SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                    FORM 10-K


(Mark One)

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

                                       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 Identification No.)
     incorporation or organization)

 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:


                               Title of each class
                   ------------------------------------------
                          Shares of Beneficial Interest

                   Name of each exchange on which registered:
                   ------------------------------------------
                             American Stock Exchange


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

       None

       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. [ ]

       Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2). Yes [X] No  ___

       The  approximate  aggregate  market  value of the voting  and  non-voting
common equity held by  non-affiliates  of the Registrant as of December 31, 2004
was  approximately  $1,231,926,000,  based on a price of $24.44 per  share,  the
closing sales price for the  Registrant's  shares of beneficial  interest on the
American Stock Exchange on that date.

As  of  March  31,  2005  there  were  51,323,062   outstanding  shares  of  the
Registrant's shares of beneficial interest.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None.

Index to exhibits may be found on page 119
Page 1 of 148


<PAGE>


TABLE OF CONTENTS

                                   CHARTERMAC

                           ANNUAL REPORT ON FORM 10-K


<TABLE>
<CAPTION>
                                                                                                      PAGE
<S>             <C>             <C>                                                                    <C>
PART I
                Item 1.         Business                                                                 4
                                Risk Factors                                                            11
                Item 2.         Properties                                                              25
                Item 3.         Legal Proceedings                                                       26
                Item 4.         Submission of Matters to a Vote of Shareholders                         26

PART II
                Item 5.         Market for Registrant's Common Equity and Related Share Matters         27
                Item 6.         Selected Financial Data                                                 29
                Item 7.         Management's Discussion and Analysis of Financial Condition and
                                    Results of Operations                                               30
                Item 7A.        Quantitative and Qualitative Disclosures about Market Risks             45
                Item 8.         Financial Statements and Supplementary Data                             47
                Item 9.         Changes in and Disagreements with Accountants on Accounting and
                                    Financial Disclosure                                                99
                Item 9A.        Disclosures Controls and Procedures                                     99

PART III
                Item 10.        Directors and Executive Officers of the Registrant                     100
                Item 11.        Executive Compensation                                                 107
                Item 12.        Security Ownership of Certain Beneficial Owners and Management         114
                Item 13.        Certain Relationships and Related Transactions                         116
                Item 14.        Principal Accounting Fees and Services                                 117

PART IV
                Item 15.        Exhibits, Financial Statement Schedules and Reports on Form 8-K        119

SIGNATURES                                                                                             123
</TABLE>


<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 the real  estate  markets  including,  among other
          things, competition with other companies;
     o    interest rate fluctuations;
     o    general  economic and  business  conditions,  which will,  among other
          things,  affect the availability and credit  worthiness of prospective
          tenants,  lease rents and the terms and  availability of financing for
          properties financed by revenue bonds owned by us;
     o    risk of real estate development and acquisition;
     o    environment/safety requirements;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our investments;  and
     o    risk of default associated with the revenue bonds and other securities
          held by us or our subsidiaries.

     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.


<PAGE>


                                     PART I
Item 1.  Business.

General
-------

CharterMac  (which may be referred to as the "Company",  "we" or "us"),  through
its  subsidiaries,  is one of the  nation's  leading  full-service  real  estate
finance  companies,  providing  capital  solutions to  developers  and owners of
properties as well as quality  investment  products to institutional  and retail
investors.  Through our subsidiary operations, we offer financing for every part
of a  property's  capital  structure  with a core  focus on  multifamily  rental
housing. 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 is available at www.chartermac.com.  We make available,  free of charge, on
or through our website:

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

as soon as reasonably  practicable after such material is  electronically  filed
with, or furnished to, the Securities and Exchange Commission ("SEC"). Materials
we file with the SEC may also be read and copied at the SEC's  Public  Reference
Room at 450 Fifth Street, NW, Washington, DC 20549. This information may also be
obtained  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,  we are a full-service  real estate finance  company,
with a strong core focus on the  multifamily  sector.  We have direct  financing
relationships  with over 800 real estate  developers  and owners  throughout the
country. We operate from a fully integrated real estate platform,  which enables
us to originate, underwrite and manage the risk of every transaction in which we
provide debt or equity  financing.  Our platform  offers us several  competitive
advantages, including:

     o    The  ability  to cross  sell our  financing  products.  Frequently  on
          transactions,  we  are  able  to  offer  one  or  more  pieces  of the
          property's capital structure.
     o    The  ability  to  originate  the  financing  wholesale.  Our "one stop
          shopping"  capability  enables us to capture  substantially all of the
          financing fees associated with the transaction.
     o    The ability to control the credit quality of the underlying  property.
          By working directly with the property's owner and by risk managing the
          underlying asset, our credit losses are extremely low.

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

We operate in four business segments:

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

                                       4
<PAGE>

     2.   Fund Management, which includes:

          o    subsidiaries  that sponsor real estate  equity  investment  funds
               that primarily invest in Low-Income  Housing Tax Credit ("LIHTC")
               properties.  In exchange for sponsoring and managing these funds,
               we   receive   fee  income  for   providing   asset   management,
               underwriting, origination and other services;
          o    a  subsidiary   which   provides   advisory   services  to  other
               subsidiaries of ours and to American Mortgage  Acceptance Company
               ("AMAC"),  an affiliated,  publicly traded real estate investment
               trust; and
          o    subsidiaries   that   par   ticipate   in   credit    enhancement
               transactions, including guaranteeing mortgage loans and specified
               returns to  investors  in LIHTC  equity  funds,  in exchange  for
               guarantee fees.

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

          o    the Federal National Mortgage Association ("Fannie Mae");

          o    the Federal Home Loan Mortgage Corporation ("Freddie Mac");

          o    the Federal Housing Authority ("FHA"); and

          o    insurance companies and conduits.

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

     4.   Variable  Interest  Entities  ("VIEs"),  which includes  primarily the
          LIHTC equity funds we sponsor  through the Fund  Management  segment's
          subsidiaries,  for  which  we are the  primary  beneficiary.  For more
          information  regarding these VIEs, refer to Note 2 to the consolidated
          financial statements.

Comparative segment revenues,  profits and other financial information for 2004,
2003 and 2002 are presented in Note 19 to the consolidated financial statements.

1.   PORTFOLIO INVESTING

We conduct most of our  portfolio  investing  through  CharterMac  Equity Issuer
Trust ("Equity Issuer"), a subsidiary we formed in 1999.

As of December 31, 2004, our revenue bond portfolio  included direct or indirect
interests in revenue bonds with an aggregate  fair value of  approximately  $2.1
billion,  secured by affordable  multifamily  properties containing 46,360 units
located in 27 states and the District of Columbia.

Portfolio  Investing  generates  cash flow from the spread  between the interest
earned  from  our  revenue  bond  portfolio  and the cost of  capital  we use to
purchase the bonds.

We believe we have a competitive  advantage in our Portfolio  Investing business
due to our "Direct  Purchase  Program".  The  traditional  methods of  financing
affordable  multifamily  housing  with  tax-exempt  bonds are  complex  and time
consuming  and involve the  participation  of many  intermediaries.  Through the
Direct  Purchase  Program  we have  streamlined  the  process  by  removing  all
intermediaries  (except for the  governmental  issuer of the  revenue  bond) and
enabling the developer to deal directly with one source. Because we purchase our
revenue bonds directly from the governmental  issuer, our program eliminates the
need  for   underwriters   and  their  counsel,   rating   agencies  and  costly
documentation.  This reduces the financing life cycle,  often by several months,
and also reduces the bond  issuance  costs,  usually by 30% or more.  By dealing
directly with us, we believe  developers feel more confident about the terms and
timing of their financing.

The  acquisition  of revenue  bonds  requires  capital.  In  addition to using a
portion of our operating cash flows, we obtain such capital by:

     o    securitizing many of the bonds we purchase for our portfolio;
     o    utilizing commercial bank borrowings; and
     o    issuing equity securities.

                                       5
<PAGE>

For  more  information  on  our  securitization  activity,  see  Note  9 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.

2.   FUND MANAGEMENT

Our Fund Management segment includes:

     o    Tax Credit Fund Sponsorship;
     o    Advisory Services; and
     o    Credit Enhancement.

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

We conduct our tax credit fund  sponsorship  activities  through Related Capital
Company LLC  ("RCC"),  which we  acquired  in  November  2003 (see Note 3 to our
consolidated financial statements).

RCC is one of the nation's largest sponsors of LIHTC  investment  funds,  having
raised nearly $7 billion in equity from institutional and retail investors. As a
sponsor of over 270 public and private real estate investment programs,  RCC has
provided  financing for over 1,100 properties in 45 states,  Puerto Rico and the
District of Columbia.

In a typical  LIHTC tax credit fund  sponsorship  program,  investors  acquire a
direct limited partnership  interest in an "upper-tier"  investment  partnership
through which such  investments are made. The investment  partnership,  in turn,
invests as a limited partner in one or more "lower-tier"  operating partnerships
which own and operate the housing  projects.  Limited partners in the upper-tier
partnerships  are  most  often  corporations  who are  able to  utilize  the tax
benefits and usually derive limited  economic  benefit from the investment other
than  the  expected  tax  credits  and tax  losses  from the  operations  of the
lower-tier partnership properties.  In some cases, in conjunction with the final
disposition  of the  property,  the limited  partners may receive an  additional
return.

We often borrow the cash to acquire  investments from a warehouse  lender.  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  pays us an amount  sufficient to enable us to repay the funds we
borrowed from the warehouse lender, and the fund is either admitted as a limited
partner of the  lower-tier  operating  partnership in our place or the warehouse
lender releases its lien on the fund's assets.

Tax credit fund sponsorship generates 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.

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

A  subsidiary  of RCC  provides  management  and  advisory  services  to  sister
subsidiaries of CharterMac as well as to AMAC.

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

     o    fees  associated  with  acquisition  of revenue bonds by the Portfolio
          Investing segment, which fees are paid by the borrower and received by
          us when we acquire the revenue bond;
     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 CMC.

                                       6
<PAGE>

While some of these fees are eliminated in  consolidation,  our segment  results
presented elsewhere in this document reflect these fees as earned.

AMAC is a publicly traded real estate investment trust that focuses on providing
mezzanine and bridge financing to commercial real estate properties. In addition
to providing bridge and mezzanine loans, AMAC also invests in government-insured
debt securities that are predominantly secured by first mortgages on multifamily
properties.  As of December  31, 2004,  AMAC had $349.0  million in assets and a
total market capitalization of approximately $366.0 million.

Providing management to AMAC generates cash flow predominantly from:

     acquisition fees paid by the borrowers upon the closing of a loan that AMAC
     originates; asset management fees based upon AMAC's total assets, which are
     paid on an annual basis; and incentive management fees received annually if
     AMAC achieves certain earnings and distribution benchmarks.

CREDIT ENHANCEMENT
------------------

We  conduct  our  credit  enhancement   business  primarily  through  CharterMac
Corporation  ("CM Corp."),  a subsidiary  we formed in July 2001.  Guarantees we
issue fall into several categories:

     o    guaranteeing  a specified  rate of return  during the life of an LIHTC
          fund for which we receive a fee (payable in three  installments)  that
          we recognize over the guarantee  period.  These  guarantees may be for
          the  construction  period  or  the  operation  period  of  a  pool  of
          properties.  This normally  involves backing up a primary  guarantors'
          obligations;
     o    guaranteeing a developer's  credit during the construction  phase of a
          property,  for  which we  receive a fee at the  inception  of the deal
          which we recognize over the construction phase of the property;
     o    guaranteeing a developer's  credit  following the  stabilization  of a
          property for the  operational  period for the pool of properties,  for
          which we receive a fee at the inception of the deal and recognize over
          the estimated operational period of the property; and
     o    guaranteeing  borrowers'  obligations on either individual or mortgage
          pools for a fee.

We will continue to seek new sources of revenue  using our  financial  guarantee
capabilities and expanding our credit enhancement activities.

3.   MORTGAGE BANKING

We conduct our  mortgage-banking  activity through  CharterMac  Mortgage Capital
Corp.  ("CMC"),  previously  named PW Funding Inc. As of December  31, 2004,  we
owned 87% of CMC,  having first  acquired 80% in 2001.  In the first  quarter of
2005, we acquired the remaining 13%.

CMC is a full-service, direct mortgage banking firm specializing in originating,
underwriting,   and  servicing   mortgage  loans  for   conventional   apartment
properties,  affordable  housing,  senior  housing,  and  commercial  properties
nationwide.

CMC is one of 26 approved  Delegated  Underwriters  and  Servicers  ("DUSTM") in
Fannie Mae's  principal  multifamily  loan  program.  Fannie Mae  delegates  the
responsibility for originating, underwriting, closing and delivering multifamily
mortgages  to the DUS lenders  and the DUS  lenders  share the risk of loss with
Fannie  Mae and  service  the  loans  for a fee.  Under  the DUS  program,  upon
obtaining a commitment from Fannie Mae with regard to a particular loan,  Fannie
Mae commits to acquire the  mortgage  loan based upon our  underwriting,  and we
agree  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.

In addition to DUS originations, our mortgage banking activities include:

     o    closing  and  delivering  multifamily  mortgages  to Freddie  Mac as a
          Freddie  Mac  Program  Plus(R)  Seller/Servicer.  Similar  to the  DUS
          program  with Fannie  Mae,  as a Program  Plus  lender,  we  originate
          mortgages  based on  commitments  from  Freddie  Mac, and we then sell
          those loans to Freddie Mac. Unlike the DUS program,  however, there is
          not a loss sharing aspect to the transactions;

                                       7
<PAGE>

     o    acting as an  approved  seller/servicer  for the  Government  National
          Mortgage Association ("Ginnie Mae");
     o    originating  and  servicing   loans  as  a  leading   commercial  loan
          correspondent for Wall Street conduits and life insurance companies;
     o    acting as an approved loan processor/servicer for the FHA; and
     o    sub-servicing loans originated by other firms.

Mortgage loans we originate for Fannie Mae, Freddie Mac or Ginnie Mae are closed
in CMC's name, using cash borrowed from a warehouse  lender.  Approximately  one
week to one month  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.  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 arrangement with Fannie Mae.

Our mortgage banking activities generate cash flow predominantly from:

     o    origination 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 risk
          sharing premium for loans originated for Fannie Mae;
     o    trading profits upon sale of the mortgage loans; and
     o    the interest rate spread during the periods prior to settlement of the
          sale of mortgage loans.


During 2004, we originated  loans  totaling  approximately  $1.0 billion and, at
December 31, 2004, serviced a loan portfolio of approximately $4.1 billion.

In the first quarter of 2005,  we acquired  Capri  Capital  Finance  ("CCF") and
combined CCF with CMC. For a description of this transaction, see Note 21 to the
consolidated  financial  statements and  MANAGEMENT'S  DISCUSSION AND ANALYSIS -
SUBSEQUENT EVENTS.

4.   VARIABLE INTEREST ENTITIES ("VIES")

In accordance with  accounting  rules  requiring the  consolidation  of VIEs, we
consolidate  the balance sheets and operations of numerous funds that we sponsor
and  other  partnerships  that we  indirectly  manage.  While we have no  equity
interest  in these  VIEs,  we are  considered  to  control  them  (according  to
accounting rules) for reasons  associated with our role in managing them and the
nominal equity  interests of our executive  officers.  While our Fund Management
and  Portfolio  Investing  segments  earn fees or interest  from these VIEs,  we
consider  them  separately  for  management   purposes.   For  a  more  detailed
discussion, see Note 2 to the consolidated financial statements.

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

From time to time, we may be in  competition  with private  investors,  regional
investment   banks,   mortgage   banking   companies,    lending   institutions,
quasi-governmental  agencies  such as Fannie Mae and Freddie Mac,  mutual funds,
domestic and foreign credit enhancers,  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 regional
          investment  banks,  other real  estate  finance  companies  and others
          seeking to invest in tax-exempt revenue bonds;
     o    our Fund Management  business competes directly with others seeking to
          raise  capital for tax  advantaged  funds,  some of which offer credit
          enhancement for their funds, regional and national banks that directly
          acquire  LIHTC  investments  and other  real  estate  fund  management
          companies; and
     o    our Mortgage Banking business is in competition with 25 other licensed
          DUS lenders which originate  multifamily mortgages on behalf of Fannie
          Mae, 34 other  Freddie Mac Program Plus  lenders,  as well as numerous
          banks,  finance  companies  and others that  originate  mortgages  for
          resale.

                                       8
<PAGE>

We face many competitors,  some of whom 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  financing  products.  See RISKS
RELATED TO INVESTING IN OUR COMPANY below.  However,  we feel we can effectively
compete due to our on-going  relationships with certain  developers.  Due to our
unified product  platform,  we believe we are better  positioned to offer a full
range of  financing  programs on both  affordable  and  market-rate  multifamily
housing.  Our  origination  groups are able to cross market all of our financing
products, thereby offering developers a single, streamlined execution.

We face  increasing  levels of competition  both in terms of new competitors and
new competing  products.  We continually  seek to develop new products that will
complement our real estate financing products.

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,  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  9,  10,  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,  we (the  parent  trust)  and  many  of our  subsidiaries
(including all that constitute our Portfolio Investing segment) are partnerships
that are not  subject  to income  taxes.  We pass  along 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  "Private  Activity  Bonds." The interest from these bonds is generally
tax-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 alternative minimum tax ("AMT") purposes.  The percentage of
our tax-exempt interest income subject to AMT was approximately 93% for the year
ended December 31, 2004, compared to 88% in 2003 and 85% in 2002. As a result of
AMT, the  percentage of our income that is exempt from federal income tax may be
different for each shareholder.

With regard to our revenue bond  investing and tax credit fund  sponsorship,  we
operate in a regulatory  environment  governed  primarily by two sections of the
Internal Revenue Code of 1986 (the "Code") relating to affordable housing:

     o    Section  142(d),  which  governs the issuance of federally  tax-exempt
          revenue  bonds  for  affordable  multifamily  housing  to be  owned by
          private, for-profit developers; and
     o    Section 42, which authorizes federal LIHTCs for qualifying  affordable
          housing properties.

TAX-EXEMPT FINANCING

Section 142(d) provides for the issuance of federally  tax-exempt revenue bonds,
the  proceeds  of which  are to be  loaned  to  private  developers  for the new
construction or acquisition and  rehabilitation  of multifamily  rental housing.
Under the Code, in order to qualify for federally tax-exempt financing,  certain
ongoing  requirements  must be complied with on a continual basis. The principal
requirement  is 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

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<PAGE>

     (iii)on which any assistance  provided under Section 8 of the U.S.  Housing
          Act of 1937 terminates.

If these requirements are not complied with on a continual basis interest on the
revenue   bonds  could  be   determined   to  be  includable  in  gross  income,
retroactively to the date such bonds were issued.  There is no federal statutory
or regulatory limit on the amount of rent that may be charged.  The availability
of federally tax-exempt financing for affordable multifamily housing to be owned
by private,  for-profit  developers in each state is limited by an annual volume
cap contained in Section 146 of the Code. At the end of 2000,  Congress  enacted
legislation  which  increased  the  volume  cap by 25% in both 2001 and 2002 and
thereafter as indexed for inflation.

Bonds issued for affordable multifamily housing properties must compete with all
other types of private  activity bonds (other than private activity bonds issued
for qualifying  Section 501(c)(3)  organizations) for an allocation of a state's
available volume cap. Non-profit organizations described in Section 501(c)(3) of
the Code whose  charitable  purpose is to provide  low income  housing  may also
avail themselves of federally  tax-exempt  financing to construct or acquire and
rehabilitate  affordable multifamily housing properties.  Revenue bonds for such
charities  are  governed  by Section  145 of the Code and may be issued  without
regard to the statewide volume cap that applies to for-profit developers.  Under
Section  145 of the Code at least 95% of the  proceeds of the bond issue must be
used in a manner that furthers the charitable  purpose of the Section  501(c)(3)
organization,  or a  related  purpose.  In  Revenue  Procedure  96-32,  the  IRS
promulgated  a  non-exclusive  safe harbor for Section  501(c)(3)  organizations
whose charitable purpose is to provide affordable  housing:  if either the 20/50
or 40/60 tests  described  above are met and, in  addition,  at least 75% of all
units are rented to  families  whose  income  does not exceed 80% of area median
gross income (adjusted for family size) and the Section  501(c)(3)  organization
charges tenants "affordable rents", the proceeds of a revenue bond issue will be
treated as being used to further the Section 501(c)(3) organization's charitable
purpose.

FEDERAL LIHTCS

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 revenue bonds. There are two types of credits:

     o    4% credits - for new  buildings and existing  buildings  financed with
          revenue bonds that receive an allocation of 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  (see  TAX-EXEMPT
FINANCING above).  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 fifteen  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 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
securing the bonds. 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  that secure our revenue  bonds,  all the
multifamily  units are rented to  individuals  or families at 60% of area median
income and,  thus,  100% 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.

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<PAGE>

Investors in RCC sponsored funds are usually Fortune 500 corporations  that have
projected  long-term  positive tax positions.  These investors  generally become
limited partners in the RCC sponsored fund which, in turn,  invests as a limited
partner in the  developer/owner  of the  affordable  housing  property.  The RCC
sponsored fund contributes to the developer/owner an amount equal to the present
value of the projected credits and other tax benefits in the form of an up-front
equity  contribution  to the developer.  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 payment will
usually provide between 45% and 55% of the cost of the development.

Governance
----------

We are governed by a board of trustees  comprised of fifteen managing  trustees,
eight of whom are independent. Our board of trustees has six committees:

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

The Audit,  Compensation,  Nominating/Governance  and Capital Markets committees
consist entirely of independent trustees.

Employees
---------

We had  approximately  300  employees at December  31,  2004,  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  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. We were required to guarantee the obligations under these programs as a
condition  for  receiving   Fannie  Mae  and  Freddie  Mac's   approval  of  our
acquisitions of CMC and CCF.

Risk Factors
------------

As with any  business,  our  Company  faces 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

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<PAGE>

1.   GENERAL RISKS RELATED TO OUR BUSINESS

THERE ARE RISKS  ASSOCIATED WITH THE PROPERTIES OUR PRODUCTS  FINANCE THAT COULD
ADVERSELY AFFECT OUR EARNINGS

Through our taxable and  tax-exempt  subsidiaries,  we derive a large portion of
our income by financing real estate through:

     o    investing in taxable and tax-exempt  bonds secured by residential  and
          rental properties;
     o    sponsoring funds that provide equity to such properties; and
     o    originating and servicing mortgages on such properties.

In many  cases,  we are both the  sponsor of the fund and the holder of the debt
which is secured  by the  property  which is  indirectly  owned by the fund.  In
addition, we also issue guarantees on behalf of developers, guarantee investment
returns to the  investors  in certain  equity  funds we sponsor  and issue other
guarantees associated with the performance of a property.

Our success depends in large part on the performance of the properties which are
the subject of our businesses and,  therefore,  subjects us to various types and
degrees of risk, including the following:

     o    the property  securing  debt might not generate  sufficient  income to
          meet its operating expenses and payments on its related debt;
     o    the failure of a mortgage obligor to make principal payments on a loan
          originated  for  Fannie Mae could  expose us to losses  under our risk
          sharing agreement;
     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  defaults,  the  value of the  property  securing  such bond
          (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 such bond.
     o    there are certain types of losses (generally of a catastrophic nature,
          such as toxic  mold or other  environmental  conditions,  earthquakes,
          floods,  terrorism  and wars)  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.

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 fund may not be able to pay our fees;
     o    a fund may not generate the return that we have  guaranteed and we may
          be called upon to satisfy the guarantee; and
     o    we could lose our invested capital and/or anticipated future revenue.

This could decrease the value of our  investments,  lower the value of assets we
pledge  as  collateral  and  affect  our  net  income  and  cash  available  for
distribution to shareholders.

WE MAY SUFFER ADVERSE CONSEQUENCES FROM CHANGING INTEREST RATES

Because a large  portion of our debt is variable  rate,  an increase in interest
rates could negatively affect our net income and cash available for distribution
to our shareholders. Additionally, increasing interest rates may:

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<PAGE>

     o    reduce  the  carrying  value  of  our  investments,  particularly  our
          fixed-rate   revenue  bonds  and  residual   interests  in  tax-exempt
          securitization transactions;
     o    decrease the amount we could realize on the sale of those investments;
     o    result  in  a  reduction  in  the  number  of  properties   which  are
          economically  feasible to finance through either tax-exempt  financing
          or tax credit equity;
     o    reduce the demand for  multifamily  tax-exempt and taxable  financing,
          which  could  limit  our  ability  to invest  in  revenue  bonds or to
          structure transactions;
     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 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 cash flow in our Portfolio  Investing business.  Further,  increasing
interest  rates may reduce the  likelihood of property  development  or mortgage
refinancing, thereby deceasing the origination volume of in our Mortgage Banking
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
housing.

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  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 EARNINGS

Two taxable 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 by:

     o    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. 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 adversely  affect our results of operations and reduce
earnings.  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.

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 our
earnings.  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  CUSTOMERS  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 2004, five key
investors  provided  approximately  69.2% of the  equity  capital  raised by tax
credit  syndication  programs  we  sponsored,  with  Fannie Mae and  Freddie Mac
together  providing  approximately  44.9% of the capital.  In addition,  ten key
developers  provided  approximately  46.8% of the LIHTC  properties for which we

                                       13
<PAGE>

arranged equity financing in 2004. Further,  Fannie Mae and Freddie Mac were the
purchasers of 72.9% of the loans  originated by our Mortgage Banking business in
2004.

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. By
reason of their  regulated  status,  certain of our investors have 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 to seek other investment opportunities.

REVENUES FROM OUR FEE-GENERATING ACTIVITIES ARE LESS PREDICTABLE THAN THOSE FROM
OUR  REVENUE  BOND  INVESTMENTS  AND COULD  RESULT IN A  DECREASE  IN CASH FLOW,
FLUCTUATIONS  IN OUR SHARE  PRICE AND A  REDUCTION  IN THE PORTION OF OUR INCOME
THAT IS TAX-EXEMPT

As of December  31,  2004 in excess of 30% of our GAAP  revenue  recognized  was
derived from fee-generating service activities through our taxable subsidiaries.
Although  we  expect  that  these   fee-generating   businesses   will  generate
significant  growth  for us,  they  are  inherently  less  predictable  than the
ownership of interests in revenue bonds,  and there can be no assurance that the
fee-generating activities will be profitable. In addition, the earnings and cash
generated by the fund  sponsorship  portion of our Fund Management  business has
historically  fluctuated between quarters due to the variability and seasonality
inherent in investments in tax credit partnerships.  These fluctuations could be
perceived negatively and, therefore, adversely affect our share price.

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 us 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 us, the result would likely be that the
taxable  portion of our overall  income  would  increase,  and,  therefore,  the
percentage  of our net income  distributed  to  shareholders  that is  federally
tax-exempt to them would likely decrease.

2.   RISKS RELATED TO OUR PORTFOLIO INVESTING BUSINESS

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

Although state or local  governments or their agencies or authorities  issue the
revenue bonds we purchase,  the 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 revenue bonds, nor is the taxing power of any government
pledged for the payment of  principal  of or interest on the 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 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 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 revenue bonds.

Our revenue may also be  adversely  affected  by the  bankruptcy  of an owner of
properties  securing the 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, 2004,  revenue  bonds with an  aggregate  carrying  value of
approximately  $335.5  million were secured by  affordable  multifamily  housing
properties  which are still in various stages of construction  and revenue bonds
with an aggregate carrying value of approximately $218.6 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:

                                       14
<PAGE>

     o    underestimated initial construction or rehabilitation costs;
     o    cost overruns;
     o    delays;
     o    failure to obtain governmental approvals; and
     o    adverse  weather  and other  unpredictable  contingencies  beyond  the
          control of the developer.

If a mortgage loan is called due to construction and/or rehabilitation not being
completed as required in the mortgage loan  documents,  we, as the holder of the
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 REVENUE  BONDS,  WHICH ARE CURRENTLY IN
CONSTRUCTION OR LEASE-UP 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, 2004, revenue bonds in our portfolio with a carrying value of
approximately   $1.1  billion  were  secured  by  mortgages  on   properties  in
construction or lease-up 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.  Moreover,  there can be no assurance that
the underlying property will achieve expected occupancy or debt service coverage
levels.

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

A  significant  portion  of our  revenue  bond  portfolio  has been  pledged  as
collateral in connection with our securitizations, credit enhancement activities
and  warehouse  borrowing  and we may not have full access to them until we exit
the related  programs.  The carrying value of the pledged bonds varies from time
to time.  As of December 31, 2004,  the carrying  value of all pledged bonds was
approximately $743 million.

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

Because of our  utilization  of  securitization,  a  substantial  portion of our
revenue bond  investments are  subordinated or may be junior in right of payment
to  other  bonds,  notes  or  instruments.  There  are  risks  in  investing  in
subordinated  revenue  bonds and other  junior  residual  interests  that  could
adversely affect our net income, including:

     o    the risk that  borrowers  may not be able to make payments on both the
          senior and the subordinated  revenue bonds or interests,  resulting in
          us, as the holder of the  subordinated  revenue bond,  receiving  less
          than the full and timely payments of interest and principal;
     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 holders of the junior residual interests; and
     o    the risk  that the  holders  of the  senior  revenue  bonds or  senior
          interests  may control the ability to enforce  remedies,  limiting our
          ability to take actions that might protect our interests.

RISK ASSOCIATED WITH SECURITIZATION COULD ADVERSELY AFFECT OUR NET INCOME

Through  securitizations,   we  seek  to  enhance  our  overall  return  on  our
investments and to generate proceeds that, along with equity offering  proceeds,
facilitate   the   acquisition   of   additional   investments.   In  our   debt
securitizations, a bank or another type of financial institution stands ready to
provide  liquidity to the  purchasers of senior  interests in our revenue bonds.
They also provide  certain  credit  enhancements  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  enhancement
providers deteriorates,  we anticipate that the return on the residual interests
would decrease,  negatively affecting our income. In addition,  if we are unable
to renew the liquidity or credit enhancement  facilities,  we would be forced to
find alternative 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 our  investment,  we would  recognize gains or losses on the
liquidation,  which might be significant  depending on market conditions.  As of

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<PAGE>

December 31, 2004,  senior  interests with an aggregate amount of $505.5 million
were credit  enhanced by an  eight-year  term  facility  through  MBIA,  a large
financial  insurer.  Of this  amount,  $405.5  million  was  subject  to  annual
"rollover"  renewal for liquidity.  Also, as of December 31, 2004, Merrill Lynch
provided liquidity and credit enhancement for senior interests with an aggregate
amount of $462.9 million in the  P-FLOATs/RITES  program.  We do not maintain an
ongoing commitment with Merrill Lynch and, therefore, are subject to the risk of
termination of that program on short notice.

OUR 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. Although we do not intend to acquire
revenue bonds secured by mortgage loans at usurious rates,  there is a risk that
our 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 revenue bonds that bear  participating  or otherwise
contingent  interest.  Therefore,  the amount of  interest to be charged and the
return on our revenue  bonds  would be limited by state usury laws.  To minimize
the risk of  investing  in a  usurious  revenue  bond,  we obtain an  opinion of
counsel that the interest rate on a proposed  revenue bond is not usurious under
applicable  state law. We also  generally  obtain an opinion of counsel that the
interest on the proposed mortgage loan is not usurious. To obtain such opinions,
we may have to agree to defer or reduce the amount of interest  that can be paid
in any year. Some states may prohibit the compounding of interest, in which case
we may have to agree to forego  the  compounding  feature of our  revenue  bonds
originated in those states.

OUR INVESTMENTS IN REVENUE BONDS ARE ILLIQUID

Our  investments  in 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.

REVENUE  BONDS MAY GO INTO DEFAULT FROM TIME TO TIME AND  NEGATIVELY  IMPACT OUR
EARNINGS

Properties  underlying our revenue bonds may experience  financial  difficulties
from time to time,  which  could cause  certain of our 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
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
below.

3.   RISKS RELATED TO OUR FUND MANAGEMENT BUSINESS

THERE ARE RISKS  ASSOCIATED WITH CREDIT  ENHANCEMENT AND INTERNAL RATE OF RETURN
GUARANTEES THAT EXPOSE US TO LOSSES

Through our taxable subsidiaries, we provide credit enhancement to third parties
for a fee.  If such  third  parties  default on their  obligations  for which we
provided  credit  enhancement,  we would  be  called  upon to make  the  related
payment,  which would likely be in an amount far in excess of the fee paid to us
for providing the credit  enhancement.  We also provide  internal rate of return
guarantees to investors in  partnerships  designed to pass through tax benefits,
including LIHTCs,  to investors.  In connection with such guarantees 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 guaranteed  level,  we would be required to make a payment so that the
guaranteed  rate of return will be  achieved.  Our maximum  potential  liability
pursuant to those guarantees is detailed in MANAGEMENT'S DISCUSSION AND ANALYSIS
- OFF BALANCE SHEET ARRANGEMENTS.

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 properties eligible for LIHTCs. Although

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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 EARNINGS

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.  We also receive fees from investment  programs we sponsor (and
may sponsor in the future) that do not provide for annual elections by investors
of  their  management.  With  respect  to  these  investment  programs,  we will
generally  acquire  controlling  interests in the entities  which  control these
investment programs.  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  programs.  Furthermore,  the
organizational  documents of certain of these investment  programs allow for the
investors,  at their  option,  to remove the entity  controlled by us as general
partner or managing member without cause.  Although the investment programs 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
investment programs typically have finite periods in which they are scheduled to
exist, after which they are liquidated. The termination of a program will result
in a termination of the fees we receive from those programs.

OUR ROLE AS A SPONSOR OF INVESTMENT PROGRAMS AND  CO-DEVELOPMENTS  EXPOSES US TO
RISKS OF LOSS

In connection  with the  sponsorship  of  investment  programs 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  programs 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  programs.  In  addition,  even when we are not
required to do so, we may  advance  funds to allow  investment  programs 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 CASH FLOWS

Much of the revenues in our Fund Management  business are earned from upper-tier
funds we sponsor.  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 fees for services, such as asset management and advisory services,  which
we render to them. As the lower-tier  partnerships  are  susceptible to numerous
operational  risks  (see  THERE ARE RISKS  ASSOCIATED  WITH THE  PROPERTIES  OUR
PRODUCTS  FINANCE THAT COULD ADVERSELY AFFECT OUR EARNINGS above) the upper-tier
funds may not collect  sufficient  cash to pay the fees they owe to us. If we do
not  collect  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 DUS LENDING WHICH MAY NEGATIVELY  IMPACT
OUR EARNINGS

In our DUS program, we originate loans through one of our subsidiaries which are
thereafter purchased by Fannie Mae. We retain a first loss position with respect
to loans that we originate and sell to Fannie Mae. We assume  responsibility for
a portion  of any loss that may  result  from  borrower  defaults,  based on the
Fannie Mae loss  sharing  formulas,  Levels I, II, or III. As December 31, 2004,
all of our  loans  consisted  of 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. Level II and Level III loans
carry a higher loss  sharing  percentage.  As of  December  31, 2004 our maximum
"first loss" exposure under the DUS program was approximately $362 million.

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

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<PAGE>

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.

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 American  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 this 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 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  RCC 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 us 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.
We  carefully  monitor  the type of  interest  income we receive to avoid such a
circumstance.  However,  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 the control of us and our subsidiaries
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  ordinary 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.

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<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 revenue
bonds through securitization  programs,  such as the Private Label Tender Option
Program  and  P-FLOATs/RITESSM  program,  which  entitle  us to a  share  of the
federally  tax-exempt  interest of such revenue bonds.  Special tax counsel have
each  rendered  an opinion  to the  effect  that the issuer of the RITES and the
issuer  of the  Private  Label  Tender  Option  Program  residual  certificates,
respectively,  will each be classified as a partnership  for federal  income tax
purposes  and the  holders  of the RITES and the  Private  Label  Tender  Option
Program residual  certificates  will be treated as partners of each partnership.
Consequently,  as the holder of the RITES and the Private  Label  Tender  Option
Program residual  certificates,  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 the Private
Label Tender  Option  Program  residual  certificates  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 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 REVENUE BONDS

     On the date of  original  issuance or  re-issuance  of each  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 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
     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 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
     revenue  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 reached or, if contested,  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  revenue bonds for interest on such
     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 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,  the continuing  requirements include tenant income restrictions,
     regulatory  agreement  compliance and compliance  with rules  pertaining to
     arbitrage.  Each  issuer  of the  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

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<PAGE>

     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 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.
     However,  as of the date of this filing,  neither we, nor our subsidiaries,
     our  affiliates  or our  Counsel  have  knowledge  of any events that might
     adversely  affect the  federally  tax-exempt  status of our revenue  bonds,
     including any notice that the IRS considers  interest on any of our revenue
     bonds to be includable in federally-taxable gross income.

     TREATMENT OF PARTICIPATING INTEREST BONDS AS EQUITY INVESTMENTS

     At  our  inception,  almost  all  of  our  revenue  bond  investments  were
     participating  interest bonds that had been issued in the late 1980s. Since
     August  1996,  because  of the  promulgation  of certain  tax  regulations,
     participating interest tax-exempt bonds are rarely issued. Accordingly, and
     because the number of  participating  interest  bonds in our  portfolio has
     been  shrinking  on  account  of sales  and  refinancings,  such  bonds now
     comprise only 5.6% of our total revenue bond portfolio.

     Payment of a portion of the interest  accruing on a participating  interest
     bond  depends upon the cash flow from,  and the  proceeds  upon the sale or
     refinancing  of,  the  property   securing  such  bond.   Because  of  this
     participation feature, the IRS could assert that we are not a lender to the
     owner of the underlying  property,  but rather an equity investor.  If that
     position  were  sustained,  all or  part  of the  interest  we  receive  on
     participating  interest  bonds could be treated as a taxable  return on our
     investment and not as tax-exempt  interest.  To our knowledge,  neither the
     characterization  of the  participating  interest  bonds as  debt,  nor the
     characterization  of the  interest  thereon  as  interest  excludable  from
     federally-taxable  gross income of the holders thereof, has been challenged
     by the IRS in any judicial or regulatory proceeding.

     We or our predecessors  received  opinions of counsel from Willkie,  Farr &
     Gallagher  LLP or  other  counsel  respecting  each  of  our  participating
     interest bonds to the effect that, based upon assumptions described in such
     opinions,   which  assumptions  included  the  fair  market  value  of  the
     respective   properties  upon  completion  and  economic   projections  and
     guarantees, the participating interest bonds "would" be treated for federal
     tax purposes as representing debt. The implicit corollary of these opinions
     is that the  participating  interest  bonds  do not  constitute  an  equity
     interest in the underlying borrower.

     Although we assume the continuing  correctness of these opinions,  and will
     treat all  interest  received  with  respect to these  bonds as  tax-exempt
     income,  there can be no assurance that such assumptions are correct,  such
     treatment would not be challenged by the IRS, or that intervening facts and
     circumstances have not changed the assumptions and bases for providing such
     opinions.  The opinions  discussed above speak only as of their  respective
     delivery  dates,  and our  Counsel  has not  passed  upon  or  assumed  any
     responsibility  for reviewing any events that may have occurred  subsequent
     to  the  delivery  of  such  opinions  which  could  adversely  affect  the
     conclusions contained therein.

     "SUBSTANTIAL USER" LIMITATION

     Interest on a 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 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.

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<PAGE>

     Additionally,  a  determination  that we are a partner or a joint  venturer
     with a mortgagor  involving an equity  interest,  as described  above under
     TREATMENT OF  PARTICIPATING  INTEREST  BONDS AS EQUITY  INVESTMENTS,  could
     cause us to be treated as a "substantial  user" of the properties  securing
     our investments.

     Greenberg  Traurig has reviewed the revenue  bonds we own, the ownership of
     the obligors of our 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
     revenue  bonds or  related  parties  thereto.  There  can be no  assurance,
     however,  that  the  IRS  would  not  challenge  such  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 was published on November 5, 2003. We have
     been advised by our counsel,  Greenberg  Traurig,  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 which
     hold the senior  interests  in those  securitizations  would  tender  their
     positions. This could cause 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 between 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 that will generate taxable income.

     IMPACT OF RECENT AND FUTURE TAX LEGISLATION

     Recent and future tax legislation  could also adversely impact the value of
     our  investments  and the  market  price of our  shares.  On May 28,  2003,
     President Bush signed into law the Jobs and Growth Tax Relief Act. This law
     amends  the Code to reduce  federal  income  tax rates for  individuals  on
     long-term  capital  gains  and  dividend  income  and  accelerates  certain
     previously enacted income tax rate reductions for individuals for tax years
     ending on or after May 6, 2003. This tax legislation reduces the importance
     of a primary  advantage of investing in municipal  bonds--that the interest
     received  on these bonds is  federally  tax-exempt,  while other  income is
     subject to federal income tax at higher rates.  It is likely that these tax
     law changes,  and any similar  future tax law changes,  could  increase the
     cost of  tax-exempt  financings,  as interest  rates  offered by  municipal
     issuers would rise to compensate  investors for the reduced tax  advantage.
     This could lead to a decrease in tax-exempt multifamily rental housing bond
     issuances,  which would reduce our opportunities to purchase revenue bonds.
     These  changes  could also  reduce the value of our  existing  investments,
     because federally tax-exempt municipal bond income would not enjoy the same
     relative tax advantage as provided under prior law.

                                       21
<PAGE>

     STRUCTURE OF OUR ACQUISITION OF RCC

     Our  acquisition of RCC was structured to prevent us from realizing  active
     income from the RCC business and to effectively receive a tax deduction 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 the RCC
     business,  in which case the parent trust would realize an amount of active
     income  from the RCC  business  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 possible  that the value of our shares  would  decline.
     Second, the IRS might assert that the Special Common Units ("SCUs") held by
     the  selling  principals  of RCC and  others  are  actually  shares  of our
     Company. If this position prevailed,  the distributions payable on the SCUs
     would not result in tax  deductions  for CM Corp.  In such event,  CM Corp.
     would be subject to increased  tax,  which could  reduce our net  after-tax
     income 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.

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.  Since we own only
common equity of our subsidiaries,  we, and therefore holders of our shares, are
effectively  subordinated to the debt obligations,  preferred equity and SCUs of
our  subsidiaries,  which at December 31, 2004,  aggregated  approximately  $1.4
billion. In particular, the holders of the preferred shares of our Equity Issuer
subsidiary are entitled to receive  preferential  distributions  with respect to
revenues  generated by 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 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,  holders of SCUs issued by our CCC
subsidiary are entitled to receive  preferential  distributions  with respect to
the earnings of RCC which are, therefore,  not available for distribution to our
shareholders.

