues increased approximately 245.6% in 2005 compared to $1.5 million for the
same period in 2004. This increase is primarily the result of fund  sponsorships
completed during the three year period increasing the amount of deferred revenue
being amortized over that period.


                                       43
<PAGE>



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 we recognize
in a given period.

These fees increased to  approximately  $46.7 million in 2006,  representing  an
approximate 2.2% increase compared to the 2005 results.  The increase in fees is
comparable to the increase in funds originated.

These fees increased to  approximately  $45.7 million in 2005,  representing  an
approximate 9.0% increase compared to the 2004 results.  The increase in fees is
lower than the increase of equity invested because of a decrease in the fee rate
realized, stemming from changes in the mix of funds originated.

FEES BASED ON MANAGEMENT OF OTHER ENTITIES

The increase in asset management and partnership fees is attributable to:

     o    the  higher  level  of  assets  under  management  as we  add  to  the
          population of funds sponsored (with 10 added in 2006 and nine added in
          2005); and
     o    the  improvement  of the cash  position  of certain  investment  funds
          allowing  us to  collect  management  fees  in 2005  which  we did not
          previously recognize until collectability was reasonably assured.

The 2006 increase was partially  offset due 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  collectability is
not reasonably assured.

Fees earned from AMAC helped to increase our  partnership  and asset  management
fees in 2005 as we earned $1.9 million in incentive fees. We earned no incentive
management fees in 2006 or 2004.

OTHER INTEREST INCOME

Other interest income in 2006 includes interest on resecuritization certificates
held by ARCap and other  temporary  investments.  The  increase in 2006  relates
entirely to the ARCap acquisition.

OTHER REVENUES

Credit  intermediation,  expense  reimbursement,  construction  fees  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  increased  over  the  three  year  period  due  to
additional credit  intermediated funds being closed over the same period and the
launch of Centerbrook in 2006.

We anticipate  that the market for tax credit equity  investing will continue to
be strong in the near term but that  heightened  competition in the  marketplace
will lead to margin compression.  We expect,  however, that the launching of our
in-house  credit  intermediation  business will offset the impact of that margin
compression  from a net income  perspective  as we are likely to retain  amounts
previously paid or shared for credit  intermediation and for providing specified
rates of return to fund investors.

EQUITY INCOME

We are  general  partner of the CMBS and Direct  Loan 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.


                                       44
<PAGE>



Segment CAD  increased  over the three year period due  predominantly  to higher
fund  sponsorship  activity and the up-front fees received in the  transactions.
For 2006,  the addition of equity  income from the CMBS and Direct Loan funds to
this segment with the  acquisition  of ARCap also benefited the CAD results as a
portion of the income  recognized  is cash  based.  These  gains were  partially
offset each year by higher  infrastructure  costs in expanding  the business and
for 2006, by initial start-up costs associated with the Centerbrook business.

MORTGAGE BANKING

The table  below shows  selected  information  regarding  our  Mortgage  Banking
activities for the years ended December 31:

<TABLE>
<CAPTION>

                                                                   % Change                   % Change
                                                                   2006 vs.                   2005 vs.
           (In thousands)                  2006         2005         2005          2004         2004
------------------------------------   -----------   -----------   --------     -----------   --------
<S>                                    <C>           <C>              <C>       <C>              <C>
Originations                           $ 1,541,797   $ 1,278,448       20.6 %   $   838,162       52.5 %
Mortgage portfolio at December 31:
   Primary servicing                   $ 9,624,571   $ 9,050,576        6.3 %   $ 3,852,529      134.9 %
   Interim servicing                    11,707,108            --         --              --         --
   Special servicing                       201,207            --         --              --         --
Carrying value of mortgage servicing
   rights at December 31               $    68,875   $    62,190       10.7 %   $    32,366       92.1 %
                                       -----------   -----------   --------     -----------   --------

Mortgage origination fees (1)          $     9,136   $     7,454       22.6 %   $     5,455       36.6 %
Servicing fees (1)                          21,985        18,928       16.2           9,571       97.8
Assumption fees (1)                          3,383           887      281.4             220      303.2
                                       -----------   -----------   --------     -----------   --------
Total fee income                            34,504        27,269       26.5          15,246       78.9

Other interest income (1)                   20,893        10,150      105.8           3,217      215.5
Prepayment penalties (1)                     5,194         5,150        0.9           1,846      179.0
Other revenues (1)                           2,206         1,003      119.9             719       39.5
                                       -----------   -----------   --------     -----------   --------
                                       $    62,797   $    43,572       44.1 %   $    21,028      107.2 %
                                       ===========   ===========   ========     ===========   ========

Gain on sale of mortgages              $    10,334   $     6,501       59.0 %   $     7,651      (15.0)%
                                       -----------   -----------   --------     -----------   --------

CAD                                    $    20,199   $    14,871       35.8 %   $     4,388      238.9 %
                                       -----------   -----------   --------     -----------   --------

</TABLE>

(1)  Prior to intersegment eliminations.

Revenues  in  2006  and  2005  increased  in  this  segment  largely  due to the
acquisitions  of ARCap in August 2006 and of CCLP in March 2005.  Including  all
businesses  for all periods,  the 2006  increase  would have been  approximately
12.0% over 2005, and the 2005 increase would have been approximately  12.6% over
2004.

Originations for the three-years ended December 31 are broken down as follows:

<TABLE>
<CAPTION>
                                   % of                    % of                    % of
  (In thousands)       2006       Total        2005       Total        2004       Total
-----------------   ----------   -------    ----------   -------    ----------   -------
<S>                 <C>            <C>      <C>            <C>      <C>            <C>
Fannie Mae          $  620,583      40.3%   $  705,024      55.1%   $  284,479      33.9%
Freddie Mac            280,093      18.2       160,835      12.6       326,391      38.9
CharterMac Direct      535,554      34.7            --        --            --        --
Conduit and other      105,567       6.8       412,589      32.3       227,292      27.2
                    ----------   -------    ----------   -------    ----------   -------

Total               $1,541,797     100.0%   $1,278,448     100.0%   $  838,162     100.0%
                    ==========   =======    ==========   =======    ==========   =======

</TABLE>

Origination fees increased primarily due to the increase in originations. Fannie
Mae and conduit originations  decreased and CharterMac Direct increased from the
2005 period because the loan production staff focused its efforts on originating
loans for CharterMac  Direct,  which was launched in late 2005 and through which
we  originate  loans for AMAC and  ARESS.  Freddie  Mac  originations  increased
sharply due to three large portfolio  transactions  totaling $123 million in the
2006 period and our participation in the Freddie Mac DUI program.

With the ARCap acquisition, our servicing portfolio has expanded to include both
special  servicing and interim  servicing,  which entails  short-term  servicing
conduits prior to the issuance of their securitizations.

The activity  gains in 2005 stemmed  from a  significant  increase in Fannie Mae
originations,  as  CCLP  had  traditionally  conducted  a large  portion  of its
business  through  Fannie Mae,  and pricing  changes  that  allowed us to garner


                                       45
<PAGE>



greater  market  share.  Conduit  originations  also  increased  sharply  as  we
continued  to pursue  business  not  involving  agency  execution in response to
market  demand.  These  increases  were  partially  offset by a sharp decline in
Freddie Mac business,  as the 2004 period reflects a large  single-borrower pool
transaction, with no comparable transaction in the 2005 period.

A  significantly  higher level of assumption fees were earned over the course of
the three year period for when a new borrower  assumes the obligation for a loan
in the  servicing  portfolio.  The higher  volume of  assumptions  stemmed  from
increasing sales of underlying  properties for which the existing  borrowers did
not wish to pay prepayment penalties.

Despite the high volume of originations in 2005 and 2006, our primary  servicing
portfolio at December 31, 2006 declined from the 2005 level due to a high volume
of loans paid off each year coupled with a high percentage of  originations  for
loans without associated servicing.

Adjusting  for the  impact of the CCLP and  ARCap  acquisitions,  servicing  fee
income in 2006  declined  approximately  14.8% as compared to the same period in
2005, while 2005 servicing fee income increased  approximately 20.9% as compared
to the same  period  in 2004.  The 2006  decline  is due to the  erosion  of the
primary  servicing rate due to the higher  proportion of non-agency loans in the
portfolio. This trend has also affected the level of mortgage service rights, as
write-offs in connection  with the  prepayment of mortgages at higher  servicing
rights are replaced with new assets generating lower fee streams.  Generally, as
our prepayments  have increased,  our mortgage  servicing rights have decreased.
This  decrease is partially  offset by an increase in the average loan  balances
serviced by ARCap in 2006 over 2005.  The 2005  increase is due to a significant
increase in the average loan balances serviced by ARCap over 2004.

Interest  income  relates  primarily  to that  earned  on escrow  balances.  The
increases in 2006 and 2005 resulted from higher  account  balances and increased
market rates earned.  Interest  income also  increased due to the CCLP and ARCap
acquisitions.

Gain on sale of  mortgages  relates  directly to the value of  mortgage  service
rights recorded when loans are sold. The mortgage  service rights,  in turn, are
valued based on projected  servicing  revenues,  which,  excluding  the mortgage
service  rights of $15.2  million  acquired  as part of the  ARCap  acquisition,
decreased in 2006 as compared to 2005 due to erosion of servicing  fee rates for
new originations as discussed above. An increase in 2005 as compared to 2004 due
to the  increased  origination  volume was offset by a higher  reserve  for loan
losses,  due to the increased volume and the underlying debt service  statistics
in the portfolio.

Segment CAD  increased  over the three year 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 in 2006 and CCLP in 2005, and the higher  interest  income was also due in
part to increasing interest rates in 2005 and 2006. The increases were partially
offset  each  year by a  higher  level  of  ongoing  infrastructure  costs as we
continue to grow the business and, in 2006, by  restructuring  costs recorded in
connection with the ARCap acquisition. 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.

We anticipate  that the  continued  growth of the  securitized  loan market will
result in an increase in the  proportion of our conduit  executions to the total
in coming years. We expect that our affiliations  with pension fund advisors and
AMAC will aid this growth. In addition,  the increased  customer base that comes
with  CharterMac's  overall  expansion  through  acquisitions and organic growth
should  increase our  origination  volume as we further  develop our  integrated
infrastructure. The availability of the significant level of debt capital in the
market and general compression of fees industry-wide, however, are likely to put
pressure  on our fee revenue  and  margins  for the  foreseeable  future and may
offset some of the profits expected from volume gains.


                                       46
<PAGE>



CONSOLIDATED PARTNERSHIPS

The results of consolidated partnerships reflected in our consolidated financial
statements are for entities we control according to the definitions of FIN 46(R)
and similar accounting  pronouncements.  With respect to the more than 130 LIHTC
and Property  partnerships,  we have no equity interest or, in the case of 38 of
the  partnerships,  an insignificant  equity interest.  With respect to CMBS and
Direct Loan  partnerships,  we have ownership of varying  degrees,  but all less
than 25%.

     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 10 funds in the past year and the
     assumption  of  the  general   partner   interests  in  20  property  level
     partnerships during 2006.

     The increased revenue,  expense, equity loss and allocation amounts in 2005
     are due to the  origination of nine funds and the assumption of the general
     partner  interests in 12 property  level  partnerships  during 2005, all of
     which are included in the population.

     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  $10,000,   representing  our  nominal
     ownership.  As a result,  the  consolidation  of these  partnerships has an
     insignificant impact on our net income.

     CMBS AND DIRECT LOAN PARTNERSHIPS

     CMBS and Direct Loan Partnerships were incorporated upon our acquisition of
     ARCap in August 2006 and as such,  there is no comparable  information  for
     2005 and 2004.

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,   repurchase
agreements 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    a $100.0  million  warehouse  line,  used for mortgage  banking needs,
          which matures in May 2007,  and we expect to enter into a new facility
          or a further extension of this line upon maturity;
     o    a $250.0 million  revolving  credit  facility,  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;


                                       47
<PAGE>



     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.

As of December 31, 2006, we had approximately $145.6 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.

In  addition  to the  credit  lines  detailed  above,  we have a $453.0  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 December 31, 2006.
The securitization  certificates have a weighted average term of eight years and
the term loan matures in 2012.

We continue to actively  manage our balance sheet and our lending  relationships
and to continue to  diversify  our sources of  capital.  Although  the  mortgage
banking warehouse line matures in 2007, 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  terms  favorable  to us. Also,  while we intend to optimize our
securitization borrowing, our continued ability to do so is dependent on:

     o    the availability of bonds to be used in  securitizations  or as excess
          collateral;
     o    the  depth of the  market  of  buyers  for  tax-exempt  floating  rate
          investments; and
     o    our  ability to  maintain  and expand our  relationships  with  credit
          intermediators and liquidity providers.

Our debt financing  facilities are more fully  described in Notes 8 and 9 to our
consolidated financial statements.

EQUITY
------

Other than our common  shares,  we have several  classes of equity  outstanding,
with varying claims upon our income and cash flows:

     o    Convertible Community  Reinvestment Act Preferred Shares ("Convertible
          CRA Shares");
     o    4.4% Perpetual Convertible Community Reinvestment Act Preferred Shares
          ("4.4% Convertible CRA Shares");
     o    Preferred  shares  of Equity  Issuer  (some of which  are  subject  to
          mandatory repurchase);
     o    SCUs of our subsidiary, CharterMac Capital Company LLC ("CCC");
     o    SMUs of our subsidiary CM Investor, LLC; and
     o    SCIs of our subsidiary ARCap.

The  Convertible  CRA Shares are  economically  equivalent to our common shares,
receiving the same dividend. Unlike the common shares, however, these shares are
not  publicly  traded and do not have  voting  rights but entitle the holders to
"credit" under the US government's  Community Reinvestment Act. These shares are
convertible into common shares at the holders'  option,  mostly on a one-for-one
basis. We first issued Convertible CRA Shares during 2000 and the program became
popular  with a broad  range of banks that  invest in our shares to both make an
investment in us and to make qualifying Community Reinvestment Act investments.

The 4.4%  Convertible  CRA Shares are similar to the  Convertible  CRA Shares in
that they  entitle the holder to CRA "credit"  and are  convertible  into common
shares without having voting rights prior to conversion.  Unlike the Convertible
CRA  Shares,  however,  these  shares  carry a fixed  dividend  and each will be
convertible  into common shares at a rate of  approximately  1.81:1 beginning in
July 2008.

The preferred  shares of Equity  Issuer  entitle their holders to a claim on the
income and cash flows of most of our Portfolio Investing business.  They have no
voting rights with respect to CharterMac and are not convertible into CharterMac
common shares.

The SCUs  entitle  their  holders  to a claim on the  income  and cash  flows of
certain of our subsidiaries  through which we operate our LIHTC fund sponsorship
business. The SCUs have no direct voting rights with respect to CharterMac,  but


                                       48
<PAGE>



all of the holders  also have special  preferred  voting  shares of  CharterMac,
which  have  voting  rights  equivalent  to our  common  shares.  The  SCUs  are
convertible  into  common  shares on a  one-for-one  basis and are  entitled  to
tax-adjusted dividends based on the common dividend rate.

SMU holders are entitled to  distributions  at the same time as, and only if, we
pay  distributions on our common shares.  SMU  distributions are currently $1.73
per year, subject to adjustment in the amount of 95% of the percentage increases
or  decreases in the  dividends  paid by us on the common  shares.  The SMUs are
convertible into common shares on a one-for-one basis.

SCI holders are entitled to  distributions  at the same time as, and only if, we
pay  distributions on our common shares.  SCI  distributions are currently $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.  The
SCIs are convertible into common shares on a one-for-one basis.

In October  2004, we filed a shelf  registration  with the SEC providing for the
issuance of up to $400.0  million in common  shares,  preferred  shares and debt
securities.  The shelf  registration was declared effective on March 1, 2005 and
was available for use beginning  April 1, 2006. We have no current plans to draw
upon this shelf  registration  but may as  opportunities  present  themselves or
business requirements dictate.

Further  information about our equity instruments is included in Notes 13 and 14
to our consolidated financial statements.

SUMMARY OF CASH FLOWS

2006 vs. 2005
-------------

For the year ended December 31, 2006, cash and cash  equivalents  increased by a
smaller  amount than in the  comparable  2005 period.  A sharp  increase in 2006
operating  cash flows was more than offset by increased  investing cash outflows
and less cash provided by financing activities.

Operating  cash  flows  in 2006  were  $86.0  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 that 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.
These  increases  were  partially  offset by  increased  collateral  deposits in
connection with Centerbrook and higher  receivable  balances,  particularly with
respect to advances to partnerships.

Cash used in  investing  activities  was higher in 2006 as compared to 2005 by a
margin of $150.9 million primarily due to the ARCap acquisition,  offset in part
by an investment  sold to AMAC in April 2006, a decrease in restricted  cash due
to reduced  restricted cash requirements when we restructured our securitization
programs and returns of capital from ARCap prior to our acquisition.

Financing  inflows in the 2006 period  were lower than in 2005 by $7.5  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.   Also
contributing to the overall decrease in financing activities were treasury stock
purchases made during the year.

2005 vs. 2004
-------------

The larger  increase  in cash and cash  equivalents  in 2005 as compared to 2004
resulted  principally from increased  financing cash flows that offset a decline
in cash provided by operating activities.

Operating cash flows decreased by $105.7 million in 2005 as compared to the 2004
level,  due primarily to the high level of mortgage  originations  at the end of
2005.  While the assets were sold in the first quarter of 2006,  the increase in


                                       49
<PAGE>



the level of  mortgage  assets  held at the end of the year served to offset the
increase in net income exclusive of non-cash expenses and charges.

Investing  outflows  in 2005  were  approximately  the  same as in 2004  despite
increased  mortgage revenue bond acquisitions (net of repayments) and restricted
cash  requirements  as we  expanded  the  Mortgage  Banking  segment.  Investing
activities  in 2004  included a higher level of investing  outside of our normal
business  lines,  most  notably the loan to Capri,  while 2005  included a $26.0
million  co-investment with AMAC in a first mortgage loan, and other investments
that aggregated less than $10.0 million.

Financing  inflows in 2005 were $183.0  million  higher  than in 2004.  This was
primarily a result of  optimizing  our  securitization  capabilities  and taking
advantage of these  facilities to monetize our mortgage  revenue bond investment
portfolio,  the  expansion of our Mortgage  Banking  borrowing  capacity and the
issuance of our 4.4% Convertible CRA Shares. These factors collectively exceeded
the higher level of equity issuances (including subsidiary equity) in 2004.

LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2006
----------------------------------------------

During February 2007, equity distributions were paid as follows:

                                              (In thousands)
                                              --------------
Common/CRA shareholders                           $25,201
SCU/SMU/SCI holders                                 8,884
4.4% CRA Preferred shareholders                     1,188
Equity Issuer Preferred shareholders                6,281
                                                  -------
  Total                                           $41,554
                                                  =======

Subsequent  to December 31,  2006,  we paid down the CMC  warehouse  line as the
temporary  expansion of the facility expired February 1, 2007 (see Note 9 to the
consolidated financial statements).

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

Contractual Obligations
-----------------------

The following  table  provides our  commitments as of December 31, 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>            <C>
Notes payable (1)(2)                  $   591,165    $   166,165    $   182,500    $     5,000    $   237,500
Notes payable of consolidated
  partnerships (3)                        594,477         66,679        155,250         29,032        343,516
Repurchase agreements of
  consolidated partnerships (1)           942,224        255,823          7,135        149,009        530,257
Operating lease obligations                79,205          8,717         17,093         15,445         37,950
Subleases                                  (7,984)        (1,174)        (2,581)        (2,610)        (1,619)
Unfunded investment commitments (4)       231,518        144,180         87,338             --             --
Financing arrangements (1)(2)           1,801,780      1,801,780             --             --             --
Preferred shares of subsidiary
  (subject to mandatory repurchase)       273,500             --             --             --         273,500
                                      -----------    -----------    -----------    -----------     -----------

   Total                              $ 4,505,885    $ 2,442,170    $   446,735    $   195,876     $ 1,421,104
                                      ===========    ===========    ===========    ===========     ===========

</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 as described in LIQUIDITY AND CAPITAL RESOURCES.

(2)  Recourse  debt  represents  principal  amount only and  therefore  does not
include accrued interest of $5.8 million.  The weighted average interest rate at
December 31, 2006, including the impact of our swaps, was 5.32%.


                                       50
<PAGE>



(3) Of the notes  payable  of  consolidated  partnerships,  $444.3  million  are
collateralized  by  equity  subscriptions  of  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 $150.2  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,  $181.8  million  represents  mortgage  loan  origination
commitments with corresponding sale commitments.

Off Balance Sheet Arrangements
------------------------------

The following table reflects our maximum exposure and the carrying amounts as of
December 31, 2006:

<TABLE>
<CAPTION>

                                                        Maximum        Carrying
               (In thousands)                           Exposure        Amount
--------------------------------------------           ----------     ----------
<S>                                                    <C>            <C>
Completion guarantees (1)                              $   23,902     $       --
Development deficit guarantees (1)                         44,198            578
Operating deficit guarantees (1)                            7,524            169
ACC transition guarantees (1)                               3,245             --
Recapture guarantees (1)                                  114,703            169
Replacement reserve (1)                                     3,120             48
Guarantee of payment (1)                                   14,720             --
LIHTC credit intermediation (2)                         1,098,475         30,211
Mortgage banking loss sharing agreements (3)              816,321         13,116
                                                       ----------     ----------

                                                       $2,126,208     $   44,291
                                                       ==========     ==========

</TABLE>

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

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

(3) The loss  sharing  agreements  with  Fannie Mae and Freddie Mac are a normal
part of the DUS and DUI lender  programs  and afford a higher level of fees than
we earn for other comparable funding sources. The carrying value disclosed above
is our estimate of potential exposure under the guarantees, although any funding
requirements  for such exposure is based on the contractual  requirements of the
underlying  loans we sell to Fannie Mae and Freddie Mac, which vary as to amount
and duration, up to a maximum of 30 years. See also RISK RELATED TO OUR MORTGAGE
BANKING BUSINESS in Item 1A, RISK FACTORS.

The maximum  exposure  amount is not indicative of our expected losses under the
guarantees.  For details of these transactions,  see Note 21 to the consolidated
financial statements.

Application of Critical Accounting Estimates
--------------------------------------------

Our consolidated financial statements are based on the selection and application
of  accounting  principles  generally  accepted in the United  States of America
("GAAP"),  which require us to make  estimates and  assumptions  that affect the
reported amounts of assets, liabilities,  revenues and expenses. These estimates
and assumptions  sometimes  involve future events that cannot be determined with
absolute certainty.  Therefore,  our determination of estimates requires that we
exercise our judgment.  While we have used our best estimates based on the facts
and  circumstances  available to us at the time,  different results may actually
occur and any such differences  could be material to our consolidated  financial
statements.


                                       51
<PAGE>



We believe the  following  policies may involve a higher  degree of judgment and
complexity  and  represent  the  critical   accounting   policies  used  in  the
preparation of our consolidated financial statements:

     o    valuation of investments in mortgage revenue bonds;
     o    valuation of mortgage servicing rights;
     o    valuation of derivatives;
     o    impairment of goodwill and intangible assets; and
     o    accounting for income taxes.

VALUATION OF INVESTMENTS IN MORTGAGE REVENUE BONDS

SFAS No. 115,  ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
provides guidance on determining the valuation of investments owned. The initial
classification  of our  investments in the "available for sale" category  rather
than as "held to maturity" is due to a provision in most of the mortgage revenue
bonds  under  which we have a right to  require  redemption  prior to  maturity,
although  we can and may elect to hold them up to their  maturity  dates  unless
otherwise  modified,  and the ability of the borrower to prepay the bond after a
lockout period. Because of this classification, we must carry our investments at
fair  value.  Since  there is no ready  market  for these  investments,  we must
exercise  judgment in determining what constitutes "fair value". We estimate the
fair value by calculating  the present value of expected future cash flows under
the bonds. For bonds secured by non-stabilized  properties, the discount rate is
based upon the average rate of new  originations  for the quarter  leading up to
the valuation  date.  For bonds secured by stabilized  properties,  the discount
rate is reflective of the lower  inherent  risk. If the property  underlying the
bond has  substandard  performance,  a factor is added to the  discount  rate to
allow  for the  additional  risk.  Conversely,  if the  underlying  property  is
performing much better than expected,  the discount rate may be reduced to allow
for the reduced risk.

In making these determinations, we evaluate, among other factors:

     Bonds Secured by Properties in Construction Phase
     -------------------------------------------------

     o    Assets where there are issues outstanding  regarding timely completion
          of the  construction,  even if there is no apparent  risk of financial
          loss.

     Bonds Secured by Properties that are in Lease-Up or Stabilized Phases
     ---------------------------------------------------------------------

     o    Stabilization  requirements  (i.e.,  minimum  occupancy level and debt
          service coverage for specified periods) not yet met but all completion
          requirements  (i.e.,  timely  submission  of  documentation  regarding
          certificates of occupancy,  deal waivers,  etc., as well as completing
          construction within the budgeted cost) are met;
     o    Established material variation from anticipated operating performance,
          ability to meet  stabilization test within the allotted time period is
          in question or material deficiencies at the collateral level, or other
          weaknesses exist calling into question the viability of the project in
          the near to intermediate term; or
     o    Project  viability is in question and defaults exist and  notification
          of such has been delivered.  Enhanced possibility of loss may exist or
          has been specified.

We use these  criteria  to assess  all of our  mortgage  revenue  bonds.  In our
valuation  review,  any bonds meeting these  criteria are monitored and assessed
for risk of other-than-temporary  impairment.  If our analysis indicates that no
other-than-temporary  impairment  has  occurred,  the  fair  value  of a bond is
considered  to be the lower of  outstanding  face amount or the present value of
expected  future cash flows,  with the discount rate adjusted to provide for the
applicable   risk   factors.   If   however,   our   analysis   indicates   that
other-than-temporary  impairment has occurred,  the bond is considered impaired,
is written  down to fair value as  determined  by the present  value of expected
future cash  flows,  and a  corresponding  charge to earnings is recorded in the
statement of income.

VALUATION OF MORTGAGE SERVICING RIGHTS

SFAS No. 140,  ACCOUNTING  FOR TRANSFERS  AND SERVICING OF FINANCIAL  ASSETS AND
EXTINGUISHMENTS  OF  LIABILITIES,  requires that servicing  rights retained when
mortgage  loans are sold be  recorded as assets at fair value and  amortized  in
proportion  to,  and  over  the  period  of,  estimated  net  servicing  income.
Significant judgment is required in accounting for these assets, including:


                                       52
<PAGE>



     o    Determining  the fair value of the asset  retained when the associated
          mortgage is sold and in subsequent  reporting periods,  including such
          factors  as  costs  to  service  the  loans,  the  estimated  rate  of
          prepayments, the estimated rate of default and an appropriate discount
          rate to calculate the present value of cash flows; and
     o    Estimating  the  appropriate  proportion and period for amortizing the
          asset.

Changes  in  these  estimates  and  assumptions   could  materially  affect  the
determination of fair value.

We assess our mortgage  servicing  rights for impairment based on the fair value
of the assets as  compared  to carrying  values.  We estimate  the fair value by
obtaining market  information from one of the primary mortgage  servicing rights
brokers. To determine impairment, the mortgage servicing portfolio is stratified
by the risk  characteristics of the underlying mortgage loans and we compare the
estimated fair value of each stratum to its carrying value.  With respect to our
primary  servicing  portfolio,  we have  determined  that the  predominant  risk
characteristic is the absence or presence of loss sharing provisions  associated
with the underlying loans. For our other servicing portfolios we have determined
that the predominant risk characteristic is the ability to generate a consistent
income stream per loan due to the short-term  nature of the loans being serviced
or due to the fact that certain servicing revenues are not recurring.

When the carrying value of capitalized  servicing  assets exceeds fair value, we
recognize  temporary  impairment  through a valuation  allowance;  fair value in
excess of the amount capitalized is not recognized. In addition, we periodically
evaluate our mortgage  servicing rights for  other-than-temporary  impairment to
determine  whether the carrying  value before the  application  of the valuation
allowance is recoverable. When we determine that a portion of the balance is not
recoverable,  the asset and the  valuation  allowance  are  reduced  to  reflect
permanent impairment.

VALUATION OF DERIVATIVES

We  utilize  derivative  financial  instruments  as a means to help  manage  our
interest rate risk exposure on a portion of our variable rate debt  obligations,
through the use of cash flow hedges.  The  instruments  utilized  are  generally
pay-fixed swaps which are widely used in the industry and typically entered into
with major financial  institutions.  Our accounting  policies  generally reflect
these  instruments  at their fair value  with  unrealized  changes in fair value
reflected  in  "accumulated  other  comprehensive  income"  on our  consolidated
balance  sheets.  Realized  effects on cash flows as well as amounts  considered
ineffective are generally recognized currently in income.

IMPAIRMENT OF GOODWILL AND INTANGIBLE ASSETS

SFAS No. 142,  GOODWILL AND OTHER INTANGIBLE  ASSETS,  requires that goodwill be
tested for  impairment at the  reporting  unit level  (operating  segment or one
level below an operating segment) on an annual basis and between annual tests if
an event occurs or  circumstances  change that would more likely than not reduce
the fair value of a reporting  unit below its  carrying  value.  These events or
circumstances could include a significant change in the business climate,  legal
factors, operating performance indicators, competition, sale or disposition of a
significant portion of a reporting unit.  Application of the goodwill impairment
test requires judgment  regarding the fair value of each reporting unit which is
estimated  using a discounted  cash flow  methodology.  This, in turn,  requires
significant  judgments  including  estimation  of future  cash  flows,  which is
dependent on internal forecasts,  estimation of the long-term rate of growth for
our  business  and the life over which cash flows will  occur.  Changes in these
estimates and assumptions  could  materially  affect the  determination  of fair
value and/or goodwill impairment.

In addition, should we determine that goodwill is impaired, we would also review
intangible assets for the same business to determine if they were impaired also.
As with goodwill,  any indicators of impairment of a specific  intangible  asset
would also lead to a review.  As the  methods  for  determining  fair  values of
intangible  assets  are  similar  to those  for  determining  the fair  value of
goodwill,  the same judgments and uncertainties apply to these determinations as
well.

ACCOUNTING FOR INCOME TAXES

SFAS No. 109 establishes  financial  accounting and reporting  standards for the
effect of income taxes.  The  objectives  of accounting  for income taxes are to
recognize  the amount of taxes  payable or  refundable  for the current year and
deferred tax  liabilities  and assets for the future tax  consequences of events
that have been  recognized in an entity's  financial  statements or tax returns.
Judgment is required in  assessing  the future tax  consequences  of events that


                                       53
<PAGE>



have been recognized in our consolidated  financial statements or tax returns as
well as the recoverability of amounts we record,  including deferred tax assets.
Furthermore,  these projected future tax consequences  include our assumption as
to the  continuing  tax-free  nature of a  significant  portion of our earnings.
Variations  in the  actual  outcome  of  these  future  tax  consequences  could
materially impact our financial position or our results of operations.

Recently Issued Accounting Standards
------------------------------------

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 15 to the consolidated financial statements.

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 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  consolidated  financial  statements  as we  intend  to  continue
amortization of our MSRs.

In June 2006, the FASB issued  Interpretation No. 48 ("FIN 48"),  ACCOUNTING FOR
UNCERTAINTY  IN  INCOME  TAXES,  an  interpretation  of  SFAS  No.  109.  FIN 48
prescribes a comprehensive  model for how companies should  recognize,  measure,
present and disclose  uncertain tax positions taken or expected to be taken on a
tax return.  Under FIN 48, we shall  initially  recognize  tax  positions in the
financial  statements  when it is more  likely  than  not the  position  will be
sustained  upon  examination  by the tax  authorities.  We shall  initially  and
subsequently  measure such tax  positions  as the largest  amount of tax benefit
that is greater than 50% likely of being realized upon ultimate  settlement with
the tax  authority  assuming  full  knowledge  of the  position and all relevant
facts. FIN 48 also revises disclosure  requirements to include an annual tabular
rollforward of unrecognized tax benefits.  We will adopt this  interpretation as
required in 2007 and will apply its provisions to all tax positions upon initial
adoption with any cumulative  effect  adjustment  recognized as an adjustment to
retained  earnings.  We are  still  evaluating  the  impact of  adoption  on our
consolidated 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 consolidated financial statements.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108, CONSIDERING
THE  EFFECTS OF PRIOR  YEAR  MISSTATEMENTS  WHEN  QUANTIFYING  MISSTATEMENTS  IN
CURRENT YEAR FINANCIAL  STATEMENTS  ("SAB 108").  SAB 108 provides  interpretive
guidance  on how  the  effects  of the  carryover  or  reversal  of  prior  year
misstatements  should be considered in quantifying a current year  misstatement.
The SEC staff  believes  that  registrant  should  quantify  errors using both a
balance  sheet and an income  statement  approach  and evaluate  whether  either
approach  results  in  quantifying  a  misstatement   that,  when  all  relevant
quantitative and qualitative  factors are considered,  is material.  SAB 108 was
effective for 2006 and adoption of the SAB did not have a material effect on the
consolidated financial statements.


