SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20004

                                    FORM 10-K

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

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

                                       OR

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


                         Commission File Number 1-13237

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

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

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


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

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

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

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

                                      NONE

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

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

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

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

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

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

The  aggregate  market  value of common  equity  held by  non-affiliates  of the
registrant as of June 30, 2005 was approximately $1,108,635,000.

As of  February  28,  2006  there  were  52,018,956  outstanding  shares  of the
registrant's shares of beneficial interest.

                       DOCUMENTS INCORPORATED BY REFERENCE

Part III:  Those  portions of the  registrant's  Proxy  Statement for the Annual
Meeting to be held in June 2006 which are incorporated into Items 10, 11, 12 and
13.


<PAGE>



TABLE OF CONTENTS

                                   CHARTERMAC

                           ANNUAL REPORT ON FORM 10-K

<TABLE>
<CAPTION>

                                                                                                               PAGE
PART I
<S>                  <C>               <C>                                                                      <C>
                     Item 1.           Business                                                                   4
                     Item 1A.          Risk Factors                                                              12
                     Item 1B.          Unresolved Staff Comments                                                 27
                     Item 2.           Properties                                                                27
                     Item 3.           Legal Proceedings                                                         27
                     Item 4.           Submission of Matters to a Vote of Shareholders                           28

PART II
                     Item 5.           Market for Registrant's Common Equity, Related Stockholder Matters
                                           and Issuer Purchases of Equity Securities                             29
                     Item 6.           Selected Financial Data                                                   31
                     Item 7.           Management's Discussion and Analysis of Financial Condition and
                                           Results of Operations                                                 31
                     Item 7A.          Quantitative and Qualitative Disclosures about Market Risks               50
                     Item 8.           Financial Statements and Supplementary Data                               55
                     Item 9.           Changes in and Disagreements with Accountants on Accounting and
                                           Financial Disclosure                                                 115
                     Item 9A.          Disclosures Controls and Procedures                                      115
                     Item 9B.          Other Information                                                        115

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

PART IV
                     Item 15.          Exhibits and Financial Statement Schedules                               117

SIGNATURES                                                                                                      122

</TABLE>


                                       2
<PAGE>



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



This  Annual  Report on Form 10-K  contains  forward-looking  statements.  These
forward-looking  statements are not historical facts, but rather our beliefs and
expectations and are based on our current expectations,  estimates, projections,
beliefs  and  assumptions  about  our  Company  and  industry.   Words  such  as
"anticipates,"  "expects,"  "intends," "plans," "believes," "seeks," "estimates"
and similar  expressions  are intended to identify  forward-looking  statements.
These  statements  are not guarantees of future  performance  and are subject to
risks,  uncertainties  and other factors,  some of which are beyond our control,
are  difficult  to predict and could cause actual  results to differ  materially
from those expressed or forecasted in the  forward-looking  statements.  Some of
these risks include, among other things:

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

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


                                       3
<PAGE>



                                     PART I
ITEM 1.  BUSINESS.

General
-------

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

We provide  capital  solutions to real estate  developers  and owners 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 and are one of the nation's leading  full-service  real estate finance
companies, 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, including our code of conduct, is available at WWW.CHARTERMAC.COM. As soon
as reasonably  practicable after such material is electronically  filed with, or
furnished to, the Securities and Exchange  Commission ("SEC") we make available,
on or through our website, free of charge:

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

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

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

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

Through our  subsidiaries,  we are a full-service  real estate finance  company,
with a strong core focus on the multifamily sector. Our subsidiaries have direct
financing  relationships  with  over  800  real  estate  developers  and  owners
throughout  the country.  We operate  from a fully  integrated  platform,  which
enables us to originate,  underwrite and manage the risk of most transactions in
which we provide  debt or equity.  Our  platform  offers us several  competitive
advantages, including:

     o    THE ABILITY TO CROSS-SELL OUR PRODUCTS. Frequently on transactions, we
          are able to offer  more than one  component  of a  property's  capital
          structure.
     o    THE ABILITY TO ORIGINATE  THE  TRANSACTION  WHOLESALE.  Our  "one-stop
          shopping"  capability  enables us to capture  substantially all of the
          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 have historically been low.

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

We operate in four business segments:


                                       4
<PAGE>



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

2.       FUND MANAGEMENT, which includes:

          o    Subsidiaries  that  sponsor  real  estate  investment  funds that
               primarily   invest  equity  in  Low-Income   Housing  Tax  Credit
               ("LIHTC")  properties.  We receive fees for sponsoring,  managing
               and providing other services to these funds;
          o    Subsidiaries   that  provide  advisory   services  to  us,  other
               subsidiaries of ours and to American Mortgage  Acceptance Company
               ("AMAC"),  an affiliated,  publicly traded real estate investment
               trust that focuses on providing  first  mortgage,  mezzanine  and
               bridge financing to commercial and multifamily properties; and
          o    Subsidiaries  that  participate  in what we refer  to as  "credit
               intermediation" transactions, including supporting the credit for
               affiliate  mortgage  loans and  providing  specified  returns  to
               investors in LIHTC investment funds, in exchange for fees.

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

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

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

4.       CONSOLIDATED PARTNERSHIPS,  primarily the LIHTC equity funds we sponsor
         through the Fund  Management  segment's  subsidiaries  and which we are
         required to consolidate in accordance  with FIN 46(R), as well as other
         partnerships  we  control  but in which  we have  little  or no  equity
         interest (see Note 1 to the consolidated financial statements).

Comparative  segment financial  information for 2005, 2004 and 2003 is presented
in Note 19 to the consolidated financial statements.

1.   PORTFOLIO INVESTING

We conduct most of our portfolio  investing through our CharterMac Equity Issuer
Trust ("Equity Issuer") subsidiary.

As of December 31, 2005, our revenue bond portfolio included direct and indirect
interests  in  mortgage   revenue   bonds  with  an  aggregate   fair  value  of
approximately $2.5 billion (prior to $227.5 million of eliminations), secured by
affordable  multifamily  properties containing 51,989 units located in 29 states
and the  District  of  Columbia.  While  most of these  mortgage  revenue  bonds
generate tax-exempt income, certain of them generate taxable income.

Our Portfolio Investing business generates most of its income and cash flow from
a positive  spread  between the interest  earned from our mortgage  revenue bond
portfolio and the cost of capital we use to purchase the bonds.  We also receive
fees from borrowers for the origination of new mortgage revenue 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 mortgage revenue bond)
and enabling the  developer to deal  directly  with one source.  Because  Equity
Issuer


                                       5
<PAGE>



purchases  mortgage  revenue bonds directly from the  governmental  issuer,  our
program eliminates the need for underwriters and their counsel,  rating agencies
and costly documentation.  By dealing directly with our subsidiaries, we believe
developers feel more confident about the terms and timing of their financing.

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

For  more  information  on  our  securitization  activity,  see  Note  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.

Through this segment,  we also invest in other  entities,  such as our preferred
and common investments in ARCap Investors,  L.L.C.  ("ARCap,") our participating
loan to and  preferred  investment  in Capri  Capital  Advisors  ("CCA") and our
investments in funds that CCA sponsors (see Note 6 to the consolidated financial
statements).

2.   FUND MANAGEMENT

Our Fund Management segment includes:

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

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

We conduct our tax credit fund sponsorship activities through CharterMac Capital
LLC  ("CharterMac  Capital"),  which we acquired in November 2003 (see Note 2 to
our consolidated  financial  statements) and which was formerly known as Related
Capital Company LLC.

CharterMac  Capital is one of the nation's  largest sponsors of LIHTC investment
funds, having raised nearly $7.5 billion in equity from institutional and retail
investors.  As a sponsor of over 115 public and private  real estate  investment
programs, CharterMac Capital has provided financing for over 1,200 properties in
46 states, Puerto Rico and the District of Columbia.

In  a  typical  LIHTC  investment  fund,  investors  acquire  a  direct  limited
partnership interest in an "upper-tier" investment  partnership.  The investment
partnership,  in turn,  invests as a limited partner in one or more "lower-tier"
operating partnerships which own and operate the multifamily properties. 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
lower-tier  partnership's  operation  of  the  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  from a  warehouse  lender  to  acquire  lower-tier
partnership  investments  . This  arrangement  enables  us to  obtain  and  hold
suitable  investments  for a fund until it has admitted  investors  and obtained
investment  capital.  As a result,  we are  better  able to  provide  investment
opportunities to the funds we sponsor when investment capital is available. When
we  admit  investors  to a fund,  the  fund  simultaneously  pays  us an  amount
sufficient  to enable us to repay the  monies  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 income and cash flow predominantly from:

     o    organization  and offering fees we earn in connection with the capital
          raising and sponsorship of investment programs,  which we receive upon
          the closing of a fund;
     o    fees  associated  with  acquisition  activity of each fund we sponsor,
          which we receive at the time of the acquisition; and


                                       6
<PAGE>



     o    partnership  management  and asset  management  fees  associated  with
          ongoing  administration  of  investment  programs we advise,  which we
          receive  either  at the  time a fund  closes  or over  several  years,
          depending upon the terms of the partnership agreements.

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

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

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

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

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

AMAC is a publicly traded real estate investment trust that focuses on providing
first  mortgage,  mezzanine and bridge  financing to commercial and  multifamily
properties.  AMAC also invests in  government-insured  or agency guaranteed debt
securities  that are  predominantly  secured by first  mortgages on  multifamily
properties.  As of December  31, 2005,  AMAC had $400.7  million in assets and a
total market capitalization of approximately $399.9 million.

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


     o    acquisition fees paid by the borrowers upon the closing of a loan that
          AMAC originates;
     o    asset management fees; and
     o    incentive  management fees received  annually if AMAC achieves certain
          earnings and distribution benchmarks.

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

We conduct our credit  intermediation  activities  primarily through our Charter
Mac  Corporation  ("CM  Corp.")   subsidiary.   What  we  refer  to  as  "credit
intermediation" falls into several categories:

     o    using default  swaps to provide a specified  rate of return during the
          life of an LIHTC fund we  sponsor,  for which we receive a fee that we
          recognize over the transaction  period.  These transactions may be for
          the  construction  period  or  the  operation  period  of  a  pool  of
          properties,   or  for  the  combined   periods.   These   transactions
          historically  have  involved  supporting   obligations  of  a  primary
          obligor;
     o    supporting a  developer's  credit during the  construction  phase of a
          property,  for which we  receive a fee  which we  recognize  over that
          period;
     o    supporting 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  which we
          recognize over the estimated operational period of the property; and
     o    credit intermediation of a borrowers' obligations on either individual
          or mortgage pools for a fee.

As  previously  announced,  we plan to launch a new  majority-owned  subsidiary,
Centerbrook Holdings LLC ("Centerbrook") that will provide certain of our credit
intermediation  services on a going forward basis.  While  historically CM Corp.
has supported  the  commitments  of a primary  intermediator,  Centerbrook  will
fulfill  that role for  future  transactions,  and we expect  that it will later
fulfill the primary  intermediator  role. In addition,  Centerbrook will provide
what is often referred to as "credit  enhancement" of the mortgage revenue bonds
in our  securitization  programs.  There is no  assurance,  however,  that  this
subsidiary will begin operations in 2006.

While  initially  Centerbrook  will be  involved  in credit  intermediation  for
transactions  in which  our  subsidiaries  are  involved,  we will  also seek to
provide these services to other unrelated customers.


                                       7
<PAGE>



3.   MORTGAGE BANKING

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

CMC is one of 26 approved Delegated Underwriters and Servicers ("DUS") 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  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. While Program Plus does not involve risk-sharing, we also
          originate loans under Freddie Mac's Delegated Underwriting  Initiative
          ("DUI") Program, which, similar to DUS, involves loss sharing ;
     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
generally  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  arrangements with Fannie Mae and
Freddie Mac.

Our mortgage  banking  activities  generate  income and 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 loss
          sharing  premium for loans  originated  for Fannie Mae (and in certain
          cases, Freddie Mac);
     o    prepayment penalties, generally associated with refinancing; and
     o    interest earned on amounts held in escrow.

In 2006,  this segment will also be  originating  mortgages for sale to AMAC and
will receive fees for the originations.

4.   CONSOLIDATED PARTNERSHIPS

In accordance with accounting rules requiring the consolidation of partnerships,
we  consolidate  the balance  sheets and  operations  of numerous  funds that we
sponsor and other partnerships that we indirectly  manage.  While we have little
or no equity interest in these consolidated partnerships, we effectively control
them for  reasons  associated  with our role in  managing  them and the  nominal
equity  interests  of our  executive  officers.  While our Fund  Management  and


                                       8
<PAGE>



Portfolio  Investing  segments  earn fees or  interest  from these  consolidated
partnerships, we consider the partnerships as a separate business for management
purposes.  For a more  detailed  discussion,  see  Note  1 to  the  consolidated
financial statements.

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

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

     o    our Portfolio  Investing  business  competes  directly with investment
          banks,  real estate finance  companies and others seeking to invest in
          tax-exempt mortgage revenue bonds;
     o    our Fund Management  business competes directly with others seeking to
          raise  capital for tax  advantaged  funds,  some of which offer credit
          intermediation  for their  funds,  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,  three other companies
          that participate in the DUI program as well as numerous banks, finance
          companies and others that originate mortgages for resale.

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 in Item 1A below).  However,  we feel we can
effectively  compete due to our on-going  relationships with developers.  Due to
our unified product platform,  we believe that 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 existing 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, for federal income tax purposes, the parent trust and many
of our  subsidiaries  (including  all that  constitute  our Portfolio  Investing
segment) are treated as  partnerships  that are not subject to income taxes.  We
pass  through  our  income,   including  federally  tax-exempt  income,  to  our
shareholders for inclusion in their tax returns. We derive a substantial portion
of our income from ownership of first  mortgage  "Private  Activity  Bonds." The
interest from these bonds is generally  exempt from regular  federal income tax.
However,  the Tax Reform Act of 1986  classified this type of interest for bonds
issued after August 7, 1986 as a tax preference item for 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, 2005,  compared to 93%
in 2004 and 88% in 2003.  As a result of AMT, the  percentage of our income that
is exempt from federal income tax may be different for each shareholder.

We also conduct businesses that generate taxable income through CM Corp. and its
subsidiaries,  which  collectively  operate  our Fund  Management  and  Mortgage
Banking businesses.


                                       9
<PAGE>



With  regard  to our  mortgage  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
          mortgage 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
     (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 mortgage  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, which is 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.  Mortgage 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  mortgage  revenue  bonds.  There are two types of
credits:


                                       10
<PAGE>



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

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

In order to qualify for the federal LIHTC,  the property must comply with either
of the 20/50 or 40/60  tests that  apply to  tax-exempt  bonds  (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 15 year recapture period could result in
a recapture of the federal LIHTCs.  In addition,  if the rents from the property
are not  sufficient  to pay debt service on the mortgage  revenue bonds or other
financing  secured by the property and a default  ensues,  the initial  borrower
could lose ownership of the project as the result of foreclosure of the mortgage
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 mortgage  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.

Investors  in  CharterMac  Capital  sponsored  funds  are  usually  Fortune  500
corporations  that  have  projected  long-term  positive  tax  positions.  These
investors  generally become limited partners in the CharterMac Capital sponsored
fund which, in turn, invests as a limited partner in the  developer/owner of the
affordable  housing property.  The CharterMac Capital sponsored fund contributes
to the  developer/owner  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 twelve  managing  trustees,
seven 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
---------

Our subsidiaries had  approximately  400 employees at December 31, 2005, none of
whom were parties to any collective bargaining agreement.


                                       11
<PAGE>



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

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

ITEM 1A. RISK FACTORS

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

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

1. GENERAL RISKS RELATED TO OUR BUSINESS

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

Through our taxable and  tax-exempt  subsidiaries,  we derive a large portion of
our earnings by:

     o    investing in taxable and tax-exempt bonds;
     o    sponsoring funds that provide equity to LIHTC properties; and
     o    originating and servicing mortgages.

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

Our success  depends in large part on the performance of the properties that 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 or  Freddie  Mac could  expose us to losses
          under our loss sharing agreements;
     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;


                                       12
<PAGE>



     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 earthquakes,  floods,  terrorism, wars and toxic mold or other
          environmental   conditions)  which  are  either   uninsurable  or  not
          economically insurable;
     o    under various laws,  ordinances and regulations,  an owner or operator
          of real estate is liable for damages caused by or the costs of removal
          or remediation of certain  hazardous or toxic substances  released on,
          above, under or in such real estate. These laws often impose liability
          whether or not the owner knew of, or was responsible for, the presence
          of such hazardous or toxic  substances.  As a result,  the entities we
          sponsor  which own real  estate,  and the  owners  of the real  estate
          securing our investments, could be required to pay for such damages or
          removal or remediation costs; and
     o    a guarantor may be unable to fulfill its obligations.

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

     o    a property owner may be unable to meet its obligations to us as holder
          of its debt;
     o    a fund may not be able to pay our fees;
     o    a fund may not generate  the return that we have  committed to provide
          and we may be called upon to satisfy the promised return; and
     o    we could lose our invested capital and/or anticipated future revenue.

This could decrease the fair value of our  investments,  lower the fair value of
assets we pledge as collateral  and affect our net income and cash flows.

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  flows.  Additionally,
increasing interest rates may:

     o    reduce the fair value of our investments,  particularly our fixed-rate
          mortgage   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 mortgage  revenue  bonds or
          to structure transactions, thereby reducing fees we receive;
     o    increase our borrowing costs;
     o    restrict our access to capital;
     o    cause  investors  to  find  alternative   investments  that  are  more
          attractive than the equity funds we sponsor; and
     o    adversely  affect the amount of cash  available  for  distribution  to
          shareholders.