WE DEPEND UPON THE SERVICES OF OUR EXECUTIVE MANAGEMENT TEAM

We and our subsidiaries depend upon the services of three key executive officers
(Mr. Boesky,  Mr. Hirmes and Mr.  Schnitzer) 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
exclusively  by these  three  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 American 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 any resale price of our shares. Shareholders will not have any preemptive

                                       22
<PAGE>

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 RCC 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 RCC,  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 RCC who
received special  preferred voting shares include our executive  management team
and a subsidiary of The Related Companies,  L.P. ("TRCLP"),  which is controlled
by the chairman of our board of trustees.  As a result of that special preferred
voting share issuance and additional  common shares directly or indirectly owned
by them, our executive  management team (Mr. Boesky,  Mr. Hirmes,  Mr. Schnitzer
and Ms.  Kiley) in the  aggregate  directly or  indirectly  owns  voting  shares
representing  approximately  7.3% of our voting  power,  and the chairman of our
board of trustees  directly or  indirectly  owns  voting  shares that  represent
approximately 15.7% of our voting power. Ms. Kiley, whose intention to retire we
announced on February 25, 2005,  currently owns  approximately  1% of our voting
power. 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 five of these selling principals of RCC serve, along with others,
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 RCC  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
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 RCC prohibit
TRCLP and its affiliates from competing with any business  currently  engaged in
by us other than in specified areas, including:

     o    providing  credit  enhancement  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.

                                       23
<PAGE>

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 2005, 2006
     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 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.  Approximately
15.2 million common shares remain issuable in exchange for the SCUs we issued in
connection with the RCC acquisition and we also granted restricted common shares
of which  approximately  541,000 were unvested at December 31, 2004.  When these
shares vest,  their sale in the public  market  could,  and  depending  upon the
number of involved,  likely would,  adversely affect prevailing market prices of
our shares and our ability to raise  additional  capital through equity markets.
As of December 31, 2004, TRCLP and its owners indirectly held approximately 10.2
million SCUs and  approximately  286,000  common shares  which,  subject to some
exceptions, are not subject to a lock-up agreement.

On March 7, 2005, Mr. Schnitzer and Ms. Kiley each adopted a pre-arranged  share
trading  plan to sell common  shares that can be issued to each of them upon the
conversion of a portion of their respective SCUs.  Trades under Mr.  Schnitzer's
plan could begin as early as April 12, 2005. Trades under Ms. Kiley's plan could
begin as early as April 15, 2005. Each of the share trading plans was adopted in
accordance  with  guidelines  specified  under Rule 10b5-1 of the Securities and
Exchange  Act of 1934.  Mr.  Schnitzer  adopted his plan as part of his personal
financial  planning  for asset  diversification  and  liquidity.  Under his Rule
10b5-1 plan, Mr. Schnitzer will sell up to 215,000 common shares  (approximately
18.9% of his  total  holdings)  over a period  of  approximately  ten  months in
accordance  with the plan  schedule.  These shares will be acquired  through the
conversion of a portion of his SCUs. If Mr. Schnitzer  completes all the planned
sales  of  shares  under  his  Rule  10b5-1  plan,  he  would  continue  to  own
approximately 924,347 shares representing  approximately 1.8% of our outstanding
common shares as of the date of this filing.  Ms. Kiley adopted her plan as part
of her personal  financial  planning for asset  diversification  and  liquidity.
Under her Rule 10b5-1  plan,  Ms.  Kiley will sell up to 131,906  common  shares
(approximately  18.7% of her total holdings) over a period of approximately  six
months in  accordance  with the plan  schedule.  These  shares  will be acquired
through the conversion of a portion of her SCUs. If Ms. Kiley  completes all the
planned  sales of shares under her Rule 10b5-1 plan,  she would  continue to own
approximately 571,870 shares representing  approximately 1.1% of our outstanding
common shares as of the date of this filing.

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.

                                       24
<PAGE>

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 COULD ADVERSELY AFFECT OUR GROWTH

A major  aspect of our business  plan  includes the  acquisition  of  additional
revenue bonds,  which requires  capital.  In addition to funds generated through
operations  (including  securitizations),   we  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.

Item 2.  Properties

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

We also lease office space in other location as follows:

     o    Jersey City, NJ - An office facility; the lease expires in 2010.
     o    Bethesda, MD - An office facility; the lease expires in 2009.
     o    Irvine, CA - An office facility; the lease expires in 2008.
     o    Mineola, NY - An office facility; the lease expires in 2007.
     o    Dallas, TX - An office facility; the lease expires in 2005.
     o    Sherman Oaks, CA - An office facility; the lease expires in 2007.
     o    San Rafael, CA - An office facility; the lease expires in 2005.
     o    Kansas City, KS - An office facility; the lease expires in 2005.
     o    Metarie,  LA  -  An  office  facility;  currently  being  leased  on a
          month-to-month basis.

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

                                       25
<PAGE>

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 Shareholders

There were no matters  submitted to  shareholders  for voting  during the fourth
quarter of 2004.

                                       26
<PAGE>

                                     PART II


Item 5.  Market  for the  Registrant's  Common  Equity and  Related  Shareholder
         Matters

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

Our common shares have been listed on the American  Stock Exchange since October
1,  1997  under  the  symbol  "CHC".  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>
                                       2004                    2003
                              ----------------------  ----------------------

Quarter Ended                    Low         High        Low         High
-------------                 ----------  ----------  ----------  ----------
<S>                             <C>         <C>         <C>         <C>
March 31                        $21.03      $24.85      $16.51      $18.34
June 30                         $17.75      $24.70      $17.50      $19.79
September 30                    $18.85      $23.15      $16.68      $19.62
December 31                     $21.35      $25.42      $18.35      $21.86
</TABLE>

The last reported sale price of our common shares on the American Stock Exchange
on March 31, 2005 was $21.50.

Holders
-------

As of March 31, 2005, there were 3,136 registered shareholders owning 51,323,062
common shares.


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

Our earnings are allocated pro rata among the common shares and the  Convertible
CRA Shares.  The  Convertible CRA Shares rank on par with the common shares with
respect to rights upon  liquidation,  dissolution  or winding up of our Company.
Quarterly cash distributions per share for the years ended December 31, 2004 and
2003 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, 2004                          5/15/04        $0.370        $19,217
June 30, 2004                           8/14/04         0.380         21,929
September 30, 2004                      11/14/04        0.410         23,649
December 31, 2004                       2/14/05         0.410         23,690
                                                       ------        -------
Total for 2004                                         $1.570        $88,485
                                                       ======        =======

March 31, 2003                          5/15/03        $0.325        $14,643
June 30, 2003                           8/14/03         0.325         14,667
September 30, 2003                      11/14/03        0.350         16,201
December 31, 2003                       2/14/04         0.370         18,551
                                                       ------        -------
Total for 2003                                         $1.370        $64,062
                                                       ======        =======
</TABLE>

In addition to the  distributions  set forth in the table above, we paid Related
Charter  L.P.,  as our  manager  prior  to our  acquisition  of RCC,  a  special
distribution  (equal  to .375% per annum of our  total  invested  assets)  which
amounted to  approximately  $5.3  million for the period from January 1, 2003 to
November 17, 2003.

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

                                       27
<PAGE>

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 flow,  our  financial
condition,  capital  requirements  and such other  factors as the 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, 2004:

<TABLE>
<CAPTION>
                     Equity Compensation Plan Information

                                            (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                 1,075,313                 $16.1282                    6,348,802
   approved by security
   holders
Equity compensation plans
   not approved by security
   holders                                       --                       --                           --

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

Totals                                    1,075,313                 $16.1282                    6,348,802
                                          =========                 ========                    =========
</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 common shares  outstanding 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 2004 and other  information
related to our repurchase program:

                                       28
<PAGE>

<TABLE>
<CAPTION>
                         Purchases of Equity Securities

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

                                                              Total number            Maximum number
                             Total                             of shares          (or approximate dollar
                           number of        Average        purchased as part       value) of shares that
                             shares       price paid          of publicly          may yet be purchased
       Period              purchased       per share       announced program         under the program
---------------------      ---------      -----------      ------------------     ----------------------
<S>                           <C>         <C>                       <C>                 <C>
October 1 - 31, 2004              --      $      --                 --                         --
November 1 - 30, 2004         51,613 (1)      24.49                 --                  1,374,357
December 1 - 31, 2004             --             --                 --                         --
                              ------      ---------            -------------            ---------

Total                         51,613      $   24.49                 --                  1,374,357
                              ======      =========            =============            =========
</TABLE>

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

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                                       2004 (1)         2003            2002            2001            2000
-----------------------------------------      ----------      ----------      ----------      ----------      ----------
<S>                                            <C>             <C>             <C>             <C>             <C>
Total revenues                                 $  232,854      $  152,240      $  116,614      $   74,625      $   59,091
Net income                                     $   65,363      $   66,586      $   60,833      $   38,985      $   30,091
Net income applicable to shareholders (2)      $   65,363      $   61,248      $   55,905      $   35,010      $   27,074

Net income per share (2)
  Basic                                        $     1.13      $     1.31      $     1.31      $     1.14      $     1.22
  Diluted                                      $     1.12      $     1.31      $     1.31      $     1.14      $     1.22

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

Total assets                                   $5,757,361      $2,581,169      $1,852,868      $1,421,059      $  925,236
Financing arrangements                         $1,068,428      $  900,008      $  671,659      $  541,796      $  385,026
Notes payable                                  $  174,454      $  153,350      $   68,556      $   56,586      $       --
Preferred shares of subsidiary:
  Subject to mandatory repurchase              $  273,500      $  273,500      $  273,500      $  218,500      $  169,000
  Not subject to mandatory repurchase          $  104,000      $       --      $       --      $       --      $       --

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

Distributions per share (3)                    $     1.57      $     1.37      $     1.26      $     1.14      $     1.07
</TABLE>

(1)  Reflects  adoption  of  Interpretation  46(R),  CONSOLIDATION  OF  VARIABLE
     INTEREST  ENTITIES ("FIN  46(R)"),  as of March 31, 2004 (See Note 2 to the
     consolidated financial statements).
(2)  Includes common shareholders and Convertible CRA shareholders.
(3)  Distributions per share are the same for both common shares and Convertible
     CRA shares.

                                       29
<PAGE>

Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

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

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 the real  estate  markets  including,  among other
          things, competition with other companies;
     o    interest rate fluctuations;
     o    general  economic and  business  conditions,  which will,  among other
          things,  affect the availability and credit  worthiness of prospective
          tenants,  lease rents and the terms and  availability of financing for
          properties financed by revenue bonds owned by us;
     o    risk of real estate development and acquisition;
     o    environment/safety requirements;
     o    changes in applicable laws and regulations;
     o    our tax treatment,  the tax treatment of our  subsidiaries and the tax
          treatment of our  investments;  and
     o    risk of default associated with the revenue bonds and other securities
          held by us or our subsidiaries.

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.

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

RCC ACQUISITION

Our operating results for 2004 were impacted  significantly by the November 2003
acquisition of RCC, an affiliated  business that, until the date of acquisition,
had acted as an external  manager for our  Company  and our  subsidiaries.  As a
result of the  acquisition,  we generate  more  taxable  income and have assumed
numerous expenses that had previously been covered by fees paid to RCC. Further,
the  issuance  of a new class of  subsidiary  equity as part of the  acquisition
requires  us to  apportion  certain  earnings  and  identify  them as due to the
holders of that equity.  Likewise, the acquisition affected the comparability of
our 2003 results to those in 2002.

Through  our  acquisition  of RCC, we now  provide  management  services to real
estate equity  investment  funds we sponsor (many of which we now  consolidate -
see ACCOUNTING CHANGES below) and AMAC, a publicly traded real estate investment
trust that is also an affiliated entity. The funds we sponsor are the upper-tier
investment funds that provide LIHTCs for investors.

Our acquisition of RCC has enabled us to accomplish many of our goals. First, we
are now internally  managed,  which has  eliminated  any perceived  conflicts of
interest in the  marketplace  and broadens our access to capital.  Internalizing
management has also created a more effective cost structure for a company of our
size.  Second, the acquisition  diversified our revenue streams,  increasing our
proportion of fee income,  which is much less  interest rate  sensitive and much
less capital intensive than our Portfolio Investing business.

ACCOUNTING CHANGES

The adoption of several  accounting  pronouncements  has affected our  financial
statements.  The  adoption of SFAS No.  150,  ACCOUNTING  FOR CERTAIN  FINANCIAL
INSTRUMENTS WITH  CHARACTERISTIC OF BOTH LIABILITIES AND EQUITY ("SFAS No. 150")
caused us to  reclassify  certain  liability  and expense  categories  while not
increasing the actual amounts to be recorded. The adoption of FIN 46(R) led to a
significant  increase in the amount of assets and  liabilities  we record due to

                                       30
<PAGE>

consolidation  of  numerous   investment   partnerships   (see  Note  2  to  the
consolidated  financial  statements).  This  consolidation  also  results in the
recognition of the operating  results of partnerships in which we have no equity
interest,  the  elimination  of  transactions  between our  businesses and those
partnerships and the allocation of their results to their investor partners.

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

The following is a summary of our operations:

<TABLE>
<CAPTION>
                                                                                                                  %           %
                                                                                                               Change      Change
                                                 % of                      % of                      % of      2004 vs     2003 vs
(In thousands)                    2004         Revenues     2003         Revenues     2002         Revenues     2003        2002
                                ----------------------------------------------------------------------------------------------------
<S>                             <C>             <C>       <C>             <C>       <C>             <C>         <C>         <C>
Revenues                        $232,854        100.0%    $152,240        100.0%    $116,614        100.0%      53.0%       30.6%
Income before income taxes        48,120         20.7       60,514         39.7       62,117         53.3      (18.1)       (2.6)
Net income                        65,363         28.1       66,586         43.7       60,833         52.2       (6.9)        9.5
</TABLE>

Our consolidated results over the three-year period illustrate the impact of our
changing  business  from  our  2001  structure,  previously  incorporating  only
recurring,  non-taxable  revenues  with  a  cost  structure  based  on  external
management, to one with a large proportion of fee-based transactional income and
costs associated with internal management. This transition involved:

     o    our acquisition of the Mortgage  Banking  business at the end of 2001,
          adding  taxable   revenues  and  internal   management  costs  to  our
          consolidated cost structure;
     o    the inception of the credit enhancement portion of the Fund Management
          segment in 2002, adding more taxable business; and
     o    our  acquisition of RCC in late 2003,  adding the majority of our Fund
          Management  revenues,  and  completely  internalizing  our  management
          structure.

Full integration of these businesses in our unified operating platform, while we
continued to add to our Portfolio Investing business, resulted in 2004 being our
first full year incorporating all businesses.

REVENUES

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

<TABLE>
<CAPTION>
                                                                % Change                  % Change
                                                                  2004                      2003
(In thousands)                       2004          2003         vs. 2003     2002         vs. 2002
-----------------------------      ---------------------------------------------------------------
<S>                                <C>           <C>             <C>       <C>             <C>
Revenue bond interest income       $132,075      $113,655         16.2%    $ 92,882         22.4%

Fee income
   Mortgage banking                  15,026        13,712          9.6       13,681          0.2
   Fund sponsorship                  42,790        12,642        238.5           --          N/A
   Credit enhancement                10,085         4,924        104.8        2,619         88.0
                                   ---------------------------------------------------------------
Total fee income                     67,901        31,278        117.1       16,300         91.9

Other income
   Capri loan interest                4,462            --          N/A           --          N/A
   Other interest                     4,967         2,606         90.6        6,555        (60.2)
   Service fees                       3,266         1,062        207.5           --          N/A
   Other                              7,970         3,639        119.0          877        314.9
                                   ---------------------------------------------------------------
Total other income                   20,665         7,307        182.8        7,432         (1.7)

Revenues of consolidated VIEs        12,213            --          N/A           --          N/A
                                   ---------------------------------------------------------------

Total revenues                     $232,854      $152,240         53.0%    $116,614         30.6%
                                   ===============================================================
</TABLE>

The  substantial  growth in our annual  revenues in both 2004 and 2003  resulted
primarily  from the rapid growth of our Fund  Management  segment,  particularly

                                       31
<PAGE>

from the  acquisition of RCC in late 2003. RCC has contributed the entire amount
of fund sponsorship fees and the majority of other income, all stemming from the
sponsorship of tax credit equity funds,  while our credit  enhancement  business
has also grown  markedly  over the  three-year  period.  During the same period,
aggressive  expansion of the Portfolio Investing and Mortgage Banking businesses
has generated substantial revenue growth.  Offsetting these gains in 2004 is the
elimination of revenues earned by our subsidiaries in transactions  with VIEs we
have  consolidated  beginning  April 1,  2004  (see  Note 2 to the  consolidated
financial statements). The revenues eliminated totaled $31.6 million in our Fund
Management  and  $0.7  million  in  our  Portfolio  Investing  businesses.  On a
comparable basis, including RCC revenues for all of 2003 and 2002, and adjusting
for the impact of consolidated VIEs, our total revenues increased  approximately
14.0% in 2003 and 21.0% in 2004.

The Capri loan interest  relates to a loan we provided to Capri Capital  Limited
Partnership  ("Capri")  in July 2004 (see Note 6 to the  consolidated  financial
statements and SUBSEQUENT EVENT below). Service fee income represents income for
services RCC provides to affiliates,  which became a part of our operations with
the  acquisition  of RCC in  November  2003.  The  increase  in other  income is
primarily due to exit fees received within the Mortgage Banking business.

For further discussion, see RESULTS BY SEGMENT below.

EXPENSES

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

<TABLE>
<CAPTION>

                                                                           % Change                % Change
                                                                              2004                    2003
(In thousands)                                     2004         2003        vs. 2003     2002       vs. 2002
---------------------------------------------------------------------------------------------------------------
<S>                                              <C>          <C>            <C>       <C>            <C>
Interest expense                                 $ 30,838     $ 23,919        28.9%    $ 19,004       25.9%
Interest expense - distribution to preferred
   shareholders of subsidiary                      18,898        9,448       100.0           --        N/A
Salaries and benefits                              55,763       17,540       217.9        9,937       76.5
General and administrative                         45,063       23,403        92.6       14,569       60.6
Depreciation and amortization                      30,407       11,926       155.0        9,092       31.2
Loss on impairment of assets                          757        1,759       (57.0)         920       91.2
                                                 --------     --------       -----     --------       ----
   Subtotal                                       181,726       87,995       106.5       53,522       64.4

Interest expense of consolidated VIEs              21,395           --         N/A           --        N/A
Other expenses of consolidated VIEs                29,355           --         N/A           --        N/A
                                                 --------     --------       -----     --------       ----
   Subtotal                                        50,750           --         N/A           --        N/A
                                                 --------     --------       -----     --------       ----
Total expenses                                   $232,476     $ 87,995       164.2%    $ 53,522       64.4%
                                                 ========     ========       =====     ========       ====
</TABLE>

The  total  amount  of  costs  we  recognize  increased  dramatically  over  the
three-year period due to investment activity,  the RCC acquisition in the fourth
quarter  of 2003  and  the  resulting  recognition  of  expenses  due to the new
ownership  structure,  the amortization of intangible  assets acquired with RCC,
and costs we now  recognize or classify  differently  as a result of  accounting
rules adopted in 2003 and 2004.

The  increase in interest  expense  reflects the higher  borrowing  levels as we
expand our various business lines.  Significant  borrowings during 2003 and 2004
included those related to:

     o    acquisitions  and  fundings of revenue  bonds  totaling  approximately
          $432.9 million in 2003 and $325.0 million in 2004;
     o    our  acquisition of RCC in 2003,  for which we borrowed  approximately
          $60.0 million to fund the cash portion of the total cost;
     o    short-term  investments  to acquire equity  interests  inherent in the
          fund sponsorship portion of our Fund Management business since the RCC
          acquisition in the fourth quarter of 2003; and
     o    a loan to Capri in the third  quarter of 2004 as the first step in our
          full   acquisition  of  its  mortgage  banking  business  and  partial
          ownership of its fund advisory business.

In addition to higher borrowings,  2004 interest expense reflects an increase in
the average borrowing rate to 2.7% as compared to 2.4% in 2003 and 2.5% in 2002.
The increase in the average  borrowing  rate resulted from gradual  increases in
the overall interest  environment  during the year,  following sharp declines in
prior  years.  Interest  expense in all years  presented  include  amounts  paid
pursuant to a swap agreement with a notional  amount of $50.0 million as part of

                                       32
<PAGE>

our  risk  management  strategy.  Additionally,  we have  entered  into six swap
transactions with an aggregate  notional amount of $450.0 million,  all of which
provide  protection  beginning in 2005. These swaps have a weighted average term
of four years.

The  amount  reported  as  "interest   expense  -  distributions   to  preferred
shareholders of subsidiary" represents dividends on our preferred shares subject
to mandatory repurchase, which we reported as an allocation of income outside of
operating  earnings until the adoption of new accounting rules in July 2003. See
further discussion in OTHER ITEMS below.

Salaries  and  benefits in 2004 and 2003  include  amortization  of share grants
issued as part of the RCC  acquisition  transaction.  The  amortization of these
grants,  amounting  to $11.0  million  in 2004 and $2.8  million  in 2003,  will
decrease  in 2005 to $5.0  million  due to a majority  of the  remaining  shares
vesting  within the year.  The  underlying  increase in salary costs is directly
attributable to the  internalization of management in the fourth quarter of 2003
and  subsequent  hiring  as our  businesses  have  expanded.  Prior  to the  RCC
acquisition,  all salary costs recognized were generated by the Mortgage Banking
business.

The increase in General and Administrative  expenses is predominantly due to our
acquisition of RCC and the associated  recognition of expenses  associated  with
management  of the company and  origination  of tax-credit  equity funds.  These
expenses include approximately $4.3 million in organization and offering ("O&O")
costs in 2003 and approximately $16.0 million in 2004.

We did not record the expenses of consolidated  VIEs prior to April 1, 2004. The
interest and other expenses do not represent any cash or non-cash  charges to be
currently  absorbed by us as they are absorbed entirely by the investor partners
of the VIEs.

OTHER ITEMS

<TABLE>
<CAPTION>
                                                             % Change                  % Change
                                                                2004                      2003
(In thousands)                       2004         2003        vs. 2003      2002        vs. 2002
----------------------------------------------------------------------------------------------------
<S>                                <C>          <C>             <C>       <C>            <C>
Gain on repayment of revenue
   bonds                           $    217     $  1,951        (88.9)%   $  3,885        (49.8)%
Gain on sale of loans                 6,995        5,532         26.4       10,683        (48.2)
Equity in earnings of                 1,938        2,219        (12.7)       2,219          0.0
   investments
Income allocated to preferred         3,942        9,449        (58.3)      17,266        (45.3)
   shareholders of subsidiary
Income allocated to Special          28,174        4,038        597.7           --          N/A
   Common Units of subsidiary
Income (loss) allocated to              194          (54)       459.3          496       (110.9)
   minority interests
Income tax benefit (provision)       17,243        6,072        184.0       (1,284)       572.9
</TABLE>

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

Equity in earnings of investments is principally comprised of dividends from our
investment in ARCap  Investors,  LLC. In 2004,  this amount also includes losses
from tax advantaged investment vehicles similar to those we sponsor.

The  total  income  allocated  to  preferred  shareholders  for 2004  and  2003,
including the portion  classified as interest expense,  increased as compared to
2002 due to additional  preferred  offerings  consummated in June 2002 and April
2004.

                                       33
<PAGE>

The  income  allocation  to SCUs  represents  the  portion  of our  consolidated
earnings  attributed to holders of the new class of equity issued at the time of
the RCC  acquisition  in the fourth quarter of 2003, as if those shares were all
converted to common equity.

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

A large majority of our pre-tax  income is derived from our Portfolio  Investing
businesses,  which are structured as partnership  entities; as such, income from
those  investments  is not subject to taxes.  Conversely,  our  businesses  that
generate taxable income are corporations  operating with financial losses due to
their  absorption of most company  costs and expenses as well as  tax-deductible
distributions on their subsidiary equity.

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
relates to the financial  losses of those  businesses.  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.

The effective tax rate on a consolidated  basis was (35.8)% in 2004,  (10.0)% in
2003 and 2.1% in 2002.  The effective rate for our corporate  subsidiaries  that
were subject to taxes was 54.4% in 2004,  101.7% in 2003 and 156.4% in 2002. The
substantially  higher rates for the corporate  subsidiaries  in 2003 and 2002 as
compared to 2004  resulted from factors that pertain to our  transition  from an
externally  managed entity with little  taxable  income to one with  significant
taxable income streams,  deferred tax adjustments  attributable to the timing of
revenue receipts and deductible costs. Many of these factors  disproportionately
affected  the  effective  rate in 2002 and 2003 because of a  comparatively  low
level of taxable income on which the ratio was calculated.

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

PORTFOLIO INVESTING

The table below shows  selected  information  regarding our portfolio  investing
activities:

<TABLE>
<CAPTION>

(IN THOUSANDS)                                           2004            2003            2002
------------------------------------------------------------------------------------------------
<S>                                                   <C>             <C>             <C>
Revenue bond acquisitions and fundings                $  325,037      $  432,915      $  457,060
Weighted average permanent interest rate of bonds
  acquired                                                  6.26%           6.59%           6.98%
Revenue bonds repaid                                  $   26,294      $   83,274      $  108,242
Average portfolio balance                             $2,107,486      $1,609,000      $1,267,000
Weighted average yield of portfolio                         6.27%           7.06%           7.32%
                                                      ----------      ----------      ----------

Revenue bond interest income (1)                      $  132,815      $  113,655      $   92,882
Other revenues (1)                                        11,116           2,838           2,930
                                                      ----------      ----------      ----------
                                                      $  143,931      $  116,493      $   95,812
                                                      ==========      ==========      ==========

Interest expense and securitizations fees (1)         $   29,254      $   25,691      $   18,196
Loss on impairment of assets                          $      757      $    1,759      $      920
Gain on repayments of revenue bonds                   $      217      $    1,951      $    3,885
                                                      ----------      ----------      ----------
</TABLE>

(1) Prior to intercompany eliminations.

We continued to expand our revenue bond portfolio in 2003 and 2004, although the
rate of investment  slowed due to challenging  market conditions in 2004 whereby
some potential investments did not meet our underwriting standards. While we saw
deferments by Texas developers that shifted a substantial  level of acquisitions
until  just  after the end of the year,  in 2004 we  expanded  our  presence  in
California,  the nation's largest bond market, and originated investments in new
markets in Arizona, Massachusetts, Kentucky and New York.

                                       34
<PAGE>
s
While the decline in interest  rates has gradually  lowered the average yield of
our portfolio, from a profit perspective,  the low interest rate environment has
been  favorable  for us in 2003 and 2004 as  compared  to 2002.  The Bond Market
Association  ("BMA") rate, the short-term  tax-exempt index,  continues to be at
historic  lows,  having  averaged  only  1.03%  in 2003 and  1.22% in 2004.  Our
weighted   average  cost  of  debt   associated   with  these   investments  was
approximately  2.52% at December 31, 2004, and  approximately  2.50% at December
31,  2003,  taking  into effect our current  hedging.  We continue to  recognize
healthy  spreads  between our cost of borrowing  and the  interest  rates on our
revenue bonds.  The interest  rates on our  tax-exempt  first mortgage bonds for
2004  had a  weighted  average  permanent  coupon  rate of 6.5%  and our  entire
tax-exempt  first mortgage bond portfolio had a weighted  average coupon rate of
6.7% at December 31, 2004.

Other income in this segment is  predominantly  interest  income on  investments
other  than  revenue  bonds  and   intercompany   royalty  fees   eliminated  in
consolidation. The increase in 2004 over the prior years is due largely to Capri
loan interest (see Note 6 to the consolidated financial statements).

FUND MANAGEMENT

The  table  below  shows  selected  information  regarding  our Fund  Management
activities:
<TABLE>
<CAPTION>

(IN THOUSANDS)                                 2004           2003           2002
-----------------------------------------------------------------------------------
<S>                                         <C>            <C>            <C>
Equity raised                               $1,143,379     $  266,237     $      --
Equity invested by investment funds         $  972,477     $  183,776     $      --
                                            ----------     ----------     ---------

Fund sponsorship fees (1)                   $   75,895     $   12,702     $      --
Credit enhancement fees                         10,085          4,924         2,619
Other revenues (1)                              11,884          1,394            --
                                            ----------     ----------     ---------
  Total                                     $   97,864     $   19,020     $   2,619
                                            ==========     ==========     =========
</TABLE>

(1) Prior to intercompany 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 asset  management fees for the services we
perform  for the funds  once they are  operating,  which we  recognize  over the
service periods.

The increase in fund  sponsorship fees represents our full year of owning RCC in
2004, while 2003 includes only the period following the November acquisition. On
a pro forma basis,  comparing the 2004 period to the full 2003 period,  as if we
had owned  RCC as of  January  1,  2003  ("the  2003 Pro  Forma  Period"),  fund
sponsorship revenues increased approximately 26%.

RCC had a  record  year in  2004,  with  originations  exceeding  $1.1  billion,
representing an increase of 28% over the 2003 Pro Forma Period.  The increase in
business  reflects a strong appetite among  corporate  investors for the type of
funds we sponsor, as well as the growth of our product offerings,  including the
introduction  of funds  specifically  designed for  investors  seeking state tax
credits.

We earn  partnership  management  and O&O fees based upon the level of equity we
raise for tax-credit  equity funds.  Fees earned for partnership  management and
O&O  services  increased  approximately  40% to $11.0  million over the 2003 Pro
Forma  Period.  This  increase  exceeded the rise in equity raised due to higher
average  allowance  rates  realized  as a result  of the  higher  proportion  of
proprietary  (single-investor)  and  guaranteed  funds in the  total mix of fund
equity raised in 2004 as compared to 2003.

During  2004,  the  $972.5  million  of  equity  invested  by  investment  funds
represented an increase of 12% over the 2003 Pro Forma Period.  We earn property
acquisition  fees and  acquisition  allowance  fees based upon the level of fund
equity  invested.  Fees earned for property  acquisition and equity  origination
services  associated  with tax  credit  equity  fund  sponsorship  increased  to
approximately  $42.0 million in 2004,  representing  an approximate 25% increase
compared to the 2003 Pro Forma Period results. While these fees are earned based
on investment  activity,  the increase  exceeded the 12% increase in investments
due to a higher rate of fees  realized as a result of the fund  composition,  as
noted above.

                                       35
<PAGE>

Also  during  2004,  RCC acted as  advisor  for  $547.6  million  of  investment
originations  by CharterMac  entities and others,  compared to $649.2 million of
such originations for the 2003 Pro Forma Period.  We recognize  acquisition fees
in this segment for such  services,  which declined  approximately  25% compared
2003 Pro Forma  Period due to the lower level of  investment  activity  overall.
Additionally,  the average  acquisition  fees recognized were lower because of a
higher proportion of investment  originations for entities outside of CharterMac
in 2004 as compared to 2003 due to the lower  acquisition  fee rate RCC receives
for those acquisitions.

Partnership  and asset  management  fees  increased  to $18.6  million  in 2004,
representing  an increase of  approximately  30% over the 2003 Pro Forma Period,
attributable to the higher level of assets under management.

The increase in credit  enhancement  fees relates to  acceleration of the credit
enhancement  business.  In 2004, we completed four transactions to guarantee tax
benefits  to  investors,  and  continued  to earn fees from  three  transactions
completed  in 2003 and 2002.  These  fees are  recognized  over an average of 20
years; accordingly we expect to recognize increased revenues going forward as we
expand this business.

The  increase  in other  revenues  reflects  the impact of the RCC  acquisition,
whereby we recorded  revenues  for  miscellaneous  service  that RCC provides to
funds it manages. On a comparable basis, these revenues increased  approximately
30.0% in 2004 over the 2003 Pro Forma Period.

MORTGAGE BANKING

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

<TABLE>
<CAPTION>

                                            For the Year Ended December 31,
(IN THOUSANDS)                           2004            2003            2002
--------------------------------------------------------------------------------
<S>                                   <C>             <C>             <C>
Originations                          $1,011,910      $  604,788      $  698,893
Total loans serviced                  $4,113,288      $4,114,293      $3,237,197
Mortgage servicing rights             $   32,366      $   33,350      $   35,595
                                      ----------      ----------      ----------

Mortgage origination fees             $    5,455      $    4,683      $    5,710
Mortgage servicing fees                    9,571           9,029           7,971
Other revenues                             6,002           3,978           4,524
                                      ----------      ----------      ----------
                                      $   21,028      $   17,690      $   18,205
                                      ==========      ==========      ==========
</TABLE>

Originations  in 2004 increased  67.3% over the 2003 level,  marking an all-time
high volume for CMC.  The  increased  volume in 2004 was driven by a  determined
focus on  expanding  the Freddie Mac  platform,  including  approximately  $99.3
million of affordable  housing  transactions and significant levels of portfolio
originations.  In addition,  we diversified our funding with a higher proportion
of conduit lending and other funding avenues outside the traditional  Fannie Mae
and Freddie Mac funding  sources.  Also,  the  expansion  of product  offerings,
including  early  rate lock  products,  and the growth of our  origination  team
helped to push this business to the record levels.  The decline in  originations
in 2003 of 13.5% resulted from heightened competition and a resultant decline in
market share.  Such  competition  caused a larger decline in origination fees as
average fees were reduced in response to the market conditions.

The 17% increase in origination fees was lower than the increase in originations
because  certain of the portfolio  originations  in 2004 were  opportunistically
priced at lower than standard fee rates.  Originations for the three-years ended
December 31 are broken down as follows:

                                       36
<PAGE>

<TABLE>
<CAPTION>
                                   % of                      % of                      % of
                      2004        total         2003        total         2002        total
                   ----------    -------     ----------    -------     ----------    -------
<S>                <C>            <C>        <C>            <C>        <C>            <C>
Fannie Mae         $  387,477      38.3%     $  334,189      55.3%     $  447,459      64.0%
Freddie Mac           350,091      34.6         109,849      18.2         144,895      20.8
FHA                    27,714       2.8            --          --           7,300       1.0
Assumptions            47,050       4.6          50,289       8.3          52,995       7.6
Conduit - Bank        199,578      19.7         104,711      17.3          33,857       4.8
Other                    --          --           5,750       0.9          12,387       1.8
                   ----------     -----      ----------     -----      ----------     -----

Total              $1,011,910     100.0%     $  604,788     100.0%     $  698,893     100.0%
                   ==========     =====      ==========     =====      ==========     =====
</TABLE>

Despite  the high  volume  of  originations  in 2004,  our  servicing  portfolio
declined  slightly during the year due to an unusually high volume of loans paid
off during the year and a high  percentage  of  originations  for loans  without
associated servicing. While loan originations declined in 2003 compared to 2002,
nearly  three-quarters  of the loans  closed in 2003 were new loans  rather than
portfolio  refinancings,  which added  valuable new servicing to the  portfolio.
More than 50% of the 2004  originations  were  additive  to the  portfolio.  The
growth in the portfolio in 2003 also  reflects a  sub-servicing  agreement  with
CreditRe which added $630 million of serviced loans to our business.

Despite  the  decline  in the  year-end  servicing  portfolio  level,  the  6.0%
servicing  fees increase in 2004 was due to a higher  average  portfolio  during
2004 when compared to 2003. The higher average  resulted from the  sub-servicing
agreement noted above,  which began in April 2003, while the loans were included
for all of 2004.  Additionally,  more than half of the loan payoffs  during 2004
occurred in the second half of the year. The 13.3% fee increase in 2003 resulted
from the 27.1% growth in the portfolio,  although the lower percentage  increase
in fees than in the  portfolio  balance was due to the mid-year  addition of the
sub-serviced portfolio discussed above.

With the  addition  of Capri  Capital  Funding  ("CCF") in 2005 (see  SUBSEQUENT
EVENTS,  below), we expect significant growth in revenues in this segment,  with
the addition of a servicing  portfolio of approximately  $5.3 billion and access
to numerous new origination regions upon acquiring licenses owned by CCF.

VIES

The results of VIEs reflected in our financial  statements are those of entities
we are considered to control  according to the definitions of FIN 46(R),  but in
which we have no equity  interest.  Our Fund Management  segment earns fees from
the entities,  however,  and our Portfolio  Investing business earns interest on
several  revenue bonds for which VIEs are the  obligors.  The VIEs are primarily
tax-credit equity investment funds we sponsor and manage.

The results we reported in 2004 reflect nine months of  operations  for the VIEs
we consolidated upon our initial adoption of FIN 46(R) effective March 31, 2004,
as well as any new funds  closed  after that date for the full periods they were
in operation.

As third party  investors  hold all the equity  partnership  interests  in these
entities,  we allocate all results of operations to those partners. As a result,
these VIEs have no impact on our net income.

Inflation
---------

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

Liquidity and Capital Resources
-------------------------------

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

                                       37
<PAGE>

DEBT AND SECURITIZATIONS
------------------------

We have  entered  into  the  following  bridge  loans  and  revolving  warehouse
facilities:

     o    $100.0 million,  used for mortgage  banking needs,  which is renewable
          annually;
     o    $75.0  million,  used to fund  investments in revenue bonds on a short
          term basis,  which matures  March 31, 2005,  with a built in accordion
          feature  allowing  up to a  $25.0  million  increase  and  a one  year
          extension at our option;
     o    $90.0 million,  used to acquire equity interests in property ownership
          entities  prior  to the  inclusion  of  these  equity  interests  into
          investments  funds, which matures on October 28, 2005, with a one-year
          extension at our option;
     o    $85.0  million,  used to  provide  the  interim  loan to Capri,  which
          matures in July 2005; and
     o    $40.0  million,  established in connection  with the CMC  acquisition,
          which expires December 31, 2006.

We also use floating rate  securitization  programs to leverage our portfolio of
revenue bonds to generate  capital for the  acquisition  of  additional  revenue
bonds. In each of our securitization  programs, we contribute revenue bonds into
trusts,  which are generally  credit  enhanced by  investment  grade rated third
party entities and then floating rate certificates are sold out of the trust. We
retain  a  residual  interest  in  each  of  the  trusts.  We  use  two  primary
securitization programs: MBIA securitizations and the P-FLOATs/RITES program.

     o    Under our MBIA  securitizations,  pools of bonds are contributed  into
          trusts,  which are credit enhanced by MBIA, a large financial insurer,
          and  then   "low-floater"   certificates  are  sold.  The  low-floater
          certificates  have an interest  rate that is reset  weekly  ("floating
          rate") or an interest rate that is reset periodically based on a Dutch
          auction process ("auction rate  securitizations").  MBIA has agreed to
          provide  us with up to $650.0  million in credit  enhancement  through
          2011.  Using the MBIA credit  enhancement we can complete up to $425.0
          million of floating rate securitizations and $225.0 million of auction
          rate  securitization.  At December 31, 2004, we had $405.5  million of
          floating  rate  securitization  and $100.0  million  of  auction  rate
          securitizations outstanding.
     o    In the  P-FLOATs/RITES  program,  Merrill  Lynch  deposits  individual
          revenue  bonds  into a special  purpose  trust and  provides  a credit
          enhancement  guarantee  enabling  the  trust  to sell a  weekly  reset
          floating rate security.  We are required to post additional bonds with
          Merrill Lynch as collateral for the credit  enhancement  provided.  At
          December 31, 2004, we had approximately  $198.9 million of outstanding
          revenue bonds and  approximately  $264.0 million of A Certificates  of
          various trusts under the P-FLOATs program.

During  2003,  we  completed  a new fixed rate  securitization,  whereby we sold
$100.0   million  of   two-year   certificates   with  a  fixed  rate  of  3.25%
collateralized by $196.8 million bonds and requiring no credit enhancement.

Our  continued  ability  to  raise  capital  through  the use of  securitization
programs 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
          enhancers and liquidity providers.

We continue  to  actively  manage our  balance  sheet and our  relationships  to
mitigate the impact of the factors listed above and to continue to diversify our
sources of capital.

Our debt financing  facilities are more fully described in Notes 9 and 10 to our
consolidated financial statements.

While the Mortgage Banking  warehouse  facility,  the Fund Management  warehouse
facility,  the Equity Issuer  revolving  line and the line of credit  associated
with the Capri loan all mature in 2005, we expect to renew, replace or refinance
all of them. Additionally, the fixed rate securitization program matures in 2005
and we intend to remarket it through the P-FLOATs/RITES program.

As of December 31, 2004, we had approximately $260.3 million available to borrow
under these debt and securitization  facilities without exceeding limits imposed
by debt covenants and our trust agreement.

                                       38
<PAGE>

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    Preferred  shares  of Equity  Issuer  (some of which  are  subject  to
          mandatory repurchase); and
     o    Special Common Units ("SCUs") of our  subsidiary,  CharterMac  Capital
          Company LLC ("CCC").

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.  We  first  issued
Convertible CRA Shares during 2000 and the program has since become increasingly
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.
At December 31, 2004, 34 banks had invested in our Convertible CRA Shares and we
believe they remain a viable method to raise capital.

The preferred  shares of Equity  Issuer  entitle their holders to a claim on the
income and cash flows of a portion 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 our
subsidiaries  through which we operate our fund sponsorship  business.  The SCUs
have no direct voting rights with respect to CharterMac,  but 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 and are entitled to  tax-adjusted  dividends based on the common dividend
rate.

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. We
have  no  current  plans  to  draw  upon  this  shelf  registration  but  may as
opportunities or business requirements dictate.

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

                                       39
<PAGE>

SUMMARY OF CAPITAL RAISING ACTIVITY AND CASH FLOWS
--------------------------------------------------

The following  table  summarizes,  on a gross basis,  our and our  subsidiaries'
capital raising activities.

<TABLE>
<CAPTION>
                                         Amount of Capital Raised (In thousands):
                                      ---------------------------------------------
Capital Source                          2004              2003               2002
----------------------------------    ---------         ---------         ---------
<S>                                   <C>               <C>               <C>
Equity:
------
Preferred shares of Equity Issuer     $ 104,000         $      --         $  55,000
Convertible CRA shares                       --           107,500            34,000
Common                                  110,803                --            92,835
                                      ---------         ---------         ---------
  Total                               $ 214,803         $ 107,500         $ 181,835
                                      ---------         ---------         ---------

Securitizations:
---------------

MBIA
Floater Certificates                  $  22,000         $ (73,000) (1)    $ 106,500
Auction Certificates                         --           100,000                --

P- FLOATs/RITES                         146,420           101,348            23,272

Fixed Rate                                   --           100,000                --
                                      ---------         ---------         ---------
  Total                               $ 168,420         $ 228,348         $ 129,772
                                      ---------         ---------         ---------

Other Debt:
----------

CMC Acquisition Facility              $  (3,408) (2)    $  (2,044) (2)    $      --
Fund Management Warehouse Line           15,399            24,532                --
Mortgage Banking Warehouse Line           5,610           (19,424)           11,969
Bank of America Line of Credit          (21,730)           21,730                --
RCC Acquisition Loan                    (60,000)           60,000                --
Capri Bank of America Loan               85,000                --                --
Other                                       233                --                --
                                      ---------         ---------         ---------
  Total                               $  21,104         $  84,794         $  11,969
                                      ---------         ---------         ---------

Total of all capital activity         $ 404,327         $ 420,642         $ 323,576
                                      ---------         ---------         ---------
</TABLE>

(1) Negative amount is due to the restructuring of the MBIA program.