                                       54
<PAGE>



In February 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 159, THE FAIR VALUE OPTION FOR FINANCIAL  ASSETS AND FINANCIAL  LIABILITIES.
This Statement permits entities to choose to measure many financial  instruments
and  certain  other  items at fair value that are not  currently  required to be
measured at fair value under  existing GAAP.  This  Statement  also  establishes
presentation  and  disclosure  requirements  designed to facilitate  comparisons
between entities that choose different measurement  attributes for similar types
of  assets  and  liabilities.  This  Statement  does  not  affect  any  existing
accounting literature that requires certain assets and liabilities to be carried
at fair value.  We will adopt the provision of this Statement,  as required,  in
the first quarter of 2008. We are currently  evaluating  the impact of adoption,
if any, on our consolidated financial statements.

ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.

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

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

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

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

Our exposure to interest rate is twofold:

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

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
corporate term loan, and revolving credit and 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,  and a $453.0 fixed rate securitization facility, the full amount of
our  liabilities  labeled  on  our  consolidated   balance  sheet  as  Financing
Arrangements  and Notes  Payable are variable  rate debts.  We estimate  that an
increase  of 1.0% in  interest  rates  would  decrease  our annual net income by
approximately $12.1 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  net  income  by
approximately $1.8 million.


                                       55
<PAGE>



We manage this risk through the use of interest  rate swaps,  interest rate caps
and forward bond origination commitments, as described in Notes 11 and 21 to our
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
mortgage  revenue bond as the present  value of its expected  future 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  $162.3  million and a 1%
decrease would result in an increase of approximately $182.1 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.


                                       56
<PAGE>



                   MANAGEMENT'S REPORT ON THE EFFECTIVENESS OF
                    INTERNAL CONTROL OVER FINANCIAL REPORTING


The management of CharterMac and subsidiaries (the "Company") is responsible for
establishing and maintaining adequate internal control over financial reporting.
Our internal control system was designed to provide reasonable  assurance to our
management and Board of Trustees regarding the preparation and fair presentation
of published financial statements.

All  internal  control  systems,  no matter  how well  designed,  have  inherent
limitations.  Therefore,  even those  systems  determined  to be  effective  can
provide  only   reasonable   assurance  with  respect  to  financial   statement
preparation and presentation.

CharterMac  management  assessed the  effectiveness  of the  Company's  internal
control  over  financial  reporting  as of  December  31,  2006.  In making this
assessment,  management  used  the  criteria  set  forth  by  the  Committee  of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control
-  Integrated  Framework.  Based  upon our  assessment  we believe  that,  as of
December 31, 2006, our internal control over financial reporting is effective in
accordance  with those  criteria.  Management  excluded from its  assessment the
internal  controls over financial  reporting at ARCap Investors,  LLC, which was
acquired  on August 15,  2006,  and whose  financial  statements  constitute  19
percent  and 18 percent  of net and total  assets,  respectively,  14 percent of
revenues and 10 percent of net income of the  consolidated  financial  statement
amounts as of and for the year ended December 31, 2006.

Deloitte & Touche LLP, our independent auditors,  have issued an audit report on
our assessment of the Company's internal control over financial reporting, which
appears on page 58.



/s/ Marc D. Schnitzer                                    /s/ Robert L. Levy
---------------------                                    ------------------
Marc D. Schnitzer                                        Robert L. Levy
Chief Executive Officer                                  Chief Financial Officer
March 9, 2007                                            March 9, 2007


                                       57
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Trustees
and Shareholders of
CharterMac
New York, New York


We  have  audited   management's   assessment,   included  in  the  accompanying
"Management's  Report on the  Effectiveness of Internal  Controls over Financial
Reporting",   that  CharterMac  and  subsidiaries  (the  "Company")   maintained
effective  internal  control over  financial  reporting as of December 31, 2006,
based on the  criteria  established  in INTERNAL  CONTROL--INTEGRATED  FRAMEWORK
issued by the Committee of Sponsoring  Organizations of the Treadway Commission.
As described in  "Management's  Report on the  Effectiveness of Internal Control
Over Financial Reporting",  management excluded from its assessment the internal
control over financial reporting at ARCap Investors, LLC and subsidiaries, which
was acquired on August 15, 2006 and whose  financial  statements  constitute  19
percent  and 18 percent  of net and total  assets,  respectively,  14 percent of
revenues,  and 10 percent of net income of the consolidated  financial statement
amounts as of and for the year ended December 31, 2006.  Accordingly,  our audit
did  not  include  the  internal  control  over  financial  reporting  at  ARCap
Investors,  LLC and  subsidiaries.  The Company's  management is responsible for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility  is to express an opinion on management's  assessment and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

We conducted  our audit in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain  reasonable  assurance  about whether  effective
internal  control  over  financial  reporting  was  maintained  in all  material
respects. Our audit included obtaining an understanding of internal control over
financial reporting,  evaluating management's assessment, testing and evaluating
the design and operating  effectiveness of internal control, and performing such
other  procedures as we considered  necessary in the  circumstances.  We believe
that our audit provides a reasonable basis for our opinions.

A company's internal control over financial  reporting is a process designed by,
or under the  supervision  of, the company's  principal  executive and principal
financial officers, or persons performing similar functions, and effected by the
company's  board of  directors,  management,  and  other  personnel  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles.  A company's  internal control over
financial  reporting  includes those policies and procedures that (1) pertain to
the  maintenance  of records that, in reasonable  detail,  accurately and fairly
reflect the  transactions  and  dispositions  of the assets of the company;  (2)
provide  reasonable  assurance  that  transactions  are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting  principles,  and that receipts and  expenditures  of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of  unauthorized  acquisition,  use, or  disposition  of the company's
assets that could have a material effect on the financial statements.

Because  of  the  inherent   limitations  of  internal  control  over  financial
reporting,  including  the  possibility  of  collusion  or  improper  management
override of controls,  material  misstatements  due to error or fraud may not be
prevented or detected on a timely basis. Also,  projections of any evaluation of
the  effectiveness  of the internal  control over financial  reporting to future
periods are subject to the risk that the controls may become inadequate  because
of changes in conditions,  or that the degree of compliance with the policies or
procedures may deteriorate.

In our opinion,  management's  assessment that the Company maintained  effective
internal  control over  financial  reporting as of December 31, 2006,  is fairly
stated, in all material respects,  based on the criteria established in INTERNAL
CONTROL--INTEGRATED   FRAMEWORK   issued   by  the   Committee   of   Sponsoring
Organizations  of the  Treadway  Commission.  Also in our  opinion,  the Company
maintained, in all material respects,  effective internal control over financial
reporting as of December 31, 2006, based on the criteria established in INTERNAL
CONTROL--INTEGRATED   FRAMEWORK   issued   by  the   Committee   of   Sponsoring
Organizations of the Treadway Commission.


                                       58
<PAGE>



We have also  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),   the  consolidated   financial
statements  and  financial  statement  schedules  as of and for the  year  ended
December 31, 2006 of the Company and our report dated March 9, 2007 expressed an
unqualified  opinion on those  consolidated  financial  statements and financial
statement schedules.


/s/ DELOITTE & TOUCHE LLP
New York, New York
March 9, 2007


                                       59
<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

<TABLE>
<CAPTION>

                                                                                        Page
                                                                                        ----
<S>           <C>                                                                        <C>
(a) 1.        Financial Statements
              --------------------

              Report of Independent Registered Public Accounting Firm                    61

              Consolidated Balance Sheets as of December 31, 2006 and 2005               62

              Consolidated Statements of Income for the years ended December 31,
                2006, 2005 and 2004                                                      63

              Consolidated Statements of Shareholders' Equity for the
                years ended December 31, 2006, 2005 and 2004                             64

              Consolidated Statements of Cash Flows for the years ended December 31,
                2006, 2005 and 2004                                                      67

              Notes to Consolidated Financial Statements                                 69

</TABLE>


                                       60
<PAGE>



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Board of Trustees
and Shareholders of
CharterMac
New York, New York

We have audited the accompanying  consolidated  balance sheets of CharterMac and
subsidiaries  (the  "Company") as of December 31, 2006 and 2005, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2006.  Our audits  also
included the financial  statement  schedules listed in the Index at Item 15(a)2.
These   financial   statements  and  financial   statement   schedules  are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on the financial  statements and financial  statement schedules based on
our audits.

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

In our opinion,  such consolidated  financial  statements present fairly, in all
material  respects,  the financial position of CharterMac and subsidiaries as of
December 31, 2006 and 2005,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2006,  in
conformity with accounting principles generally accepted in the United States of
America.  Also,  in  our  opinion,  such  financial  statement  schedules,  when
considered in relation to the basic consolidated financial statements taken as a
whole,  present  fairly,  in all material  respects,  the  information set forth
therein.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal control over financial  reporting as of December 31, 2006, based on the
criteria  established in INTERNAL  CONTROL--INTEGRATED  FRAMEWORK  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission and our report
dated March 9, 2007 expressed an unqualified opinion on management's  assessment
of the effectiveness of the Company's internal control over financial  reporting
and an  unqualified  opinion  on the  effectiveness  of the  Company's  internal
control over financial reporting.


/s/DELOITTE & TOUCHE LLP
New York, New York
March 9, 2007


                                       61
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                         --------------------------
                                                                             2006           2005
                                                                         -----------    -----------

                                     ASSETS

<S>                                                                      <C>            <C>
Cash and cash equivalents                                                $   178,907    $   161,295
Restricted cash                                                               14,843         34,025
Mortgage revenue bonds-at fair value (Note 3)                              2,397,738      2,294,787
Other investments (Note 4)                                                   338,920        298,590
Goodwill and intangible assets, net (Note 5)                                 542,277        439,175
Deferred costs and other assets, net (Note 6)                                196,145        135,509
Loan to affiliate (Note 18)                                                   15,000             --
Investments held by consolidated partnerships (Note 7)                     4,965,907      3,025,762
Other assets of consolidated partnerships (Note 7)                         1,038,779        579,614
                                                                         -----------    -----------

Total assets                                                             $ 9,688,516    $ 6,968,757
                                                                         ===========    ===========

                     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  Financing arrangements (Note 8)                                        $ 1,801,170    $ 1,429,692
  Notes payable (Note 9)                                                     591,165        304,888
  Preferred shares of subsidiary (subject to mandatory repurchase)
    (Note 13)                                                                273,500        273,500
  Accounts payable, accrued expenses and other liabilities (Note 10)         214,344        178,365
  Notes payable and other liabilities of consolidated partnerships
    (Note 7)                                                               2,700,154      1,618,395
                                                                         -----------    -----------

Total liabilities                                                          5,580,333      3,804,840
                                                                         -----------    -----------

Minority interests in consolidated subsidiaries (Note 13)                    247,390        262,274
                                                                         -----------    -----------
Preferred shares of subsidiary (not subject to mandatory repurchase)
   (Note 13)                                                                 104,000        104,000
                                                                         -----------    -----------
Limited partners' interests in consolidated partnerships                   2,806,661      1,747,808
                                                                         -----------    -----------

Commitments and contingencies (Note 21)

Shareholders' equity (Note 14):
 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                                              97,499        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)                                                                     148            150
 Common shares; no par value (160,000 shares authorized; 52,746 issued
    and 51,343 outstanding in 2006 and 52,309 issued and 51,988
    outstanding in 2005)                                                     709,142        752,042
 Restricted shares granted                                                        --         (4,193)
 Treasury shares of beneficial interest - common, at cost (1,403
    shares in 2006 and 321 shares in 2005)                                   (28,018)        (7,135)
 Accumulated other comprehensive income                                       66,863        100,104
                                                                         -----------    -----------
Total shareholders' equity                                                   950,132      1,049,835
                                                                         -----------    -----------

Total liabilities and shareholders' equity                               $ 9,688,516    $ 6,968,757
                                                                         ===========    ===========

</TABLE>

           See accompanying notes to consolidated financial statements


                                       62
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                     (in thousands except per share amounts)

<TABLE>
<CAPTION>

                                                                         Year Ended December 31,
                                                                   -----------------------------------
                                                                      2006         2005         2004
                                                                   ---------    ---------    ---------
<S>                                                                <C>          <C>          <C>
Revenues:
   Mortgage revenue bond interest income                           $ 156,500    $ 146,024    $ 132,075
   Other interest income                                              34,159       16,162        9,346
   Fee income                                                         84,201       84,780       69,066
   Other revenues                                                     28,661       24,035        9,732
   Revenues of consolidated partnerships (Note 7)                     83,738       24,096       12,213
                                                                   ---------    ---------    ---------
     Total revenues                                                  387,259      295,097      232,432
                                                                   ---------    ---------    ---------

Expenses:
   Interest expense                                                   97,055       56,698       30,932
   Interest expense of consolidated partnerships                      47,926       26,322       21,395
   Interest expense - distributions to preferred shareholders
     of subsidiary                                                    18,898       18,898       18,898
   General and administrative (Note 16)                              165,648      128,613      101,306
   Depreciation and amortization                                      47,527       44,195       30,407
    Write-off of goodwill and intangible assets                        2,644       22,567           --
   Loss on impairment of mortgage revenue bonds and other assets       5,003        4,555          757
   Expenses of consolidated partnerships (Note 7)                     75,946       49,810       30,519
                                                                   ---------    ---------    ---------
     Total expenses                                                  460,647      351,658      234,214
                                                                   ---------    ---------    ---------

Loss before other income                                             (73,388)     (56,561)      (1,782)

Equity and other income                                                1,978        7,037        3,442
Gain on sale or repayment of mortgage revenue bonds and
  other assets                                                        18,370        8,062        7,868
Loss on investments held by consolidated partnerships               (278,232)    (247,986)    (149,048)
                                                                   ---------    ---------    ---------

Loss before allocations and income taxes                            (331,272)    (289,448)    (139,520)

Income  allocated to preferred shareholders of subsidiary             (6,225)      (6,225)      (3,942)
Minority interests in consolidated subsidiaries, net of tax
  (Note 13)                                                          (16,094)     (23,421)     (28,368)
Loss allocated to partners of consolidated partnerships              401,377      349,531      219,950
                                                                   ---------    ---------    ---------

Income before income taxes                                            47,786       30,437       48,120
Income tax (provision) benefit (Note 12)                              (6,492)      28,577       17,243
                                                                   ---------    ---------    ---------

Net income                                                         $  41,294    $  59,014    $  65,363
                                                                   =========    =========    =========

Allocation of net income to:
   4.4% Convertible CRA preferred shareholders                     $   4,752    $   2,020    $      --
   Common shareholders                                                32,405       50,558       56,786
   Convertible CRA shareholders                                        4,137        6,436        8,577
                                                                   ---------    ---------    ---------
     Total                                                         $  41,294    $  59,014    $  65,363
                                                                   =========    =========    =========

Net income per share (Note 17):
   Basic                                                           $    0.63    $    0.98    $    1.19
                                                                   =========    =========    =========
   Diluted                                                         $    0.62    $    0.98    $    1.19
                                                                   =========    =========    =========

Weighted average shares outstanding (Note 17):
   Basic                                                              58,154       58,018       54,786
                                                                   =========    =========    =========
   Diluted                                                            58,711       58,291       55,147
                                                                   =========    =========    =========

Dividends declared per share                                       $    1.68    $    1.65    $    1.57
                                                                   =========    =========    =========

</TABLE>

           See accompanying notes to consolidated financial statements

                                       63
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                         Beneficial Owners Equity
                                                        ---------------------------------------------------------
                                                             4.4%
                                                         Convertible                       Special                   Treasury
                                                        CRA Preferred   Convertible       Preferred       Common     Shares -
                                                            Shares       CRA Shares     Voting Shares     Shares      Common
                                                        -------------   ------------    -------------    --------    ---------
<S>                                                       <C>             <C>             <C>            <C>         <C>
Balance at January 1, 2004                                $     --        $138,748        $    161       $644,641    $   (378)

Comprehensive income:

Net income                                                                   8,577                         56,786

Other comprehensive loss:
  Net unrealized loss on derivatives
  Unrealized holding loss on mortgage revenue bonds
  Less: reclassification to net income

  Other comprehensive loss


  Comprehensive income


Options exercised and other share based compensation,
  net of forfeitures                                                                                         (564)
Amortization of share awards
Conversion of Special Common Units and redemption of
  Special Preferred Voting Shares                                                               (9)        17,789
Conversion of Convertible CRA shares                                       (27,585)                        27,585
Issuance costs of Convertible CRA shares                                      (148)
Issuance of common shares                                                                                 105,541
Repurchase of treasury shares                                                                                          (2,592)
Distributions                                                              (10,847)                       (78,613)
                                                        -------------   ------------    -------------    --------    ---------

Balance at December 31, 2004                              $     --        $108,745        $    152       $773,165    $ (2,970)
                                                        -------------   ------------    -------------    --------    ---------




<CAPTION>



                                                                                        Accumulated
                                                        Restricted                         Other
                                                          Shares      Comprehensive    Comprehensive
                                                          Granted         Income           Income         Total
                                                        ----------    -------------    -------------    ---------
<S>                                                     <C>             <C>              <C>            <C>
Balance at January 1, 2004                              $(19,385)                        $ 28,436       $792,223

Comprehensive income:

Net income                                                              $ 65,363                          65,363
                                                                      -------------
Other comprehensive loss:
  Net unrealized loss on derivatives                                      (1,078)
  Unrealized holding loss on mortgage revenue bonds                      (16,023)
  Less: reclassification to net income                                       217
                                                                      -------------
  Other comprehensive loss                                               (16,884)         (16,884)       (16,884)
                                                                      -------------

  Comprehensive income                                                  $ 48,479
                                                                      -------------

Options exercised and other share based compensation,
  net of forfeitures                                        (169)                                           (733)
Amortization of share awards                              11,632                                          11,632
Conversion of Special Common Units and redemption of
  Special Preferred Voting Shares                                                                         17,780
Conversion of Convertible CRA shares                                                                          --
Issuance costs of Convertible CRA shares                                                                    (148)
Issuance of common shares                                                                                105,541
Repurchase of treasury shares                                                                             (2,592)
Distributions                                                                                            (89,460)
                                                        ----------                     -------------    ---------

Balance at December 31, 2004                            $ (7,922)                        $ 11,552       $882,722
                                                        ----------                     -------------    ---------

                                                                                                       (continued)

</TABLE>

           See accompanying notes to consolidated financial statements


                                       64
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (In thousands)
                                   (continued)

<TABLE>
<CAPTION>

                                                                         Beneficial Owners Equity
                                                        ---------------------------------------------------------
                                                             4.4%
                                                         Convertible                       Special                   Treasury
                                                        CRA Preferred   Convertible       Preferred       Common     Shares -
                                                            Shares       CRA Shares     Voting Shares     Shares      Common
                                                        -------------   ------------    -------------    --------    ---------
<S>                                                       <C>             <C>             <C>            <C>         <C>
Balance at December 31, 2004                              $     --        $108,745        $    152       $773,165    $ (2,970)

Comprehensive income:
Net income                                                   2,020           6,436                         50,558

Other comprehensive income:
  Net unrealized gain on derivatives
  Unrealized gain on marketable securities
  Unrealized holding gain on mortgage revenue bonds
  Less: reclassification to net income

  Other comprehensive income

  Comprehensive income


Options exercised and other share based compensation,
  net of forfeitures                                                                                        8,325
Amortization of share awards                                                                                  895
Conversion of Special Common Units and redemption of
  Special Preferred Voting Shares                                                               (2)         4,818
Issuance of 4.4% Convertible CRA Preferred shares          104,498
Repurchase of treasury shares                                                                                          (4,165)
Distributions                                               (2,020)        (10,812)                       (85,719)
                                                        -------------   ------------    -------------    --------    ---------

Balance at December 31, 2005                              $104,498        $104,369        $    150       $752,042    $ (7,135)
                                                        -------------   ------------    -------------    --------    ---------




<CAPTION>



                                                                                        Accumulated
                                                        Restricted                         Other
                                                          Shares      Comprehensive    Comprehensive
                                                          Granted         Income           Income         Total
                                                        ----------    -------------    -------------    ----------
<S>                                                     <C>             <C>              <C>            <C>
Balance at December 31, 2004                            $ (7,922)                        $ 11,552       $  882,722

Comprehensive income:
Net income                                                              $ 59,014                            59,014
                                                                      -------------
Other comprehensive income:
  Net unrealized gain on derivatives                                       5,848
  Unrealized gain on marketable securities                                    35
  Unrealized holding gain on mortgage revenue bonds                       84,230
  Less: reclassification to net income                                    (1,561)
                                                                      -------------
  Other comprehensive income                                              88,552           88,552           88,552
                                                                      -------------
  Comprehensive income                                                  $147,566
                                                                      -------------

Options exercised and other share based compensation,
  net of forfeitures                                      (2,936)                                            5,389
Amortization of share awards                               6,665                                             7,560
Conversion of Special Common Units and redemption of
  Special Preferred Voting Shares                                                                            4,816
Issuance of 4.4% Convertible CRA Preferred shares                                                          104,498
Repurchase of treasury shares                                                                               (4,165)
Distributions                                                                                              (98,551)
                                                        ----------                     -------------    ----------

Balance at December 31, 2005                            $ (4,193)                        $100,104       $1,049,835
                                                        ----------                     -------------    ----------

                                                                                                        (continued)

</TABLE>

           See accompanying notes to consolidated financial statements

                                       65
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
                                 (In thousands)
                                   (continued)

<TABLE>
<CAPTION>

                                                                         Beneficial Owners Equity
                                                        ---------------------------------------------------------
                                                             4.4%
                                                         Convertible                       Special                   Treasury
                                                        CRA Preferred   Convertible       Preferred       Common     Shares -
                                                            Shares       CRA Shares     Voting Shares     Shares      Common
                                                        -------------   ------------    -------------    --------    ---------
<S>                                                       <C>             <C>             <C>            <C>         <C>
Balance at December 31, 2005                              $104,498        $104,369        $    150       $752,042    $ (7,135)

Comprehensive income:
Net income                                                   4,752           4,137                         32,405

Other comprehensive loss:
  Net unrealized loss on derivatives
  Unrealized gain on marketable securities
  Unrealized holding loss on mortgage revenue bonds
    and other assets
  Less: reclassification to net income

  Other comprehensive loss

  Comprehensive income



Reclassification of unamortized restricted shares
  upon adoption of FAS 123(R)                                                                              (4,193)
Options exercised and other share based
  compensation, net of forfeitures                                                                            743
Amortization of share awards                                                                               15,105
Conversion of Special Common Units and
  redemption of Special Preferred Voting Shares                                                 (2)         1,954
Repurchase of treasury shares                                                                                         (20,883)
Distributions                                               (4,752)        (11,007)                       (88,914)
                                                        -------------   ------------    -------------    --------    ---------
Balance at December 31, 2006                              $104,498        $ 97,499        $    148       $709,142    $(28,018)
                                                        =============   ============    =============    ========    =========


<CAPTION>



                                                                                        Accumulated
                                                        Restricted                         Other
                                                          Shares      Comprehensive    Comprehensive
                                                          Granted         Income           Income         Total
                                                        ----------    -------------    -------------    ----------
<S>                                                     <C>             <C>              <C>            <C>
Balance at December 31, 2005                            $ (4,193)                        $100,104       $1,049,835

Comprehensive income:
Net income                                                              $ 41,294                            41,294
                                                                      -------------
Other comprehensive loss:
  Net unrealized loss on derivatives                                      (2,267)
  Unrealized gain on marketable securities                                 1,561
  Unrealized holding loss on mortgage revenue bonds
    and other assets                                                     (31,991)
  Less: reclassification to net income                                      (544)
                                                                      -------------
  Other comprehensive loss                                               (33,241)         (33,241)         (33,241)
                                                                      -------------
  Comprehensive income                                                  $  8,053
                                                                      -------------

Reclassification of unamortized restricted shares upon
  adoption of FAS 123(R)                                   4,193
Options exercised and other share based
  compensation, net of forfeitures                                                                             743
Amortization of share awards                                                                                15,105
Conversion of Special Common Units and
  redemption of Special Preferred Voting Shares                                                              1,952
Repurchase of treasury shares                                                                              (20,883)
Distributions                                                                                             (104,673)
                                                        ----------                     -------------    ----------
Balance at December 31, 2006                            $     --                         $ 66,863       $  950,132
                                                        ==========                     =============    ==========

</TABLE>

           See accompanying notes to consolidated financial statements

                                       66
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                      Year Ended December 31,
                                                               -----------------------------------
                                                                  2006         2005         2004
                                                               ---------    ---------    ---------
<S>                                                            <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                  $  41,294    $  59,014    $  65,363
   Adjustments to reconcile net income to net cash provided
    by operating activities:
   Gain on sale or repayment of mortgage revenue bonds
    and other assets                                              (1,055)      (1,561)        (217)
   Loss on impairment of mortgage revenue bonds and other
    assets                                                         5,003        4,555          757
   Depreciation and amortization                                  47,527       44,195       30,407
   Equity in income of unconsolidated entities                    (1,979)      (7,037)      (3,442)
   Write-off of goodwill and intangible assets                     2,644       22,567           --
   Gain on CUC contract                                             (916)          --           --
   Income allocated to preferred shareholders of subsidiary        6,225        6,225        3,942
   Income allocated to minority interests in consolidated
    subsidiaries                                                  16,087       23,421       28,368
   Non-cash compensation expense                                  18,467        8,924       11,632
   Other non-cash (income) expense                                  (531)       2,737        3,303
   Deferred taxes                                                  2,156      (28,178)     (20,545)
   Distributions received from equity investees                    4,469        3,702        2,219
   Reserves for bad debt                                          25,898       24,238       13,631
   Changes in operating assets and liabilities:
    Mortgage servicing rights                                     (8,648)      (7,520)      (6,854)
    Mortgage loans receivable                                     31,288     (125,797)      (5,610)
    Loan to affiliate                                            (15,000)       4,600       (4,600)
    Deferred revenues                                             24,167       10,210       35,122
    Restructuring costs payable                                    1,128           --           --
    Receivables                                                  (88,742)     (65,172)          --
    Other assets                                                 (23,417)        (337)     (46,259)
    Accounts payable, accrued expenses and other liabilities         651       21,899         (812)
                                                               ---------    ---------    ---------

Net cash provided by operating activities                         86,716          685      106,405
                                                               ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayments of  mortgage revenue bonds                         115,600      133,611       39,067
   Mortgage revenue bond acquisitions and fundings              (419,940)    (443,517)    (325,037)
   Investments in notes receivable                                (6,594)     (34,401)      (3,900)
   Repayments of notes receivable                                 48,930        3,039        1,958
   Acquisitions, net of cash acquired                           (262,659)        (290)      (1,579)
   Loans to Capri Capital                                             --       (8,011)     (84,000)
   Advances to partnerships                                     (195,044)    (146,977)    (173,526)
   Collection of advances to partnerships                        188,711      138,981      156,875
   Deferred investment acquisition costs                          (1,478)      (2,579)      (1,342)
   Decrease in cash and cash equivalents - restricted             19,338          317        6,781
   Return of capital from equity investees                        16,667           --           --
   Purchases of marketable securities                               (109)          --           --
   Other investing activities                                    (27,318)     (13,191)      18,056
                                                               ---------    ---------    ---------

Net cash used in investing activities                           (523,896)    (373,018)    (366,647)
                                                               ---------    ---------    ---------

</TABLE>

           See accompanying notes to consolidated financial statements

                                    continued

                                       67
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

                                   (continued)

<TABLE>
<CAPTION>

                                                                                     Year Ended December 31,
                                                                            -----------------------------------------
                                                                               2006           2005           2004
                                                                            -----------    -----------    -----------
<S>                                                                         <C>            <C>            <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                               (104,168)       (96,556)       (84,395)
   Distributions to preferred shareholders of subsidiary                         (6,225)        (6,225)        (2,386)
   Distributions to Special Common Unit, Special Membership
    Unit and Special Common Interest holders                                    (35,589)       (34,677)       (28,411)
   Proceeds from financing arrangements                                       1,409,098        546,632        281,060
   Repayments of financing arrangements                                      (1,028,533)      (185,369)      (112,639)
   Increase in notes payable                                                    244,679        130,434         21,105
   Minority interest contribution                                                 5,250             --             --
   Proceeds from stock options exercised                                            756          3,804            308
   Retirement of Special Common Units and special preferred voting shares          (724)            (2)           (10)
   Treasury stock purchases                                                     (20,447)            --             --
   Issuance of preferred shares                                                      --        108,000             --
   Issuance of common or Convertible CRA shares                                      --             --        110,803
   Issuance of preferred subsidiary shares                                           --             --        104,000
   Deferred financing costs                                                      (9,305)        (3,700)       (10,140)
                                                                            -----------    -----------    -----------

Net cash provided by financing activities                                       454,792        462,341        279,295
                                                                            -----------    -----------    -----------

Net increase in cash and cash equivalents                                        17,612         90,008         19,053
Cash and cash equivalents at the beginning of the year                          161,295         71,287         52,234
                                                                            -----------    -----------    -----------

Cash and cash equivalents at the end of the year                            $   178,907    $   161,295    $    71,287
                                                                            -----------    -----------    -----------

SUPPLEMENTAL INFORMATION:

   Interest paid                                                            $    94,713    $    55,771    $    31,057
   Taxes paid                                                               $     1,204    $       768    $     8,040

Acquisition activity:

   Conversion of existing assets                                            $    14,221    $    70,000
   Issuance of subsidiary equity                                                  4,859          7,500
   Decrease in minority interest                                                     --         (4,200)   $    (1,579)
   Assets acquired                                                             (341,248)       (90,530)
   Liabilities assumed                                                           59,509         16,940
                                                                            -----------    -----------    -----------
Net cash paid for acquisitions                                              $  (262,659)   $      (290)   $    (1,579)
                                                                            ===========    ===========    ===========

Non-cash activities relating to adoption of FIN 46(R):
    Decrease in mortgage revenue bonds                                                                    $    33,821
    Increase in other assets                                                                                    4,731
    Increase in investments held by consolidated partnerships                                              (2,173,621)
    Increase in other assets of consolidated partnerships                                                    (210,494)
    Increase in notes payable and other liabilities of
      consolidated partnerships                                                                             1,047,976
    Increase in partners' interests of consolidated partnerships                                            1,297,587
                                                                                                          -----------
                                                                                                          $        --
                                                                                                          ===========

Non-cash investing and financing activities:
        Share grants and SCUs issued                                        $    41,767    $     3,706    $     1,875
        Issuance of SMUs in exchange for investment or acquisition          $        --    $    11,576    $        --
        Conversion of SCUs to common shares                                 $     1,954    $     4,818    $    17,789

        Conversion of CRA shares to common shares                           $        --    $        --    $    27,585
        Treasury stock purchases via employee withholding                   $       436    $     4,165    $     2,592
        Cancellation of acquisition - related SMUs                          $    (4,076)   $        --    $        --

</TABLE>

           See accompanying notes to consolidated financial statements

                                       68
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 1 - SUMMARY OF  SIGNIFICANT ACCOUNTING POLICIES

A. CONSOLIDATION AND BASIS OF PRESENTATION

The consolidated  financial  statements include the accounts of CharterMac,  our
wholly owned and majority owned subsidiary  statutory  trusts,  corporations and
limited liability companies which it controls and entities consolidated pursuant
to  the  adoption  of  FASB  Interpretation  No.  46(R)  or  similar  accounting
pronouncements  (see 1.O.  CONSOLIDATED  PARTNERSHIPS  below).  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 our consolidated subsidiaries.

Our  consolidated  financial  statements  are  prepared on the accrual  basis of
accounting in accordance with accounting  principles  generally  accepted in the
United States of America  ("GAAP").  The preparation of financial  statements in
conformity with GAAP requires 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.

B. REVENUE RECOGNITION

We derive our revenues from a variety of investments and services, summarized as
follows:

     o    MORTGAGE REVENUE BOND INTEREST INCOME

          We recognize income as it accrues,  provided  collectability of future
          amounts is reasonably assured.  We recognize  contingent interest when
          received.  For bonds with modified  terms, or when  collectability  is
          uncertain, we recognize revenue based upon expected cash receipts. For
          bonds which carry a different  interest  rate during the  construction
          period than during the balance of the term, we calculate the effective
          yield on the bond and use that rate to recognize  income over the life
          of the bond.  Acquisition  fees received upon  acquisition of mortgage
          revenue bonds are deferred and amortized through the call dates of the
          bonds.