Since a  significant  portion  of our  investments  are  residual  interests  in
mortgage  revenue bonds or other securities whose cash flow is first used to pay
senior  securities with  short-term  floating  interest  rates,  any increase in
short-term  interest  rates will  increase  the amount of  interest  paid on the
senior  securities  and  reduce  the net cash  flow in our  Portfolio  Investing
business.  Further,  increasing  interest  rates may  reduce the  likelihood  of
property development or mortgage refinancing,  thereby deceasing the origination
volume 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
rental  housing.  Further,  a portion of our net income is generated by interest


                                       13
<PAGE>



income we earn on mortgage escrow deposits.  If interest rates were to decrease,
our net income in the Mortgage Banking segment would decrease as well.

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

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

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

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

Two 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:

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

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

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 net
income and cash flows.  There can be no assurance  that  existing  recurring fee
arrangements  will  not be  reduced  or  terminated  or  that we will be able to
realize revenues from new business.

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

We  rely  upon  relationships  with  key  investors  and  developers.  If  these
relationships  do not continue,  or if we are unable to form new  relationships,
our ability to generate  revenue will be adversely  affected.  In 2005, five key
investors  provided  approximately  70.1% of the  equity  capital  raised by tax
credit  syndication  programs  we  sponsored,  with  Fannie Mae and  Freddie Mac
together providing  approximately 39.8% of the equity capital. In addition,  ten
key developers provided approximately 43.7% of the LIHTC properties for which we
arranged equity financing in 2005. Further,  Fannie Mae and Freddie Mac were the
purchasers of 63.5% of the loans  originated by our Mortgage Banking business in
2005.

There can be no assurance  that we will be able to continue to do business  with
these key investors and  developers  or that new  relationships  will be formed.
Developers  may also  experience  financial  difficulties  that would,  in turn,
reduce the amount of business we transact with them.

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

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


                                       14
<PAGE>



As of December 31, 2005  approximately  30% of the revenue we  recognized in our
statement of income was derived from  fee-generating  service activities through
our  taxable  subsidiaries.   Fee-generating   businesses  are  inherently  less
predictable  than the ownership of mortgage  revenue bonds,  and there can be no
assurance that the  fee-generating  activities will be profitable.  In addition,
the net income and cash flows  generated  by our Fund  Management  business  has
historically  fluctuated between quarters due to the typical  variability in the
timing of investments in tax credit  partnerships.  These  fluctuations could be
perceived negatively and, therefore,  adversely affect our share price. Refer to
Note  18 to  our  consolidated  financial  statements  for  quarterly  financial
information.

In addition,  the portion of our  distributions  that is  excludable  from gross
income for federal  income tax purposes  could decrease based on the size of our
future taxable business.  Our taxable  subsidiaries do not currently  distribute
dividend income to the parent trust but rather reinvest it in their  businesses.
If we invest in a larger  percentage of taxable  investments,  or if our taxable
subsidiaries were to distribute  dividend income to the parent trust, the result
would likely be that the taxable  portion of our overall income would  increase,
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  MORTGAGE  REVENUE  BONDS OR UPON THE  BANKRUPTCY  OF AN OWNER OF
PROPERTIES SECURING OUR MORTGAGE REVENUE BONDS

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

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

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

As of December 31, 2005,  mortgage revenue bonds with an aggregate fair value of
approximately  $313.8  million were secured by  affordable  multifamily  housing
properties  which  are still in  various  stages of  construction  and  mortgage
revenue bonds with an aggregate fair value of approximately  $367.4 million were
secured  by  affordable  multifamily  housing  properties  which are  undergoing
substantial  rehabilitation.  Construction and/or substantial  rehabilitation of
such properties  generally lasts  approximately  12 to 24 months.  The principal
risk  associated  with this type of  lending  is the risk of  non-completion  of
construction or rehabilitation which may arise as a result of:

     o    underestimated construction or rehabilitation costs;
     o    delays;
     o    failure to obtain governmental approvals; and
     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
mortgage revenue bonds secured by such mortgage,  may incur certain costs and be
required to invest additional capital in order to preserve our investment.


                                       15
<PAGE>



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

As of December 31, 2005,  mortgage  revenue bonds in our  portfolio  with a fair
value of  approximately  $1.5 billion were secured by mortgages on properties in
construction,   lease-up  or  rehabilitation   stages.  The  lease-up  of  these
underlying  properties may not be completed on schedule or at  anticipated  rent
levels,  resulting  in a greater  risk that they may go into  default than bonds
secured by mortgages on properties  that are fully  leased-up.  Should a bond go
into default,  we may not receive  interest  income,  which would reduce our net
income and cash flows.  Moreover,  there can be no assurance that the underlying
property will achieve expected occupancy or debt service coverage levels.

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

A  significant  portion  of our  revenue  bond  portfolio  has been  pledged  as
collateral  in connection  with our  securitizations  and credit  intermediation
activities  and we may not have full  access to them  until we exit the  related
programs.  The fair value of the pledged  bonds varies from time to time.  As of
December 31, 2005,  the fair value of all pledged bonds was  approximately  $2.3
billion.

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

Because of our  utilization  of  securitization,  our interests in a significant
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 owning
"junior residual  interests" that could adversely affect our net income and cash
flows, including:

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

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

Through  securitizations,   we  seek  to  enhance  our  overall  return  on  our
investments and to generate  proceeds that,  along with operating cash flows and
equity offering proceeds,  facilitate the acquisition of additional investments.
In our debt  securitizations,  a bank or another type of  financial  institution
stands ready to provide  liquidity to the purchasers of senior  interests in our
mortgage  revenue bonds.  They also provide certain credit  intermediation  with
respect to the underlying revenue bond, which enables the senior interests to be
sold to investors seeking  investments with credit ratings of at least "A" short
term and "AA" long term.  The  liquidity  facilities  are generally for one-year
terms and are renewable annually. If the credit strength of either the liquidity
or credit intermediation  providers deteriorates,  we anticipate that the return
on the residual  interests would decrease,  negatively  affecting our net income
and subsequent executions.  In addition, if we are unable to renew the liquidity
or credit  intermediation  facilities,  we would be  forced to find  alternative
(possibly more expensive)  facilities,  to repurchase the underlying bonds or to
liquidate the underlying bonds and our investment in the residual interests.  If
we were forced to liquidate an investment, we would recognize gains or losses on
the liquidation,  which might be significant depending on market conditions.  As
of December 31, 2005:

     o    senior  interests  with an  aggregate  amount of $482.5  million  were
          credit  intermediated  by an eight-year term facility  through MBIA, a
          large financial insurer. Of this amount, $382.5 million was subject to
          annual  "rollover"  renewal  for  liquidity  which  is  provided  by a
          consortium of banks;
     o    Merrill  Lynch  provided   liquidity  for  senior  interests  with  an
          aggregate amount of $760.1 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;
     o    Merrill Lynch provided credit intermediation for senior interests with
          an  aggregate   amount  of  $596.8   million  in  the  Merrill   Lynch
          P-FLOATs/RITES   program.   We  do  not  maintain  an  ongoing  credit


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<PAGE>



          intermediation  commitment  with  Merrill  Lynch and,  therefore,  are
          subject to the risk of termination of that program on short notice;
     o    IXIS Financial  Products  provided  credit  intermediation  for senior
          interests  with an aggregate  amount of $163.3  million in the Merrill
          Lynch  P-FLOATs/RITES  program. Our credit  intermediation  commitment
          with IXIS is subject to annual renewal;
     o    Goldman  Sachs  provided   liquidity  for  senior  interests  with  an
          aggregate  amount of  $187.1  million  in the  Goldman  Sachs  TIC/TOC
          program.  We do not  maintain  an ongoing  liquidity  commitment  with
          Goldman Sachs and,  therefore,  are subject to the risk of termination
          of that program on short notice; and
     o    IXIS Financial  Products  provided  credit  intermediation  for senior
          interests  with an aggregate  amount of $187.1  million in the Goldman
          Sachs TIC/TOC program. Our credit intermediation  commitment with IXIS
          is subject to annual renewal.

OUR MORTGAGE REVENUE BONDS MAY BE CONSIDERED USURIOUS

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

OUR INVESTMENTS IN MORTGAGE REVENUE BONDS ARE ILLIQUID

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

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

Properties  underlying  our  mortgage  revenue  bonds may  experience  financial
difficulties  from time to time,  which  could  cause  certain  of our  mortgage
revenue  bonds to go into  default.  Were that to occur,  we might take remedial
action such as,  among other  things,  entering  into a work-out or  forbearance
agreement  with the owner of the property or exercising  our rights with respect
to the  collateral  securing such 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 INTERMEDIATION AND COMMITMENTS TO PROVIDE
SPECIFIED RATES OF RETURN THAT EXPOSE US TO LOSSES

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


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<PAGE>



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

A  significant  portion of our Fund  Management  revenues  is  derived  from the
syndication of partnership  interests in partnerships  that invest in properties
eligible  for LIHTCs.  Although  LIHTCs are a part of the Code,  Congress  could
repeal or modify this legislation at any time or modify the tax laws so that the
value of LIHTC benefits is reduced. If such legislation is repealed or adversely
modified,  we would no longer be able to pursue  this  portion  of our  business
strategy.

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

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

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

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

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

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

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


                                       18
<PAGE>



4.   RISKS RELATED TO OUR MORTGAGE BANKING BUSINESS

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

In our DUS program, we originate loans through one of our subsidiaries which are
thereafter purchased by Fannie Mae. We retain a first loss position with respect
to loans that we originate and sell under this program. We assume responsibility
for a portion of any loss that may result from borrower  defaults,  based on the
Fannie Mae loss  sharing  formulas,  and risk  Levels I, II, or III.  Of the 863
loans in this program as of December  31, 2005,  all but two were Level I loans.
For such loans, if a default occurs,  we are responsible for the first 5% of the
unpaid principal  balance and a portion of any additional losses to a maximum of
20% of the original  principal  balance;  any remaining  loss is borne by Fannie
Mae. Level II and Level III loans carry a higher loss sharing percentage.

Under the terms of our master  loss  sharing  agreement  with Fannie Mae, we are
responsible for funding 100% of mortgagor  delinquency  (principal and interest)
and  servicing  (taxes,  insurance and  foreclosure  costs)  advances  until the
amounts  advanced  exceed  5% of the  unpaid  principal  balance  at the date of
default.  Thereafter,  for Level I loans,  we may request  interim  loss sharing
adjustments  which allow us to fund 25% of such advances until final  settlement
under the master loss sharing  agreement.  No interim  sharing  adjustments  are
available for Level II and Level III loans.

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

Under the terms of our master  agreement  with Freddie Mac, we are  obligated to
reimburse  Freddie Mac for a portion of any loss that may result  from  borrower
defaults on DUI transactions.  For such loans, if a default occurs, our share of
the loss will be the first 5% of the  unpaid  principal  balance  and 25% of the
next 20% of the remaining  unpaid  principal  balance to a maximum of 10% of the
unpaid  principal  balance.  The loss on a defaulted  loan is  calculated as the
unpaid principal amount due, unpaid interest due and default  resolutions  costs
(taxes, insurance, operation and foreclosure costs) less recoveries.

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

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

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

THE LOSS OF OUR  RELATIONSHIPS  WITH  GOVERNMENT  AGENCIES AND RELATED  ENTITIES
WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS.

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

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

Like other mortgage companies,  we must comply with the applicable licensing and
other regulatory requirements of each jurisdiction in which we are authorized to
lend. These requirements are complex and vary from jurisdiction to jurisdiction.
From time to time we are  subject to  examination  by  regulators,  and if it is


                                       19
<PAGE>



determined  that we are not in compliance with the applicable  requirements,  we
may be  fined,  and our  license  to lend  in one or more  jurisdictions  may be
suspended or revoked.

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

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

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

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

5.   RISKS RELATED TO APPLICATION OF TAX LAWS

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

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

In  determining  whether  interest is treated as  qualifying  income under these
rules,  interest income derived from a "financial business" and income and gains
derived by a "dealer" in  securities  are not treated as qualifying  income.  We
have  represented  that we are acting as an investor with respect to our revenue
bond  investments  and that we have not  engaged  in,  and will not engage in, a
financial  business,  although there is no clear guidance on what  constitutes a
financial  business  under  the tax law.  We have  taken the  position  that for
purposes  of  determining  whether  we are in a  financial  business,  portfolio
investing activities that we are engaged in now and that we contemplate engaging
in prospectively  would not cause us to be engaged in a financial business or to
be considered a "dealer" in securities. The IRS could assert that our activities
constitute a financial business. If our activities constitute (or as a result of
increased volume constitute) a financial business or cause us to be treated as a
dealer, there is a substantial risk that more than 10% of our gross income would
not constitute qualifying income. We could also be treated as if we were engaged
in a financial  business if the activities of CM Corp. and its subsidiaries were
attributed  to us and were  determined to  constitute a financial  business.  CM
Corp.,  including  its  principal  subsidiaries  CharterMac  Capital and CMC, is
subject to income tax on its income.  Accordingly, we believe the activities and
income of CM Corp. and its subsidiaries will not be attributed to CharterMac for


                                       20
<PAGE>



purposes of determining  CharterMac's  tax status.  In addition,  in determining
whether  interest  is treated as  qualifying  income,  interest  income  that is
determined  based upon the  income or  profits  of any person is not  treated as
qualifying  income. A portion of the interest payable on participating  interest
bonds  owned  by us is  determined  based  upon the  income  or  profits  of the
properties  securing our  investments.  Accordingly,  if we were to receive more
than 10% of our gross income in any given year from such "contingent  interest,"
the IRS could take the position  that we should be treated as a publicly  traded
partnership  taxable  as a  corporation.  There  can be no  assurance  that such
monitoring  would be effective in all events to avoid the receipt of  contingent
interest and any other non-qualifying  income in any given year that exceeds 10%
of our gross income because  circumstances  outside of our (or our subsidiaries)
control could cause such a result.

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

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

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

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

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

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

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

     TAX-EXEMPTION OF OUR MORTGAGE REVENUE BONDS

     On the date of  original  issuance or  re-issuance  of each  revenue  bond,
     nationally  recognized  bond  counsel or special tax counsel  rendered  its
     opinion  to the  effect  that,  based on the law in  effect  on that  date,
     interest   on   such   mortgage    revenue   bonds   is   excludable   from
     federally-taxable  gross  income,  except with  respect to any revenue bond
     (other  than a  revenue  bond,  the  proceeds  of  which  are  loaned  to a
     charitable  organization described in Section 501(c)(3) of the Code) during
     any  period  in which it is held by a  "substantial  user" of the  property
     financed  with the proceeds of such  mortgage  revenue  bonds or a "related
     person" of such a  "substantial  user." Each opinion  speaks only as of the
     date it was delivered.  In addition,  in the case of mortgage revenue bonds
     which,  subsequent  to their  original  issuance,  have been  reissued  for
     federal tax  purposes,  nationally  recognized  bond counsel or special tax
     counsel  has  delivered  opinions  that  interest on the  reissued  bond is


                                       21
<PAGE>



     excludable from federally-taxable  gross income of the holder from the date
     of re-issuance  or, in some cases,  to the effect that the  re-issuance did
     not adversely affect the  excludability of interest on the mortgage revenue
     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 mortgage revenue bonds for interest
     on such mortgage revenue bonds to remain excludable from  federally-taxable
     gross income.  Among these continuing  requirements are restrictions on the
     investment  and use of the revenue bond proceeds and, for mortgage  revenue
     bonds  the  proceeds  of which  are  loaned  to a  charitable  organization
     described in Section  501(c)(3) of the Code, the continued exempt status of
     such  borrower.  In addition,  the continuing  requirements  include tenant
     income  restrictions,  regulatory  agreement compliance and compliance with
     rules  pertaining to arbitrage.  Each issuer of the mortgage revenue bonds,
     as well as each of the underlying borrowers,  has covenanted to comply with
     certain  procedures and guidelines  designed to ensure  satisfaction of the
     continuing   requirements  of  the  Code.  Failure  to  comply  with  these
     continuing requirements of the Code may cause the interest on such bonds to
     be includable in  federally-taxable  gross income retroactively to the date
     of  issuance,  regardless  of when  such  noncompliance  occurs.  Greenberg
     Traurig, LLP (also referred to as "Greenberg Traurig") as our bond counsel,
     and Paul Hastings,  as our securities  counsel  (Greenberg Traurig and Paul
     Hastings are collectively  referred to herein as our "Counsel"),  have not,
     in  connection  with  this  filing,  passed  upon  and  do not  assume  any
     responsibility for, but rather have assumed the continuing  correctness of,
     the  opinions of bond  counsel or special tax counsel  (including  opinions
     rendered   by   Greenberg   Traurig)   relating  to  the   exclusion   from
     federally-taxable  gross income of interest on the mortgage  revenue  bonds
     and have not  independently  verified  whether any events or  circumstances
     have  occurred  since the date  such  opinions  were  rendered  that  would
     adversely affect the conclusions set forth herein.

     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,  as of December 31,
     2005, such bonds comprised only 3.5% 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.

     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.

     We 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


                                       22
<PAGE>



     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.

     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  mortgage  revenue  bonds we own, the
     ownership of the obligors of our mortgage  revenue  bonds and the ownership
     of our shares and our subsidiaries'  shares,  and concurs in the conclusion
     that we are not  "substantial  users" of the  properties  financed with the
     proceeds of the mortgage  revenue bonds or related parties  thereto.  There
     can be no  assurance,  however,  that  the IRS  would  not  challenge  such
     conclusion. If such challenge were successful, the interest received on any
     bond for which we were treated as a "substantial user" or a "related party"
     thereto would be includable in federally taxable gross income.