(2)  Negative amount reflects net principal paid.

SUMMARY OF CASH FLOWS

2004 vs. 2003
-------------

The net  increase  in cash and cash  equivalents  during 2004 was lower than the
increase in 2003, primarily due to increased investing outflows,  although those
investing  activities  were funded from a higher  proportion  of operating  cash
flows as compared to financing cash flows than in 2003.

Operating  cash  flows  were  higher  in the 2004  period  by a margin  of $29.8
million.  This increase  resulted  from a higher level of earnings  exclusive of
non-cash expenses,  which increased  substantially  following our acquisition of
RCC late in 2003. Additionally, the timing of receipts and payments in operating
asset and liability accounts contributed to this increase.

Investing  outflows  increased  by $33.0  million in 2004 as compared to 2003. A
lower level of revenue  bond  acquisition  and funding  activity  was  partially
offset by our loan to Capri.  In  addition,  in 2003 we  received a much  higher
level of revenue bond  repayments as compared to the current year.  The level of
repayments  in 2003 stemmed  from the  expiration  of lockout  periods for older
revenue bonds, with no comparable occurrence in 2004.

                                       40
<PAGE>

Financing  inflows in the 2004 period were lower than in 2003 by $28.3  million.
The  primary   reason  for  the  higher   inflows  in  2003  was  the  level  of
securitization borrowings to finance the investment level in that year. A higher
amount of proceeds  from equity  offerings  in the current  year were  partially
offset by the resulting increase in distributions to shareholders.  In addition,
2004 also included  payments to SCU holders,  with none in 2003 as the SCUs were
issued in November of that year.

2003 vs. 2002
-------------

The $136.2 million net increase in cash and cash equivalents in 2003 as compared
to 2002 resulted from  increased  operating and financing  cash flows as well as
decreased investing outflows.

Operating  cash flows  increased by $4.2 million in 2003 as compared to the 2002
level.  The increase was  attributable in large part to the addition of business
lines from the RCC acquisition and the resultant cash inflows that RCC generated
at the end of the year.  These  cash  flows,  which  resulted  in a  significant
increase in the level of deferred income balances,  offset the incremental costs
now  included in operating  cash flows upon the  internalization  of  management
associated with this acquisition, as well as higher deferred tax liabilities.

Investing  outflows  in 2003  decreased  by $68.9  million as  compared to 2002.
Despite the cash paid as part of the RCC acquisition,  funds flow benefited from
sharply lower restricted cash  requirements as we replaced cash  collateralizing
our securitization programs with revenue bond investments. Additionally, a sharp
reduction in mortgage loan  receivables in 2003 benefited the cash flows in this
category.  This reduction stemmed from a very high level of originations late in
2002, which were not settled and sold until early 2003. Late 2003  originations,
on the other hand, were much lower than in 2002,  leading to the net decrease in
the mortgage loans receivable asset.

Financing  inflows  in 2003 were $63.2  million  higher  than in 2002.  This was
primarily  a  result  of   restructuring   and  expanding   our   securitization
capabilities  and taking  advantage of these  facilities to monetize our revenue
bond  investment  portfolio to expand our  business,  as well as  borrowings  to
finance the RCC acquisition. In comparison, during 2002 we relied more on equity
capital to finance our growth.

LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2004
----------------------------------------------

During January 2005, distributions of approximately $6.3 million (at various per
share amounts) were paid to holders of preferred  shares.  During February 2005,
distributions  of  approximately  $23.7  million  ($0.41 per share) were paid to
holders of common and  Convertible  CRA shares and $8.6 million were paid to SCU
holders. These distributions were declared in December 2004.

In the first quarter of 2005, we paid approximately $7.5 million to purchase the
portion of CMC that we did not own at December 31, 2004 and  approximately  $6.0
million  will  be paid as part of the  Capri  loan  conversion  and  acquisition
transactions (See SUBSEQUENT EVENTS below).

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).

SUBSEQUENT EVENTS
-----------------

In the first  quarter of 2005, we converted the loan made to Capri in July 2004.
Upon  conversion,  we held two  participating  loans, one of which allowed us to
participate  in the  cash  flows  of,  and in turn was  convertible  into a 100%
ownership interest in, CCF. The other allows us to participate in the cash flows
of, and is convertible into a 49% ownership  interest in, Capri Capital Advisors
("CCA"),  a pension fund  advisory  business.  In the first  quarter of 2005, we
converted  the CCF loan and acquired the business as an addition to our Mortgage
Banking segment.  Management  currently  expects to convert the CCA loan into an
equity ownership prior to the end of the loan term in August 2006.

                                       41
<PAGE>

CharterMac and Capri anticipate that this strategic alliance will benefit us by:

     o    diversifying our revenue sources to include  additional fee businesses
          that are less susceptible to changes in the interest rate environment;
     o    expanding our business  lines into pension fund advisory and providing
          CCA access to our real estate platform and our balance sheet;
     o    increasing our market share and generating  economies of scale through
          the combined mortgage banking platforms of CCF and CMC; and
     o    cultivating  the  complementary  product  offerings  of CCF  and  CMC,
          thereby  establishing  a broader  array of products for the clients of
          both firms.

Also in the first  quarter of 2005,  we purchased the 13% of CMC that we had not
previously owned, and AMAC repaid advances we had made to it in 2004.

CONTRACTUAL OBLIGATIONS

The following  table  provides our  commitments  as of December 31, 2004 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)                    $  174,454     $  155,371     $    5,452     $   13,631     $       --
Notes payable of consolidated
   VIEs (2)                             461,557        153,572        166,706         83,551         57,728
Operating lease obligations              71,218          3,914         12,928         11,772         42,604
Unfunded loan commitments               201,821        143,266         58,555             --             --
Floating rate securitization (1)        968,428        968,428             --             --             --
Fixed rate securitization (1)           100,000        100,000             --             --             --
Preferred shares of subsidiary
   (subject to mandatory
   repurchase)                          273,500             --             --             --        273,500
                                     ----------     ----------     ----------     ----------     ----------

   Total                             $2,250,978     $1,524,551     $  243,641     $  108,954     $  373,832
                                     ==========     ==========     ==========     ==========     ==========
</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 as described
in LIQUIDITY AND CAPITAL RESOURCES.

(2) Of the notes payable of consolidated  VIEs,  $386.7 million is guaranteed by
certain equity partners of the investment funds. Per partnership agreements, the
equity  partners  are also  obligated to pay the  principal  and interest on the
notes.  The  remaining  balance  of $74.9  million  is  collateralized  with the
underlying properties of the consolidated  operating  partnerships.  All of this
debt is non-recourse to us.

                                       42
<PAGE>

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

The following table reflects our maximum exposure for guarantees we have entered
into and the carrying amounts as of December 31, 2004:

<TABLE>
<CAPTION>

                                                         Maximum        Carrying
(In thousands)                                           Exposure        Amount
--------------------------------------------             --------       --------
<S>                <C>                                   <C>            <C>
Payment guarantees (1)                                   $ 47,059       $     --
Completion guarantees (1)                                  48,593             --
Operating deficit guarantees (1)                              949             --
Recapture guarantees (1)                                   53,426             --
Replacement reserve (1)                                     1,454             --
Mortgage pool credit enhancement (2)                       19,000             --
LIHTC guarantees (2)                                      459,971         17,136
Mortgage banking loss sharing agreement (3)               361,999          6,500
                                                         --------       --------

                                                         $992,451       $ 23,636
                                                         ========       ========
</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.

(2) We see these  guarantees  as  opportunities  to expand  our Fund  Management
business by offering broad capital solutions to customers.  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 guarantees,  which we
recognize as the fair value of the guarantee.

(3) The loss  sharing  agreement  with  Fannie  Mae is a normal  part of the DUS
lender  program  and  affords  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,  which  vary as to amount  and  duration,  up to a
maximum of 30 years.

The maximum  exposure  amount is not indicative of our expected losses under the
guarantees.  For details of these transactions,  see Note 20 to the consolidated
financial statements.

Application of Critical Accounting Policies
-------------------------------------------

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 which 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 financial statements.

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 financial statements:

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

                                       43
<PAGE>

VALUATION OF INVESTMENTS IN 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 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. 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 future payments under the bonds,  with
a discount rate based upon the average rate of new  originations for the quarter
leading  up to the  valuation  date.  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)  met.
               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 revenue bonds.  In our valuation
     review,  any bonds  meeting  these  criteria are monitored and assessed for
     risk of financial loss. If no financial loss is expected, the fair value of
     a bond is  considered  to be the lower of  outstanding  face  amount or the
     present  value of future cash flows,  with the  discount  rate  adjusted to
     provide for the applicable  risk factors.  If a financial loss is expected,
     the  bond  is  considered  impaired  and  written  down to  fair  value  as
     determined by the present value of expected future cash flows.

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:

          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 issuer of the underlying mortgage loans and we compare the estimated fair
value of each stratum to its  recorded  book value.  When the recorded  value of

                                       44
<PAGE>

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.

IMPAIRMENT OF GOODWILL

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.

ACCOUNTING FOR INCOME TAXES

SFAS No. 109, ACCOUNTING FOR INCOME TAXES,  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 have been recognized in our financial  statements or
tax returns.  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 December  2004,  the  Financial  Accounting  Standards  Board issued SFAS No.
123(R),  SHARE-BASED  PAYMENT,  which  replaced  SFAS No.  123,  ACCOUNTING  FOR
STOCK-BASED  COMPENSATION.  As we already  follow the fair value  provisions set
forth in SFAS No. 123, this  statement is expected to have an immaterial  impact
on our financial statements.

Item 7A.  Quantitative and Qualitative Disclosures about Market Risk

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

The  assumptions  related to the  following  discussion  of market risk  involve
judgments   involving  future  economic  market  conditions,   future  corporate
decisions and other interrelating  factors, many of which are beyond our control
and all of which are difficult or impossible to predict with 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.

                                       45
<PAGE>

INTEREST RATE RISK
------------------
The nature of our  investments  and the  instruments  used to raise  capital for
their acquisition expose us to income and expense volatility due to fluctuations
in market  interest rates.  Market  interest rates are highly  sensitive to many
factors,  including governmental  policies,  domestic and international economic
and political  considerations and other factors beyond our control. 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 rate on the value of our assets.

IMPACT ON EARNINGS

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

With the  exception  of $50.0  million of debt hedged via an interest  rate swap
agreement and the $100.0 million fixed rate  securitization,  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 $10.9 million.

We manage this risk through the use of interest  rate swaps,  interest rate caps
and  forward  bond  origination  commitments,  as  described  in  Note 11 to our
consolidated  financial  statements.  In  addition,  we manage our  exposure  by
striving for  diversification in our businesses to include those not susceptible
to interest rate changes and by managing our leverage.

IMPACT ON VALUATION OF ASSETS

A rising  interest  rate  environment  could  reduce the demand for  multifamily
tax-exempt  and  taxable  financing,  which could limit our ability to invest in
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.

Changes in market  interest  rates would also impact the estimated fair value of
our portfolio of revenue bonds. We estimate the fair value for each revenue bond
as the  present  value of its  expected  cash flows,  using a discount  rate for
comparable  tax-exempt  investments.  Therefore,  as market  interest  rates for
tax-exempt  investments increase,  the estimated fair value of our 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,
using the same  methodology  used to estimate  the  portfolio  fair market value
under  SFAS No.  115,  that a 1%  increase  or  decrease  in  market  rates  for
tax-exempt investments would change the estimated fair value of our portfolio of
revenue bonds by  approximately  $130.0  million.  Changes in the estimated fair
value of the revenue  bonds do not impact our reported net income,  earnings per
share,  distributions  or cash flows,  but are reported as  components  of other
accumulated  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.

                                       46
<PAGE>

Item 8.   Financial Statements and Supplementary Data.
                                                                          Page
(a) 1.    Financial Statements                                          -------

          Report of Independent Registered Public Accounting Firm          48

          Consent of Independent Registered Public Accounting Firm         49

          Management's Report on the Effectiveness of Internal
            Control over Financial Reporting                               50

          Report of Independent Registered Public Accounting Firm
            On Internal Control over Financial Reporting                   52

          Consolidated Balance Sheets as of December 31, 2004 and
            2003                                                           54

          Consolidated Statements of Income for the years ended
            December 31, 2004, 2003 and 2002                               55

          Consolidated Statements of Shareholders' Equity for the
            years ended December 31, 2004, 2003 and 2002                   56

          Consolidated Statements of Cash Flows for the years
            ended December 31, 2004, 2003 and 2002                         58

          Notes to Consolidated Financial Statements                       60

                                       47
<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, 2004 and 2003, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2004.  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, 2004 and 2003,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2004,  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, 2004, 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 31, 2005 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial  reporting
and an adverse opinion on the  effectiveness  of the Company's  internal control
over financial reporting because of material weaknesses.


/s/DELOITTE & TOUCHE LLP
New York, New York
March 31, 2005

                                       48
<PAGE>

            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference

     o    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-8 No. 333-110722) of CharterMac,
     o    in  the  Registration   Statement  (Form  S-3/A  No.   333-111919)  of
          CharterMac,

of our report dated March 31, 2005  appearing in the Annual  Report on Form 10-K
of CharterMac  for the year ended  December 31, 2004, and to the reference to us
under the heading "Experts"

     o    in the Prospectus  which is part of the  Registration  Statement (Form
          S-8 and its post effective amendment on Form S-8/A No. 333-55957)
     o    in the Prospectus  which is part of the  Registration  Statement (Form
          S-3 No. 333-54802),
     o    in the Prospectus  which is part of the  Registration  Statement (Form
          S-3 No. 109078),
     o    in the Prospectus  which is part of the  Registration  Statement (Form
          S-8 No. 333-110722),
     o    and in the  Prospectus  which  is part of the  Registration  Statement
          (Form S-3/A No. 333-111919).


/s/ DELOITTE & TOUCHE LLP
New York, New York

March 31, 2005

                                       49
<PAGE>

Management's  Report on the  Effectiveness  of Internal  Control over  Financial
--------------------------------------------------------------------------------
Reporting
---------

The management of CharterMac is responsible  for  establishing  and  maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
of the  Exchange  Act.  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.

An  internal  control  material  weakness  is  a  significant   deficiency,   or
aggregation of deficiencies,  that does not reduce to a relatively low level the
risk that material  misstatements  in financial  statements will be prevented or
detected  on a timely  basis by  employees  in the normal  course of their work.
Management is not permitted to conclude that the company's internal control over
financial reporting is effective if there are one or more material weaknesses in
internal control over financial reporting.

As part of our compliance  efforts relative to Section 404 of the Sarbanes-Oxley
Act of 2002,  CharterMac  management assessed the effectiveness of the Company's
internal  control over  financial  reporting  as of December 31, 2004,  and this
assessment  identified two material weaknesses in the Company's internal control
over  financial  reporting.  As described  below,  as of December 31, 2004,  the
Company did not maintain effective controls over:

     o    accounting  for income taxes,  including the  determination  of income
          taxes payable and deferred  income tax assets and  liabilities and the
          related income tax benefit; and
     o    the consolidation of its subsidiaries,  including identifying revenues
          that  should  have been  re-characterized  upon the  acquisition  of a
          subsidiary  in  2003  and  the  elimination  of  certain  intercompany
          balances.

These  control  deficiencies  result  in more  than a remote  likelihood  that a
material  misstatement of annual or interim  financial  statements  would not be
prevented or detected.  Further, it resulted in the restatement of the company's
interim financial  statements for the first,  second and third quarters of 2004.
Accordingly,  management  determined that these control deficiencies  constitute
material weaknesses.

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.  Due  to  the  material  weaknesses
described in the preceding paragraph,  we believe that, as of December 31, 2004,
our internal  control over  financial  reporting was not effective in accordance
with those criteria.

Deloitte & Touche,  LLP, our  independent  auditors,  have issued an unqualified
opinion on management's  assessment and an adverse opinion on the  effectiveness
of the company's  internal  control over financial  reporting as of December 31,
2004, which appears on page 52.

Management's Discussion of Material Weaknesses

The  incidents  described  above arose in  connection  with the  acquisition  of
Related Capital Company LLC in November 2003.

With regard to the calculations of tax amounts, the deferred tax amounts arising
from share based  compensation  grants at the time of the  acquisition  were not
properly calculated,  resulting in an understatement of the Company's income tax
benefit.  During  the first  quarter  of 2005,  management  has  taken  steps to
remediate the errors in its tax accounting  through increased use of third-party
tax service providers for the more complex areas of the Company's tax accounting
and increased formality and rigor of controls and procedures over accounting for
income taxes.

The  error  identified  with  regard  to  revenues  stemmed  from the  change in
character  of  two  revenue  streams,   both  of  which  existed  prior  to  the
acquisition,  but which changed in character  upon the  introduction  of the two
businesses (RCC and CharterMac) into a consolidated whole.   While these revenue


                                       50
<PAGE>

streams were  accounted  for  correctly  on a stand alone  basis,  the change in
character in the consolidated  financial  statements was not properly identified
until  the  end  of  2004.  Management  has  since  strengthened  due  diligence
procedures   in  reviewing   acquisition   candidates  to  ensure  that  similar
recharacterizations   are  identified  on  a  timely  basis.  In  addition,  the
elimination  of  unrealized  gains on  revenue  bond  investments  for which the
obligors are partnerships consolidated pursuant to FASB Interpretation No. 46(R)
was not  properly  executed,  as the  assets  are  carried at fair value and the
liabilities are carried at their outstanding face amounts.  Management has since
strengthened its analytical procedures with regard to the preparation and review
of all consolidation eliminations.


/s/ Stuart J. Boesky                                     /s/ Alan P. Hirmes
--------------------                                     ------------------
Stuart J. Boesky                                         Alan P. Hirmes
Chief Executive Officer                                  Chief Financial Officer
March 31, 2005                                           March 31, 2005

                                       51
<PAGE>


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


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


We have audited management's assessment, included in the accompanying Management
Report on  Internal  Control  Over  Financial  Reporting,  that  CharterMac  and
Subsidiaries  (the "Company") did not maintain  effective  internal control over
financial  reporting  as of  December  31,  2004,  because  of the effect of the
material  weaknesses  identified in  management's  assessment  based on criteria
established in INTERNAL CONTROL--INTEGRATED FRAMEWORK issued by the Committee of
Sponsoring Organizations of the Treadway Commission. 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  trustees,  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.

A material weakness is a significant  deficiency,  or combination of significant
deficiencies,  that  results  in more than a remote  likelihood  that a material
misstatement of the annual or interim financial statements will not be prevented
or detected.  The  following two material  weaknesses in the Company's  internal
control  over  financial   reporting  have  been   identified  and  included  in
management's assessment: The first material weakness related to an inadequacy in
management  review  of  income  taxes  that  lead to an error  in the  Company's
calculation  of their  income tax  benefit.  Specifically,  the  Company did not
properly record certain deferred tax assets resulting from temporary differences
related to the  recognition  of stock  based  compensation  expense.  This error
resulted in the overstatement of the Company's  deferred tax liability,  and the
understatement of the Company's income tax benefit. The second material weakness
relates  to  the  Company's   completion  and  review  of  their   consolidation
adjustments.  Specifically,  the Company did not  properly  consider  and record
certain entries related to the  elimination of income and  comprehensive  income
upon  consolidation  of the Related  Capital  Company  subsidiary.  These errors
resulted in the understatement of the Company's  deferred income liability,  the
understatement  of  limited  partners'   interests  in  consolidated  VIEs,  the
overstatement  of  other  comprehensive  income  and the  overstatement  of fund
sponsorship fees.

                                       52
<PAGE>

These material weaknesses were considered in determining the nature, timing, and
extent  of  audit  tests  applied  in our  audit of the  consolidated  financial
statements and the related financial  statement  schedule as of and for the year
ended  December  31, 2004,  of the Company,  and this report does not affect our
report on such financial statements and financial statement schedules.

In our  opinion,  management's  assessment  that the  Company  did not  maintain
effective internal control over financial  reporting as of December 31, 2004, 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,  because of the
effect of the material  weaknesses  described  above on the  achievement  of the
objectives of the control  criteria,  the Company has not  maintained  effective
internal control over financial  reporting as of December 31, 2004, based on the
criteria  established in INTERNAL  CONTROL--INTEGRATED  FRAMEWORK  issued by the
Committee of Sponsoring Organizations of the Treadway Commission.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting Oversight Board (United States) the balance sheet of the Company, and
the related  statements of income,  shareholders'  equity,  cash flows,  and the
financial  statement  schedule  included in the index at Item 15(a) 2, as of and
for the year ended  December  31,  2004,  and our report  dated  March 31,  2005
expressed an unqualified  opinion on those financial  statements and the related
financial statement schedules.






/s/DELOITTE & TOUCHE LLP
New York, New York
March 31, 2005

                                       53
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                        December 31,
                                                                                ----------------------------
                                                                                   2004             2003
                                                                                -----------      -----------

                                                    ASSETS

<S>                                                                             <C>              <C>
Revenue bonds-at fair value                                                     $ 2,100,720      $ 1,871,009
Mortgage servicing rights, net                                                       32,366           33,351
Cash and cash equivalents                                                            71,287           58,257
Cash and cash equivalents-restricted                                                 25,879           26,636
Other investments                                                                   187,506           97,500
Deferred costs - net of amortization of $19,635 and $13,463                          57,260           58,408
Goodwill                                                                            206,397          214,745
Other intangible assets - net of amortization of $20,847
   and $4,163                                                                       177,519          194,203
Loan to affiliate                                                                     4,600               --
Other assets                                                                         37,813           27,060
Investments in partnerships of consolidated VIEs                                  2,527,455               --
Other assets of consolidated VIEs                                                   328,559               --
                                                                                -----------      -----------

Total assets                                                                    $ 5,757,361      $ 2,581,169
                                                                                ===========      ===========

                                     LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Financing arrangements                                                       $ 1,068,428      $   900,008
   Preferred shares of subsidiary (subject to mandatory repurchase)                 273,500          273,500
   Notes payable                                                                    174,454          153,350
   Accounts payable, accrued expenses and other liabilities                          32,628           32,782
   Deferred income                                                                   55,572           23,691
   Deferred tax liability                                                            29,898           60,370
   Distributions payable                                                             38,859           27,612
   Notes payable and other liabilities of consolidated VIEs                       1,307,093               --
                                                                                -----------      -----------

Total liabilities                                                                 2,980,432        1,471,313
                                                                                -----------      -----------

Minority interest in consolidated subsidiary - convertible SCUs                     267,025          288,006
                                                                                -----------      -----------
Minority interest in consolidated subsidiary - CMC                                    4,394            4,193
                                                                                -----------      -----------
Preferred shares of subsidiary (not subject to mandatory repurchase)                104,000               --
                                                                                -----------      -----------
Limited partners' interests in consolidated VIEs                                  1,501,519               --
                                                                                -----------      -----------

Commitments and contingencies

Shareholders' equity:
   Beneficial owners equity - convertible CRA Shareholders (6,552 shares
    issued and outstanding in 2004 and 8,180 issued and outstanding in
    2003)                                                                           108,745          138,748
   Beneficial owners equity - special preferred voting shares; no par value
    (15,172 shares outstanding)                                                         152              161
   Beneficial owners equity - other common shareholders; no par value
    (100,000 shares authorized; 51,363 issued and 51,229 outstanding in
    2004 and 42,726 issued and 42,704 outstanding in 2003)                          773,165          644,641
   Restricted shares granted                                                         (7,922)         (19,385)
   Treasury shares of beneficial interest - common, at cost (134 shares in
    2004 and 23 shares in 2003)                                                      (2,970)            (378)
   Accumulated other comprehensive income                                            28,821           53,870
                                                                                -----------      -----------
Total shareholders' equity                                                          899,991          817,657
                                                                                -----------      -----------

Total liabilities and shareholders' equity                                      $ 5,757,361      $ 2,581,169
                                                                                ===========      ===========
</TABLE>


           See accompanying notes to consolidated financial statements

                                       54
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                        Year Ended December 31,
                                                                                ---------------------------------------
                                                                                   2004           2003           2002
                                                                                ---------      ---------      ---------
<S>                                                                             <C>            <C>            <C>
Revenues:
   Revenue bond interest income                                                 $ 132,075      $ 113,655      $  92,882
   Fee income:
     Mortgage banking                                                              15,026         13,712         13,681
     Fund sponsorship                                                              42,790         12,642             --
     Credit enhancement                                                            10,085          4,924          2,619
   Other income                                                                    20,665          7,307          7,432
   Revenues of consolidated VIEs                                                   12,213             --             --
                                                                                ---------      ---------      ---------
     Total revenues                                                               232,854        152,240        116,614
                                                                                ---------      ---------      ---------

Expenses:
   Interest expense                                                                30,838         23,919         19,004
   Interest expense of consolidated VIEs                                           21,395             --             --
   Interest expense - distributions to preferred shareholders of subsidiary
     subject to mandatory repurchase                                               18,898          9,448             --
   Salaries and benefits                                                           55,763         17,540          9,937
   General and administrative                                                      45,063         23,403         14,569
   Depreciation and amortization                                                   30,407         11,926          9,092
   Loss on impairment of assets                                                       757          1,759            920
   Other expenses of consolidated VIEs                                             29,355             --             --
                                                                                ---------      ---------      ---------
     Total expenses                                                               232,476         87,995         53,522
                                                                                ---------      ---------      ---------

Income before equity in earnings of  investments,  loss on  investments
   held by consolidated VIEs, gain on sale of loans and gain on repayment
   of revenue bonds                                                                   378         64,245         63,092

Equity in earnings of investments                                                   1,938          2,219          2,219
Loss on investments held by consolidated VIEs                                    (149,048)            --             --
Gain on sale of loans                                                               6,995          5,532         10,683
Gain on repayment of revenue bonds                                                    217          1,951          3,885
                                                                                ---------      ---------      ---------
Income (loss) before allocation of (income) loss to preferred shareholders
   of subsidiary, Special Common Units of subsidiary, minority interests
   and partners of consolidated VIEs                                             (139,520)        73,947         79,879

(Income) allocated to preferred shareholders of subsidiary                         (3,942)        (9,449)       (17,266)
(Income) allocated Special Common Units of subsidiary                             (28,174)        (4,038)          --
(Income) loss allocated to minority interests                                        (194)            54           (496)
Loss allocated to partners of consolidated VIEs                                   219,950             --             --
                                                                                ---------      ---------      ---------

Income before income taxes                                                         48,120         60,514         62,117
Income tax benefit (provision)                                                     17,243          6,072         (1,284)
                                                                                ---------      ---------      ---------
 Net income                                                                     $  65,363      $  66,586      $  60,833
                                                                                =========      =========      =========

Allocation of net income to:
   Special distribution to Manager                                              $      --      $   5,332      $   4,872
   Manager                                                                             --              6             56
   Common shareholders                                                             56,786         54,608         52,516
   Convertible CRA shareholders                                                     8,577          6,640          3,389
                                                                                ---------      ---------      ---------
     Total for shareholders                                                     $  65,363      $  61,248      $  55,905
                                                                                =========      =========      =========

Net income per share:
   Basic                                                                        $    1.19      $    1.31      $    1.31
                                                                                =========      =========      =========
   Diluted                                                                      $    1.19      $    1.31      $    1.31
                                                                                =========      =========      =========
 Weighted average shares outstanding:
   Basic                                                                           54,786         46,653         42,697
                                                                                =========      =========      =========
   Diluted                                                                         55,147         46,735         42,768
                                                                                =========      =========      =========

Distributions declared per share                                                $    1.57      $    1.37      $    1.26
                                                                                =========      =========      =========
</TABLE>

           See accompanying notes to consolidated financial statements

                                       55
<PAGE>

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


<TABLE>
<CAPTION>


                                                 Beneficial         Beneficial
                                              Owner's Equity      Owner's Equity       Beneficial
                                                Convertible      Special Preferred   Owner's Equity-
                                              CRA Shareholders     Voting Shares         Manager
                                              ----------------   -----------------   ---------------
<S>                                              <C>                <C>                 <C>
Balance at January 1, 2002                       $  25,522          $      --           $   1,070

Comprehensive income:
Net income                                           3,389                                  4,928
Other comprehensive gain (loss):
  Net unrealized loss on derivatives
  Unrealized holding gain on revenue bonds
  Less: reclassification to net income
  Total other comprehensive gain
  Comprehensive income
Issuance of Convertible CRA shares                  32,523
Issuance of common shares                               --                                     --
Distributions                                       (3,260)                                (4,872)
                                                 ---------          ---------           ---------

Balance at December 31, 2002                        58,174                 --               1,126

Comprehensive income:
Net income                                           6,640                                  5,338
Other comprehensive gain (loss):
  Net unrealized gain on derivatives
  Unrealized holding loss on revenue bonds
  Less: reclassification to net income
  Other comprehensive loss
  Comprehensive income
Restricted shares granted
Amortization of share awards
Elimination in manager interest                                                            (1,132)
Issuance of special preferred voting shares                               161
Conversion of Convertible CRA shares               (21,870)
Issuance of Convertible CRA shares                 102,532
Issuance of common shares
Repurchase of treasury shares
Distributions                                       (6,728)                                (5,332)
                                                 ---------          ---------           ---------
Balance at December 31, 2003                     $ 138,748          $     161           $      --

<CAPTION>

                                                                    Treasury
                                                 Beneficial         Shares of
                                               Owner's Equity       Beneficial         Restricted
                                                Other Common        Interest -           Shares
                                                Shareholders          Common             Granted
                                              ----------------   -----------------   ---------------
<S>                                              <C>                <C>                <C>
Balance at January 1, 2002                       $ 511,456          $    (103)         $      --

Comprehensive income:
Net income                                          52,516
Other comprehensive gain (loss):
  Net unrealized loss on derivatives
  Unrealized holding gain on revenue bonds
  Less: reclassification to net income
  Total other comprehensive gain
  Comprehensive income
Issuance of Convertible CRA shares
Issuance of common shares                           92,383
Distributions                                      (51,859)
                                                 ---------          ---------          ---------

Balance at December 31, 2002                       604,496               (103)                --

Comprehensive income:
Net income                                          54,608
Other comprehensive gain (loss):
  Net unrealized gain on derivatives
  Unrealized holding loss on revenue bonds
  Less: reclassification to net income
  Other comprehensive loss
  Comprehensive income
Restricted shares granted                           19,454                             $ (22,228)
Amortization of share awards                                                               2,843
Elimination in manager interest
Issuance of special preferred voting shares
Conversion of Convertible CRA shares                21,870
Issuance of Convertible CRA shares
Issuance of common shares                            1,828
Repurchase of treasury shares                                            (275)
Distributions                                      (57,615)
                                                 ---------          ---------          ---------
Balance at December 31, 2003                     $ 644,641          $    (378)         $ (19,385)

<CAPTION>

                                                                   Accumulated
                                                                       Other
                                               Comprehensive       Comprehensive
                                                   Income          (Loss) Income           Total
                                              ----------------   -----------------   ---------------
<S>                                             <C>                 <C>                <C>
Balance at January 1, 2002                                          $  (2,697)         $ 535,248

Comprehensive income:
Net income                                      $  60,833                                 60,833
Other comprehensive gain (loss):
  Net unrealized loss on derivatives               (2,607)
  Unrealized holding gain on revenue bonds         99,011
  Less: reclassification to net income             (3,885)
                                                ---------
  Total other comprehensive gain                $  92,519              92,519             92,519
                                                ---------
  Comprehensive income                          $ 153,352
                                                ---------
Issuance of Convertible CRA shares                                                        32,523
Issuance of common shares                                                                 92,383
Distributions                                                                            (59,991)
                                                ---------           ---------          ---------

Balance at December 31, 2002                                           89,822            753,515

Comprehensive income:
Net income                                         66,586                                 66,586
Other comprehensive gain (loss):
  Net unrealized gain on derivatives                2,607
  Unrealized holding loss on revenue bonds        (36,608)
  Less: reclassification to net income             (1,951)
                                                ---------
  Other comprehensive loss                        (35,952)            (35,952)          (35,952)
                                                ---------
  Comprehensive income                          $  30,634
                                                ---------
Restricted shares granted                                                                 (2,774)
Amortization of share awards                                                               2,843
Elimination in manager interest                                                           (1,132)
Issuance of special preferred voting shares                                                  161
Conversion of Convertible CRA shares                                                          --
Issuance of Convertible CRA shares                                                       102,532
Issuance of common shares                                                                  1,828
Repurchase of treasury shares                                                               (275)
Distributions                                                                            (69,675)
                                                                    ---------          ---------
Balance at December 31, 2003                                        $  53,870          $ 817,657

</TABLE>
                                                                     (continued)

           See accompanying notes to consolidated financial statements

                                       56
<PAGE>

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

<TABLE>
<CAPTION>
                                                 Beneficial         Beneficial
                                              Owner's Equity      Owner's Equity       Beneficial
                                                Convertible      Special Preferred   Owner's Equity-
                                              CRA Shareholders     Voting Shares         Manager
                                              ----------------   -----------------   ---------------
<S>                                              <C>                <C>                 <C>
Balance at December 31, 2003                     $138,748           $     161           $      --

Comprehensive income:
Net income                                           8,577
Other comprehensive gain (loss):
  Net unrealized loss on derivatives
  Unrealized holding loss on revenue bonds
  Less: reclassification to net income
  Other comprehensive loss
  Comprehensive income

Options exercised and other share based
  compensation, net of forfeitures
Tax effect of amortization of share awards
Amortization of share awards
Conversion of Special Common Units and
  redemption of Special Preferred Voting
  Shares                                                                   (9)
Conversion of Convertible CRA shares               (27,585)
Issuance costs of Convertible CRA shares              (148)
Issuance of common shares
Repurchase of treasury shares
Distributions                                      (10,847)
                                                 ---------          ---------           ---------

Balance at December 31, 2004                     $ 108,745          $     152           $
                                                 ---------          ---------           ---------

<CAPTION>

                                                                    Treasury
                                                 Beneficial         Shares of
                                               Owner's Equity       Beneficial         Restricted
                                                Other Common        Interest -           Shares
                                                Shareholders          Common             Granted
                                              ----------------   -----------------   ---------------
<S>                                              <C>                <C>                 <C>
Balance at December 31, 2003                     $ 644,641          $    (378)          $ (19,385)

Comprehensive income:
Net income                                          56,786
Other comprehensive gain (loss):
  Net unrealized loss on derivatives
  Unrealized holding loss on revenue bonds
  Less: reclassification to net income
  Other comprehensive loss
  Comprehensive income


Options exercised and other share based
  compensation, net of forfeitures                  (1,012)                                  (169)
Tax effect of amortization of share awards             448
Amortization of share awards                                                               11,632
Conversion of Special Common Units and
  redemption of Special Preferred Voting
  Shares                                            17,789
Conversion of Convertible CRA shares                27,585
Issuance costs of Convertible CRA shares
Issuance of common shares                          105,541
Repurchase of treasury shares                                          (2,592)
Distributions                                      (78,613)
                                                 ---------          ---------           ---------

Balance at December 31, 2004                     $ 773,165          $  (2,970)          $  (7,922)
                                                 ---------          ---------           ---------

<CAPTION>

                                                                   Accumulated
                                                                       Other
                                               Comprehensive       Comprehensive
                                                   Income          (Loss) Income           Total
                                              ----------------   -----------------   ---------------
<S>                                              <C>                <C>                 <C>
Balance at December 31, 2003                                        $  53,870           $ 817,657

Comprehensive income:
Net income                                       $  65,363                                 65,363
                                                 ---------
Other comprehensive gain (loss):
  Net unrealized loss on derivatives                (1,078)
  Unrealized holding loss on revenue bonds         (24,188)
  Less: reclassification to net income                 217
                                                 ---------
  Other comprehensive loss                         (25,049)           (25,049)            (25,049)
                                                 ---------
  Comprehensive income                           $  40,314
                                                 ---------

Options exercised and other share based
  compensation, net of forfeitures                                                         (1,181)
Tax effect of amortization of share awards                                                    448
Amortization of share awards
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
Issuance of common shares                                                                 105,541
Repurchase of treasury shares
Distributions                                                                             (89,460)
                                                                    ---------           ---------

Balance at December 31, 2004                                        $  28,821           $ 899,991
                                                                    ---------           ---------
</TABLE>


          See accompanying notes to consolidated financial statements.

                                       57
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                             Years Ended December 31,
                                                                                       -----------------------------------
                                                                                         2004         2003          2002
                                                                                       ---------    ---------    ---------
<S>                                                                                    <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                                          $  65,363    $  66,586    $  60,833
   Adjustments to reconcile net income to net cash provided by operating activities:
   Gain on repayment of revenue bonds                                                       (217)      (1,951)      (3,885)
   Loss on impairment of assets                                                              757        1,759          920
   Depreciation and amortization                                                          30,407       11,926        9,092
   Income allocated to preferred shareholders of subsidiary                                3,942        9,449       17,266
   Income allocated to Special Common Units of subsidiary                                 28,174        4,038           --
   Income (loss) allocated to minority interest                                              194          (54)         496
   Non-cash compensation expense                                                          11,632        2,843          674
   Other non-cash expense (income)                                                         2,982        3,329        6,323
   Deferred taxes                                                                        (20,544)      (9,491)         539
   Changes in operating assets and liabilities:
     Mortgage servicing rights                                                            (6,854)      (4,015)      (9,571)
     Other assets                                                                        (28,458)     (16,748)      (3,900)
     Loans to affiliates                                                                  (4,600)          --           --
     Deferred income                                                                      31,881       16,937          931
     Accounts payable, accrued expenses and other liabilities                                293          527        1,259
                                                                                       ---------    ---------    ---------
Net cash provided by operating activities                                                114,952       85,135       80,977
                                                                                       ---------    ---------    ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayments from revenue bonds                                                          39,067       99,931      113,616
   Revenue bond acquisitions and fundings                                               (325,037)    (432,915)    (457,060)
   Advances to partnerships                                                             (173,526)     (18,925)          --
   Collection of partnership advances                                                    156,875       26,569           --
   Loan to Capri Capital                                                                 (84,000)          --           --
   Mortgage loans funded                                                                (563,710)    (364,300)    (433,000)
   Mortgage loans sold                                                                   558,100      369,800      431,900
   Acquisition of Related Capital Company                                                     --      (56,261)          --
   Acquisitions, net of cash acquired                                                     (1,579)        (788)      (3,590)
   Net decrease (increase) in other investments                                           10,498       18,391      (13,897)
   Deferred investment acquisition costs                                                      --      (11,170)     (14,233)
   Decrease (increase) in cash and cash equivalents - restricted                             757       20,149      (42,115)
                                                                                       ---------    ---------    ---------
Net cash used in investing activities                                                   (382,555)    (349,519)    (418,379)
                                                                                       ---------    ---------    ---------
</TABLE>


           See accompanying notes to consolidated financial statements

                                    continued

                                       58
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                                -----------------------------------
                                                                                  2004         2003          2002
                                                                                ---------    ---------    ---------
<S>                                                                               <C>          <C>          <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                                  (84,395)     (65,121)     (56,441)
   Distributions to preferred shareholders of subsidiary                           (2,386)      (9,449)     (16,234)
   Distributions to Special Common Unit holders                                   (28,412)          --           --
   Proceeds from financing arrangements                                           281,060      521,153      197,176
   Repayments of financing arrangements                                          (112,639)    (292,805)     (67,313)
   Increase in notes payable                                                       20,872       55,842       11,969
   Issuance of common shares and convertible CRA shares                           111,119      104,841      125,599
   Offering costs  relating to issuance of common and  convertible CRA shares      (5,261)        (495)        (723)
   Issuance of preferred shares                                                   104,000           --       55,000
   Retirement of special preferred voting shares                                      (10)          --           --
   Treasury share purchases                                                        (2,592)        (275)          --
   Deferred financing costs                                                          (723)      (4,749)      (3,296)
                                                                                ---------    ---------    ---------

Net cash provided by financing activities                                         280,633      308,942      245,737
                                                                                ---------    ---------    ---------

Net increase (decrease) in cash and cash equivalents                               13,030       44,558      (91,665)

Cash and cash equivalents at the beginning of the period                           58,257       13,699      105,364
                                                                                ---------    ---------    ---------

Cash and cash equivalents at the end of the period                              $  71,287    $  58,257    $  13,699
                                                                                =========    =========    =========

SUPPLEMENTAL INFORMATION:
   Interest paid                                                                $  31,057    $  23,417    $  12,703
   Taxes paid                                                                       8,040          137          178

   Non-cash investing and financing activities:
     Reclassification of goodwill to intangible assets:                          $     --      $    --    $   8,639
     Conversion of SCUs to common shares                                           17,789           --           --
     Conversion of CRA shares to common shares                                     27,585       21,870           --

   Acquisition of RCC
     Increase in investment in and advances to partnerships                                  $ (35,424)
     Increase in intangible assets                                                            (185,300)
     Increase in goodwill                                                                     (210,294)
     Increase in other assets and liabilities                                                   (1,272)
     Issuance of special common units                                                          288,006
     Increase in notes payable                                                                  28,952
     Increase in deferred tax liability                                                         59,071
                                                                                             ---------

                                                                                             $ (56,261)
                                                                                             =========
</TABLE>


           See accompanying notes to consolidated financial statements

                                       59
<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,  its
wholly owned and majority owned subsidiary statutory trusts,  corporations which
it  controls  and  entities  consolidated  pursuant  to  the  adoption  of  FASB
Interpretation No. 46(R) (see Note 2). For the entities consolidated pursuant to
FASB Interpretation No. 46(R), the financial  information  included is as of and
for the period  ended  September  30,  2004,  the  latest  practical  date.  All
intercompany  accounts and transactions  have been eliminated in  consolidation.
Unless  otherwise  indicated,  "the Company",  "we" and "us", as used throughout
this document, refers to CharterMac and its 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.

Certain  amounts from prior years have been  reclassified to conform to the 2004
presentation.