          We place  loans  on a  non-accrual  status  when  any  portion  of the
          principal  or  interest  is 90 days past due or earlier  when  concern
          exists as to the  ultimate  collectability  of  principal or interest.
          Loans return to accrual  status when  principal  and  interest  become
          current.  There were seven bonds with a fair value of $35.1 million on
          non-accrual  status at  December  31, 2006 and eight bonds with a fair
          value of $49.9 million on non-accrual status at December 31, 2005.

     o    OTHER INTEREST INCOME

          We recognize  income on temporary  investments  (such as cash in banks
          and short-term  instruments) as well as longer term investments  (from
          promissory notes,  mortgages receivable,  etc.) and escrow accounts we
          manage, on the accrual basis as earned.

          We recognize  income on  resecuritization  certificates as it accrues,
          provided  collectability of future amounts is reasonably  assured.  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.

     o    FEE INCOME

          o    FUND SPONSORSHIP FEES

               o    ORGANIZATION,  OFFERING AND  ACQUISITION  ALLOWANCE FEES are
                    for   reimbursement   of  costs  we  incur  for   organizing
                    Low-Income Housing Tax Credit ("LIHTC") investment funds and
                    for providing  assistance in acquiring the  properties to be
                    included in the funds.  We recognize  the  organization  and
                    offering  allowance  fee when the investor  equity is raised
                    and  recognize  the  acquisition   allowance  fee  when  the


                                       69
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



                    investment  funds acquire  properties.  The related expenses
                    are included in general and administrative expenses.

               o    PARTNERSHIP  MANAGEMENT  FEES are for  maintaining the books
                    and records of LIHTC investment funds,  including  requisite
                    investor  reporting.  We recognize  these fees over the five
                    year  contractual   service  period  following  the  initial
                    closing of the fund.

               o    PROPERTY ACQUISITION AND ACQUISITION  ALLOWANCE FEES are for
                    services   we   perform   in    acquiring    interests    in
                    property-owning  partnerships  which  comprise the assets of
                    LIHTC funds we  sponsor.  We  recognize  these fees when the
                    investor  equity is invested and as the  properties  limited
                    partnership interest are acquired by the investment fund.

               o    ASSET MANAGEMENT FEES from:

                    o    LIHTC investment  funds,  based on a percentage of each
                         investment   fund's  invested  assets  are  earned  for
                         monitoring  the acquired  property  interests to ensure
                         that their  development,  leasing and operations comply
                         with LIHTC or other tax credit requirements;

                    o    American  Mortgage  Acceptance  Company  ("AMAC"),   an
                         affiliated,  publicly  traded  real  estate  investment
                         trust we manage (see Note 18), based upon AMAC's equity
                         as  well  as  incentive   management  fees  if  certain
                         profitability levels are attained; and

                    o    CharterMac  Urban  Capital LLC ("CUC"),  an  investment
                         fund in which we also have a membership  interest  (see
                         Note 4), based on a percentage  of the fund's  invested
                         assets.

                    Asset  management  fees  are  recorded  monthly  as  earned,
                    provided that collection is reasonably assured.

          o    MORTGAGE BANKING FEES

               o    MORTGAGE ORIGINATION FEES for originating loans are recorded
                    upon settlement of sale to the purchaser of the loans.

               o    MORTGAGE  SERVICING  FEES are recognized on an accrual basis
                    as the services are performed over the servicing period.

          o    CREDIT INTERMEDIATION FEES

               o    Fees  for  credit  intermediation  transactions  to  provide
                    specified  rates of return for an LIHTC  fund,  received  in
                    advance,  are deferred  and  amortized  over the  applicable
                    risk-weighted  periods on a straight-line  basis.  For those
                    pertaining to the  construction and lease-up phase of a pool
                    of properties, the periods are generally one to three years.
                    For those  pertaining to the operational  phase of a pool of
                    properties, the period is approximately 20 years.

               o    Fees  for  other  credit  intermediation   transactions  are
                    received monthly and recognized as income when earned.

          o    OTHER REVENUES

               o    PREPAYMENT PENALTIES from early payments of mortgage revenue
                    bonds or serviced  mortgage loans are recognized at the time
                    of prepayment.

               o    CONSTRUCTION  SERVICE  FEEs  from  borrowers  for  servicing
                    mortgage  revenue bonds during the  construction  period are
                    deferred and amortized  into other income over the estimated
                    construction period.


                                       70
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



               o    ADMINISTRATION FEES charged to the property  partnerships or
                    to other entities we manage are recorded as the payments are
                    received due to the uncertainty of collectability.

               o    EXPENSE  REIMBURSEMENTS include amounts billed to investment
                    funds and other affiliated  entities  ("affiliates") for the
                    reimbursement   of  salaries  and  certain   other   ongoing
                    operating  expenditures  incurred by  CharterMac  Capital on
                    behalf of these  affiliates.  We recognize  these amounts as
                    incurred.

          o    REVENUES OF CONSOLIDATED PARTNERSHIPS

               Rental  income  for  property  partnerships  is accrued as earned
               based on underlying  lease  agreements.  Interest  income for all
               consolidated  partnerships  is accrued  as earned.  For our funds
               which invest in commercial  mortgage-backed  securities ("CMBS"),
               we recognize  interest income as earned.  We compute accretion of
               purchase discounts 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.

C. INVESTMENT IN MORTGAGE REVENUE BONDS

We account for our investments in mortgage  revenue bonds as  available-for-sale
debt  securities  under the  provisions of SFAS No. 115,  ACCOUNTING FOR CERTAIN
INVESTMENTS IN DEBT AND EQUITY SECURITIES ("SFAS No. 115"). This  classification
is due to a  provision  in most of the bonds  whereby we have a right to require
redemption  prior to maturity,  although we can and may elect to hold them up to
their maturity dates unless otherwise modified,  and the ability of the borrower
to prepay the bond after a lockout period.  Accordingly, we carry investments in
mortgage  revenue bonds at their  estimated fair values,  and report  unrealized
gains and losses in accumulated other comprehensive income.

Because mortgage revenue bonds have a limited market, we estimate fair value for
each  bond as the  present  value of its  expected  future  cash  flows  using a
discount rate for comparable tax-exempt investments.  This process is based upon
projections of future economic events affecting the real estate  collateralizing
the bonds,  such as property  occupancy  rates,  rental  rates,  operating  cost
inflation,  market  capitalization  rates  and an  appropriate  market  rate  of
interest.

Direct  costs  relating to  unsuccessful  acquisitions  and all  indirect  costs
relating to the mortgage revenue bonds are charged to operations.

We consider a mortgage revenue bond as impaired when we determine it is probable
that not all required  contractual payments will be made when due, from property
operations or other sources of collection  (such as sale under  foreclosure  and
syndication  of associated  tax credits)  would not cover any  shortfall.  If we
determine a bond is impaired,  we write it down to its estimated  fair value and
record a realized loss in the statement of income. Our primary tool to determine
which loans are likely to incur a loss is to evaluate the debt service  coverage
ratio  based  on our  historical  experience  with  similar  properties  and the
frequency of such losses.

When a mortgage revenue bond is  underperforming  with respect to certain of our
standards (for example,  expectations of timely construction completion,  actual
occupancy levels or actual debt service coverage) but we still expect to recover
all contractual  payments (either through debt service or collateral),  we value
it based on our estimate of the fair value as  described  above,  although  such
fair value will not exceed the outstanding face amount.

D. OTHER INVESTMENTS

     Equity Method Investments
     -------------------------

     o    We invest in partnership  interests  related to the real estate equity
          investment funds we sponsor.  Typically, we hold these investments for
          a short period until we establish a new fund.

     o    We account for  investments  in entities in which we have  significant
          influence  but do not control  (such as  CharterMac  Urban Capital LLC
          ("CUC") and our  pre-acquisition  investment in ARCap  Investors,  LLC
          ("ARCap") under the equity method of accounting.  We recognize  income


                                       71
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



          based  on our  respective  ownership  percentages.  For the  preferred
          portion of the pre-acquisition ARCap investment, we accrued our equity
          earnings at the applicable cumulative dividend rate.

     Available-for-Sale
     ------------------

     o    We hold investments in resecuritization  certificates,  and funds that
          we  consolidate  hold  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  accumulated  other  comprehensive  income.  We
          evaluate  any  unrealized  losses to determine if the declines in fair
          value are  other-than-temporary;  if so, we record the decline in fair
          value as an  impairment  to the security and record a realized loss in
          the statement of income.  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  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.

     o    We value marketable securities based on quoted market prices.

     Other
     -----

     o    Mortgage loans held for sale represent amounts we are due for mortgage
          loans that were sold under purchase agreements to permanent investors,
          but for which we are  awaiting  settlement  of funds,  and the balance
          includes net origination costs. We do not retain any interest in these
          loans  except for  mortgage  servicing  rights and certain  contingent
          liabilities  pursuant  to loss  sharing  agreements.  We  record  loan
          commitment  fees as deferred  revenue net of direct  costs  associated
          with  closing the related loan and  recognize  them as income when the
          loans  are  sold in  accordance  with  SFAS  No.  91,  ACCOUNTING  FOR
          NONREFUNDABLE  FEES AND COSTS ASSOCIATED WITH ORIGINATING OR ACQUIRING
          LOAN AND INITIAL DIRECT COSTS OF LEASES.

     o    Notes  receivable are carried at their net realizable  value.  When we
          believe  that we will not  collect  all amounts due under the terms of
          the loan, we record a valuation allowance.

     o    We  invest  in  affiliated   entities  that   co-develop   properties.
          Development    investments    include   amounts   invested   to   fund
          pre-development  and development  costs.  Investment  funds we sponsor
          acquire  the limited  partnership  interest  in these  properties.  We
          expect to recapture these amounts from various sources attributable to
          the properties,  including capital contributions of investments funds,
          cash flow from operations, and/or from co-development partners, who in
          turn have cash flow notes from the properties.  In connection with our
          co-development agreements, affiliates of CharterMac issue construction
          completion,  development  deficit  guarantees  and  operating  deficit
          guarantees  to the lender  and  investment  funds (for the  underlying
          financing of the  properties)  on behalf of our  subsidiary  (see Note
          21).

E. CASH AND CASH EQUIVALENTS

Cash and cash  equivalents  include cash in banks and  investments in short-term
instruments with an original  maturity of three months or less.  Restricted cash
includes  collateral for borrowings  within our  securitization  programs and in
accordance with Fannie Mae and Freddie Mac requirements.


                                       72
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



F. DEFERRED COSTS

We  capitalize  costs  incurred in connection  with our debt and  securitization
programs (see Note 8) and amortize them on a straight-line  basis over the terms
of the debt facilities,  or 10 years,  which  approximates the average remaining
term to maturity of the mortgage revenue bonds in the securitization programs.

We capitalize costs incurred in connection with the issuance of preferred shares
of our Equity Issuer subsidiary and amortize them on a straight-line  basis over
the period to the mandatory  repurchase  date of the shares.  We record costs we
incur in connection with the issuance of equity as a reduction of the applicable
beneficial owners' equity.

G. GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill
--------

We test  goodwill for  impairment  (via third party  appraisals)  annually or if
circumstances  indicate there may be reason to believe  impairment has occurred.
Any such  impairment  would be  charged  to expense in the period in which it is
determined.

Other Intangible Assets
-----------------------

We  amortize  other  intangible  assets  on a  straight-line  basis  over  their
estimated useful lives. Should goodwill be deemed impaired,  the useful lives of
identified  intangible  assets  may  need  to  be  reassessed  and  amortization
accelerated, or such intangible assets could be deemed impaired as well.

Mortgage Servicing Rights ("MSRs")
----------------------------------

In  accordance  with SFAS No. 140,  ACCOUNTING  FOR  TRANFERS  AND  SERVICING OF
FINANCIAL ASSETS AND  EXTINGUISHMENT OF LIABILITIES,  we recognize as assets the
rights to service  mortgage  loans for  others,  whether  the MSRs are  acquired
through a separate  purchase or through  loans  originated  and sold.  We record
purchased MSRs at cost. For originated  loans,  we allocate total costs incurred
to the loan  originated  and the MSR retained based on the relative fair values.
In subsequent  periods,  we carry the assets at the amortized initial basis. All
MSRs are  amortized  in  proportion  to, and over the period of,  estimated  net
servicing income.

We assess MSRs for impairment  based on the fair value of the assets as compared
to carrying values.  We estimate the fair value by obtaining market  information
from  one of  the  primary  mortgage  servicing  rights  brokers.  To  determine
impairment,   the  mortgage  servicing  portfolio  is  stratified  by  the  risk
characteristics  of the  underlying  mortgage loans and we compare the estimated
fair value of each stratum to its  carrying  value.  When the carrying  value of
capitalized   servicing  assets  exceeds  fair  value,  we  recognize  temporary
impairment  through a  valuation  allowance;  fair value in excess of the amount
capitalized is not recognized.  In addition,  we periodically  evaluate our MSRs
for  other-than-temporary  impairment  to determine  whether the carrying  value
before the  application  of the  valuation  allowance  is  recoverable.  When we
determine  that a portion of the balance is not  recoverable,  the asset and the
valuation  allowance  are  reduced  to  reflect  permanent  impairment.  For the
servicing portfolio associated with our mortgage originating activities, we have
determined that the predominant risk  characteristic is the existence or absence
of loss sharing  provisions  associated with the underlying loans. For our other
servicing portfolios we have determined that the predominant risk characteristic
is the  ability  to  generate  a  consistent  income  stream per loan due to the
short-term  nature of the loans being  serviced or due to the fact that  certain
servicing revenues are not recurring.

We account for exposure to loss under our  servicing  contracts  with Fannie Mae
and Freddie Mac through a provision  for loan losses and record the reserve as a
contra-asset  applied to the MSR  balance.  The  exposure to loss  results  from
guarantees made to Fannie Mae and Freddie Mac under the "DUS" and "DUI" programs
to share the risk of loan losses (See Note 21 for more  details).  The provision
recorded is considered the fair value of the guarantees.  Our  determination  of
the  adequacy  of the  reserve  for  losses  on  loans  serviced  is based on an
evaluation  of the risk  characteristics  and exposure to loss  associated  with
those loans.  Our assessment is based on a number of factors,  including but not
limited to general economic  conditions,  inability of the borrower to meet debt
service  requirements,  or a substantial decline in the value of the collateral.
For  performing  loans,  we  maintain a general  reserve,  which is based on the


                                       73
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



stratification  of the loan servicing  portfolio by debt service  coverage ratio
(DSCR). The probability of default and loss is higher for loans with lower DSCRs
and  therefore a higher  reserve is  maintained  for such loans.  For  defaulted
loans, we maintain a loan specific  reserve based on an estimate of our share of
the loss.

H. FINANCIAL RISK MANAGEMENT AND DERIVATIVES

We account  for  derivative  financial  instruments  pursuant  to SFAS No.  133,
ACCOUNTING FOR DERIVATIVE  INSTRUMENTS AND HEDGING  Activities ("SFAS No. 133"),
as amended and interpreted. We record derivatives at fair value, with changes in
fair value of those that we classify as cash flow hedges recorded in accumulated
other  comprehensive  income,  to the  extent  they  are  effective.  If  deemed
ineffective,  we record the amount  considered  ineffective in the  consolidated
statement of income.

We have determined that we will not apply hedge accounting to fair value hedges.
Any change in the fair value of these  hedges is  therefore  included in current
period net  income.  As of  December  31,  2006,  we did not have any fair value
hedges.

I. 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.

J. FAIR VALUE OF FINANCIAL INSTRUMENTS

As described  above, our investments in mortgage revenue bonds, our MSRs and our
derivatives  are carried at estimated fair values.  We have  determined that the
fair  value  of  our  remaining  financial   instruments,   including  temporary
investments,  cash and cash equivalents,  promissory notes receivable,  mortgage
notes  receivable and borrowings  approximate  their carrying values at December
31, 2006 and 2005, due primarily to their short term nature or variable rates of
interest.

K. INCOME TAXES

We provide for income  taxes 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 basis
of assets and liabilities.  We assess the  recoverability of deferred tax assets
through evaluation of carryback availability, projected taxable income and other
factors as  applicable.  If we  determine  that  deferred  tax assets may not be
recoverable, we record a valuation allowance as appropriate.

L. NET INCOME PER SHARE

Basic net  income  per share  represents  net  income  allocated  to Common  and
Convertible  CRA  shareholders  (see Note 17) by the weighted  average number of
Common and Convertible  CRA shares  outstanding  during the period.  Diluted net
income per share  includes the  weighted  average  number of shares  outstanding
during  the  period  and  the  dilutive  effect  of  common  share  equivalents,
calculated using the treasury stock method.

The  Convertible  CRA  shareholders  are included in the  calculation  of shares
outstanding  as they share the same  economic  benefits as common  shareholders.
SCUs, SMUs, SCIs and 4.4% Convertible CRA preferred shares (see Notes 13 and 14)
are not included in the calculation as they are antidilutive.


                                       74
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                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



M. CREDIT INTERMEDIATION TRANSACTIONS

For guarantees and other credit intermediation transactions issued since January
1, 2003, we record liabilities (included in deferred revenues) equal to the fair
values of the  obligations  undertaken.  For  transactions  for which we receive
fees,  we consider the fees received to be fair value,  in accordance  with FASB
Interpretation  No. 45, GUARANTOR'S  ACCOUNTING AND DISCLOSURE  REQUIREMENTS FOR
GUARANTEES,  INCLUDING INDIRECT GUARANTEES OF INDEBTEDNESS OF OTHERS ("FIN 45").
For  completion  and other  guarantees  issued  to  lenders  for the  underlying
financing  of  properties,  as  required by an  investment  fund,  we  generally
recognize  no  liability  upon  inception  of the  guarantee  as the exposure is
considered  minimal and no fee is received.  We monitor our exposure under these
agreements  and,  should we determine a loss is probable,  accrue a liability in
accordance with SFAS No. 5, ACCOUNTING FOR CONTINGENCIES.

N. SHARE BASED COMPENSATION

We record  restricted  share grants as a reduction of beneficial  owners' equity
within  shareholders'  equity.  The balance recorded equals the number of shares
issued  (and that we  expect to vest)  multiplied  by the  closing  price of our
common shares on the grant date. We recognize the value of the awards as expense
in our  consolidated  statement  of income  on a  straight-line  basis  over the
applicable service periods.  For each separately vesting portion of an award, we
record the  expense as if the award  was,  in  substance,  multiple  awards.  We
expense any shares granted with immediate vesting when granted.

Because share-based compensation is based on awards that we ultimately expect to
vest, share-based compensation expense has been reduced to account for estimated
forfeitures. Statement of Financial Accounting Standards No. 123(R), SHARE-BASED
PAYMENT ("SFAS No. 123(R)") requires  forfeitures to be estimated at the time of
grant and revised,  if necessary,  in subsequent  periods if actual  forfeitures
differ  from  those  estimates.  In  periods  prior to 2006,  we  accounted  for
forfeitures as they occurred.

Under SFAS No. 123(R), we are required to select a valuation technique or option
pricing model that meets the criteria as stated in the standard.  At present, we
use the Black-Scholes model, which requires the input of subjective assumptions.
These  assumptions  include  estimating the length of time employees will retain
their vested  stock  options  before  exercising  them  ("expected  term"),  the
estimated  volatility of the Company's common stock price over the expected term
("volatility"), the risk free interest rate and the dividend yield.

O. CONSOLIDATED PARTNERSHIPS

"Consolidated Partnerships" consist of four groups:

     o    Certain  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");
     o    CMBS Partnerships we sponsor, which we initially consolidated upon the
          ARCap Investors LLC ("ARCap") acquisition in August 2006 (see Note 2);
          and
     o    a Direct Loan  Partnership  we manage and  consolidate,  which we also
          consolidated following the ARCap acquisition.

     LIHTC Partnerships
     ------------------

     Through our  acquisition  of CharterMac  Capital,  and in  subsequent  fund
     originations,  we became the general partner or equivalent in more than 130
     entities in which we have  little or no  financial  investment.  Typically,
     outside  investors  acquire all partnership  interest in an upper-tier,  or
     investment partnership, or 100% of the membership interest if structured as
     a limited liability company. The investment  partnership,  in turn, invests
     as a limited  partner in one or more  lower-tier  (operating)  partnerships
     that own and operate the  multifamily  housing  complexes.  Partners in the
     investment partnerships are most often corporations who are able to utilize
     the tax benefits, which are comprised of operating losses and LIHTCs.


                                       75
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



     Investment partnerships in which the limited partners or limited members do
     not have the right to remove us as the general  partner or managing  member
     are variable interest  entities ("VIEs") as defined by FASB  Interpretation
     No. 46(R),  CONSOLIDATION OF VARIABLE INTEREST  ENTITIES ("FIN 46(R)").  We
     have concluded  that, as the general  partner or managing  member for these
     type of investments, we are the primary beneficiary as defined by FIN 46(R)
     because we absorb the majority of the expected income and loss  variability
     (as we are entitled to fees and are the "decision maker" of the funds), and
     such  variability is  disproportionate  to our actual  ownership  interest,
     which in most cases is none although  some of our  executive  officers have
     nominal,   indirect  equity  interests  in  many  of  the  funds.  We  have
     consolidated  the assets and  liabilities  of these entities in our balance
     sheets and have recorded  their results of operations in our  statements of
     income beginning April 1, 2004.

     For the LIHTC Partnerships, the balance sheets and statements of operations
     included in our 2006  consolidated  financial  statements are as of and for
     the year ended September 30, 2006, the latest date available. Likewise, the
     amounts included in the 2005  consolidated  financial  statements are as of
     and for the year ended  September  30,  2005.  Upon  receipt  of  full-year
     audited  results,  we include  any  adjustments  to  amounts we  previously
     recorded in the next quarterly reporting period.

     Property Partnerships
     ---------------------

     We have  the  general  partner  interest  in 55  lower-tier  property-level
     operating partnerships in which we have little or no ownership interest. We
     assumed the general  partner  interest  in these  partnerships  in order to
     protect our interests in the underlying properties.  As with the investment
     funds described  above, the limited partners or limited members do not have
     the right to remove us as the general partner or managing member.  Although
     these entities are not VIEs, we are deemed to control them and  consolidate
     them pursuant to ARB No. 51, CONSOLIDATED  FINANCIAL STATEMENTS or SOP 78-9
     ACCOUNTING FOR INVESTMENTS IN REAL ESTATE VENTURES ("SOP 78-9).

     For the  Property  Partnerships,  the  balance  sheets  and  statements  of
     operations  consolidated in our 2006 consolidated  financial statements are
     as of and for the year ended September 30, 2006, the latest date available.
     Likewise,   the  amounts  included  in  the  2005  consolidated   financial
     statements are as of and for the year ended September 30, 2005.

     CMBS Partnerships
     -----------------

     CMBS partnerships are funds we sponsor in which we have minority  interests
     but for  which  our  subsidiaries  are  general  partners.  Although  these
     entities are not VIEs, we control them and consolidate them.

     Direct Loan Partnership
     -----------------------

     ARCap Real Estate  Special  Situations  Mortgage  Fund,  LLC ("ARESS") is a
     direct loan fund we sponsor,  in which we have a 5% interest  and for which
     one of our subsidiaries is the general partner. Although this entity is not
     a VIE, we control it and consolidate it pursuant to EITF 04-5,  DETERMINING
     WHETHER A GENERAL PARTNER,  OR THE GENERAL PARTNERS AS A GROUP,  CONTROLS A
     LIMITED  PARTNERSHIP  OR SIMILAR  ENTITY  WHEN THE  LIMITED  PARTNERS  HAVE
     CERTAIN  RIGHTS ("EITF 04-5").  ARESS invests in bridge loans,  subordinate
     interests in first mortgages  ("B-notes") and subordinate  loans secured by
     interests in the borrowing entity ("mezzanine loans").

     For  the  CMBS  and  Direct  Loan  Partnerships,  the  balance  sheets  and
     statements of operations  consolidated in our 2006  consolidated  financial
     statements are as of and for the period ended December 31, 2006.

P. NEW ACCOUNTING PRONOUNCEMENTS

Effective  March 31, 2004, we adopted FIN 46(R) which  clarified the application
of  existing  accounting  pronouncements  to certain  entities  in which  equity
investors do not have the characteristics of a controlling financial interest or
do not have  sufficient  equity at risk for the entity to finance its activities
without  additional  subordinated  financial  support  from other  parties.  See
CONSOLIDATED  PARTNERSHIPS,  above,  regarding  the impact of our adopting  this
standard.


                                       76
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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 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.

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 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  consolidated  financial  statements  as we  intend  to  continue
amortization of our MSRs.

In June 2006, the FASB issued  Interpretation No. 48 ("FIN 48"),  ACCOUNTING FOR
UNCERTAINTY  IN  INCOME  TAXES,  an  interpretation  of  SFAS  No.  109.  FIN 48
prescribes a comprehensive  model for how companies should  recognize,  measure,
present and disclose  uncertain tax positions taken or expected to be taken on a
tax return.  Under FIN 48, we shall  initially  recognize  tax  positions in the
consolidated  financial  statements when it is more likely than not the position
will be sustained upon  examination by the tax  authorities.  We shall initially
and subsequently measure such tax positions as the largest amount of tax benefit
that is greater than 50% likely of being realized upon ultimate  settlement with
the tax  authority  assuming  full  knowledge  of the  position and all relevant
facts. FIN 48 also revises disclosure  requirements to include an annual tabular
rollforward of unrecognized tax benefits.  We will adopt this  interpretation as
required in 2007 and will apply its provisions to all tax positions upon initial
adoption with any cumulative  effect  adjustment  recognized as an adjustment to
retained  earnings.  We are  still  evaluating  the  impact of  adoption  on our
consolidated 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 consolidated financial statements.

In September 2006, the Securities and Exchange  Commission  ("SEC") issued Staff
Accounting Bulletin No. 108, CONSIDERING THE EFFECTS OF PRIOR YEAR MISSTATEMENTS
WHEN QUANTIFYING MISSTATEMENTS IN CURRENT YEAR FINANCIAL STATEMENTS ("SAB 108").
SAB 108 provides  interpretive  guidance on how the effects of the  carryover or
reversal of prior year  misstatements  should be  considered  in  quantifying  a
current  year  misstatement.  The SEC  staff  believes  that  registrant  should
quantify errors using both a balance sheet and an income statement  approach and
evaluate  whether either  approach  results in quantifying a misstatement  that,
when all  relevant  quantitative  and  qualitative  factors are  considered,  is
material.  SAB 108 was effective for 2006 and adoption of the SAB did not have a
material effect on the consolidated financial statements.

In February 2007, the FASB issued  Statement of Financial  Accounting  Standards
No. 159, THE FAIR VALUE OPTION FOR FINANCIAL  ASSETS AND FINANCIAL  LIABILITIES.
This Statement permits entities to choose to measure many financial  instruments
and  certain  other  items at fair value that are not  currently  required to be
measured at fair value under  existing GAAP.  This  Statement  also  establishes
presentation  and  disclosure  requirements  designed to facilitate  comparisons
between entities that choose different measurement  attributes for similar types
of  assets  and  liabilities.  This  Statement  does  not  affect  any  existing
accounting literature that requires certain assets and liabilities to be carried


                                       77
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



at fair value.  We will adopt the provision of this Statement,  as required,  in
the first quarter of 2008. We are currently  evaluating  the impact of adoption,
if any, on our consolidated financial statements.

Q. RECLASSIFICATIONS

Certain  amounts from prior years have been  reclassified to conform to the 2006
presentation,  including the  reclassification of real estate owned from a "Held
for Sale" classification to "Held and Used", and associated reclassifications in
the income statement pertaining to operations of these properties.

NOTE 2 - ACQUISITIONS

A.  ARCAP

In August 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 $275.3 million included:

     o    cash of approximately $263.3 million, including transaction costs;
     o    approximately   268,000  Special  Common   Interests   ("SCIs")  of  a
          subsidiary (see Note 13) with a value of  approximately  $4.9 million;
          and
     o    the remaining  basis of our prior  investment in ARCap  (approximately
          $7.1 million) which had been reduced by distributions accounted for as
          returns of capital (see Note 4).

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 in 2007 and 2008.

The cash portion of the acquisition and associated acquisition costs were funded
by a new credit  facility (see Note 9). In connection with the  acquisition,  we
also  issued  approximately  1.7  million  restricted  common  shares  to  ARCap
employees (see Note 15).

We accounted for the acquisition as a purchase, and accordingly, we included the
results  of  operations  in  the  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 acquired 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.

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

Cash and cash equivalents                                  $     720
Restricted cash                                                  156
Other investments                                            132,746
Goodwill                                                     110,504
Other intangible assets                                       18,998
Deferred costs and other assets                               13,283
Investments in consolidated partnerships                      45,504
Financing arrangements                                       (32,513)
Accounts payable, accrued expenses and other liabilities     (14,141)
                                                           ---------

Total purchase price                                       $ 275,257
                                                           =========


                                       78
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

<TABLE>
<CAPTION>

                                            Year Ended December 31,
                                            -----------------------
                                                  (Unaudited)
                                            -----------------------
(In thousands, except per share amounts)       2006         2005
----------------------------------------    ----------   ----------
<S>                                          <C>          <C>
Total revenues                               $474,543     $420,836
Net income                                   $ 56,927     $ 78,565
Net income per share:
   Basic                                     $  0.90      $   1.32
   Diluted                                   $  0.87      $   1.30

</TABLE>

B.  CHARTERMAC REAL ESTATE SECURITIES

In March  2006,  we  acquired  Capri Real  Estate  Services  from Capri  Capital
Advisors LLC ("CCA"), and renamed it CharterMac Real Estate Securities ("CRES").
CRES was a manager of hedge funds and other funds  concentrating on investing in
securities of publicly traded real estate 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  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 subsidiary equity units that we had issued (see Note
13) were  returned and others held in escrow were  cancelled.  In addition,  the
founder  assumed CRES' line of credit.  In connection  with this  agreement,  we
reduced goodwill by $5.1 million for the  cancellation of the subsidiary  equity
units held in escrow as well as the  subsidiary  equity units returned to us and
the assumption of the line of credit.  We also recognized a goodwill  impairment
charge of  approximately  $1.0  million to account  for the portion of our total
investment  in, and advances to, CRES that we did not recover and  wrote-off the
$1.6 million  unamortized  balance of other intangible  assets recognized at the
time of the acquisition.

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

C. CAPRI CAPITAL LIMITED PARTNERSHIP

Effective  March 1, 2005, we purchased 100% of the ownership  interests of Capri
Capital  Limited  Partnership  ("CCLP").  The initial  purchase  price was $70.0
million plus $1.8 million of acquisition costs. Subsequently, the sellers earned
$15.0 million of additional consideration based on the 2004 financial results of
CCLP's mortgage  banking  business.  The initial purchase price of $70.0 million
was  paid  via  conversion  into  equity  of our  existing  loan to CCLP and its
affiliates  (collectively "Capri") (see Note 4). Of the additional $15.0 million
contingent  consideration,  we issued  subsidiary  equity  units for half of the
amount (see Note 13), and paid the balance in cash. Pro forma financial  results
for CCLP are not  presented as the  acquisition  was not material to our assets,
revenues or net income.


                                       79
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



D. CHARTERMAC MORTGAGE CAPITAL CORP.

Prior to 2005,  we  acquired  87% of the common  shares of  CharterMac  Mortgage
Capital Corp.  ("CMC").  In 2005, we purchased the remaining shares and made the
final payments  under the terms of the original  purchase  agreement.  The total
purchase price of the 2005 transactions was $7.9 million,  $7.5 million of which
we paid in cash and the balance was paid in stock. The 2005 transaction resulted
in $3.6 million of additional goodwill.

NOTE 3 - MORTGAGE REVENUE BONDS

A. GENERAL

All of our mortgage  revenue  bonds bear fixed base  interest  rates and, to the
extent  permitted  by existing  regulations,  may also  provide  for  contingent
interest and other features.  Terms generally are five to 35 years,  although we
may have the right to cause  repayment  prior to  maturity  through a  mandatory
redemption feature (five to seven years with up to six month's notice).  In some
cases, the bonds call for amortization or "sinking fund" payments,  generally at
the completion of rehabilitation or construction, of principal based on 30 to 40
year level debt service amortization schedules.

The  principal and interest  payments on each mortgage  revenue bond are payable
primarily from the cash flows of the underlying  properties,  including proceeds
from a sale of a property or the  refinancing  of the mortgage  loan  securing a
bond. None of the mortgage revenue bonds constitute a general  obligation of any
state or local government,  agency or authority.  The structure of each mortgage
loan mirrors the structure of the corresponding revenue bond that it secures. In
order to protect the tax-exempt status of the mortgage revenue bonds, the owners
of the  underlying  properties  are  required to enter into  agreements  to own,
manage and  operate  the  properties  in  accordance  with  requirements  of the
Internal Revenue Code of 1986, as amended.  If they do not comply,  the interest
income we receive could be subject to taxes.