     SECURITIZATION PROGRAMS AND REVENUE PROCEDURE 2003-84

     Many of the senior  interests  in our  securitization  programs are held by
     tax-exempt money-market funds. For various reasons, money market funds will
     only acquire and hold interests in securitization programs that comply with
     Revenue Procedure  2003-84,  which provides for exemption from Schedule K-1
     reporting  requirements for certain  partnerships.  Our counsel,  Greenberg
     Traurig, has advised us that the partnerships we use in our securitizations
     currently meet the  requirements of Revenue  Procedure  2003-84.  It is our
     intention to continue to meet those  requirements,  which include an income
     test and an expense test, on an ongoing  basis.  There can be no assurance,
     however,  that  unforeseen  circumstances  might  cause  one or more of our
     securitization  partnerships  to fail either the income test or the expense
     test, which would cause our  securitization  partnerships to have to comply
     with all of the  requirements of subchapter K of the Code. In the event one
     or more of our  securitization  partnerships  was forced to comply with the
     provisions  of  subchapter  K of the  Code,  it is  likely  that all of the
     tax-exempt  money  market  funds  that hold the senior  interests  in those
     securitizations  would  tender  their  positions.   This  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 among our CRA
     Preferred  Shares,  our CRA Shares and our common shares.  We may also have
     taxable income in the form of market  discount or gain on the sale or other
     disposition of our investments, and we expect to own investments and engage
     in certain fee generating  activities  (through our subsidiaries) that will
     generate taxable income.

     STRUCTURE OF OUR ACQUISITIONS

     Our  acquisitions  of  CharterMac   Capital  and  other  subsidiaries  were
     structured to prevent us from realizing active income from these businesses
     and  to  effectively  receive  a  tax  deduction  (via  the  allocation  of
     subsidiary  costs)  for  payments  made to its  selling  principals.  It is
     possible that the IRS could challenge this structure, with material adverse
     consequences  to us.  First,  the IRS could  assert  that we, as the parent
     trust,  are the owner of these  businesses,  in which case the parent trust


                                       23
<PAGE>



     would realize an amount of active income from them that would require it to
     be treated as a corporation  instead of a publicly  traded  partnership for
     income tax  purposes.  If the IRS  prevailed,  we would be  required to pay
     taxes on that income,  thereby reducing the amount available for us to make
     distributions. As a result, it is likely that the value of our shares would
     decline.  Second,  the IRS  might  assert  that the  Special  Common  Units
     ("SCUs")  and  Special  Membership  Units  ("SMUs")  held  by  the  selling
     principals of the businesses and others are actually shares of our Company.
     If this position  prevailed,  the distributions  payable on the units would
     not reduce the taxable income of CM Corp. In such event, CM Corp.  would be
     subject to increased tax, which could reduce our net income, our cash flows
     and our distributions, which could also result in a decrease in the portion
     of our distributions  that is excluded from gross income for federal income
     tax purposes.

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,  SCUs and
SMUs of our subsidiaries,  which at December 31, 2005, aggregated  approximately
$2.5 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  mortgage  revenue  bonds held  directly  or
indirectly  by it,  which  constitute  a  substantial  portion  of  our  assets.
Similarly,  holders  of senior  interests  created  through  our  securitization
programs have a superior claim to the cash flow from the mortgage  revenue bonds
deposited  in such  programs.  Accordingly,  a portion of the cash flow from our
investments  will  not be  available  for  distribution  on our  common  shares.
Likewise if we pay a common dividend:

     o    holders of SCUs issued by our CCC  subsidiary  are entitled to receive
          preferential  distributions with respect to the earnings of CharterMac
          Capital; and
     o    holders of SMUs issued by our CM Investor  subsidiary  are entitled to
          receive preferential  distributions with respect to the earnings of CM
          Investor.

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

WE DEPEND UPON THE SERVICES OF OUR EXECUTIVE OFFICERS

We and our subsidiaries  depend upon the services of two key executive  officers
(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 by these key
officers.  The  departure  or the loss of the  services  of  either of these key
officers or a large number of senior  management  personnel and other  employees
could have a material  adverse  effect on our  ability to operate  our  business
effectively and our future results of operations.

OUR BOARD OF TRUSTEES CAN CHANGE OUR BUSINESS POLICIES UNILATERALLY

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

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

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


                                       24
<PAGE>



subsidiaries  may offer, and any of our equity offerings would cause dilution of
a shareholder's investment in us.

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

In connection with our acquisition of CharterMac  Capital,  we issued to each of
its selling  principals  one special  preferred  voting  share for each SCU they
received.  Our special  preferred voting shares have no economic  interest,  but
entitle  each  holder  to one vote per  special  preferred  voting  share on all
matters  subject  to a vote of the  holders of our common  shares.  The  selling
principals of CharterMac  Capital who received  special  preferred voting shares
include members of our executive management team and a subsidiary of The Related
Companies, L.P. ("TRCLP"),  which is controlled by Mr. Ross, 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.  Hirmes and Mr.  Schnitzer)  and Mr. Ross in the aggregate
directly or indirectly owned voting shares  representing  approximately 19.6% of
our voting power as of December 31, 2005. As such, if they vote as a block, such
shareholders  will have significant  voting power on all matters  submitted to a
vote of our common shareholders.

Also,  because three of these selling  principals of CharterMac  Capital  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 CharterMac Capital acquisition. While any material decisions involving these
persons are subject to the vote of a majority of our independent trustees,  such
decisions may create conflicts between us and these persons.

In addition,  we have some obligations to these former owners which will require
us to make  choices as to how we operate  our  business  which may affect  those
obligations.  For example,  we have guaranteed the payment to all holders of the
SCUs of all but $5.0  million  of the  distributions  they  would  otherwise  be
entitled to receive under the operating  agreement of CharterMac Capital Company
LLC  ("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 CharterMac  Capital  prohibit TRCLP and its affiliates  from
competing with any business  currently  engaged in by us other than in specified
areas, including:

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

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

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

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


                                       25
<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 2008, 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 AND SMUS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR SHARES

Future sales of  substantial  amounts of our common  shares in the public market
could adversely affect  prevailing  market prices of our shares.  As of December
31, 2005, approximately 14.9 million common shares remained issuable in exchange
for the SCUs we issued, approximately 539,000 common shares remained issuable in
exchange for the SMUs we issued and we have granted  restricted common shares of
which  approximately  255,000 were  unvested at December  31,  2005.  When these
shares vest and/or convert, their sale in the public market could, and depending
upon the number of involved,  likely would,  adversely affect  prevailing market
prices of our shares and our ability to raise additional  capital through equity
markets.  As of  December  31,  2005,  TRCLP  and  its  owners  indirectly  held
approximately  10.2 million SCUs and approximately  580,000 common shares which,
subject to some exceptions, are not subject to a lock-up agreement. In addition,
a former executive of our Company resigned during 2005 he held approximately 1.5
million  SCUs as of  December  31,  2005.  These SCUs are not subject to lock-up
agreements and may be converted to common shares at any time.

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

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

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

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


                                       26
<PAGE>



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
mortgage 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 1B. UNRESOLVED STAFF COMMENTS.

None

ITEM 2.  PROPERTIES

We lease the office space in which our  headquarters  are located at 625 Madison
Avenue, New York, NY. The 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 - Two office  facilities;  the  leases  expire in 2006 and
          2008.
     o    Dallas, TX - An office facility; the lease expires in 2010.
     o    San Rafael, CA - An office facility; the lease expires in 2008.
     o    San Francisco, CA - An office facility; the lease expires in 2012.

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

ITEM 3.  LEGAL PROCEEDINGS

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


                                       27
<PAGE>



ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS

At a special  meeting of  shareholders  held on November 30, 2005,  shareholders
were asked to authorize an amendment of the  Company's  declaration  of trust to
move the provision  limiting our ability to incur debt in excess of 50% into our
bylaws,  thereby giving our Board of Trustees discretion as to the level of debt
we may incur.

The proposal  was  approved by the  shareholders.  The  affirmative  vote of the
holders of a majority of the issued and  outstanding  common shares  entitled to
vote at the annual  meeting was required to approve the proposal and shares were
voted as follows:

<TABLE>
<CAPTION>

                                          For           Against        Abstain
                                       ----------      ---------      ---------
<S>                                    <C>             <C>              <C>
Common Shares                          25,428,889      2,314,006        749,853
Restricted Common Shares                  273,573             --        109,693
Special Preferred Voting Shares        13,388,700             --      1,556,611*

</TABLE>

*  Pursuant to an agreement  entered into prior to our acquisition of CharterMac
   Capital,  certain  individuals  could vote no more than 90% of their  special
   preferred  voting shares until November 13, 2005. This agreement was extended
   for the purpose of this vote.


                                       28
<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 New York Stock  Exchange since January
10, 2006 under the symbol  "CHC".  From October 1, 1997,  until January 9, 2006,
they were traded on the American Stock Exchange under the same symbol.  Prior to
October 1, 1997,  there was no established  public trading market for our common
shares.

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

<TABLE>
<CAPTION>

                                       2005                        2004
                             -----------------------     -----------------------

Quarter Ended                   Low          High           Low           High
-----------------------      ---------     ---------     ---------     ---------
<S>                          <C>           <C>           <C>           <C>
March 31                     $   20.65     $   24.50     $   21.03     $   24.85
June 30                      $   20.30     $   22.49     $   17.75     $   24.70
September 30                 $   20.43     $   23.37     $   18.85     $   23.15
December 31                  $   18.50     $   23.02     $   21.35     $   25.42

</TABLE>

The last reported sale price of our common shares on the New York Stock Exchange
on February 28, 2006, was $22.07.

Holders

As of  February  28,  2006,  there were  2,954  registered  shareholders  owning
52,018,956 common shares.

Distributions

After providing for distributions to our 4.4% Convertible  Preferred Shares, our
net income is allocated pro rata among the common shares and the Convertible CRA
Shares (see Note 14 to the consolidated financial  statements).  The Convertible
CRA  Shares  rank on par with the common  shares  with  respect  to rights  upon
liquidation,  dissolution  or  winding  up of our  Company,  although  both  are
subordinate  to our  4.4%  Convertible  CRA  Preferred  shares.  Quarterly  cash
distributions during the years ended December 31, 2005 and 2004 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, 2005                             5/13/05         $   0.41      $23,729
June 30, 2005                              8/12/05             0.41       23,766
September 30, 2005                        11/14/05             0.41       23,843
December 31, 2005                          2/14/06             0.42       24,587
                                                           --------      -------
Total for 2005                                             $   1.65      $95,925
                                                           ========      =======

March 31, 2004                             5/15/04         $   0.37      $19,217
June 30, 2004                              8/14/04             0.38       21,929
September 30, 2004                        11/14/04             0.41       23,649
December 31, 2004                          2/14/05             0.41       23,690
                                                           --------      -------
Total for 2004                                             $   1.57      $88,485
                                                           ========      =======

</TABLE>

There are no material legal  restrictions  upon our present or future ability to
make  distributions  in accordance with the provisions of our Second Amended and
Restated  Trust  Agreement.  We do not  believe  that  the  financial  covenants
contained in our and our subsidiaries'  secured  indebtedness or in the terms of


                                       29
<PAGE>



the preferred shares issued by Equity Issuer will have any adverse impact on our
ability to make distributions in the normal course of business to our common and
Convertible CRA shareholders.  Future distributions will be at the discretion of
the  trustees  based upon  evaluation  of our actual cash flows,  our  financial
condition,  capital  requirements  and such other  factors as our trustees  deem
relevant.

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

The following table provides information related to our share incentive plans as
of December 31, 2005:

<TABLE>
<CAPTION>

                                             (a)                      (b)                          (c)

                                                                                           Number of securities
                                          Number of                                      remaining available for
                                      securities to be                                    future issuance under
                                    issued upon exercise        Weighted-average           equity compensation
                                       of outstanding          exercise price of             plans (excluding
                                      options, warrants       outstanding options,       securities reflected in
                                         and rights           warrants and rights             column a) (1)
                                    ----------------------    ---------------------     -------------------------
<S>                                       <C>                        <C>                        <C>
Equity compensation plans
   approved by security holders           1,510,341                  $20.42                     4,102,504
Equity compensation plans not
   approved by security holders                  --                      --                            --

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

Totals                                    1,510,341                  $20.42                     4,102,504
                                    ======================    =====================     =========================

</TABLE>

(1)  Our  Incentive  Share  Plan  (see  Note  15 to the  consolidated  financial
     statements)   authorizes   us  to  issue   options  or  other   share-based
     compensation equal to 10% of the total shares outstanding as 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 2005 and other  information
related to our repurchase program:

<TABLE>
<CAPTION>

                                             Purchases of Equity Securities

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

                                                                        Total number
                                    Total                                 of shares           Maximum number
                                  number of           Average         purchased as part    of shares that may yet
                                    shares           price paid          of publicly       be purchased under the
          Period                purchased (1)        per share        announced program       plans or program
----------------------------    ---------------    ---------------   ------------------    ----------------------
<S>                                   <C>           <C>                          <C>                <C>
October 1 - 31, 2005                      --        $        --                  --
November 1 - 30, 2005                 79,796              21.07                  --
December 1 - 31, 2005                     --                 --                  --
                                ---------------    ---------------   ------------------

Total                                 79,796           $  21.07                  --                 1,187,178
                                ===============    ===============   ==================    ======================

</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.


                                       30
<PAGE>



Other  information  required by this item, as well as information  regarding our
share  repurchase  program  and  share  compensation  paid  to  our  independent
trustees,  is  included  in  Notes  15  and  16 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                                     2005 (1)       2004 (2)       2003 (3)         2002           2001
-----------------------------------------     ----------     ----------     ----------     ----------     ----------
<S>                                           <C>            <C>            <C>            <C>            <C>
Total revenues                                $  295,000     $  232,432     $  152,240     $  116,614     $   74,625
Net income                                    $   59,014     $   65,363     $   66,586     $   60,833     $   38,985
Net income applicable to shareholders (4)     $   56,994     $   65,363     $   61,248     $   55,905     $   35,010

Net income per share (4)
  Basic                                       $      .98     $     1.19     $     1.31     $     1.31     $     1.14
  Diluted                                     $      .98     $     1.19     $     1.31     $     1.31     $     1.14

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

Total assets                                  $6,978,828     $5,737,221     $2,581,169     $1,852,868     $1,421,059
Financing arrangements                        $1,429,692     $1,068,428     $  900,008     $  671,659     $  541,796
Notes payable                                 $  304,888     $  174,454     $  153,350     $   68,556     $   56,586
Preferred shares of subsidiary:
  Subject to mandatory repurchase             $  273,500     $  273,500     $  273,500     $  273,500     $  218,500
  Not subject to mandatory repurchase         $  104,000     $  104,000            $--            $--            $--

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

Distributions per share (5)                   $     1.65     $     1.57     $     1.37     $     1.26     $     1.14

</TABLE>

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

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

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

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

This MD&A contains forward-looking statements.  These forward-looking statements
are not historical  facts, but rather our beliefs and expectations and are based
on our current  expectations,  estimates,  projections,  beliefs and assumptions
about  our  Company  and  industry.  Words  such  as  "anticipates,"  "expects,"
"intends," "plans," "believes," "seeks," "estimates" and similar expressions are
intended  to  identify  forward-looking  statements.  These  statements  are not
guarantees of future  performance  and are subject to risks,  uncertainties  and
other  factors,  some of which are beyond our control,  are difficult to predict
and could cause  actual  results to differ  materially  from those  expressed or
forecasted in the  forward-looking  statements.  Some of these risks  (described
more fully in Item 1A. of this filing on Form 10-K) include, among other things:


                                       31
<PAGE>



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

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

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

CONSOLIDATED PARTNERSHIPS

Primarily due to our adoption of FIN 46(R) as of March 31, 2004, we  consolidate
more than 115  partnerships  (predominantly  investment funds we sponsor) in our
financial  statements.  The operating  results for 2005 include a full period of
operations  for  these  entities,  as well as the  elimination  of  transactions
between the  entities  and our  subsidiaries.  In 2004,  the  operating  results
include  only nine  months'  operating  results  as we adopted  this  accounting
standard  as of March 31 of that year.  The  results for 2003 do not include any
operating results for these entities.

ACQUISITIONS

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

Our  operating  results  were  impacted   significantly  by  the  November  2003
acquisition of CharterMac  Capital,  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 CharterMac Capital.

In  addition,  the issuance of new classes of  subsidiary  equity as part of the
purchase price of both  acquisitions  requires us to apportion  certain earnings
and identify them as due to the holders of that equity.

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.  The adoption
of FIN 46(R) (as noted  above) led to a  significant  increase  in the amount of
assets and  liabilities we record due to  consolidation  of numerous  investment
partnerships (see Notes 1 and 7 to the consolidated financial statements).  This
consolidation  also  results  in the  recognition  of the  operating  results of
partnerships in which we have virtually no equity  interest,  the elimination of
transactions between our businesses and those partnerships and the allocation of
their results to their investor partners.


                                       32
<PAGE>



OTHER ITEMS

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

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

OVERVIEW

The following is a summary of our operations:

<TABLE>
<CAPTION>
                                                                                               % Change   % Change
                                             % of                 % of                 % of    2005 vs.   2004 vs.
(In thousands)                   2005      Revenues    2004     Revenues    2003     Revenues    2004       2003
                               --------    --------  --------   --------  --------   --------  --------   --------
<S>                            <C>          <C>      <C>         <C>      <C>         <C>       <C>       <C>
Revenues                       $295,000     100.0%   $232,432    100.0%   $152,240    100.0%     26.9 %    52.7 %
Income before income taxes       30,437      10.3      48,120     20.7      60,514     39.7     (36.7)    (20.5)
Net income                       59,014      20.0      65,363     28.1      66,586     43.7      (9.7)     (1.8)

</TABLE>

Our consolidated results over the three-year period illustrate the impact of our
changing  business from an externally  managed  business,  primarily  generating
recurring,  non-taxable  revenues,  to one with a large  proportion of fee-based
transactional  income  and  costs  associated  with  internal  management.  This
transition included:

     o    our  acquisition  of  CharterMac  Capital  in late  2003,  adding  the
          majority of our Fund Management revenues, and completely internalizing
          our management structure;
     o    rapid growth of our taxable, fee-based business through sponsorship of
          increasingly larger funds in 2004 and 2005; and
     o    approximately  doubling  our  Mortgage  Banking  business  through the
          acquisition of CCLP in 2005.