B. REVENUE RECOGNITION

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

     o    REVENUE BOND INTEREST INCOME

          We recognize income as it accrues,  provided  collectibility of future
          amounts is reasonably assured.  We recognize  contingent interest when
          received.  For bonds with modified  terms, or when  collectibility  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.

     o    FUND SPONSORSHIP FEES

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

          o    PARTNERSHIP  MANAGEMENT  FEES are for the  following  services we
               perform:

               o    maintaining  the books and  records of an  investment  fund,
                    including requisite investor reporting; and
               o    monitoring  the acquired  property  interests to ensure that
                    their  development,  leasing and operations  comply with low
                    income housing or other tax credit requirements.

               We recognize  these fees on a  straight-line  basis over the five
               year contractual  service period following the initial closing of
               an investment fund.

          o    ACQUISITION  FEES received upon  acquisition of revenue bonds are
               deferred and  amortized  over the  estimated  life of the revenue
               bond.

          o    ORGANIZATION,  OFFERING AND  ACQUISITION  ALLOWANCE  FEES are for
               reimbursement  of costs we incur for  organizing  the  investment

                                       60
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


               funds and for providing assistance in acquiring the properties to
               be  included  in  the  investment  funds.  The  organization  and
               offering  allowance fee is recognized when the investor equity is
               raised and the  acquisition  allowance fee is recognized when the
               investment  funds acquire  properties.  The related  expenses are
               included in general and administrative expenses.

          o    ASSET  MANAGEMENT  FEES  from  investment   funds,   based  on  a
               percentage  of  each  investment  fund's  invested  assets,   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
               delivery of the closing documents to the purchaser of the loans.

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

     o    CREDIT ENHANCEMENT FEES

          o    Fees for credit  enhancement are received  monthly and recognized
               as income when due.

          o    Fees for yield guarantee  transactions,  received in advance, are
               deferred  and  amortized   over  the   guarantee   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    OTHER INCOME

          o    INTEREST  INCOME on temporary  investments  such as cash in banks
               and short-term instruments, is recognized on the accrual basis as
               it becomes due.

          o    OTHER  INTEREST   INCOME  (from   promissory   notes,   mortgages
               receivable  and other  investments)  is recognized on the accrual
               basis when due.

          o    DEVELOPMENT  FEES are earned from  properties  co-developed  with
               unaffiliated  developers  and  contributed  to investment  funds.
               Recognition  of  development  fees is  based  on  completion  and
               stabilization  of properties,  after guarantees of completion and
               deficits are no longer  anticipated to require funding,  provided
               that collection is reasonably assured.

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

          o    EXPENSE REIMBURSEMENTS  includes amounts billed to the investment
               funds  and  other  affiliated  entities  ("affiliates")  for  the
               reimbursement  of salaries and certain  other  ongoing  operating
               expenditures incurred by RCC on behalf of these affiliates.

C. INVESTMENT IN REVENUE BONDS

We account  for our  investments  in 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") due to a provision in
most of the  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.  Accordingly,  investments in revenue
bonds are carried at their  estimated  fair values,  with  unrealized  gains and
losses reported in accumulated other comprehensive income.

                                       61
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


Because  revenue  bonds have a limited  market,  we estimate fair value for each
bond as the present  value of its expected  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.

When a 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,  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.  If we determine it is probable that we will not receive all contractual
payments  required  when they are due, we deem a bond impaired and write it down
to its estimated fair value and record a realized loss in the income statement.

D. MORTGAGE SERVICING RIGHTS ("MSRS")

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. Purchased MSRs are recorded at cost. For originated loans, we allocate
total costs  incurred to the loan  originated  and the MSR retained based on the
relative  fair values as determined  by a  third-party  appraiser.  All MSRs are
amortized in  proportion  to, and over the period of,  estimated  net  servicing
income.

MSRs are  assessed  for  impairment  based on the fair  value of the  assets  as
compared to carrying  value.  When we determine that a portion of the balance is
not  recoverable,  the asset and the valuation  allowance are reduced to reflect
permanent impairment.

E. OTHER INVESTMENTS

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.

We account for our preferred equity investment in ARCap Investors, LLC ("ARCap")
using the equity method pursuant to Accounting  Principles Board Opinion No. 18,
THE EQUITY METHOD OF ACCOUNTING  FOR  INVESTMENTS IN COMMON STOCK ("APB No. 18")
as interpreted by AICPA  Statement of Position 78-9,  ACCOUNTING FOR INVESTMENTS
IN REAL ESTATE  VENTURES,  EITF Issue D-46,  ACCOUNTING FOR LIMITED  PARTNERSHIP
INVESTMENTS  and EITF 03-16,  ACCOUNTING FOR  INVESTMENTS  IN LIMITED  LIABILITY
COMPANIES.

Our equity in the earnings of ARCap is accrued at the preferred dividend rate of
12%, which equals the income allocated to us per the LLC agreement, unless ARCap
does  not  have  earnings  and  cash  flows   adequate  to  meet  this  dividend
requirement.

F. 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 existing  securitization  programs
and in accordance with Fannie Mae requirements.

G. DEFERRED COSTS

Prior to the RCC  acquisition in November 2003 (see Note 3), we paid fees to RCC
for its activities  performed as our Manager (see Note 17). The fees  pertaining
to  acquisitions  of  revenue  bonds were  capitalized  and are  amortized  as a
reduction  to interest  income over the terms of the  revenue  bonds.  Since the
acquisition,  all fees paid for this  purpose  are  charged to  expense  and the
intercompany  charges are eliminated in consolidation.  Direct costs relating to
unsuccessful  acquisitions  and all indirect costs relating to the revenue bonds
are charged to operations.

                                       62
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


We capitalize costs incurred in connection with our MBIA securitization  program
(see Note 9) and amortize  them on a  straight-line  basis over 10 years,  which
approximates the average remaining term to maturity of the revenue bonds in this
program.

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 Convertible Community  Reinvestment Act
("CRA") Shares as a reduction of beneficial owners' equity of such shares.

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 classified as cash flow hedges
at fair  value,  with  changes  in fair  value  recorded  in  accumulated  other
comprehensive  income, to the extent they are effective.  If deemed ineffective,
we record the amount considered ineffective in the statement of income.

I. GOODWILL AND OTHER INTANGIBLE ASSETS

We test goodwill for impairment 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.  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.

We  amortize  other  intangible  assets  on a  straight-line  basis  over  their
estimated useful lives.

J. FAIR VALUE OF FINANCIAL INSTRUMENTS

As described above, our investments in revenue bonds, our MSRs and our liability
under the interest rate  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, 2004 and 2003.

K. INCOME TAXES

We provide for income taxes in accordance  with 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.

L. EARNINGS PER SHARE

Basic income per share represents income allocated to Common and Convertible CRA
shareholders  (see  Note  14) by the  weighted  average  number  of  Common  and
Convertible CRA shares outstanding  during the period.  Diluted income per share
represents 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 are not included in the  calculation as they are  antidilutive,  since each
share is  convertible  to one common share while the  allocations to SCU holders
exceed common dividends.

                                       63
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


M. GUARANTEES AND MORTGAGE BANKING LOSS SHARING AGREEMENT

For guarantees issued since January 1, 2003, we record liabilities  (included in
deferred  income)  equal  to  the  fair  values  of  the  guarantee  obligations
undertaken.  For yield guarantees and other credit  enhancement  obligations for
which we receive  fees,  the fees  received are  considered  the measure of 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  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.

For mortgage loans  originated since January 1, 2003, we account for exposure to
loss under our servicing  contract  with Fannie Mae as guarantees  under FIN 45,
recording  an asset  and a  liability  equal  to the  estimated  portion  of the
servicing  cash flows deemed to represent  compensation  for our  guarantee.  We
offset cash  received for the  guarantee  against the asset and credit  interest
income for the change in asset due to the  passage of time.  The  portion of the
liability  representing  an accrual  for  probable  losses is  adjusted  as loss
estimates  change and the portion  representing  our  willingness to stand by as
guarantor is  amortized  over the expected  life of the  guarantee.  We evaluate
loans  owned for  impairment  on a  specific  loan basis  based on debt  service
coverage ratios.

N. MORTGAGE BANKING LOAN LOSS RESERVE

We place  loans on a  nonaccrual  status when any  portion of the  principal  or
interest is 90 days past due or earlier when  concern  exists as to the ultimate
collectibility  of principal or  interest.  Loans return to accrual  status when
principal  and  interest  become  current  and  anticipate  they  will be  fully
collectible.  An impaired loan is defined, as noted within accounting  guidance,
when we determine it is probable that not all required contractual payments will
be made when due. 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.  There were
no nonaccrual or impaired loans at December 31, 2004 or December 31, 2003.

We record provisions as an expense and as a contra-asset  account on the balance
sheet under Mortgage Servicing Rights (See Note 5).

O. SHARE BASED COMPENSATION

We account for our share options in accordance  with the  provisions of SFAS No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS No. 123").  Accordingly,  we
record  compensation  cost,  based on the options'  estimated  fair value,  on a
straight-line  basis over the vesting  period.  The fair values of option grants
are estimated using the Black-Scholes option-pricing model.

Prior to our  acquisition  of RCC in November  2003 (see Note 3),  most  options
granted  were  issued  to  non-employees  rendering  services  to us  under  our
management agreement with RCC. As such, we estimated the fair value of the share
options at each  period-end  up to the vesting  date,  and  adjusted the expense
accordingly.  Upon the acquisition of RCC, such optionees  became  employees and
the fair  value of the  options at that date  became  the basis of  amortization
until the respective vesting dates.

We record  restricted  share  grants as a  contra-account  within  shareholder's
equity.  The balance  recorded equals the number of shares issued  multiplied by
the closing  price of our common  shares on the grant date. We amortize the cost
over the  vesting  period of the  shares on a  straight-line  basis.  Any shares
granted with immediate vesting are expensed when granted.

                                       64
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 2 - NEW ACCOUNTING PRONOUNCEMENTS AND ENTITIES CONSOLIDATED PURSUANT TO FIN
46(R)

A. NEW ACCOUNTING PRONOUNCEMENTS

In  December  2003,  the FASB  issued  Interpretation  46(R),  CONSOLIDATION  OF
VARIABLE INTEREST ENTITIES ("FIN 46(R)"). FIN 46(R) 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.  Effective March
31, 2004, we adopted FIN 46(R).  See below  regarding the impact of our adopting
this standard.

In May 2003,  the FASB  issued SFAS No. 150,  ACCOUNTING  FOR CERTAIN  FINANCIAL
INSTRUMENTS  WITH  CHARACTERISTICS  OF BOTH  LIABILITIES  AND EQUITY  ("SFAS No.
150"). This statement requires that certain financial  instruments that have the
characteristics  of debt and equity be classified as debt.  Pursuant to SFAS No.
150, we have classified  mandatorily  redeemable preferred securities previously
shown  as  mezzanine  equity  as a  liability  in our  balance  sheets,  and the
dividends paid on such shares as interest  expense;  dividends  related to prior
periods  remain  classified  as income  allocated to preferred  shareholders  of
subsidiary.

The  following  accounting  pronouncements  issued in 2002 and 2003  related  to
disclosure only or had no material impact on our financial statements:

     o    SFAS  No.  145,  RESCISSION  OF  FASB  STATEMENTS  NO.  4,  44 AND 64,
          AMENDMENT OF FASB STATEMENT NO. 13 AND TECHNICAL  CORRECTIONS,  issued
          in April 2002.
     o    SFAS No. 146,  ACCOUNTING FOR COSTS  ASSOCIATED  WITH EXIT OR DISPOSAL
          ACTIVITIES, issued in July 2002.
     o    SFAS No. 148, ACCOUNTING FOR STOCK-BASED  COMPENSATION-TRANSITION  AND
          DISCLOSURE, issued in December 2002.
     o    SFAS No. 149, AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND
          HEDGING ACTIVITIES, issued in April 2003.

In December 2004, the FASB issued SFAS No. 123(R),  SHARE-BASED  PAYMENT,  which
replaces SFAS No. 123 and which we are required to adopt by the third quarter of
2005.  As we have  been  accounting  for  share  based  payments  following  the
fair-value  provisions  of SFAS No. 123, we expect the impact of our adoption of
this standard to be immaterial.

B. FIN 46(R)

Through  our   acquisition  of  RCC  (see  Note  3),  and  in  subsequent   fund
originations,  we became the  general  partner or  equivalent  in 90 entities in
which we have 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, or
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
Low-Income Housing Tax Credits ("LIHTCs").

Investment and operating  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 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 is none.
In addition,  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 sheet and have  recorded  their results of operations in
our statement of income  beginning April 1, 2004. Upon adoption of FIN 46(R), we
recorded  the  assets  and  liabilities  of the  VIEs we  consolidated  at their
historical bases,  which  approximated  their fair values at that date. As noted

                                       65
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


above,  the balance  sheets and  statements  of operations  consolidated  in our
financial  statements are as of and for the period ended September 30, 2004, the
latest date available.

NOTE 3 - ACQUISITIONS

A. RELATED CAPITAL COMPANY

On November 17, 2003, we acquired the ownership  interests in and  substantially
all of the businesses  operated by Related  Capital  Company ("RCC") (other than
specific excluded interests) for approximately $346.0 million. The consideration
paid included:

     o    $50.0 million in cash, paid to one of the selling principals;
     o    approximately  15.9 million  Special  Common Units ("SCUs") in a newly
          formed subsidiary (see Note 13); and
     o    approximately  15.9 million special preferred voting shares associated
          with the SCUs (see Note 14).

The cash portion of the acquisition and associated acquisition costs were funded
by two bridge loans totaling $60.0 million (see Note 10). In connection with the
acquisition,   we  also  established  a  restricted  share  program  and  issued
approximately  778,000 of our common  shares to employees of RCC (other than the
selling  principals) and granted  1,000,000  share options to our  non-executive
chairman  (see Note 15). In addition,  our  subsidiary  issued  approxi-  mately
217,000 SCUs to employees of RCC (other than the selling principals).

We accounted for the  acquisition  as a purchase and allocated the cost based on
the estimated fair values of the assets  acquired and  liabilities  assumed.  We
valued intangible assets based on an appraisal by an independent valuation firm.
We  recorded  the excess of the  purchase  price  over the net  assets  acquired
(including identified intangibles) as goodwill.

Prior to the acquisition, RCC acted as our external manager (the "Manager"). See
Note 17 regarding related party  transactions  prior to the acquisition and Note
16 regarding earnings per share treatment of allocations to the Manager prior to
the acquisition.

In recording our acquisition of RCC, we ascribed  approximately  $5.1 million of
the  purchase  price to the  estimated  future  cash flows to be  received  from
general  partner  interests  in  investment  partnership  in which we maintain a
non-equity  controlling  partner.  From time to time, the general partner of the
investment funds may be called upon to fund investment fund operations.  In such
a case, we would advance the funds (on behalf of the general  partner) and would
be repaid  out of future  operating  cash flow or sale or  refinancing  proceeds
received by the investment fund.

B. PW FUNDING/CHARTERMAC MORTGAGE CAPITAL CORP.

In December  2001,  we  acquired  80% of the common  shares of PW Funding,  Inc.
("PWF").  During 2002 and 2003, we acquired another 7% of the common shares. The
aggregate  cost of the  shares,  including  debt  assumed and repaid and true-up
payments  subsequent to the purchase dates, was $40.0 million,  all of which was
paid in cash. We accounted for the  acquisition  as a purchase and allocated the
purchase price to the assets and  liabilities at their  respective  fair values,
including $7.9 million recorded as MSRs and $6.2 million recorded as goodwill.

See Note 21 regarding our 2005 purchase of the remaining shares of PWF, which we
have also renamed CharterMac Mortgage Capital Corp. ("CMC").

                                       66
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 4 - REVENUE BONDS

The following tables summarize our revenue bond portfolio at December 31, 2004:
<TABLE>
<CAPTION>

                             (Dollars in Thousands)

                            Units          Face Amount of Bond     Fair Value at 12/31/04
                       -----------------  ---------------------    ----------------------


                Number            % of                    %of                     %of
               of Bonds   Number  Total     $ Amount     Total      $ Amount     Total
               -------- ----------------  -----------------------------------------------

BY STATE:
---------------
<S>               <C>    <C>      <C>       <C>         <C>        <C>           <C>
Texas             67     11,270    24.3%    $ 601,402    27.7%     $  609,854     28.6%
Georgia           24      6,019    13.0%      313,960    14.4%        305,355     14.3%
California        42      4,924    10.6%      241,008    11.1%        226,867     10.6%
Florida           25      4,150     9.0%      175,782     8.1%        165,466      7.8%
Missouri          11      2,203     4.7%      105,928     4.9%         95,948      4.4%
All others       104     17,794    38.4%      734,152    33.8%        731,517     34.3%
-----------------------------------------------------------------------------------------
Subtotal         273     46,360   100.0%    2,172,232   100.0%      2,135,007    100.0%

Eliminations(1)   (5)      (541)      --      (31,667)      --        (34,287)       --
---------------------------------------------------------------------------------------
Total            268     45,819       --   $2,140,565       --     $2,100,720        --
=======================================================================================
2003 Total       243     40,556   100.0%   $1,838,801   100.0%     $1,871,009    100.0%
=======================================================================================

BY PROPERTY
STATUS:
---------------
Stabilized       112     18,668    40.3%   $  772,084    35.5%     $  775,122     36.3%
Lease-up          86     16,429    35.4%      817,773    37.6%        805,760     37.7%
Construction      46      6,197    13.4%      355,580    16.4%        335,543     15.8%
Rehab             29      5,066    10.9%      226,795    10.5%        218,582     10.2%
---------------------------------------------------------------------------------------
Subtotal         273     46,360   100.0%    2,172,232   100.0%      2,135,007    100.0%

Eliminations(1)   (5)      (541)      --      (31,667)      --        (34,287)       --
---------------------------------------------------------------------------------------
Total            268     45,819       --   $2,140,565       --     $2,100,720        --
=======================================================================================
2003 Total       243     40,556   100.0%   $1,838,801   100.0%     $1,871,009    100.0%
=======================================================================================

<CAPTION>

                                Pertinent Weighted Average Dates      Annualized Base Interest
                              -------------------------------------   ------------------------
                   Current                                                                       Occupancy
                    Stated                Optional                                                   on          DSCR on
                   Interest              Redemption                                     %of      Stablized     Stabilized
                    Rate      Put Date      Date      Maturity Date    $ Amount        Total     Properties    Properties
               -----------------------------------------------------------------------------------------------------------

BY STATE:
---------------
<S>                 <C>       <C>         <C>           <C>           <C>             <C>           <C>          <C>
Texas               7.04%     Jun-19      Sept-18       Sep-41        $   42,673       28.2%        87.0%        1.00x
Georgia             6.16%     Aug-18      Apr-16        Feb-41            21,101       14.0%        84.8%        0.73x
California          6.79%     Sep-18      Mar-17        Sep-38            16,910       11.2%        96.3%        1.30x
Florida             7.08%     Mar-20      May-15        May-39            12,455        8.2%        94.4%        1.31x
Missouri            6.70%     Oct-16      May-12        Apr-34             7,292        4.8%        89.1%        1.22x
All others          6.69%     Aug-18      Aug-16        Dec-37            50,713       33.6%        89.6%        1.16x
--------------------------------------------------------------------------------------------------------------------------
Subtotal                                                                 151,144      100.0%        90.7%        1.14x
                                                                      ====================================================
Eliminations(1)
---------------
Total
===============
2003 Total                                                            $  127,002      100.0%        91.8%        1.20x
===============                                                       ====================================================

BY PROPERTY
STATUS:
---------------
Stabilized                    Jul-16      Mar-14        Oct-34        $   55,940       37.0%        90.7%        1.14x
Lease-up                      May-19      Jul-16        Apr-41            56,809       37.6%        N/A          N/A
Construction                  Mar-21      Dec-20        Oct-43            23,782       15.7%        N/A          N/A
Rehab                         Apr-21      Apr-21        Nov-41            14,613        9.7%        N/A          N/A
---------------               --------------------------------------------------------------------------------------------
Subtotal                                                              $  151,144      100.0%        90.7%        1.14x
                                                                      ====================================================
Eliminations(1)
---------------
Total
===============
2003 Total                                                            $  127,002      100.0%        91.8%        1.20x
===============                                                       ====================================================
</TABLE>

(1)  These  bonds  are  recorded  as   liabilities  on  the  balance  sheets  of
consolidated VIEs (See Note 2) and are therefore eliminated in consolidation.

                                       67
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 4 - REVENUE BONDS (CONTINUED)
<TABLE>
<CAPTION>
                             (Dollars in Thousands)

                               Units          Face Amount of Bond
                           ----------------  ---------------------


                   Number            % of                    %of
                  of Bonds   Number  Total     $ Amount     Total
                  -------- ----------------  ---------------------

BY PUT DATE:
----------------
<S>                  <C>     <C>     <C>      <C>           <C>
No put date          50      1,019     2.2%   $   81,233      3.7%
With 6 months
notice                2        400     0.9%        8,325      0.4%
2005                  6      1,380     3.0%       59,925      2.8%
2006-2010             6      1,404     3.0%       57,250      2.6%
2011-2015             9      2,414     5.2%       94,263      4.3%
2016-2020           160     30,919    66.7%    1,448,907     66.7%
2021-2025            28      6,381    13.8%      312,878     14.4%
2026-2030            11      2,339     5.0%      102,451      4.7%
2031-2035             1        104     0.2%        7,000      0.4%
------------------------------------------------------------------
Subtotal            273     46,360   100.0%    2,172,232    100.0%

Eliminations (1)     (5)      (541)      --      (31,667)       --
------------------------------------------------------------------
Total               268     45,819       --   $2,140,565        --
==================================================================
2003 Total          243     40,556   100.0%   $1,838,801    100.0%
==================================================================

BY MATURITY DATE:
-----------------
2006-2010            20        640     1.4%$      39,658      1.8%
2011-2015            20        293     0.6%       23,945      1.2%
2016-2020            17      1,352     2.9%       79,042      3.6%
2021-2025            14      1,024     2.2%       59,520      2.7%
2026-2030            10      2,132     4.6%       68,847      3.2%
2031-2035            11      2,520     5.4%       94,424      4.3%
2036-2040            56     11,217    24.2%      450,227     20.7%
2041-2045           115     24,835    53.6%    1,233,469     56.8%
2046 and after       10      2,347     5.1%      123,100      5.7%
------------------------------------------------------------------
Subtotal            273     46,360   100.0%    2,172,232    100.0%

Eliminations (1)     (5)      (541)      --      (31,667)       --
------------------------------------------------------------------
Total               268     45,819       --   $2,140,565        --
==================================================================
2003 Total          243     40,556   100.0%   $1,838,801    100.0%
==================================================================

<CAPTION>
                             (Dollars in Thousands)

                   Fair Value at 12/31/04
                  ------------------------
                                               Current
                                                Stated
                                     %of       Interest
                       $ Amount     Total       Rate
                  -------------------------------------

BY PUT DATE:
----------------
<S>                  <C>            <C>        <C>
No put date          $   77,024       3.6%     7.16%
With 6 months
notice                    8,928       0.4%     7.74%
2005                     56,353       2.6%     7.17%
2006-2010                56,678       2.7%     7.47%
2011-2015                96,005       4.5%     7.02%
2016-2020             1,434,441      67.2%     6.92%
2021-2025               293,009      13.8%     5.61%
2026-2030               105,630       4.9%     6.64%
2031-2035                 6,939       0.3%     5.50%
-------------------------------------------------------
Subtotal              2,135,007     100.0%     6.75%
                                    ===================
Eliminations (1)        (34,287)
-------------------------------
Total                $2,100,720
===============================
2003 Total           $1,871,009     100.0%     6.93%
=======================================================

BY MATURITY DATE:
-----------------
2006-2010            $   36,069       1.7%     7.30%
2011-2015                20,951       1.0%     6.12%
2016-2020                75,390       3.5%     6.99%
2021-2025                57,668       2.7%     7.63%
2026-2030                70,078       3.3%     7.02%
2031-2035                95,578       4.5%     6.67%
2036-2040               453,569      21.2%     7.17%
2041-2045             1,211,732      56.8%     6.67%
2046 and after          113,972       5.3%     5.30%
-------------------------------------------------------
Subtotal              2,135,007     100.0%     6.75%
                                    ===================
Eliminations (1)        (34,287)
-------------------------------
Total                $2,100,720
===============================
2003 Total           $1,871,009     100.0%     6.93%
=======================================================
</TABLE>

(1)  These  bonds  are  recorded  as   liabilities  on  the  balance  sheets  of
     consolidated   VIEs  (See  Note  2)  and  are   therefore   eliminated   in
     consolidation.

                                       68
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


<TABLE>
<CAPTION>

Reconciliation of revenue bonds:                               2004             2003             2002
------------------------------------------------------     -----------      -----------      -----------
(In thousands)
<S>                                                        <C>              <C>              <C>
Balance at beginning of period                             $ 1,871,009      $ 1,579,590      $ 1,137,715
  Acquisitions and additional fundings                         325,037          432,915          457,060
  Repayments                                                   (26,477)         (83,795)        (108,630)
  Regular principal payments                                   (12,589)         (16,136)          (4,986)
  Carrying amount less than repayment proceeds                     400            2,472            4,273
  Advance held by Trustee                                           --           (3,643)              --
  Impairment losses                                               (610)          (1,759)            (920)
  Net change in fair value                                     (20,766)         (38,559)          95,126
  Accretion of deferred income and purchase accounting
    adjustment                                                     (97)             (76)             (48)
  Reclassification to other assets                                (900)              --               --
                                                           -----------      -----------      -----------
    Subtotal                                                 2,135,007        1,871,009        1,579,590
  Less: eliminations (1)                                       (34,287)              --               --
                                                           -----------      -----------      -----------
Balance at close of period                                 $ 2,100,720      $ 1,871,009      $ 1,579,590
                                                           ===========      ===========      ===========
</TABLE>

(1)  These  bonds  are  recorded  as   liabilities  on  the  balance  sheets  of
     consolidated   VIEs  (See  Note  2)  and  are   therefore   eliminated   in
     consolidation.

Certain 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
revenue  bonds are  exempt  from  federal  income  tax.  Participating  interest
included in interest revenue was approximately $230,000 in 2004, $2.0 million in
2003 and $3.1 million in 2002.

As of December 31, 2004,  approximately  $2.0 billion of our revenue  bonds were
securitized or pledged as collateral in relation to financing  arrangements (see
Note 9).

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

<TABLE>
<CAPTION>
(In thousands)                             2004             2003
                                       -----------      -----------
<S>                                    <C>              <C>
Amortized cost basis                   $ 2,098,944      $ 1,814,180
Gross unrealized gains                      50,716           65,394
Gross unrealized losses                    (14,653)          (8,565)
                                       -----------      -----------
Subtotal/fair value                      2,135,007        1,871,009
  Less: eliminations (1)                   (34,287)              --
                                       -----------      -----------
Total fair value per balance sheet     $ 2,100,720      $ 1,871,009
                                       ===========      ===========
</TABLE>

(1) These bonds are  recorded as  liabilities  on the balance  sheet of entities
    consolidated pursuant to FIN 46(R) (See Note 2) and are therefore eliminated
    in consolidation.

                                       69
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


The fair value and gross  unrealized  losses of our 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>

(Dollars in thousands)                        December 31, 2004
                               ------------------------------------------------

                                 Less than         12 Months
                                 12 Months          or More          Total
                               --------------    -------------   --------------
<S>                              <C>               <C>              <C>
Number                                   42                39               81
Fair value                       $  392,856        $  217,196       $  610,052
Gross unrealized loss            $   (6,543)       $   (8,110)      $  (14,653)

<CAPTION>

                                              December 31, 2003
                               ------------------------------------------------

                                 Less than         12 Months
                                 12 Months          or More          Total
                               --------------    -------------   --------------
<S>                              <C>               <C>              <C>
Number                                   54                 8               62
Fair value                       $  216,743        $   36,660       $  253,403
Gross unrealized loss            $   (5,789)       $   (2,777)      $   (8,566)
</TABLE>

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

The following is a table summarizing the maturity dates of revenue bonds we hold
as of December 31, 2004:

<TABLE>
<CAPTION>
                                   Outstanding                         Weighted
                                       Bond                             Average
(In thousands)                        Amount        Fair Value       Interest Rate
------------------------------     -----------      -----------      -------------
<S>                                <C>              <C>                 <C>
Due between one and five years     $    35,549      $    33,474         7.08%
Due after five years                 2,071,786        2,101,533         6.75%
                                   -----------      -----------      -------------
 Total/weighted average              2,107,335        2,135,007         6.75%
                                                                     ===========
  Less: eliminations (1)               (31,063)         (34,287)
                                   -----------      -----------
 Total                             $ 2,076,272      $ 2,100,720
                                   ===========      ===========
</TABLE>

(1) These bonds are  recorded as  liabilities  on the balance  sheet of entities
    consolidated pursuant to FIN 46(R) (See Note 2) and are therefore eliminated
    in consolidation.

The principal and interest  payments on each 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  revenue  bonds  constitutes  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  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.

No single revenue bond provided  interest  income that exceeded 10% of our total
revenue for the years ended December 31, 2004,  2003, or 2002.  Other than those
detailed in the table on page 67, based on face amount,  no state comprises more
than 10% of the total at December 31, 2004 or 2003.

                                       70
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


All of our  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 are expected to be 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.

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 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 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 bonds,  that
          under current law cannot be funded by the proceeds of the bond itself.

Revenue  bonds  acquired  and/or  additional   fundings  made  during  2004  are
summarized below:

<TABLE>
<CAPTION>
                                                                         Weighted         Weighted
                                                                         Average           Average
                                                        Face           Construction       Permanent
(In thousands)                                         Amount              Rate         Interest Rate
-------------------------------------------------    -------------    -------------    --------------
<S>                                                     <C>               <C>               <C>
Construction/rehabilitation properties                  $290,907          5.45%             6.49%
 Additional funding of existing bonds                     34,130          3.60%             4.28%
                                                     -------------    -------------    --------------
Total 2004 acquisitions                                 $325,037          5.26%             6.26%
                                                     =============    =============    ==============
</TABLE>

Revenue bonds repaid during 2004 are summarized below:

<TABLE>
<CAPTION>

                                                      Outstanding                        Realized
(In thousands)                                           Value          Proceeds           Gains
-------------------------------------------------    --------------   -------------    --------------
<S>                                                      <C>            <C>                 <C>
 Non-participating revenue bonds stabilized              $26,470        $26,870             $217
                                                     ==============   =============    ==============
</TABLE>

Revenue  bonds  acquired  and/or  additional   fundings  made  during  2003  are
summarized below:

<TABLE>
<CAPTION>

                                                                         Weighted         Weighted
                                                                         Average           Average
                                                        Face           Construction       Permanent
(In thousands)                                         Amount              Rate         Interest Rate
-------------------------------------------------    -------------     ------------    --------------
<S>                                                     <C>                <C>              <C>
Construction/rehabilitation properties                  $421,595           6.21%            6.58%
Additional funding of existing bonds                      11,320           7.00%            7.00%
                                                     -------------     ------------    --------------
Total 2003 acquisitions                                 $432,915           6.23%            6.59%
                                                     =============     ============    ==============
</TABLE>

                                       71
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


Revenue bonds and notes repaid during 2003 are summarized below:

<TABLE>
<CAPTION>
                                                      Outstanding                         Realized
(In thousands)                                           Value          Proceeds       Gains (Losses)
-------------------------------------------------    --------------   -------------    --------------
<S>                                                       <C>             <C>              <C>
Participating revenue bonds stabilized                    $21,330         $23,550          $  2,220
Non-participating revenue bonds stabilized                 55,465          60,346              (269)
Notes stabilized                                              245             245                --
                                                     --------------   -------------    --------------
Total 2003 dispositions                                   $77,040         $84,141          $  1,951
                                                     ==============   =============    ==============
</TABLE>

BOND IMPAIRMENT

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

In 2003,  because of  developer  defaults  and a  softening  of the market of an
underlying  property,  we determined that one of our revenue bonds was impaired,
and wrote down the bond to its estimated  fair value,  recognizing an impairment
loss of  approximately  $1.8 million.  The first mortgage was foreclosed upon in
October 2004. The bonds were  subsequently  retired and CharterMac owns the land
valued at $900,000.

In 2001 and 2002,  the  borrowers  of one of our  revenue  bonds  failed to make
regular interest  payments,  we determined the bond was impaired and its trustee
foreclosed on the underlying property.  In 2002, we began marketing the property
and it was  ultimately  sold in 2003. In  connection  with this revenue bond, we
recorded  an  impairment  loss of  approximately  $920,000 in 2002 and a loss on
disposal of approximately $631,000 in 2003.

NOTE 5 - MORTGAGE SERVICING RIGHTS

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

<TABLE>
<CAPTION>

Servicing Assets                                                 (In thousands)
-------------------------------------------------------         ---------------
<S>                                                                 <C>
Balance at December 31, 2002                                        $35,594
MSRs capitalized                                                      6,490
Amortization                                                         (6,259)
Increase in reserves                                                 (2,474)
                                                                ---------------

Balance at December 31, 2003                                         33,351
MSRs capitalized                                                      6,588
Amortization                                                         (7,839)
Decrease in reserves                                                    266
                                                                ---------------
Balance at December 31, 2004                                        $32,366
                                                                ===============

<CAPTION>

Reserve for Loan Loss Reserves of Servicing Assets
-------------------------------------------------------

<S>                                                                 <C>
Balance at December 31, 2002                                        $ 4,271
Additions                                                             2,474
                                                                ---------------

Balance at December 31, 2003                                          6,745
Reductions                                                             (266)
                                                                ---------------
Balance at December 31, 2004                                        $ 6,479
                                                                ===============
</TABLE>

                                       72
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


The estimated fair values of the MSRs, based upon third-party  valuations,  were
$39.3 million at December 31, 2004 and $39.7  million at December 31, 2003.  The
significant  assumptions used in estimating the fair values at December 31, 2004
were as follows:

<TABLE>
<CAPTION>
                                          Fannie Mae             FHA            Freddie Mac
                                         ---------------     --------------    ---------------
<S>                                          <C>                <C>                <C>
Weighted average discount rate                  17.14%             16.07%             17.17%
Weighted average pre-pay speed                  11.40%             10.09%             13.96%

Weighted average lockout period              4.8 years          3.6 years          6.9 years
Cost to service loans                           $2,463             $1,259             $1,956
Acquisition cost (per loan)                     $1,500             $  500             $1,482
</TABLE>

The table below  illustrates  hypothetical,  fair values of MSRs at December 31,
2004 caused by assumed  immediate  adverse changes to key assumptions  which are
used to determine fair value.

<TABLE>
<CAPTION>
                                                    (In thousands)

<S>                                                     <C>
Fair value of MSRs at December 31, 2004                 $39,264

Prepayment speed:
   Fair value after impact of +10% change                38,954
   Fair value after impact of -10% change                39,570
   Fair value after impact of +20% change                38,669
   Fair value after impact of -20% change                39,903

Discount rate:
   Fair value after impact of +10% change                37,279
   Fair value after impact of -10% change                41,477
   Fair value after impact of +20% change                35,490
   Fair value after impact of -20% change                43,960

Default rate:
   Fair value after impact of +10% change                39,290
   Fair value after impact of -10% change                39,371
   Fair value after impact of +20% change                39,178
   Fair value after impact of -20% change                39,705
</TABLE>

NOTE 6 - OTHER INVESTMENTS

Investments other than revenue bonds consisted of:

<TABLE>
<CAPTION>

(In thousands)                                                       2004            2003
--------------------------------------------------------------    -----------     -----------
<S>                                                                <C>               <C>
Investment in equity interests in LIHTC properties                 $  40,132         $24,644
Investment in properties under development                             3,157           1,994
Investment in ARCap                                                   19,054          19,054
Capri Capital loan                                                    84,000              --
Mortgage loans receivable                                             27,480          21,870
Other investments                                                     13,683          29,938
                                                                  -----------     -----------
Total other investments                                            $ 187,506         $97,500
                                                                  ===========     ===========
</TABLE>

                                       73
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


INVESTMENTS IN EQUITY INTERESTS IN LIHTC PROPERTIES

Through a subsidiary, we acquire equity interests in property ownership entities
on a short-term  basis,  and also invest funds with  third-party  developers  to
develop properties 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.  Substantially  all of these  investments  are
pledged as collateral  for our borrowings  under a warehouse  facility (see Note
10).

INVESTMENTS IN PROPERTIES UNDER DEVELOPMENT

We  invest  funds  in  affiliated  entities,   whereby  subsidiaries  co-develop
properties  to be sold to  investment  funds.  Development  investments  include
amounts invested to fund pre-development and development costs. Investment funds
we sponsor acquire the limited  partnership  interests 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 20).

INVESTMENT IN ARCAP

We hold approximately 740,000 units of Series A Convertible Preferred Membership
Interests in ARCap Investors,  LLC, a provider of portfolio management services.
The cost was $25 per unit, and the shares carry a preferred return of 12%.

CAPRI CAPITAL LOAN

In July 2004, CM Investor LLC ("CM Investor"), one of our subsidiaries, provided
an interim loan in the  principal  amount of $84.0 million  ("Interim  Loan") to
Capri Capital Limited Partnership  ("Capri"),  which bears interest at a rate of
11.5% per year and matures on January 15, 2005 subject to extension.

We funded the Interim Loan  through  bridge loans from Bank of America (See Note
10).

See  Note 21  regarding  the  extension  and  conversion  of this  loan  and the
subsequent acquisition of a Capri subsidiary.

MORTGAGES LOANS RECEIVABLE

CMC originates  mortgages  pursuant to purchase  agreements and holds them until
settlement  of their sale is completed.  We are entitled to the interest  income
paid by the borrower during this holding period.

                                       74
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 7 - DEFERRED COSTS

The components of deferred costs at December 31 were as follows:

<TABLE>
<CAPTION>

(In thousands)                                                       2004             2003
--------------------------------------------------------------    ------------     ------------
<S>                                                                 <C>              <C>
Deferred bond selection costs (1)                                   $ 43,989         $ 44,888
Deferred financing costs                                              15,214           13,027
Deferred costs relating to the issuance of preferred shares
  of subsidiary (see Note 13)                                         12,890           10,445
Other deferred costs                                                   4,802            3,511
                                                                  ------------     ------------
                                                                      76,895           71,871
Less: Accumulated amortization                                       (19,635)         (13,463)
                                                                  ------------     ------------

                                                                    $ 57,260         $ 58,408
                                                                  ============     ============
</TABLE>

(1)  Primarily  represents  the bond  selection fee paid to the Manager prior to
     our acquisition of RCC (see Notes 3 and 17).

NOTE 8 - GOODWILL AND OTHER INTANGIBLE ASSETS

We  adopted  SFAS No.  141,  BUSINESS  COMBINATIONS,  in 2001 and SFAS No.  142,
GOODWILL AND OTHER INTANGIBLE ASSETS, in 2002 and determined that our previously
capitalized goodwill met the SFAS No. 141 criteria for recognition as intangible
assets apart from goodwill.  Accordingly,  we continue to amortize the remaining
balances over their remaining useful lives,  subject to impairment  testing and,
therefore, the adoption of SFAS No. 142 did not materially affect our results of
operations.

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, 2002            $       --       $    4,793       $    4,793
Additions                                  209,164              788          209,952
                                        ----------       ----------       ----------

Balance at December 31, 2003               209,164            5,581          214,745
Additions                                      916              663            1,579
Reductions                                  (9,927)              --           (9,927)
                                        ----------       ----------       ----------

Balance at December 31, 2004            $  200,153       $    6,244       $  206,397
                                        ==========       ==========       ==========
</TABLE>

The 2001 CMC acquisition  agreement  stipulated that we make periodic  "true-up"
and contingent  payments to the original CMC  shareholders for a period of up to
three  years from the  acquisition  date.  Pursuant to this  agreement,  we paid
approximately  $3.0  million in 2002,  $700,000 in 2003 and $663,000 in 2004 and
recorded the payments as additional goodwill.  These true-up payments were based
on:

     o    the increase in the value of mortgage  servicing rights due to certain
          loans closing;
     o    changes  between  the  audited  balance  sheet  used  for the  initial
          purchase price and the audited balance sheet at December 31, 2001;
     o    payments of certain servicing fees; and
     o    forward conversions of previously committed loans.

                                       75
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


In  addition,  we paid  approximately  $583,000  and  $91,000  in 2002 and 2003,
respectively,  for various costs we incurred in relation to the  acquisition  of
CMC, which were also recorded as goodwill.

The reduction to Fund Management goodwill in 2004 pertained to the conversion of
SCUs (see Note 13), the deferred tax impact of which served to effectively lower
the  purchase  price  of RCC,  partially  offset  by  adjustments  to  estimated
liabilities recorded at the time of the acquisition.

B. OTHER INTANGIBLE ASSETS

The components of other identified intangible assets are as follows:


<TABLE>
<CAPTION>
                                  Estimated
                                   Useful
                                    Life                             Accumulated
 (In thousands)                   (in Years)   Carrying Amount       Amortization            Net
-------------------------------   ----------  ------------------  ------------------  ------------------
                                                2004      2003      2004      2003      2004      2003
                                              --------  --------  --------  --------  --------  --------
<S>                                  <C>      <C>       <C>       <C>       <C>       <C>       <C>
Amortized identified intangible
   assets:
   Trademarks and trade names        21.0     $ 25,100  $ 25,100  $  1,338  $    143  $ 23,762  $ 24,957
   Partnership service
   contracts                          9.4       47,300    47,300     5,661       604    41,639    46,696
   Transactional
   relationships                     16.7      103,000   103,000     9,436     1,006    93,564   101,994
   General partner interests          9.0        5,100     5,100       634        68     4,466     5,032
   Joint venture developer
    relationships                     5.0        4,800     4,800     1,075       115     3,725     4,685
   Other                              9.3        4,427     4,427     2,703     2,227     1,724     2,200
                                  ----------  --------  --------  --------  --------  --------  --------
Subtotal/weighted average            14.5      189,727   189,727    20,847     4,163   168,880   185,564

Unamortized Identified
   Intangible Assets:
   Mortgage Banking Licenses                     8,639     8,639        --        --     8,639     8,639
                                              --------  --------  --------  --------  --------  --------

Total Identified Intangible
   Assets                                     $198,366  $198,366  $ 20,847  $  4,163  $177,519  $194,203
                                              ========  ========  ========  ========  ========  ========

Amortization Expense Recorded                                     $ 16,684  $  2,413
                                                                  ========  ========
</TABLE>

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

<TABLE>
<CAPTION>
                               (In thousands)

          <S>                       <C>
          2005                      $16,207
          2006                      $16,207
          2007                      $16,207
          2008                      $16,092
          2009                      $14,658

</TABLE>

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

C. 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, 2004, we have concluded that these assets have
not been impaired.