Certain  mortgage  revenue bonds provide for  "participating  interest" which is
equal to a percentage of net property  cash flow of the net sale or  refinancing
proceeds. Bonds that contain these provisions are referred to as "participating"
while  the  rest are  "non-participating".  Both the  stated  and  participating
interest on the mortgage revenue bonds are exempt from federal income tax. As of
December 31,  2006,  we had two  participating  bonds with a fair value of $20.2
million.  Participating  interest  included in mortgage  revenue  bond  interest
income was approximately $5.2 million in 2006, $2.6 million in 2005 and $230,000
in 2004.

No single  mortgage  revenue bond provided  interest income that exceeded 10% of
our total revenue for the years ended December 31, 2006, 2005, or 2004.

Mortgage revenue bonds are generally not subject to optional  prepayment  during
the first five to ten years of our ownership  and may carry  various  prepayment
penalty  structures.  Certain  mortgage  revenue  bonds  may be  purchased  at a
discount from their face value.

In selected circumstances, and generally only in connection with the acquisition
of tax-exempt  mortgage  revenue bonds, we may acquire a small amount of taxable
bonds:

     o    which  we may be  required  to  acquire  in  order  to  satisfy  state
          regulations with respect to the issuance of tax-exempt bonds; and
     o    to fund certain costs  associated  with the issuance of the tax-exempt
          bonds,  that under current law cannot be funded by the proceeds of the
          tax-exempt bond itself.


                                       80
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. SUMMARY

The following  tables  summarize our mortgage revenue bond portfolio at December
31, 2006:

<TABLE>
<CAPTION>

                                                                                                  (Dollars in Thousands)

                                        Units            Face Amount of Bond (1)    Fair Value at 12/31/06
                                ---------------------    -----------------------    -----------------------


                                                                                                               Current
                                                                                                                Stated
                     Number                   % of                       % of                       % of       Interest
                    of Bonds     Number       Total       $ Amount       Total       $ Amount       Total        Rate
                    --------    --------    ---------    ----------    ---------    ----------    ---------    --------
<S>                   <C>        <C>         <C>         <C>            <C>         <C>            <C>           <C>
BY STATE: (2)
----------------
Texas                  81        14,675       26.20%     $  781,803      27.70%     $  784,940      28.08%       6.83%
Georgia                34         7,600       13.60%        406,336      14.40%        395,120      14.14%       6.50%
California             62         6,135       10.90%        356,717      12.70%        354,482      12.68%       6.53%
Missouri               35         3,026        5.40%        166,543       5.90%        163,887       5.86%       6.27%
Florida                23         3,768        6.70%        154,800       5.50%        147,559       5.28%       7.01%
All others            142        20,844       37.20%        952,248      33.80%        949,078      33.96%       6.60%
----------------------------------------------------------------------------------------------------------------------------
Subtotal              377        56,048      100.00%      2,818,447     100.00%      2,795,066     100.00%       6.64%
                                                                                                               ========
Eliminations (3)      (44)       (7,614)         --        (401,032)        --        (397,328)
--------------------------------------------------------------------------------------------------
Total                 333        48,434          --      $2,417,415         --      $2,397,738
==================================================================================================
2005 Total            295        47,513          --      $2,237,699         --      $2,294,787
==================================================================================================

BY PROPERTY
STATUS:
---------------
Stabilized            156        26,449       47.20%     $1,164,075      41.30%     $1,187,925      42.50%       7.03%
Lease-up              114        15,659       27.90%        866,298      30.70%        841,043      30.09%       6.75%
Construction           29         4,811        8.60%        283,207      10.10%        277,503       9.93%       6.07%
Rehab                  78         9,129       16.30%        504,867      17.90%        488,595      17.48%       5.90%
----------------------------------------------------------------------------------------------------------------------------
Subtotal              377        56,048      100.00%      2,818,447     100.00%      2,795,066     100.00%       6.64%
                                                                                                               ========
Eliminations (3)      (44)       (7,614)         --        (401,032)        --        (397,328)
--------------------------------------------------------------------------------------------------
Total                 333        48,434          --      $2,417,415         --      $2,397,738
==================================================================================================
2005 Total            295        47,513          --      $2,237,699         --      $2,294,787
==================================================================================================


<CAPTION>



                      Pertinent Weighted Average Dates      Annualized Base Interest
                    ---------------------------------------  ------------------------
                                                                                                        Debt
                                                                                                       Service
                                                                                        Occupancy      Coverage
                                 Optional                                                   on         Ratio on
                                Redemption                                   % of       Stabilized    Stabilized
                    Put Date       Date       Maturity Date    $ Amount      Total      Properties    Properties
                    --------    ----------    -------------    --------    ---------    ----------    ----------
<S>                  <C>          <C>             <C>          <C>          <C>           <C>            <C>
BY STATE: (2)
----------------
Texas                May-20       Nov-19          Nov-41       $ 53,404      30.00%       89.9%          0.94x
Georgia              Apr-21       Jun-20          Feb-44         23,698      13.30%       91.3%          0.90x
California           Apr-20       Mar-19          Feb-40         20,294      11.40%       96.3%          1.34x
Missouri             Nov-21       Aug-21          Jun-37         10,410       5.80%       93.0%          1.12x
Florida              Aug-20       Jan-18          Jun-41         10,855       6.10%       96.1%          1.26x
All others           Aug-20       Apr-19          Jun-39         59,617      33.40%       94.1%          1.19x
----------------------------------------------------------------------------------------------------------------
Subtotal             Sep-20       Sep-19          Nov-40        178,278     100.00%       93.6%          1.10x
                                                               =================================================
Eliminations (3)
--------------------
Total
====================
2005 Total                                                     $167,415     100.00%       94.1%          1.12x
====================                                           =================================================

BY PROPERTY
STATUS:
---------------
Stabilized           Mar-19       Oct-17          May-39       $ 81,782      45.90%       93.6%          1.10x
Lease-up             Oct-20       Jul-19          Mar-41         58,504      32.80%        N/A            N/A
Construction         Jul-22       Jul-22          Nov-43         16,244       9.10%        N/A            N/A
Rehab                Jan-23       Dec-22          Feb-42         21,748      12.20%        N/A            N/A
----------------------------------------------------------------------------------------------------------------
Subtotal             Sep-20       Sep-19          Nov-40        178,278     100.00%       93.6%          1.10x
                                                               =================================================
Eliminations (3)
--------------------
Total
====================
2005 Total                                                     $167,415     100.00%       94.1%          1.12x
====================                                           =================================================

</TABLE>

(1) Original principal amount at issuance.
(2) Other than those  detailed,  based on face amount,  no state  comprises more
than 10% of the total at December 31, 2006 or 2005.
(3) 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.

                                       81
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



<TABLE>
<CAPTION>

                                         Units         Face Amount of Bond (1)   Fair Value at 12/31/06
                                  -------------------  -----------------------   ----------------------
                      Number of                % of                     % of                     % of    Current Stated
                        Bonds      Number      Total     $ Amount       Total     $ Amount       Total    Interest Rate
                      ---------   --------    -------   -----------    -------   -----------    -------  --------------
BY PUT DATE:
----------------
<S>                      <C>       <C>        <C>       <C>            <C>       <C>            <C>           <C>
No put date               83          972       1.70%   $  168,748       6.00%   $  151,168       5.41%       6.66%
6 months notice            2          546       1.00%       20,200       0.80%       20,200       0.72%       8.06%
2007-2010                  3          298       0.50%       17,523       0.60%       17,518       0.63%       6.74%
2011-2015                  6        1,286       2.30%       56,163       2.00%       57,729       2.07%       6.94%
2016-2020                159       30,507      54.40%    1,412,566      50.00%    1,407,713      50.37%       6.97%
2021-2025                107       19,320      34.50%      985,764      35.00%      977,561      34.97%       6.15%
2026-2030                 15        2,943       5.30%      149,198       5.30%      154,667       5.53%       6.53%
2031-2035                  2          176       0.30%        8,285       0.30%        8,510       0.30%       6.63%
-----------------------------------------------------------------------------------------------------------------------
Subtotal                 377       56,048     100.00%    2,818,447     100.00%    2,795,066     100.00%       6.64%
                                                                                                =======================
Eliminations (2)         (44)      (7,614)        --      (401,032)        --      (397,328)
--------------------------------------------------------------------------------------------
Total                    333       48,434               $2,417,415               $2,397,738
============================================================================================
2005 Total               295       47,513         --    $2,237,699         --    $2,294,787     100.00%       6.63%
=======================================================================================================================

BY MATURITY
DATE:
-----------------
2007-2010                 28          368       0.70%   $   85,019       3.00%   $   77,766       2.78%       6.50%
2011-2015                 30          133       0.20%       31,045       1.10%       24,790       0.89%       6.24%
2016-2020                 25          460       0.80%       52,249       1.90%       47,925       1.71%       7.23%
2021-2025                 19          336       0.60%       49,869       1.80%       48,380       1.73%       7.63%
2026-2030                  9          779       1.40%       32,782       1.20%       28,960       1.04%       7.08%
2031-2035                 12        2,597       4.60%       98,924       3.50%      102,663       3.67%       6.89%
2036-2040                 59       11,419      20.40%      490,532      17.40%      500,305      17.90%       7.03%
2041-2045                141       30,147      53.80%    1,455,244      51.60%    1,449,468      51.86%       6.68%
2046 and after            54        9,809      17.50%      522,783      18.50%      514,809      18.42%       6.02%
-----------------------------------------------------------------------------------------------------------------------
Subtotal                 377       56,048     100.00%    2,818,447     100.00%    2,795,066     100.00%       6.64%
                                                                                                =======================
Eliminations (2)         (44)      (7,614)        --      (401,032)        --      (397,328)
--------------------------------------------------------------------------------------------
Total                    333       48,434               $2,417,415               $2,397,738
============================================================================================
2005 Total               295       47,513         --    $2,237,699         --    $2,294,787     100.00%       6.63%
=======================================================================================================================

</TABLE>

(1) Original principal amount at issuance.
(2) 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.


                                       82
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The following table  summarizes the maturity dates of mortgage  revenue bonds we
held as of December 31, 2006:

<TABLE>
<CAPTION>

                                                 Outstanding                 Weighted
                                      Number of     Bond                      Average
    (Dollars in thousands)              Bonds      Amount     Fair Value   Interest Rate
------------------------------        ---------  -----------  ----------   -------------
<S>                                        <C>   <C>          <C>              <C>
Due in less than one year                    5   $   10,766   $   10,156       6.36%
Due between one and five years              26       75,486       68,765       6.54%
Due after five years                       346    2,732,195    2,716,145       6.65%
                                       -------   ----------   ----------    -------
 Total/weighted average                    377    2,818,447    2,795,066       6.64%
                                                                            =======
  Less: eliminations (1)                   (44)    (401,032)    (397,328)
                                       -------   ----------   ----------
 Total                                     333   $2,417,415   $2,397,738
                                       =======   ==========   ==========

</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.

C. PORTFOLIO ACTIVITY

<TABLE>
<CAPTION>

Reconciliation of mortgage revenue bonds (In thousands):       2006           2005
--------------------------------------------------------   -----------    -----------
<S>                                                        <C>            <C>
Balance at beginning of period                             $ 2,294,787    $ 2,100,720
  Acquisitions and additional fundings                         419,940        443,517
  Repayment proceeds                                           (83,746)      (104,279)
  Principal payments                                           (31,854)       (22,466)
  Realized gain                                                    544          1,541
  Advance returned by Trustee                                       --         (6,866)
  Impairment losses                                             (4,676)        (4,555)
  Net change in fair value                                     (37,178)        86,323
  Accretion/amortization of yield adjustments                   (3,690)        (5,384)
  Reclassification to other assets                                (629)       (34,238)
                                                           -----------    -----------
    Subtotal                                                 2,553,498      2,454,313
  Less: change in eliminations (1)                            (155,760)      (159,526)
                                                           -----------    -----------
Balance at close of period                                 $ 2,397,738    $ 2,294,787
                                                           ===========    ===========

</TABLE>

(1) Certain 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.


                                       83
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Mortgage revenue bonds acquired and/or additional  fundings made during 2006 and
2005 are summarized below:

<TABLE>
<CAPTION>

                                                                   Weighted       Weighted
                                                                    Average        Average
                                         Number of      Face     Construction     Permanent
        (Dollars in thousands)           Bonds (1)   Amount (2)      Rate       Interest Rate
--------------------------------------   ---------   ----------  ------------   -------------
<S>                                            <C>    <C>            <C>            <C>
2006
Construction/rehabilitation properties         68     $395,240       6.37%          6.04%
Additional funding of existing bonds           --       24,700       5.28%          5.31%
                                         --------     --------    -------        -------
Total 2006 acquisitions                        68     $419,940       6.31%          5.99%
                                         ========     ========    =======        =======

2005
Construction/rehabilitation properties         59     $429,966       5.81%          6.17%
Additional funding of existing bonds           --       13,551       5.36%          6.60%
                                         --------     --------    -------        -------
Total 2005 acquisitions                        59     $443,517       5.80%          6.19%
                                         ========     ========    =======        =======

</TABLE>

(1) Number of  additional  fundings not included as they are not additive to the
number of bonds in the portfolio.
(2) Original principal amount at issuance.

Mortgage  revenue  bonds and notes  repaid  during 2006 and 2005 are  summarized
below:

<TABLE>
<CAPTION>

                                      Number of  Net Book                 Realized
     (Dollars in thousands)             Bonds      Value    Proceeds   Gains (Losses)
---------------------------------     ---------  ---------  --------   --------------
<S>                                         <C>  <C>        <C>          <C>
2006
Participating, stabilized                    3   $ 30,756   $ 31,725     $    969
Non-participating, stabilized                4     21,754     21,585         (169)
Non-participating, not stabilized            7     30,692     30,436         (256)
                                      --------   --------   --------     --------
Total                                       14   $ 83,202   $ 83,746     $    544
                                      ========   ========   ========     ========

2005
Participating, stabilized                    4   $ 29,471   $ 30,402     $    931
Non-participating, stabilized                3     31,233     32,450        1,217
Non-participating, not stabilized            8     42,034     41,427         (607)
                                      --------   --------   --------     --------
Total                                       15   $102,738   $104,279     $  1,541
                                      ========   ========   ========     ========

</TABLE>

D. UNREALIZED GAINS AND LOSSES

The  amortized  cost basis of our  portfolio of mortgage  revenue  bonds and the
related unrealized gains and losses were as follows at December 31:

<TABLE>
<CAPTION>


          (In thousands)                             2006               2005
----------------------------------                -----------       -----------
<S>                                               <C>               <C>
Amortized cost basis                              $ 2,727,372       $ 2,417,185
Gross unrealized gains                                101,364           116,541
Gross unrealized losses                               (33,670)          (11,424)
                                                  -----------       -----------
Subtotal/fair value                                 2,795,066         2,522,302
  Less: eliminations (1)                             (397,328)         (227,515)
                                                  -----------       -----------
Total fair value per balance sheet                $ 2,397,738       $ 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.


                                       84
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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>
DECEMBER 31, 2006

Number                                          76             60            136
Fair value                                $502,758       $356,543       $859,301
Gross unrealized loss                     $ 22,355       $ 11,315       $ 33,670

DECEMBER 31, 2005

Number                                          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  expected  cash  flows  from the bonds and  discount  these cash flows at
current rates; as rates rise, the fair value of our portfolio decreases. We have
the intent and  ability to hold these bonds until  recovery  and have  therefore
concluded  that these  declines in fair value are  temporary.  For discussion of
other-than temporary impairments, see IMPAIRMENT below.

E. SECURITIZED AND PLEDGED ASSETS

As of December 31, 2006,  mortgage revenue bonds with an aggregate fair value of
approximately $2.3 billion were securitized or pledged as collateral in relation
to financing arrangements (see Note 8).

F. IMPAIRMENT

During 2006, we recognized  approximately  $4.7 million of mortgage revenue bond
impairment  charges  in light of  substandard  performance  at seven  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.

During 2005, we determined that construction  should be halted on a property for
which we had assumed  the  general  partner  interest  (see Note 21),  agreed in
principle  to  revise  the  terms  of  another  mortgage  revenue  bond and also
determined  that two bonds  secured  by a property  would  likely  require  term
revisions to reduce the rate of interest.  As a result, we recognized impairment
losses of approximately $4.6 million.

In 2004,  in  light of the  underperformance  of one of our  investments,  which
necessitated  the  temporary   revision  of  payment  terms,  we  recognized  an
impairment loss of approximately $610,000.

G. FORECLOSURE

In May 2005,  an affiliate of ours  foreclosed  upon the  properties  underlying
three of our mortgage  revenue bonds.  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  Foreclosed  properties  are
included in "Real Estate  Owned" within  Deferred  Costs and Other Assets on the
consolidated balance sheets (see Note 6).


                                       85
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



See also Note 21 regarding  the status of other  mortgage  revenue  bonds in our
portfolio  for  which  we have  assumed  the  general  partner  interest  in the
associated property-level partnership.

NOTE 4 - OTHER INVESTMENTS

Investments other than mortgage revenue bonds consisted of:

<TABLE>
<CAPTION>

                   (In thousands)                              2006       2005
-----------------------------------------------------        --------   --------
<S>                                                          <C>        <C>
Equity Method Investments
   Investment in equity interests in LIHTC properties        $ 53,492   $ 46,985
   CCA loans and preferred stock                                   --     26,884
   Investment in CUC                                            3,066         --
   Investment in ARCap                                             --     19,874

Available for Sale
   Resecuritization certificates                              102,357         --
   Marketable securities                                        1,465      1,249

Other
   Mortgage loans held for sale                               122,459    153,277
   Notes receivable                                            46,477     32,670
   Other investments                                            9,604     17,651
                                                             --------   --------
            Total other investments                          $338,920   $298,590
                                                             ========   ========

</TABLE>

A. INVESTMENTS IN EQUITY INTERESTS IN LIHTC PROPERTIES

Through a subsidiary, we acquire equity interests in property ownership entities
on a short-term  basis for inclusion in Fund Management  offerings to investors.
We expect to  recapture  such  amounts  from the proceeds of the equity and debt
financing when the  investment  fund has closed.  The developer also  guarantees
repayment of these investments.

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
interest in Capri Urban Capital LLC, which we renamed  CharterMac  Urban Capital
LLC ("CUC").  CUC is an investment  fund with the  California  Public  Employees
Retirement System ("CalPERS") as majority  investor,  focusing on investments in
multifamily  properties in major urban  markets.  We recognized the value of the
membership interest in CUC (approximately  $900,000) as an intangible asset (see
Note 5). Our membership interest includes a co-investment  obligation  amounting
to 2.5% of  capital  invested  (see Note 21).  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" at  December  31,  2005,  also
included  $4.1 million of preferred  stock that was redeemed and $3.2 million of
advances that were forgiven as part of the purchase price of CRES (see Note 2).


                                       86
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. RESECURITIZATION CERTIFICATES

Resecuritization  certificates we hold (not including the  certificates  held at
the  fund  level  detailed  in Note 7) were  comprised  of the  following  as of
December 31, 2006:

<TABLE>
<CAPTION>

                                                                             Percentage of
   (Dollars in thousands)         Face Amount   Accreted Cost   Fair Value    Fair Value
---------------------------       -----------   -------------   ----------   -------------
<S>                                 <C>           <C>           <C>            <C>
Security rating:
   AAA interest only                $     --      $ 16,685      $ 21,441       $ 20.94%
   AAA                                26,150        13,475        25,319         24.73
   BBB+                               12,536         5,013         9,085          8.88
   BBB                                 9,402         3,422         6,181          6.04
   BBB-                                9,402         2,689         5,629          5.50
   BB+                                24,454         8,140        12,585         12.30
   BB                                  8,501         2,067         3,509          3.43
   BB-                                11,635         2,158         4,103          4.01
   B+                                 13,273         2,165         2,891          2.82
   B                                  11,486         1,120         1,791          1.75
   B-                                 11,635           974         1,659          1.62
   Non-rated                          65,880         3,894         7,453          7.28
   Non-rated interest only                --           450           711          0.70
                                    --------      --------      --------       -------
                                    $204,354      $ 62,252      $102,357       $100.00%
                                    ========      ========      ========       =======

</TABLE>

At December 31, 2006, the AAA interest only certificate had a notional amount of
$539.7  million and the  non-rated  interest  only  certificates  had a combined
notional amount of $197.0 million.

Fair  value of the  resecuritization  certificates  is  determined  assuming  no
defaults on the underlying  collateral  loans and according to the payment terms
of the underlying loans,  which generally do not allow prepayment  without yield
maintenance  except  during the last three months of a loan.  The  remaining key
assumptions  used in measuring fair value at the  resecuritization  date were as
follows:

<TABLE>
<CAPTION>

                                                     Fair Value at     Weighted     Discount Rate
                                                   Resecuritization     Average    applied to Cash
    (Dollars in thousands)           Face Amount         Date         Life (yrs)        Flows
-----------------------------        -----------   ----------------   ----------   ---------------
<S>                                   <C>             <C>                <C>           <C>
Security rating:
 AAA interest only                    $     --        $ 29,827              --          8.19%
 AAA                                    26,150          26,180            8.73          6.14
 BBB+                                   12,536           9,900           11.27          9.76
 BBB                                     9,402           6,830           11.78         11.01
 BBB-                                    9,402           6,291           12.16         12.26
 BB+                                    24,454          13,202           11.87         13.78
 BB                                      8,501           3,765           12.36         17.21
 BB-                                    11,635           4,283           12.65         19.86
 B+                                     13,273           2,878           12.34         29.72
 B                                      11,486           1,832           12.83         40.55
 B-                                     11,635           1,708           13.03         43.51
 Non-rated                              65,880          15,139           14.79         53.94
 Non-rated interest only                    --             839              --         36.36
                                      --------        --------
Total                                 $204,354        $122,674
                                      ========        ========

</TABLE>


                                       87
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



At the  resecuritization  date, the AAA interest only certificate had a notional
amount of $545.4  million and the  non-rated  interest only  certificates  had a
combined notional amount of $197.5 million.

At  December  31,  2006,  the  sensitivity  of the  current  fair  value  of the
resecuritization certificates to potential adverse changes is as follows:

<TABLE>
<CAPTION>

                                                            Expected           Discount Rate Applied to
                                                           Credit Loss                 Cash Flows
                                                      ----------------------   ------------------------
                                          Weighted
                                          Average                                 1.0%          2.0%
                                           Life           1%           2%        Adverse      Adverse
(Dollars in thousands)    Fair Value       (yrs)       CDR (1)      CDR (1)       Change       Change
----------------------    ----------      --------    ---------    ---------    ---------    ---------
<S>                       <C>              <C>         <C>          <C>           <C>          <C>
Security rating:
AAA interest only         $   21,441        6.10         1.49 %      (4.57)%      (2.80)%       (5.41)%
AAA                           25,319        9.19        (0.56)       (0.70)       (6.66)       (12.78)
BBB+                           9,085       11.71        (1.18)      (37.51)       (7.23)       (13.76)
BBB                            6,181       11.88        (2.09)      (60.13)       (7.03)       (13.41)
BBB-                           5,629       11.94        (3.36)      (64.13)       (6.81)       (12.99)
BB+                           12,585       11.28        (5.84)      (68.23)       (6.46)       (12.36)
BB                             3,509       11.72        (8.78)      (66.20)       (5.92)       (11.35)
BB-                            4,103       11.88       (18.16)      (64.56)       (5.50)       (10.51)
B+                             2,891       11.66        (9.37)      (55.51)       (4.84)        (9.27)
B                              1,791       12.50       (15.57)      (46.81)       (3.39)        (6.53)
B-                             1,659       12.78       (22.10)      (47.35)       (2.95)        (5.70)
Non-rated                      7,453          --       (46.69)      (57.26)       (1.97)        (3.89)
Non-rated interest
only                             711        8.17       (56.12)      (63.06)       (2.91)        (4.40)
                          ----------
Total                     $  102,357
                          ==========

</TABLE>

(1) Constant Default Rate

The interest  rates on the  principal  classes range from 4.0% to 5.7% and range
from 0.1% to 1.1% on the interest only classes.  During the year ended  December
31, 2006, we received approximately $7.3 million from retained  resecuritization
certificates.

Delinquencies   on  the  collateral   loans   underlying  the   resecuritization
certificates  totaled 0.4% at December 31,  2006.  At December 31, 2006,  actual
losses to date were 7.3% of the original pool balances,  and projected remaining
losses are estimated at 13.3% of the original pool balances.

D. MORTGAGE LOANS HELD FOR SALE

The  balance of mortgage  loans held for sale  fluctuates  based on  origination
volume and the timing of  corresponding  sales.  These loans are typically  sold
within three months of origination.

E. NOTES RECEIVABLE

Notes  receivable  at December 31, 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.

At December 31, 2005,  this balance  included a $26.0  million  investment  in a
mortgage  loan in which we had  co-invested  with AMAC  (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 11).


                                       88
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



F. INVESTMENT IN ARCAP

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. Prior to the acquisition, we received special distributions from
ARCap and reduced the basis of our investment by approximately $11.7 million for
the portion which represented a return of capital.

NOTE 5 - GOODWILL AND INTANGIBLE ASSETS

Goodwill and intangible assets consisted of the following at December 31:

<TABLE>
<CAPTION>


           (In thousands)                                2006             2005
------------------------------                         --------         --------
<S>                                                    <C>              <C>
Goodwill                                               $345,806         $235,684
Other intangible assets, net                            127,686          141,301
Mortgage servicing rights, net                           68,785           62,190
                                                       --------         --------

Total                                                  $542,277         $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, 2004             $ 200,153      $   6,244     $ 206,397
Additions                                       --         31,503        31,503
Reductions                                  (2,216)            --        (2,216)
                                         ---------      ---------     ---------

Balance at December 31, 2005               197,937         37,747       235,684
Additions                                  106,472         10,302       116,774
Reductions                                  (6,652)            --        (6,652)
                                         ---------      ---------     ---------

Balance at December 31, 2006             $ 297,757      $  48,049     $ 345,806
                                         =========      =========     =========

</TABLE>

The  additions  in  2005  pertain  to our  purchase  of CMC  shares  we did  not
previously own and the final  payments under the terms of the original  purchase
agreement, as well as the acquisition of CCLP (see Note 2).

The 2006 additions  relate 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 in 2006 and 2005  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 in 2006 by approximately $6.1 million in connection with the
closure of CRES.  Of the $6.1 million  reduction,  $4.1  million  related to the
cancellation of the subsidiary  equity units included in the purchase price (see
Note 13), $1.0 million represented the assumption of CRES' line of credit by its
founder and the remaining $1.0 million was charged to expense.

Although  partially  contingent upon subsidiary equity  conversions,  all of our
goodwill is tax-deductible.


                                       89
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. OTHER INTANGIBLE ASSETS

The components of other identified intangible assets are as follows:

<TABLE>
<CAPTION>

                                             Estimated
                                               Useful
                                                Life            Gross             Accumulated
          (Dollars in thousands)             (in Years)    Carrying Amount        Amortization               Net
-----------------------------------------    ----------  -------------------   -------------------   -------------------

                                                           2006       2005       2006       2005       2006       2005
                                                         --------   --------   --------   --------   --------   --------
<S>                                              <C>     <C>        <C>        <C>        <C>        <C>        <C>
Amortized identified intangible assets:
  Transactional relationships                    16.7    $103,000   $103,000   $ 25,590   $ 17,864   $ 77,410   $ 85,136
  Partnership service contracts                   9.4      47,300     47,300     16,604     10,718     30,696     36,582
  General partner interests                       8.5       6,016      5,100      1,774      1,201      4,242      3,899
  Joint venture developer relationships           5.0       4,800      4,800      2,915      2,035      1,885      2,765
  Internally developed software                   3.0       1,390       --          163         --      1,227         --
  Mortgage banking broker relationships           5.0       1,080      1,080        396        180        684        900
  Other identified intangibles                    9.3       4,427      4,427      3,658      3,181        769      1,246
                                              -------    --------   --------   --------   --------   --------   --------
Weighted average life/subtotal                   13.6     168,013    165,707     51,100     35,179    116,913    130,528
                                              =======

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

Total identified intangible assets                       $178,786   $176,480   $ 51,100   $ 35,179   $127,686   $141,301
                                                         ========   ========   ========   ========   ========   ========

</TABLE>
<TABLE>
<CAPTION>

   (In thousands)                            2006           2005           2004
--------------------                       -------        -------        -------
<S>                                        <C>            <C>            <C>
Amortization expense                       $15,921        $14,332        $16,684
                                           =======        =======        =======

</TABLE>

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

At the end of 2005, management decided to change the name of the subsidiary that
conducts  our fund  sponsorship  business  from  "Related  Capital  Company"  to
"CharterMac Capital," effective January 1, 2006.  Accordingly,  we wrote off the
unamortized balance attributed to the prior name,  resulting in a pre-tax charge
of approximately $22.6 million in 2005.

The estimated amortization expense for other intangible assets for the next five
years is as follows:

<TABLE>
<CAPTION>

                                          (In thousands)
                                          --------------
                     <S>                    <C>
                     2007                   $   16,244
                     2008                   $   15,871
                     2009                   $   14,263
                     2010                   $    9,428
                     2011                   $    9,278

</TABLE>

The amortization of "other identified  intangibles"  (approximately $477,000 per
year) is included as a reduction  to mortgage  revenue bond  interest  income as
they pertain to the acquisition of such bond investments.


                                       90
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. MORTGAGE SERVICING RIGHTS

The components of the change in MSRs and related reserves were as follows:

<TABLE>
<CAPTION>

                                                                  (In thousands)
-------------------------------------------------------------     --------------

<S>                                                                  <C>
Balance at December 31, 2004                                         $ 32,366
MSRs acquired                                                          45,400
MSRs capitalized                                                        9,581
Amortization                                                          (18,670)
Increase in reserves                                                   (6,487)
                                                                     --------
Balance at December 31, 2005                                           62,190
MSRs and other servicing assets acquired in ARCap acquisition          17,607
MSRs capitalized                                                        8,798
Amortization                                                          (19,660)
Increase in reserves                                                     (150)
                                                                     --------
Balance at December 31, 2006                                         $ 68,785
                                                                     ========

Reserve for Loan Losses

Balance at December 31, 2004                                         $  6,479
Net additions                                                           6,487
                                                                     --------
Balance at December 31, 2005                                           12,966
Net additions                                                             150
                                                                     --------
Balance at December 31, 2006                                         $ 13,116
                                                                     ========

</TABLE>

The  estimated  amortization  expense for the MSRs for the next five years is as
follows:

<TABLE>
<CAPTION>

                                               (In thousands)
                                               --------------
                          <S>                    <C>
                          2007                   $   15,210
                          2008                   $   12,622
                          2009                   $   10,058
                          2010                   $    7,204
                          2011                   $    6,333

</TABLE>

The  estimated  fair values of the MSRs,  based upon  third-party  and  internal
valuations,  were  $99.0  million  at  December  31,  2006 and $79.8  million at
December 31, 2005.  The  significant  assumptions  used in  estimating  the fair
values at December 31, were as follows:

<TABLE>
<CAPTION>

                                           2006            2005
                                        ----------      ----------
<S>                                      <C>             <C>
Weighted average discount rate              16.04%          17.50%
Weighted average pre-pay speed              10.94%          10.88%
Weighted average lockout period          4.7 years       4.3 years
Weighted average default rate                 .27%            .50%
Cost to service loans                    $   2,286         $ 2,305
Acquisition cost (per loan)              $   1,457         $ 1,456

</TABLE>


                                       91
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The table below  illustrates  hypothetical  fair values of MSRs at December  31,
2006,  caused by assumed  immediate changes to key assumptions which are used to
determine fair value.

<TABLE>
<CAPTION>

                                                    (In thousands)
                                                    --------------
<S>                                                  <C>
Fair value of MSRs at December 31, 2006              $   98,956

Prepayment speed:
   Fair value after impact of +10% change                98,095
   Fair value after impact of -10% change                99,917
   Fair value after impact of +20% change                97,335
   Fair value after impact of -20% change               100,831

Discount rate:
   Fair value after impact of +10% change                94,381
   Fair value after impact of -10% change               104,090
   Fair value after impact of +20% change                90,219
   Fair value after impact of -20% change               109,801

Default rate:
   Fair value after impact of +10% change                98,813
   Fair value after impact of -10% change                99,084
   Fair value after impact of +20% change                98,709
   Fair value after impact of -20% change                99,205

</TABLE>

D. IMPAIRMENT

The initial gross carrying amounts for identified  intangible  assets were based
on third party valuations. We review goodwill and intangible assets annually for
impairment.  Through December 31, 2006, we have concluded that these assets have
not been impaired, although we have written off assets due to discontinuation of
use.