We expect that this  transition  will continue in 2006 with the launching of our
expanded credit  intermediation  business,  which will also generate taxable fee
income.

At the same time,  our reported  revenues do not fully reflect the growth of the
business due to the impact of consolidating  sponsored investment  partnerships,
as described  more fully below.  The  underlying  revenue  growth stems from the
introduction  of new products such as effective  variable-rate  bond  financing,
risk-sharing  mortgage loan  originations for Freddie Mac and different forms of
credit intermediation.

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

     o    increasing financing costs due to higher borrowing levels attendant to
          expansion and general increases in interest rates;
     o    the internalization of management in 2003;
     o    the requirement  for  infrastructure  to support growth,  primarily in
          2004 and 2005; and
     o    the costs associated with the creation of tax credit equity funds that
          vary  with  the  level  of fund  sponsorship  activity,  although  the
          majority  of such  costs are  reimbursed  and the  reimbursements  are
          recognized as revenue.

Along  with  the  compositional  changes  in  the  business,  we  are  now  also
increasingly  subject to  taxation,  although tax benefits may result based upon
the annual  taxable  income or loss from these  businesses.  The increase in the
level of tax benefit recognized over the three-year period presented reflect the
increasing  proportion of these taxable  businesses and increased book losses of
those businesses. See INCOME TAXES below.


                                       33
<PAGE>



REVENUES

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

<TABLE>
<CAPTION>

                                                                    % Change                    % Change
(In thousands)                              2005         2004     2005 vs. 2004     2003      2004 vs. 2003
-----------------------------------------------------------------------------------------------------------
<S>                                       <C>          <C>            <C>        <C>             <C>
Mortgage revenue bond interest income     $146,024     $132,075        10.6 %     $113,655        16.2%

Other interest income                       16,147        9,346        72.8          3,630       157.5

Fee income
   Fund sponsorship                         54,744       45,564        20.1         12,642       260.4
   Mortgage banking                         26,217       15,026        74.5         13,712         9.6
   Credit intermediation                     6,694        8,476       (21.0)         4,925        72.1
                                       --------------------------------------------------------------------
Total fee income                            87,655       69,066        26.9         31,279       120.8

Other revenues
   Prepayment penalties                      6,326        1,877       237.0            712       163.6
   Construction service fees                 4,583        1,445       217.1            298       384.9
   Administration fees                       1,832        1,381        32.7            554       149.3
   Expense reimbursements                    4,923        2,785        76.8            520       435.6
   Other                                     3,414        2,244        52.1          1,592        41.0
                                       --------------------------------------------------------------------
Total other revenues                        21,078        9,732       116.6          3,676       164.7

Revenues of consolidated partnerships       24,096       12,213        97.3             --         N/A
                                       --------------------------------------------------------------------

Total revenues                            $295,000     $232,432        26.9 %     $152,240        52.7%
                                       ====================================================================

</TABLE>

The  substantial  growth in our annual  revenues in both 2005 and 2004  resulted
primarily  from the rapid growth of our Fund  Management  segment,  particularly
from the acquisition of CharterMac Capital in late 2003.  CharterMac Capital has
contributed  the entire amount of fund  sponsorship  fees and much of the "other
revenues"  categories,  all stemming from the  sponsorship  of tax credit equity
funds,  while  our  credit  intermediation  business  has  also  grown  over the
three-year period.

During the same period,  aggressive expansion of the Mortgage Banking businesses
has  generated  substantial  revenue  growth,  particularly  in  2005  with  the
acquisition  of CCLP.  Beside the  increase  in  mortgage  banking  fees,  these
businesses  also  contributed to the increase in other interest income as rising
interest rates helped to generate revenues from escrow balances,  and constitute
the bulk of prepayment penalty revenue due to refinancing and payoff activity.

The  Portfolio  Investing  business,  while  not  growing  as  rapidly  in 2005,
continues to generate  higher revenues due to net increases in the portfolio and
the long-term nature of the revenue stream.

Revenues of consolidated  partnerships  were introduced upon our adoption of FIN
46(R) in 2004  (see  Note 1 to the  consolidated  financial  statements).  These
revenues  increase as we sponsor  additional  tax credit equity funds (or assume
the  general  partner  interests  in  property  level  partnerships),   but  the
consolidation  also  results  in  the  elimination  of  revenues  earned  by our
Portfolio  Investing and Fund Management  subsidiaries for transactions with the
partnerships. The revenues eliminated were as follows:

<TABLE>
<CAPTION>

           (In thousands)                       2005         2004      % Change
-------------------------------------         --------     --------    ---------
<S>                                            <C>          <C>          <C>
Mortgage revenue bond interest income          $ 3,555      $   581      511.9 %
Fund sponsorship fees                           35,945       25,531       40.8
Credit intermediation fees                       3,151        1,608       96.0
Other revenues                                   3,105        3,480      (10.8)
                                               -------      -------      -----
Total                                          $45,756      $31,200       46.7 %
                                               =======      =======      =====

</TABLE>


                                       34
<PAGE>



On a comparable basis,  including  CharterMac  Capital revenues for all of 2003,
including  CCLP  revenues  for all three years and  adjusting  for the impact of
consolidated  partnerships,  our total revenues increased approximately 15.0% in
2005 and 16.9% in 2004.

The  variances  in  mortgage  revenue  bond  interest  income and fee income are
described below in RESULTS BY SEGMENT.

Other  interest  income  includes  income from temporary  investments,  interest
earned on Mortgage  Banking escrow  balances and interest earned on our loans to
Capri (see Note 4 to the  consolidated  financial  statements).  The increase in
2005 stems primarily from:

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

This  growth was  partially  offset by a decline in the level of  interest  from
Capri  following  the  conversion  of a  portion  of the  loan  to an  ownership
interest.  The increase in 2004 over 2003 relates  mostly to the original  Capri
loan in the middle of 2004.

The increase in prepayment  penalties is  principally  due to growth in Mortgage
Banking refinancing volume over the period.

Expense  reimbursement  income represents income for services CharterMac Capital
provides  to  affiliates,  which  became  a part  of  our  operations  with  the
acquisition of CharterMac  Capital in November 2003. The growth in 2005 reflects
the growth in the population of entities to which services are provided.

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
                                                                     2005                   2004
(In thousands)                            2005         2004        vs. 2004    2003       vs. 2003
-------------------------------------------------------------------------------------------------------
<S>                                     <C>          <C>             <C>     <C>            <C>
Interest expense                        $ 56,495     $ 30,932        82.6%   $ 24,047        28.6 %
Interest expense - preferred shares
   of subsidiary                          18,898       18,898         N/A       9,448       100.0

Salaries and benefits                     68,983       56,044        23.1      17,463       220.9
General and administrative                56,412       45,262        24.6      23,352        93.8
                                    -------------------------------------------------------------------
Subtotal                                 125,395      101,306        23.8      40,815       148.2
                                    -------------------------------------------------------------------

Depreciation and amortization             44,195       30,407        45.3      11,926       155.0
Write off of trade name                   22,567           --         N/A          --         N/A
Loss on impairment of assets               4,555          757       501.7       1,759       (57.0)
                                    -------------------------------------------------------------------

   Subtotal                              272,105      182,300        49.3      87,995       107.2

Interest expense of consolidated
   partnerships                           26,322       21,395        23.0          --         N/A
Other expenses of consolidated
   partnerships                           53,573       30,519        75.5          --         N/A
                                    -------------------------------------------------------------------
   Subtotal                               79,895       51,914        53.9          --         N/A
                                    -------------------------------------------------------------------

Total expenses                          $352,000     $234,214        50.3%   $ 87,995       166.2 %
                                    ===================================================================

</TABLE>

The  total  amount  of  costs  we  recognize  increased  significantly  over the
three-year period due to increased investment  activity,  the CharterMac Capital
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 CharterMac  Capital and CCLP, and costs we now recognize or
classify differently as a result of accounting rules adopted in 2003 and 2004.


                                       35
<PAGE>



The  increase in interest  expense  reflects the higher  borrowing  levels as we
expand our various business lines.  Significant  borrowings during 2005 and 2004
included those related to:

     o    acquisitions   and  fundings  of  mortgage   revenue  bonds   totaling
          approximately $443.5 million in 2005 and $325.0 million in 2004;
     o    short-term  investments  to acquire equity  interests  inherent in the
          fund  sponsorship  portion of our Fund  Management  business since the
          CharterMac Capital acquisition in the fourth quarter of 2003;
     o    short-term  lending for mortgage loans prior to their sale to agencies
          and conduits,  which increased  markedly in 2005 as the business grew;
          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 obtaining an
          option  with  respect  to a  partial  ownership  of its fund  advisory
          business.

In addition to higher borrowings,  2005 interest expense reflects an increase in
the average borrowing rate to 3.8% as compared to 2.6% in 2004 and 2.4% in 2003.
The increase in the average  borrowing  rate resulted from gradual  increases in
the Bond Market Association  Municipal Swap Index ("BMA") and LIBOR rates during
2005 and 2004,  following sharp declines in prior years.  Interest  expense also
includes  amounts paid pursuant to swap  agreements  with an aggregate  notional
amount of $500.0  million (as  compared  to notional  amounts of swaps in effect
totaling  $50.0  million in 2004 and $50.0  million in 2003) as part of our risk
management strategy.

The amount  reported  as  "interest  expense - preferred  shares of  subsidiary"
represents  dividends on Equity Issuer's  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 2005 and 2004  include  amortization  of share grants
issued  as  part  of  the  CharterMac  Capital  acquisition   transaction.   The
amortization of these grants amounted to $7.6 million in 2005,  $11.0 million in
2004 and  $2.8  million  in  2003,  and the  decrease  in 2005  was a result  of
staggered  vesting terms,  most of which ended  throughout  2005. 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.  In addition,  2005 also includes  approximately  $3.2 million of
costs related to the departure of Stuart Boesky as our Chief  Executive  Officer
and an executive of one of our  subsidiaries.  Prior to the  CharterMac  Capital
acquisition,  all salary costs recognized were generated by the Mortgage Banking
business.

General and administrative  expenses in many categories increased in 2005 due to
the expansion of our businesses and the acquisition of CCLP,  particularly  with
regard to  increased  occupancy  needs and  professional  fees.  The increase in
occupancy is in relation to the growth of our  infrastructure to accommodate the
expansion of our business  lines.  The growth in  professional  fees was due, in
part, to:

     o    accounting   and   compliance   costs   related   to    Sarbanes-Oxley
          implementation;
     o    legal costs  related to protecting  our interests in properties  whose
          developer/contractor  experienced  financial  problems (see Note 21 to
          the consolidated  financial  statements) and other properties on which
          we foreclosed (see Note 5 to the consolidated  financial  statements);
          and
     o    legal costs associated with the start up of our credit  intermediation
          subsidiary.

The 2004 increase in General and  Administrative  expenses was predominantly due
to our  acquisition  of CharterMac  Capital 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.

Depreciation  and  amortization  expenses  were  higher  in the 2005  period  as
compared to 2004,  primarily  due to the a higher  level of  mortgage  servicing
rights  amortization  following  the CCLP  acquisition.  The increase in 2004 as
compared to 2003 was almost entirely due to amortization of intangibles acquired
in the CharterMac Capital transaction.

The trade name write off in 2005 pertains to management's decision at the end of
2005 to discontinue the use of the "Related  Capital Company" trade name when we
renamed the subsidiary  CharterMac  Capital. We had recorded an intangible asset
in 2003 as part of the acquisition of the business, and the write off represents
the unamortized balance of the asset at the time the name change was determined.


                                       36
<PAGE>



Of the asset impairment  charge in 2005,  approximately  $1.1 million relates to
management's  decision to discontinue  construction  of a property in connection
with the financial  difficulties  of the property  developer (see Note 21 to the
consolidated  financial  statements).  The  balance  of the 2005  amount and the
entirety  of the  2004 and 2003  charges  pertained  to the  planned  or  actual
restructuring of terms for mortgage revenue bond and mezzanine loan investments.

We did not record the expenses of the consolidated  partnerships  prior to April
1, 2004.  The 2005  increase in the expenses  generated  by these  entities is a
result of the  non-comparable  consolidation  periods as well as the increase in
the number of such partnerships  consolidated.  Virtually all of the expenses of
the consolidated partnerships are absorbed by their equity partners.

OTHER ITEMS

<TABLE>
<CAPTION>

                                                                                % Change                   % Change
                                                                                   2005                       2004
(In thousands)                                         2005           2004       vs. 2004        2003       vs. 2003
----------------------------------------------------------------------------------------------------------------------
<S>                                                 <C>            <C>            <C>         <C>            <C>
Equity and other income                             $   7,476      $   3,442      117.2 %     $   2,219      55.1 %

Gain on repayment of mortgage revenue bonds         $   1,561      $     217      619.4 %     $   1,951     (88.9)%
Gain on sale of loans                                   6,501          7,651      (15.0)          5,532      38.3
                                                 ---------------------------------------------------------------------
Gain on repayment of mortgage revenue bonds and     $   8,062      $   7,868        2.5 %     $   7,483       5.1%
   sale of loans

Income allocated to preferred shareholders of
   subsidiary                                       $  (6,225)     $  (3,942)      57.9 %     $  (9,449)     (58.3)%

Income allocated to SCUs                            $ (23,091)     $ (28,174)     (18.0)%     $  (4,038)     597.7%
Income allocated to SMUs                                 (330)            --        N/A              --        N/A
(Income) loss allocated to minority holders of
   CMC                                                     --           (194)       N/A              54     (459.3)
                                                 ---------------------------------------------------------------------
Total income allocated to minority interests        $ (23,421)     $ (28,368)     (17.4)%     $  (3,984)     612.0%

Loss allocated to partners of consolidated
   partnerships                                     $ 349,531      $ 219,950       58.9 %            --        N/A

</TABLE>

Equity and other income is comprised of income earned from property  development
joint  ventures and dividends from our  investment in ARCap  Investors,  LLC. In
2005 and 2004, this amount also includes  losses from tax advantaged  investment
vehicles similar to those we sponsor.  The sharp increase in 2005 relates to the
level of joint  venture  investment  activity  as  several  ventures  approached
completion,  allowing us to realize our share of development income and gains on
sale. The 2005 increase also includes  incremental  dividends from  converting a
portion of our ARCap investment from preferred to common units.

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

The  total of  "income  allocated  to  preferred  shareholders  of  subsidiary,"
including  the portion  classified  as interest  expense (see  EXPENSES  above),
increased over the  three-year  period due to an additional  preferred  offering
consummated in April 2004.

The income  allocation to SCUs and SMUs  represents the  proportionate  share of
after-tax  income  attributable to holders of subsidiary  equity as if they were
all converted to common shares.  The  comparatively  smaller amount allocated to
SCUs in 2003 is due to their issuance upon the acquisition of CharterMac Capital
late in that year.  There was no income allocated to SMUs in 2004 or 2003 as the
units were first issued in May 2005.


                                       37
<PAGE>



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, the income
from those  investments does not subject us to income taxes. The Fund Management
and Mortgage Banking businesses are conducted in corporations and are subject to
income taxes.  Because the distributions paid on the minority interests in these
corporate  subsidiaries  effectively  provide a tax deduction,  as well as other
factors within these  businesses,  they often have losses for book purposes.  In
2005,  the other factors  include the $22.6  million  write-off of an intangible
asset (see EXPENSES above and Note 6 to the consolidated financial statements).

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

The tax benefit disclosed  relates to the book losses of the taxable  businesses
and  the  tax  deductible  distributions  on  their  subsidiary  equity.  As the
proportion  of our  pre-tax  income  contributed  by the  businesses  generating
taxable  income and losses  changes,  the resulting tax benefit or provision may
appear  incongruous  with  our  consolidated  income  before  income  taxes,  as
illustrated in Note 11 to the consolidated financial statements.

The effective tax rate on a consolidated  basis was (93.9)% in 2005,  (35.8)% in
2004 and (10.0)% in 2003, due to the factors noted above. The effective rate for
our corporate  subsidiaries  that were subject to taxes was 58.5% in 2005, 54.4%
in 2004 and 60.9% in 2003. See Note 12 to the consolidated  financial statements
for further information regarding the effective tax rate.