                                       76
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 9 - FINANCING ARRANGEMENTS

Following are the components of financing arrangements at December 31:

<TABLE>
<CAPTION>
(In thousands)                     2004            2003
-------------------------       ----------      ----------
<S>                             <C>             <C>
P-FLOATs/RITES                  $  462,928      $  316,508
MBIA:
    Floater Certificates           405,500         383,500
    Auction Certificates           100,000         100,000
Fixed-Rate Securitization          100,000         100,000
                                ----------      ----------

Total                           $1,068,428      $  900,008
                                ==========      ==========
</TABLE>

A. P-FLOATS/RITES PROGRAM ("P-FLOATS")

We have  securitized  certain  revenue  bonds  through the Merrill  Lynch Pierce
Fenner & Smith Incorporated ("Merrill Lynch") P-FLOATs/RITES program. Under this
program, we transfer certain revenue bonds, or trust certificates that represent
senior  interests in the bonds,  to Merrill  Lynch and they deposit each revenue
bond into an individual special purpose trust together with a credit enhancement
guarantee.  A credit enhanced  custodial  receipt is issued and deposited into a
second trust. Two types of securities are then issued by that trust:

     (1)  Puttable Floating Option Tax-Exempt Receipts ("P-FLOATs"),  short-term
          senior securities which bear interest at a floating rate that is reset
          weekly as the lowest rate that will clear the market at par; and
     (2)  Residual  Interest  Tax  Exempt  Securities   ("RITES"),   subordinate
          securities  which receive the residual  interest payment after payment
          of P-FLOAT interest and ongoing transaction fees.

The P-FLOATs are sold to third party  investors and the RITES are generally sold
back to us. We have the right,  with at least 14 days notice to the trustee,  to
purchase the outstanding  P-FLOATs and withdraw the underlying  revenue bonds or
trust  certificates from the trust. When the revenue bonds or trust certificates
are deposited into the P-FLOAT  Trust,  we receive the proceeds from the sale of
the P-FLOATs less certain  transaction  costs.  In certain other cases,  Merrill
Lynch may directly buy the revenue bonds from local issuers, deposit them in the
trust, sell the P-FLOAT security to investors and then the RITES 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
revenue bonds as assets.

To facilitate the  securitization,  we have pledged certain  additional  revenue
bonds  as  collateral  for the  benefit  of the  credit  enhancer  or  liquidity
provider.  At December 31, 2004,  the total carrying  amount of such  additional
revenue bonds pledged as collateral was approximately $217 million.

During 2004, we repaid  borrowings of  approximately  $61.9 million and redeemed
the corresponding bonds.  Additionally we transferred 30 bonds, against which we
borrowed approximately $211.4 million.

Our  annualized  cost of funds  relating  to its secured  borrowings  under this
program  (calculated as a percentage of the weighted average secured borrowings)
was  approximately  2.20% in 2004,  2.03% in 2003 and 2.40% in 2002. The related
amount of $4.6 million in 2004, $4.3 million in 2003 and $4.0 million in 2002 is
included in interest  expense in the statement of income.  The year end interest
rate at December 31, 2004 was 2.12%, excluding fees.

B. MBIA SECURITIZATION PROGRAMS

MBIA, a financial insurer, has entered into a surety commitment with us, through
October 2011,  whereby MBIA has agreed to credit-enhance  certain pools of bonds

                                       77
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


in exchange for certain  fees.  As of December 31, 2004,  the maximum  amount of
capital that could be raised  under our  securitization  programs  with MBIA was
$650.0 million,  with a maximum of $425.0 million in Floater  Certificates and a
maximum of $225.0 in Auction Certificates, as described below.

Under the MBIA  securitization  program, we contribute revenue bonds to specific
"Series Trusts," seven of which had been created as of December 31, 2004. Two of
the trusts contain only bonds secured by properties in California while the rest
are National  (i.e.,  non-state  specific).  Each Series Trust issues two equity
certificates:

     o    a Senior  Certificate  which is deposited into a  "Certificate  Trust"
          which, in turn,  issues and sells "Floater  Certificates"  or "Auction
          Certificates"   representing  proportional  interests  in  the  Senior
          Certificate to new investors; and
     o    a "Residual Certificate," issued to us, which represents the remaining
          beneficial ownership interest in each Series Trust.

The surety  commitment  by MBIA can be used to enhance  certificates  sold under
"low-floater" and "auction rate" programs.

     o    The  low-floater  certificates  have an  interest  rate  that is reset
          weekly. The low-floater program requires liquidity due to a put option
          available  to  the  buyers  of  the  certificates.  The  liquidity  is
          currently  supplied  by  a  consortium  of  highly-rated  banks  whose
          commitments are one-year  renewable  contracts.  We expect to renew or
          replace such commitments upon expiration of their terms.
     o    The auction rate certificates  have rates that are reset  periodically
          through  a Dutch  auction  process.  This  program  does  not  require
          liquidity  as the buyers of the  securities  do not have the option to
          put their certificates back to the seller.

The  effect of our MBIA  securitization  is that a portion  of the  interest  we
receive on certain  revenue bonds is  distributed  to the holders of the Floater
Certificates or Auction Rate Certificates,  with any remaining interest remitted
to us via the Residual  Certificate.  At December 31, 2004,  the total  carrying
amount  of  revenue  bonds  pledged  as  collateral  for these  obligations  was
approximately $577 million.

During  2003,  we refined  the MBIA  securitization  programs,  placing  certain
revenue bonds in trusts in connection  with our  guarantees of specified rate of
returns to third party  investors in mortgage  pools (see Note 20). We agreed to
subordinate  approximately  50% of the par value of the  revenue  bonds that are
secured  by  the  properties  in  these  pools.  These  trusts  issued  Class  A
Certificates,  which were  securitized  through the  P-FLOATs/RITES  program and
Class B Certificates, held by us as excess collateral to support our obligations
to the Merrill Lynch as Primary  Guarantor under credit  enhancement  agreements
(see Note 20).

In 2003,  we entered  into a new form of  securitization,  under  which  Auction
Certificates secured by an open pool of revenue bonds were auctioned through UBS
Financial  Services Inc. We placed  revenue bonds with an aggregate par value of
approximately  $143.0 million into a trust (approximately $81.0 million of these
bonds had been previously  securitized with MBIA). In order to move the bonds to
the new trust, we redeemed low-floater  certificates  aggregating  approximately
$118 million.  In October 2003,  the new trust issued $100.0  million of auction
rate  certificates.  These  certificates had an initial rate of 1% which will be
reset every 35 days through a Dutch auction process.

Our  floating  rate  cost of funds  relating  to  bonds  securitized  with  MBIA
(calculated  as interest  expense plus  recurring  fees as a  percentage  of the
weighted average amount of the outstanding Senior Certificate) was approximately
2.9% in  2004,  2.2% in 2003 and 2.4% in  2002.  The year end  interest  rate at
December 31, 2004 was 2.11%, excluding fees.

                                       78
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


C. FIXED RATE SECURITIZATION

In April 2003, we closed on a transaction  whereby we contributed  revenue bonds
with an aggregate par value of  approximately  $196.8 million into a trust.  The
trust then sold $100.0 million of Class A Certificates to various  institutional
investors  while  we  retained   subordinated  Class  B  Certificates   totaling
approximately  $96.8 million;  we will hold the Class B  Certificates  until the
trust is terminated. The Class A Certificates accrue interest at 3.25% per annum
for two years. At our option,  the Class A Certificates are subject to mandatory
tender for the outstanding  certificate  balance plus accrued  interest on March
15, 2005.  If we do not exercise  our option to  terminate  the trust then,  the
Class A  Certificates  are subject to  remarketing  and to mandatory  tender for
purchase and cancellation on March 15, 2005, at which time we intend to remarket
this securitization through the P-FLOATs program.

D. RESTRICTED ASSETS

Certain of our  subsidiaries  hold revenue bonds which at December 31, 2004, had
an  aggregate  carrying  amount of  approximately  $1.97  billion  that serve as
collateral for securitized borrowings or are securitized.  The total securitized
borrowings  at  December  31,  2004  were  approximately   $662.9  million.  The
subsidiaries  holding  these  bonds had net  assets at  December  31,  2004,  of
approximately $695.2 million.

NOTE 10 - NOTES PAYABLE

Notes payable included the following at December 31:

<TABLE>
<CAPTION>
(In thousands)                       2004           2003
----------------------------       --------       --------
<S>                                <C>            <C>
PWF acquisition loan               $ 21,809       $ 25,217
CMC warehouse line                   27,480         21,870
Equity Issuer revolving line             --         21,730
RCC acquisition lines                    --         60,000
RCC warehouse line                   39,932         24,533
Capri acquisition lines              85,000             --
Other                                   233             --
                                   --------       --------
  Total notes payable              $174,454       $153,350
                                   ========       ========
</TABLE>

In connection  with the  acquisition of PWF (See Note 3), we entered into a loan
commitment  which  expires in  December  2006 and bears  interest  at LIBOR plus
2.25%. The rate was 4.67% and 3.37% at December 31, 2004 and 2003, respectively.
The loan requires  quarterly  payments of principal and interest over a ten-year
amortization period, with a balloon payment for the balance upon expiration.

CMC has a $100.0 million secured, revolving mortgage warehouse facility, subject
to annual renewal.  The interest rate for each warehouse  advance is the Federal
Funds rate at the end of each year plus  1.25%.  The rate was 3.49% and 2.24% at
December 31, 2004 and 2003, respectively.

Our Equity Issuer  subsidiary has entered into a $75.0 million secured revolving
tax-exempt bond warehouse line of credit with Bank of America  Securities,  Inc.
and Wachovia  Securities,  Inc. This  facility has a built in accordion  feature
allowing up to a $25.0 million increase for a total size of $100.0 million and a
term of two years  expiring  in March  2005,  plus a one year  extension  at our
option.  This facility bears interest at 31, 60, 90, or 180-day reserve adjusted
LIBOR plus 1.50%, or prime plus 0.25%,  at our option.  During the third quarter
of 2003,  Citibank became the third lender under this facility.  At December 31,
2004, there were no outstanding  borrowings.  At December 31, 2003, the rate was
2.62%.

We  entered  into  $50.0  million  and $10.0  million  acquisition  bridge  loan
facilities  with  Wachovia  Bank in order to fund  the  cash  portion,  fees and
expenses of the RCC acquisition in November 2003 (see Note 3). These bridge loan
facilities had nine-month  terms with two 90-day extension  options.  We pledged
our common ownership  interest in our Equity Issuer subsidiary as security under

                                       79
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


these facilities.  The facilities were pre-payable at any time and bore interest
at LIBOR  plus  1.50%  and 2.4%,  respectively.  We repaid  and  terminated  the
facilities in 2004. At December 31, 2003, the rate was 2.62% and 3.52%.

RCC has entered  into a warehouse  facility in the amount of $90.0  million with
Bank of America,  Merrill Lynch,  C.D.C. and Citicorp,  USA. This facility has a
maturity date of October 28, 2005 and bears interest,  at our option,  at either
LIBOR plus 2% or the prime rate plus .125%.  The  weighted  average net rate was
5.13% and 3.73% at December 31, 2004 and 2003,  respectively.  This  facility is
collateralized by a lien on certain limited partnership  interests (See Note 6).
Payments  of  interest  only are due on a monthly  basis.  We have the option to
extend this facility upon its maturity in 2005, renegotiate its terms or arrange
alternate sources of financing to repay the outstanding balance.

The Capri  acquisition  lines with Bank of America  bear  interest at LIBOR plus
1.65% and mature in July 2005. The weighted  average  interest rate on the loans
was 4.02% at December 31, 2004.

Payments of the notes are due as follows:

<TABLE>
<CAPTION>
          (In thousands)               Payments Due
                                       ------------
          <S>                            <C>
          2005                           $155,371
          2006                              2,726
          2007                              2,726
          2008                             13,631
          2009                                 --
          THEREAFTER                           --
                                         ---------
             Total                       $174,454
                                         =========
</TABLE>

NOTE 11 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Our revenue bonds  generally bear fixed rates of interest,  but the P-FLOATs and
MBIA  securitizations  (see Note 9) incur  interest  expense at variable  rates,
exposing  us to  interest  rate  risks.  We have  established  a policy for risk
management  and  our  objectives  and  strategies  for  the  use  of  derivative
instruments to potentially mitigate such risks. We currently manage a portion of
our  interest  rate risk through the use of swaps  indexed to the BMA rate,  the
most widely used tax-exempt floating rate index. 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  index.  At  inception,  we
designate these swaps as cash flow hedges on the variable  interest  payments on
our floating rate securitizations.  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.  Any  ineffectiveness  in the
hedging relationship is recorded in earnings.  Net amounts payable or receivable
under the swap agreements are recorded as adjustments to interest  expense.  Net
swap payments we receive, if any, will be taxable income to us and, accordingly,
to  shareholders.  A  possible  risk of such  swap  agreements  is the  possible
inability  of the  counterparty  to meet  the  terms of the  contracts  with us;
however, there is no current indication of such an inability.

As of December 31, 2004, we have one swap with Merrill  Lynch Capital  Services,
Inc. as counterparty  with a notional amount of $50.0 million fixed at an annual
rate of 3.98%,  which  began in January  2001 and expires in January  2006.  The
average BMA rate was 1.22% in 2004, 1.03% in 2003 and 1.38% in 2002.

                                       80
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


We have entered into additional swap agreements as follows:

<TABLE>
<CAPTION>
                             Notional
                              Amount
Counterparty               (in millions)      Inception Date      Expiration Date        Rate
------------------------------------------------------------------------------------------------------
<S>                           <C>              <C>                  <C>              <C>
Bank of America               $100.0           January 2005         January 2007     2.56%
Bank of America                 50.0           January 2005         January 2008     2.00% in 2005,
                                                                                     2.78% in 2006 and
                                                                                     3.27% in 2007
Bank of America                 50.0           January 2005         January 2008     2.86%
Bank of America                 50.0           January 2005         January 2009     3.08%
RBC Capital Markets            100.0           January 2005         January 2009     3.075%
Bank of America                100.0           January 2005         January 2010     3.265%
</TABLE>

We evaluate our interest rate risk on an ongoing  basis to determine  whether it
would be advantageous to engage in any further hedging transactions.

The swaps are recorded at fair market value each  accounting  period.  We record
changes in market values in accumulated other comprehensive income to the extent
that the hedges are effective in achieving  offsetting cash flows.  For the swap
in place and  others  that have  expired,  there was no  ineffectiveness  in the
hedging  relationship during the three years ended December 31, 2004. For all of
the  swaps,  we expect  that the  hedging  relationships  will be  effective  in
achieving offsetting changes in cash flow throughout their terms.

At December 31, 2004,  our interest  rate swaps were recorded in other assets on
the consolidated balance sheets at an aggregate fair value of $835,700. Interest
expense  includes  approximately  $1.6 million in 2004, $4.1 million in 2003 and
$3.5 million in 2002, for amounts paid or payable under the swap agreements.

We estimate that  approximately  $729,000 of the net unrealized loss 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

The income tax benefit (provision) consisted of the following components:

<TABLE>
<CAPTION>
                                          2004            2003            2002
                                        --------        --------        --------
<S>                                     <C>             <C>             <C>
Current:
  Federal                               $ (2,279)       $ (2,212)       $ (1,303)
  State and local                         (1,022)         (1,207)           (520)
                                        --------        --------        --------
Total current                             (3,301)         (3,419)         (1,823)

Deferred federal, state and local         20,544           9,491             539
                                        --------        --------        --------

Total tax benefit (provision)           $ 17,243        $  6,072        $ (1,284)
                                        ========        ========        ========
</TABLE>

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.

                                       81
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


A reconciliation  of the statutory federal tax rate to our effective tax rate is
as follows:

<TABLE>
<CAPTION>
                                               2004      2003      2002
                                              -------   -------   ------
<S>                                           <C>       <C>       <C>
Statutory tax rate to which we are subject     35.0%     35.0%     35.0%
Partnerships not subject to income tax        (56.4)    (45.6)    (32.0)
State and local taxes, net of federal
  benefit                                      (8.2)      1.7      (0.2)
SCUs (see Note 13)                             (3.4)       --        --
Share based compensation                       (1.4)     (0.2)       --
Other                                          (1.4)     (0.9)     (0.7)
                                              -------   -------   ------
Effective tax rate                            (35.8)%   (10.0)%     2.1%
                                              =======   =======   ======
</TABLE>

The components of the deferred tax liability are as follows:

<TABLE>
<CAPTION>
                                           2004            2003
                                         --------        --------
<S>                                      <C>             <C>
Share-based compensation                 $ (3,464)       $     --
Intangible assets                          43,418          58,398
Originated mortgage service rights         11,262          11,072
Deferred revenue                          (19,637)         (8,200)
Other deferred costs                       (1,681)           (900)
                                         --------        --------

Total deferred tax liability             $ 29,898        $ 60,370
                                         ========        ========
</TABLE>

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
("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
-------------------------------------------------------------------------------------------------------------------
                                                                                 (In thousands)
<S>                 <C>           <C>           <C>             <C>          <C>            <C>             <C>
Series A            06/29/99      06/30/09      06/30/49         45          $2,000         $  90,000       6.625%
Series A-1          07/21/00      06/30/09      06/30/49         48             500            24,000       7.100%
Series A-2          10/09/01      06/30/09      06/30/49         62             500            31,000       6.300%
Series A-3          06/04/02      10/31/14      10/31/52         60             500            30,000       6.800%
Series B            07/21/00      11/30/10      11/30/50        110             500            55,000       7.600%
Series B-1          10/09/01      11/30/10      11/30/50         37             500            18,500       6.800%
Series B-2          06/04/02      10/31/14      10/31/52         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

                                       82
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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 shares in the Series B group; 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.
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
     RCC.

                                       83
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     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 de minimis  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,  we  reclassified  the  Preferred  Shares as
liabilities  in our balance  sheet in the third quarter of 2003 and included the
subsequent  dividends paid for those share as interest  expense in our statement
of income.

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
                                                 Preference
   Preferred         Date of      Number of         per        Total Face     Dividend
    Series          Issuance       Shares          Share         Amount         Rate
----------------------------------------------------------------------------------------
                                                    (In thousands)
<S>                 <C>              <C>           <C>        <C>              <C>
Series A-4-1        5/14/04          60            $500       $  30,000        5.75%
Series A-4-2        5/14/04          58             500          29,000        6.00%
Series B-3-1        5/14/04          50             500          25,000        6.00%
Series B-3-2        5/14/04          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 classified them as mezzanine equity and the associated dividends
are classified outside of interest expense in the statement of income.

C. SPECIAL COMMON UNITS OF A SUBSIDIARY

In connection  with our  acquisition of RCC (see Note 3), 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).

                                       84
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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, 2004, all SCU  distributions
have been paid, with all funds generated by the issuing subsidiary.

As of December 31,  2004,  there were 15.2  million  SCUs  outstanding  and 16.1
million were outstanding at December 31, 2003.

NOTE 14 - SHAREHOLDERS' EQUITY

A. SPECIAL PREFERRED VOTING SHARES

In connection with our acquisition of RCC (see Note 3), each holder of SCUs (see
Note 13) also  acquired  one special  preferred  voting share (at a par value of
$.01 per share) for each SCU received.  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 RCC 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 RCC will:

     o    not vote more than 90% of the voting power  represented by the special
          preferred  voting  shares  (and any  common  shares  to be  issued  in
          exchange  for the SCUs) on any matter  requiring  a vote of our common
          shareholders until November 17, 2005;
     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
     o    not exercise any right as  shareholder  of our Company to nominate any
          independent trustee.

With the exception of Stephen M. Ross (see Note 17), 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 COMMUNITY REINVESTMENT ACT PREFERRED 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
specially   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:

                                       85
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


     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, we had the following Convertible CRA Shares outstanding:

<TABLE>
<CAPTION>
(In thousands)
                                                             2004       2003
                                                         ---------------------
<S>                                                         <C>        <C>
Convertible CRA Shares issued prior to 2002                   998      1,352
Convertible CRA Shares issued 2002 and later                5,554      6,828
                                                         ---------------------
  Total outstanding                                         6,552      8,180
                                                         =====================
Common shares issuable upon conversion                      6,504      8,104
                                                         =====================
</TABLE>

C. ISSUANCES AND CONVERSIONS

During  2002 we issued  approximately  2.0  million  Convertible  CRA Shares and
approximately 6.3 million common shares. Net proceeds were  approximately  $32.5
million for the Convertible CRA Shares and $92.9 million for the common shares.

During 2003, we issued  approximately 5.8 million Convertible CRA Shares for net
proceeds of approximately $103.1 million. Also in 2003,  shareholders  converted
approximately  1.4 million  Convertible CRA Shares into  approximately  the same
number of common  shares.  The placement  agents for the offerings were Meridian
Investments, Inc.

In June 2004, we completed a common share offering, whereby we sold 5.75 million
shares  (including an over-allotment of 750,000 shares) to the public at a price
of $19.27 per share.  This  offering  resulted in 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.

Also in 2004,  shareholders converted  approximately 1.6 million Convertible CRA
shares into approximately the same number of common shares and 933,000 SCUs (see
Note 13) were converted into an equivalent number of common shares.

D. 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

                                       86
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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, 2004,  there was
approximately  125,000 shares  participating  in the plan,  which represents 321
investors.

E. 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 dependant on the availability of common shares
and other  market  conditions.  There were no  acquisitions  made under the plan
during  2004 or  2003.  We  acquired  8,400  shares  in 2002  for  approximately
$103,000.

In addition to the repurchase  plan, we may repurchase  shares from employees in
connection with tax withholding  requirements  upon vesting of restricted  share
grants.  During 2004 and 2003, we repurchased  approximately  111,000 and 14,000
common  shares  for  approximately  $2.6  million  and  $275,000,   respectively
(including  commissions and service charges).  We account for repurchased common
shares as treasury shares of beneficial interest.

F. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income (loss) were as follows:

<TABLE>
<CAPTION>
(In thousands)
                                      Net Unrealized   Net Unrealized    Accumulated Other
                                      Gain/(Loss) on   Gain/(Loss) on    Comprehensive
                                      Revenue Bonds     Derivatives       Income (Loss)
                                      --------------   --------------    -----------------
<S>                                    <C>                <C>               <C>
Balance at January 1, 2002             $      262         $  (2,959)        $  (2,697)
Period change                              95,126            (2,607)           92,519
                                      --------------   --------------    -----------------
Balance at December 31, 2002               95,388            (5,566)           89,822
Period change                             (38,559)            2,607           (35,952)
                                      --------------   --------------    -----------------
Balance at December 31, 2003               56,829            (2,959)           53,870
Period change                             (23,971)           (1,078)          (25,049)
                                      --------------   --------------    -----------------
Balance at December 31, 2004           $   32,858         $  (4,037)        $  28,821
                                      ==============   ==============    =================
</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 substantial  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:

     (i)  10% of the number of shares  outstanding  as of December 31  preceding
          issuances of such awards; and
     (ii) the limits  prescribed  by the  American  Stock  Exchange or any other
          national security  exchange or national  quotation system on which the
          shares may then be listed.

                                       87
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


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 issued the following options pursuant to the Plan:

<TABLE>
<CAPTION>
                                                                  Vesting
Year Issued     Options Issued    Exercise Price      Term        Period
--------------------------------------------------------------------------
<C>                 <C>              <C>            <C>          <C>
2000                297,830          $11.5625       10 years     3 years
2002                 40,000           17.5600       10 years     3 years
</TABLE>

As part of a separate plan  established in connection  with the RCC  acquisition
(see Note 3), we issued 1.0 million options to our non-executive  chairman at an
exercise price of $17.78. These options have a 10 year term and vest over a five
year period.

Prior to the RCC acquisition,  all options were held by non-employees as we were
externally managed.  Accordingly,  we recorded outstanding options at fair value
at the  end of each  reporting  period.  Upon  the RCC  acquisition,  all  prior
optionees became CharterMac employees. Accordingly, all outstanding options were
adjusted to the fair value as November  17,  2003,  and the expense we record in
relation to these options is based upon that fair value.

We used the following  assumptions in the Black-Scholes  option pricing model to
determine fair values:

<TABLE>
<CAPTION>
                                          2003                 2002
                                       ----------           ---------
<S>                                    <C>                  <C>
Risk free interest rate                      3.80%               4.18%
Expected years until exercise                7.10                8.70
Expected stock volatility                   20.00%              20.00%
Dividend yield                               6.80%               6.70%
Options granted                         1,000,000              40,000
Grant date                             11/17/2003           9/18/2002
</TABLE>

We  recorded  compensation  cost of  $597,000  in 2004,  $264,000  in 2003,  and
$382,000 in 2002 relating to these option grants.

                                       88
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


The following table  summarizes  share option activity in our share option plans
as of the year ended December 31:
<TABLE>
<CAPTION>
                                            2004                       2003                       2002
                                 ------------------------------------------------------------------------------
                                               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                           1,119,914      $ 17.3285      263,509    $ 12.4729     228,262      $ 11.5625

Granted                                 --             --    1,000,000      17.7800      40,000        17.5600
Forfeited                          (22,167)       17.5600           --           --          --             --
Exercised                          (22,434)       15.7285     (143,595)     11.5625      (4,753)       11.5625
                                 ------------------------------------------------------------------------------
Outstanding at end of year       1,075,313      $ 17.3571    1,119,914    $ 17.3285     263,509      $ 12.4729
                                 ==============================================================================

Exercisable at end of year         275,313      $ 16.1282       93,247    $ 11.5625     124,231      $ 11.5625
                                 =========                   =========                  =======

  Fair value of options granted
    during the year (in
    thousands)                   $      --                   $   3,460                  $    34
                                 =========                   =========                  =======
</TABLE>

The following table summarizes  information about share options  outstanding and
exercisable at December 31, 2004:

<TABLE>
<CAPTION>
                                      Weighted
                                      Average
                                     Remaining
                     Number       Contractual Life      Number
Exercise Price    Outstanding        (in Years)       Exercisable
--------------    -----------    -----------------    -----------
<S>                <C>                  <C>            <C>
   $11.5625           73,063            6.4             73,063
    17.5600            2,250            8.7              2,250
    17.7800        1,000,000            8.9            200,000
                   ---------                           -------
                   1,075,313            8.7            275,313
                   =========                           =======
</TABLE>

As of December 31, 2004, there were 6,348,802  options or share grants available
for issuance under the Plan.

C. RESTRICTED SHARE GRANTS AND SCUS

In  conjunction  with the RCC  acquisition  (see  Note  3),  we  issued  778,420
restricted common shares in 2003 to various individuals who are either employees
of RCC or of one of the selling principals,  and we issued an additional 109,932
in 2004.  Of the  shares  issued  in 2003,  52,863  vested  immediately  and the
remainder vest over periods ranging from three months to four years. In 2003, we
recorded a contra-equity balance of approximately $14.0 million for the unvested
shares and  recorded  compensation  expense of $1.0 million for the shares which
vested  immediately.  In 2004,  we recorded  approximately  an  additional  $2.2
million  contra-equity  balance for the  additional  grants.  The  contra-equity
balance  is  amortized  over the  vesting  periods.  Grantees  are  entitled  to
dividends  on their  shares  during the vesting  period.  Any such  payments are
recorded as a charge to Beneficial  Owner's Equity - other common  shareholders.
If any grantee  forfeits an award, we reverse amounts  previously  amortized and
credit compensation expense.

In conjunction with the RCC acquisition,  our subsidiary  issued 217,280 SCUs in
2003 to employees  other than the selling  principals.  In 2004,  an  additional
93,120 SCUs were issued. These SCUs vest over periods ranging from three to four
years. A  contra-equity  balance of  approximately  $3.8 million was recorded in

                                       89
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


2003 for the  unvested  shares and is  amortized  over the vesting  periods.  An
additional  contra-equity  balance of approximately $1.7 million was recorded in
2004.

Net of forfeiture amounts,  we recorded  approximately $11.0 million in salaries
and benefits expense in 2004 and $2.8 million in 2003 for the restricted  shares
grants and SCUs.  The  contra-equity  balance as of  December  31, 2004 and 2003
amounted to $8.4 million and $16.1 million, respectively.

D. TRUSTEE GRANTS

Through  November 17, 2003,  two of our  independent  trustees  were entitled to
receive  annual  compensation  of $17,500  payable in a combination  of cash and
common  shares.  The third  independent  trustee was entitled to receive  annual
compensation of $30,000  payable in a combination of cash and common shares.  In
2003 and 2002,  we issued 1,728 and 1,830 common  shares,  respectively,  to the
independent  trustees as compensation for services  rendered for the prior year.
The  independent  trustees  also  received an aggregate of 5,535  shares,  worth
$97,500  at the time of  issuance,  as  payment  for their  work on the  special
committee  analyzing the proposed  acquisition of RCC. After the  acquisition of
RCC, the five new independent trustees each received $18,750 as compensation for
their  services  rendered  during the year ended December 31, 2003. In 2004, all
eight of the  independent  trustees  received  annual  compensation  of  $50,000
payable in a combination of cash and common shares.

NOTE 16 - EARNINGS PER SHARE, PROFIT AND LOSS ALLOCATIONS AND DISTRIBUTIONS

Prior  to our  acquisition  of  RCC,  pursuant  to  our  Trust  Agreement  and a
management agreement,  RCC was entitled to a special distribution equal to .375%
per annum of our total  invested  assets  (which  equaled the face amount of the
revenue bonds and other investments). After payment of the special distribution,
distributions  were made to the shareholders in accordance with their percentage
interests (see also Note 17).

We allocated income first to RCC for the special  distribution.  After a special
allocation of 0.1% to RCC, we then allocated  remaining  profits to shareholders
in accordance with their percentage interests.

For periods  subsequent  to the RCC  acquisition,  we allocate the income of CCC
(the  subsidiary we created as RCC's direct  parent) first to the holders of the
SCUs for an amount based on a proportionate share of net income.


<TABLE>
<CAPTION>
(In thousands, except per share amounts)                       Income        Shares*      Per Share
----------------------------------------------------------   -----------    -----------   -----------
<S>                                                            <C>             <C>          <C>
2004:
-----

Net income allocable to shareholders
 (Basic EPS)                                                   $65,363         54,786       $  1.19
Effect of dilutive securities                                       --            361
                                                               -------         ------
Diluted net income allocable to shareholders (Diluted EPS)     $65,363         55,147       $  1.19
                                                               =======         ======       =======

2003:
-----

Net income allocable to shareholders
 (Basic EPS)                                                   $61,248         46,653       $  1.31
Effect of dilutive securities                                       --             82
                                                               -------         ------
Diluted net income allocable to shareholders (Diluted EPS)     $61,248         46,735       $  1.31
                                                               =======         ======       =======

2002:
-----

Net income allocable to shareholders
 (Basic EPS)                                                   $55,905         42,697       $  1.31
Effect of dilutive securities                                       --             71
                                                               -------         ------
Diluted net income allocable to shareholders (Diluted EPS)     $55,905         42,768       $  1.31
                                                               =======         ======       =======
</TABLE>

* Includes common and Convertible CRA Shares (see Note 14).

                                       90
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 17 - RELATED PARTIES

A. RCC AND TRCLP

Prior to the RCC Acquisition

Prior to our acquisition of RCC (see Note 3), we had engaged a subsidiary of RCC
to provide us with management services.  Pursuant to the terms of the management
agreement,  RCC,  as  Manager,  was  entitled  to  receive  the fees  and  other
compensation set forth below:

<TABLE>
<CAPTION>

Fees/Compensation*                                    Amount
------------------                                    ------
<S>                                                   <C>
Bond selection fee                                    2.000% of the face amount of each asset we invested in or
                                                      acquired.
Special distributions/investment management fee       0.375% per annum of our total invested assets.
Loan servicing fee                                    0.250% per annum based on the outstanding face amount of
                                                      revenue bonds and other investments we owned.
Operating expense reimbursement                       For direct expenses incurred by the Manager up to a specified
                                                      annual amount (subject to increases based  on our  assets  and
                                                      the Consumer Price Index).
Incentive share options                               The Manager could receive options to acquire common shares
                                                      if our distributions in any year exceeded $0.9517 per common
                                                      share and if our Compensation Committee approved.
                                                      Liquidation fee 1.500 of the gross sales price of assets sold by us in a
                                                      liquidation proceeding.
</TABLE>

*  RCC could also earn miscellaneous  compensation  which included  construction
   fees,  escrow interest,  property  management fees,  leasing  commissions and
   insurance  brokerage fees. The payment of any such compensation was generally
   limited to the  competitive  rate for the services  being  performed.  A bond
   placement fee of 1.0% to 1.5% of the face amount of each asset invested in or
   acquired by us was payable by the borrower, and not by CharterMac.

Affiliates of RCC provided certain financial guarantees to facilitate leveraging
by CharterMac, for which we would pay market rate fees. In addition,  affiliates
of RCC provided financial guarantees to the owner (or partners of the owners) of
the underlying  properties  securing our revenue  bonds,  for which we would pay
market rate fees.

Subsequent to the RCC Acquisition
---------------------------------

Subsequent to the RCC  acquisition we revised the  management  agreement and the
fees  included in the agreement are  eliminated  in  consolidation.  The Related
Companies,  L.P.,  ("TRCLP"),  an  affiliate  of a  selling  principal  of  RCC,
continues to provide  services under a shared services  agreement.  The services
provided include computer support,  office management,  payroll, human resources
and other office services. The majority of the services are charged to us at the
direct cost incurred by TRCLP.

The selling  principals  of RCC included its four  executive  managing  partners
(Stuart J. Boesky,  Alan P. Hirmes,  Marc D. Schnitzer and Denise L. Kiley), all
of whom are members of our management and board of trustees, and an affiliate of
TRCLP,  which  is  majority-controlled  by  Stephen  M.  Ross,  who is also  the
non-executive  Chairman of our board of  trustees.  As a result of the equity we
issued in the RCC acquisition,  TRCLP owns approximately 15.7% of CharterMac and
our  management  and employees own  approximately  7.3% at December 31, 2004. On
February 25, 2005, we announced Ms. Kiley's intention to retire.

                                       91
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


Amounts Paid and Incurred

The costs,  expenses and the special distributions paid or payable to RCC, prior
to the acquisition,  its affiliates,  and TRCLP for the years ended December 31,
were as follows:

<TABLE>
<CAPTION>
                                                      Paid or
                                                     Payable to                 Paid or Payable to
                                                       TRCLP                    RCC and Affiliates
                                         -----------------------------     ----------------------------
                                          Year ended        Nov 18 -          Jan 1 -       Year Ended
                                         December 31,        Dec 31            Nov 17       December 31,
                                         ------------     ------------     ------------     ------------
          (In thousands)                     2004             2003             2003             2002
                                         ------------     ------------     ------------     ------------
<S>                                         <C>             <C>              <C>              <C>
Bond selection fees                         $    --         $     --         $   8,905        $  11,104
Special distribution/investment
  management fee                                 --               --             3,809            4,872
Bond servicing fees                              --               --             5,764            3,792
Expense reimbursement                            --               --               901              768
Shared service agreement                      4,252              755                --               --
                                         ------------     ------------     ------------     ------------

                                            $ 4,252         $    755         $  19,379        $  20,536
                                         ============     ============     ============     ============
</TABLE>

B. FUND MANAGEMENT TRANSACTIONS

Substantially all fund origination  revenues in the Fund Management  segment are
received from  investment  funds we have  originated  and manage,  many of which
comprise  the VIEs that we  consolidate  (see Note 2). While  affiliates  of our
Company hold equity  interests in the investment  funds' general  partner and/or
managing member/advisor, we have no direct investments in these entities, and we
do not guarantee  their  obligations.  We have agreements with these entities to
provide  ongoing  services on behalf of the  general  partners  and/or  managing
members/advisors,  and we receive  all fee income to which  these  entities  are
entitled.

As of  December  31,  2004,  the  obligors of certain  revenue  bonds were local
partnerships  for which  the  general  partners  of the  controlling  investment
partnerships were non-equity managing partners controlled by RCC. As of December
31, 2002,  the owner of the  underlying  property and obligor of the  Highpointe
revenue  bond was an  affiliate  of ours who has not made an equity  investment.
This entity has assumed the day-to-day  responsibilities  and obligations of the
property.  Buyers  are being  sought who would make  equity  investments  in the
property  and  assume  the  non-recourse  obligations  for the  revenue  bond or
otherwise  buy  the  property  and pay  off  all or  most  of the  revenue  bond
obligation.

In connection  with the  refinancing  of River Run, we entered into an agreement
which allows the revenue bond to be put to us should the owner of the underlying
property  default on the bond. We, in turn,  entered into agreements which allow
us to put the bond to the general  partners of the owner.  This right is secured
by collateral  assignments of the general partners' partnership interests in the
limited partnership which owns the underlying property.

Related Management Company ("RMC"),  which is wholly owned by TRCLP, earned fees
for  performing  property  management  services for various  properties  held in
investment  funds we manage and  consolidate.  The fees  totaled $2.2 million in
2004, $2.9 million in 2003 and $2.5 million in 2002.

C. LOAN TO AMERICAN MORTGAGE ACCEPTANCE CORP ("AMAC")

In June 2004, we entered into an unsecured  revolving credit facility with AMAC,
an affiliated real estate  investment  trust, to provide it up to $20.0 million,
bearing  interest  at  LIBOR  plus  3.0%,  which is to be used to  purchase  new

                                       92
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


investments.  This  facility  has a term of one year  with a one  year  optional
extension.  In the  opinion  of  management,  the  terms  of this  facility  are
consistent  with those of transactions  with  independent  third parties.  As of
December 31, 2004,  the advance  totalled  approximately  $4.6 million (see also
Note 21) at an interest rate of 5.42%.

NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

  (In thousands, except per share amounts)                        2004 Quarter Ended
                                             -------------------------------------------------------------
                                             March 31          June 30        September 30     December 31
                                             --------          -------        ------------     -----------
<S>                                           <C>              <C>              <C>              <C>
Total revenues                                $46,313          $57,006          $60,078          $69,457

Income before income taxes                    $ 4,029          $16,780          $10,079          $17,232

Net income                                    $ 6,418          $24,203          $14,911          $19,831

Net income per share
   Basic                                      $  0.12          $  0.47          $  0.26          $  0.34
   Diluted                                    $  0.12          $  0.46          $  0.26          $  0.34

Weighted average shares outstanding
   Basic                                       51,591           52,017           57,708           57,728
   Diluted                                     51,839           52,359           58,112           58,194


<CAPTION>
                                                                  2003 Quarter Ended
                                             -------------------------------------------------------------
                                             March 31          June 30        September 30     December 31
                                             --------          -------        ------------     -----------
<S>                                           <C>              <C>              <C>              <C>

Total revenues                                $31,954          $33,203          $35,841          $51,242

Income before income taxes                    $15,931          $17,412          $15,226          $11,945

Net income                                    $17,907          $18,200          $15,915          $14,564

Net income per share
   Basic                                      $  0.37          $  0.37          $  0.31          $  0.27
   Diluted                                    $  0.37          $  0.37          $  0.31          $  0.27

Weighted average shares outstanding
   Basic                                       45,013           45,090           46,331           50,121
   Diluted                                     45,071           45,130           46,366           50,256
</TABLE>

NOTE 19 - BUSINESS SEGMENTS

We operate in four business segments:

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

                                       93
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


2.   Fund Management, which includes:

     o    Subsidiaries  that sponsor real estate  equity  investment  funds that
          primarily   invest  in   Low-Income   Housing  Tax  Credit   ("LIHTC")
          properties.  In exchange for sponsoring  and managing these funds,  we
          receive  fee  income for  providing  asset  management,  underwriting,
          origination and other services;
     o    A subsidiary which provides  advisory services to AMAC, an affiliated,
          publicly traded real estate investment trust; and
     o    Subsidiaries  that  participate  in credit  enhancement  transactions,
          including   guaranteeing  mortgage  loans  and  specified  returns  to
          investors in LIHTC equity funds, in exchange for guarantee fees.

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

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

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

4.   VIEs,  primarily  the  LIHTC  equity  funds  we  sponsor  through  the Fund
     Management segment's subsidiaries, for which we are required to consolidate
     in accordance with FIN 46(R) (See Note 2).

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.  In prior  years,  results  from credit  enhancement  services  were
included  in  Portfolio  Investing.  We have  reclassified  the  results to Fund
Management to better reflect the management of our businesses.

Additionally,  in prior periods we had eliminated intercompany transactions from
the results of the  segment  earning  profits  from such  transactions.  We have
adjusted  our  presentation  to reflect the full  operations  of each segment to
better reflect the true operations of each business.  We have reclassified prior
years' segment results accordingly.

                                       94
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


The following table provides more information regarding our segments:

<TABLE>
<CAPTION>
(In thousands)                                                      DECEMBER 31,
                                                    ---------------------------------------------
                                                       2004             2003             2002
                                                    -----------      -----------      -----------
<S>                                                 <C>              <C>              <C>
REVENUES

   Portfolio Investing                              $   143,931      $   116,493      $    95,812
   Fund Management (1)                                   97,864           19,020            2,619
   Mortgage Banking                                      21,028           17,690           18,205
   VIEs (2)                                              12,213               --               --
   Elimination of intersegment transactions             (42,182)            (963)             (22)
                                                    -----------      -----------      -----------
Consolidated                                        $   232,854      $   152,240      $   116,614
                                                    ===========      ===========      ===========

NET INCOME BEFORE ALLOCATIONS TO EQUITY HOLDERS


   Portfolio Investing                              $    82,499      $    69,266      $    72,986
   Fund Management (1)                                     (599)           3,091            2,418
   Mortgage Banking                                       2,166             (637)           4,475
   VIEs (2)                                                  --               --               --
   Elimination of intersegment transactions              (3,636)           2,227               --
                                                    -----------      -----------      -----------
Consolidated                                             80,430           73,947           79,879
   Income allocated to SCUs                             (28,174)          (4,038)              --
   Income allocated to preferred shareholders            (3,942)          (9,449)         (17,266)
   Income allocated to minority interests                  (194)              54             (496)
   Income tax benefit (provision)                        17,243            6,072           (1,284)
                                                    -----------      -----------      -----------
Consolidated Net Income                             $    65,363      $    66,586      $    60,833
                                                    ===========      ===========      ===========

DEPRECIATION AND AMORTIZATION

   Portfolio Investing                              $     3,357      $     2,405      $     1,131
   Fund Management (1)                                   18,974            3,095              201
   Mortgage Banking                                       8,076            6,426            7,760
   VIEs (2)                                                  --               --               --
   Elimination of intersegment transactions                  --               --               --
                                                    -----------      -----------      -----------
Consolidated                                        $    30,407      $    11,926      $     9,092
                                                    ===========      ===========      ===========
IDENTIFIABLE ASSETS AT DECEMBER 31

   Portfolio Investing                              $ 4,750,072      $ 4,198,985      $ 3,204,055
   Fund Management (1)                                  826,117          808,982            1,830
   Mortgage Banking                                      91,525           90,769          123,675
   VIEs (2)                                           2,856,014               --               --
   Elimination of intersegment balances              (2,766,367)      (2,517,567)      (1,476,692)
                                                    -----------      -----------      -----------
Consolidated                                        $ 5,757,361      $ 2,581,169      $ 1,852,868
                                                    ===========      ===========      ===========
</TABLE>

(1)  Prior to our  acquisition of RCC in November 2003,  this segment  consisted
     only of our credit enhancement business.
(2)  Consolidated beginning April 2004 pursuant to FIN 46(R). See Note 2.