NOTE 6 - DEFERRED COSTS AND OTHER ASSETS

The  components  of  deferred  costs and other  assets  at  December  31 were as
follows:

<TABLE>
<CAPTION>

                               (In thousands)                                   2006         2005
--------------------------------------------------------------------------   ---------    ---------
<S>                                                                          <C>          <C>
Deferred financing and other costs                                           $  32,472    $  38,059
Less: Accumulated amortization                                                  (6,718)     (14,031)
                                                                             ---------    ---------

Net deferred costs                                                              25,754       24,028

Real estate owned, net of accumulated depreciation of $1.3 million in 2006      41,743       35,608

Interest receivable                                                             23,606       16,964
Fees receivable, net                                                            23,313       29,386
Deposits receivable                                                             18,863           98
Due from unconsolidated partnerships, net                                       31,466        5,080
PRS/CRG/ERC advances                                                            13,780        9,070
Income taxes receivable                                                            714        4,276
Interest rate swaps at fair value (see Note 11)                                  2,236        4,857
Deferred taxes (see Note 12)                                                      --          1,849
Other                                                                           14,670        4,293
                                                                             ---------    ---------

Total                                                                        $ 196,145    $ 135,509
                                                                             =========    =========

</TABLE>


                                       92
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



A. DEFERRED FINANCING AND OTHER COSTS

In connection with the restructuring of our securitization programs (see Note 8)
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 2006. In connection with refinancing our lines of
credit at the time of the ARCap acquisition (see Notes 2 and 9) 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 Sale" upon  foreclosure of
the  properties  securing  mortgage  revenue bonds in 2005 (see Note 3). 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 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 9).

D. PRS/CRG/ERC ADVANCES

The advances due from PRS/CRG/ERC  related to the financial  difficulties of two
developers  and  our  subsequent  actions  to  protect  our  investments  in the
properties that were under development (see Note 21). The above balances are net
of eliminations  with liabilities of consolidated  partnerships of $24.3 million
at December 31, 2006 and $4.8 million at December 31, 2005. Of the $38.1 million
total  amount  receivable  at December 31, 2006,  we received  $12.1  million in
January 2007 through capital released by an equity partner.

NOTE 7 - CONSOLIDATED PARTNERSHIPS

Consolidated Partnerships consist of four 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");
     o    Funds we  sponsor  to  syndicate  investments  in CMBS and  associated
          resecuritization trusts ("CMBS Partnerships"); and
     o    a Direct Loan investing partnership.

The CMBS and Direct Loan  Partnerships  were  consolidated  following  the ARCap
acquisition in August 2006.

Financial  information for the LIHTC and Property Partnerships are as of and for
the year ended September 30 of each year, the latest  practical date (except for
2004, which represents nine months of operations  following our consolidation as
of March 31 of that year).  Information with respect to the CMBS and Direct Loan
partnerships is as of and for the period ended December 31, 2006.


                                       93
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Assets and liabilities of consolidated  partnerships  consisted of the following
at December 31:

<TABLE>
<CAPTION>

                                                                2006                      2005
                                               -------------------------------------  ------------
                                                LIHTC and      CMBS and                LIHTC and
                                                 Property     Direct Loan               Property
                (In thousands)                 Partnerships  Partnerships    Total    Partnerships
---------------------------------------------  ------------  ------------ ----------  ------------
<S>                                             <C>          <C>          <C>          <C>
Investments in property partnerships            $3,546,208   $       --   $3,546,208   $3,025,762
Investments in CMBS - available for sale                --      719,645      719,645           --
Investments in resecuritization
   certificates  - available for sale                   --      597,491      597,491           --
Notes receivable                                        --      101,156      101,156           --
Other investments                                       --        1,407        1,407           --
                                                ----------   ----------   ----------   ----------
Investments held by consolidated partnerships    3,546,208    1,419,699    4,965,907    3,025,762
                                                ----------   ----------   ----------   ----------

Land, buildings and improvements, net of
   accumulated depreciation                        576,171           --      576,171      329,869
Cash                                               277,860       27,213      305,073      172,622
Other assets                                       123,890       33,645      157,535       77,123
                                                ----------   ----------   ----------   ----------
Other assets of consolidated partnerships          977,921       60,858    1,038,779      579,614
                                                ----------   ----------   ----------   ----------

Total assets                                    $4,524,129   $1,480,557   $6,004,686   $3,605,376
                                                ==========   ==========   ==========   ==========

Financing arrangements                          $       --   $  709,219   $  709,219   $       --
Notes payable                                      594,477           --      594,477      565,877
Due to property partnerships                       925,301           --      925,301      896,031
Repurchase agreements                                   --      243,955      243,955           --
Other liabilities                                  215,628       11,574      227,202      156,487
                                                ----------   ----------   ----------   ----------

Total liabilities                               $1,735,406   $  964,748   $2,700,154   $1,618,395
                                                ==========   ==========   ==========   ==========

</TABLE>

A. INVESTMENTS IN PROPERTY PARTNERSHIPS AND DUE TO PROPERTY PARTNERSHIPS

"Investments in property partnerships"  represent the equity investments held by
LIHTC  partnerships in property level partnerships that neither we nor the LIHTC
partnerships  control.  "Due to property  partnerships"  represents  the capital
commitments of the LIHTC  partnerships in those property  partnerships that have
not yet been spent.

B. INVESTMENTS IN CMBS

Investments in CMBS included within consolidated  partnerships were comprised of
the following as of December 31, 2006:

<TABLE>
<CAPTION>

                                                                         Percentage
                                                                             of
(Dollars in thousands)           Face      Accreted Cost  Fair Value     Fair Value
----------------------        ----------   -------------  ----------     ----------
<S>                           <C>           <C>           <C>                <C>
Security rating:
   BBB-                       $  106,723    $  100,531    $  101,899         14.16%
   BB+                           124,600       106,195       106,611         14.81
   BB                            146,235       121,019       120,906         16.79
   BB-                           160,537       113,483       116,059         16.13
   B+                             79,324        49,922        50,916          7.09
   B                              81,237        46,801        48,708          6.77
   B-                            104,509        47,308        52,378          7.28
   Non-rated                     377,943       110,927       122,168         16.97
                              ----------    ----------    ----------     ---------
                              $1,181,108    $  696,186    $  719,645        100.00%
                              ==========    ==========    ==========     =========

</TABLE>


                                       94
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. INVESTMENTS IN RESECURITIZATION CERTIFICATES

Investments  in  resecuritization   certificates  included  within  consolidated
partnerships were comprised of the following as of December 31, 2006:

<TABLE>
<CAPTION>

                                                                            Percentage
                                                                                of
    (Dollars in thousands)            Face    Accreted Cost  Fair Value     Fair Value
--------------------------------    --------  -------------  ----------     ----------
<S>                                 <C>         <C>           <C>             <C>
Security rating:
   AAA                              $111,900    $106,259      $109,198         18.28%
   AA                                 66,600      64,170        65,699         11.00
   A                                  47,000      45,105        46,913          7.85
   A-                                 23,900      24,054        24,355          4.08
   BBB+                               66,800      67,266        69,013         11.55
   BBB                                61,138      56,018        57,490          9.62
   BBB-                              109,781     106,846       110,769         18.54
   BB+                                88,114      52,608        62,702         10.49
   BB                                 12,158       4,868         6,990          1.17
   BB-                                12,157       4,379         6,284          1.05
   B+                                 21,073       6,734         9,670          1.62
   B                                  11,348       2,574         3,711          0.62
   B-                                 12,158       2,079         3,006          0.50
   Non-rated                         183,741      10,367        16,515          2.76
   Non-rated interest only                --       5,148         5,176          0.87
                                    --------    --------      --------      --------
                                    $827,868    $558,475      $597,491        100.00%
                                    ========    ========      ========      ========

</TABLE>

At December 31 2006,  the  non-rated  interest only  certificate  had a combined
notional amount of $1.4 billion.

Fair  value of the  resecuritization  certificates  is  determined  assuming  no
defaults on the underlying  collateral  loans and according to the payment terms
of the underlying loans,  which generally do not allow prepayment  without yield
maintenance  except  during the last three months of a loan.  The  remaining key
assumptions  used in measuring fair value at the  resecuritization  date were as
follows:

<TABLE>
<CAPTION>

                                                    Fair Value at    Weighted    Discount Rate
                                     Face Amount  Resecuritization    Average   applied to Cash
    (Dollars in thousands)          Held by Fund        Date        Life (yrs)       Flows
-----------------------------       ------------  ----------------  ----------  ---------------
<S>                                   <C>            <C>              <C>            <C>
Security rating:
 BB+                                  $ 47,820       $ 29,599         10.92           9.80%
 BB                                     12,158          6,671         11.33          11.20
 BB-                                    12,157          5,991         11.42          12.50
 B+                                     21,073          9,210         11.75          13.90
 B                                      11,348          3,520         12.02          18.70
 B-                                     12,158          2,853         12.17          23.20
 Non-rated                             186,416         16,493         13.81          49.40
 Non-rated interest only                    --          2,080         10.05          63.20
                                      --------       --------
Total                                 $303,130       $  76,417
                                      ========       ========

</TABLE>

At the  resecuritization  date, the non-rated  interest only  certificates had a
combined  notional  amount  of  $648.4  million.


                                       95
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



At  December  31,  2006,  the  sensitivity  of the  current  fair  value  of the
resecuritization certificates to potential adverse changes is as follows:

<TABLE>
<CAPTION>

                                                                  Expected                Discount Rate Applied to
                                                                Credit Loss                      Cash Flows
                                                           -----------------------        ------------------------
                                          Weighted                                         100 bps         200 bps
                                           Average            1%              2%           Adverse         Adverse
(Dollars in thousands)     Fair Value     Life(yrs)        CDR (1)         CDR (1)          Change          Change
----------------------     ----------     ---------        -------         -------         -------         -------
<S>                         <C>             <C>            <C>             <C>              <C>            <C>
Security rating:
BB+                         $30,908         10.19           (4.40)%        (75.60)%         (7.20)%        (13.70)%
BB                            6,990         10.59           (5.90)         (75.20)          (7.20)         (13.70)
BB-                           6,284         10.73           (7.80)         (73.90)          (7.00)         (13.40)
B+                            9,670         11.07           (9.30)         (72.40)          (6.90)         (13.20)
B                             3,710         11.32          (12.10)         (66.40)          (6.20)         (11.80)
B-                            3,006         11.43          (13.80)         (60.30)          (5.40)         (10.40)
Non-rated                    16,515         13.08          (24.40)         (40.40)          (2.10)          (4.20)
Non-rated interest
only                          2,092          9.29          (65.60)         (65.60)          (3.10)          (3.10)
                            -------

Total                       $79,175
                            =======

</TABLE>

(1) Constant Default Rate

The interest rate on the principal classes is 4.0% and 0.2% on the interest only
class.  During the year  ended  December  31,  2006,  consolidated  partnerships
received approximately $4.7 million from retained resecuritization certificates.

Delinquencies   on  the  collateral   loans   underlying  the   resecuritization
certificates  totaled 0.4% at December 31,  2006.  At December 31, 2006,  actual
losses to date were 0.4% of the original pool balance,  and projected  remaining
losses are estimated at 25.4% of the original pool balance.

D. NOTES RECEIVABLE

The aggregate  carrying  values,  allocated by product type and weighted average
coupons, of notes receivable as of December 31, 2006 were as follows:

<TABLE>
<CAPTION>

                                                         Allocation   Fixed
                                                             by        Rate
                                    Total    Carrying     Product    (Average     Average
    (Dollars in thousands)       Commitment    Value        Type        Yield)      Yield
-------------------------------  ----------  --------    ----------  ---------   ---------
<S>                               <C>        <C>            <C>         <C>         <C>
Product Type:
 Bridge loans, floating rate      $ 15,000   $  1,178        9.30%         --       8.35%
 Bridge loans, fixed rate           22,496     22,496       13.94        7.29         --
 B-notes, floating rate             40,000     34,157       24.79          --       9.64
 B-notes, fixed rate                17,125     12,781       10.61        8.17         --
 Mezzanine loans, floating rate     36,500     27,982       22.62          --       9.22
 Mezzanine loans, fixed rate        30,246      2,562       18.74       15.00         --
                                  --------   --------    --------    --------    -------
Total / Average                   $161,367   $101,156      100.00%      10.15%      9.07%
                                  ========   ========    ========    ========    =======

</TABLE>


                                       96
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Notes receivable had the following scheduled maturities as of December 31, 2006:

<TABLE>
<CAPTION>

                                                   Current Carrying
                          Number of Loans               Value
Year of Maturity             Maturing               (in thousands)
----------------          ---------------          ----------------
<C>                               <C>                 <C>
2007                               1                  $  29,901
2008                               2                     10,756
2009                               9                     40,740
2010                               1                      6,482
2011                               2                     10,121
Thereafter                         1                      3,156
                             -------                  ---------
Total                             16                  $ 101,156
                             =======                  =========

</TABLE>

E. FINANCING ARRANGEMENTS

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  recourse  to the  specific  collateral  and
non-recourse to the CMBS funds.

F. NOTES PAYABLE

Of the LIHTC  Partnerships  notes payable balance,  at December 31, 2006, $444.3
million are collateralized by equity subscriptions of 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 $150.2 million is  collateralized  with the underlying  properties of
the consolidated operating partnerships. All of this debt is non-recourse to us.

G. REPURCHASE AGREEMENTS

At December 31, 2006,  eight  repurchase  agreements  with three  counterparties
provided total commitments of $495.0 million.  As of December 31, 2006, the CMBS
Partnerships had borrowed $214.2 million under these repurchase  agreements with
average  maturity  of 32 days and had the ability to borrow an  additional  $3.4
million without  pledging  additional  collateral.  As of December 31, 2006, the
fair value of collateral  pledged was $298.7 million.  Interest rates range from
5.3% to 6.1%.

The Direct Loan fund finances its investments  through three separate repurchase
agreement  facilities,  as well as a  subscription  line  collateralized  by the
remaining capital  commitments from the ARESS members.  As of December 31, 2006,
the  Direct  Loan  fund  had  borrowed  $29.7  million  under  these  repurchase
agreements  and had the ability to borrow an additional  $21.9  million  without
pledging additional collateral.  The repurchase agreements have weighted average
interest  rates  ranging  from  6.1%  to 6.6%  and  weighted  average  remaining
maturities of 31 days.

At December 31, 2006,  the Direct Loan fund had borrowed  $21.5  million under a
subscription  line  facility and had the ability to borrow an  additional  $28.5
million.  The  subscription  line  facility,  which was amended in January 2007,
expires in 2010 and has an interest rate of 6.05% at December 31, 2006.


                                       97
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



H. FINANCIAL RISK MANAGEMENT AND DERIVATIVES

The  CMBS  partnerships  have  entered  into  amortizing  forward-starting  swap
agreements  with Bear Stearns  Capital  Markets Inc. and Morgan Stanley  Capital
Services Inc. 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 SFAS No. 133, while
others  are not.  The  Direct  Loan fund has  entered  into  spot-starting  swap
agreements  with Bear  Stearns  Capital  Markets,  Inc. to mitigate  its risk of
changes in the interest-related cash outflows on its financing of its fixed rate
investments. These swaps are designated as hedges under SFAS No. 133.

At December  31,  2006,  those swaps not  designated  as hedges,  had a combined
notional balance of $180.7 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 $2.6
million.

At December 31, 2006, those swaps  designated as hedges had a combined  notional
balance of $175.8 million,  maturity dates ranging from December 2009 to January
2017,  and  interest  rates  ranging  from  4.89%  to  5.75%,  and were in a net
liability position, in the aggregate, of approximately $2.5 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 and Direct Loan
partnerships.

I. REVENUES AND EXPENSES

Revenues and expenses of consolidated partnerships consisted of the following:

<TABLE>
<CAPTION>

                                                    Year Ended December 31,
                                              ----------------------------------
           (In thousands)                       2006         2005         2004
-----------------------------------           --------     --------     --------
<S>                                           <C>          <C>          <C>
Rental income                                 $ 30,701     $ 18,824     $ 11,235
Interest and other income                       53,037        5,272          978
                                              --------     --------     --------

Total revenues                                $ 83,738     $ 24,096     $ 12,213
                                              ========     ========     ========

Interest expense                              $ 47,926     $ 26,322     $ 21,395

Asset management fees                           20,960       21,600       14,547
Property operating expenses                     15,964        9,089        5,978
General and administrative expenses             17,841        8,705        4,672
Depreciation and amortization                   21,181       10,416        5,322
                                              --------     --------     --------
Other expenses                                  75,946       49,810       30,519

Total expenses                                $123,872     $ 76,132     $ 51,914
                                              ========     ========     ========

</TABLE>

NOTE 8 - FINANCING ARRANGEMENTS

Our financing arrangements are securitization programs that effectively allow us
to borrow against the fair value of our mortgage  revenue bond  portfolio.  They
involve  the sales of senior  certificates  to third  party  investors  while we
retain subordinated  residual  certificated  interests.  The net effect of these
programs is that a portion of the  interest  we receive  from  mortgage  revenue
bonds is distributed to holders of the senior  certificates while we receive any
remaining  interest  via the residual  certificate  after  related  expenses are
deducted.


                                       98
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Following are the components of financing arrangements at December 31:

<TABLE>
<CAPTION>

               (In thousands)                             2006           2005
--------------------------------------------           ----------     ----------
<S>                                                    <C>            <C>
P-FLOATs/RITES                                         $  403,381     $  760,084
Floats/Residuals (formerly known as TIC/TOC)              944,799        187,108
Fixed-Rate Securitization                                 452,990             --
MBIA:
    Floater Certificates                                       --        382,500
    Auction Certificates                                       --        100,000
                                                       ----------     ----------

Total                                                  $1,801,170     $1,429,692
                                                       ==========     ==========

</TABLE>

In June 2006, we restructured several of our securitization programs whereby our
Centerbrook  subsidiary  is  now  the  provider  of  credit  intermediation,  as
supported by IXIS Financial Products,  Inc. ("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,  as detailed
below.  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 $2.6  million of other costs  (recorded in interest
expense) in the second quarter of 2006.

A. P-FLOATS/RITES AND FLOATS/RESIDUALS PROGRAMS

We have  securitized  certain  mortgage  revenue bonds through the Merrill Lynch
Pierce Fenner & Smith Incorporated  ("Merrill Lynch") P-FLOATs/RITES program and
through the Goldman,  Sachs & Co  ("Goldman  Sachs")  Floats/Residuals  program,
formerly known as the TIC/TOC program. There is no limit to the number or amount
of bonds we can securitize  through these  programs.  Under these  programs,  we
transfer certain mortgage  revenue bonds, or trust  certificates  that represent
senior  interests in the mortgage  revenue  bonds,  to Merrill  Lynch or Goldman
Sachs and they  deposit each revenue  bond into an  individual  special  purpose
trust. That trust, in turn, issues two types of securities:

     o    Puttable Floating Option Tax-Exempt Receipts ("P-FLOATs") or "Floats",
          short-term  senior  securities  which bear interest at a floating rate
          reset weekly at the lowest rate that will clear the market at par; and
     o    Residual  Interest Tax Exempt  Securities  ("RITES")  or  "Residuals",
          subordinate  securities  which receive the residual  interest  payment
          after  payment of P-FLOAT or Float  interest  and ongoing  transaction
          fees.

The  P-FLOATs  or  Floats  are sold to third  party  investors  and the RITES or
Residuals  are  generally  sold back to us. We have the right,  depending on the
program,  with at least 5 to 14 days  notice to the  trustee,  to  purchase  the
outstanding  P-FLOATs or Floats and withdraw  the  underlying  mortgage  revenue
bonds or trust  certificates  from the trust. When the mortgage revenue bonds or
trust certificates are deposited into the P-FLOAT or Float Trust, we receive the
proceeds from the sale of the P-FLOATs or Floats less certain transaction costs.
In certain  other  cases,  Merrill  Lynch or Goldman  Sachs may directly buy the
mortgage revenue bonds from local issuers,  deposit them in the trust,  sell the
P-FLOAT or Float security to investors and then the RITES or Residuals to us.

Due to the  repurchase  right,  we account for the net  proceeds  received  upon
transfer as secured  borrowings  and,  accordingly,  continue to account for the
mortgage revenue bonds as assets.

Credit  intermediation under these programs is provided by Merrill Lynch or IXIS
or by  Centerbrook,  as supported by either Merrill Lynch or IXIS. To facilitate
the  securitization,  we have pledged certain additional  mortgage revenue bonds
(or trust certificates  representing senior interests in mortgage revenue bonds)
as collateral for the benefit of the credit intermediator or liquidity provider.
At December 31, 2006, the total fair value of such collateral was  approximately
$98.6 million for the  P-FLOATs/RITES  program and approximately  $174.0 million
for the Floats/Residuals program.


                                       99
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. FIXED-RATE SECURITIZATIONS

In August 2006, we closed a $455.0 million  securitization whereby we sold fixed
rate  certificates  secured  by a pool  of our  mortgage  revenue  bonds.  These
certificates have a weighted average life of eight 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>

As of December 31, 2006, approximately $453.0 million remains outstanding.

In March 2005, we terminated a prior $100.0  million  fixed-rate  securitization
and remarketed the borrowings under the P-FLOATs/RITES program.

C. MBIA SECURITIZATION PROGRAM

Through June 2006, we securitized  bonds through a program  structured with MBIA
where we contributed  mortgage  revenue bonds to Series Trusts which then issued
senior   and   residual   certificates   similar  to  the   P-FLOATs/RITES   and
Floaters/Residuals  programs. This program was terminated in connection with the
restructuring of our programs as discussed above.

D. RESTRICTED ASSETS

Certain of our  subsidiaries  hold mortgage  revenue bonds which at December 31,
2006,  had an aggregate fair value of  approximately  $2.3 billion that serve as
collateral  for  securitized  borrowings or are  securitized.  The  subsidiaries
holding these bonds had net assets at December 31, 2006, of approximately $710.8
million.

E. COVENANTS

We  are  subject  to  customary   covenants   with  respect  to  our   financing
arrangements.  As of December  31,  2006,  we were in  compliance  with all such
covenants.


                                      100
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



F. COST OF FUNDS

Our annualized cost of funds relating to financing  arrangements and the related
amount of interest expense were as follows:

<TABLE>
<CAPTION>

                                                        2006          2005           2004
                                                     ---------     ---------      ---------
<S>                                                  <C>           <C>            <C>
Cost of funds (1)                                         4.17%         3.65%          2.51%
Interest expense (in millions) (1)                   $   68.7      $   44.8       $   24.6

Rate at December 31, excluding fees:
                                                          4.02%         3.33%
P-FLOATs/RITES
Floaters/Residuals (formerly known as TIC/TOC)            4.03          3.29%
Fixed rate                                                4.61            --
MBIA                                                        --          3.21%

</TABLE>

(1)  Includes  effect of our swaps and, in 2006,  incremental  costs  related to
     restructuring of our securitization programs.

NOTE 9 - NOTES PAYABLE

Notes payable included the following at December 31:

<TABLE>
<CAPTION>

         (In thousands)                                   2006            2005
---------------------------------                       --------        --------
<S>                                                     <C>             <C>
Term loan                                               $249,375        $     --
Revolving credit facility                                177,500              --
CMC warehouse line                                       122,459         179,277
CMBS repurchase lines                                     41,598              --
CMC acquisition loan                                          --          19,765
CharterMac Capital warehouse line                             --          45,613
Capri acquisition lines                                       --          60,000
Other                                                        233             233
                                                        --------        --------
  Total notes payable                                   $591,165        $304,888
                                                        ========        ========

</TABLE>

A.  TERM LOAN AND REVOLVING CREDIT FACILITY

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.

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 as discussed below. Stock
of certain of our  subsidiaries is pledged as collateral under the Term Loan and
the Credit Facility.  The weighted average net rate was 7.47% as of December 31,
2006.

                                      101
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. CMC WAREHOUSE LINE

CMC has a $100.0 million secured,  revolving  mortgage  warehouse  facility with
Bank of America.  The term of this  facility has been  extended to May 31, 2007.
The  facility  bears  interest at LIBOR plus 0.75%.  The balance at December 31,
2006,  includes  additional  borrowings pursuant to a temporary expansion of the
facility that expired in February 2007.

C. CMBS REPURCHASE LINES

At December 31, 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 December 31, 2006, we borrowed  $41.6 million
under these  agreements  and had the  ability to borrow  $44.9  million  without
pledging  additional  collateral.  As of December  31,  2006,  the fair value of
collateral  pledged was $115.1 million.  Interest rates range from 5.7% to 6.1%.
Of the  amounts  outstanding,  $11.8  million  matures in 23  months,  and $29.8
million  has no  specified  maturity  date,  although  it may be called upon six
months' notice by the counterparty.  As of December 31, 2006, no such notice had
been received from the counterparty.

D. CMC ACQUISITION LINE, CHARTERMAC CAPITAL WAREHOUSE LINE AND CAPRI ACQUISITION
LINES

In connection  with the  acquisition of CMC, we entered into a loan with Bank of
America  which was due to expire in December 2006 and bore interest at six-month
LIBOR plus 2.25%. The rate was 6.83% at December 31, 2005.

CharterMac  Capital had entered into a warehouse facility in the amount of $90.0
million with Bank of America,  Merrill Lynch, C.D.C.,  Citicorp,  USA, HSBC Bank
USA, N.A. and Comerica Bank. This facility was due to mature in October 2006 and
bore  interest,  at our option,  at either  30-day LIBOR plus 1.70% or the prime
rate plus .125%. The weighted average net rate was 6.84% December 31, 2005. This
facility was collateralized by a lien on certain limited  partnership  interests
(See Note 4).

The Capri  acquisition  lines with Bank of America bore interest at 60-day LIBOR
plus 1.65% and were due to mature in August 2006. The weighted  average interest
rate on the loans was 5.81% at December 31, 2005.

These facilities were repaid and terminated in connection with our new Term Loan
and Revolving Credit Facility as discussed above.

E. 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.,  IXIS 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%.

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%.

                                      102
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



As of December 31, 2006, no amounts were outstanding under these facilities.

F. COVENANTS

We are subject to customary covenants with respect to our various notes payable.
As of December 31, 2006, we were in compliance with all such covenants.

NOTE 10 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts  payable,  accrued  expenses  and other  liabilities  consisted  of the
following at December 31:

<TABLE>
<CAPTION>

                (In thousands)                               2006         2005
-----------------------------------------------            --------     --------
<S>                                                        <C>          <C>
Deferred revenues                                          $ 92,564     $ 70,025
Distributions payable                                        41,554       41,080
Accounts payable                                             18,626       22,314
Salaries and benefits                                        29,551       15,816
Accrued fund organization and offering expenses              11,860        9,562
Escrow/deposits payable                                       5,570        6,128
Accrued interest payable                                      5,825        4,879
Interest rate swaps at fair value (Note 11)                   1,997          208
Restructuring accrual                                         1,128         --
Other                                                         5,669        8,353
                                                           --------     --------

Total                                                      $214,344     $178,365
                                                           ========     ========

</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 January 1, 2006               $    --       $    --       $    --
   Additions                                    580         1,251         1,831
   Payments                                    (174)         (144)         (318)
   Adjustments                                 (171)         (378)         (549)
                                            -------       -------       -------
   Balance at December 31, 2006                 235           729           964
                                            -------       -------       -------

Lease termination costs
   Balance at January 1, 2006                    --            --            --
   Additions                                     --           164           164
                                            -------       -------       -------
   Balance at December 31, 2006                  --           164           164
                                            -------       -------       -------

Total                                       $   235       $   893       $ 1,128
                                            =======       =======       =======

</TABLE>

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 substantially  completed by the end of
the  first  quarter  of 2007  and do not  anticipate  increases  to the  amounts
detailed above.


                                      103
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 11 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Our financing  arrangements and notes payable (see Notes 8 and 9) incur interest
expense  at  variable  rates,  exposing  us  to  interest  rate  risk.  We  have
established a policy for risk  management  and our objectives and strategies for
the  use of  derivative  instruments  to  potentially  mitigate  such  risk.  We
currently manage a portion of our interest rate risk resulting from the exposure
to variable rates on our financing  agreements  through the use of interest rate
swaps  indexed to the BMA rate,  the most widely used  tax-exempt  floating rate
index, or to LIBOR. Under each swap agreement, for a specified period of time we
are required to pay a fixed rate of interest on a specified  notional  amount to
the  transaction  counterparty  and we  receive  a  floating  rate  of  interest
equivalent  to the BMA or LIBOR  index.  The average BMA rate was 3.45% in 2006,
2.45% in 2005 and 1.22% in 2004. The average LIBOR rate was 5.13% in 2006, 3.46%
in 2005 and 1.54% in 2004.

At  inception,  we  designate  these swaps as hedging  instruments  in cash flow
hedges with the hedging  relationships item being the variable interest payments
on our floating  rate debt.  We assess both at the inception of the hedge and on
an ongoing basis whether the swap agreements are effective in offsetting changes
in the  cash  flows  of the  hedged  financing.  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 variable interest payments in our floating rate debt, the forecasted
transactions  are  the  interest  payments.  An  inherent  risk  of  these  swap
agreements  is the credit  risk  related to the  counterparty's  ability to meet
terms of the contracts with us.

We have entered into swap agreements as follows:

<TABLE>
<CAPTION>

                                              Notional
                                        Amount at December 31,
          Counterparty                      (in millions)           Inception Date    Expiration Date       Rate
-------------------------------         ----------------------      --------------    --------------- -----------------
                                          2006          2005
                                        --------      --------
<S>                                     <C>           <C>            <C>              <C>              <C>
CASH FLOW HEDGES:
Merrill Lynch Capital Services, Inc.    $   --        $ 50.0         January 2001      January 2006    3.98%
Bank of America                          100.0         100.0         January 2005     December 2007    2.56%
Bank of America                           50.0          50.0         January 2005      January 2008    2.00% in 2005,
                                                                                                       2.78% in 2006
                                                                                                       and 3.27% in 2007
Bank of America                           50.0          50.0         January 2005      January 2008    2.86%
Bank of America                           50.0          50.0         January 2005      January 2009    3.08%
RBC Capital Markets                      100.0         100.0         January 2005      January 2009    3.075%
Wachovia (1)                             275.0          --            August 2006       August 2009    5.25%
Bank of America                          100.0         100.0         January 2005      January 2010    3.265%
                                        ------        ------
   Subtotal cash flow hedges             725.0         500.0
                                        ------        ------
FAIR VALUE SWAP:
Bank of America                             --          26.0        November 2005     November 2014    4.92%
                                        ------        ------
Total                                   $725.0        $526.0
                                        ======        ======

</TABLE>

(1)  We entered  into a new $275.0  million  interest  rate swap  during 2006 in
     connection  with our new term loan and revolving  credit facility (see Note
     9).

We evaluate our interest rate risk on an ongoing  basis to determine  whether it
would be advantageous to engage in any further hedging transactions.


                                      104
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



For the cash flow hedge swaps in place and others that have  expired,  there was
ineffectiveness for certain of our swaps in the hedging relationships during the
three  years  ended   December  31,  2006.   We  recorded   ineffectiveness   of
approximately $1.5 million.

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

For discussion of derivatives related to consolidated partnerships, see Note 7.

Interest rate swaps for which we are 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 at December 31 were as follows:

<TABLE>
<CAPTION>

            (In thousands)                      2006             2005
---------------------------------------       --------         --------
<S>                                            <C>              <C>
Net liability position                         $1,997           $  208
Net asset position                             $2,236           $4,857

</TABLE>

Interest  expense  included the following  expense (income) related to our swaps
for the years ended December 31:

<TABLE>
<CAPTION>

               (In thousands)                        2006       2005      2004
------------------------------------------         --------   -------   -------
<S>                                                <C>        <C>       <C>
Interest expense                                   $   448    $ 2,963   $ 1,807
Interest income                                     (2,299)      (219)      (82)
Change in fair value of free standing swap
   assigned to AMAC                                   (203)       203        --
                                                   -------    -------   -------

Total                                              $(2,054)   $ 2,947   $ 1,725
                                                   =======    =======   =======

</TABLE>

We estimate that  approximately  $2.9 million of net unrealized gain included in
accumulated  other  comprehensive  income  will be  reclassified  into  interest
expense within the next twelve  months,  due to the fact our swaps have been and
we expect they will continue to be effective.