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

PORTFOLIO INVESTING

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

<TABLE>
<CAPTION>

                                                                              % change                      % change
                                                                              2005 vs.                      2004 vs.
(IN THOUSANDS)                                    2005            2004           2004           2003           2003
--------------------------------------------   -----------     -----------    -----------    -----------    -----------
<S>                                           <C>             <C>            <C>           <C>               <C>
New mortgage revenue bond acquisitions        $  378,746      $  290,967      30.2 %       $  421,595        (31.0)%
Funding of mortgage revenue bonds
  acquired in prior years                          1,800          17,735     (89.9)                --           --
Acquisitions related to prior period
  forward commitments                             62,971          16,395     284.1             11,320         44.8
                                              ----------      ----------    ------         ----------       ------
Total acquisition and funding activity        $  443,517      $  325,097      36.5 %       $  432,915        (24.9)%
Forward commitments issued but not funded     $    8,000      $   88,676     (91.0)%       $   98,555        (10.0)%

Mortgage revenue bonds repaid                 $  104,279      $   26,870     288.1 %       $   83,897        (68.0)%

Average portfolio balance (fair value)        $2,197,953      $1,946,433      12.9 %       $1,579,905         23.2 %

Weighted average permanent interest rate
  of bonds acquired                                 6.19%           6.26%                        6.59%
Weighted average yield of portfolio                 6.64%           6.79%                        7.19%
Average borrowing rate                              3.65%           2.51%                        2.40%
Average BMA rate                                    2.45%           1.22%                        1.03%
                                              ----------------------------------------------------------------------

Mortgage revenue bond interest income (1)     $  149,860      $  132,815      12.8 %       $  113,655         16.9 %
Other interest income (1)                         16,029           7,100     125.8              3,961         79.2
Prepayment penalties                               1,176              30        --                244        (87.7)
Other revenues (1)                                 2,512           1,965      27.8              1,537         27.8
                                              ----------      ----------    ------         ----------       ------
                                              $  169,577      $  141,910      19.5 %       $  119,397         18.9 %
                                              ==========      ==========    ======         ==========       ======

Interest expense and securitization fees
                                       (1)    $   53,670      $   29,172      84.0 %       $   25,691         13.5 %
Loss on impairment of assets                  $    4,555      $      757     501.7 %       $    1,759        (57.0)%
Gain on repayments of mortgage revenue
  bonds                                       $    1,561      $      217     619.4 %       $    1,951        (88.9)%
                                              ----------------------------------------------------------------------

</TABLE>

(1) Prior to intersegment eliminations.


                                       38
<PAGE>



We continued to expand our revenue bond portfolio in 2005 and 2004, although the
rate of investment slowed beginning in 2004 due to challenging market conditions
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 (thereby  benefiting our 2005
volume),  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. Competitive factors also drove the decline
in origination rates in both 2004 and 2005.

While the decline in interest rates for new  investments  has gradually  lowered
the average yield of our portfolio, from an income perspective, the low interest
rate  environment  has  been  favorable  for  us.  Although  the BMA  rate,  the
short-term  tax-exempt index,  increased  markedly in 2005, our weighted average
cost of debt associated with these investments,  taking our hedging into effect,
continues to allow us to recognize healthy spreads between our cost of borrowing
and the interest rates earned.

Other income in this segment is  predominantly  interest  income on  investments
other than  mortgage  revenue bonds and  intercompany  interest and royalty fees
eliminated in consolidation. The increases in 2004 and 2005 over prior years are
due largely to Capri loan  interest  (see Note 4 to the  consolidated  financial
statements) and intercompany financing utilizing this segment's cash flows.

FUND MANAGEMENT

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

<TABLE>
<CAPTION>

                                                                             % Change                  % Change
                                                                             2005 vs.                  2004 vs.
(In thousands)                                     2005          2004          2004          2003        2003
-------------------------------------------     ----------    -----------    ---------    ----------   ---------
<S>                                             <C>            <C>            <C>         <C>            <C>
Equity raised                                   $1,131,274     $1,143,379      (1.1)%     $  266,237     329.5 %
Equity invested by investment funds             $1,082,322     $  972,477      11.3 %     $  183,776     429.2 %

Fees based on equity raised                     $   16,211     $   11,003      47.3 %     $    2,236     392.1 %
Fees based on equity invested                       45,733         41,970       9.0            8,292     406.2

Fees based on management of other entities:
   Investment origination fees                         592            590       0.3                5       N/A
   Partnership and asset management fees            28,888         18,632      55.0            1,135       N/A
   Construction fees                                 4,583          1,445     217.2              298     384.9
   Other                                                60              1       N/A               56     (98.2)
                                                ----------     ----------    ------       ----------   -------
   Subtotal                                         34,123         20,668      65.1            1,494       N/A
                                                ----------     ----------    ------       ----------   -------

Total fund sponsorship fees (1)                     96,067         73,641      30.5           12,022     512.6

Credit intermediation fees (1)                       9,845         10,085      (2.4)           4,925     104.8
Expense reimbursement (1)                            9,409          7,142      31.7              796     797.2
Other revenues (1)                                   2,431          1,795      35.4              599     199.7
                                                ----------     ----------    ------       ----------   -------
  Total                                         $  117,752     $   92,663      27.1 %     $   18,342     405.2 %
                                                ==========     ==========    ======       ==========   =======

</TABLE>

(1) Prior to intersegment eliminations.

Our  Fund  Management  activities  generate  origination  and  acquisition  fees
associated with sponsoring tax credit equity  investment funds and for assisting
the funds in acquiring assets, which we recognize when the equity is invested by
the investment  fund. We also receive asset  management fees for the services we
perform  for the funds  once they are  operating,  which we  recognize  over the
service periods.


                                       39
<PAGE>



The 2004  increase in fund  sponsorship  fees  represents  a full year of owning
CharterMac  Capital,  as 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 CharterMac  Capital as of January 1, 2003 ("the 2003
Pro Forma Period"),  originations  increased 28%, equity invested  increased 12%
and fund sponsorship revenues increased approximately 26%.

FEES BASED ON EQUITY RAISED

We earn O&O  service  and  partnership  management  fees based upon the level of
equity we raise for  tax-credit  equity  funds.  O&O service  fees are  realized
immediately  while  we earn  the  partnership  management  fees  over  five-year
periods.

Fees  earned  for O&O  services  increased  approximately  3.5% to $9.8  million
compared to $9.5 million in the 2004 period primarily due to the increase in the
fee rate realized,  offset by a marginal decrease in equity raised.  Partnership
management fees revenues increased  approximately 245.6% in 2005 to $5.3 million
compared to $1.5 million for the same period in 2004. This increase is primarily
the result of ongoing revenues for fund sponsorships completed in 2004 and 2005.

In 2004, the aggregate of these fees increased  approximately  40% over the 2003
Pro Forma Period. This increase exceeded the rise in equity raised due to higher
average  fee  rates  realized  as a  result  of the  change  in the mix of funds
originated in 2004 as compared to 2003.

FEES BASED ON EQUITY INVESTED

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

Fees we earned in these categories during 2004 increased to approximately  $42.0
million, representing an approximate 25% increase compared to the 2003 Pro Forma
Period results.  This increase exceeded the 12% increase in investments due to a
higher rate of fees realized as a result of the fund composition.

FEES FOR MANAGEMENT / ADVISORY SERVICES

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

     o    the  higher  level  of  assets  under  management  as we  add  to  the
          population of funds  sponsored  (with nine added in 2005 and eleven in
          2004);
     o    a $1.9 million  incentive  management  fee earned in 2005 for services
          provided to AMAC; and
     o    the  improvement  of the cash  position  of certain  investment  funds
          allowing  us to  collect  management  fees  in 2005  which  we did not
          previously recognize until collectibility was reasonably assured.

Fees earned in these categories in 2004 represented an increase of approximately
30% over the 2003 Pro Forma Period,  attributable  to the growth of assets under
management due to new fund originations during that period.

CREDIT INTERMEDIATION AND OTHER

Credit  intermediation  fees  decreased  in 2005  as  compared  to 2004  despite
additional credit  intermediated funds closed over the course of both years. The
decrease was due to the timing of the related agreements, the fees for which are
risk-weighted  toward the  construction  periods.  As we recognize the fees over
periods of two to 20 years,  the  sponsorship of new funds  fluctuates  with the
inception and expiration of the associated  intermediation periods. The increase
in these  fees in 2004 as  compared  to 2003 was  caused  by the  timing  of the
CharterMac Capital acquisition.


                                       40
<PAGE>



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

We anticipate  that the market for tax credit equity  investing will continue to
be strong in the near term but that  heightened  competition in the  marketplace
will lead to margin compression.  We expect,  however, that the launching of our
in-house  credit  intermediation  business will offset the impact of that margin
compression  from a net income  perspective  as we are likely to retain  amounts
previously paid or shared for credit  intermediation and for providing specified
rates of return to fund  investors.  In  addition,  we  anticipate  that planned
growth of AMAC will lead to  increased  partnership  and asset  management  fees
beginning in 2006.

MORTGAGE BANKING

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

<TABLE>
<CAPTION>

                                                                      % Change                  % Change
                                                                      2005 vs.                  2004 vs.
(In thousands)                              2005           2004         2004          2003        2003
------------------------------------     ----------     ----------    ---------    ----------   ---------
<S>                                      <C>            <C>             <C>        <C>             <C>
Originations (excluding assumptions)     $1,542,083     $  964,860       59.8%    $  554,499        74.0%
Originations (including assumptions)     $1,719,466     $1,011,910       69.9     $  604,788        67.3
Mortgage portfolio at December 31        $8,947,775     $3,852,529      132.3     $3,891,493        (1.0)
Mortgage servicing rights                $   62,190     $   32,366       92.1     $   33,351        (3.0)
                                         ----------     ----------      -----     ----------       -----

Mortgage origination fees (1)            $    7,454     $    5,455       36.6     $    4,683        16.5
Mortgage servicing fees                      18,928          9,571       97.8          9,029         6.0
                                         ----------     ----------      -----     ----------       -----
Total fee income                             26,382         15,026       75.6         13,712         9.6

Other interest income                        10,150          3,217      215.5          2,502        28.6
Prepayment penalties                          5,150          1,846      179.0            469       293.6
Other revenues                                1,890            939      101.3          1,007        (6.8)
                                         ----------     ----------      -----     ----------       -----
                                         $   43,572     $   21,028      107.2 %   $   17,690        18.9 %
                                         ==========     ==========      =====     ==========       =====

Gain on sale of mortgages                $    6,501     $    7,651      (15.0)%   $    5,532        38.3 %
                                         ==========     ==========      =====     ==========       =====

</TABLE>

(1) Prior to intersegment eliminations.

The  increase  in 2005  originations  over the 2004 and 2003  levels  was driven
largely by the  acquisition  of CCLP.  Including  CCLP in all periods,  the 2005
increase  would have been  approximately  15.0% over 2004, and the 2004 increase
would have been approximately 12.0% as compared to 2003.

The activity  gains in 2005 stemmed  from a  significant  increase in Fannie Mae
originations,  as  CCLP  has  traditionally  conducted  a large  portion  of its
business  through  Fannie Mae,  and pricing  changes  that  allowed us to garner
greater market share. Conduit originations also increased sharply as we continue
to pursue business not involving  agency execution in response to market demand.
These  increases  were  partially  offset  by a sharp  decline  in  Freddie  Mac
business,  as the 2004 period reflects a large single-borrower pool transaction,
with no comparable transaction in the current year period. The current year also
includes a significantly higher level of assumption lending for which we receive
assumption fees rather than origination fees.

Originations  in 2004 reflected 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  aided  the  growth of this
business.


                                       41
<PAGE>



The 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:

<TABLE>
<CAPTION>

                                       % of                      % of                      % of
                         2005          Total       2004          Total       2003          Total
                      ----------     ---------  ----------     ---------  ----------     ---------
<S>                   <C>              <C>      <C>              <C>      <C>              <C>
Fannie Mae            $  889,207        51.7%   $  387,477        38.3%   $  334,189        55.3%
Freddie Mac              202,915        11.8       350,091        34.6       109,849        18.2
FHA                        6,372         0.4        27,714         2.8            --          --
Conduit and other        443,589        25.8       199,578        19.7       110,461        18.2
                      ----------       -----    ----------       -----    ----------       -----
Subtotal               1,542,083        89.7       964,860        95.4       554,499        91.7
Assumptions              177,383        10.3        47,050         4.6        50,289         8.3
                      ----------       -----    ----------       -----    ----------       -----

Total                 $1,719,466       100.0%   $1,011,910       100.0%   $  604,788       100.0%
                      ==========       =====    ==========       =====    ==========       =====

</TABLE>

The increase in the servicing  portfolio and servicing  fees in 2005 is a result
of the CCLP acquisition.  Adjusting for the impact of the acquisition, servicing
fee income in 2005 declined  approximately  4% as compared to the same period in
2004.  The decline was caused by a higher level of payoffs and  amortization  as
compared  to  service-retained  originations  that  led  to a  decrease  in  the
comparable-basis servicing portfolio.

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.  More than 50% of the 2004  originations were additive to
the portfolio.

Despite the decline in the year-end  servicing  portfolio  level,  the servicing
fees  increase in 2004 was due to a higher  average  portfolio  during 2004 when
compared  to  2003.  The  higher  average  resulted  from a large  sub-servicing
agreement  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.

Interest  income  relates  primarily  to that  earned  on escrow  balances.  The
increase in 2005 was due to higher origination volume and increased market rates
earned.  The  increase  in  prepayment  penalties  relates to a higher  level of
refinancing  and payoff  activity  in the current  year.  Both  categories  also
increased due to the CCLP acquisition.

The significant  increase in prepayment  penalties relates to the sharp increase
in refinancing activity in both 2004 and 2005.

Gain on sale of mortgages  pertains primarily to sales of mortgages for which we
retain  servicing  rights.  An  increase  in 2005 as compared to 2004 due to the
increased origination volume was offset by a higher reserve for loan losses, due
to the  increased  volume and the  underlying  debt  service  statistics  in the
portfolio.

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

CONSOLIDATED PARTNERSHIPS

The results of consolidated  partnerships  reflected in our financial statements
are for entities we  effectively  control  according to the  definitions  of FIN
46(R),  and  other  partnerships  we  control,  but in which  we have no  equity
interest or, in the case of 18 partnerships,  an insignificant  equity interest.
Our Fund Management segment earns fees from many of the entities,  however,  and
our Portfolio  Investing  business earns interest on mortgage  revenue bonds for
which these  partnerships are the obligors.  The  consolidated  partnerships are


                                       42
<PAGE>



primarily tax credit equity  investment  funds we sponsor and manage,  while the
others are  property  level  partnerships  for which we have assumed the role of
general partner.

The results we reported in 2005  reflect  twelve  months of  operations  for the
partnerships  we consolidate  while 2004 includes only nine months of results as
we  consolidated  these entities as of March 31, 2004. The increased  amounts in
2005 are also due to the  origination  of eight funds and the  assumption of the
general  partner  interests in 12 property level  partnerships in the past year,
all of which are included in the population.

As third party investors hold virtually all of the equity partnership  interests
in these  entities,  we allocate  all results of  operations  to those  partners
except for  approximately  $10,000,  representing  our nominal  ownership.  As a
result, the consolidation of these  partnerships has an insignificant  impact on
our net income.

IMPACT OF HURRICANES DURING 2005

During the second half of 2005,  three  hurricanes  struck the  southern  United
States.  While all of our  businesses  are involved in  properties  in the areas
affected by the storms, few of those properties suffered damage severe enough to
affect our  results of  operations.  See Note 20 to the  consolidated  financial
statements.

Inflation
---------

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

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

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

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

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

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

     o    $250.0 million,  used for mortgage banking needs, which was reduced to
          $100.0 million in February 2006, matures in May 2006, and is renewable
          annually;
     o    $90.0 million,  used to acquire equity interests in property ownership
          entities  prior  to the  inclusion  of  these  equity  interests  into
          investments funds, which matures in October 2006;
     o    $60.0 million, used to provide the interim loan to Capri, the maturity
          of which has been extended pending its replacement with a new facility
          from the same lender;
     o    $40.0  million,  established in connection  with the CMC  acquisition,
          which expires in December 2006;
     o    $650.0 million in MBIA credit intermediation through 2011, under which
          we can complete up to $425.0 million of floating-rate  securitizations
          and $225.0 million of auction-rate securitizations;
     o    securitization  through the Merrill Lynch P-FLOATs/RITES  program of a
          specified  percentage of the fair value of mortgage  revenue bonds not
          otherwise securitized or pledged as collateral; and
     o    securitization   through  the  Goldman  Sachs  TIC/TOC  program  of  a
          specified  percentage of the fair value of mortgage  revenue bonds not
          otherwise  securitized  or  credit  intermediated,  which  matures  in
          October 2028.

As of December 31, 2005, we had approximately $302.8 million available to borrow
under these debt and securitization  facilities without exceeding limits imposed
by debt covenants and our bylaws.


                                       43
<PAGE>



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.  Although  certain of the  facilities  noted above mature in
2006, we expect to renew, replace or refinance them as necessary,  and we are in
negotiations  to replace the maturing lines listed above,  all of which are owed
to the same lender,  with a master credit facility from that same lender.  While
we believe  that we will be able to do so,  there is no  assurance  that we will
achieve  terms  favorable  to  us.  Also,   while  we  intend  to  optimize  our
securitization borrowing, our continued ability to do so is dependent on:

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

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

EQUITY
------

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

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

The  Convertible  CRA Shares are  economically  equivalent to our common shares,
receiving the same dividend. Unlike the common shares, however, these shares are
not  publicly  traded and do not have  voting  rights but entitle the holders to
"credit" under the US government's  Community Reinvestment Act. These shares are
convertible into common shares at the holders'  option,  mostly on a one-for-one
basis.  We first issued  Convertible  CRA Shares during 2000 and the program 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.

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

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

The SCUs  entitle  their  holders to a claim on the income and cash flows of 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.

SMU holders are entitled to  distributions  at the same time as, and only if, we
pay distributions on our common shares.  SMU distributions  were initially $1.69
per year, subject to adjustment in the amount of 95% of the percentage increases
or decreases in the dividends paid by us on the common shares.

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


                                       44
<PAGE>



We have also  filed a  registration  statement  on Form S-11  providing  for the
issuance of up to $100.0  million of common  shares.  We have not yet determined
whether we will draw upon this registration statement.

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

SUMMARY OF CASH FLOWS

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

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

Operating cash flows decreased by $106.9 million in 2005 as compared to the 2004
level,  due primarily to the high level of mortgage  originations  at the end of
2005.  While the assets will be sold in the first quarter of 2006,  the increase
in the level of mortgage assets held at the end of the year served to offset the
increase in net income exclusive of non-cash expenses and charges.