                                       95
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


NOTE 20 - COMMITMENTS AND CONTINGENCIES

FORWARD TRANSACTIONS

At December  31,  2004,  CMC had forward  commitments  of  approximately  $224.8
million  for 28  mortgages  to be  funded  in 2005 and  later.  As each  lending
commitment  has an associated  sale  commitment,  the fair values of each offset
and,  as a result,  we  record no asset or  liability  for the  commitments.  In
addition,  CMC had  commitments to sell 18 mortgages  totaling  $101.3  million.
Approximately  $27.5  million of this amount was funded as of December  31, 2004
and are included in Other Investments as Mortgage Loans Receivable.  The balance
of approximately $73.8 million will be funded in the first quarter of 2005.

We have  entered into  eighteen  transactions  to purchase  revenue  bonds.  The
agreements  require  us,  at the  earlier  of  stabilization  or  conversion  to
permanent  financing,  to  acquire  Series  A and  Series  B  revenue  bonds  at
predetermined  prices and  interest  rates.  We are  obligated  to purchase  the
revenue bonds only if  construction  is  completed.  We are obligated to buy the
Series B revenue  bonds only if, at the date the Series A bonds are  stabilized,
the property's cash flow is sufficient to provide debt service coverage of 1.15x
for both the Series A and B bonds. During the construction period, a third party
lender will advance funds to the developer, as needed, at a floating rate. 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 revenue
bonds,  and are recorded at fair value,  with changes in fair value  recorded in
other accumulated  comprehensive  income until the revenue bonds are funded. The
total potential amount we could possibly be required to fund is $176.3 million.

MORTGAGE BANKING LOSS SHARING AGREEMENT

Under a master loss sharing agreement with Fannie Mae, 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, 2004, all of our loans sold to
Fannie Mae consisted of Level I loans,  meaning 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 mortga- gor  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.

Our maximum  exposure at December  31,  2004,  pursuant to this  agreement,  was
approximately  $362.0  million  although  this amount is not  indicative  of our
actual  expected  losses.  We  maintain an  allowance  for loan losses for loans
originated  under  the  Fannie  Mae  DUS  product  line  at  a  level  that,  in
management's  judgment, is adequate to provide for estimated losses. At December
31,  2004,  that  reserve  was  approximately  $6.5  million,  which we  believe
represents  our maximum  liability  at that time.  Unlike loans  originated  for
Fannie Mae, we do not share the risk of loss for loans we originate  for Freddie
Mac or FHA.

CMC maintains,  as of December 31, 2004,  treasury notes of  approximately  $6.5
million and a money market account of approximately  $89,000,  which is included
in cash and cash  equivalents-restricted  in the consolidated  balance sheet, to
satisfy the Fannie Mae collateral requirements of $6.2 million.

MORTGAGE POOL CREDIT ENHANCEMENT

In December  2001, we completed a credit  enhancement  transaction  with Merrill
Lynch Capital Services, Inc. ("MLCS"). Pursuant to the terms of the transaction,
we assumed  MLCS's $46.9 million first loss position on a $351.9 million pool of
tax-exempt weekly variable rate multifamily  mortgage loans.  TRCLP has provided
us with an  indemnity  covering  50% of any losses that we incur as part of this
transaction. As the loans mature or prepay, the first loss exposure and the fees

                                       96
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


we receive are reduced.  The latest  maturity  date on any loan in the portfolio
occurs  in 2009.  The  remainder  of the real  estate  exposure  after the $46.9
million  first loss  position has been assumed by Fannie Mae and Freddie Mac. In
connection  with the  transaction,  we have posted  collateral,  initially in an
amount  equal to 50% of the first  loss  amount,  which may be reduced to 40% if
certain post closing conditions are met. Our maximum exposure under the terms of
this  transaction  is  approximately  $23.5  million.  During  2003,  two of the
tax-exempt  weekly variable rate  multifamily  mortgage loans were repaid in the
amount of $8.9  million.  These  repayments  reduced the first loss  position to
$38.0 million and the pool of multifamily mortgage loans to $288.6 million. This
reduced our maximum exposure under the terms of the transaction to approximately
$19.0 million.

We  performed  due  diligence  on  each  property  in  the  pool,  including  an
examination  of  loan-to-value  and debt service  coverage both on a current and
"stressed"  basis. We analyzed the portfolio on a "stressed" basis by increasing
capitalization  rates and assuming an increase in the low floater bond rate.  As
of December 31, 2004, the credit enhanced properties are performing according to
their contractual obligations and we do not anticipate any losses to be incurred
on its  guaranty.  Should our  analysis of risk of loss change in the future,  a
provision for probable loss might be required pursuant to SFAS No. 5, ACCOUNTING
FOR CONTINGENCIES.

Fees related to the credit enhancement  transaction for the years ended December
31, 2004, were approximately $1.0 million,  compared to $1.1 million in 2003 and
$1.3 million in 2002.

YIELD GUARANTEES

We have  entered  into  several  agreements  with either  Merrill  Lynch or IXIS
Financial Products,  Inc. (each a "Primary Guarantor") to guarantee  agreed-upon
rates of  return  for  pools of  multifamily  properties  each  owned by a local
partnership which in turn, is majority-owned by affiliates of RCC. In return, we
have or will receive  guarantee  fees,  generally at the start of each guarantee
period. There are seven agreements guaranteeing returns through the construction
and  lease-up  phases of the  properties  and there are seven  other  agreements
guaranteeing returns from the completion of the construction and lease-up phases
through the operating phase of the properties.

Total potential  exposure  pursuant to these guarantees is approximately  $460.0
million,  assuming there is no return  whatsoever by the funds. 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 the guarantees  and foresee no change in that regard.  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  guarantees,
representing  the  deferral of the fee income over the  guarantee  periods,  was
$17.1  million as of  December  31,  2004.  This  amount is included in accounts
payable,  accrued  expenses and other  liabilities on our  consolidated  balance
sheet.

Some of the local  partnerships have financed their properties with the proceeds
of our revenue bonds.  In these cases,  the Primary  Guarantor has required that
those  revenue  bonds be  deposited  into a trust  pursuant to which the revenue
bonds were divided into senior and subordinated interests with approximately 50%
of each  revenue  bond being  subordinated.  We have  financed  the senior trust
interest as part of the Merrill  Lynch  P-FLOATs/RITES  program (see Note 9). We
use the  subordinate  trust  interests  as  collateral  in our  other  financing
programs.  In connection with these transactions,  we have posted $160.2 million
as collateral  with the Primary  Guarantor in the form of either cash or revenue
bonds.

OTHER GUARANTEES

During  December  2002,  we  entered  into three  transactions  related to three
properties,  Coventry  Place,  Canyon  Springs and Arbor Ridge.  Pursuant to the
terms of these deals, we will provide credit support to the construction  lender
for project completion and Fannie Mae conversion and acquire  subordinated bonds
to the extent the construction period bonds do not fully convert.

Up until the point of  completion,  we will  guarantee the  construction  lender
reimbursement of any draw on its construction  letter of credit up to 40% of the
stated  amount  of the  letter of  credit.  Following  completion,  up until the

                                       97
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


project loan  converts to  permanent  loan status,  we will  guarantee  the full
amount of the letter of credit. We closely monitor these properties, and believe
there is currently no need to provide for any potential loss.

The developer has also issued  several  guarantees to the  construction  lender,
each of which  would be called  upon  before our  guarantees,  and each of which
would be assigned to us should its guarantees be called.

Once the  construction  loans  convert to permanent  loans,  we are obligated to
acquire  subordinated  loans for the  amount  by which  each  construction  loan
exceeds the  corresponding  permanent loan, if any. The subordinated  bonds will
bear interest at 10%. Under FNMA guidelines,  the size of the subordinated bonds
will be limited to a 1.0x debt  service  coverage  based on 75% of the cash flow
after the senior debt.

Our maximum exposure, related to these three transactions,  is 40% of the stated
amount of the Letter of Credit of approximately $27.0 million.

LEASE OBLIGATIONS

The future minimum  payments for operating leases as of December 31, 2004 are as
follows:

<TABLE>
<CAPTION>
(In thousands)
                               Year Ending December 31
                    ----------------------------------------
                    <C>                             <C>
                    2005                            $ 3,914
                    2006                              5,754
                    2007                              5,774
                    2008                              6,182
                    2009                              5,929
                    THEREAFTER                       43,665
                                                    -------
                       Total                        $71,218
                                                    =======
</TABLE>

OTHER CONTINGENCIES

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.

NOTE 21 - SUBSEQUENT EVENTS

REVENUE BOND ACQUISITIONS

In  March  2005,   we  exercised   our  option  to  terminate   our  fixed  rate
securitization  trust, and paid down $100 million borrowed through this facility
with proceeds from bonds securitized through the P-FLOATs program.

In January and  February  2005,  we acquired  seven  revenue  bonds with a total
aggregate  face  amount  of  approximately  $86.5  million,   secured  by  1,678
multifamily units.

In the first  quarter of 2005,  we extended and converted the loan made to Capri
in July 2004. Upon  conversion,  we held two  participating  loans, one of which
allowed us to participate in the cash flows of, and in turn was convertible into
a 100% ownership interest in, Capri Capital Finance ("CCF"). The other allows us
to  participate  in the cash flows of, and is  convertible  into a 49% ownership
interest in, Capri Capital Advisors ("CCA"),  a pension fund advisory  business.
In the  first  quarter  of 2005,  we  converted  the CCF loan and  acquired  the
business as an addition to our Mortgage  Banking segment.  Management  currently
expects to convert the CCA loan into an equity ownership prior to the end of the
loan term, no later than August 2006.

Also in the first  quarter of 2005,  we purchased the 13% of CMC that we had not
previously owned. The purchase price was $7.5 million, which we paid in cash.

During the first quarter of 2005, AMAC repaid to us the $4.6 million of advances
outstanding at December 31, 2004.

                                       98
<PAGE>

                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements


Item 9.    Changes  in  and Disagreements  with  Accountants  on  Accounting and
           Financial Disclosure.

           None.

Item 9A.   Disclosure 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 such
               term is defined in Rule 15(e) under the  Securities  Exchange Act
               of 1934,  as amended (the  "Exchange  Act")) as of the end of the
               period covered by this report.  Refer to  MANAGEMENT'S  REPORT ON
               THE EFFECTIVENESS OF INTERNAL CONTROL OVER FINANCIAL REPORTING on
               page 50.

           (b) INTERNAL  CONTROL OVER  FINANCIAL  REPORTING.  There have been no
               changes in our internal  control over financial  reporting during
               the  fiscal  quarter  to which  this  report  relates  that  have
               materially  affected,  or are  reasonably  likely  to  materially
               affect, our internal control over financial  reporting.  However,
               to  address  the  material  weaknesses identified, subsequent  to
               December 31, 2004,  our  management  has taken  specific  actions
               described in MANAGEMENT'S REPORT ON THE EFFECTIVENESS OF INTERNAL
               CONTROL OVER FINANCIAL REPORTING, (see page 50).


                                       99
<PAGE>

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF OUR COMPANY

           Our board of trustees  directs the  management of the business of our
           Company but retains our subsidiary,  Related  Capital,  to manage our
           day-to-day affairs.

           TRUSTEES AND EXECUTIVE OFFICERS

           Our trustees and executive officers are as follows:

<TABLE>
<CAPTION>
                                                                                         YEAR FIRST
                                                                                           BECAME         TERM
           NAME                   AGE       OFFICES HELD               INDEPENDENCE    OFFICER/TRUSTEE   EXPIRES
           -----------------------------------------------------------------------------------------------------
           <S>                    <C>   <C>                           <C>                   <C>           <C>
           Stephen M. Ross        64    Managing Trustee,             Non-Independent       1999          2006
                                        Non-Executive Chairman
                                        of the Board
           Stuart J. Boesky       48    Managing Trustee,             Non-Independent       1997          2006
                                        Chief Executive Officer
           Marc D. Schnitzer      44    Managing Trustee,             Non-Independent       2003          2005
                                        President
           Alan P. Hirmes         50    Managing Trustee,             Non-Independent       1997          2005
                                        Chief Financial Officer and
                                        Chief Operating Officer
           Denise L. Kiley        45    Managing Trustee,             Non-Independent       2003          2007 (1)
                                        Chief Credit Officer
           Peter T. Allen         59    Managing Trustee              Independent           1997          2007
           Charles L. Edson       70    Managing Trustee              Independent           2001          2005
           Andrew L. Farkas       44    Managing Trustee              Independent           2004          2007
           Jeff T. Blau           37    Managing Trustee              Non-Independent       2003          2007
           Robert A. Meister      63    Managing Trustee              Independent           2003          2007
           Jerome Y. Halperin     74    Managing Trustee              Independent           2003          2006
           Nathan Gantcher        64    Managing Trustee              Independent           2003          2006
           Robert L. Loverd       62    Managing Trustee              Independent           2003          2006
           Janice Cook Roberts    44    Managing Trustee              Independent           2003          2005
           Thomas W. White        66    Managing Trustee              Non-Independent       2000          2005
</TABLE>

          (1)  On February  25,  2005,  we announced  Ms.  Kiley's  intention to
               retire in 2005.

           STEPHEN  M.  ROSS  is the  non-executive  Chairman  of the  board  of
           trustees of our  Company.  Mr. Ross is the founder,  Chairman,  Chief
           Executive  Officer  and  Managing  General  Partner  of  The  Related
           Companies,  LP ("TRCLP").  Mr. Ross began his career  working for the
           accounting  firm of Coopers & Lybrand  in Detroit as a tax  attorney.
           Later, he moved to New York where he worked for two large Wall Street
           investment  banking firms in their real estate and corporate  finance
           departments  before  founding  TRCLP in 1972. Mr. Ross graduated from
           the University of Michigan School of Business  Administration  with a
           Bachelor of Science  degree and from Wayne State School of Law with a
           Juris  Doctor  degree.  He then  received a Master of Laws  degree in
           Taxation from New York University School of Law. Mr. Ross endowed the
           Stephen M. Ross School of Business at the University of Michigan. Mr.
           Ross is a member of the Executive Committee of the Board of Directors
           of the Real Estate Board of New York and is a trustee of the National
           Building Museum. Mr. Ross is also a member of the Executive Committee
           of the Board of Directors of NYC2012,  a committee  that is targeting
           New York City's bid for the 2012 Summer Olympic Games.  Mr. Ross also
           serves on the Board of Directors of the  Juvenile  Diabetes  Research
           Foundation and the Guggenheim Museum.

                                      100
<PAGE>

           STUART  J.  BOESKY is a  managing  trustee  and the  Chief  Executive
           Officer of our  Company,  the Chairman of our  subsidiary  CharterMac
           Mortgage Capital and the Managing Director of our subsidiary  Related
           Capital. Mr. Boesky is responsible for our strategic planning and new
           product development. He oversees all of our debt products,  including
           our portfolio  investing  and mortgage  banking  operations,  capital
           markets and research.  Mr. Boesky  practiced  real estate and tax law
           with the law firm of  Shipley &  Rothstein  from  1984-1986,  when he
           joined Related Capital.  From 1983 to 1984, he practiced law with the
           Boston office of Kaye,  Fialkow,  Richman and Rothstein.  Previously,
           Mr.  Boesky was a consultant  at the  accounting  firm of Laventhol &
           Horwath.  Mr. Boesky  graduated  with high honors from Michigan State
           University with a Bachelor of Arts degree and from Wayne State School
           of Law with a Juris Doctor degree.  He then received a Master of Laws
           degree in Taxation from Boston  University  School of Law. Mr. Boesky
           is Chairman of the board of trustees of American Mortgage  Acceptance
           Company  ("AMAC"),  a public  company  managed by an affiliate of our
           Company.  Mr. Boesky is a regular speaker at industry conferences and
           on television.  Mr. Boesky is also a member of the board of directors
           of the National  Association  of Affordable  Housing  Lenders and the
           Investment Program Association.

           MARC D.  SCHNITZER  is a managing  trustee and the  President  of our
           Company  and the Chief  Executive  Officer  of Related  Capital.  Mr.
           Schnitzer is also on the board of directors  of  CharterMac  Mortgage
           Capital.  Mr.  Schnitzer  directs  our tax  credit  group,  which has
           invested in excess of $5.5 billion in  affordable  housing tax credit
           properties  since  1987,  and  is  responsible  for  structuring  and
           marketing our institutional tax credit offerings.  Mr. Schnitzer is a
           frequent  speaker at industry  conferences  sponsored by the National
           Council  of  State  Housing   Agencies,   the  National  Housing  and
           Rehabilitation   Association   and  the   National   Association   of
           Homebuilders.  He is a member of the Executive Committee of the Board
           of  Directors  of  the  National  Multi-Housing  Council  and a  Vice
           President  and member of the  Executive  Committee of the  Affordable
           Housing Tax Credit Coalition. Mr. Schnitzer joined Related Capital in
           1988 after  receiving his Masters of Business  Administration  degree
           from The Wharton  School of the University of  Pennsylvania  in 1987.
           From 1983 to 1986, Mr.  Schnitzer was a Financial  Analyst with First
           Boston Corporation,  an international  investment bank. Mr. Schnitzer
           received a Bachelor  of Science  degree in  business  administration,
           summa cum laude,  from the Boston  University School of Management in
           1983.

           ALAN P. HIRMES is a managing trustee, the Chief Financial Officer and
           Chief  Operating  Officer  of our  Company,  a member of the board of
           directors of CharterMac Mortgage Capital and the President of Related
           Capital, both of which are subsidiaries of our Company. Mr. Hirmes is
           responsible for managing the overall  administration  of our Company,
           as  well as any new  initiatives  or  special  projects.  Mr.  Hirmes
           oversees the finance and  accounting,  human  resources,  information
           technology and investor  services  departments  and the joint venture
           development   program.   Mr.  Hirmes  has  been  a  Certified  Public
           Accountant  in New York since 1978.  Mr. Hirmes  currently  serves as
           Chairman Emeritus of the Affordable  Housing Tax Credit Coalition,  a
           national  organization dealing with issues relating to the Tax Credit
           Program.  He is also a member  of the  Advisory  Board  of the  LIHTC
           Monthly Report and of the National Housing Conference,  and he serves
           on the Executive Board of the National Multi Housing  Council.  Prior
           to joining  Related  Capital in October 1983, Mr. Hirmes was employed
           by Weiner & Co., certified public  accountants,  where he specialized
           in real estate and partnership  taxation.  Mr. Hirmes  graduated from
           Hofstra  University  with a Bachelor of Arts degree.  Mr. Hirmes also
           serves on the board of trustees of AMAC.

           DENISE L. KILEY is a managing  trustee,  the Chief Credit  Officer of
           our Company and the Chief Operating  Officer of Related Capital.  Ms.
           Kiley  is also on the  Board  of  Directors  of  CharterMac  Mortgage
           Capital.  Ms. Kiley is the Director of our Company's Asset Management
           and Underwriting  Divisions,  where she is responsible for overseeing
           the due diligence and asset management of all multifamily residential
           properties invested in Related  Capital-sponsored  corporate,  public
           and private equity and debt funds.  Prior to joining  Related Capital
           in 1990, Ms. Kiley was a First Vice President with Resources  Funding
           Corporation, where she was responsible for acquiring,  financing, and
           asset managing multifamily residential properties. From 1981-1985 she
           was an auditor  with Price  Waterhouse.  Ms. Kiley is a Member of the
           Advisory  Committee  for the Joint  Center  for  Housing  at  Harvard
           University;  she is on  the  Multifamily  Leadership  Board  for  the
           National  Association  of Home  Builders;  and she is a member of the
           National Housing & Rehabilitation  Association.  Ms. Kiley received a
           Bachelor of Science  degree in accounting  from The Carroll School of
           Management at Boston College.  As noted above,  Ms. Kiley is retiring
           from the Company.

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           PETER T. ALLEN is a managing  trustee  (independent  trustee)  of our
           Company and the President of Peter Allen &  Associates,  Inc., a real
           estate  development and management firm in which capacity he has been
           responsible  for the leasing,  refinancing,  and development of major
           commercial  properties.  Mr. Allen has also  been an  Adjunct faculty
           member  of  the  Graduate  School of  Business at the  University  of
           Michigan  since  1981.  Mr.  Allen  received  a   Bachelor  of   Arts
           Degree  in history/economics  from  DePauw  University  and a Masters
           Degree  in  Business  Administration   with   Distinction  from  the
           University of Michigan. Mr. Allen is the chairman of our Compensation
           Committee and a member of our Audit Committee.

           CHARLES L. EDSON is a managing trustee  (independent  trustee) of our
           Company.  Mr. Edson,  as senior counsel of the law firm Nixon Peabody
           LLP, is no longer  engaged in the practice of law.  From 1968 to 2002
           his  practice  included  service as counsel to several  governmental,
           trade  and  public  interest  entities  and  groups  on  housing  and
           legislative  matters. He still serves as the  Co-Editor-in-Chief  for
           the Housing and Development  Reporter, a news and information service
           published by The West Group. Mr. Edson is an Adjunct Professor of Law
           at Georgetown  University  Law Center,  where he teaches a seminar on
           federally assisted housing programs. During his career, he has served
           as the  Transition  Director for the  Department of Housing and Urban
           Development on President Carter's  transition staff and has also held
           the position of Chief in the Public Housing  Section at the Office of
           General Counselor at the Department of Housing and Urban Development.
           Mr. Edson received a Bachelor of Arts, magna cum laude,  from Harvard
           College and a Juris Doctor degree from Harvard Law School.  Mr. Edson
           is a member of our Investment Committee.

           ANDREW L.FARKAS is a managing  trustee (independent  trustee)  of our
           Company and the founder of Island Capital and is its Managing Member,
           Chairman and President.  Mr. Farkas was previously Chairman and Chief
           Executive  Officer of Insignia  Financial Group,  Inc., a global real
           estate services company that was merged with CB Richard Ellis in July
           2003.  Mr. Farkas  founded  Insignia in 1990.  By 2003,  Insignia had
           become the leading  commercial  real estate firm in both New York and
           London and operated  throughout the United States, the United Kingdom
           and  France.  Mr.  Farkas  received a Bachelor  of Arts  degree  from
           Harvard  University in 1982,  where he majored in  Econometrics.  Mr.
           Farkas  is a  member  of our  Investment  Committee  and our  Capital
           Markets Committee.

           JEFF T. BLAU is a managing  trustee and the President of TRCLP.  Over
           the past 15 years Mr. Blau has been  responsible  for  directing  and
           overseeing new developments  worth over $6 billion in virtually every
           sector of the real estate  industry.  In his position as President of
           TRCLP,  Mr. Blau is responsible for new  development  origination and
           for strategic  oversight of the firm's affiliated group of companies.
           Mr. Blau  completed his  undergraduate  studies at the  University of
           Michigan and received his Masters  Degree in Business  Administration
           from the Wharton School of the University of  Pennsylvania.  Mr. Blau
           is  an  active  member  of  numerous   professional   and  charitable
           organizations and currently sits on the board of directors of the Doe
           Fund,  the 14th  Street  Local  Development  Corporation  /  Business
           Improvement District,  ABO and the YMCA of Greater New York. Mr. Blau
           is a member of our Investment Committee.

           ROBERT A. MEISTER is a managing trustee (independent trustee) and the
           Vice  Chairman  of Aon Risk  Services  Companies,  Inc.  ("Aon"),  an
           insurance  brokerage,  risk  consulting,   reinsurance  and  employee
           benefits  company and a subsidiary of Aon  Corporation and has served
           in this position  since 1991.  Prior to Aon, Mr. Meister was the Vice
           Chairman and a Director of Sedgwick James from 1985-1991 and the Vice
           Chairman of Alexander & Alexander  from  1975-1985.  Mr. Meister is a
           member of the board of directors of Ramco  Gershenson  Properties and
           Universal  Health Services and serves on each company's  compensation
           committee.  Mr.  Meister  has  served  on the board of  directors  of
           several charitable organizations.  Mr. Meister received a Bachelor of
           Science degree in Business  Administration  from  Pennsylvania  State
           University.  Mr. Meister is a member of our Nominating and Governance
           Committee and our Conflicts Committee.

           JEROME Y. HALPERIN is a managing trustee (independent trustee) of our
           Company and a retired  partner of  PricewaterhouseCoopers,  LLP,  the
           international  accounting  firm,  where he  spent 39 years in  varied
           positions.  Mr.  Halperin's final position at  PricewaterhouseCoopers
           was   Chairman  of  the   international   actuarial,   benefits   and
           compensation    services    group.    After   his   retirement   from
           PricewaterhouseCoopers, Mr. Halperin was the president of the Detroit
           Investment  Fund, a private  investment fund established to stimulate
           economic growth in the city of Detroit.  Currently, Mr. Halperin is a

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           consultant on various real estate projects. He serves on the board of
           directors of several charitable organizations and was the Chairman of
           the  Michigan  Tax  Forms  Revisions  Committee,  a  position  he was
           appointed to by the Governor of the State of Michigan.  Mr.  Halperin
           is the co-author of "Tax Planning for Real Estate Transactions".  Mr.
           Halperin  received a Bachelor  of  Business  Administration  from the
           University  of Michigan  and a Juris  Doctor from Harvard Law School.
           Mr.  Halperin is the chairman of our Audit  Committee and is a member
           of our Capital Markets Committee.

           NATHAN GANTCHER is a managing  trustee  (independent  trustee) of our
           Company.  He is the  former  vice  chairman  of  CIBC  World  Markets
           Corporation,  the U.S. Section 20 broker/dealer of Canadian  Imperial
           Bank of Commerce  ("CIBC").  CIBC  acquired  Oppenheimer & Company in
           November 1997. Mr. Gantcher had been with Oppenheimer  since 1968 and
           served as its  president  and  co-chief  executive  officer from 1983
           until the firm was acquired in 1997. Prior to joining Oppenheimer, he
           was an account executive with Young & Rubicam,  the advertising firm,
           for four  years.  Mr.  Gantcher  recently  retired as Chairman of the
           board of  trustees  of Tufts  University,  where he had been a member
           since 1983 and chairman  for the last eight years.  He is a member of
           the  Council on Foreign  Relations,  a director of  Mack-Cali  Realty
           Corporation,  Neuberger  Berman,  LLC and Refco  Group  Ltd.,  LLC, a
           senior  adviser  for RRE  Investors,  and a  former  governor  of the
           American  Stock  Exchange.  Mr.  Gantcher is a member of the steering
           committee of the Wall Street division of the U.J.A.,  a past director
           of the  Jewish  Communal  Fund and a trustee  of the  Anti-Defamation
           League  Foundation.  Mr.  Gantcher  received a Bachelor  of Arts from
           Tufts  University  and a  Masters  in  Business  Administration  from
           Columbia Business School. Mr. Gantcher is the chairman of our Capital
           Markets  Committee and is a member of our  Nominating  and Governance
           Committee and our Compensation Committee.

           ROBERT L. LOVERD is a managing trustee  (independent  trustee) of our
           Company and the former Group Chief  Financial  Officer and a Founding
           Partner  of MC  European  Capital  (Holdings),  a  London  investment
           banking  and  securities  firm,  which  was  established  in 1995 and
           substantially  sold in 2000.  From  1979 to  1994,  Mr.  Loverd  held
           various  positions in New York and London in the  Investment  Banking
           Department of Credit Suisse First Boston.  Prior to that,  Mr. Loverd
           was a shareholder in the International  Investment Banking Department
           of Kidder, Peabody & Co. Incorporated.  Mr. Loverd is a member of the
           Board of  Directors  of  Harbus  Investors.  Mr.  Loverd  received  a
           Bachelor of Arts degree from  Princeton  University  and a Masters in
           Business  Administration  from Harvard Business School. Mr. Loverd is
           the chairman of our Nominating and Governance  Committee and a member
           of our Capital Markets Committee.

           JANICE COOK ROBERTS is a managing  trustee  (independent  trustee) of
           our  Company and an  Executive  Vice  President  at the New York City
           Investment Fund, which provides financial and strategic assistance to
           businesses that spur economic activity in New York City.  Joining the
           organization  in 1996, Ms. Roberts helped launch the Fund,  which has
           raised  over $96  million  in  capital  and has  invested  in over 50
           businesses  since its  inception.  Prior to joining the New York City
           Investment Fund, Ms. Roberts was employed by  MCA/Universal,  serving
           as Executive Director of the International division from 1989 to 1996
           and as Senior  Auditor in the Corporate  Internal Audit division from
           1987 to 1989.  Ms.  Roberts was also  Assistant  Treasurer at Bankers
           Trust  Company from 1982 to 1985,  in which  capacity  she  performed
           detailed  financial  analysis and modeling.  Ms. Roberts received her
           Bachelor of Arts degree in Political  Science and French from Amherst
           College and her Masters in Business  Administration  from the Harvard
           Graduate School of Business  Administration.  Ms. Roberts is a member
           of our Audit Committee and our Conflicts Committee.

           THOMAS W.  WHITE is a  managing  trustee of our  Company.  Mr.  White
           retired as a Senior Vice  President of Fannie Mae in the  multifamily
           activities  department,  where he was responsible for the development
           and  implementation  of policies  and  procedures  for all Fannie Mae
           multifamily  programs,   including  the  delegated  underwriting  and
           servicing  program,  prior approval  program and negotiated  swap and
           negotiated cash purchases  product lines. He was also responsible for
           asset   management   of   multifamily   loans  in  a   portfolio   of
           mortgage-backed  securities.  Mr. White joined Fannie Mae in November
           1987 as director of multifamily  product  management.  He was elected
           Vice President for multifamily asset acquisition in November 1998 and
           assumed his position of Senior Vice President in November 1990. Prior
           to joining  Fannie Mae, he served as an  investment  banker with Bear

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           Stearns,  Inc.  He  also  was the  executive  vice  president  of the
           National Council of State Housing Agencies; chief underwriter for the
           Michigan State Housing Development  Authority;  and served as a state
           legislator in the state of Michigan. In July 2001, we hired Mr. White
           as a  consultant.  Mr.  White  serves  on the Board of  Directors  of
           New  York Mortgage Trust, Inc. and  CharterMac Mortgage Capital.  Mr.
           White is  Chairman of our Investment  Committee  and  Chairman of our
           Conflicts Committee.

           COMMITTEES OF THE BOARD OF TRUSTEES

           Our board of trustees has standing  audit,  compensation,  nominating
           and governance, investment, capital markets and conflicts committees.
           The  functions  of each  committee  are  detailed  in the  respective
           committee   charters,   which  are   available   on  our  website  at
           http://www.chartermac.com in the "Investor Relations" section. Please
           note that the  information  on our  website  is not  incorporated  by
           reference in this filing on Form 10-K.

                  Audit Committee

                  The audit  committee's  duties include the periodic  review of
                  our financial  statements  and meetings  with our  independent
                  auditors.  The audit  committee must have three members and be
                  comprised solely of independent trustees.  The audit committee
                  held seven  meetings  during the year ended  December 31, 2004
                  and is currently comprised of Mr. Halperin,  Mr. Allen and Ms.
                  Roberts,  each of whom the board of trustees has determined is
                  independent  within the  meaning of  Securities  and  Exchange
                  Commission  ("SEC")  rules  and  regulations  and the  listing
                  standards of the American  Stock  Exchange.  In addition,  our
                  board  of  trustees  has  determined   that  Mr.  Halperin  is
                  qualified as an audit  committee  financial  expert within the
                  meaning of SEC rules and regulations and the listing standards
                  of the American Stock Exchange.

                  Compensation Committee

                  The compensation  committee's duties include the determination
                  of  the   compensation   of  our   executive   officers,   the
                  administration  of our Incentive Share Plan and the review and
                  approval   of  any   material   employment   agreements.   The
                  compensation  committee  must have at least two members and be
                  comprised  solely of independent  trustees.  The  compensation
                  committee  held four meetings  during the year ended  December
                  31,  2004 and is  currently  comprised  of Mr.  Allen  and Mr.
                  Gantcher, each of whom the board of trustees has determined is
                  independent  within the  meaning of SEC rules and  regulations
                  and the listing standards of the American Stock Exchange.

                  Nominating and Governance Committee

                  The  nominating  and  governance  committee's  duties  include
                  recommending  to the board for its  approval  (subject  to the
                  conditions set forth below) the trustee  nominees for election
                  at any  annual or  special  meeting  of our  shareholders  and
                  overseeing   our   compliance   with   legal  and   regulatory
                  requirements pertaining to corporate governance, including the
                  corporate  governance  listing  requirements  of the  American
                  Stock  Exchange.  In evaluating a candidate  for trustee,  the
                  committee  considers factors that are in the best interests of
                  our Company and our shareholders, including:

                  (i)    business  and/or  technical  experience  and  expertise
                         relevant to the needs of our Company;
                  (ii)   leadership;
                  (iii)  diversity;
                  (iv)   ability to represent our shareholders; and
                  (v)    the  independence and expertise  standards  mandated by
                         SEC rules and regulations, the listing standards of the
                         American  Stock  Exchange  and  any  other   applicable
                         federal or state law, rule or regulation.

                  The nominating and governance committee must have at least two
                  members and be comprised solely of independent  trustees.  The
                  nominating and governance  committee is currently comprised of
                  Mr. Loverd,  Mr.  Gantcher and Mr.  Meister,  each of whom the
                  board of trustees has  determined  is  independent  within the

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<PAGE>

                  meaning of SEC rules and regulations and the listing standards
                  of the American Stock Exchange.  The nominating and governance
                  committee  held five meetings  during the year ended  December
                  31, 2004.

                  Pursuant to our by-laws,  any shareholder  entitled to vote at
                  the  annual  meeting  may submit a  nomination  for a trustee.
                  Nominations by a shareholder must be given in a timely fashion
                  and notice of the  nomination  must be given in writing to our
                  board of trustees.  To be timely, a shareholder's  notice must
                  be  delivered  to the  board  of  trustees  at  our  principal
                  executive  offices not less than 60 days nor more than 90 days
                  prior to the first  anniversary of the preceding year's annual
                  meeting; provided, however, that in the event that the date of
                  the annual meeting is advanced by more than 30 days or delayed
                  by more than 60 days from such anniversary date, or if we have
                  not previously held an annual meeting, notice by a shareholder
                  to be timely may be  delivered  not earlier  than the 90th day
                  prior to such  annual  meeting and not later than the close of
                  business  on the  later of the 60th day  prior to such  annual
                  meeting  or the tenth day  following  the day on which  public
                  announcement  of the date of such meeting is first made.  Such
                  shareholder's notice must set forth as to each person whom the
                  shareholder proposes to nominate for election or reelection as
                  a Managing  Trustee,  all information  relating to such person
                  that is required to be disclosed in  solicitations  of proxies
                  for election of Managing Trustees,  or is otherwise  required,
                  in each case pursuant to Regulation  14A under the  Securities
                  Exchange  Act  of  1934,  as  amended  (the  "Exchange   Act")
                  (including such person's written consent to being named in the
                  proxy  statement  as a nominee  and to  serving  as a Managing
                  Trustee if elected).  In the event that the number of Managing
                  Trustees to be elected to the board of  trustees is  increased
                  and there is no public announcement naming all of the nominees
                  for Managing  Trustee or specifying  the size of the increased
                  board of  trustees  made by us at  least 70 days  prior to the
                  first  anniversary of the preceding  year's annual meeting,  a
                  shareholder's  notice will also be considered timely, but only
                  with respect to nominees for any new positions created by such
                  increase,  if it is  delivered to the board of trustees at our
                  principal  offices not later than the close of business on the
                  tenth day following the day on which we first made such public
                  announcement.

                  So long as the holders of the Special Common Units own, in the
                  aggregate,  7.5% or more of our outstanding voting securities,
                  holders of a majority  of the  outstanding  Special  Preferred
                  Voting  Shares  will have the  right,  instead of our board of
                  trustees (or our nominating and governance  committee thereof)
                  to elect to our board of trustees any non-independent trustees
                  to fill a vacancy and to nominate any non-independent trustees
                  for  election  at  any  annual  or  special   meeting  of  our
                  shareholders.  This  power of  nomination  will not affect the
                  right of the  holders  of our common  shares to also  nominate
                  their choices for the non-independent  trustee nominees as set
                  forth in the previous paragraph. After the date upon which the
                  holders of the  Special  Preferred  Voting  shares own, in the
                  aggregate,   less   than  7.5%  of  our   outstanding   voting
                  securities,  the nominating and governance committee will have
                  the  right  to  nominate  non-independent  trustees  to fill a
                  vacancy  (which  vacancies  will be filled by the  affirmative
                  vote of a majority of our board of  trustees)  or to stand for
                  election at any annual or special meeting.

                  If there is any vacancy for independent trustees,  replacement
                  independent  trustees will be nominated by the  nominating and
                  governance committee and subject to the approval of two-thirds
                  of the  trustees.  The  vacancy  shall be filled by a majority
                  vote  of  the  trustees   electing  a  nominated   replacement
                  independent  trustee. All trustees have the right to recommend
                  to  the   nominating   and   governance   committee   for  its
                  consideration  their choices for the  replacement  independent
                  trustee  nominees.   If  there  is  no  remaining  independent
                  trustee,  any such  vacancies  will be filled by a majority of
                  the remaining managing trustees.

                  The nominating and governance committee approved, on behalf of
                  the  board  of  trustees,   a  set  of  Corporate   Governance
                  Guidelines  and a Code of Business  Conduct and Ethics for our
                  Company.  The ongoing  administration of these two policies is
                  overseen by the Audit Committee

                  Investment Committee

                  The  investment  committee's  duties  include  the  review and
                  oversight   of   our   Company's   investment   policies   and
                  strategies  and  the review and approval of  new product lines
                  and  investment  transactions for which the Executive Officers
                  of  our  Company are not otherwise  delegated the authority to

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<PAGE>

                  execute, pursuant  to  the investment committee's charter. The
                  investment  committee must have at least  three  members.  The
                  investment  committee  held  nine  meetings  during  the  year
                  ended  December 31, 2004 and is  currently  comprised  of  Mr.
                  Blau, Mr. Edson, Mr. Farkas and Mr. White.

                  Capital Markets Committee

                  The  capital markets committee's  duties include the review of
                  the annual  capital  plan,  the  review  of our  financing and
                  hedging  strategies  and the approval of our debt  and equity
                  issuances   and   the  debt  and   equity   issuances  of  our
                  subsidiaries.  The capital  markets  committee   must  have at
                  least three members. The capital markets committee  held  four
                  meetings  during the year  ended  December  31,  2004  and  is
                  currently comprised of  Mr. Gantcher,  Mr. Loverd,  Mr. Farkas
                  and Mr. Halperin.

                  Conflicts Committee

                  The  conflicts  committee's  duties  include   the  review  of
                  transactions  with  Affiliates,  as  defined  in the conflicts
                  committee's  charter.  The conflicts  committee  must  have at
                  least  three  members.   The   conflicts  committee  held  six
                  meeting  during  the year  ended  December  31,  2004  and  is
                  currently  comprised  of  Mr.  Meister,   Mr.  White  and  Ms.
                  Roberts.

           OTHER CORPORATE GOVERNANCE INITIATIVES

           We have  adopted a Code of  Business  Conduct  and  Ethics as defined
           under the rules of the SEC,  that applies to our  Executive  Officers
           and all professionals in finance and finance-related  departments, as
           well as our trustees and officers and employees of our subsidiaries.

           We regularly monitor developments in the area of corporate governance
           and continue to enhance our corporate governance structure based upon
           a review of new  developments  and recommended  best  practices.  Our
           corporate  governance  materials,  including our Corporate Governance
           Guidelines,  Code of  Business  Conduct and  Ethics,  Whistle  Blower
           Policy  (which is  incorporated  in our Code of Business  Conduct and
           Ethics) and standing  committee  charters may be found on our website
           at  http://www.chartermac.com  in the "Investor  Relations"  section.
           Copies of these  materials are also  available to  shareholders  upon
           written request to our Secretary, CharterMac, 625 Madison Avenue, New
           York, New York, 10022.

           RELATED CAPITAL

           We and our  subsidiaries  (with the exception of CharterMac  Mortgage
           Capital) operate our day-to-day activities utilizing the services and
           advice provided by our subsidiary,  Related  Capital,  subject to the
           supervision and review of our board of trustees and our subsidiaries'
           board of trustees (or directors), as applicable.

           EXECUTIVE OFFICERS

           The executive officers of Related Capital are set forth below:

<TABLE>
<CAPTION>

           NAME                       AGE               OFFICE
           --------------------------------------------------------------------
           <S>                         <C>              <C>
           Marc D. Schnitzer           44               Chief Executive Officer
           Stuart J. Boesky            48               Managing Director
           Alan P. Hirmes              50               President
           Denise L. Kiley (1)         45               Chief Operating Officer
</TABLE>

          (1)  On February  25,  2005,  we announced  Ms.  Kiley's  intention to
               retire in 2005.

           Biographical information may be found above, beginning on pages 100.


                                      106
<PAGE>

           COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

           Section  16(a) of the  Securities  Exchange Act of 1934,  as amended,
           requires our  executive  officers and  trustees,  and persons who own
           more than ten percent of a registered class of our equity securities,
           to file reports of ownership  and changes in ownership  with the SEC.
           These  persons are  required by  regulation  of the SEC to furnish us
           with copies of all Section 16(a) forms they file.

           During the year ended  December 31, 2004,  two of our  trustees,  Mr.
           Gantcher and Mr. Farkas,  did not comply with all applicable  Section
           16(a)  filing  requirements.  Mr.  Gantcher  purchased  shares of our
           Company on  October  8, 2004 and  October 9, 2004 and he did not file
           the applicable  Section 16(a) filing until October 15, 2004, which is
           longer than the two  business day  requirement  of the SEC for filing
           Section 16(a) filings. In addition, Mr. Farkas received shares of our
           Company in  connection  with his service as  independent  trustees on
           December  31,  2004  and did not file the  applicable  Section  16(a)
           filings until January 6, 2005,  which is longer than the two business
           day  requirement of the SEC for filing  Section 16(a) filings.  Other
           than Mr. Gantcher and Mr. Farkas, the remaining  trustees,  executive
           officers and greater than ten percent beneficial owners complied with
           all applicable Section 16(a) filing requirements.