NOTE 12 - INCOME TAXES

A large majority of our pre-tax  income is derived from our Portfolio  Investing
businesses and the Fund Management  businesses we acquired with ARCap, which are
structured as flow-through  entities; as such, the income from those investments
does not  subject  us to income  taxes.  The  remainder  of the Fund  Management
business and the entire Mortgage  Banking business are conducted in corporations
and are subject to income taxes.

The components of our pre-tax income were as follows:

<TABLE>
<CAPTION>

          (In thousands)                     2006          2005          2004
--------------------------------           --------      --------      --------
<S>                                        <C>           <C>           <C>
Not subject to tax                         $ 79,341      $ 79,309      $ 80,085
Subject to tax                              (31,555)      (48,872)      (31,965)
                                           --------      --------      --------
Total income before income taxes           $ 47,786      $ 30,437      $ 48,120
                                           ========      ========      ========

</TABLE>


                                      105
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The income tax (benefit) provision consisted of the following components:

<TABLE>
<CAPTION>

          (In thousands)              2006       2005        2004
---------------------------------   --------   --------    --------
<S>                                 <C>        <C>         <C>
Current:
  Federal                           $  1,107   $ (1,783)   $  2,279
  State and local                      3,230      1,384       1,022
                                    --------   --------    --------
Total current                          4,337       (399)      3,301

Deferred:
  Federal                            (17,560)   (18,012)    (13,286)
  State and local                     (9,436)   (10,166)     (7,258)
                                    --------   --------    --------
Total deferred                       (26,996)   (28,178)    (20,544)

Valuation allowance                   29,151         --          --
                                    --------   --------    --------

Total tax provision (benefit)       $  6,492   $(28,577)   $(17,243)
                                    ========   ========    ========

</TABLE>

The tax provision (benefit) does not include:

     (1)  the current tax benefit related to additional tax deductions for share
          based compensation which was credited to beneficial owners' equity; or
     (2)  the deferred  tax benefit and related  valuation  allowance  resulting
          from unrealized  losses on derivative  contracts which was credited to
          other comprehensive income.

Deferred  income tax assets and  liabilities  are  computed  based on  temporary
differences  between the financial  statement and income tax bases of assets and
liabilities that existed at the balance sheet date.

A reconciliation  of the statutory federal tax rate to our effective tax rate is
as follows:

<TABLE>
<CAPTION>

                                                     2006       2005      2004
                                                    ------     ------    ------
<S>                                                 <C>        <C>       <C>
Statutory tax rate                                   35.0 %     35.0 %    35.0 %
Partnership income not subject to tax               (54.2)     (89.6)    (56.4)
State and local taxes, net of federal benefit        (8.6)     (19.0)     (8.2)
SCUs / SMUs (see Note 13)                           (13.0)     (13.2)     (3.4)
Valuation allowance                                  61.1         --        --
Tax-exempt interest                                  (5.3)      (6.1)       --
Share based compensation                             (0.5)      (0.7)     (1.4)
Other                                                (0.9)      (0.3)     (1.4)
                                                   ------     ------    ------
Effective tax rate                                   13.6 %    (93.9)%   (35.8)%
                                                   ======     ======    ======

</TABLE>


                                      106
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The components of the deferred tax assets and (liabilities) are as follows:

<TABLE>
<CAPTION>

                   (In thousands)                            2006        2005
----------------------------------------------------       --------    --------
<S>                                                        <C>         <C>
DEFERRED TAX ASSETS:
Deferred revenue                                           $ 42,720    $ 31,142
Share based compensation                                      4,599       3,216
Unrealized loss on derivatives                                5,273       1,331
Purchased servicing rights                                    1,632          --
Bad debt reserves                                             3,518       1,885
Partnerships and depreciation                                 2,996          --
Tax credits and state operating loss carry forwards           2,654       1,026
Other, net                                                      396         415
                                                           --------    --------
Total deferred tax assets                                    63,788      39,015
                                                           --------    --------

DEFERRED TAX LIABILITIES:
Intangible assets                                           (20,250)    (26,575)
Deferred costs                                               (1,119)     (1,562)
Originated mortgage service rights                           (9,329)     (9,029)
                                                           --------    --------
Total deferred tax liabilities                              (30,698)    (37,166)
                                                           --------    --------

Valuation allowance                                         (33,090)         --
                                                           --------    --------

Net deferred tax asset                                     $     --    $  1,849
                                                           ========    ========

</TABLE>

At December  31,  2006,  our  corporate  subsidiaries  had the  following  carry
forwards:

                                                                  (In thousands)
Low income housing credits (expiring starting in 2024)               $  1,234
Alternative minimum tax credits (do not expire)                      $  1,420

In 2006,  we  determined  that,  in light of  projected  taxable  losses  in the
corporate  subsidiaries  for the  foreseeable  future,  all of our  deferred tax
assets  will  likely  not be  realized  and  therefore  we have  provided a full
valuation allowance.

The Internal  Revenue Service is examining the  consolidated  corporate  federal
income  tax  return for our  subsidiaries  subject to taxes for the tax  periods
ended June 30, 2003,  December 31, 2003 and December 31, 2004. The New York City
taxing  authority  is  examining  the  partnership  tax  returns  of  one of our
subsidiaries  for the years ended December 31, 2003 and December 31, 2004. These
examinations are in a preliminary stage and no significant  issues have yet been
raised.


                                      107
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 13 - SUBSIDIARY EQUITY

A. PREFERRED SHARES OF A SUBSIDIARY - SUBJECT TO MANDATORY REPURCHASE

Since June 1999, we have issued multiple series of Cumulative  Preferred Shares,
which are subject to  mandatory  repurchase,  through our Equity  Issuer Trust I
("Equity Issuer") subsidiary.

<TABLE>
<CAPTION>

                                                                            Liquidation
  Preferred        Date of       Mandatory      Mandatory     Number of    Preference per   Total Face     Dividend
   Series          Issuance       Tender        Repurchase      Shares         Share          Amount         Rate
--------------------------------------------------------------------------------------------------------------------
<S>              <C>           <C>            <C>                <C>          <C>           <C>             <C>
                                                                                   (In thousands)
Series A          June 1999      June 2009      June 2049         45          $2,000        $  90,000       6.625%
Series A-1        July 2000      June 2009      June 2049         48             500           24,000       7.100%
Series A-2       October 2001    June 2009      June 2049         62             500           31,000       6.300%
Series A-3        June 2002    October 2014    October 2052       60             500           30,000       6.800%
Series B          July 2000    November 2010  November 2050      110             500           55,000       7.600%
Series B-1       October 2001  November 2010  November 2050       37             500           18,500       6.800%
Series B-2        June 2002    October 2014    October 2052       50             500           25,000       7.200%
                                                                                            ---------
   Total                                                                                    $ 273,500
                                                                                            =========

</TABLE>

We collectively  refer to the Series A Cumulative  Preferred Shares,  Series A-1
Cumulative  Preferred Shares,  Series A-2 Cumulative Preferred Shares and Series
A-3 Cumulative  Preferred Shares as the "Series A Shares." We collectively refer
to the Series B Subordinate  Cumulative Preferred Shares, Series B-1 Subordinate
Cumulative  Preferred  Shares and Series B-2  Subordinate  Cumulative  Preferred
Shares as the  "Series B  Shares."  We also  collectively  refer to the Series A
Shares and the Series B Shares as the "Preferred Shares."

The  Series A Shares  all have  identical  terms  except as to the  distribution
commencement  date and other  terms  listed in the table  above.  Likewise,  the
Series  B  Shares  all  have  identical  terms,  except  as to the  distribution
commencement  date and other terms listed in the table above.  Equity Issuer may
not redeem the Preferred  Shares before their mandatory  repurchase  dates.  The
Preferred Shares are subject to mandatory tender for remarketing and purchase on
such dates and each remarketing date thereafter at their respective  liquidation
amounts plus all distributions  accrued but unpaid. Each holder of the Preferred
Shares will be required to tender its shares on the dates listed  above,  unless
Equity Issuer  decides to remarket  them.  Holders of the  Preferred  Shares may
elect to retain their shares upon  remarketing,  with a new distribution rate to
be  determined  at  that  time  by the  remarketing  agent.  After  the  initial
remarketing  dates,  Equity Issuer may  repurchase  some or all of the Preferred
Shares, subject to certain conditions.  The Preferred Shares are not convertible
into our common shares.

The  Preferred  Shares have annual  preferred  dividends  payable  quarterly  in
arrears upon  declaration  by our Board of  Trustees,  but only to the extent of
tax-exempt  net income for the  particular  quarter.  With respect to payment of
distributions  and amounts upon  liquidation,  dissolution  or winding-up of our
Company, the Series A Shares rank, senior to:

     o    all classes or series of Convertible CRA Shares (see Note 14);
     o    all Series B shares; and
     o    our common shares.

With  respect  to  payment  of  distributions   and  amounts  upon  liquidation,
dissolution or winding-up of our Company, the Series B Shares rank senior to our
Convertible CRA Shares and common shares.

Equity  Issuer may not pay any  distributions  to the parent  trust until it has
either  paid  all  Preferred  Share  distributions,  or in the  case of the next
following  distribution  payment date,  set aside funds  sufficient for payment.


                                      108
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Since issuance of the Preferred Shares,  all quarterly  distributions  have been
declared at each stated annualized  dividend rate for each respective series and
all distributions due have been paid.

Equity Issuer is subject to, among others, the following  covenants with respect
to the Preferred Shares:

     TAX-EXEMPT INTEREST AND DISTRIBUTION

     Equity Issuer may only acquire new investments that it reasonably  believes
     will generate interest and  distributions  excludable from gross income for
     federal income tax purposes.  As soon as commercially  practicable,  Equity
     Issuer will dispose of any investment if its interest becomes includable in
     gross income for federal income tax purposes, for any reason.

     LEVERAGE

     Equity  Issuer will not,  and will not permit any of its  subsidiaries  to,
     directly or indirectly, incur any obligation unless:

     o    Equity Issuer is not in default under its trust agreement;
     o    Equity  Issuer  has paid or  declared  and set aside for  payment  all
          accrued and unpaid distributions on the Preferred Shares; and
     o    the leverage ratio on the portfolio is less than 0.6 to 1 after giving
          effect to the incurrence of the obligation.

     FAILURE TO PAY DISTRIBUTIONS

     If  Equity  Issuer  has  not  paid,  in  full,  six  consecutive  quarterly
     distributions on the Preferred  Shares,  it is required to reconstitute its
     board of trustees  so that a majority of the board of trustees  consists of
     trustees who are independent with respect to Equity Issuer,  CharterMac and
     CharterMac Capital.

     ALLOCATION OF TAXABLE INTEREST INCOME AND MARKET DISCOUNT

     Equity Issuer will specially  allocate  taxable  interest income and market
     discount that is taxable as ordinary income to us. Market discount, if any,
     may arise where Equity Issuer  acquires a bond other than upon its original
     issuance  for less than its stated  redemption  price at  maturity  and the
     difference is greater than a minor amount  (generally 1/4 of 1% of a bond's
     stated  redemption  price at maturity  multiplied by the number of complete
     years to maturity).

In accordance with SFAS No. 150,  ACCOUNTING FOR CERTAIN  FINANCIAL  INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY ("SFAS No. 150") we classify
the  Preferred  Shares as  liabilities  in our  balance  sheet and  include  the
dividends  paid  for  those  share  as  interest  expense  in  our  consolidated
statements of income.


                                      109
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. PREFERRED SHARES OF A SUBSIDIARY - NOT SUBJECT TO MANDATORY REPURCHASE

In May 2004,  Equity Issuer issued the following  Cumulative  Preferred  Shares,
which are not subject to mandatory repurchase:

<TABLE>
<CAPTION>

                                                Liquidation
 Preferred          Date of       Number of     Preference    Total Face     Dividend
   Series           Issuance       Shares        per Share      Amount         Rate
--------------------------------------------------------------------------------------
<S>                 <C>              <C>           <C>        <C>              <C>
                                                      (In thousands)
Series A-4-1        May 2004         60            $500       $  30,000        5.75%
Series A-4-2        May 2004         58             500          29,000        6.00%
Series B-3-1        May 2004         50             500          25,000        6.00%
Series B-3-2        May 2004         40             500          20,000        6.30%
                                                              ---------
  Total                                                       $ 104,000
                                                              =========

</TABLE>

Except for the absence of a mandatory repurchase feature (and for specific terms
enumerated in the table above),

     o    the Series A-4-1and Series A-4-2 shares have the same  characteristics
          as the Series A Shares described above; and
     o    the Series B-3-1 and Series B-3-2 shares have the same characteristics
          as the Series B shares described above.

In  accordance  with SFAS No. 150, as these  shares are not subject to mandatory
repurchase,  we classify them as mezzanine  equity and the associated  dividends
are classified  outside of interest  expense in the  consolidated  statements of
income.

C. MINORITY INTERESTS

Minority  interests in consolidated  subsidiaries  consisted of the following at
December 31:

<TABLE>
<CAPTION>

         (In thousands)                                   2006            2005
--------------------------------                        --------        --------
<S>                                                     <C>             <C>
Convertible SCUs of a subsidiary                        $231,262        $250,866
Convertible SMUs of a subsidiary                           5,110          11,408
Convertible SCIs of a subsidiary                           4,758              --
Other                                                      6,260              --
                                                        --------        --------

Total                                                   $247,390        $262,274
                                                        ========        ========

</TABLE>

Income (loss) allocated to minority interests was as follows for the years ended
December 31:

<TABLE>
<CAPTION>

      (In thousands)                 2006               2005              2004
--------------------------         --------           --------          --------
<S>                                <C>                <C>               <C>
SCUs                               $ 16,131           $ 23,091          $ 28,174
SMUs                                    102                330                --
SCIs                                     80                 --                --
Other                                  (219)                --               194
                                   --------           --------          --------

Total                              $ 16,094           $ 23,421          $ 28,368
                                   ========           ========          ========

</TABLE>


                                      110
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



SCUS

In connection with our acquisition of CharterMac Capital,  our subsidiary issued
membership  interests in the form of 16.1 million special common units ("SCUs").
SCU holders are entitled to  distributions  at the same time as, and only if, we
pay distributions on our common shares.  SCU distributions are calculated as the
amount of common share distributions  divided by 0.72, to adjust for the taxable
nature of the income  comprising the SCU  distributions.  SCU  distributions are
payable only to the extent of the subsidiary's cash flow, supplemented by a loan
of all but $5.0 million  from the parent trust in the event of a shortfall.  Any
remaining  shortfall  will  accrue  interest  at a market  rate and will only be
payable at the time the subsidiary has sufficient cash flow.

Each holder of SCUs has the right to:

     o    exchange all or a portion of their SCUs for cash; and
     o    receive cash for any accrued but unpaid  distributions with respect to
          SCUs 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 SCUs (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 for the five  consecutive
trading days prior to the date when we receive notice of intent to convert.  Our
subsidiary may not pay any  distributions  to the parent trust until it has paid
all SCU  distributions.  Through December 31, 2006, all SCU  distributions  have
been paid.

As of December 31, 2006, there were  approximately 14.8 million SCUs outstanding
and approximately 14.9 million were outstanding at December 31, 2005.

SMUS

The Special Membership Units ("SMUs") outstanding were issued in connection with
the CCLP  acquisition  (See  Note 2).  Additional  SMUs  which  were  issued  in
connection with a preferred  investment in CCA (see Note 4) were returned and/or
cancelled in connection with the closure of CRES (see Note 2).

SMU holders are entitled to  distributions  at the same time as, and only if, we
pay distributions on our common shares.  SMU distributions  were initially $1.69
per year, subject to adjustment in the amount of 95% of the percentage increases
or decreases in the  dividends  paid by us on the common  shares.  Distributions
paid to SMU holders consist of taxable income.

Each holder of SMUs has the right to:

     o    exchange all or a portion of their SMUs for cash; and
     o    receive cash for any accrued but unpaid  distributions with respect to
          SMUs 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 SMUs (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 for the five  consecutive
trading days prior to the date when we receive notice of intent to convert.

Our  subsidiary may not pay any  distributions  to the parent trust until it has
paid all SMU  distributions.  Through  December 31, 2006, all SMU  distributions
have been paid.

As of December 31, 2006, there were  approximately  278,000 SMUs outstanding and
approximately 539,000 were outstanding at December 31, 2005.


                                      111
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



SCIS

In connection with our acquisition of ARCap (see Note 2), our subsidiary  issued
membership interests in the form of approximately  268,000 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.

Each holder of SCIs 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
          SCIs 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 for the five  consecutive
trading days prior to the date when we receive notice of intent to convert.

As of December 31, 2006, there were approximately 268,000 SCIs outstanding.

OTHER

"Other"  minority  interests at December 31, 2006,  primarily  represent the 10%
interest in  Centerbrook  owned by IXIS.  IXIS has been issued  warrants  which,
generally,  may be  exercised  beginning  June  2009,  and if  exercised,  would
increase  IXIS'  ownership  percentage  to 19%.  We  purchased  the  outstanding
minority interest in CMC during the first quarter of 2005 (see Note 2).

NOTE 14 - SHAREHOLDERS' EQUITY

A. SPECIAL PREFERRED VOTING SHARES

Each holder of SCUs (see Note 13) also holds one special  preferred voting share
(at a par value of $.01 per share) for each SCU.  The special  preferred  voting
shares  have no  economic  interest,  but  entitle  the  holder  to  vote,  on a
one-for-one basis, on all matters subject to a vote of our common  shareholders.
We have the  right to  require  that  each  special  preferred  voting  share be
redeemed at par and cancelled  simultaneously upon the exchange of an SCU by its
holder  into cash or a common  share.  Other than the  payment of $.01 per share
upon redemption of the special preferred voting shares or the liquidation of our
Company,   the  special   preferred  voting  shares  are  not  entitled  to  any
distributions or other economic rights.

The selling  principals of CharterMac  Capital  entered into a voting  agreement
which governs the voting of all of their:

     o    special preferred voting shares,
     o    common shares issuable upon exchange of their SCUs, and
     o    any other common  shares  currently  owned or which may be acquired by
          them in the future.

The voting agreement  provides that the selling principals of CharterMac Capital
will:

     o    vote their common shares or special  preferred  voting shares in favor
          of the election of any  independent  trustee  approved by our board of
          trustees or in the same proportion as the unaffiliated  holders of our
          common shares vote in such election; and


                                      112
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



     o    not exercise any right as  shareholder  of our Company to nominate any
          independent trustee.

With the exception of Stephen M. Ross (see Note 18), the voting  agreement  will
terminate for each of the remaining selling  principals at the time he or she is
no longer an employee,  officer, or trustee of our Company. The voting agreement
with  respect  to Mr.  Ross will  remain in effect as long as he owns any of our
special preferred voting shares or common shares.

B. CONVERTIBLE CRA SHARES

Our Convertible  Community  Reinvestment Act Preferred Shares  ("Convertible CRA
Shares") enable financial institutions to receive certain regulatory benefits in
connection  with their  investment.  We have developed a proprietary  method for
allocating these regulatory  benefits to specific  financial  institutions  that
invest in the  Convertible  CRA Shares.  Other than the preferred  allocation of
regulatory benefits,  the preferred investors receive the same economic benefits
as our common shareholders including:

     o    receipt of the same dividends per share;
     o    pro rata allocation of earnings between the two classes of shares; and
     o    equal  ranking  with the common  shares  with  respect to rights  upon
          liquidation, dissolution or winding up of our Company.

The Convertible CRA Shares have no voting rights,  except on matters relating to
the terms of the  Convertible CRA Shares or to amendments to our Trust Agreement
which would adversely affect the Convertible CRA Shares.

For  Convertible  CRA shares issued prior to 2002, the investors have the option
to convert their shares into common shares at a predetermined  conversion price,
calculated as the greater of:

     o    our book  value per  common  share as set  forth in our most  recently
          issued  annual or  quarterly  report  filed  with the SEC prior to the
          respective Convertible CRA Share issuance date; or
     o    110%  of the  closing  price  of a  common  share  on  the  respective
          Convertible CRA Share's pricing date.

For  Convertible  CRA Shares  issued in 2002 and later,  conversion  into common
shares is on a one-for-one basis.

Upon  conversion,  the  investors  would no  longer  be  entitled  to a  special
allocation of the regulatory benefit.

At  December  31, 2006 and 2005,  we had the  following  Convertible  CRA Shares
outstanding:

<TABLE>
<CAPTION>

                                                       (In thousands)
                                                       --------------
<S>                                                         <C>
Convertible CRA Shares issued prior to 2002                   998
Convertible CRA Shares issued 2002 and later                5,554
                                                         --------
  Total outstanding                                         6,552
                                                         ========
Common shares issuable upon conversion                      6,487
                                                         ========

</TABLE>

C. 4.4% CONVERTIBLE CRA PREFERRED SHARES

Our 4.4% Cumulative Perpetual Convertible  Community  Reinvestment Act Preferred
Shares  ("4.4%  Convertible  CRA  Preferred  Shares")  have the same CRA related
benefits of the Convertible CRA Shares and likewise have no voting rights except
on certain matters  relating to the terms of the 4.4%  Convertible CRA Preferred
Shares or to amendments to our Trust Agreement which would adversely  affect the
4.4% Convertible CRA Preferred Shares.

The shares rank senior to our common shares and the  Convertible CRA Shares with
respect to rights upon  liquidation,  dissolution  or winding up of our Company.
They rank  senior to our common  shares  and the  Convertible  CRA  Shares  with


                                      113
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



respect  to  distributions,  which  are  cumulative  and  fixed  at  4.4% of the
liquidation amount of $50 per share. The shares have no stated maturity.

Beginning  July  2008,  the  4.4%  Convertible  CRA  Preferred  Shares  will  be
convertible  into our common shares at the option of the holders  thereof at any
time at a conversion rate of  approximately  1.81 common shares each (a total of
approximately  3.9 million  common  shares),  subject to  stipulated  conversion
adjustment  conditions.  Also beginning July 2008, we may redeem the shares at a
price   equal  to  their   liquidation   amount  plus  any  accrued  and  unpaid
distributions.  The shares are also subject to remarketing  provisions beginning
in July 2015. All distributions have been paid through December 2006.

D. ISSUANCES AND CONVERSIONS

In June 2004, we sold 5.75 million  common shares to the public for net proceeds
of  approximately  $105.5  million after  deducting  underwriting  discounts and
commissions.  The underwriters for this offering were Wachovia  Securities,  UBS
Securities LLC, RBC Capital Markets Corporation and Legg Mason Wood Walker.

As noted above, we issued  approximately 2.2 million of our 4.4% Convertible CRA
Preferred  Shares in July  2005 for gross  proceeds  of $108.0  million.  Net of
underwriters  fees and  expenses,  our net proceeds  were  approximately  $104.5
million. Meridian Investments acted as placement agent for this offering.

Holders of Convertible CRA shares and subsidiary equity units converted holdings
as follows:

<TABLE>
<CAPTION>

                                             Number    Common shares
       Year                                converted      issued      Cash paid
      ------                               ---------   -------------  ---------
       <S>      <C>                        <C>           <C>          <C>
       2004     Convertible CRA shares     1,627,691     1,600,028          --
                SCUs                         933,000       933,000          --

       2005     SCUs                         287,000       287,000          --

       2006     SCUs                          60,000        20,000    $723,000
                SMUs                          75,000        75,000          --

</TABLE>

Additionally,  in connection with the closure of CRES (see Note 2), we cancelled
approximately  114,000 SMUs and 72,000  others were  returned to us. We reversed
the aggregate  amount of approximately  $4.1 million from minority  interests to
goodwill.

E. DIVIDEND REINVESTMENT PLAN

In May 2000, we  implemented a dividend  reinvestment  and common share purchase
plan. Under this plan, common shareholders may elect to have their distributions
automatically  reinvested  in  additional  common shares at a price equal to the
average of the high and low market price from the previous  day's  trading,  and
make cash payments for further  investment.  As of December 31, 2006, there were
approximately  153,000 shares  participating in the plan, which  represented 354
investors.

F. REPURCHASES

The board of  trustees  has  authorized  the  implementation  of a common  share
repurchase plan, enabling us to repurchase, from time to time, up to 1.5 million
common shares. This plan has no expiration date. The repurchases will be made in
the open market and the timing is dependent on the availability of common shares
and other market conditions.  During 2006, we entered into a 10b5-1 trading plan
to facilitate the purchases of shares under this program.


                                      114
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



In addition to the repurchase  plan, we may repurchase  shares from employees in
connection with tax withholding  requirements  upon vesting of restricted  share
grants.  We  account  for  repurchased  common  shares  as  treasury  shares  of
beneficial interest.

During the years ended December 31, we repurchased shares as follows,  including
shares we purchased  through the 10b5-1 plan,  shares purchased in 2006 prior to
implementing that plan, and via employee withholdings:

<TABLE>
<CAPTION>

                (in thousands)                              2006         2005          2004
-----------------------------------------------            -------      -------       ------
<S>                                                        <C>          <C>           <C>
Number of shares                                             1,082          187          111
Cost, including commissions and service charges            $20,883      $ 4,165       $2,592

</TABLE>

All   repurchases   during  2005  or  2004  were  in  connection  with  employee
withholdings and there were no repurchases made under the repurchase plan during
those years.

Although additional shares may be repurchased in 2007, we are unable to estimate
how many.

G. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income were as follows:

<TABLE>
<CAPTION>

                               Net Unrealized
                               Gain/(Loss) on    Net Unrealized
                                  Mortgage       Gain/(Loss) on                     Accumulated Other
                               Revenue Bonds,     Derivatives,                        Comprehensive
       (In thousands)            Net of Tax        Net of Tax           Other         Income (Loss)
----------------------------   --------------    --------------     ------------    -----------------
<S>                              <C>              <C>                <C>               <C>
Balance at January 1, 2004       $  31,395        $  (2,959)                           $  28,436
Period change                      (15,806)          (1,078)                             (16,884)
                                 ---------        ---------                            ---------
Balance at December 31, 2004        15,589           (4,037)                              11,552
Period change                       82,669            5,848          $      35            88,552
                                 ---------        ---------          ---------         ---------
Balance at December 31, 2005        98,258            1,811                 35           100,104
Period change                      (32,535)          (2,267)             1,561           (33,241)
                                 ---------        ---------          ---------         ---------
Balance at December 31, 2006     $  65,723        $    (456)         $   1,596         $  66,863
                                 =========        =========          =========         =========

</TABLE>

NOTE 15 - 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 (as defined in the Plan)
          as of December 31 preceding issuances of such awards; and


                                      115
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



     o    the limits  prescribed by the national  security  exchange or national
          quotation system on which the shares may then be listed.

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

B. SHARE OPTIONS

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.

We granted the  following  options  pursuant  to the Plan (none were  granted in
2004):

<TABLE>
<CAPTION>

                          Weighted                            Weighted
                          Average           Weighted          Average
Year       Number      Exercise Price     Average Term     Vesting Period
----     ----------    --------------    -------------    ----------------
<C>        <C>             <C>             <C>               <C>
2005       656,515         $24.35          10.0 years        3.0 years
2006       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:

<TABLE>
<CAPTION>

                                                      2006          2005
                                                     ------        ------
<S>                                                  <C>           <C>
Risk free interest rate                               4.42%         3.01%
Expected years until exercise                         1.71          2.00
Expected stock volatility                            23.14%        20.38%
Dividend yield                                        8.11%         6.71%

</TABLE>

The following table  summarizes  share option activity in our share option plans
as of the year ended December 31:

<TABLE>
<CAPTION>

                                         2006                          2005                           2004
                               -------------------------      -----------------------       ------------------------
                                                Weighted                     Weighted                       Weighted
                                                Average                       Average                       Average
                                                Exercise                     Exercise                       Exercise
                                Options          Price         Options         Price         Options         Price
                               ---------        --------      ---------      --------       ---------       --------
<S>                            <C>               <C>          <C>             <C>           <C>              <C>
Outstanding at beginning
  of year                      1,510,341         $20.42       1,075,313       $17.36        1,119,914        $17.33

Granted                          544,000          21.78         656,515        24.35               --            --
Forfeited                             --             --              --           --          (22,167)        17.56
Exercised                        (35,600)         21.18        (221,487)       17.18          (22,434)        15.73
                               ---------         ------       ---------       ------        ---------        ------
Outstanding at end of year     2,018,741         $20.77       1,510,341       $20.42        1,075,313        $17.36
                               =========         ======       =========       ======        =========        ======

</TABLE>
<TABLE>
<CAPTION>


               (In thousands)                          2006      2005      2004
---------------------------------------------         ------    ------    ------
<S>                                                   <C>       <C>       <C>
Fair value of options granted during the year         $  852    $1,196    $   --
                                                      ======    ======    ======

Compensation cost recorded                            $  937    $  895    $  597
                                                      ======    ======    ======

</TABLE>


                                      116
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                       As of December 31, 2006
                                         --------------------------------------------------
                                                                 Weighted
                                                                  Average
                                                      Weighted   Remaining     Aggregate
                                                      Average    Contractual   Intrinsic
                                                      Exercise      Term         Value
                                          Options       Price    (in years)  (in thousands)
                                         ---------    ---------  ----------- --------------
<S>                                      <C>          <C>             <C>      <C>
Vested and expected to vest at
  end of period                          2,018,741    $   20.77       7.2      $   3,508
                                         =========    =========    ======      =========

Exercisable at end of year                 943,751    $   17.48       6.2      $   2,032
                                         =========    ========     ======      =========

</TABLE>

The  aggregate  intrinsic  value in the table above  represents  the  difference
between our closing  common share price on December  31, 2006,  and the exercise
price,  multiplied  by the number of "in the money"  options.  This  amount will
change based on the fair market value of our common shares.

The following table summarizes  information about share options  outstanding and
exercisable at December 31, 2006:

<TABLE>
<CAPTION>

                                                 Weighted
                                                 Average
                                                Remaining
                              Number           Contractual         Number
      Exercise Price       Outstanding       Life (in Years)    Exercisable
      --------------       -----------       ---------------    -----------
          <S>              <C>                     <C>            <C>
          $11.56              51,576               3.3             51,576
          $17.56               2,250               5.7              2,250
          $17.78             800,000               6.9            400,000
          $21.18             123,910               0.2            123,910
          $21.61              20,000               8.4              6,667
          $22.03             384,490               9.0                 --
          $24.44             636,515               8.0            359,348
                           ---------            ------          ---------
                           2,018,741               7.2            943,751
                           =========            ======          =========

</TABLE>

C. NON-VESTED SHARES AND SCUS

We issue restricted  share grants  primarily in connection with  acquisitions or
employee  bonuses.  In conjunction  with the CharterMac  Capital  acquisition in
2003, we issued restricted  common shares to various  individuals who are either
employees of CharterMac  Capital or are one of the selling  principals,  most of
which vested over periods ranging from three months to four years.  During 2006,
in connection with the ARCap  acquisition,  we issued  approximately 1.7 million
restricted common shares to ARCap employees (see Note 2), of which approximately
56,000 shares vested  immediately,  with the remaining  vesting over a period of
one to four years.

Also, in conjunction  with the CharterMac  Capital  acquisition,  our subsidiary
issued SCUs to employees other than the selling principals. These SCUs vest over
periods ranging from three to four years.


                                      117
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Activity with respect to non-vested shares and SCUs was as follows for the years
ended December 31:

<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, 2004           725,557    $   19.33     217,300    $   17.92
Granted                                 109,932        20.27      93,100        17.92
Vested                                 (312,776)       19.40          --           --
Forfeited                               (28,022)       19.33          --           --
                                      ---------    ---------    --------    ---------
Non-vested at December 31, 2004         494,691        19.37     310,400        17.92
                                      ---------    ---------    --------    ---------
Granted                                 119,592        22.37          --           --
Vested                                 (365,022)       19.78          --           --
Forfeited                                (8,067)       19.46          --           --
                                      ---------    ---------    --------    ---------
Non-vested at December 31, 2005         241,194        20.25     310,400        17.92
                                      ---------    ---------    --------    ---------
Granted                               2,170,371        19.73          --           --
Vested                                 (300,483)       20.06    (148,087)       17.92
Forfeited                               (22,511)       20.56          --           --
                                      ---------    ---------    --------    ---------
Non-vested at December 31, 2006       2,088,571    $   19.74     162,313    $   17.92
                                      =========    =========    ========    =========

</TABLE>
<TABLE>
<CAPTION>

               (In thousands)                         2006      2005      2004
----------------------------------------------       -------   -------   -------
<S>                                                  <C>       <C>       <C>
Compensation cost recorded, net of forfeitures       $14,209   $ 7,543   $11,035

</TABLE>

D. UNAMORTIZED COSTS AND SHARES AVAILABLE FOR GRANT

As of  December  31,  2006,  there  was  $35.3  million  of  total  unrecognized
compensation   cost  related  to  share  options  and   non-vested   share-based
compensation  grants.  We  expect to  recognize  this  compensation  cost over a
weighted-average period of 2.9 years.