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

Financing  inflows in 2005 were $182.7  million  higher  than in 2004.  This was
primarily a result of  optimizing  our  securitization  capabilities  and taking
advantage of these facilities to monetize our revenue bond investment portfolio,
the expansion of our Mortgage Banking borrowing capacity and the issuance of our
4.4%  Convertible  CRA Shares.  These factors  collectively  exceeded the higher
level of equity issuances (including subsidiary equity) in 2004.

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

The net  increase  in cash and cash  equivalents  during 2004 was lower than the
increase in 2003 despite higher operating cash flows due to decreased  financing
activity.

Operating cash flows were higher in the 2004 period by a margin of $9.6 million.
This  increase  resulted  from a higher level of earnings  exclusive of non-cash
expenses,  which increased substantially following our acquisition of CharterMac
Capital  late in 2003.  Additionally,  the timing of  receipts  and  payments in
operating asset and liability  accounts  contributed to this increase,  the most
significant  being the deferred  revenues  associated  with the Fund  Management
business and higher interest and fees  receivable  associated with the expansion
of our businesses.

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

Financing  inflows in the 2004 period were lower than in 2003 by $26.9  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 2004 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.


                                       45
<PAGE>



LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2005
----------------------------------------------

During February 2006, equity distributions were paid as follows:

(In thousands)
Common/CRA shareholders                                 $24,587
SCU/SMU holders                                           8,916
4.4% Convertible CRA  shareholders                        1,188
Equity Issuer Preferred shareholders                      6,281

In  connection  with the  formation  of our  Centerbrook  credit  intermediation
subsidiary,  we will be capitalizing the entity with approximately $50.0 million
to $70.0 million in the first half of 2006, utilizing available cash.

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

CONTRACTUAL OBLIGATIONS

The following  table  provides our  commitments as of December 31, 2005, to make
future payments under our debt agreements and other contractual obligations:

<TABLE>
<CAPTION>

                                                          Payments due by period
                                  ----------------------------------------------------------------------
                                                  Less than                                    More than
 (In thousands)                      Total         1 year        1-3 years      3-5 years       5 years
-----------------------------     ----------     ----------     ----------     ----------     ----------
<S>                               <C>            <C>            <C>            <C>            <C>
Notes payable (1)                 $  304,888     $  304,888     $       --     $       --     $       --
Notes payable of consolidated
   partnerships (2)                  565,876         89,754        209,020         44,800        222,302
Operating lease obligations,
    net of subleases                  70,710          6,820         13,467         12,816         37,607
Unfunded loan commitments (3)        329,688        240,647         89,041             --             --
Financing arrangements (1)         1,429,692      1,429,692             --             --             --
Preferred shares of
    subsidiary (subject to
    mandatory repurchase)            273,500             --             --             --        273,500
                                  ----------     ----------     ----------     ----------     ----------

   Total                          $2,974,354     $2,071,801     $  311,528     $   57,616     $  533,409
                                  ==========     ==========     ==========     ==========     ==========

</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  partnerships,  $457.3  million  are
guaranteed by certain equity partners of the investment  funds.  Per partnership
agreements,  the equity  partners are also  obligated to pay the  principal  and
interest on the notes. The remaining balance of $108.6 million is collateralized
with the underlying properties of the consolidated operating  partnerships.  All
of this debt is non-recourse to us.

(3)  Of  this  amount,  $193.5  million  represents  mortgage  loan  origination
commitments with corresponding sale commitments.


                                       46
<PAGE>



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

The following table reflects our maximum exposure and the carrying amounts as of
December 31, 2005:

<TABLE>
<CAPTION>

                                                       Maximum         Carrying
 (In thousands)                                        Exposure         Amount
-------------------------------------------           ----------      ----------
<S>                                                   <C>             <C>
Repayment guarantees (1)                              $    3,602      $       --
Completion guarantees (1)                                 37,980              --
Development deficit guarantees (1)                        25,100              --
Operating deficit guarantees (1)                           6,960              --
ACC transition guarantees (1)                              3,245              --
Recapture guarantees (1)                                  96,324              --
Replacement reserve (1)                                    2,998              --
Guaranty of payment (1)                                   45,471              --
Mortgage pool credit intermediation (2)                    7,446              --
LIHTC credit intermediation (2)                          729,800          22,236
Mortgage banking loss sharing agreements (3)             834,874          12,966
                                                      ----------      ----------

                                                      $1,793,800      $   35,202
                                                      ==========      ==========

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

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

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

Application of Critical Accounting 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 that cannot be determined with
absolute certainty.  Therefore,  our determination of estimates requires that we
exercise our judgment.  While we have used our best estimates based on the facts
and  circumstances  available to us at the time,  different results may actually
occur and any such differences could be material to our 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 mortgage revenue bonds;
     o    valuation of mortgage servicing rights;
     o    impairment of goodwill and intangible assets; and
     o    accounting for income taxes.


                                       47
<PAGE>



VALUATION OF INVESTMENTS IN MORTGAGE REVENUE BONDS

SFAS No. 115,  ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES,
provides guidance on determining the valuation of investments owned. The initial
classification  of our  investments in the "available for sale" category  rather
than as "held to maturity" is due to a provision in most of the mortgage revenue
bonds  under  which we have a right to  require  redemption  prior to  maturity,
although  we can and may elect to hold them up to their  maturity  dates  unless
otherwise  modified.   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. For bonds secured by  non-stabilized  properties,  the discount
rate is based upon the average rate of new  originations for the quarter leading
up to the  valuation  date.  For bonds  secured by  stabilized  properties,  the
discount  rate  is  reflective  of the  lower  inherent  risk.  If the  property
underlying  the  bond has  substandard  performance,  a  factor  is added to the
discount rate to allow for the additional  risk.  Conversely,  if the underlying
property is  performing  much better than  expected,  the  discount  rate may be
reduced to allow for the reduced risk.

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

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

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

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

     o    Stabilization  requirements  (i.e.,  minimum  occupancy level and debt
          service coverage for specified periods) not yet met but all completion
          requirements  (i.e.,  timely  submission  of  documentation  regarding
          certificates of occupancy,  deal waivers,  etc., as well as completing
          construction  within  the  budgeted  cost) 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  mortgage  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  carrying  value.  When  the  carrying  value of
capitalized   servicing  assets  exceeds  fair  value,  we  recognize  temporary


                                       48
<PAGE>



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 AND INTANGIBLE ASSETS

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

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

ACCOUNTING FOR INCOME TAXES

SFAS No. 109, 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 as well as the  recoverability  of  amounts  we  record,  including
deferred  tax  assets.  Furthermore,  these  projected  future tax  consequences
include our  assumption as to the  continuing  tax-free  nature of a significant
portion of our earnings.  Variations  in the actual  outcome of these future tax
consequences  could materially  impact our financial  position or our results of
operations.

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

In 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.

In November 2005, the FASB issued Staff Position No. FAS 140-2, CLARIFICATION OF
THE  APPLICATION  OF PARAGRAPHS  40(B) AND 40(C) OF FASB STATEMENT NO. 140. This
staff position applies to  characteristics  for a securitization  entity to meet
the definition of a qualified  special purpose entity ("QSPE").  While the Staff
Position does not apply to our current securitization  structure,  it may affect
the accounting for future transactions should they involve QSPEs.


                                       49
<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

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

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

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

Our exposure to interest rate is twofold:

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

IMPACT ON EARNINGS

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

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

With the  exception  of $500.0  million of debt  hedged via  interest  rate swap
agreements,  the full  amount of our  liabilities  labeled  on our  consolidated
balance  sheet as Financing  Arrangements  and Notes  Payable are variable  rate
debts. We estimate that an increase of 1.0% in interest rates would decrease our
annual net income by approximately $12.3 million.

Conversely,  we have large escrow  balances  maintained by our Mortgage  Banking
business and we are entitled to the interest  earned on those  balances.  A 1.0%
increase  in  interest  rates  would  therefore   increase  our  net  income  by
approximately $1.8 million.

We manage this risk through the use of interest  rate swaps,  interest rate caps
and forward bond origination commitments, as described in Notes 11 and 21 to our
consolidated  financial  statements.  In  addition,  we manage our  exposure  by
striving for diversification in our businesses to include those less susceptible
to interest rate changes and by managing our leverage.


                                       50
<PAGE>



IMPACT ON VALUATION OF ASSETS

Changes in market  interest  rates would also impact the estimated fair value of
our  portfolio of mortgage  revenue  bonds.  We estimate the fair value for each
revenue bond as the present value of its expected  cash flows,  using a discount
rate for comparable tax-exempt investments.  Therefore, as market interest rates
for tax-exempt  investments  increase,  the estimated fair value of our mortgage
revenue bonds will generally  decline,  and a decline in interest rates would be
expected to result in an increase in their  estimated fair values.  For example,
we estimate that, using the same methodology used to estimate the portfolio fair
value  under  SFAS No.  115,  a 1%  increase  in  market  rates  for  tax-exempt
investments  would reduce the estimated  fair value of our portfolio of mortgage
revenue bonds by approximately  $145.6 million and a 1% decrease would result in
an increase of approximately $129.7 million. Changes in the estimated fair value
of the mortgage revenue bonds do not impact our reported net income,  net income
per share,  distributions or cash flows, but are reported as components of 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.

                                       51
<PAGE>



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


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

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

CharterMac  management  assessed the  effectiveness  of the  Company's  internal
control  over  financial  reporting  as of  December  31,  2005.  In making this
assessment,  management  used  the  criteria  set  forth  by  the  Committee  of
Sponsoring Organizations of the Treadway Commission ("COSO") in Internal Control
-  Integrated  Framework.  Based  upon our  assessment  we believe  that,  as of
December 31, 2005, our internal control over financial reporting is effective in
accordance with those criteria.

Deloitte & Touche LLP, our independent auditors,  have issued an audit report on
our assessment of the Company's internal control over financial reporting, which
appears on page 53.



/s/ Marc D. Schnitzer                                    /s/ Alan P. Hirmes
---------------------                                    ------------------
Marc D. Schnitzer                                        Alan P. Hirmes
Chief Executive Officer                                  Chief Financial Officer
March 15, 2006                                           March 15, 2006


                                       52
<PAGE>



             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



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


We  have  audited   management's   assessment,   included  in  the  accompanying
"Management's  Report on the  Effectiveness of Internal  Controls over Financial
Reporting",  that  CharterMac  (the  "Company")  maintained  effective  internal
control over financial  reporting as of December 31, 2005, based on the 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.

In our opinion,  management's  assessment that the Company maintained  effective
internal  control over  financial  reporting as of December 31, 2005,  is fairly
stated, in all material respects, based on the criteria established in "INTERNAL
CONTROL--INTEGRATED   FRAMEWORK"   issued  by  the   Committee   of   Sponsoring
Organizations  of the  Treadway  Commission.  Also in our  opinion,  the Company
maintained, in all material respects,  effective internal control over financial
reporting  as of  December  31,  2005,  based  on the  criteria  established  in
"INTERNAL  CONTROL--INTEGRATED  FRAMEWORK" issued by the Committee of Sponsoring
Organizations of the Treadway Commission.


                                       53
<PAGE>



We have also  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),   the  consolidated   financial
statements  and  financial  statement  schedules  as of and for the  year  ended
December 31, 2005 of the Company and our report  dated March 15, 2006  expressed
an unqualified  opinion on those  financial  statements and financial  statement
schedules.


/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2006


                                       54
<PAGE>



<TABLE>
<CAPTION>

ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
                                                                                   Page
(a) 1.    Financial Statements                                                  ----------
          --------------------
<S>       <C>                                                                       <C>
          Report of Independent Registered Public Accounting Firm                   56

          Consolidated Balance Sheets as of December 31, 2005 and 2004              57

          Consolidated Statements of Income for the years ended December 31,
            2005, 2004 and 2003                                                     58

          Consolidated Statements of Shareholders' Equity for the
            years ended December 31, 2005, 2004 and 2003                            59

          Consolidated Statements of Cash Flows for the years ended December 31,
            2005, 2004 and 2003                                                     62

          Notes to Consolidated Financial Statements                                64

</TABLE>


                                       55
<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, 2005 and 2004, and the related
consolidated statements of income, shareholders' equity, and cash flows for each
of the three  years in the period  ended  December  31,  2005.  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, 2005 and 2004,  and the results of their  operations and their cash
flows for each of the three years in the period  ended  December  31,  2005,  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, 2005, 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 15, 2006 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial  reporting
and an  unqualified  opinion  on the  effectiveness  of the  Company's  internal
control over financial reporting.


/s/DELOITTE & TOUCHE LLP
New York, New York
March 15, 2006


                                       56
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                 December 31,
                                                                         ----------------------------
                                                                             2005             2004
                                                                         -----------      -----------

                                     ASSETS
<S>                                                                      <C>              <C>
Mortgage revenue bonds-at fair value                                     $ 2,294,787      $ 2,100,720
Other investments                                                            298,590          187,506
Cash and cash equivalents                                                    161,295           71,287
Restricted cash                                                               34,025           25,879
Goodwill and intangible assets, net                                          439,175          416,282
Deferred costs and other assets                                              144,670           74,933
Loan to affiliate                                                                 --            4,600
Investments held by consolidated partnerships                              3,025,762        2,527,455
Other assets of consolidated partnerships                                    580,524          328,559
                                                                         -----------      -----------

Total assets                                                             $ 6,978,828      $ 5,737,221
                                                                         ===========      ===========

                      LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Financing arrangements                                                $ 1,429,692      $ 1,068,428
   Preferred shares of subsidiary (subject to mandatory
    repurchase)                                                              273,500          273,500
   Notes payable                                                             304,888          174,454
   Accounts payable, accrued expenses and other liabilities                  179,275          154,086
   Notes payable and other liabilities of consolidated
    partnerships                                                           1,627,556        1,307,093
                                                                         -----------      -----------

Total liabilities                                                          3,814,911        2,977,561
                                                                         -----------      -----------

Minority interest in consolidated subsidiaries                               262,274          271,419
                                                                         -----------      -----------
Preferred shares of subsidiary (not subject to mandatory repurchase)         104,000          104,000
                                                                         -----------      -----------
Limited partners' interests in consolidated partnerships                   1,747,808        1,501,519
                                                                         -----------      -----------

Commitments and contingencies

Shareholders' equity:
   Beneficial owners equity:
     4.4% Convertible CRA preferred shares; no par value;
        2,160 shares issued and outstanding in 2005 and none
        issued and outstanding in 2004                                       104,498               --
     Convertible CRA shares; no par value; 6,552 shares issued
       and outstanding in 2005 and 2004                                      104,369          108,745
     Special preferred voting shares; no par value (14,885
      shares issued and outstanding in 2005 and 15,172 shares
      issued and outstanding in 2004)                                            150              152
     Common shares; no par value (100,000 shares authorized;
       52,309 issued and 51,988 outstanding in 2005 and 51,363
       issued and 51,229 outstanding in 2004)                                752,042          773,165
   Restricted shares granted                                                  (4,193)          (7,922)
   Treasury shares of beneficial interest - common, at cost
    (321 shares in 2005 and 134 shares in 2004)                               (7,135)          (2,970)
   Accumulated other comprehensive income                                    100,104           11,552
                                                                         -----------      -----------
Total shareholders' equity                                                 1,049,835          882,722
                                                                         -----------      -----------

Total liabilities and shareholders' equity                               $ 6,978,828      $ 5,737,221
                                                                         ===========      ===========

</TABLE>

           See accompanying notes to consolidated financial statements


                                       57
<PAGE>



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

<TABLE>
<CAPTION>

                                                                                   Year Ended December 31,
                                                                     ---------------------------------------------------
                                                                            2005            2004             2003
                                                                     ---------------------------------------------------
<S>                                                                     <C>             <C>              <C>
        Revenues:
           Mortgage revenue bond interest income                        $   146,024     $   132,075      $   113,655
           Other interest income                                             16,147           9,346            3,630
           Fee income                                                        87,655          69,066           31,279
           Other revenues                                                    21,078           9,732            3,676
           Revenues of consolidated partnerships                             24,096          12,213               --
                                                                     ---------------------------------------------------
             Total revenues                                                 295,000         232,432          152,240
                                                                     ---------------------------------------------------

        Expenses:
           Interest expense                                                  56,495          30,932           24,047
           Interest expense of consolidated partnerships                     26,322          21,395               --
           Interest expense - distributions to preferred
             shareholders of subsidiary                                      18,898          18,898            9,448
           General and administrative                                       125,395         101,306           40,815
           Depreciation and amortization                                     44,195          30,407           11,926
            Write-off of trade name                                          22,567              --               --
           Loss on impairment of assets                                       4,555             757            1,759
           Other expenses of consolidated partnerships                       53,573          30,519               --
                                                                     ---------------------------------------------------
             Total expenses                                                 352,000         234,214           87,995
                                                                     ---------------------------------------------------

        (Loss) income before other income                                   (57,000)         (1,782)          64,245

        Equity and other income                                               7,476           3,442            2,219
        Gain on sale of loans and repayment of mortgage revenue bonds         8,062           7,868            7,483
        Loss on investments held by consolidated partnerships              (247,986)       (149,048)              --
                                                                     ---------------------------------------------------

        Loss before allocations and income taxes                           (289,448)       (139,520)          73,947

        Income  allocated to preferred shareholders of subsidiary            (6,225)         (3,942)          (9,449)
        Minority interests in consolidated subsidiaries, net of tax         (23,421)        (28,368)          (3,984)
        Loss allocated to partners of consolidated partnerships             349,531         219,950               --
                                                                     ---------------------------------------------------

        Income before income taxes                                           30,437          48,120           60,514
        Income tax benefit                                                   28,577          17,243            6,072
                                                                     ---------------------------------------------------

        Net income                                                      $    59,014     $    65,363      $    66,586
                                                                     ===================================================

        Allocation of net income to:
           4.4% Convertible CRA preferred shareholders                  $     2,020     $        --      $        --
           Common shareholders                                               50,558          56,786           54,608
           Convertible CRA shareholders                                       6,436           8,577            6,640
           Manager (including special distribution)                              --              --            5,338
                                                                     ---------------------------------------------------
             Total                                                      $    59,014     $    65,363      $    66,586
                                                                     ===================================================