ITEM 11.   EXECUTIVE COMPENSATION

           TRUSTEE COMPENSATION

           Each independent  trustee receives annual compensation at the rate of
           $50,000,  payable $25,000 in cash (or, at a trustee's option,  common
           shares) and common shares having an aggregate value of $25,000, based
           on the fair market value at the date of issuance.  The trustees  have
           the option to have their common shares  cliff-vest after a three-year
           period. In addition, independent trustees are eligible for an expense
           reimbursement for attending meetings of the board of trustees and the
           committees.   The  chairman  of  the  audit  committee   receives  an
           additional $5,000 per year for serving as chairman.

           EXECUTIVE COMPENSATION SUMMARY TABLE

           The following table sets forth the  compensation  during each of the
           Company's  last three years paid to our CEO and the three other most
           highly compensated  Executive Officers based on compensation  earned
           during the year ended December 31, 2004.

<TABLE>
<CAPTION>
                                                                                                        SECURITIES
                                                                                                        UNDERLYING
                                                                                                          SHARE
           NAME AND                                                       OTHER ANNUAL     RESTRICTED    OPTIONS
           PRINCIPAL POSITION AT                                        COMPENSATION (1)     SHARE      (NUMBER OF
           DECEMBER 31, 2004           YEAR   SALARY ($)    BONUS ($)         ($)          AWARDS ($)    SHARES)
           ---------------------------------------------------------------------------------------------------------
           <S>                         <C>    <C>          <C>              <C>            <C>           <C>
           Stuart J. Boesky            2004   $521,323     $500,000         $29,432        $400,009(2)   220,765(3)
            CHIEF EXECUTIVE OFFICER    2003   $ 61,538(4)    50,000(5)      $    --        $     --           --
                                       2002   $     --     $     --         $    --        $     --           --
           Alan P. Hirmes              2004   $521,323     $500,000         $23,280        $317,060(2)   174,985(3)
            CHIEF FINANCIAL OFFICER    2003   $ 61,538(4)  $ 50,000(5)      $    --        $     --           --
                                       2002   $     --     $     --         $    --        $     --           --
           Marc D. Schnitzer           2004   $521,323     $500,000         $29,758        $400,009(2)   220,765(3)
            PRESIDENT                  2003   $ 61,538(4)  $ 50,000(5)      $    --        $     --           --
                                       2002         --            --        $    --        $     --           --
           Denise L. Kiley*            2004   $521,323     $500,000         $25,884        $     --           --
            CHIEF CREDIT OFFICER       2003   $ 61,538(4)  $ 50,000(5)      $   --         $     --           --
                                       2002   $     --     $     --         $    --        $     --           --
</TABLE>

           *   On February  25,  2005,  we announced  Ms.  Kiley's  intention to
               retire in 2005.

                                      107
<PAGE>

           (1)  Includes 401(K) match, premiums paid by the Company with respect
                to life  insurance  and health  insurance;  with  respect to Mr.
                Boesky, an apartment allowance; and, with respect to Mr. Hirmes,
                Mr. Schnitzer and Ms. Kiley, an auto allowance.
           (2)  The value of the grants of restricted  common  shares  effective
                January 3, 2005,  is based upon the  closing  price of $24.44 of
                the  Company's  common  shares on the  trading  day prior to the
                effective  date of the grants.  These  restricted  common shares
                vest over a three  year  period,  with one third  vesting on the
                first anniversary of the effective date of the grants.
           (3)  Options have a strike price of $24.44 and vest over a three year
                period,  with one third vesting on the first  anniversary of the
                effective date of the grant, which was January 3, 2005.
           (4)  Mr.  Boesky,  Mr.  Hirmes,  Mr.  Schnitzer  and  Ms.  Kiley  are
                employees of Related  Capital,  which became our  subsidiary  on
                November 17, 2003.  Therefore,  their salaries on this chart for
                2003 are the actual  dollar  amounts  received for the period of
                time that they were  employees  of a  subsidiary  of our Company
                (November  17,  2003-December  31,  2003) based on their  annual
                salaries ($500,000). For the period of January 1, 2003- November
                16, 2003 and the year ended December 31, 2002,  Mr. Boesky,  Mr.
                Hirmes,  Mr.  Schnitzer and Ms. Kiley did not receive any direct
                compensation   from   our   Company.   Rather,   they   received
                compensation   from  Related  Capital,   which,   prior  to  the
                acquisition,   provided   management  services  to  our  Company
                pursuant to a management contract.
           (5)  Represents bonus payments for the period of November 17, 2003 to
                December 31, 2003.

           SHARE OPTION GRANTS, EXERCISES AND HOLDINGS

           No share  options were granted  during 2004,  although  share options
           granted in 2005 as noted in (3) above pertained to 2004 services.

<TABLE>
<CAPTION>
           2004 YEAR-END OPTION VALUES

                                                                                                          VALUE OF
                                                                          NUMBER OF                      UNEXERCISED
                                                                         UNEXERCISED                    IN-THE-MONEY
                                                                         OPTIONS/SARS                   OPTIONS/SARS
                                                                         AT YEAR-END                     AT YEAR-END
                                                               ----------------------------------  -------------------------
                                      SHARES
                                     ACQUIRED
                                        ON         VALUE
           NAME (1)                EXERCISE (#)  REALIZED (2)  EXERCISABLE (#)  UNEXERCISABLE (#)  EXERCISABLE UNEXERCISABLE
           ----------------------  ------------  ------------  ----------------------------------  -------------------------
           <S>                         <C>         <C>               <C>               <C>           <C>          <C>
           Stuart J. Boesky            1,739       $20,107           --                --            $    --      $    --

           Alan P. Hirmes                 --       $    --           --                --            $    --      $    --

           Marc D. Schnitzer           1,739       $20,107           --                --            $    --      $    --

           Denise L. Kiley                --       $    --           --                --            $    --      $    --
</TABLE>

           (1)  See  Executive  Compensation  Summary  Table  for  title  of the
                persons named above.
           (2)  The value realized is calculated based upon the number of shares
                acquired  on  exercise  times the strike  price of the  options,
                which was $11.5625.

           EMPLOYMENT AGREEMENTS

           The material terms of  the employment agreements with Mr. Boesky, Mr.
           Hirmes, Mr. Schnitzer and Ms. Kiley are as follows:

                                      108
<PAGE>

                  Compensation

                  Each of the  executives  receives  a base  salary at an annual
                  rate of $500,000,  which amount may be increased  from time to
                  time at the  discretion of the  compensation  committee of our
                  board of trustees.  This notwithstanding,  an executive's base
                  salary will, at a minimum,  increase annually by the lesser of
                  (a) 5% or (b) the percentage equal to the increase, if any, in
                  the  Consumer  Price Index  measured for the twelve (12) month
                  period  immediately   preceding  the  effective  date  of  the
                  increase.

                  Term

                  Each  employment  agreement  is for a  term  of  three  years,
                  provided however that this term will automatically be extended
                  for  additional  periods of one year  commencing  on the third
                  anniversary  of the  effective  date of the agreement and each
                  anniversary  thereof  unless  terminated  by either party upon
                  notice.

                  Non-competition/Non-solicitation

                  During the course of employment  and for a period of 18 months
                  thereafter,  each executive has agreed not to engage, directly
                  or  indirectly,  in a "competitive  business"  anywhere in the
                  United  States,  provided  that in the event that an executive
                  terminates  his or  her  employment  for  good  reason  or the
                  executive's  employment is terminated by us without cause, the
                  duration  of the  non-competition  period will be reduced to a
                  period  of  12  months  following  termination.   "Competitive
                  business"  means  arranging  for  or  providing,  directly  or
                  indirectly,  debt and/or equity financing products or services
                  to developers and owners of multifamily housing.

                  In  addition,   for  a  period  of  18  months  following  the
                  termination of an executive's  employment (or 12 months in the
                  event that executive terminates his or her employment for good
                  reason  or the  executive's  employment  is  terminated  by us
                  without  cause)  such   individual   will  not,   directly  or
                  indirectly, contact, solicit or do business of any kind in any
                  competitive business with, any person who, during the two-year
                  period  preceding the date of termination of employment,  sold
                  or developed, or owned an interest in a tax credit property or
                  a tax credit  syndication  interest sponsored by CCC or any of
                  its affiliates.

                  Termination

                  Employment  may be  terminated  at any time during the term of
                  employment  (a)  by us  with  or  without  cause;  (b)  by the
                  executive upon notice of resignation delivered to the company;
                  (c)  upon  death of the  executive;  and (d) by us at any time
                  after six months of an executive's disability.

                  Upon  termination  of employment (a) by the executive for good
                  reason or by the company  without cause,  (b) by the executive
                  within one year after a change in control  for good  reason or
                  if we terminate the executive's employment in anticipation of,
                  or  within  one year  after a change of  control,  or (c) upon
                  death or  disability  during  the course of  employment,  such
                  executive managing partner will be entitled to:

                  Termination other than in connection with a change in control.

                  If  employment  is terminated by the executive for good reason
                  or by us without cause,  the executive will be entitled to (a)
                  any  unvested  options  awarded  to the  executive  under  the
                  incentive share option plan and (b) severance  compensation in
                  an amount  equal to 12 months of his or her base  salary  plus
                  75% of the  amount of his or her most  recently  declared  and
                  paid annual bonus  compensation,  payable in a lump sum within
                  30  days of the  date  of  termination  of  employment.  As an
                  example of the  computation  of the  severance  payment  which
                  could be  payable  in a  circumstance  other  than a change of
                  control, assume that the executive is terminated in year 3 and
                  his or her then current base salary is $551,250  (the original
                  base salary  plus the  minimum 5%  increase  per year) and the
                  annual bonus paid in year 2 was $50,000. In this example,  the
                  severance compensation would equal $588,750.

                                      109
<PAGE>

                  Termination in connection with a change in control.

                  In the event  employment is terminated by the executive within
                  one year after a change in control for good reason or by us in
                  anticipation  of,  or  within  one year  after,  a  change  in
                  control,  the  severance  payable will be equal to 200% of the
                  severance   compensation   payable   in   connection   with  a
                  termination other than in the event of a change in control. As
                  an example of the  computation of the severance  payment which
                  could be  payable  in  connection  with a change  of  control,
                  assume the same facts as above in  "Termination  other than in
                  connection  with a change in control".  In this  example,  the
                  severance compensation would equal $588,750 multiplied by 2 or
                  $1,177,500.

                  Death; disability.

                  In  the  event  employment  is  terminated  due  to  death  or
                  disability  during the course of  employment,  such  executive
                  (and his or her  estate  or  designated  beneficiary)  will be
                  entitled to receive a cash payment  equal to 12 months of base
                  salary plus 75% of the amount of the executive's  annual bonus
                  compensation.   As  an  example  of  the  computation  of  the
                  severance  payment which could be payable in  connection  with
                  death  or  disability,  assume  the  same  facts  as  above in
                  "Termination  other  than  in  connection  with  a  change  in
                  control".  In this example,  the severance  compensation would
                  equal the same as for  "Termination  other than in  connection
                  with a change in control" (i.e., $588,750).

                  Other Benefits

                  During  employment,  each  executive  is also  eligible to (i)
                  participate in all bonus and incentive compensation plans made
                  available from time to time, which will be considered at least
                  annually by the compensation  committee and have opportunities
                  for cash  bonuses;  (ii)  receive  options  as the same may be
                  awarded from time to time by the compensation  committee under
                  our incentive share option plan; and (iii)  participate in the
                  various  medical,  life insurance,  pension and other employee
                  benefit plans maintained by us.

                                      110
<PAGE>


           STOCK PERFORMANCE GRAPH

           The following  share  performance  graph compares our performance to
           the S&P 500 and the Russell 2000 stock index.  We are  currently one
           of the companies  included in the Russell 2000 stock index, an index
           that  measures  the  performance  of  small  market   capitalization
           companies. The graph assumes a $100 investment on December 31, 1999.
           All stock price  performance  figures  include the  reinvestment  of
           dividends.


                       [GRAPHIC OMITTED][GRAPHIC OMITTED]


<TABLE>
<CAPTION>
           CUMULATIVE TOTAL RETURN

                              12/99      12/00      12/01      12/02      12/03      12/04
                            ------------------------------------------------------------------
           <S>               <C>        <C>        <C>        <C>        <C>        <C>
           CharterMac        $100.00    $114.38    $138.30    $147.83    $179.83    $208.00
           S&P 500            100.00      90.89      80.09      62.39      80.29      89.02
           Russell 2000       100.00      96.98      99.39      79.03     116.38     137.71
</TABLE>

           Compensation   Committee  Interlocks  and  Insider  Participation  in
           Compensation Decisions

           See  COMMITTEES  OF THE BOARD OF  TRUSTEES -  COMPENSATION  COMMITTEE
           above.  Each of the committee  members is independent and none of the
           committee members have any "interlocking" relationships.

                                      111
<PAGE>


           Board Compensation Committee Report on Executive Compensation

           STATEMENT OF PHILOSOPHY

           The compensation  committee's duties include the determination of the
           compensation of our executive  officers,  the  administration  of our
           Amended and Restated  Incentive Share Plan  ("Incentive  Share Plan")
           and the review and  approval of any  material  employment  agreements
           entered into by Related Capital. We seek to attract and retain highly
           qualified  individuals at all levels, and in particular,  those whose
           performance is most critical to our Company's success.

           Our Company's success depends on developing, motivating and retaining
           individuals  who have the skills and  expertise  to lead our Company.
           Our  Company's  executive  compensation  program is  designed to help
           achieve these objectives. It is comprised of the following three main
           components:  (i) competitive base salaries;  (ii) bonuses;  and (iii)
           long-term incentives.

           OVERVIEW

           In connection  with our acquisition of Related  Capital,  each of our
           executive  officers entered into three-year  contracts,  the terms of
           which are  summarized  under  the  heading  "Employment  Agreements",
           below. Under those contracts, each of the executive officers receives
           a  base  salary  of  $500,000  per  year  which  is  not  subject  to
           adjustment.  We may determine to pay bonus compensation which we have
           done in the past and may do in the future  based on the  criteria set
           forth under the headings "Cash Bonuses" and "Long-Term Incentives".

           SALARIES

           In keeping  with the  long-term  and highly  technical  nature of our
           business,  we  generally  take  a  long-term  approach  to  executive
           compensation.  Each year  following the  expiration of the three-year
           contracts  entered  into  with  each of the  executive  officer,  the
           compensation   committee  will  evaluate  Related   Capital's  salary
           structure based on competitive  positioning  (comparing the Company's
           salary  structure  with salaries paid by other peer  companies);  the
           Company's own business  performance;  and general  economic  factors.
           Specific  considerations  are expected to include cash  available for
           distribution  growth,  total return to shareholders and contributions
           to  Company-wide  achievement.  In  conducting  its  assessment,  the
           compensation  committee will review  compensation data for comparable
           companies to the extent available

           CASH BONUSES

           The bonus an  executive  receives,  including  the CEO, in large part
           depends  on the  executive's  individual  performance  and  level  of
           responsibility.  Each year,  we assess  performance  based on factors
           including  business  results,  technical  expertise,  leadership  and
           management skills.

           LONG-TERM INCENTIVES

           Long-term  incentive awards are intended to develop and retain strong
           management   through  share  ownership  and  incentive   awards  that
           recognize  future  performance.  We have adopted our Incentive  Share
           Plan,  the  purpose  of which is to (i) permit  our  Company  and its
           subsidiaries to attract and retain qualified  individuals as trustees
           and officers and (ii) to provide  incentive and to more closely align
           their financial  interests with the interests of our  shareholders by
           providing these  individuals with substantial  financial  interest in
           our success.  The  compensation  committee  administers our Incentive
           Share Plan.

           Under the Incentive Share Plan, the compensation  committee may grant
           options,  restricted shares, deferred shares,  performance units, and
           performance  shares  (collectively,  "Awards")  to our  trustees  and
           officers   (and  the   trustees,   officers  and   employees  of  our
           subsidiaries) as authorized by our board of trustees.

           The maximum  number of shares  that may be subject to Awards  granted
           under the Incentive Share Plan  (determined at the time each Award is
           granted)  is the lesser of (i) ten percent  (10%) of our  outstanding

                                      112
<PAGE>

           shares (which includes Common Shares,  preferred shares and any other
           securities  that  have the same  economic  attributes  as our  Common
           Shares) as of the December 31 of the immediately  preceding  calendar
           year,  and (ii) the limit  prescribed  by  listing  standards  of the
           American Stock Exchange or any other national  securities exchange or
           quotation system on which our shares are then listed.

           All  options  granted  by the  compensation  committee  will  have an
           exercise  price equal to or greater than the fair market value of the
           Common  Shares on the date of the grant.  The maximum  option term is
           ten years from the date of grant.  All Common Share  options  granted
           pursuant  to the  Incentive  Share  Plan  may vest  immediately  upon
           issuance or in accordance with the  determination of the compensation
           committee.

           Grants of restricted Common Shares to executive  officers also form a
           part of the Company's  long-term incentive package.  Typically,  some
           portion of such grants would vest  annually  over a period of several
           years,  so long as the  executive  officer  remains  employed  by the
           Company.  The  recipients of such grants  receive  dividends and have
           voting rights with respect to unvested as well as vested shares.  The
           CEO and certain other executive officers received 2004 bonuses in the
           form of cash and grants of options and restricted Common Shares which
           are  summarized  under the heading  "Executive  Compensation  Summary
           Table" below.

           The number of options  granted to executive  officers,  including the
           CEO, is based on individual  performance and level of responsibility.
           For this purpose, the compensation committee measures performance the
           same way as described  above for cash  bonuses.  Long-term  incentive
           awards must be sufficient  in size to provide a strong  incentive for
           executives to work for long-term business interests.

           CEO COMPENSATION

           As  previously  discussed  above,  each  of our  executive  officers,
           including our CEO,  entered into three-year  employment  contracts in
           connection  with our  acquisition  of Related  Capital.  The terms of
           these  employment  contracts,  including the terms of the  employment
           contract of the CEO,  are  summarized  under the heading  "Employment
           Agreements", below.

           IMPLICATIONS OF INTERNAL  REVENUE CODE SECTION 162 (M) FOR  EXECUTIVE
           COMPENSATION

           It is the responsibility of the compensation committee to address the
           issues raised by the  provisions in the tax laws,  which make certain
           non-performance-based  compensation to executives of public companies
           in  excess  of  $1,000,000  non-deductible  to the  Company.  In this
           regard,  the  compensation  committee is responsible  for considering
           whether any actions with respect to this limit should be taken by the
           Company.  The  Incentive  Share Plan has been designed in a manner to
           allow  certain  cash and stock  based  incentives  to be  treated  as
           performance  based and,  therefore,  not  subject  to the  $1,000,000
           limitation.  The  compensation  committee  is expected to continue to
           monitor the  $1,000,000  limitation and is expected to make necessary
           recommendations if it is warranted in the future.

           SUMMARY

           The  compensation  committee  is  responsible  for  seeing  that  the
           Company's  compensation  program  serves  the best  interests  of its
           shareholders.  In the  opinion  of the  compensation  committee,  the
           Company has an  appropriate  and  competitive  compensation  program,
           which has served the Company and  shareholders  well. The combination
           of base salary,  cash bonuses,  and emphasis on long-term  incentives
           provides a balanced and stable  foundation  for  effective  executive
           leadership.

                                                       COMPENSATION COMMITTEE
                                                       Peter Allen -- Chairman
                                                       Nathan Gantcher

                                      113
<PAGE>

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           As of March 31, 2005, the  following  shareholder  is the  beneficial
           owner of more than 5% of our outstanding common shares.

<TABLE>
<CAPTION>
                                                   AMOUNT AND                 PERCENTAGE OF
                                                   NATURE OF                  COMMON SHARES
           NAME AND ADDRESS                   BENEFICIAL OWNERSHIP             OUTSTANDING
           -----------------------------------------------------------------------------------------
           <S>                                   <C>                               <C>
           Related General II, LP
           625 Madison Avenue
           New York, NY 10022                    10,195,085(1)                     20%
</TABLE>

           (1)    Related General II, L.P. owns:

                  685 common shares and
                  10,194,400 Special Common Units of CCC, which are  convertible
                      into common shares of  CharterMac  on a one-to-one  basis,
                      subject  to  certain  restrictions,   and  the  associated
                      10,194,400 special preferred voting shares.

                  Related General II, LP is owned by TRCLP. Mr. Ross owns 92% of
                  TRCLP and Mr. Blau owns the remaining 8%.

           As of March 31, 2005,  Trustees and  Executive Officers of CharterMac
           own directly or beneficially Common Shares as follows:

<TABLE>
<CAPTION>
                                                                                         AMOUNT AND
                                                                                          NATURE OF
                                                                                         BENEFICIAL        PERCENT OF
           NAME                        TITLE                                              OWNERSHIP         CLASS(12)
           -------------------------------------------------------------------------------------------------------------
           <S>                         <C>                                              <C>                 <C>
           Stephen M. Ross             Chairman                                         10,652,735 (1)      14.43%

           Stuart J. Boesky            Managing Trustee and Chief Executive              1,561,240 (2)       2.11%
                                       Officer

           Marc D. Schnitzer           Managing Trustee and President                    1,139,347 (3)       1.54%

           Alan P. Hirmes              Managing Trustee, Chief Financial                 1,549,490 (4)       2.10%
                                       Officer and Chief Operating Officer

           Denise L. Kiley             Managing Trustee and Chief Credit Officer           703,776 (5)          *

           Jeff T. Blau                Managing Trustee                                 10,245,085 (6)      13.88%

           Thomas W. White             Managing Trustee                                        972              *

           Peter T. Allen              Managing Trustee (independent trustee)                8,449              *

           Charles L. Edson            Managing Trustee (independent trustee)                5,701 (7)          *

           Andrew L. Farkas            Managing Trustee (independent trustee)                1,023              *

           Nathan Gantcher             Managing Trustee (independent trustee)              135,595 (8)          *

           Jerome Y. Halperin          Managing Trustee (independent trustee)                2,148              *

           Robert L. Loverd            Managing Trustee (independent trustee)                3,795              *

           Robert A. Meister           Managing Trustee (independent trustee)               32,295 (9)          *

           Janice Cook Roberts         Managing Trustee (independent trustee)                2,295 (10)         *

           All Executive Officers and Trustees of CharterMac as a group (15 persons)    15,764,233 (11)     21.35%
</TABLE>

           *      Less than 1% of the outstanding common shares.

           (1)    Includes (i) 236,493 common shares owned directly by Mr. Ross;
                  (ii)  21,157  shares  owned by  RelCap  Holding  Company,  LLC
                  ("RelCap"),  of which Mr.  Ross  owns  indirectly  65%;  (iii)
                  10,194,400 Special Common Units and 685 common shares owned by
                  Related  General II, LP. TRCLP owns 100% of Related General II

                                      114
<PAGE>

                  and  Mr.  Ross  owns  92%  of  TRCLP;   (iv)  200,000  options
                  exercisable  for common shares on a  one-for-one  basis (which
                  are exercisable within 60 days)

           (2)    Includes  (i)  59,386  common  shares  owned  directly  by Mr.
                  Boesky;  (ii)  21,157  shares  owned by  RelCap,  of which Mr.
                  Boesky owns indirectly  9.69%;  (iii) 1,464,330 Special Common
                  Units owned by SJB  Associates,  LP, of which Mr.  Boesky owns
                  100%; and (iv) 16,367  restricted  common  shares,  which vest
                  over a three year period, commencing on January 3, 2005.

           (3)    Includes  (i)  22,594  common  shares  owned  directly  by Mr.
                  Schnitzer;  (ii) 21,157  shares owned by RelCap,  of which Mr.
                  Schnitzer  owns  indirectly  9.69%;  (iii)  1,079,229  Special
                  Common  Units  owned by Marc  Associates,  LP,  of  which  Mr.
                  Schnitzer owns 100%; and (iv) 16,367 restricted common shares,
                  which vest over a three year period,  commencing on January 3,
                  2005.

           (4)    Includes  (i)  51,030  common  shares  owned  directly  by Mr.
                  Hirmes;  (ii)  21,157  shares  owned by  RelCap,  of which Mr.
                  Hirmes owns indirectly  9.69%;  (iii) 1,464,330 Special Common
                  Units owned by APH  Associates,  LP, of which Mr.  Hirmes owns
                  100%; and (iv) 12,973  restricted  common  shares,  which vest
                  over a three year period, commencing on January 3, 2005.

           (5)    Includes (i) 23,091 common shares owned directly by Ms. Kiley;
                  (ii) 21,157  shares  owned by RelCap,  of which Ms. Kiley owns
                  indirectly 5.93%; and (iii) 659,528 Special Common Units owned
                  by DLK  Associates,  LP,  of which Ms.  Kiley  owns  100%.  On
                  February  25,  2005,  we announced  Ms.  Kiley's  intention to
                  retire in 2005.

           (6)    Includes (i) 50,000 common shares owned  directly by Mr. Blau;
                  and (ii) 10,194,400 Special Common Units and 685 common shares
                  owned by Related  General  II, LP.  TRCLP owns 100% of Related
                  General II and Mr. Blau owns 8% of TRCLP.

           (7)    The common shares are owned by the Charles L. Edson  Revocable
                  Trust.

           (8)    Includes:  (i) 80,300  common  shares  owned  directly  by Mr.
                  Gantcher;  (ii) 30,000 common shares owned by Gantcher  Family
                  Partners, LLC; (iii) 15,000 shares held by Alice Gantcher, who
                  is Mr.  Gantcher's  wife;  (iv) 8,000  shares held by Gantcher
                  Family 1986 Trust; (v) 1,272 restricted  common shares,  which
                  cliff-vest on June 30, 2007; and (vi) 1,023 restricted  common
                  shares, which cliff-vest on December 31, 2007.

           (9)    Includes:  (i) 30,000  common  shares  owned  directly  by Mr.
                  Meister; (ii) 1,272 restricted common shares, which cliff-vest
                  on June 30, 2007;  and (iii) 1,023  restricted  common shares,
                  which cliff-vest on December 31, 2007.

           (10)   Includes:  (i) 1,272 restricted  common  shares,  which cliff-
                  vest  on  June  30,  2007;  and  (ii)  1,023 restricted common
                  shares, which cliff-vest on December 31, 2007.

           (11)   Includes (i) 21,157  common  shares owned by RelCap;  (ii) 685
                  common  shares owned by Related  General II, LP (iii)  200,000
                  options  exercisable for common shares on a one-for-one  basis
                  (which  are  exercisable  within  60  days);  (iv)  14,861,817
                  Special Common Units; and (v) 52,592 restricted common shares.

           (12)   Based on the  common  shares  outstanding  as  March  31, 2005
                  (51,323,062)   plus  the  common  shares   issuable  upon  the
                  conversion of (i) all options to purchase  common shares which
                  are  exercisable  within  60  days  (200,000);  (ii)  all  CRA
                  Preferred  Shares  (6,552,070);  (iii) all  restricted  common
                  shares   (586,957);   and  (iv)  all  Special   Common   Units
                  (15,172,217).

                                      115
<PAGE>


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           We have and will continue to have certain  relationships with Related
           Capital and our other affiliates.

           MANAGEMENT AND SERVICING AGREEMENTS

           We and our  subsidiaries  (with the exception of CharterMac  Mortgage
           Capital) operate our day-to-day activities utilizing the services and
           advice  provided by our  subsidiaries,  Related Capital and CM Corp.,
           subject to the  supervision  and review of our board of trustees  and
           our  subsidiaries'  board of trustees (or directors),  as applicable.
           Although  our  board of  trustees  and each  board  of  trustees  (or
           directors) of our  subsidiaries  has continuing  exclusive  authority
           over the respective entity's management,  affairs, and disposition of
           assets,  our  board of  trustees  (and the board of  trustees  of our
           subsidiaries,  as applicable) has delegated to Related Capital and CM
           Corp.  the power  and duty to  perform  some or all of the  following
           management  services pursuant to management  agreements and servicing
           agreements:

                  (i)    manage the day-to-day operations of such entity;

                  (ii)   acquire, retain or sell such entity's assets;

                  (iii)  seek   out,    present   and    recommend    investment
                         opportunities consistent with such entity's investments
                         or the dispositions thereof;

                  (iv)   when  appropriate,  cause an  affiliate to serve as the
                         mortgagee  of record for mortgage  investments  of such
                         entity and in that  capacity  hold  escrow on behalf of
                         mortgagors   in   connection   with  the  servicing  of
                         mortgages;

                  (v)    obtain for such entity such services as may be required
                         in acquiring and disposing of  investments,  disbursing
                         and  collecting  the funds of such  entity,  paying the
                         debts and  fulfilling  the  obligations of such entity,
                         and  handling,  prosecuting  and settling any claims of
                         such  entity,   including   foreclosing  and  otherwise
                         enforcing    mortgages   and   other   liens   securing
                         investments;

                  (vi)   obtain for us and our subsidiaries such services as may
                         be required for property management, mortgage brokerage
                         and  servicing,  and other  activities  relating to the
                         investment portfolio;

                  (vii)  evaluate,  structure and negotiate prepayments or sales
                         of such entity's investments;

                  (viii) monitor operations and expenses; and

                  (ix)   performance of the foregoing services.

           The term of our  management  agreement  with Related  Capital is five
           years,   ending   November  17,  2008.   The  term  of  each  of  our
           subsidiaries'   management  and  servicing  agreements  with  Related
           Capital and CM Corp. respectively are each five years ending November
           17, 2008;  provided  that if our  management  agreement  with Related
           Capital is  terminated or not renewed,  we may terminate  each of the
           management   agreements  with  such   subsidiaries.   The  management
           agreements  and  servicing  agreements  may be  renewed,  subject  to
           evaluation  and approval by the relevant  entity's board of trustees.
           Each management agreement may be terminated

                  (i)    with or without cause by Related Capital, or

                  (ii)   for  cause by a  majority  of the  applicable  entity's
                         independent  trustees, in each case without penalty and
                         each  upon  60  days  prior   written   notice  to  the
                         non-terminating party.

           Each servicing agreement may be terminated

                                      116
<PAGE>

                  (i)    with  or  without  cause  by  either party upon 30 days
                         prior written notice to the non-terminating party, or

                  (ii)   upon  the  occurrence  of a servicer  default upon five
                         days prior written notice to CM Corp.

           Each  management  and servicing  agreement  provides that each entity
           will  indemnify  the  manager  and  its   affiliates   under  certain
           circumstances.

           MANAGEMENT AND SERVICING FEES

           Under our management agreement with Related Capital,  Related Capital
           or its  designees is entitled to receive  reimbursement  of all costs
           incurred by Related Capital and its designees in performing  services
           for us under  the  management  agreement  plus an  amount  equal to a
           market based percentage,  as jointly  determined from time to time by
           our Company and Related Capital.

           Under  the  management  agreements  with  our  subsidiaries,  Related
           Capital is entitled to receive a management fee equal to 0.10% of the
           aggregate  original  amount invested from time to time in investments
           plus reimbursement for its reasonable,  actual out-of-pocket expenses
           incurred  in  connection   with  its  duties  under  the   management
           agreements;  provided,  however,  that the  amounts  paid  under  the
           management agreements will be credited against the amounts owed by us
           to Related Capital pursuant to our management  agreement with Related
           Capital. Under our and our subsidiaries' servicing agreements with CM
           Corp.,  CM Corp. is entitled to receive a revenue bond  servicing fee
           equal to 0.15% per annum based on the outstanding principal amount of
           the revenue bonds held by such subsidiary. CM Corp. is also permitted
           to  earn  miscellaneous   compensation  which  may  include,  without
           limitation,  construction fees, escrow interest,  property management
           fees, leasing  commissions and insurance  brokerage fees. The payment
           of any such compensation is generally limited to the competitive rate
           for the services being performed.

           AFFILIATED TRANSACTIONS

           Information regarding affiliated  transactions is included in Note 17
           to our consolidated financial statements.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

           The following  table  presents fees for  professional  audit services
           rendered  by  Deloitte & Touche  LLP,  the member  firms of  Deloitte
           Touche  Tohmatsu,  and  their  respective  affiliates  (collectively,
           "Deloitte")  for the audit of our financial  statements for the years
           ended  December 31, 2004 and  December  31, 2003,  and fees for other
           services rendered by Deloitte during those periods.

<TABLE>
<CAPTION>
                                                                     2004                  2003
                                                             ---------------------------------------
                           <S>                                    <C>                  <C>
                           Audit Fees (a)                         $  969,500           $  711,000
                           Audit-Related Fees (b)                    283,500              559,400
                           Tax Fees (c)                              252,700              187,700
                           All Other Fees (d)                             --                   --
                                                             ---------------------------------------
                           Total                                  $1,505,700           $1,458,100
                                                             =======================================
</TABLE>

           (a)    Fees for audit services  billed for 2004 and 2003 consisted of
                  the  audit  of  the  Company's  annual  financial  statements,
                  reviews  of  the  Company's  quarterly  financial  statements,
                  comfort  letters,  consents and other services  related to SEC
                  matters.

           (b)    Fees for  audit-related  services  consisted of due  diligence
                  services  associated  with  our  loan to Capri in 2004 and the
                  acquisition of Related Capital in 2003.

                                      117
<PAGE>

           (c)    Fees for tax services billed in 2004 and 2003 consisted of tax
                  compliance  services.  Tax  compliance  services  are services
                  rendered based upon facts already in existence or transactions
                  that have already  occurred to document,  compute,  and obtain
                  government  approval for amounts to be included in tax filings
                  and  consisted  of Federal,  state and local income tax return
                  assistance.

           (d)    No other  services  were  rendered by Deloitte  during 2004 or
                  2003.

           All  audit-related  services,  tax services and other  services  were
           pre-approved  by  the  audit  committee,  which  concluded  that  the
           provision  of those  services by  Deloitte  was  compatible  with the
           maintenance of Deloitte's independence in the conduct of its auditing
           functions.

           POLICY ON PRE-APPROVAL OF INDEPENDENT AUDITOR SERVICES

           The   audit  committee  is  responsible   for   appointing,   setting
           compensation  and  overseeing the work of the  independent  auditors.
           The audit committee has  established a policy regarding  pre-approval
           of  all  audit  and  non-audit  services  provided  by our  Company's
           independent auditors.

           On an  on-going basis,  management communicates specific projects and
           categories  of  service for which the  advance  approval of the audit
           committee is requested.   The audit committee  reviews these requests
           and  advises   management  if  the  audit  committee   approves   the
           engagement of the independent auditors.  The audit committee may also
           delegate the ability to  pre-approve  audit  and permitted  non-audit
           services  to  one  or  more  of  its  members,   provided   that  any
           pre-approvals  are  reported  to the  audit  committee  at  its  next
           regularly scheduled meeting.

                                      118
<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                                           48

         Consent of Independent Registered Public Accounting Firm                                          49

         Management's  Report  on  the  Effectiveness of Internal Control over
            Financial Reporting                                                                            50

         Report  of  Independent Registered Public Accounting Firm On Internal
            Control over Financial Reporting                                                               52

         Consolidated Balance Sheets as of December 31, 2004 and 2003                                      54

         Consolidated  Statements  of  Income for the years ended December 31,
            2004, 2003 and 2002                                                                            55

         Consolidated  Statements  of Shareholders' Equity for the years ended
            December 31, 2004, 2003 and 2002                                                               56

         Consolidated Statements of Cash Flows for the years ended December 31,
            2004, 2003 and 2002                                                                            58

         Notes to Consolidated Financial Statements                                                        60

(a)2.    Financial Statement Schedules

         Schedule I - Condensed Financial Information of Registrant                                       143

         Schedule II - Valuation and Qualifying Accounts                                                  148

         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 our Registration  Statement on Form
         S-8, filed with the Commission on November 24, 2003).

3.2      Third Amended and Restated Bylaws (incorporated by reference to Exhibit
         10.6 in our September 30, 2004 Quarterly Report on Form 10-Q).

                                      119
<PAGE>

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)    Insurance  Agreement among MBIA,  CharterMac,  Origination Trust, Owner
         Trust,  CharterMac  Floater  Certificate  Trust  ("Floater  Certificate
         Trust"), First Tennessee Bank National Association ("First Tennessee"),
         Related Charter LP, and Bayerische  Landesbank  Girozentrale,  New York
         Branch  ("Bayerische")  dated  as of  May  21,  1998  (incorporated  by
         reference to Exhibit 10 (aaay) in our June 30, 1998 Quarterly Report on
         Form 10-Q).

10(c)    Liquidity Agreement among Owner Trust, Floater Certificate Trust, First
         Tennessee,  MBIA and Bayerische dated as of May 21, 1998  (incorporated
         by reference to Exhibit 10 (aaaz) in our June 30, 1998 Quarterly Report
         on Form 10-Q).

10(d)    Liquidity Pledge and Security  Agreement among Origination Trust, Owner
         Trust,  Floater Certificate Trust, MBIA, First Tennessee and Bayerische
         dated as of May 21,  1998  (incorporated  by  reference  to  Exhibit 10
         (aaaaa) in our June 30, 1998 Quarterly Report on Form 10-Q).

10(e)    Fee Agreement among Wilmington Trust Company, Floater Certificate Trust
         and CharterMac  dated as of May 21, 1998  (incorporated by reference to
         Exhibit 10 (aaaab) in our June 30, 1998 Quarterly Report on Form 10-Q).

10(f)    Certificate Placement  Agreement  (incorporated by reference to Exhibit
         10 (aaaac) in our June 30, 1998 Quarterly Report on Form 10-Q).

10(g)    Remarketing  Agreement (incorporated by reference to Exhibit 10 (aaaad)
         in our June 30, 1998 Quarterly Report on Form 10-Q).

10(h)    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(i)    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(j)    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(k)    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).

                                      120
<PAGE>

10(l)    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(m)    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(n)    Lock-up  Agreement  of  Denise  L.  Kiley,   dated  November  17,  2003
         (incorporated  by  reference to our Current  Report on Form 8-K,  filed
         with the Commission on December 1, 2003).

10(o)    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).

10(p)    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(q)    Lock-up  Agreement  of  Stuart  J.  Boesky,  dated  November  17,  2003
         (incorporated  by  reference to our Current  Report on Form 8-K,  filed
         with the Commission on December 1, 2003).

10(r)    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(s)    Employment  Agreement  of Denise L.  Kiley,  dated  November  17,  2003
         (incorporated  by  reference to our Current  Report on Form 8-K,  filed
         with the Commission on December 1, 2003).

10(t)    Employment  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).

10(u)    Employment  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(v)    Employment  Agreement  of Stuart J.  Boesky,  dated  November  17, 2003
         (incorporated  by  reference to our Current  Report on Form 8-K,  filed
         with the Commission on December 1, 2003).

10(w)    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(x)    Ross Non-Qualified Share Option Agreement (incorporated by reference to
         our Registration Statement on Form S-8, filed on November 24, 2003).

10(y)    Registration  Rights  Agreement,  dated as of November 17, 2003, by and
         among our Company and APH Associates  L.P., DLK Associates  L.P.,  Marc

                                      121
<PAGE>

         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(z)    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(aa)   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(ab)   Trade Name License Agreement and Acknowledgement,  dated as of November
         17, 2003,  by and between 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(ac)   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(ad)   Restricted  Share Plan  (incorporated  by reference to our Registration
         Statement  on Form S-8, filed with the Commission on November 24, 2003).

10(ae)   Amended  and  Restated  Incentive Share Plan (incorporated by reference
         to our Form  S-8/A,  filed  with the Commission on March 2, 2004).

10(af)   Form of Non-Qualified Share Option Award Agreement.*                                              125

10(ag)   Form of Restricted Share Award Agreement.*                                                        131

12       Ratio of earnings to fixed charges and preferred dividends.*                                      137

21       Subsidiaries of our Company.*                                                                     138

31.1     Chief  Executive  Officer  certification pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.*                                                                      139

31.2     Chief  Financial  Officer  certification pursuant to Section 302 of the
         Sarbanes-Oxley Act of 2002.*                                                                      140

32.1     Chief  Executive  Officer  certification pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.*                                                                      141

32.2     Chief  Financial  Officer  certification pursuant to Section 906 of the
         Sarbanes-Oxley Act of 2002.*                                                                      142

* Filed herewith.
</TABLE>

                                      122
<PAGE>

                                   SIGNATURES
                                   ----------



Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  we have duly  caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.


                                   CHARTERMAC
                                    (COMPANY)




Date:  April 7, 2005               By: /s/ Stuart J. Boesky
                                       --------------------
                                       Stuart J. Boesky
                                       Managing Trustee
                                       and Chief Executive Officer




Date:  April 7, 2005               By: /s/ Alan P. Hirmes
                                       ------------------
                                       Alan P. Hirmes
                                       Managing Trustee, Chief Operating Officer
                                       and Chief Financial Officer


                                      123
<PAGE>

                                POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints Stuart
J. Boesky and Alan P.  Hirmes,  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/ Stuart J. Boesky
----------------------       Managing Trustee and
Stuart J. Boesky             Chief Executive Officer              April 7, 2005

/s/ Stephen M. Ross
-------------------          Managing Trustee and
Stephen M. Ross              Chairman of the Board                April 7, 2005

/s/ Alan P. Hirmes
------------------           Managing Trustee,
Alan P. Hirmes               Chief Operating Officer and
                             Chief Financial Officer              April 7, 2005

/s/ Peter T. Allen
------------------
Peter T. Allen               Managing Trustee                     April 7, 2005

/s/ Andrew L. Farkas
--------------------
Andrew L. Farkas             Managing Trustee                     April 7, 2005

/s/ Thomas W. White
-------------------
Thomas W. White              Managing Trustee                     April 7, 2005

/s/ Charles L. Edson
--------------------
Charles L. Edson             Managing Trustee                     April 7, 2005

/s/ Marc D. Schnitzer
---------------------        Managing Trustee,
Marc D. Schnitzer            President                            April 7, 2005

/s/ Denise L. Kiley
-------------------          Managing Trustee,
Denise L. Kiley              Chief Credit Officer                 April 7, 2005

/s/ Jeff T. Blau
----------------
Jeff T. Blau                 Managing Trustee                     April 7, 2005

/s/ Robert A. Meister
---------------------
Robert A. Meister            Managing Trustee                     April 7, 2005

/s/ Jerome Y. Halperin
----------------------
Jerome Y. Halperin           Managing Trustee                     April 7, 2005

/s/ Janice Cook Roberts
-----------------------
Janice Cook Roberts          Managing Trustee                     April 7, 2005

/s/ Nathan Gantcher
-------------------
Nathan Gantcher              Managing Trustee                     April 7, 2005

/s/ Robert L. Loverd
--------------------
Robert L. Loverd             Managing Trustee                     April 7, 2005



                                      124
<PAGE>


                                                                 Exhibit 10 (af)
                                   CHARTERMAC

                           --------------------------
                   NON-QUALIFIED SHARE OPTION AWARD AGREEMENT

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


Effective this __ day of _______,  20__ (the "Grant Date"), you (the "Optionee")
are hereby awarded the option ("Option") to purchase common shares of beneficial
interest  ("Shares")  of  CharterMac  (the  "Company")  subject to the terms and
conditions set forth in this Non-Qualified  Share Award Agreement  ("Award") and
in the CharterMac Amended and Restated  Incentive Share Plan ("Plan"),  which is
attached  hereto as EXHIBIT A. A summary of the Plan appears in its  Prospectus,
which is attached as EXHIBIT B. You should carefully review these documents, and
consult with your personal  financial  advisor before exercising this Option, in
order to fully  understand the  implications  of this Award,  including your tax
alternatives and their consequences.