As of December 31, 2006, there were  approximately  3.8 million options or share
grants available for issuance under the Plan.

E. TRUSTEE GRANTS

Our  independent  trustees  receive a portion of their  annual  compensation  in
common  shares.  In 2006,  we issued  5,862 shares for trustee  compensation  as
compared to 7,518 in 2005.  An  additional  5,047 were issued in January 2007 in
connection with 2006 services.  Expense we recognized related to the 2005 grants
was approximately  $150,000.  Expense related to those shares issued in 2006 and
2007 was approximately $218,000.


                                      118
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 16 - GENERAL AND ADMINISTRATIVE EXPENSES

General and  administrative  expenses  consisted of the  following for the years
ending December 31:

<TABLE>
<CAPTION>

               (In thousands)                       2006       2005       2004
---------------------------------------------     --------   --------   --------
<S>                                               <C>        <C>        <C>
Salaries and benefits                             $ 94,916   $ 68,983   $ 56,044
Fund origination and property acquisition
   expenses                                         12,338     15,704     15,980
Operating costs of real estate owned (Note 6)        4,861      3,218         --
Restructuring costs (Note 10)                        1,446         --         --
Other general and administrative                    52,087     40,708     29,282
                                                  --------   --------   --------

Total                                             $165,648   $128,613   $101,306
                                                  ========   ========   ========

</TABLE>

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.

NOTE 17 - EARNINGS PER SHARE, PROFIT AND LOSS ALLOCATIONS AND DISTRIBUTIONS

We allocate the income of CCC (the subsidiary we created as CharterMac Capital's
direct  parent)  first  to the  holders  of the SCUs  for an  amount  based on a
proportionate  share  of net  income.  Beginning  in  2005,  we  made a  similar
allocation  for SMU  holders of our CM  Investor  subsidiary  and also a similar
allocation  beginning in 2006 for SCI holders of our ARCap  subsidiary.  We then
allocate  the  remaining  profits  to  shareholders  in  accordance  with  their
percentage interests.

<TABLE>
<CAPTION>

    (In thousands, except per share amounts)            Income   Shares*   Per Share
------------------------------------------------       --------  -------   ---------
<S>                                                    <C>        <C>      <C>
2006:
----

Net income                                             $41,294
Preferred dividends                                      4,752
                                                       -------
Net income allocable to shareholders (Basic EPS)        36,542    58,154   $   0.63
                                                                           ========
Effect of dilutive securities                               --       557
                                                       -------   -------
Diluted EPS                                            $36,542    58,711   $   0.62
                                                       =======   =======   ========

2005:
----

Net income                                             $59,014
Preferred dividends                                      2,020
                                                       -------
Net income allocable to shareholders (Basic EPS)        56,994    58,018   $   0.98
                                                                           ========
Effect of dilutive securities                               --       273
                                                       -------   -------
Diluted EPS                                            $56,994    58,291   $   0.98
                                                       =======   =======   ========

2004:
----

Net income allocable to shareholders (Basic EPS)       $65,363    54,786   $   1.19
                                                                           ========
Effect of dilutive securities                               --       361
                                                       -------   -------
Diluted EPS                                            $65,363    55,147   $   1.19
                                                       =======   =======   ========

* Includes common and Convertible CRA Shares (see Note 14).

</TABLE>


                                      119
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 18 - RELATED PARTIES

A. TRCLP

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

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

B. AMAC

We  collect  asset  management  fees,  incentive  management  fees  and  expense
reimbursements  from AMAC.  These fees are  included  in "Fee  income" or "Other
revenues"  in the  consolidated  statements  of 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 11). 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
December 31, there were advances to AMAC of $15.0 million outstanding under this
facility.  Income we earn from this  facility  is  included  in "Other  interest
income" in the consolidated  statements of 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 $535.5 million in
loans on behalf of AMAC and  received  approximately  $2.8  million of  mortgage
banking fees from the  borrowers.  We also  received  approximately  $739,000 in
referral and equity fees in connection with loans originated for TRCLP entities.
We record all of these fees in "Fee income" in the  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.

We serve as the collateral  manager for AMAC's  collateralized  debt  obligation
("CDO")  offering of  approximately  $362.0  million in November  2006.  We also
service all of the loans in AMAC's CDO, as well as other loans currently held by
AMAC  outside of the CDO. In this  capacity,  we perform  all primary  servicing
functions as well as special servicing of any loans in default.  We receive fees
from AMAC based on the dollar  amount of loans we service and record  these fees
in "Fee income" in the consolidated statements of income.


                                      120
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. INCOME STATEMENT IMPACT

Fees paid to TRCLP and income earned from AMAC was as follows as of December 31:

<TABLE>
<CAPTION>

                (In thousands)                           2006     2005     2004
----------------------------------------------          ------   ------   ------
<S>                                                     <C>      <C>      <C>
Shared service fee expense                              $  620   $  507   $4,252
TRCLP property management services expense              $4,277   $3,158   $1,751
AMAC asset management and incentive management
   fee income and expense reimbursements                $3,630   $4,926   $2,248
AMAC credit facility interest income                    $1,461   $   87   $  195
AMAC servicing fees                                     $   66   $   --   $   --

</TABLE>

NOTE 19 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

(In thousands, except per share amounts)                2006 Quarter Ended (1)
                                             ----------------------------------------------
                                             March 31    June 30  September 30  December 31
                                             --------   --------  ------------  -----------
<S>                                          <C>        <C>         <C>          <C>
Total revenues                               $ 72,139   $ 79,231    $107,947     $127,942

Income before income taxes                   $ 11,738   $  3,843    $ 21,804     $ 10,401

Net income                                   $ 14,657   $  4,248    $ 14,571     $  7,818

Net income per share (4)

   Basic                                     $   0.23   $   0.05    $   0.23     $   0.11

   Diluted                                   $   0.23   $   0.05    $   0.23     $   0.11

Weighted average shares outstanding
   Basic                                       58,578     58,639      58,015       57,878
   Diluted                                     58,895     58,919      58,396       58,458

</TABLE>
<TABLE>
<CAPTION>

                                                     2005 Quarter Ended
                                      --------------------------------------------------
                                      March 31   June 30   September 30  December 31 (2)
                                      --------   --------  ------------  ---------------
<S>                                   <C>        <C>         <C>           <C>
Total revenues (3)                    $ 57,946   $ 78,480    $ 78,844      $ 79,828

Income (loss) before income taxes     $  6,420   $ 19,109    $ 13,662      $ (8,754)

Net income                            $ 14,785   $ 19,444    $ 18,678      $  6,107

Net income per share (4)

   Basic                              $   0.26   $   0.34    $   0.31      $   0.08

   Diluted                            $   0.25   $   0.33    $   0.31      $   0.08

Weighted average shares outstanding
   Basic                                57,821     57,890      58,059        58,294
   Diluted                              58,236     58,274      58,366        58,532

</TABLE>

(1)  Includes expense related to valuation  allowances recorded against deferred
     tax assets (see Note 12) of $1.2  million  during  March 31  quarter,  $8.1
     million during June 30 quarter,  $10.2 million during  September 30 quarter
     and $9.7 million during December 31 quarter.
(2)  Includes a $22.6 million  non-cash  pre-tax  charge (equal to $12.3 million
     after tax, or $0.21 per basic and diluted  share)  related to the write-off
     of the "Related Capital Company" trade-name intangible asset (see Note 5).
(3)  Includes  reclassification  adjustments related to real estate owned from a
     "Held for Sale" classification to "Held and Used" (see Note 6).
(4)  The total for the year may differ from the sum of the  quarters as a result
     of weighting.


                                      121
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 20 - BUSINESS SEGMENTS

We operate in four business segments:

1.   Portfolio Investing,  which includes  subsidiaries that invest primarily in
     tax-exempt  first  mortgage  revenue bonds issued by various state or local
     governments, agencies or authorities and other investments. 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
     pre-liquidation investment in a fund that CRES sponsored.

2.   Fund Management, which includes:

     o    Tax Credit Fund  Sponsorship -  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    High Yield CMBS Fund  Sponsorship  -  subsidiaries  that  sponsor  and
          manage  funds  that  invest  in high  yield  real  estate  instruments
          including  B-Notes,  bridge loans,  mezzanine  loans and  subordinated
          interests  associated with CMBS,  commercial real estate mortgages and
          similar  investments.  These  subsidiaries  also hold, for investment,
          investments like the ones held by sponsored funds.  These subsidiaries
          earn income and  promotes  from equity  investments  in the  sponsored
          funds and interest income from their investments;
     o    Advisory  Services - subsidiaries  that provides  advisory services to
          the parent trust, other subsidiaries of ours and to AMAC;
     o    Direct Loan Fund Sponsorship - our equity interest in ARESS;
     o    Equity Fund Sponsorship - our membership interest in CUC; and
     o    Credit  Intermediation  -  subsidiaries  that  participate  in  credit
          intermediation  transactions,  including  those for pools of  mortgage
          loans and provide specified returns to investors in LIHTC equity funds
          and credit  intermediation to our portfolio investing  businesses,  in
          exchange for fees.

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

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

     In exchange for these activities, we receive origination fees.

     This segment  also  includes  subsidiaries  that  provide  multifamily  and
     commercial  loan  servicing for third parties and special  servicing on the
     CMBS securitizations 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.
     This segment also earns interest income on escrow and reserve balances held
     on loans we service.


                                      122
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



4.   Consolidated  Partnerships,  which primarily include the LIHTC equity funds
     and  debt  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 and Direct
     Loan Investing 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.


                                      123
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The following table provides more information regarding our segments:

<TABLE>
<CAPTION>

(In thousands)                                      2006            2005           2004
                                               --------------- --------------- -------------
<S>                                              <C>            <C>            <C>
REVENUES
   Portfolio Investing                           $   203,632    $   169,355    $   142,911
   Fund Management (1)                               131,365        117,752         92,663
   Mortgage Banking (1)                               62,797         43,572         21,028
   Consolidated partnerships (2)(3)                   83,738         24,096         12,213
   Elimination of intersegment transactions          (94,273)       (59,678)       (36,383)
                                                 -----------    -----------    -----------
Consolidated                                     $   387,259    $   295,097    $   232,432
                                                 ===========    ===========    ===========

CAD
   Portfolio Investing                           $   101,022    $   102,927    $   106,317
   Fund Management (1)                                59,550         58,010         52,215
   Mortgage Banking (1)                               20,199         14,871          4,388
                                                 -----------    -----------    -----------
   Total Segment CAD                                 180,771        175,808        162,920
   Preferred dividends                                (4,752)        (2,020)            --
   Subsidiary equity distributions                   (35,553)       (34,666)       (33,036)
   Dividends on subsidiary preferred stock           (25,123)       (25,123)       (22,840)
   Current tax benefit (expense)                      (4,313)           711         (3,413)
                                                 -----------    -----------    -----------
   Consolidated CAD                                  111,030        114,710        103,631
   Fees deferred for GAAP (4)                        (30,426)       (23,930)       (27,096)
   Depreciation and amortization expense
   (including write off of intangible assets)        (50,171)       (66,762)       (30,407)
   Interest income yield adjustments (5)              (4,137)           596             85
   Gain on sale of loans (6)                          10,855         11,140          6,805
   Loss on impairment of assets                       (5,003)        (4,555)          (757)
   Tax adjustment (7)                                 (2,180)        27,866         20,655
   Non-cash compensation (8)                         (19,348)        (8,541)       (11,753)
   Non-cash equity income                              6,253           (358)          (281)
   Difference between subsidiary equity
    distributions and income allocated to
    subsidiary equity holders(9)                      19,243         11,245          4,862
   Preferred dividends                                 4,752          2,020             --
   Other, net                                            426         (4,417)          (381)
                                                 -----------    -----------    -----------

Consolidated Net Income                          $    41,294    $    59,014    $    65,363
                                                 ===========    ===========    ===========

DEPRECIATION AND AMORTIZATION (10)

   Portfolio Investing                           $     9,097    $     5,250    $     3,357
   Fund Management (1) (10)                           20,735         41,734         18,974
   Mortgage Banking (1)                               20,339         19,778          8,076
                                                 -----------    -----------    -----------

Consolidated                                     $    50,171    $    66,762    $    30,407
                                                 ===========    ===========    ===========

IDENTIFIABLE ASSETS AT DECEMBER 31
   Portfolio Investing                           $ 5,047,923    $ 5,481,974
   Fund Management (1)                             1,388,811        800,684
   Mortgage Banking (1)                              301,532        353,996
   Consolidated partnerships (2)(3)                6,064,476      3,610,031
   Elimination of intersegment balances           (3,114,226)    (3,274,518)
                                                 -----------    -----------
Consolidated                                     $ 9,688,516    $ 6,972,167
                                                 ===========    ===========

</TABLE>

(1) Includes ARCap as of August 2006.
(2) Consolidated  beginning April 2004 pursuant to FIN 46(R). See Notes 1 and 7.
(3) Includes funds sponsored by ARCap as of August 2006.
(4)  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).


                                      124
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(5) Represents the  adjustment  for  amortization  of bond discounts or premiums
that are recognized  immediately  for CAD but are deferred and  recognized  over
time for GAAP  accounting,  as well as the difference  between  actual  interest
income received and income recognized under the effective yield method.
(6) Represents non-cash gain recognized on sale of mortgage loans when servicing
rights are retained and gains on sales of mortgage revenue bonds.
(7) Represents the difference  between the tax benefit or provision recorded and
the net cash  amount we expect to pay or  receive  in  relation  to the  current
period.
(8) Represents the add-back of amortization of costs  recognized for share-based
compensation, share-based trustee fees and employee sharing in fund profits.
(9) 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.
(10) 2006 and 2005 include write-offs of goodwill and intangible assets.

NOTE 21 - COMMITMENTS AND CONTINGENCIES

PRS/CRG/ ERC, INC.

PRS/ CRG

PRS Companies  ("PRS") and Capital 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. A construction affiliate of
PRS  served  as  general  contractor  for  most of  these  partnerships.  Due to
financial  difficulties  experienced by PRS and its construction  affiliate,  we
ceased our business  dealings with PRS and acquired the general partner interest
in certain partnerships  sponsored by PRS as part of agreements reached in April
of 2005 (the "PRS  Partnerships").  There were two additional projects for which
the PRS construction  affiliate was general contractor (the "GCG  Partnerships")
for  which  the  general  partner  interest  owned by PRS or an  affiliate  were
transferred at the same time.

Likewise,   we  entered  into  agreements  with  CRG  with  respect  to  certain
partnerships  in  which  CRG  served  as  sponsor  in April  of 2005  (the  "CRG
Partnerships").  The PRS financial  difficulties  created  construction  finance
shortfalls that have created liquidity  problems for these partnerships as well.
In  December  of 2006,  we  entered  into an  additional  agreement  with CRG to
transfer  the  general  partner   interests  held  by  CRG  in  four  additional
properties.  This agreement  included the termination of certain rights retained
by CRG with respect to the CRG  Partnerships  in the 2005 Agreements and we have
ceased our business dealings with CRG.

The PRS Partnerships,  GCG Partnerships, and CRG Partnerships are set out in the
table on page 126.

In addition  to the PRS  Partnerships,  CRG  Partnerships  and GCG  Partnerships
described  above, we own bonds that finance other  partnerships  associated with
PRS and CRG. In these partnerships our funds are not the equity sponsor,  and 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 2005, we halted  construction  on one property,  and foreclosed upon and sold
the property in 2006 for our carrying basis. In 2006, we halted  construction on
another  property and sold our general partner and limited partner  interest and
have recovered our fund's investment in the project.

ERC

To protect our interests in properties  for which we had provided debt or equity
financing,  in October 2006 we reached an agreement with ERC, Inc. (a developer)
to acquire its general partner interests in partnerships it had sponsored. Those
partnerships are also summarized in the table below.


                                      125
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Two of the properties are under  construction,  and we expect that the equity of
the applicable property  partnerships is sufficient to cover the estimated costs
to  complete  these  two  properties.  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 the future equity payments due these  partnerships will be sufficient
to repay the advances.

The partnerships in question are summarized as follows:

<TABLE>
<CAPTION>

                                                                                                            (In thousands)
                                                                                                      ---------------------------
                                                                                                                   Fair Value of
                               CharterMac    CharterMac                                                               Mortgage
                                Holds or      Capital                                                   Loan          Revenues
                                Will Hold    Sponsored      Included in     CharterMac      Third      Amounts         Bonds
                                Mortgage      Fund is          Credit        Capital       Parties    Upon Full    Outstanding at
                                Revenue       Equity       Intermediated     Holds GP     Provided      Draw        December 31,
                    Number        Bond        Partner          Funds         Interest      Equity       Down            2006
                    -------    ----------    ----------    -------------    ----------    --------    ---------    --------------
               PRS PARTNERSHIPS
<S>                   <C>          <C>           <C>            <C>             <C>         <C>       <C>             <C>
Lease-Up              10            9             5              3               5           5        $103,846        $101,361
Rehab                  1            1             1              1               1          --          19,300          20,126
Stabilized             2            2            --             --              --           2          18,407          18,921
               ------------------------------------------------------------------------------------------------------------------
Subtotal              13           12             6              4               6           7         141,553         140,408
               ------------------------------------------------------------------------------------------------------------------

               CRG PARTNERSHIPS
Lease-Up               4            2             4              3               2          --          19,975          20,086
Rehab                  2            2             2              2               2          --          61,912          62,892
               ------------------------------------------------------------------------------------------------------------------
Subtotal               6            4             6              5               4          --          81,887          82,978
               ------------------------------------------------------------------------------------------------------------------

               GCG PARTNERSHIPS
Construction           1            1             1              1              --          --          16,600          16,600
Lease-Up               1            1             1             --              --          --          13,170          13,471
               ------------------------------------------------------------------------------------------------------------------
Subtotal               2            2             2              1              --          --          29,770          30,071
               ------------------------------------------------------------------------------------------------------------------

               ERC PARTNERSHIPS
Construction           2            2             2              2               2          --          16,950          17,463
Lease-Up              14           13            14             13              14          --         111,842         112,799
Stabilized             2            2             2              1               2          --           9,408           9,755
               ------------------------------------------------------------------------------------------------------------------
Subtotal              18           17            18             16              18          --         138,200         140,017
               ------------------------------------------------------------------------------------------------------------------
Total                 39           35            32             26              28           7        $391,410        $393,474
               ==================================================================================================================
Total eliminated in consolidation                                                                     $286,338        $290,408
                                                                                                      ===========================

</TABLE>


Our potential exposure falls into three categories as follows:

         Cash required to bring the  properties to break-even  operation - As of
              December  31, 2006,  advances  outstanding  totaled  approximately
              $37.8 million,  although we recovered  approximately $12.1 million
              in  January  2007.  These  advances,  and  additional  loans,  are
              assessed  periodically  for  collectability  and the impact on the
              potential  impairment  of  existing  mortgage  revenue  bonds.  At
              present, we do not anticipate that any such advances would require
              a charge to expense.  Based on lease-up  estimates  and  projected
              costs to complete construction, we currently estimate that we will
              not need to advance funds materially in excess of advances made to
              date.

         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.


                                      126
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



         Potential  cost to  provide  specified  yields - As noted in the  table
               on page 126, 26 of the  partnerships 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.

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

FORWARD TRANSACTIONS

At December 31, 2006, our Mortgage Banking  subsidiaries had forward commitments
of approximately $181.8 million for mortgages to be funded in 2007 and later and
each lending  commitment has an associated sale commitment.  In addition,  those
subsidiaries  had  commitments  to  sell  mortgages   totaling  $143.3  million.
Approximately  $122.5 million of this amount was funded as of December 31, 2006,
and is included in "Other  Investments"  as "Mortgage  Loans Held for Sale" (see
Note 4). The balance of approximately $20.8 million is to be funded in 2007.

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 $24.8 million by the end of 2007.

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 $8.3
million at December 31, 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 December 31, 2006, substantially all 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.


                                      127
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Our maximum  exposure at December 31, 2006,  pursuant to these  agreements,  was
approximately $816.3 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  December  31,  2006,  that  reserve was
approximately $13.1 million, which, we believe,  represents our actual potential
losses at that time.

As  of  December  31,  2006,  our  Mortgage  Banking  subsidiaries   maintained,
collateral  consisting  of  treasury  notes,  and  Fannie  Mae and  Freddie  Mac
securities of approximately $900,000 and a money market account of approximately
$12.4  million,  which is  included  in  "Restricted  cash" in the  consolidated
balance  sheet,  to  satisfy  the Fannie Mae  collateral  requirements  of $11.3
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  December  31,  2006,  commitments  under  this  reimbursement
agreement totaled $2.9 million.

YIELD TRANSACTIONS

We have entered into several credit  intermediation  agreements with either 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 15 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  $1.1
billion,  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 $30.2 million as of December 31, 2006.  This amount is
included in "Deferred  revenues" within "Accounts payable,  accrued expenses and
other  liabilities" on our consolidated  balance sheet (see Note 10). Refer also
to  PRS  /  CRG  /  ERC  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 8). 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


                                      128
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



maximum  aggregate  exposure  relating to these  transactions  is  approximately
$211.4  million as of December  31, 2006.  The fair value of these  obligations,
representing  the deferral of the fee income over the  obligation  periods,  was
approximately $1.0 million as of December 31, 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 December  31, 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 asseted against subsidiaries of the Company in two 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.  One of the lawsuits claims  unspecified
damages while the other lawsuit claims damages of $10.0 - 15.0 million. One suit
(with  unspecified  damages  claimed) is  scheduled  for trial in May 2008.  The
parties are engaged in discovery  and have entered into  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.

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 membership 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 December  31,  2006,  was  approximately
$147,000 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 December 31,
2006, our remaining  unfunded  capital  commitments  were $14.8 million to ARESS
(see Note 1) and $1.8 million to CMBS Partnerships.


                                      129
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



LEASE OBLIGATIONS

The future minimum payments and income from subleases for operating leases as of
December 31, 2006, were as follows:

<TABLE>
<CAPTION>

                                   Minimum                          Net minimum
                                    lease           Sublease           lease
     (in thousands)                payments          income          payments
------------------------           --------         --------        -----------
<C>                                <C>              <C>               <C>
Year Ending December 31,
2007                               $ 8,717          $(1,174)          $ 7,543
2008                                 8,817           (1,359)            7,458
2009                                 8,276           (1,222)            7,054
2010                                 8,384           (1,293)            7,091
2011                                 7,061           (1,317)            5,744
Thereafter                          37,950           (1,619)           36,331
                                   -------          -------           -------
Total                              $79,205          $(7,984)          $71,221
                                   =======          =======           =======

</TABLE>

We recorded rent expense of approximately  $8.9 million in 2006, $8.4 million in
2005 and $3.3 million in 2004 (including amounts paid to TRCLP in 2004).

NOTE 22 - SUBSEQUENT EVENTS

In March 2007,  we entered  into a 10b5-1 plan whereby we plan to purchase up to
9.8% of the  outstanding  shares  of  AMAC in  open-market  purchases  based  on
pre-determined  parameters. We can not estimate how many shares we will purchase
in 2007.


                                      130
<PAGE>



ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

          None.

ITEM 9A.  CONTROLS AND PROCEDURES.

          (a)  Evaluation  of  Disclosure  Controls  and  Procedures.  Our Chief
               Executive  Officer and Chief Financial Officer have evaluated the
               effectiveness  of our  disclosure  controls  and  procedures  (as
               defined in Rule 13a-15(e) or Rule 15a-15(e)  under the Securities
               Exchange Act of 1934, as amended (the "Exchange  Act")) as of the
               end of the period  covered by this annual  report.  Based on such
               evaluation,  such officers  have  concluded  that our  disclosure
               controls and  procedures  as of the end of the period  covered by
               this annual  report  were  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 period to which this  report  relates  that
               have materially affected,  or are reasonably likely to materially
               affect, our internal control over financial  reporting.  Refer to
               MANAGEMENT'S REPORT ON THE EFFECTIVENESS OF INTERNAL CONTROL OVER
               FINANCIAL REPORTING on page 57.

ITEM 9B.  OTHER INFORMATION.

          None.


                                      131
<PAGE>



PART III

ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

          The  information  required  by this  item is  incorporated  herein  by
          reference to our  definitive  proxy  statement to be filed pursuant to
          Regulation 14A under the Exchange Act.

ITEM 11.  EXECUTIVE COMPENSATION.

          The  information  required  by this  item is  incorporated  herein  by
          reference to our  definitive  proxy  statement to be filed pursuant to
          Regulation 14A under the Exchange Act.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

          The  information  required  by this  item is  incorporated  herein  by
          reference to our  definitive  proxy  statement to be filed pursuant to
          Regulation 14A under the Exchange Act.


ITEM 13.  CERTAIN   RELATIONSHIPS   AND  RELATED   TRANSACTIONS,   AND  DIRECTOR
          INDEPENDENCE.

          The  information  required  by this  item is  incorporated  herein  by
          reference to our  definitive  proxy  statement to be filed pursuant to
          Regulation 14A under the Exchange Act.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

          The  information  required  by this  item is  incorporated  herein  by
          reference to our  definitive  proxy  statement to be filed pursuant to
          Regulation 14A under the Exchange Act.


                                      132
<PAGE>



                                     PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>
(a)1.     Financial Statements

          Report of Independent Registered Public Accounting Firm                   61

          Consolidated Balance Sheets as of December 31, 2006 and 2005              62

          Consolidated  Statements  of Income for the years ended  December  31,
          2006, 2005 and 2004                                                       63

          Consolidated  Statements of  Shareholders'  Equity for the years ended
          December 31, 2006, 2005 and 2004                                          64

          Consolidated Statements of Cash Flows for the years ended December 31,
          2006, 2005 and 2004                                                       67

          Notes to Consolidated Financial Statements                                69

(a)2.     Financial Statement Schedules

          Schedule I - Condensed Financial Information of Registrant               147

          Schedule II - Valuation and Qualifying Accounts                          151

          All other  schedules have been omitted because they are not applicable
          or the required information is included in the consolidated  financial
          statements and the notes thereto.

(a)3.     Exhibits
          --------

3.1(a)    Certificate   of   Business  Trust  dated   as  of   August  12,  1996
          (incorporated by reference to our  Registration  Statement on Form 10,
          filed with the Commission on August 1, 1997).

3.1(b)   Certificate of Amendment of the Restated  Certificate of Business Trust
         (incorporated by reference to our  Registration  Statement on Form S-8,
         filed with the Commission on November 24, 2003).

3.1(c)    Second Amended  and  Restated Trust Agreement dated as of November 17,
          2003. (incorporated by reference to Exhibit 3.1(c) in our December 31,
          2005 Annual Report on Form 10-K).

3.1(d)    Amendment  No. 1  to Second Amended and Restated Trust Agreement dated
          as of September  20, 2005  (incorporated  by referenced to our Current
          Report on Form 8-K, filed with the Commission on September 22, 2005).

3.1(e)    Amendment  No. 2  to Second Amended and Restated Trust Agreement dated
          as  of  November  30,  2005   (incorporated   by   referenced  to  our
          Registration  Statement  on Form  8-A  filed  with the  Commission  on
          January 3, 2006).

</TABLE>

                                      133
<PAGE>

<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>
3.1(f)    Amendment  No. 3  to  Second  Amended  and  Restated  Trust  Agreement
          (incorporated  by  reference  to Exhibit  3.1(a) in our June 30,  2006
          Quarterly Report on Form 10-Q).

3.2(a)    Fourth  Amended  and Restated  Bylaws  (incorporated  by referenced to
          our Current Report on Form 8-K, filed with the Commission on September
          22, 2005).

3.2(b)    Amendment  No. 1  to Fourth Amended and Restated Bylaws  (incorporated
          by reference to Exhibit  3.2(b) in our December 31, 2005 Annual Report
          on Form 10-K).

4.1       Specimen  Copy of  Share  Certificate  for  shares  of our  beneficial
          interest  (incorporated by reference to our Registration  Statement on
          Form S-8, filed with the Commission on November 24, 2003).

4.2       Certificate of Designation of Special  Preferred Voting Shares,  dated
          November 17, 2003  (incorporated by reference to our Current Report on
          Form 8-K, filed with the Commission on December 1, 2003).

10(a)     Management  Agreement  dated  as of November 17, 2003,  between us and
          Related  Capital  Company LLC  (incorporated  by  reference to Exhibit
          10(a) in our December 31, 2003 Annual Report on Form 10-K).

10(b)     Contribution  Agreement dated as of December 17, 2002 (incorporated by
          reference to our Preliminary  Proxy Statement on Schedule 14A filed on
          February 2, 2003).

10(c)     Amended   and  Restated  Operating  Agreement  of  CharterMac  Capital
          Company LLC, dated as of November 17, 2003  (incorporated by reference
          to our  Current  Report  on Form 8-K,  filed  with the  Commission  on
          December 1, 2003).

10(d)     Special  Preferred  Voting  Shares  Purchase  Agreement,  dated as  of
          November 17, 2003, by and among the Company and APH  Associates  L.P.,
          DLK Associates L.P., Marc Associates,  L.P.,  Related General II, L.P.
          and SJB  Associates  L.P.  (incorporated  by  reference to our Current
          Report on Form 8-K, filed with the Commission on December 1, 2003).

10(e)     Standstill  Agreement, dated as of November 17, 2003, by and among the
          Company and APH Associates L.P., DLK Associates L.P., Marc Associates,
          L.P.,  Related General II, L.P. and SJB Associates L.P.  (incorporated
          by  reference  to our  Current  Report  on Form  8-K,  filed  with the
          Commission on December 1, 2003).

10(f)     Voting  Agreement,  dated as of  November 17,  2003,  by and among the
          Company and APH Associates L.P., DLK Associates L.P., Marc Associates,
          L.P.,  Related General II, L.P. and SJB Associates L.P.  (incorporated
          by  reference  to our  Current  Report  on Form  8-K,  filed  with the
          Commission on December 1, 2003).

10(g)     Exchange  Rights  Agreement,  dated as of  November 17,  2003,  by and
          among CharterMac Capital Company,  LLC,  CharterMac  Corporation,  APH
          Associates  L.P., DLK Associates L.P, Marc Associates,  L.P.,  Related
          General II, L.P. and SJB Associates L.P. (incorporated by reference to
          our Current  Report on Form 8-K, filed with the Commission on December
          1, 2003).

10(h)     Lock-up  Agreement  of  Alan  P.  Hirmes,  dated   November  17,  2003
          (incorporated  by reference to our Current  Report on Form 8-K,  filed
          with the Commission on December 1, 2003).

</TABLE>

                                      134
<PAGE>

<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>
10(i)     Lock-up  Agreement  of  Marc D.  Schnitzer,  dated  November  17, 2003
          (incorporated  by reference to our Current  Report on Form 8-K,  filed
          with the Commission on December 1, 2003).

10(j)     Lock-Up  Agreement  of  Stephen  M.  Ross,  dated  November  17,  2003
          (incorporated  by reference to our Current  Report on Form 8-K,  filed
          with the Commission on December 1, 2003).

10(k)     Future  Relations  Agreement,  dated  as of November 17, 2003,  by and
          among Stephen Ross, Related General II L.P., RCMP Management Inc., the
          Related  Companies,   L.P.,  and  CharterMac   Capital  Company,   LLC
          (incorporated  by reference to our Current  Report on Form 8-K,  filed
          with the Commission on December 1, 2003).

10(l)     Ross  Non-Qualified Share Option Agreement  (incorporated by reference
          to our  Registration  Statement  on Form S-8,  filed on  November  24,
          2003).

10(m)     Registration  Rights Agreement,  dated as of November 17, 2003, by and
          among our Company and APH Associates  L.P., DLK Associates  L.P., Marc
          Associates,  L.P.,  Related  General II, L.P. and SJB Associates  L.P.
          (incorporated by reference to our Registration  Statement on Form S-8,
          filed on November 24, 2003).

10(n)     Shared  Services  Agreement,  dated  as of November 17,  2003,  by and
          among The Related Companies,  L.P., Related  Management  Company,  and
          CharterMac  Capital Company  (incorporated by reference to our Current
          Report on Form 8-K, filed with the Commission on December 1, 2003).

10(o)     Other  Services  Agreement,  dated  November 17,  2003, by and between
          Relcap  Holding  Company  LLC  and  CharterMac  Capital  Company,  LLC
          (incorporated  by reference to our Current  Report on Form 8-K,  filed
          with the Commission on December 1, 2003).

10(p)     CharterMac  Guaranty,   dated   December  17,  2002  (incorporated  by
          reference to our Current Report on Form 8-K, filed with the Commission
          on December 1, 2003).