        Net income per share:
           Basic                                                        $       .98     $      1.19      $      1.31
                                                                     ===================================================
           Diluted                                                      $       .98     $      1.19      $      1.31
                                                                     ===================================================

        Weighted average shares outstanding:
           Basic                                                             58,018          54,786           46,653
                                                                     ===================================================
           Diluted                                                           58,291          55,147           46,735
                                                                     ===================================================

        Dividends declared per share                                    $      1.65     $      1.57      $      1.37
                                                                     ===================================================

</TABLE>

           See accompanying notes to consolidated financial statements


                                       58
<PAGE>



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

<TABLE>
<CAPTION>
                                                                           Beneficial Owners Equity
                                            ---------------------------------------------------------------------------------------
                                                 4.4%
                                             Convertible
                                            CRA Preferred       Convertible      Special Preferred                        Common
                                                Shares          CRA Shares         Voting Shares         Manager          Shares
                                            --------------     -------------     -----------------     -----------      -----------
<S>                                            <C>              <C>                  <C>                <C>              <C>
Balance at January 1, 2003                     $     --         $  58,174            $      --          $  1,126         $ 604,496

Comprehensive income:
Net income                                                          6,640                                  5,338            54,608

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

  Other comprehensive loss

  Comprehensive income



Options exercised and other share based
  compensation, net of forfeitures                                                                                          21,282
Amortization of share awards
Elimination of manager interest                                                                           (1,132)
Issuance of special preferred voting shares                                                161
Conversion of Convertible CRA shares                              (21,870)                                                  21,870
Issuance of Convertible CRA shares                                102,532
Repurchase of treasury shares
Distributions                                                      (6,728)                                (5,332)          (57,615)
                                               --------         ---------            ---------          --------         ---------
Balance at December 31, 2003                   $     --         $ 138,748            $     161          $     --         $ 644,641




<CAPTION>


                                                                                                        Accumulated
                                                 Restricted        Restricted                              Other
                                                  Shares -           Shares         Comprehensive      Comprehensive
                                                   Common           Granted            Income              Income           Total
                                                -------------     ------------     ---------------     --------------    -----------
<S>                                               <C>               <C>               <C>                 <C>             <C>
Balance at January 1, 2003                        $   (103)         $     --                              $ 60,975        $724,668

Comprehensive income:
Net income                                                                            $ 66,586                              66,586
                                                                                      --------
Other comprehensive loss:
  Net unrealized gain on derivatives                                                     2,607
  Unrealized holding loss on mortgage
   revenue bonds                                                                       (33,195)
  Less: reclassification to net income                                                  (1,951)
                                                                                      --------
  Other comprehensive loss                                                             (32,539)            (32,539)        (32,539)
                                                                                      --------
  Comprehensive income                                                                $ 34,047
                                                                                      --------

Options exercised and other share based
  compensation, net of forfeitures                                   (22,228)                                                 (946)
Amortization of share awards                                           2,843                                                 2,843
Elimination of manager interest                                                                                             (1,132)
Issuance of special preferred voting shares                                                                                    161
Conversion of Convertible CRA shares                                                                                            --
Issuance of Convertible CRA shares                                                                                         102,532
Repurchase of treasury shares                         (275)                                                                   (275)
Distributions                                                                                                              (69,675)
                                                  --------          --------                              --------        --------
Balance at December 31, 2003                      $   (378)         $(19,385)                             $ 28,436        $792,223

                                                                                                                        (continued)

</TABLE>

           See accompanying notes to consolidated financial statements


                                       59
<PAGE>



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

<TABLE>
<CAPTION>
                                                                            Beneficial Owners Equity
                                             ---------------------------------------------------------------------------------------
                                                  4.4%
                                              Convertible
                                             CRA Preferred       Convertible      Special Preferred                        Common
                                                 Shares          CRA Shares         Voting Shares         Manager          Shares
                                             --------------     -------------     -----------------     -----------      -----------
<S>                                            <C>                <C>                 <C>                <C>              <C>
Balance  at  December  31, 2003                $     --           $138,748            $     161          $     --         $ 644,641

Comprehensive income:
Net income                                                           8,577                                                   56,786

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

  Other comprehensive loss

  Comprehensive income


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

Balance  at  December  31, 2004                $     --           $108,745            $     152          $     --         $ 773,165
                                               --------           --------            ---------          --------         ---------




<CAPTION>


                                                                                                       Accumulated
                                                Restricted        Restricted                              Other
                                                 Shares -           Shares         Comprehensive      Comprehensive
                                                  Common           Granted            Income              Income            Total
                                               -------------     ------------     ---------------     --------------     -----------
<S>                                              <C>               <C>               <C>                 <C>              <C>
Balance  at  December  31, 2003                  $   (378)         $(19,385)                             $ 28,436         $792,223

Comprehensive income:
Net income                                                                           $ 65,363                               65,363
                                                                                     --------
Other comprehensive loss:
  Net unrealized loss on derivatives                                                   (1,078)
  Unrealized holding loss on
    mortgage revenue bonds                                                            (16,023)
  Less: reclassification to net income                                                    217
                                                                                     --------
  Other comprehensive loss                                                            (16,884)            (16,884)         (16,884)
                                                                                     --------
  Comprehensive income                                                               $ 48,479
                                                                                     --------

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

Balance  at  December  31, 2004                  $ (2,970)         $ (7,922)                             $ 11,552         $882,722
                                                 --------          --------                              --------         --------

                                                                                                                        (continued)

</TABLE>

           See accompanying notes to consolidated financial statements


                                       60
<PAGE>




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

<TABLE>
<CAPTION>
                                                                               Beneficial Owners Equity
                                                ----------------------------------------------------------------------
                                                     4.4%
                                                 Convertible
                                                CRA Preferred       Convertible      Special Preferred
                                                    Shares          CRA Shares         Voting Shares         Manager
                                                --------------     -------------     -----------------     -----------
<S>                                               <C>                <C>                 <C>                <C>

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

Comprehensive income:
Net income                                            2,020             6,436

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

  Other comprehensive income

  Comprehensive income


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

Balance at December 31, 2005                      $ 104,498          $104,369            $     150          $     --
                                                  =========          ========            =========          ========


<CAPTION>

                                                -----------

                                                                 Restricted        Restricted
                                                  Common          Shares -           Shares
                                                  Shares           Common           Granted
                                                -----------     -------------     ------------
<S>                                              <C>              <C>               <C>

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

Comprehensive income:
Net income                                          50,558

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

  Other comprehensive income

  Comprehensive income


Options exercised and other share based
  compensation, net of forfeitures                   8,325                            (2,936)
Amortization of share awards                           895                             6,665
Conversion of Special Common Units and
  redemption of Special Preferred Voting Shares      4,818
Issuance of 4.4% Convertible CRA Preferred share
Repurchase of treasury shares                                       (4,165)
Distributions                                      (85,719)
                                                 ---------        --------          --------

Balance at December 31, 2005                     $ 752,042        $ (7,135)         $ (4,193)
                                                 =========        ========          ========


<CAPTION>


                                                                     Accumulated
                                                                        Other
                                                 Comprehensive      Comprehensive
                                                    Income              Income             Total
                                                ---------------     --------------     ------------
<S>                                                <C>                 <C>              <C>

Balance at December 31, 2004                                           $ 11,552         $  882,722

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

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

Balance at December 31, 2005                                           $100,104         $1,049,835
                                                                       ========         ==========

</TABLE>

           See accompanying notes to consolidated financial statements


                                       61
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                    Year Ended December 31,
                                                                           ---------------------------------------
                                                                             2005           2004           2003
                                                                           ---------      ---------      ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                                        <C>            <C>            <C>
   Net income                                                              $  59,014      $  65,363      $  66,586
   Adjustments to reconcile net income to net cash provided by
    operating activities:
   Gain on repayment of mortgage revenue bonds                                (1,561)          (217)        (1,951)
   Loss on impairment of assets                                                4,555            757          1,759
   Depreciation and amortization                                              44,195         30,407         11,926
   Equity in income of unconsolidated entities                                (7,476)        (3,442)        (2,219)
   Write-off of trade name                                                    22,567             --             --
   Income allocated to preferred shareholders of subsidiary                    6,225          3,942          9,449
   Income allocated to minority interests in consolidated subsidiaries        23,421         28,368          3,984
   Non-cash compensation expense                                               8,661         11,632          2,845
   Other non-cash expense                                                      3,390          4,353         (3,493)
   Deferred taxes                                                            (28,178)       (20,544)        (9,491)
   Distributions received from equity investees                                3,702          2,219          2,219
   Changes in operating assets and liabilities:
    Mortgage servicing rights                                                 (7,520)        (6,854)        (4,015)
    Mortgage loans receivable                                               (125,797)        (5,610)        19,424
    Loan to affiliate                                                          4,600         (4,600)            --
    Deferred revenues                                                          6,207         35,122         14,693
    Other assets                                                             (35,434)       (32,557)       (11,046)
    Accounts payable, accrued expenses and other liabilities                  20,010           (812)        (2,768)
                                                                           ---------      ---------      ---------
Net cash provided by operating activities                                        581        107,527         97,902
                                                                           ---------      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayments of  mortgage revenue bonds                                     133,611         39,067         99,931
   Mortgage revenue bond acquisitions and fundings                          (443,517)      (325,037)      (432,915)
   Investments in notes receivable                                           (34,401)        (3,900)        (3,629)
   Repayments of notes receivable                                              3,039          4,725          9,496
   Acquisitions, net of cash acquired                                           (290)        (1,579)       (62,662)
   Loans to Capri Capital                                                     (8,011)       (84,000)            --
   Advances to partnerships                                                 (146,977)      (173,526)       (18,925)
   Collection of advances to partnerships                                    138,981        156,875         26,569
   Deferred investment acquisition costs                                      (1,935)        (2,526)          (615)
   Decrease in cash and cash equivalents - restricted                            317          6,781         14,125
   Other investing activities                                                (13,253)        15,521          3,206
                                                                           ---------      ---------      ---------

Net cash used in investing activities                                       (372,436)      (367,599)      (365,419)
                                                                           ---------      ---------      ---------

</TABLE>

           See accompanying notes to consolidated financial statements

                                    continued


                                       62
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS

                                 (In thousands)

<TABLE>
<CAPTION>

                                                                                         Year Ended December 31,
                                                                                ----------------------------------------
                                                                                   2005           2004           2003
                                                                                -----------    ----------     ----------
            <S>                                                                 <C>            <C>            <C>
            CASH FLOWS FROM FINANCING ACTIVITIES:
               Distributions to shareholders                                        (96,582)      (84,395)       (65,121)
               Distributions to preferred shareholders of subsidiary                 (6,225)       (2,386)        (9,449)
               Distributions to Special Common Unit and Special Membership          (34,677)      (28,411)            --
                Unit holders
               Proceeds from financing arrangements                                 547,390       281,060        521,153
               Repayments of financing arrangements                                (186,126)     (112,639)      (292,804)
               Increase in notes payable                                            130,434        20,872         55,842
               Issuance of preferred shares                                         108,000            --             --
               Issuance of common or Convertible CRA shares                              --       110,803        107,500
               Issuance of preferred subsidiary shares                                   --       104,000             --
               Proceeds from stock options exercised                                  3,804           308          1,651
               (Retirement) issuance of special preferred voting shares                  (2)          (10)           162
               Deferred financing costs                                              (4,153)      (10,077)       (12,882)
                                                                                -----------    ----------     ----------

            Net cash provided by financing activities                               461,863       279,125        306,052
                                                                                -----------    ----------     ----------

            Net increase in cash and cash equivalents                                90,008        19,053         38,535
            Cash and cash equivalents at the beginning of the year                   71,287        52,234         13,699
                                                                                -----------    ----------     ----------

            Cash and cash equivalents at the end of the year                    $   161,295    $   71,287     $   52,234
                                                                                -----------    ----------     ----------

            SUPPLEMENTAL INFORMATION:

               Interest paid                                                    $    55,771    $   31,057     $   23,417
               Taxes paid                                                       $       768    $    8,040     $      137

            Acquisition activity:
            --------------------
               Conversion of note receivable                                    $    70,000
               Issuance of subsidiary equity                                          7,500                   $  284,113
               Decrease in minority interest                                         (4,200)   $   (1,579)
               Assets acquired                                                      (90,530)                    (375,726)
               Liabilities assumed                                                   16,940                       28,951
                                                                                -----------    ----------     ----------
            Net cash paid for acquisitions                                      $      (290)   $   (1,579)    $  (62,662)
                                                                                ===========    ==========     ==========

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

            Non-cash investing and financing activities:
                Share grants and SCUs issued                                    $     3,706    $    1,875     $   15,223
                Issuance of SMUs in exchange for investment or acquisition      $    11,576    $       --     $       --
                Conversion of SCUs to common shares                             $     4,818    $   17,789     $       --
                Conversion of CRA shares to common shares                       $        --    $   27,585     $   21,870
                Treasury stock purchases via employee withholding               $     4,165    $    2,592     $      275

</TABLE>

           See accompanying notes to consolidated financial statements


                                       63
<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  1.O.  CONSOLIDATED  PARTNERSHIPS  below).  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.

B. REVENUE RECOGNITION

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

     o    MORTGAGE REVENUE BOND INTEREST INCOME

          We recognize income as it accrues,  provided  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.

          We place  loans  on a  non-accrual  status  when  any  portion  of the
          principal  or  interest  is 90 days past due or earlier  when  concern
          exists as to the  ultimate  collectibility  of  principal or interest.
          Loans return to accrual  status when  principal  and  interest  become
          current.  There were eight bonds with a fair value of $49.9 million on
          non-accrual status at December 31, 2005 and none at December 31, 2004.

     o    OTHER INTEREST INCOME

          We recognize  income on temporary  investments  (such as cash in banks
          and short-term  instruments) as well as longer term investments  (from
          promissory notes, mortgages receivable, etc.), on the accrual basis as
          it becomes due.

     o    FEE INCOME

          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  maintaining the books
                    and  records  of an  investment  fund,  including  requisite
                    investor  reporting.  We recognize  these fees over the five
                    year  contractual   service  period  following  the  initial
                    closing of an investment fund.

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


                                       64
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



               o    ORGANIZATION,  OFFERING AND  ACQUISITION  ALLOWANCE FEES are
                    for  reimbursement  of  costs we incur  for  organizing  the
                    investment  funds and for providing  assistance in acquiring
                    the  properties to be included in the investment  funds.  We
                    recognize the organization  and offering  allowance fee when
                    the investor  equity is raised and recognize the acquisition
                    allowance fee 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 for
                    monitoring  the acquired  property  interests to ensure that
                    their  development,  leasing and operations  comply with low
                    income  housing  or other tax credit  requirements,  and are
                    recorded  monthly as earned,  provided  that  collection  is
                    reasonably assured.

          o    MORTGAGE BANKING FEES

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

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

          o    CREDIT INTERMEDIATION FEES

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

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

     o    OTHER INCOME

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

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

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

          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  CharterMac  Capital on behalf of these
               affiliates. We recognize these amounts as incurred.

     o    REVENUES OF CONSOLIDATED PARTNERSHIPS

          Rental income for property  partnerships is accrued as earned based on
          underlying  lease  agreements.  Interest  income for all  consolidated
          partnerships is accrued as earned.


                                       65
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. INVESTMENT IN MORTGAGE REVENUE BONDS

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

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

Prior to the  CharterMac  Capital  acquisition in November 2003 (see Note 2), we
paid fees to CharterMac Capital for its activities performed as our Manager (see
Note 17). The fees  pertaining to  acquisitions  of mortgage  revenue bonds were
capitalized  as part of the  bond  cost  and are  amortized  as a  reduction  to
interest  income  over the  terms  of the  mortgage  revenue  bonds.  Since  the
acquisition,  we ceased paying fees pertaining to acquisitions,  but continue to
pay a fee for asset  management  which is charged to expense and  eliminated  in
consolidation.  Direct  costs  relating  to  unsuccessful  acquisitions  and all
indirect costs relating to the mortgage revenue bonds are charged to operations.

We define a mortgage  revenue bond as impaired  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.

When a mortgage revenue bond is  underperforming  with respect to certain of our
standards (for example,  expectations of timely construction completion,  actual
occupancy levels or actual debt service coverage) but we still expect to recover
all contractual  payments (either through debt service or collateral),  we value
it based on our estimate of the fair value as  described  above,  although  such
fair value will not exceed the  outstanding  face amount.  If we determine it is
probable that we will not receive all  contractual  payments  required when they
are due, we deem a bond impaired,  write it down to its estimated fair value and
record a realized loss in the statement of income.

D. 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 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  ("SOP  78-9"),  EITF Issue D-46,  ACCOUNTING  FOR LIMITED  PARTNERSHIP
INVESTMENTS  and EITF 03-16,  ACCOUNTING FOR  INVESTMENTS  IN LIMITED  LIABILITY
COMPANIES.  For the  preferred  portion  of the  investment,  our  equity in the
earnings of ARCap is accrued at the applicable  cumulative dividend rate, unless
ARCap does not have  earnings  and cash  flows  adequate  to meet this  dividend
requirement.

Mortgage loans receivable  represent  amounts we are due for mortgage loans that
were sold under purchase  agreements to permanent investors but for which we are
awaiting  settlement of funds. The balance also includes net origination  costs.
We do not retain any  interest  in these  loans  except for  mortgage  servicing
rights and certain contingent liabilities pursuant to loss sharing agreements.

E. CASH AND CASH EQUIVALENTS

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


                                       66
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



F. DEFERRED COSTS

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

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

G. GOODWILL AND OTHER INTANGIBLE ASSETS

We test goodwill for  impairment  (via a third party  appraisal)  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.