By  executing  this Award,  you agree to be bound by all of the Plan's terms and
conditions as if they had been set out verbatim in this Award. In addition,  you
recognize and agree that all determinations,  interpretations,  or other actions
respecting  the Plan and this  Award  will be made by the  Committee,  and shall
(unless  arbitrary  and  capricious)  be final,  conclusive  and  binding on all
parties,  including you and your successors in interest.  Capitalized  terms are
defined in the Plan or in this Award.

     WHEREAS,  the Company  has adopted the Plan in order to provide  additional
incentives to certain  officers and employees of the Company,  its  Subsidiaries
and its Manager;

     WHEREAS,  the  Committee  responsible  for  administration  of the Plan has
determined to grant an option to the Optionee as provided herein.

     NOW, THEREFORE, the parties hereto agree as follows:

     1.  Grant of Option.
         ---------------

         1.1 The Company hereby grants to the Optionee the right and option (the
"Option") to purchase all or any part of an aggregate of ___,____  common shares
of beneficial  interest ("Shares") subject to, and in accordance with, the terms
and  conditions  set forth in this  Share  Option  Agreement.  The Option is not
intended to qualify as an Incentive  Stock Option  within the meaning of Section
422 of the Code.

         1.2 This Share Option  Agreement  shall be construed in accordance  and
consistent  with, and subject to, the provisions of the Plan (the  provisions of
which are incorporated herein by reference).

     2.  Purchase Price.
         --------------

         The price at which the  Optionee  shall be entitled to purchase  Shares
upon the  exercise  of the Option  shall be $__.__ per Share  (which is the Fair
Value per Share on the Grant Date, as  determined  by the Committee  pursuant to
Section 21 of the Plan).

     3.  Duration of Option.
         ------------------

         The  Option  shall  be  exercisable  to the  extent  and in the  manner
provided  herein  for a  period  of ten (10)  years  from the  Grant  Date  (the
"Exercise Term");  provided,  however, that the Option may be earlier terminated
as provided in Section 6 hereof.

     4.  Exercisability of Option.
         ------------------------

         Unless  otherwise  provided in this Share Option Agreement or the Plan,
the Option shall  entitle the  Optionee to purchase,  in whole at any time or in
part from time to time, one-third (1/3) of the total number of Shares covered by

                                      125
<PAGE>

the  Option  after the  expiration  of one (1) year  from the Grant  Date and an
additional  one-third  (1/3) of the total number of Shares covered by the Option
after the expiration of each of the second and third  anniversaries of the Grant
Date, and each such right of purchase  shall be cumulative  and shall  continue,
unless sooner  exercised or terminated as herein  provided  during the remaining
period of the Exercise Term. Any fractional  number of Shares resulting from the
application  of the  foregoing  percentages  shall be rounded to the next higher
whole number of Shares,  but shall not exceed the total number of Shares subject
to the Option.

     5.  Manner of Exercise and Payment.
         ------------------------------

         5.1 Subject to the terms and conditions of this Share Option  Agreement
and the Plan,  the Option may be exercised by delivery of written  notice to the
Company,  in the form attached hereto as Appendix I, at its principal  executive
office.  Such notice  shall state that the  Optionee is electing to exercise the
Option  and the  number  of  Shares  in  respect  of which  the  Option is being
exercised and shall be signed by the person or persons exercising the Option. If
requested by the Committee,  such person or persons shall (i) deliver this Share
Option  Agreement to the  Secretary of the Company who shall  endorse  thereon a
notation of such exercise and (ii) provide satisfactory proof as to the right of
such person or persons to exercise the Option.

         5.2 The notice of exercise  described  in Section  5.1 hereof  shall be
accompanied  by the full  purchase  price for the Shares in respect of which the
Option is being exercised,  with the approval of the Committee,  by any one or a
combination of the following:  (i) cash (by check), (ii) transferring fully paid
Shares  held at least six (6) months to the  Company  with a Fair Value equal to
the aggregate  purchase  price, or (iii) if requested by the Optionee and agreed
to by the  Committee  in  its  sole  discretion,  pursuant  to a  full  recourse
promissory   note  upon  such  terms  as  the   Committee   deems   appropriate.
Notwithstanding the foregoing,  the Committee shall have discretion to determine
at any later date (up to and including the date of exercise) the form of payment
acceptable in respect of the exercise of the Option.  In addition,  the Optionee
may provide instructions to the Company that upon receipt of the Option purchase
price in cash, certified check, or wire transfer of immediately available funds,
from a broker or dealer acting at the direction of the Optionee,  in payment for
any Shares pursuant to the exercise of the Option,  the Company shall issue such
Shares directly to the designated broker or dealer.

         5.3 Upon  receipt of notice of exercise and full payment for the Shares
in respect of which the Option is being exercised,  the Company shall subject to
Section  13 of the Plan,  take such  action as may be  necessary  to effect  the
transfer to the  Optionee of the number of Shares as to which such  exercise was
effective,  and may issue the Shares to an account  maintained in the Optionee's
name by  Equiserve  or another  transfer  agent if the Optionee has not provided
contrary instructions.

         5.4 The  Optionee  shall not be deemed to be the  holder of, or to have
any of the rights of a holder with  respect to any Shares  subject to the Option
until (i) the Option  shall have been  exercised  pursuant  to the terms of this
Share Option  Agreement and the Optionee shall have paid the full purchase price
for the number of Shares in respect of which the Option was exercised,  (ii) the
Company shall have issued and  delivered  the Shares to the Optionee,  and (iii)
the  Optionee's  name shall have been entered as a shareholder  of record on the
books of the Company,  whereupon  the Optionee  shall have full voting and other
ownership rights with respect to such Shares.

     6.  Termination of Employment.
         -------------------------

         6.1 Death,  Disability.  If the  employment  of the  Optionee  with the
Company,  a Subsidiary,  the Manager or any affiliate of the Manger, as the case
may be, is terminated as a result of the Optionee's death or disability  (within
the meaning of Section  22(e)(3) of the Code), or the Optionee dies within three
(3) months of the Optionee's  termination  of employment  with or service to the
Company, a Subsidiary,  the Manager or any affiliate of the Manager, as the case
may be, for any reason other than Cause, the Option may be exercised in whole or
in part (to the  extent  vested  on the date of the  Optionee's  termination  of
employment  or  service) at any time within the period of one (1) year after the
date of such  termination  of employment  or service,  but in no event after the
expiration  of the Exercise  Term.  In the event of the  Optionee's  death,  the
Option shall be  exercisable,  to the extent provided in the Plan and this Share
Option  Agreement,  by the legatee or legatees under the Optionee's  will, or by
the  Optionee's  personal  representatives  or  distributees  and such person or
persons shall be substituted for the Optionee each time the Optionee is referred
to herein.

         6.2  Termination of Employment for Cause.  If the employment or service
of the Optionee with the Company, a Subsidiary,  the Manager or any affiliate of

                                      126
<PAGE>

the Manager,  as the case may be, is terminated for Cause, the right to exercise
the Option  shall  terminate  immediately  upon the  Optionee's  termination  of
employment or service, whether or not vested.

         6.3 Other  Termination of  Employment.  If the employment or service of
the Optionee with the Company, a Subsidiary, the Manager or any affiliate of the
Manager, as the case may be, is terminated for any reason other than the reasons
set forth in Section 6.1 or 6.2 hereof  (including the Optionee's  ceasing to be
employed or engaged by a Subsidiary  as a result of the sale of such  Subsidiary
or an interest in such  Subsidiary),  the right to exercise  the Option,  to the
extent vested, shall terminate three (3) months after the Optionee's termination
of employment or service,  but in no event after the  expiration of the Exercise
Term.

         6.4  Assignment of Unvested Option

         At the  time  that  employment  or  service  of the  Optionee  with the
Company, a Subsidiary,  the Manager or any affiliate of the Manager, as the case
may be, is terminated for any reason,  Optionee, at the Company's request, shall
assign  Optionee's then unvested Options to the Company or its designee.  If the
Company does not request  Optionee to assign such Options,  the Options shall be
forfeited to the Company.

     7.  Nontransferability.
         ------------------

              The Option shall not be assignable or transferable by the Optionee
to whom it is granted, either voluntarily or by operation of law, except by will
or the laws of descent and  distribution.  During the life of the Optionee,  the
Option shall be exercisable only by or on behalf of such person.

     8.  No Right to Continued Employment.
         --------------------------------

              Nothing  in this  Share  Option  Agreement  or the  Plan  shall be
interpreted  or  construed to confer upon the Optionee any right with respect to
continuance of employment or service by or with the Company,  a Subsidiary,  the
Manager or any affiliate of the Manger, as the case may be, nor shall this Share
Option Agreement or the Plan interfere in any way with the right of the Company,
a Subsidiary,  the Manager or any affiliate of the Manager,  as the case may be,
to terminate the Optionee's employment or service at any time.

     9.  Adjustments.
         -----------

         In the  event of a change in  capitalization,  the  Committee  may make
appropriate  adjustments  to the number  and class of Shares or other  shares or
securities subject to the Option and the purchase price for such Shares or other
shares or securities.  The  Committee's  adjustment  shall be made in accordance
with the  provisions of Section 15 of the Plan and shall be effective and final,
binding  and  conclusive  for all  purposes  of the Plan and this  Share  Option
Agreement.

     10. Reorganization.
         --------------

         Upon the effective date of (i) a merger or consolidation of the Company
with another entity or person other than an Affiliate,  where the Company is not
a surviving entity (a  "Transaction"),  or (ii) all or substantially  all of the
assets or more than 20% of the  outstanding  equity  securities  of the  Company
entitled to vote for  trustees is acquired by any other  entity or person  other
than an Affiliate or an entity or person or any Affiliate  thereof  owning 5% or
more of the  outstanding  voting  shares  of the  Company,  or (iii)  there is a
reorganization  or  liquidation  of the  Company,  the  Committee,  or  board of
directors of any corporation  assuming the obligations of the Company,  shall as
to  the  Option,  either  (x)  in  the  case  of  a  merger,   consolidation  or
reorganization of the Company,  make appropriate provision for the protection of
the Option by the substitution on an equivalent  basis of appropriate  shares or
other  securities  of the Company or of the merged,  consolidated  or  otherwise
reorganized corporation that will be issuable in respect of the Shares (provided
that no additional  benefits shall be conferred upon the Optionee as a result of
such substitution), or (y) upon written notice to the Optionee, provide that the
Option must be exercised  within a specified  number of days of the date of such
notice or the  Option  will be  terminated,  or (z) upon  written  notice to the
Optionee,  provide  that the Option  shall be  purchased  by the  Company or its
successor  within a  specified  number  of days of the date of such  notice at a
price equal to the value the Optionee would have received if they then exercised
the Option and immediately received full payment in respect of such exercise, as
determined in good faith by the Committee.

                                      127
<PAGE>

     11. Withholding of Taxes and Notice of Disposition.
         ----------------------------------------------

         The  Company  shall have the right to deduct from any  distribution  of
cash to the  Optionee an amount  equal to the  federal,  state and local  income
taxes  and  other  amounts  as  may be  required  by  law  to be  withheld  (the
"Withholding Taxes") with respect to the Option. In addition, if the Optionee is
entitled to receive  Shares upon exercise of the Option,  the Optionee shall pay
the Withholding  Taxes to the Company in cash prior to the issuance,  or release
from  escrow,  of  such  Shares.  In  satisfaction  of  the  obligation  to  pay
Withholding  Taxes to the Company,  the  Committee  may, in its  discretion  and
subject to compliance with applicable securities laws and regulations,  withhold
Shares  having an aggregate  Fair Value on the date  preceding  the date of such
issuance equal to the Withholding Taxes. In addition, such withholding of Shares
shall occur if the Optionee  fails to pay the  Withholding  Taxes to the Company
(in accordance with the terms of this paragraph)  promptly after they become due
and payable.

     12. Optionee Receipt of a Plan Summary.
         ----------------------------------

         The Optionee hereby acknowledges receipt of a summary of the Plan.

     13. Modification of Share Option Agreement.
         --------------------------------------

         This Share Option  Agreement may be modified,  amended,  suspended,  or
terminated,  and any terms or  conditions  may be waived,  but only by a written
instrument executed by the parties hereto.

     14. Severability.
         ------------

         Should any provision of this Share Option  Agreement be held by a court
of competent  jurisdiction to be  unenforceable  or invalid for any reason,  the
remaining  provisions  of this Share Option  Agreement  shall not be affected by
such holding and shall continue in full force in accordance with their terms.

     15. Governing Law.
         -------------

         The validity,  interpretation,  construction  and  performance  of this
Share  Option  Agreement  shall be governed by the laws of the State of Delaware
without giving effect to the conflicts of laws principles thereof.

     16. Successors in Interest.
         ----------------------

         This  Share  Option  Agreement  shall  inure to the  benefit  of and be
binding upon any  successor to the Company.  This Share Option  Agreement  shall
inure to the benefit of the Optionee's  legal  representatives.  All obligations
imposed upon the Optionee and all rights granted to the Company under this Share
Option  Agreement  shall be final,  binding and  conclusive  upon the Optionee's
heirs, executors, administrators and successors.

     17. Resolution of Disputes.
         ----------------------
         Any dispute or  disagreement  which may arise under, or as a result of,
or in any way relate to, the interpretation, construction or application of this
Share Option Agreement shall be determined by the Committee.  Any  determination
made  hereunder  shall be final,  binding and  conclusive  on the  Optionee  and
Company for all purposes.

                           COMPANY:

                           CHARTERMAC

                           By:      --------------------------------------------
                                    Name:
                                          --------------------
                                    Title:
                                           -------------------

                           OPTIONEE:
                                     -------------------------------------------

                           Printed Name:
                                         ---------------------------------------

                                      128
<PAGE>

                                                                      Appendix I
                     NOTICE OF EXERCISE OF OPTION UNDER THE
                                   CHARTERMAC
                      NON-QUALIFIED SHARE OPTION AGREEMENT

CharterMac
625 Madison Avenue
New York, New York  10022
Attn:  Corporate Secretary

Gentlemen:

     I hereby  exercise  my  option to  purchase  common  shares  of  beneficial
interest in CharterMac (the "Company"), par value $.01 per share (the "Shares"),
under  the terms and  conditions  of that  certain  Non-Qualified  Share  Option
Agreement,  dated ________ __, 2005 by and between  ___________ and the Company,
as follows:

     (1) Number of shares:
     (2) Option price per share:
     (3) Aggregate purchase price [(1) x (2)]:


Enclosed is payment in the form of:

         (a)  CASH. Cash,  certified check,  bank draft or money order in United
              States  dollars  payable to the order of the Company in the amount
              of the aggregate purchase price [(3) above].

         (b)  SHARES   (ONLY  WITH  THE  PRIOR   APPROVAL  OF  THE   COMMITTEE).
              Certificates duly endorsed in blank for Shares of the Company with
              a Fair Value on the day preceding the date of this notice equal to
              the aggregate purchase price [(3) above].

         (c)  PROMISSORY  NOTE (ONLY WITH THE PRIOR APPROVAL OF THE  COMMITTEE).
              Note made by the  Optionee in favor of the Company upon such terms
              as  approved  in  advance  by the  Company  in the  amount  of the
              aggregate purchase price [(3) above].

         (d)  SURRENDER  OF OTHER  SHARES  (ONLY WITH THE PRIOR  APPROVAL OF THE
              COMMITTEE).  Surrender of my vested right to exercise  this Option
              for Shares whose  in-the-money  value on the date of the surrender
              (determined  by  the  excess  of  the  Fair  Market  Value  of the
              surrendered Shares over their Exercise Price) equals the aggregate
              purchase  price [(3) above].  I RECOGNIZE  THAT THIS VALUE WILL BE
              TAXABLE INCOME TO ME.

         (e)  ANY COMBINATION  OF THE ABOVE (ONLY WITH THE PRIOR APPROVAL OF THE
              COMMITTEE).

         NOTE:  If any  portion of the  payment is to be made in Shares,  please
         consult  the  Company  prior to  submitting  this form as to the proper
         method of payment.

         Upon receipt of the aggregate purchase price [(3) above],  please issue
         the certificates as follows:

                           (a)      In my name; or
                           (b)      In  the  name  of my  designated  broker  or
                                    dealer,   to  the  extent  the  Company  has
                                    received  in cash,  certified  check or wire
                                    transfer of immediately available funds, the
                                    aggregate  purchase  price [(3)  above] from
                                    such   broker   or   dealer   acting  at  my
                                    direction.

                                      129
<PAGE>

         Please deliver the certificates  (including those  representing  excess
shares submitted) and/or any excess cash to:

Issue to:                                       Mail or Deliver to:
-----------------------------------------  -------------------------------------
Name                                       Name

-----------------------------------------  -------------------------------------
Address                                    Address

-----------------------------------------  -------------------------------------
City         State              Zip Code   City         State           Zip Code

-----------------------------------------  -------------------------------------
Social Security Number

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


Dated:
       ----------------------------------  -------------------------------------
                                                               (Signature)

                                      130
<PAGE>

                                                                 Exhibit 10 (ag)

                                   CHARTERMAC

                         ------------------------------
                        RESTRICTED SHARE AWARD AGREEMENT

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


         You are hereby awarded restricted common shares of beneficial  interest
("Restricted  Shares") of CharterMac  (the  "Company")  subject to the terms and
conditions set forth in this Restricted  Share Award Agreement  ("Award") and in
the CharterMac  Amended and Restated  Incentive  Share Plan  ("Plan"),  which is
attached  hereto as Exhibit A. A summary of the Plan appears in its  Prospectus,
which is attached as Exhibit B. You should carefully review these documents, and
consult with your personal financial  advisor,  in order to fully understand the
implications  of  this  Award,   including  your  tax   alternatives  and  their
consequences.

         By  executing  this  Award,  you agree to be bound by all of the Plan's
terms and  conditions  as if they had been set out  verbatim in this  Award.  In
addition, you recognize and agree that all determinations,  interpretations,  or
other actions  respecting the Plan and this Award will be made by the Committee,
and shall (unless arbitrary and capricious) be final,  conclusive and binding on
all parties,  including you and your successors in interest.  Capitalized  terms
are defined in the Plan or in this Award.

SPECIFIC TERMS.  Your Restricted Shares have the following terms:
--------------

---------------------------------- ---------------------------------------------
Name of Participant
---------------------------------- ---------------------------------------------
Number of Shares Subject to Award
---------------------------------- ---------------------------------------------
Grant Date
---------------------------------- ---------------------------------------------
Vesting                            Over  __  years  -  [1/3][1/4][1/5]   of  the
                                   Restricted Shares under this Award shall vest
                                   and    become    nonforfeitable    upon  each
                                   anniversary  of the Grant  Date  provided you
                                   are    an  employee  of    the   Company   or
                                   a Subsidiary on each such date.  All unvested
                                   Restricted Awards shall automatically vest if
                                   you  are  an   employee  of  the  Company  or
                                   a Subsidiary at the time of your death.

                                   Notwithstanding   anything  to  the  contrary
                                   contained herein, the Restricted Shares shall
                                   be  subject  to any vesting terms provided in
                                   an  employment  or other written agreement by
                                   and  between you and the  Company  that makes
                                   reference  to this  Award,  which terms shall
                                   prevail   over   anything   to  the  contrary
                                   contained herein
---------------------------------- ---------------------------------------------

1. DIVIDENDS AND VOTING RIGHTS. For any period during which you are the owner of
record of Restricted  Shares that the Company has issued pursuant to this Award,
you will be entitled to collect all cash dividends on your Restricted Shares, as
well as to vote them in  accordance  with the terms and  conditions  that  apply
generally  to the  Company's  shareholders  (unless  the  underlying  Shares are
forfeited).  Any stock dividends on your Restricted Shares will be issued in the
form of  additional  Restricted  Shares that have the same terms and  conditions
(including those relating to vesting and forfeiture).

2. INVESTMENT  PURPOSES.  You acknowledge that you are acquiring your Restricted
Shares for investment purposes only and without any present intention of selling
or distributing them unless the Restricted Shares are registered for sale or the
sale is in accordance with an available exemption from registration.

                                      131
<PAGE>

3.  CERTIFICATES.  Restricted  Shares will be evidenced  by a book-entry  in the
Company's records. Upon vesting, you may request a physical certificate for your
vested  shares,  and the  Company may issue such  certificate  at any time after
vesting (in either case only after  satisfaction  of the conditions set forth in
the next  paragraph),  provided  that the  Company  may issue  the  Shares to an
account  maintained in your name by Equiserve or another  transfer  agent if the
Optionee has not provided contrary instructions.

4. SHARE ISSUANCE; WITHHOLDING.  Restricted Shares, whether certificated or not,
will not be issued to you unless you have made arrangements  satisfactory to the
Administrator to satisfy tax-withholding  obligations, if any. The Company shall
have the right to deduct from any distribution of cash to you an amount equal to
the federal,  state and local income taxes and other  amounts as may be required
by law to be withheld (the  "Withholding  Taxes") with respect to the Restricted
Shares. In addition,  whenever you recognize taxable income with respect to your
Restricted  Shares,  you shall pay the Withholding  Taxes to the Company in cash
prior to the issuance,  or release from escrow,  of such Shares. In satisfaction
of the obligation to pay Withholding Taxes to the Company, the Committee may, in
its discretion and subject to compliance  with  applicable  securities  laws and
regulations,  withhold  Shares  having  an  aggregate  Fair  Value  on the  date
preceding the date of such issuance equal to the Withholding Taxes. In addition,
such withholding of Shares shall occur if you fail to pay the Withholding  Taxes
to the Company (in accordance with the terms of this  paragraph)  promptly after
they become due and payable.

5. SECTION 83(B)  ELECTION  NOTICE.  If you elect under Code Section 83(b) to be
taxed  immediately on your Restricted  Shares when they were granted to you, you
promise to notify  the  Company of the  election  within 10 days of filing  that
election with the Internal  Revenue  Service.  Exhibit B is a suggested  form of
Section 83(b) election.

6. NOT A  CONTRACT  OF  EMPLOYMENT.  By  executing  this  Award  Agreement,  you
acknowledge and agree that (1) any person who is terminated  before full vesting
of an Award, such as the one granted to you by this Award Agreement, could claim
that he or she was terminated to preclude vesting; (2) you promise never to make
such a claim; (3) nothing in this Award Agreement or the Plan confers on you any
right to continued  Company or Subsidiary  employment or restricts the Company's
or  Subsidiary's  right to terminate  your  employment at any time for any or no
reason;  and (4) the Company  would not have  granted  this Award to you but for
these acknowledgements and agreements.

7.  SEVERABILITY.  Every  provision  of this  Award  Agreement  and the  Plan is
intended to be  severable,  and any illegal or invalid term shall not affect the
validity or legality of the remaining terms.

8. NOTICES.  Any notice,  payment or  communication  required or permitted to be
given by any  provision of this Award shall be in writing and shall be delivered
personally or sent by certified  mail,  return receipt  requested,  addressed as
follows:  (i) if to the Company, at the address set forth on the signature page,
to the attention of: Administrator of the CharterMac Restricted Share Plan; (ii)
if to you, at the address set forth below your signature on the signature  page.
Each party may, from time to time, by notice to the other party hereto,  specify
a new address for  delivery of notices  relating to this Award.  Any such notice
shall be deemed to be given as of the date such notice is  personally  delivered
or properly mailed.

9. BINDING  EFFECT.  Every provision of this Award shall be binding on and inure
to the benefit the parties' respective heirs,  legatees,  legal representatives,
successors, transferees, and assigns.

10. HEADINGS. Headings shall be ignored in interpreting this Award.

11.  COUNTERPARTS.  This Award may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original,
but all such counterparts shall together constitute the same instrument.

         BY YOUR  SIGNATURE  BELOW,  along with the  signature of the  Company's
representative, you and the Company agree that the Restricted Shares are awarded
under and governed by the terms and  conditions of this Award  Agreement and the
Plan.

                                      132
<PAGE>

                                        CHARTERMAC

                                        By:  -----------------------------------
                                             Name: Stuart J. Boesky
                                             Title:  Chief Executive Officer
                                             Address: 625 Madison Avenue
                                                       New York, New York 10022

THE UNDERSIGNED PARTICIPANT HEREBY ACCEPTS THE TERMS OF THIS AWARD AGREEMENT AND
THE PLAN.

                                        By:
                                             -----------------------------------
                                             Name of Participant:
                                             Address:

                                      133
<PAGE>

                                    EXHIBIT A
                                    ---------

                                   CHARTERMAC
                    AMENDED AND RESTATED INCENTIVE SHARE PLAN

                                      134
<PAGE>

                                    EXHIBIT B
                                    ---------

                           SECTION 83(B) ELECTION FORM

Attached is an Internal Revenue Code Section 83(b) Election Form. If you wish to
make a  Section  83(b)  election,  you must do so within 30 days of the date the
restricted  shares were granted to you. In order to make the election,  you must
completely  fill out the  attached  form and  file  one copy  with the  Internal
Revenue  office  where you file your tax return.  In  addition,  one copy of the
statement  also must be  submitted  with your  income tax return for the taxable
year in which you make this  election.  Finally,  you also must submit a copy of
the election form to the Company.  Section  83(b)  election  normally  cannot be
revoked.

                                      135
<PAGE>

                                   CHARTERMAC
         --------------------------------------------------------------
         ELECTION TO INCLUDE VALUE OF RESTRICTED SHARES IN GROSS INCOME
          IN YEAR OF TRANSFER UNDER INTERNAL REVENUE CODE SECTION 83(B)
         --------------------------------------------------------------

         Pursuant to Section 83(b) of the Internal  Revenue Code, I hereby elect
within  30  days  of  receiving  the  property  described  herein  to  be  taxed
immediately on its value specified in item 5 below.

1.       My General Information:

                           Name:        -------------------------------
                           Address:     -------------------------------
                                        -------------------------------
                           S.S.N.
                           or T.I.N.:   -------------------------------

2.       Description  of  the  property  with  respect to which I am making this
         election:

                  ---------- common shares of beneficial interest of CharterMac.
                  ("Restricted Shares").

3.       The Restricted  Shares were  transferred to me on  ------------  -----,
         200--.  This election  relates to the 20-- calendar taxable year.

4.       The Restricted Shares are subject to the following restrictions:

                  The Restricted Shares are forfeitable until they are earned in
                  accordance with the CharterMac  Amended and Restated Incentive
                  Share Plan  ("Plan"),  my  Restricted  Share  Award  Agreement
                  ("Award") or other Award or Plan  provisions.  The  Restricted
                  Shares  generally  are  not  transferable  until  my  interest
                  becomes vested and  nonforfeitable,  pursuant to the Award and
                  the Plan.

5.       Fair market value:

                  The fair  market  value at the  time of  transfer  (determined
                  without  regard to any  restrictions  other then  restrictions
                  which by their  terms  never  will  lapse)  of the  Restricted
                  Shares  with  respect to which I am making  this  election  is
                  $_____ per share.

6.       Amount paid for Restricted Shares:

                  The amount I paid for the Restricted Shares is $0.

7.       Furnishing statement to employer:

                  A copy of this  statement  has been  furnished to my employer,
                  CharterMac.

8. Award or Plan not affected:

                  Nothing  contained  herein  shall be held to change any of the
                  terms or conditions of the Award or the Plan.

Dated: ------------  -----, 200--.

                                                  ------------------------------
                                                  Taxpayer

                                      136
<PAGE>

                                                                      Exhibit 12

Ratio of Earnings to Combined Fixed Charges and Preference Dividends

<TABLE>
<CAPTION>
                                                                       (Dollars in thousands)


                                                                            DECEMBER 31,
                                            -----------------------------------------------------------------------------


                                                 2004            2003            2002            2001            2000
                                            -------------   -------------   -------------   -------------   -------------

<S>                                         <C>             <C>             <C>             <C>             <C>
Interest expense                            $      52,233   $      23,919   $      19,004   $      16,132   $      16,489
Amortized capitalized costs related to
  indebtedness                                      3,310           2,163             940             727             479
Preference security dividend requirements
  of consolidated subsidiaries                     22,840          18,897          17,266          12,578           8,594
                                            -------------   -------------   -------------   -------------   -------------

  Total fixed charges                       $      78,383   $      44,979   $      37,210   $      29,437   $      25,562
                                            =============   =============   =============   =============   =============


Net income before minority interests        $    (143,462)  $      64,498   $      62,613   $      38,985   $      30,091
Add:  Total fixed charges                          78,383          44,979          37,210          29,437          25,562
Less:  Preference security dividend
  requirements of consolidated subsidiaries       (22,840)        (18,897)        (17,266)        (12,578)         (8,594)
                                            -------------   -------------   -------------   -------------   -------------
Earnings                                    $     (87,919)  $      90,580   $      82,557   $      55,844   $      47,059
                                            =============   =============   =============   =============   =============

Ratio of Earnings to Combined Fixed
  Charges and Preference Dividends            See NOTE           2.0:1           2.2:1          1.9:1          1.8:1
</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: For the year ended  December 31, 2004,  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 $166.3  million,  yielding a ratio of
earnings to combined  fixed  charges and  preference  dividends of -1.1:1.  This
shortfall  is due to the  consolidation  of  partnerships  deemed to be variable
interest  entities  ("VIEs")  pursuant to Financial  Interpretation  46(R) ("FIN
46(R)").  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
VIEs in the consolidated financial statements affected this ratio as follows:

     o    Combined Fixed Charges and Preference  Dividends  (which,  as defined,
          totaled $78.4 million) includes VIE interest expense of $21.4 million,
          although these expenses are paid directly by the VIEs; and
     o    Earnings (which, as defined, was a loss of $87.9 million) includes VIE
          operating  losses  totaling  $220.0  million,  although such operating
          losses are currently absorbed by the limited partners of the VIEs.

                                      137
<PAGE>

                                                                      Exhibit 21



               Subsidiaries of the Company as of December 31, 2004
               ---------------------------------------------------

CM Holding Trust, a Delaware statutory trust

CharterMac Equity Issuer Trust, a Delaware statutory trust

CharterMac Corporation, a Delaware corporation

Charter Credit Enhancement I, LLC, a Delaware limited liability company

    Subsidiaries of CharterMac Equity Issuer Trust, a Delaware business trust
    -------------------------------------------------------------------------

CharterMac Origination Trust I, a Delaware statutory trust

CharterMac Owner 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

CharterMac Guarantor LLC, a Delaware limited liability company

CharterMac Investor LLC, a Delaware limited liability company

                   Subsidiaries of CharterMac Capital Company
                   ------------------------------------------

Related Capital Company LLC, a Delaware limited liability company

Related Equities Corporation, a Delaware corporation

Related Capital Partners Inc., a Delaware corporation

RCC Manager LLC, a Delaware limited liability company

RCC Credit Facility LLC, , a Delaware limited liability company

Related AMI Associates Inc., a Delaware corporation

                         Subsidiary of CM Guarantor LLC
                         ------------------------------

Related Charter L.P., a Delaware

                                      138
<PAGE>


                                                                    Exhibit 31.1

                                  CERTIFICATION


I, Stuart J. Boesky, 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  presented in this annual 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
         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:   April 7, 2005                                By: /s/ Stuart J. Boesky
       ----------------                                  --------------------
                                                         Stuart J. Boesky
                                                         Chief Executive Officer

                                      139
<PAGE>

                                                                    Exhibit 31.2

                                  CERTIFICATION


I, Alan P. Hirmes, 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  presented in this annual 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
         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:   April 7, 2005                                By: /s/ Alan P. Hirmes
       ----------------                                  ------------------
                                                         Alan P. Hirmes
                                                         Chief Financial Officer



                                      140
<PAGE>

                                                                    Exhibit 32.1


                            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, 2004, as filed with the Securities and Exchange
Commission  on the date  hereof  (the  "Report"),  I,  Stuart J.  Boesky,  Chief
Executive 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/ Stuart J. Boesky
     --------------------
     Stuart J. Boesky
     Chief Executive Officer
     April 7, 2005

     A signed  original of this  written  statement  required by Section 906 has
     been  provided  to  CharterMac  and  will be  retained  by  CharterMac  and
     furnished  to the  Securities  and  Exchange  Commission  or its staff upon
     request.

                                      141
<PAGE>

                                                                    Exhibit 32.2


                            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, 2004, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), I, Alan P. Hirmes, 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/ Alan P. Hirmes
     ------------------
     Alan P. Hirmes
     Chief Financial Officer
     April 7, 2005

     A signed  original of this  written  statement  required by Section 906 has
     been  provided  to  CharterMac  and  will be  retained  by  CharterMac  and
     furnished  to the  Securities  and  Exchange  Commission  or its staff upon
     request.


                                      142
<PAGE>


                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                                 (In thousands)

            Summarized condensed financial information of registrant

                  (not including its consolidated subsidiaries)

                            CONDENSED BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                            December 31,
                                                                     --------------------------
                                                                       2004             2003
                                                                     ---------        ---------

                                         ASSETS
<S>                                                                  <C>              <C>
Revenue bonds-at fair value                                          $ 109,672        $  93,293
Cash and cash equivalents                                               12,957           16,763
Deferred costs - net of amortization of $5,935 and $4,473                9,432           10,017
Due from subsidiaries                                                  126,528          101,254
Intangible assets - net of amortization of $2,158 and
$1,813                                                                     949            1,294
Investment in subsidiaries                                             632,894          590,590
Other investments                                                       25,596           25,001
Other assets                                                             1,572            1,751
Loan to affiliate                                                        4,600               --

                                                                     ---------        ---------
Total Assets                                                         $ 924,200        $ 839,963
                                                                     =========        =========

                          LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Accounts payable, accrued expenses and other
     liabilities                                                           294            3,455
   Distributions payable                                                23,915           18,851
                                                                     ---------        ---------

Total liabilities                                                       24,209           22,306
                                                                     ---------        ---------

Commitments and contingencies

Shareholders' equity
Beneficial owners equity - convertible CRA
   shareholders (6,552 and 8,180 shares issued and
   outstanding in 2004 and 2003, respectively)                         108,744          138,748
Beneficial owners equity - special preferred voting
   shares; no par value (15,172 shares outstanding)                        152              161
Beneficial owners equity - other common shareholders
   no par value (100,000 shares authorized; 51,363
   issued and 51,229 outstanding in 2004 and 42,726
   issued and 42,704 outstanding in 2003)                              773,166          644,641
Deferred compensation                                                   (7,922)         (19,385)
Treasury shares of beneficial interest - common, at
   cost (134 shares in 2004 and 23 shares in 2003)                      (2,970)            (378)
Accumulated other comprehensive income                                  28,821           53,870
                                                                     ---------        ---------
Total shareholders' equity                                             899,991          817,657
                                                                     ---------        ---------

Total liabilities and shareholders' equity                           $ 924,200        $ 839,963
                                                                     =========        =========
</TABLE>


                 See accompanying notes to financial statements

                                      143
<PAGE>

                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF OPERATIONS



<TABLE>
<CAPTION>
                                                                         Years Ended December 31,
                                                                ----------------------------------------
                                                                  2004            2003           2002
                                                                --------        --------        --------
                                                                            (In thousands)
<S>                                                             <C>             <C>             <C>
Revenues:
   Revenue bonds interest income                                $  7,948        $  8,309        $  4,701
   Other income                                                    4,212           4,191           1,219
                                                                --------        --------        --------
     Total revenues                                               12,160          12,500           5,920
                                                                --------        --------        --------


Expenses:
   Interest expense                                                   35              --               3
   General and administrative                                      6,958           7,146           4,574
   Depreciation and amortization                                   1,630           1,140             876
   Loss on impairment of assets                                      147              --              --
                                                                --------        --------        --------
     Total expenses                                                8,770           8,286           5,453
                                                                --------        --------        --------

Income before equity in earnings of subsidiaries
   and investments and loss on repayment of revenue bonds          3,390           4,214             467

Equity in earnings of subsidiaries                                59,792          60,604          59,637

Equity in earnings of investments                                  2,219           2,219           1,116

Loss on repayment of revenue bonds                                   (38)           (451)           (387)
                                                                --------        --------        --------

Net income                                                      $ 65,363        $ 66,586        $ 60,833
                                                                --------        --------        --------

Allocation of net income to:
   Special distribution to Manager                              $     --        $  5,332        $  4,872
                                                                --------        --------        --------
   Manager                                                      $     --        $      6        $     56
                                                                --------        --------        --------
   Common shareholders                                          $ 56,786        $ 54,608        $ 52,516
   Convertible CRA shareholders                                    8,577           6,640           3,389
                                                                --------        --------        --------
     Total for shareholders                                     $ 65,363        $ 61,248        $ 55,905
                                                                --------        --------        --------
</TABLE>


                 See accompanying notes to financial statements

                                      144
<PAGE>

                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                            Years Ended December 31,
                                                                    ----------------------------------------
                                                                      2004            2003            2002
                                                                    --------        --------        --------
<S>                                                                 <C>             <C>             <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                       $ 65,363        $ 66,586        $ 60,833
   Adjustments to reconcile net income to net cash used in
     operating activities:
   Loss on repayment of revenue bonds                                     38             451             387
   Loss on impairment of assets                                          147              --              --
   Depreciation and amortization                                       1,630           1,140             876
   Income from investment in subsidiaries                            (59,792)        (60,604)        (59,637)
   Non-cash compensation expense                                         597              --              --
   Other non-cash expense                                                525           1,534           2,127
   Changes in operating assets and liabilities:
     Other assets                                                        180            (205)         (1,134)
     Accounts payable, accrued expenses and other liabilities         (3,160)         (3,079)          4,452
     Loans to affiliates                                              (4,600)             --              --
     Due to / from subsidiaries                                      (25,275)        (59,963)        (52,377)
                                                                    --------        --------        --------
Net cash used in operating activities                                (24,347)        (54,140)        (44,473)
                                                                    --------        --------        --------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Proceeds from repayment of revenue bonds                            2,935          18,006             553
   Purchase of revenue bonds                                          (2,390)        (12,708)        (16,101)
   Deferred investment acquisition costs                                  --            (767)        (13,657)
   Investment in subsidiaries                                          3,108          29,135           2,394
   Other investments                                                    (742)         (3,631)         (9,232)
                                                                    --------        --------        --------
Net cash provided by (used in) investing activities                    2,911          30,035         (36,043)
                                                                    --------        --------        --------
</TABLE>

                                      145
<PAGE>

                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>
                                                                                     Years Ended December 31,
                                                                           -------------------------------------------
                                                                             2004             2003             2002
                                                                           ---------        ---------        ---------
<S>                                                                        <C>              <C>              <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                             (84,395)         (65,121)         (56,441)
   Issuance of  common shares and convertible CRA shares                     111,119          104,841          125,599
   Offering costs relating to issuance of common and convertible CRA shares   (5,261)            (495)            (723)
   Treasury share purchases                                                   (2,592)            (275)              --
   Redemption of special preferred voting shares                                 (10)              --               --
   Deferred financing costs                                                   (1,231)          (2,456)            (921)
                                                                           ---------        ---------        ---------

Net cash provided by financing activities                                     17,630           36,494           67,514
                                                                           ---------        ---------        ---------

Net (decrease) increase in cash and cash equivalents                          (3,806)          12,389          (13,002)

Cash and cash equivalents at the beginning of the period                      16,763            4,374           17,376
                                                                           ---------        ---------        ---------

Cash and cash equivalents at the end of the period                         $  12,957        $  16,763        $   4,374
                                                                           =========        =========        =========

Supplemental information
   Interest paid                                                           $      --        $      --        $       3
                                                                           =========        =========        =========

Supplemental disclosure of non-cash activities:
   Contribution of revenue bonds to subsidiaries                           $      --        $  69,266        $      --
                                                                           =========        =========        =========
   Contribution of notes receivable to subsidiaries                        $      --        $      --        $      --
                                                                           =========        =========        =========

   Distribution of revenue bonds from subsidiaries                         $  12,664        $      --        $ 128,693
                                                                           =========        =========        =========
   Distribution of notes receivable from subsidiaries                      $      --        $      --        $   4,503
                                                                           =========        =========        =========
</TABLE>


                 See accompanying notes to financial statements

                                      146
<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 consolidated 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  consolidated  subsidiaries  and 50% or less  owned  persons
accounted for under the equity method.

<TABLE>
<CAPTION>

(In thousands)                               2004          2003           2002
                                          ----------     ---------     ---------
<S>                                         <C>           <C>           <C>
Consolidated subsidiaries CMC               $2,200        $1,942        $   400
Equity method ARCap                          2,219         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.

                                      147
<PAGE>

                                   Schedule II

                        Valuation and Qualifying Accounts
                                December 31, 2004

<TABLE>
<CAPTION>
                                                                 Additions
                                                        ----------------------------
(IN THOUSANDS)                                                         Charged to
                                        Balance at      Charged to       Other                         Balance at
                                        beginning       costs and      Accounts -     Deductions -       end of
Description                             of period        expenses       Describe        Describe         period
-------------------------------       --------------   ------------   ------------   --------------   ------------
<C>                                      <C>              <C>           <C>             <C>             <C>
Loan Loss Reserve
2004                                     $  6,746         $   634       $    --         $ (900) (1)     $ 6,480
2003                                        4,272           2,899            --           (425) (2)       6,746
2002                                        1,556           2,716            --             --            4,272

Allowance for Doubtful Accounts
2004                                     $    107         $ 2,272       $    --         $   --          $ 2,379
2003                                           --             107            --             --              107
</TABLE>

(1)  Reversal of reserves for 3 DUS loan losses. Actual expense reflected on DUS
     loan loss line in income statement.
(2)  Reversal of reserves for 1 DUS loan loss.  Actual expense  reflected on DUS
     loan loss line in income statement.


                                      148