10(q)     Restricted Share  Plan  (incorporated by reference to our Registration
          Statement  on Form S-8,  filed with the  Commission  on  November  24,
          2003).

10(r)     Amended  and Restated  Incentive Share Plan (incorporated by reference
          to our Form S-8/A, filed with the Commission on March 2, 2004).

10(s)     Amendment to Amended and Restated Incentive Share Plan.*

10(t)     Form of  Non-Qualified Share Option Award Agreement.  (incorporated by
          reference to Exhibit  10(af) in our December 31, 2004 Annual Report on
          Form 10-K).

10(u)     Form  of Restricted Share Award Agreement.  (incorporated by reference
          to Exhibit  10(ag) in our  December  31,  2004  Annual  Report on Form
          10-K).

10(v)     Separation    and   consulting   agreement   with   Stuart  J.  Boesky
          (incorporated  by reference to our current  report on Form 8-K,  filed
          with the Commission on November 9, 2005).

</TABLE>

                                      135
<PAGE>

<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>
10(w)     Amended   and  Restated  Mortgage   Warehousing  Credit  and  Security
          Agreement,  dated as of March  18,  2005,  by and  between  CharterMac
          Mortgage Capital  Corporation,  Fleet National Bank, a Bank of America
          Company, as Agent and Lenders, as amended.  (incorporated by reference
          to Exhibit  10(ag) in our  December  31,  2005  Annual  Report on Form
          10-K).

10(x)     Second  Amended  and  Restated  Advisory  Services  Agreement  between
          American  Mortgage  Acceptance  Company and CharterMac AMI Associates,
          Inc.  (incorporated by reference to Exhibit 10(ak) in our December 31,
          2005 Annual Report on Form 10-K).

10(y)     First  Amendment  to  Second  Amended and Restated  Advisory  Services
          Agreement between American Mortgage  Acceptance Company and CharterMac
          AMI Associates, Inc. dated July 26, 2006. *

10(z)     First Amendment  to the Loan Agreement between CharterMac and American
          Mortgage Acceptance Company  (incorporated by reference to our current
          report on Form 8-K, filed with the Commission on April 26, 2006).

10(aa)    Second  Amendment  to  the  Loan   Agreement  between  Chartermac  and
          American Mortgage Acceptance Company (incorporated by reference to our
          current  report on Form 8-K,  filed with the  Commission  on April 26,
          2006).

10(ab)    Amended  and  Restated  Credit Note of American  Mortgage  Acceptance
          Company  (incorporated by reference to our current report on Form 8-K,
          filed with the Commission on April 26, 2006).

10(ac)    Limited  Liability Company Agreement of Centerbrook  Holdings LLC and
          IXIS Financial  Products Inc. and Charter Mac  Corporation  dated June
          28, 2006  (incorporated  by  reference to Exhibit 10.1 in our June 30,
          2006 Quarterly Report on Form 10-Q).

10(ad)    Unitholder  and  Warrant  Agreement  among  Centerbrook  Holdings LLC,
          IXIS Financial Products Inc. and Charter Mac Corporation,  dated as of
          June 28, 2006  (incorporated  by reference to Exhibit 10.2 in our June
          30, 2006 Quarterly Report on Form 10-Q).

10(ae)    Limited  Liability  Company  Agreement  of Centerbrook  Financial LLC,
          dated as of June 28, 2006  (incorporated  by reference to Exhibit 10.3
          in our June 30, 2006 Quarterly Report on Form 10-Q).

10(af)    Senior  Loan  Agreement among  Centerbrook  Financial LLC, the lenders
          that are party thereto and Citibank,  N.A., as senior agent,  dated as
          of June 28, 2006  (incorporated  by  reference  to Exhibit 10.4 in our
          June 30, 2006 Quarterly Report on Form 10-Q).

10(ag)    Mezzanine  Loan   Agreement  among  Centerbrook   Financial  LLC,  the
          lenders that are party thereto and Citibank, N.A., as mezzanine agent,
          dated as of June 28, 2006  (incorporated  by reference to Exhibit 10.5
          in our June 30, 2006 Quarterly Report on Form 10-Q).

10(ah)    Subordination  and   Security  Agreement among  Centerbrook  Financial
          LLC,  Deutsche Bank Trust  Company  Americas,  and Citibank,  N.A., as
          senior  agent  and  mezzanine  agent,   dated  as  of  June  28,  2006
          (incorporated  by  reference  to  Exhibit  10.6 in our June  30,  2006
          Quarterly Report on Form 10-Q).

10(ai)    Guarantee  Agreement  between   CharterMac and IXIS Financial Products
          Inc., dated as of June 28, 2006  (incorporated by reference to Exhibit
          10.7 in our June 30, 2006 Quarterly Report on Form 10-Q).

</TABLE>

                                      136
<PAGE>



<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>

10(aj)   Right  of  First  Refusal  Letter   Agreement   among   CharterMac  and
         Centerbrook  Financial LLC, dated as of June 28, 2006  (incorporated by
         reference to Exhibit 10.8 in our June 30, 2006 Quarterly Report on Form
         10-Q).

10(ak)   Fee  Letter  between  IXIS  Capital  Markets  North  America  Inc.  and
         Centerbrook  Holdings LLC, dated as of June 28, 2006  (incorporated  by
         reference to Exhibit 10.9 in our June 30, 2006 Quarterly Report on Form
         10-Q).

10(al)   Credit  Support  Swap  between  Charter  Mac  Origination  Trust  1 and
         Centerbrook  Financial LLC  (incorporated by reference to Exhibit 10.10
         in our June 30, 2006 Quarterly Report on Form 10-Q).

10(am)   Securities  Purchase  Agreement,  dated as of August 15,  2006,  by and
         among the Company,  ARCap Investors,  the Selling Members,  ARCap REIT,
         AISR, CM Corp and CM ARCap Investors  (incorporated by reference to our
         current  report on Form 8-K,  filed with the  Commission  on August 21,
         2006).

10(an)   Second  Amended and Restated  Limited  Liability  Company  Agreement of
         ARCap  Investors,  dated as of August 15,  2006,  by and among CM ARCap
         Investors,  Leonard W.  Cotton and James L.  Duggins  (incorporated  by
         reference to our current  report on Form 8-K, filed with the Commission
         on August 21, 2006).

10(ao)   Exchange  Rights  Agreement,  dated as of August 15, 2006, by and among
         the Company, ARCap Investors, CM ARCap Investors, Leonard W. Cotton and
         James L. Duggins  (incorporated  by reference to our current  report on
         Form 8-K, filed with the Commission on August 21, 2006).

10(ap)   Registration  Rights  Agreement,  dated as of August 15,  2006,  by and
         among the Company,  CM ARCap Investors,  Leonard W. Cotton and James L.
         Duggins  (incorporated  by reference to our current report on Form 8-K,
         filed with the Commission on August 21, 2006).

10(aq)   Executive  Employment  Agreement,  dated as of August 15, 2006,  by and
         between Leonard W. Cotton and ARCap REIT  (incorporated by reference to
         our current report on Form 8-K, filed with the Commission on August 21,
         2006).

10(ar)   Executive  Employment  Agreement,  dated as of August 15, 2006,  by and
         between James L. Duggins and ARCap REIT  (incorporated  by reference to
         our current report on Form 8-K, filed with the Commission on August 21,
         2006).

10(as)   Revolving Credit and Term Loan Agreement,  dated as of August 15, 2006,
         by and among the Company, CM Corp., the Guarantors listed on Schedule 1
         thereto,  the Lenders  named  therein,  Bank of America,  N.A.  and UBS
         Securities LLC, as agents,  Bank of America,  N.A., as issuing bank and
         swingline  lender  and as  administrative  agent,  and Banc of  America
         Securities,  LLC and UBS  Securities  LLC, as joint lead  arrangers and
         joint book managers (incorporated by reference to our current report on
         Form 8-K, filed with the Commission on August 21, 2006).

10(at)   Restructuring  Agreement,  dated  August 31,  2006,  among Capri Realty
         Holdings,  LLC, Quintin Primo,  Brian Fargo and Daryl Carter et al. and
         CM Investor LLC  (incorporated  by  reference to our current  report on
         Form 8-K, filed with the Commission on September 6, 2006).

</TABLE>

                                      137
<PAGE>


<TABLE>
<CAPTION>

                                                                                Sequential
                                                                                   Page
                                                                                ----------
<S>                                                                                <C>

10(au)    Employment  Agreement,  dated  as of November 28, 2006, by and between
          Alan Hirmes and CharterMac  Capital LLC  (incorporated by reference to
          our current  report on Form 8-K, filed with the Commission on December
          4, 2006).

10(av)    Executive  Employment  Agreement,  dated  as  of November 28, 2006, by
          and between Robert Levy and CharterMac  Capital LLC  (incorporated  by
          reference to our current report on Form 8-K, filed with the Commission
          on December 4, 2006).

10(aw)    Executive  Employment  Agreement,  dated as of January 1, 2007, by and
          between Marc D. Schnitzer and CharterMac  Capital LLC (incorporated by
          reference to our current report on Form 8-K, filed with the Commission
          on February 7, 2007).

12        Ratio of earnings to fixed charges and preferred dividends.*             141

21        Subsidiaries of our Company.*                                            142

23        Consent of Independent Registered Public Accounting Firm*                143

31.1      Chief Executive Officer  certification  pursuant to Section 302 of the
          Sarbanes- Oxley Act of 2002.*                                            144

31.2      Chief Financial Officer  certification  pursuant to Section 302 of the
          Sarbanes- Oxley Act of 2002.*                                            145

32        Certification  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of
          2002.*                                                                   146

</TABLE>

* Filed herewith.


                                      138
<PAGE>




                                   SIGNATURES
                                   ----------



Pursuant to the  requirements of Section 13 or 15(d) 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
                                    (COMPANY)




Date: March 9, 2007                By: /s/ Marc D Schnitzer
                                       --------------------
                                       Marc D. Schnitzer
                                       Managing Trustee, Chief Executive Officer
                                       and President




Date: March 9, 2007                By: /s/ Robert L. Levy
                                       ------------------
                                       Robert L. Levy
                                       Chief Financial Officer


                                      139
<PAGE>



                                POWER OF ATTORNEY

Each person whose signature  appears below hereby  constitutes and appoints Marc
D. Schnitzer and Robert L. Levy, and each or either of them, his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name,  place and stead,  in any and all  capacities,  to sign any and all
amendments to this Annual  Report,  and to cause the same to be filed,  with all
exhibits  thereto  and  other  documents  in  connection  therewith,   with  the
Securities and Exchange  Commission,  hereby granting to said  attorneys-in-fact
and agents,  and each of them,  full power and  authority to do and perform each
and every act and thing  whatsoever  requisite  or  desirable  to be done in and
about the  premises,  as fully to all  intents and  purposes as the  undersigned
might or could do in person, hereby ratifying and confirming all acts and things
that said  attorneys-in-fact and agents, or either of them, or their substitutes
or substitute, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following  persons on behalf of us and in the
capacities and on the dates indicated:

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

/s/ Stephen M. Ross          Managing Trustee,
-------------------
Stephen M. Ross              Chairman of the Board               March 9, 2007

/s/ Leonard W. Cotton        Managing Trustee,
---------------------
Leonard W. Cotton            Vice-Chairman                       March 9, 2007

/s/ Marc D. Schnitzer        Managing Trustee,
---------------------
Marc D. Schnitzer            Chief Executive Officer and
                             President                           March 9, 2007

/s/ Alan P. Hirmes           Managing Trustee,
------------------
Alan P. Hirmes               Chief Operating Officer             March 9, 2007

/s/ Peter T. Allen
------------------
Peter T. Allen               Managing Trustee                    March 9, 2007

/s/ Jeff T. Blau
----------------
Jeff T. Blau                 Managing Trustee                    March 9, 2007

/s/ Janice Cook Roberts
-----------------------
Janice Cook Roberts          Managing Trustee                    March 9, 2007

/s/ Robert J. Dolan
-------------------
Robert J. Dolan              Managing Trustee                    March 9, 2007

/s/ Nathan Gantcher
-------------------
Nathan Gantcher              Managing Trustee                    March 9, 2007

/s/ Jerome Y. Halperin
----------------------
Jerome Y. Halperin           Managing Trustee                    March 9, 2007

/s/ Robert L. Loverd
--------------------
Robert L. Loverd             Managing Trustee                    March 9, 2007

/s/ Robert A. Meister
---------------------
Robert A. Meister            Managing Trustee                    March 9, 2007

/s/ Thomas W. White
-------------------
Thomas W. White              Managing Trustee                    March 9, 2007



                                      140
<PAGE>



                                                                      Exhibit 12

Ratio of Earnings to Combined Fixed Charges and Preference Dividends

<TABLE>
<CAPTION>

(Dollars in thousands)
                                                                          December 31,
                                               -----------------------------------------------------------------
                                                  2006          2005          2004          2003          2002
                                               ---------     ---------     ---------     ---------     ---------
<S>                                            <C>           <C>           <C>           <C>           <C>
Interest expense                               $ 144,981     $  83,020     $  52,327     $  23,919     $  19,004
Amortized capitalized costs related to
  indebtedness                                     5,431         2,642         3,310         2,163           940
Preference security dividend requirements
  of consolidated subsidiaries                    25,123        25,123        22,840        18,897        17,266
                                               ---------     ---------     ---------     ---------     ---------

  Total fixed charges                          $ 175,535     $ 110,785     $  78,477     $  44,979     $  37,210
                                               =========     =========     =========     =========     =========


Net income before minority interests           $(337,497)    $(295,673)    $(143,462)    $  64,498     $  62,613
Add:  Total fixed charges                        175,535       110,785        78,477        44,979        37,210
Less:  Preference security dividend
  requirements of consolidated subsidiaries      (25,123)      (25,123)      (22,840)      (18,897)      (17,266)
                                               ---------     ---------     ---------     ---------     ---------
Earnings                                       $(187,085)    $(210,011)    $ (87,825)    $  90,580     $  82,557
                                               =========     =========     =========     =========     =========

Ratio of Earnings to Combined Fixed
  Charges and Preference Dividends              See NOTE      See NOTE      See NOTE        2.0:1         2.2:1

</TABLE>

For the  purposes  of  computing  the ratio of  earnings  to fixed  charges  and
preference  dividends,  earnings were  calculated  using income before  minority
interest  adding back total fixed  charges  less  preference  security  dividend
requirements  of  consolidated  subsidiaries.  Fixed charges consist of interest
expense,  recurring  fees and  amortization  of  capitalized  costs  related  to
indebtedness  and preference  security  dividend  requirements  of  consolidated
subsidiaries.

NOTE:  Earnings  (as  defined  in  Regulation  S-K) were  insufficient  to cover
Combined Fixed Charges and Preference  Dividends  (also as defined in Regulation
S-K) by $362.6  million for the year ended  December 31, 2006, by $320.8 million
for the year ended  December 31, 2005 and by $166.3  million for the year ending
December 31, 2004,  yielding a ratio of earnings to combined  fixed  charges and
preference dividends of -1.1:1 in 2006, -1.9:1 in 2005 and -1.1:1 in 2004. These
shortfalls are due to the  consolidation  of partnerships  deemed to be variable
interest   entities   ("consolidated   partnerships")   pursuant  to   Financial
Interpretation   46(R)  ("FIN  46(R)")  or  consolidated   pursuant  to  similar
accounting  pronouncements.  Pursuant  to  Regulation  S-K,  the  definition  of
Earnings  does not  permit the  subtraction  of amounts  allocated  to  minority
interests  in  consolidated  subsidiaries  if  those  subsidiaries  incur  fixed
charges.  The inclusion of the  consolidated  partnerships  in the  consolidated
financial statements affected this ratio as follows:

     o    Combined Fixed Charges and Preference  Dividends  (which,  as defined,
          totaled  $175.5  million  in 2006,  $110.8  million  in 2005 and $78.5
          million in 2004) includes consolidated partnership interest expense of
          $47.9  million in 2006,  $26.3  million  in 2005 and $21.4  million in
          2004,  although these  expenses are paid directly by the  consolidated
          partnerships; and
     o    Earnings  (which,  as defined,  was a loss of $187.1  million in 2006,
          $210.0   million  in  2005  and  $87.9   million  in  2004)   includes
          consolidated  partnership  operating losses totaling $401.4 million in
          2006,  $349.5  million  in 2005 and $220.0  million in 2004,  although
          virtually  all such  operating  losses  are  absorbed  by the  limited
          partners of the consolidated partnerships.


                                      141
<PAGE>



                                                                      Exhibit 21



               Subsidiaries of the Company as of December 31, 2006
               ---------------------------------------------------

CM Holding Trust, a Delaware statutory trust

CM Holding Trust II, a Delaware statutory trust

CharterMac Corporation, a Delaware corporation

CM ARCap Investor LLC, a Delaware limited liability company

                        Subsidiaries of CM Holding Trust
                        --------------------------------

CharterMac Equity Issuer Trust, a Delaware statutory trust

                       Subsidiaries of CM Holding Trust II
                       -----------------------------------

CharterMac Equity Issuer Trust II, a Delaware statutory trust

                  Subsidiary of CharterMac Equity Issuer Trust
                  --------------------------------------------

CharterMac Origination Trust I, a Delaware statutory trust

                     Subsidiaries of CharterMac Corporation
                     --------------------------------------

CharterMac Mortgage Capital Corp., Inc. a Delaware corporation

CharterMac Capital Company, LLC, a Delaware limited liability company

CM Investor LLC, a Delaware limited liability company

Centerbrook Holdings LLC, a Delaware limited liability company

                  Subsidiary of CharterMac Capital Company LLC
                  --------------------------------------------

CharterMac  Capital LLC, a Delaware limited liability company (formerly known as
Related Capital Company LLC)

                      Subsidiary of CharterMac Capital LLC
                      ------------------------------------

RCC Manager LLC, a Delaware limited liability company

                     Subsidiary of Centerbrook Holdings LLC
                     --------------------------------------

Centerbrook Financial LLC, a Delaware limited liability company

                      Subsidiary of CM ARCap Investors LLC
                      ------------------------------------

ARCap Investors LLC, a Delaware limited liability company

                        Subsidiary of ARCap Investors LLC
                        ---------------------------------

ARCap REIT, Inc., a Delaware corporation


                                      142
<PAGE>



                                                                      Exhibit 23



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference

     o    in  the  Registration   Statement  (Form  S-3ASR  No.  333-138706)  of
          CharterMac,
     o    in  the  Registration   Statement  (Form  S-3ASR  No.  333-133118)  of
          CharterMac,
     o    in  the   Registration   Statement  (Form  S-11  No.   333-126044)  of
          CharterMac,
     o    in  the  Registration   Statement  (Form  S-3MEF  No.  333-117650)  of
          CharterMac,
     o    in  the  Registration   Statement  (Form  S-3/A  No.   333-120077)  of
          CharterMac,  in the  Registration  Statement  (Form  S-8 and its  post
          effective  amendment on Form S-8/A No.  333-55957)  pertaining  to the
          CharterMac  (formerly known as "Charter Municipal Mortgage  Acceptance
          Company") Incentive Share Option Plan,
     o    in the Registration Statement (Form S-3 No. 333-54802) of CharterMac,
     o    in the Registration Statement (Form S-3 No. 333-109078) of CharterMac,
     o    in  the   Registration   Statement  (Form  S-3/A  No.   333-74988)  of
          CharterMac,
     o    in  the   Registration   Statement  (Form  S-3/A  No.   333-57384)  of
          CharterMac,
     o    in the Registration Statement (Form S-8 No. 333-110722) of CharterMac,
     o    in the  Registration  Statement  (Form  S-3/A  and its post  effective
          amendment on Form POS AM 1 No. 333-111919) of CharterMac.

of our reports  dated  March 9, 2007,  relating  to the  consolidated  financial
statements and financial statement schedules of CharterMac and subsidiaries, and
management's  report on the  effectiveness  of internal  control over  financial
reporting  appearing  in the  Annual  Report  on  Form  10-K of  CharterMac  and
subsidiaries for the year ended December 31, 2006.


/s/ DELOITTE & TOUCHE LLP
New York, New York

March 9, 2007


                                      143
<PAGE>



                                                                    Exhibit 31.1

                                  CERTIFICATION


I, Marc D. Schnitzer, hereby certify that:

     1.  I have reviewed this annual report on Form 10-K of CharterMac;
     2.  Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the  statements  made,  in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this annual report;
     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this report;
     4.  The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules  13a-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and we have:

         a) designed such  disclosure  controls and  procedures,  or caused such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  the  material  information  relating  to  the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this annual report is being prepared;

         b) designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principals;

         c) evaluated the effectiveness of the registrant's  disclosure controls
         and procedures and presented in this report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report based on such evaluation; and

         d)  disclosed  in this report any change in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely to  materially  affect,  the  registrant's  internal
         control over financial reporting; and

     5.  The registrant's other certifying officers and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the registrant's auditors and the audit committee of the
         registrant's  board of directors or persons  performing  the equivalent
         functions:

         a) all significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal control over financial reporting.


Date:  March 9, 2007                               By:  /s/ Marc D. Schnitzer
       -------------                                    ---------------------
                                                         Marc D. Schnitzer
                                                         Chief Executive Officer


                                      144
<PAGE>



                                                                    Exhibit 31.2

                                  CERTIFICATION


I, Robert L. Levy, hereby certify that:

     1.  I have reviewed this annual report on Form 10-K of CharterMac;
     2.  Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the  statements  made,  in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this annual report;
     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this report;
     4.  The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules  13a-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and we have:

         a) designed such  disclosure  controls and  procedures,  or caused such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  the  material  information  relating  to  the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this annual report is being prepared;

         b) designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principals;

         c) evaluated the effectiveness of the registrant's  disclosure controls
         and procedures and presented in this report our  conclusions  about the
         effectiveness of the disclosure controls and procedures,  as of the end
         of the period covered by this report based on such evaluation; and

         d)  disclosed  in this report any change in the  registrant's  internal
         control over financial  reporting that occurred during the registrant's
         most  recent  fiscal  quarter  that  has  materially  affected,  or  is
         reasonably  likely to  materially  affect,  the  registrant's  internal
         control over financial reporting; and

     5.  The registrant's other certifying officers and I have disclosed,  based
         on our most  recent  evaluation  of  internal  control  over  financial
         reporting,  to the registrant's auditors and the audit committee of the
         registrant's  board of directors or persons  performing  the equivalent
         functions:

         a) all significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal control over financial reporting.


Date:  March 9, 2007                               By:  /s/ Robert L. Levy
       -------------                                    ------------------
                                                         Robert L. Levy
                                                         Chief Financial Officer


                                      145
<PAGE>



                                                                      Exhibit 32


                            CERTIFICATION PURSUANT TO
                             18.U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Annual Report of CharterMac (the "Company") on Form 10-K
for the year ending December 31, 2006, as filed with the Securities and Exchange
Commission  on the date  hereof  (the  "Report"),  I, Marc D.  Schnitzer,  Chief
Executive  Officer of the Company and I, Robert L. Levy, Chief Financial Officer
of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:


       (1) The Report fully complies with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and


       (2) The  information  contained  in the Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Company.


By:  /s/ Marc D. Schnitzer                           By: /s/ Robert L. Levy
     ---------------------                               ------------------
     Marc D. Schnitzer                                   Robert L. Levy
     Chief Executive Officer                             Chief Financial Officer
     March 9, 2007                                       March 9, 2007


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.

                                      146
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

            Summarized condensed financial information of registrant

                  (not including its consolidated subsidiaries)

                            CONDENSED BALANCE SHEETS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                          December 31,
                                                                   -------------------------
                                                                       2006          2005
                                                                    ----------    ----------

                                           ASSETS

<S>                                                                 <C>           <C>
Mortgage revenue bonds-at fair value                                $   89,054    $   81,539
Cash and cash equivalents                                               25,638        52,791
Deferred costs - net of amortization of $90 and $7,485                   1,360         5,095
Due from subsidiaries                                                  101,645       133,162
Intangible assets - net of amortization of $2,849 and $2,503               258           603
Investment in subsidiaries                                             831,290       740,289
Other investments                                                        9,031        57,086
Other assets                                                            15,273         9,955
Loan to affiliate                                                       15,000            --
                                                                    ----------    ----------
Total Assets                                                        $1,088,549    $1,080,520
                                                                    ==========    ==========

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Notes payable                                                    $  104,375    $       --
   Accounts payable, accrued expenses and other
     liabilities                                                         7,653         4,802
   Distributions payable                                                26,389        25,883
                                                                    ----------    ----------

Total liabilities                                                      138,417        30,685
                                                                    ----------    ----------

Commitments and contingencies

Shareholders' equity:
   Beneficial owners equity:
     4.4% Convertible CRA preferred  shares; no par value
      (2,160 issued and outstanding in 2006 and 2005)                  104,498       104,498
     Convertible  CRA  Shares  (6,552  shares  issued and
      outstanding in 2006 and  2005)                                    97,499       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)                        148           150
     Common  shares;   no  par  value   (160,000   shares
      authorized;  52,746 issued  and  51,343 outstanding
      in 2006 and 52,309  issued  and 51,988  outstanding
      in 2005)                                                         709,142       752,042
   Restricted shares granted                                                --        (4,193)
   Treasury  shares of beneficial  interest - common,  at
    cost (1,403 shares in 2006 and 321 shares in 2005)                 (28,018)       (7,135)
   Accumulated other comprehensive income                               66,863       100,104
                                                                    ----------    ----------
Total shareholders' equity                                             950,132     1,049,835
                                                                    ----------    ----------

Total liabilities and shareholders' equity                          $1,088,549    $1,080,520
                                                                    ==========    ==========

</TABLE>

                 See accompanying notes to financial statements


                                      147
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF OPERATIONS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                           Years Ended December 31,
                                                                      ----------------------------------
                                                                        2006         2005         2004
                                                                      --------     --------     --------
<S>                                                                   <C>          <C>          <C>
Revenues:
   Mortgage revenue bond interest income                              $  8,025     $  7,267     $  7,948
   Other revenues                                                       16,211        8,591        4,212
                                                                      --------     --------     --------
     Total revenues                                                     24,236       15,858       12,160
                                                                      --------     --------     --------


Expenses:
   Interest expense                                                      2,595            4           35
   General and administrative                                            8,206        8,503        6,958
   Depreciation and amortization                                         4,333        1,895        1,630
   Loss on impairment of assets                                            428          296          147
                                                                      --------     --------     --------
     Total expenses                                                     15,562       10,698        8,770
                                                                      --------     --------     --------

Income before equity in earnings of subsidiaries
   and investments and loss on repayment of mortgage revenue bonds       8,674        5,160        3,390

Equity in earnings of subsidiaries                                      32,058       50,874       59,792

Equity in earnings of investments                                          568        3,038        2,219

Loss on repayment of mortgage revenue bonds                                 (6)         (58)         (38)
                                                                      --------     --------     --------


Net income                                                            $ 41,294     $ 59,014     $ 65,363
                                                                      ========     ========     ========

Allocation of net income to:

   4.4% Convertible CRA preferred shareholders                        $  4,752     $  2,020     $     --
   Common shareholders                                                $ 32,405     $ 50,558     $ 56,786
   Convertible CRA shareholders                                       $  4,137     $  6,436        8,577
                                                                      --------     --------     --------
     Total                                                            $ 41,294     $ 59,014     $ 65,363
                                                                      --------     --------     --------

</TABLE>

                 See accompanying notes to financial statements

                                      148
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                         Years Ended December 31,
                                                                 -------------------------------------
                                                                    2006          2005         2004
                                                                 ---------     ---------     ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                              <C>           <C>           <C>
   Net income                                                    $  41,294     $  59,014     $  65,363
   Adjustments to reconcile net income to net cash used in
     operating activities:
   Loss on repayment of mortgage revenue bonds                         101            58            38
   Loss on impairment of assets                                         --           296           147
   Depreciation and amortization                                     4,333         1,895         1,630
   Equity in earnings of subsidiaries and unconsolidated
     entities                                                      (44,293)      (50,874)      (59,792)
   Distributions received from subsidiaries and unconsolidated
     entities                                                      349,553            --            --
   Non-cash compensation expense                                     7,036         8,661           597
   Other non-cash expense                                            1,014         1,107           525
   Changes in operating assets and liabilities:
     Other assets                                                   (4,629)       (4,595)          180
     Accounts payable, accrued expenses and other liabilities        2,285        (3,300)       (5,752)
     Loans to affiliates                                           (15,000)        4,600        (4,600)
     Due to / from subsidiaries                                     97,400        (6,616)      (25,275)
                                                                 ---------     ---------     ---------
Net cash provided by (used in) operating activities                439,094        10,246       (26,939)
                                                                 ---------     ---------     ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayments of mortgage revenue bonds and notes                    1,679        17,518         2,935
   Mortgage revenue bond acquisitions and fundings                  (7,683)       (3,405)       (2,390)
   Deferred investment acquisition costs                               226           (47)           --
   Investment in subsidiaries                                     (459,897)       38,398         3,108
   Return of capital from equity investees                          16,667            --            --
   Other investments                                                21,806       (34,494)         (742)
                                                                 ---------     ---------     ---------
Net cash provided by investing activities                         (427,202)       17,970         2,911
                                                                 ---------     ---------     ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                  (104,168)      (96,582)      (84,395)
   Increase in notes payable                                        84,375            --            --
   Issuance of preferred shares                                         --       108,000            --
   Issuance of  common shares and convertible CRA shares                --            --       110,803
   Proceeds from stock options exercised                               756         3,804           308
   Retirement of special preferred voting shares                     1,889            (2)          (10)
   Treasury stock purchases                                        (20,447)           --            --
   Deferred financing costs                                         (1,450)       (3,602)       (6,484)
                                                                 ---------     ---------     ---------

Net cash provided by financing activities                          (39,045)       11,618        20,222
                                                                 ---------     ---------     ---------

Net increase (decrease) in cash and cash equivalents               (27,153)       39,834        (3,806)

Cash and cash equivalents at the beginning of the period            52,791        12,957        16,763
                                                                 ---------     ---------     ---------

Cash and cash equivalents at the end of the period               $  25,638     $  52,791     $  12,957
                                                                 =========     =========     =========

Supplemental information

Supplemental disclosure of non-cash activities:

   Contribution of mortgage revenue bonds to subsidiaries        $  35,413     $  15,715     $      --
                                                                  ========     =========     =========

   Distribution of mortgage revenue bonds from subsidiaries      $  37,155     $      --     $  12,664
                                                                  ========     =========     =========

</TABLE>

                 See accompanying notes to financial statements

                                      149
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.  Introduction and Basis of Presentation

Basis of Financial Information

The accompanying  condensed financial  statements (the "Parent Company Financial
Statements") are for CharterMac (not including its subsidiaries).

The Parent Company Financial Statements,  including the notes thereto, should be
read in conjunction  with our  consolidated  financial  statements and the notes
thereto which are included in this Form 10-K.

2. Cash Dividends received from subsidiaries

The table below reflects the cash dividends  received for each of the last three
fiscal years from subsidiaries and 50% or less owned persons accounted for under
the equity method.

<TABLE>
<CAPTION>

        (In thousands)                        2006          2005          2004
-----------------------------              ----------    ---------     ---------
<S>                                        <C>           <C>            <C>
Consolidated subsidiaries CMC              $      --     $      --      $  2,200
Equity method ARCap                           15,957         2,219         2,219

</TABLE>

3.  Guarantees

In connection with the CMC warehouse line, both we and our subsidiary, CM Corp.,
have entered into  guarantees  for the benefit of Bank of America,  guaranteeing
the total  advances  drawn under the line,  up to the  maximum of $100  million,
together with interest,  fees,  costs,  and charges related to the CMC warehouse
line.

                                      150
<PAGE>



                                   Schedule II

                        Valuation and Qualifying Accounts
                                December 31, 2006

ALLOWANCE FOR DOUBTFUL ACCOUNTS

<TABLE>
<CAPTION>

                                                Additions
                                         -------------------------
                                                        Charged to
                         Balance at      Charged to       Other                            Balance at
                        beginning of     costs and      Accounts -      Deductions -         end of
   (IN THOUSANDS)          period         expenses       Describe         Describe           period
---------------------   ------------     ----------     ----------      -------------      ----------
<C>                      <C>              <C>            <C>              <C>               <C>
2006                     $ 15,083         $  4,953       $  (373)(3)      $  9,255(2)       $ 10,408
2005                       13,328            5,123            --             3,368(1)         15,083
2004                       10,856            2,472            --                --            13,328

</TABLE>

(1) Reversal of  reserves  for  investment  funds and for  repayment of mortgage
revenue bonds.
(2) Reversal of reserves for repayment of mortgage revenue bonds.
(3) Receipt of previously reserved interest amounts,net of additonal reserves.


                                       151