We recognize as assets the rights to service mortgage loans for others,  whether
the Mortgage  Servicing Rights ("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.  In  subsequent  periods,  the assets are carried at the
amortized  initial  basis or  current  fair  value.  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,  we reduce the assets and the  valuation  allowance to reflect
permanent impairment.

H. FINANCIAL RISK MANAGEMENT AND DERIVATIVES

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

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

I. FAIR VALUE OF FINANCIAL INSTRUMENTS

As described  above, our investments in mortgage revenue bonds, our MSRs and our
derivatives  are carried at estimated fair values.  We have  determined that the
fair  value  of  our  remaining  financial   instruments,   including  temporary
investments,  cash and cash equivalents,  promissory notes receivable,  mortgage
notes  receivable and borrowings  approximate  their carrying values at December
31, 2005 and 2004, due primarily to their short term nature or variable rates of
interest.

J. 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


                                       67
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



amounts   and  the  tax  basis  of  assets  and   liabilities.   We  assess  the
recoverability   of  deferred  tax  assets   through   evaluation  of  carryback
availability, projected taxable income and other factors as applicable.

K. NET INCOME PER SHARE

Basic net  income  per share  represents  net  income  allocated  to Common  and
Convertible  CRA  shareholders  (see Note 16) by the weighted  average number of
Common and Convertible  CRA shares  outstanding  during the period.  Diluted net
income per share  includes the  weighted  average  number of shares  outstanding
during  the  period  and  the  dilutive  effect  of  common  share  equivalents,
calculated using the treasury stock method.

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

L. CREDIT INTERMEDIATION TRANSACTIONS

For guarantees and other credit intermediation transactions issued since January
1, 2003, we record liabilities (included in deferred revenues) equal to the fair
values of the  obligations  undertaken.  For  transactions  for which we receive
fees, 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 and other guarantees issued to lenders for the
underlying  financing  of  properties,  as required by an  investment  fund,  we
generally recognize no liability upon inception of the guarantee as the exposure
is  considered  minimal and no fee is received.  We monitor our  exposure  under
these agreements and, should we determine a loss is probable, accrue a liability
in accordance with SFAS No. 5, ACCOUNTING FOR Contingencies.

M. MORTGAGE BANKING LOAN LOSS RESERVE

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

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

We record the loan loss provision as an expense and as a contra-asset account on
the balance sheet under Mortgage Servicing Rights (See Note 6).

N. 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 CharterMac  Capital in November 2003 (see Note 2),
most options granted were issued to non-employees rendering services to us under
our management agreement with CharterMac Capital. As such, we estimated the fair
value of the share  options  at each  period-end  up to the  vesting  date,  and


                                       68
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



adjusted the expense  accordingly.  Upon the acquisition of CharterMac  Capital,
such option holders became employees of our subsidiary 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  shareholders'
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.

O. CONSOLIDATED PARTNERSHIPS

Through our  acquisition  of CharterMac  Capital (see Note 2), and in subsequent
fund originations,  we became the general partner or equivalent in more than 115
entities in which we have little or no financial investment.  Typically, outside
investors  acquire all  partnership  interest in an  upper-tier,  or  investment
partnership,  or 100% of the  membership  interest  if  structured  as a limited
liability  company.  The investment  partnership,  in turn, invests as a limited
partner in one or more lower-tier (operating)  partnerships that own and operate
the multifamily housing complexes.  Partners in the investment  partnerships are
most often  corporations  who are able to utilize  the tax  benefits,  which are
comprised of operating losses and Low-Income Housing Tax Credits ("LIHTCs").

Investment  partnerships in which the limited partners or limited members do not
have the  right to remove us as the  general  partner  or  managing  member  are
variable interest entities ("VIEs") as defined by FASB Interpretation No. 46(R),
CONSOLIDATION OF VARIABLE  INTEREST  ENTITIES,  ("FIN46(R)").  We have concluded
that, as the general  partner or managing  member for these type of investments,
we are the  primary  beneficiary  as defined by FIN 46(R)  because we absorb the
majority of the expected income and loss variability (as we are entitled to fees
and  are  the  "decision   maker"  of  the  funds),   and  such  variability  is
disproportionate to our actual ownership  interest,  which in most cases is none
although some of our executive officers have nominal,  indirect equity interests
in many of the funds. We have  consolidated  the assets and liabilities of these
entities in our balance  sheets and have recorded their results of operations in
our statements of income beginning April 1, 2004. Upon adoption of FIN 46(R), we
recorded the assets and liabilities of the partnerships we consolidated at their
historical bases, which approximated their fair values at that date.

The  balance  sheets  and  statements  of  operations  consolidated  in our 2005
financial  statements are as of and for the period ended September 30, 2005, the
latest date  available.  Likewise,  the amounts  included in the 2004  financial
statements are as of and for the period ended September 30, 2004.

In  addition,   we  have  the  general   partner   interest  in  36   lower-tier
property-level  operating  partnerships  in which we have little or no ownership
interest.  As with the investment funds described above, the limited partners or
limited  members  do not have the right to remove us as the  general  partner or
managing member.  Although these entities are not VIEs, we are deemed to control
them  and  consolidate  them  pursuant  to ARB No.  51,  CONSOLIDATED  FINANCIAL
STATEMENTS or SOP 78-9.

Throughout  the  financial  statements,  we refer to these  combined  groups  as
"consolidated partnerships".

P. NEW ACCOUNTING PRONOUNCEMENTS

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

In 2003, we adopted 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


                                       69
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



dividends paid on such shares as interest  expense;  dividends  related to prior
periods  remain  classified  as income  allocated to preferred  shareholders  of
subsidiary.

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 first quarter of
2006. 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.

In November 2005, the FASB issued Staff Position No. FAS 140-2, CLARIFICATION OF
THE  APPLICATION  OF PARAGRAPHS  40(B) AND 40(C) OF FASB STATEMENT NO. 140. This
staff position applies to  characteristics  for a securitization  entity to meet
the definition of a qualified  special purpose entity ("QSPE").  While the Staff
Position does not apply to our current securitization  structure,  it may affect
the accounting for future transactions should they involve QSPEs.

Q. RECLASSIFICATIONS

Certain  amounts from prior years have been  reclassified to conform to the 2005
presentation,  including the  reclassification  of deferred charges and deferred
revenue  accounts  associated with our mortgage  revenue bond portfolio that are
now incorporated  within the calculation of unrealized gain on investments.  The
reclassification  for  December  31, 2004,  reduced  deferred  charges and other
assets by $20.1 million,  reduced accounts  payable,  accrued expenses and other
liabilities by $2.9 million,  and reduced accumulated other comprehensive income
by $17.3 million.

NOTE 2 - ACQUISITIONS

A. CHARTERMAC CAPITAL LLC

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

     o    $50.0 million in cash, paid to one of the selling principals;
     o    acquisition costs and other adjustments  totaling  approximately $12.3
          million;
     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. In connection with the  acquisition,  we also established a
restricted  share  program  granted  share  options to our  chairman and granted
restricted shares and SCUs to employees (see Note 15).

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

In recording our acquisition of CharterMac  Capital,  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  partnerships 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,  typically  controlled  by our  executives)  and would be repaid out of
future operating cash flow or sale or refinancing  proceeds, if any, received by
the investment fund.


                                       70
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. CHARTERMAC MORTGAGE CAPITAL CORP.

In December  2001, we acquired 80% of the common  shares of CharterMac  Mortgage
Capital  Corp.  ("CMC").  During 2002 and 2003,  we  acquired  another 7% of the
common  shares.  In 2005 we purchased  the  remaining  shares and made the final
payments under the terms of the original purchase agreement.  The total purchase
price of the 2005  transactions was $7.9 million,  $7.5 million of which we paid
in cash. This transaction resulted in $3.6 million of additional goodwill.

C. CAPRI CAPITAL LIMITED PARTNERSHIP

Effective  March 1, 2005, we purchased 100% of the ownership  interests of Capri
Capital  Limited  Partnership  ("CCLP").  The initial  purchase  price was $70.0
million plus $1.8 million of acquisition costs. Subsequently, the sellers earned
$15.0 million of additional consideration based on the 2004 financial results of
CCLP's mortgage  banking  business.  The initial purchase price of $70.0 million
was  paid  via  conversion  into  equity  of an  existing  loan to CCLP  and its
affiliates  (collectively "Capri") (see Note 4). Of the additional $15.0 million
contingent  consideration,  we issued  subsidiary  equity  units for half of the
amount (see Note 13), and paid all but  approximately  $1.7 million  (subject to
contractual  hold backs) of the balance in cash.  Operations of CCLP were merged
into those of CMC.

We accounted for the CCLP acquisition as a purchase and, accordingly, we include
its results of  operations in the  consolidated  financial  statements  from the
acquisition  date. We allocated our cost of the  acquisition on the basis of the
estimated fair values of the assets acquired and liabilities assumed. The excess
of the  purchase  price  over  the net of the  amounts  assigned  to the  assets
acquired  (including   identified   intangibles)  and  liabilities  assumed  was
recognized as goodwill.

The following table  summarizes the assets acquired and the liabilities  assumed
in connection with the CCLP acquisition:

<TABLE>
<CAPTION>

(in thousands)
<S>                                             <C>
Cash                                            $ 14,264
Restricted cash                                    8,464
MSRs, net                                         40,974
Goodwill                                          27,955
Other intangible assets                            3,213
Other assets                                       7,223
                                                --------
Total assets                                     102,092

Accounts payable and other liabilities           (15,253)
                                                --------
Net assets acquired                             $ 86,839
                                                --------

</TABLE>

Pro forma financial  results for CCLP are not presented,  as the acquisition was
not material to our assets, revenues or net income.

NOTE 3 - MORTGAGE REVENUE BONDS

A. GENERAL

All of our mortgage  revenue  bonds bear fixed base  interest  rates and, to the
extent  permitted  by existing  regulations,  may also  provide  for  contingent
interest and other features. Terms 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.


                                       71
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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 mortgage revenue bonds constitute a general obligation of any state or local
government, agency or authority. The structure of each mortgage loan mirrors the
structure of the corresponding revenue bond that it secures. In order to protect
the  tax-exempt  status  of  the  mortgage  revenue  bonds,  the  owners  of the
underlying  properties are required to enter into  agreements to own, manage and
operate the properties in accordance with  requirements of the Internal  Revenue
Code of 1986, as amended.  If they do not comply, the interest income we receive
could be subject to taxes.

Certain  mortgage  revenue bonds provide for  "participating  interest" which is
equal to a percentage of net property  cash flow of the net sale or  refinancing
proceeds. Bonds that contain these provisions are referred to as "participating"
while  the  rest are  "non-participating".  Both the  stated  and  participating
interest  on the  mortgage  revenue  bonds are exempt from  federal  income tax.
Participating  interest  included in mortgage  revenue bond interest  income was
approximately $2.6 million in 2005, $230,000 in 2004 and $2.0 million in 2003.

No single revenue bond provided  interest  income that exceeded 10% of our total
revenue for the years ended December 31, 2005, 2004, or 2003.

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

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

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


                                       72
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 3 - MORTGAGE REVENUE BONDS (CONTINUED)

B. SUMMARY
The following tables summarize our revenue bond portfolio at December 31, 2005:

                             (Dollars in Thousands)

<TABLE>
<CAPTION>

                                        Units            Face Amount of Bond (1)   Fair Value at 12/31/05
                                ----------------------   -----------------------   -----------------------


                                                                                                              Current
                                                                                                               Stated
                      Number                   % of                      % of                      % of       Interest
                     of Bonds     Number       Total      $ Amount       Total      $ Amount       Total        Rate
                     --------   ----------   ---------   -----------   ---------   -----------   ---------   ----------

BY STATE: (2)
----------------
<S>                     <C>        <C>         <C>        <C>            <C>        <C>            <C>          <C>
Texas                   81         14,383      27.7%      $  764,272      30.9%     $  777,831      30.8%       6.68%

Georgia                 30          7,030      13.5%         362,240      14.6%        363,804      14.5%       6.43%

California              48          5,153       9.9%         245,768       9.9%        263,711      10.4%       6.75%

Florida                 22          3,438       6.6%         146,030       5.9%        145,605       5.8%       7.26%

Missouri                14          2,422       4.7%         106,028       4.3%        108,388       4.3%       5.96%

All others             122         19,563      37.6%         849,767      34.4%        862,963      34.2%       6.60%
--------------------------------------------------------------------------------------------------------------------------

Subtotal               317         51,989     100.0%       2,474,105     100.0%      2,522,302     100.0%       6.63%
                                                                                                             ==========

Eliminations (3)       (22)        (4,476)       --         (236,406)       --        (227,515)       --
----------------------------------------------------------------------------------------------------------

Total                  295         47,513        --       $2,237,699        --      $2,294,787        --
==========================================================================================================

2004 Total             268         45,819        --       $2,140,565        --      $2,100,720        --
==========================================================================================================

BY PROPERTY
STATUS:
----------------

Stabilized             127         22,812      43.9%      $  942,187      38.1%     $  981,240      38.9%       7.12%

Lease-up               110         15,948      30.7%         859,340      34.7%        859,825      34.1%       6.87%

Construction            31          5,710      11.0%         312,225      12.6%        313,826      12.4%       5.52%

Rehab                   49          7,519      14.4%         360,353      14.6%        367,411      14.6%       5.69%
--------------------------------------------------------------------------------------------------------------------------

Subtotal               317         51,989     100.0%       2,474,105     100.0%      2,522,302     100.0%       6.63%
                                                                                                             ==========

Eliminations (3)       (22)        (4,476)       --         (236,406)       --        (227,515)       --
----------------------------------------------------------------------------------------------------------

Total                  295         47,513        --       $2,237,699        --      $2,294,787        --
==========================================================================================================

2004 Total             268         45,819        --       $2,140,565        --      $2,100,720        --
==========================================================================================================


<CAPTION>

                        Pertinent Weighted Average Dates       Annualized Base Interest
                     ---------------------------------------   ------------------------
                                                                                                            Debt
                                                                                                          Service
                                                                                          Occupancy       Coverage
                                   Optional                                                   on          Ratio on
                                  Redemption                                    % of      Stabilized     Stabilized
                      Put Date       Date      Maturity Date    $ Amount       Total      Properties     Properties
                     ----------   ----------   -------------   -----------   ---------   ------------   ------------

BY STATE: (2)
----------------
<S>                     <C>         <C>            <C>          <C>            <C>           <C>            <C>
Texas                   Feb-20      Jul-19         Jul-42         52,381        31.3%        93.7%          0.92x

Georgia                 Aug-20      Feb-17         Jul-41         23,718        14.2%        92.9%          0.80x

California              Dec-18      Jun-17         Dec-38         17,005        10.2%        96.9%          1.32x

Florida                 May-20      May-16         Mar-40         10,603         6.3%        95.2%          1.29x

Missouri                Sep-19      Apr-19         Jun-39          6,469         3.9%        92.8%          1.38x

All others              Oct-19      Aug-18         Mar-39         57,239        34.1%        93.1%          1.11x
----------------     -----------------------------------------------------------------------------------------------

Subtotal                Dec-19      Jun-18         Aug-40        167,415       100.0%        94.1%          1.12x
                                                              ======================================================

Eliminations (3)
----------------

Total
================

2004 Total                                                      $151,144       100.0%        90.7%          1.14x
================                                              ======================================================

BY PROPERTY
STATUS:
----------------

Stabilized              Jan-18      Oct-15         Dec-36       $ 67,122        40.1%        94.1%          1.12x

Lease-up                Mar-20      Aug-18         Nov-41         59,076        35.3%         N/A             N/A

Construction            Feb-22      Dec-21         Aug-44         19,268        11.5%         N/A             N/A

Rehab                   Feb-22      Feb-22         Aug-43         21,949        13.1%         N/A             N/A
----------------     -----------------------------------------------------------------------------------------------

Subtotal                Dec-19      Jun-18         Aug-40        167,415       100.0%
                                                              ======================================================

Eliminations (3)
----------------

Total
================

2004 Total                                                      $151,144       100.0%        90.7%          1.14x
================                                              ======================================================

</TABLE>

(1) Original principal amount at issuance.
(2) Other than those  detailed,  based on face amount,  no state  comprises more
than 10% of the total at December  31, 2005 or 2004.
(3) These bonds are either  recorded  as  liabilities  on the balance  sheets of
certain consolidated  partnerships or are recorded as liabilities of real estate
owned and are therefore eliminated in consolidation.


                                       73
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 3 - MORTGAGE REVENUE BONDS (CONTINUED)

<TABLE>
<CAPTION>

                             (Dollars in Thousands)
                                                         Face Amount
                                        Units             of Bond (1)     Fair Value at 12/31/05
                                  ------------------- ------------------- ----------------------

                      Number of               % of                 % of                  % of    Current Stated
                        Bonds       Number    Total    $ Amount    Total    $ Amount     Total    Interest Rate
                     -------------------------------------------------------------------------------------------
BY PUT DATE:
------------------
<S>                      <C>        <C>      <C>      <C>         <C>      <C>           <C>           <C>
No put date               60           733     1.4%   $   93,582    3.8%   $   88,689      3.5%        6.78%
6 months notice            4         1,228     2.4%       48,300    2.0%       44,402      1.8%        7.24%
2006-2010                  4         1,266     2.4%       42,250    1.7%       42,250      1.7%        7.18%
2011-2015                  8         1,848     3.6%       74,238    3.0%       78,388      3.1%        7.02%
2016-2020                158        30,620    58.9%    1,417,196   57.3%    1,451,898     57.6%        6.97%
2021-2025                 69        13,981    26.9%      689,055   27.8%      700,970     27.8%        5.80%
2026-2030                 12         2,137     4.1%      101,199    4.1%      107,096      4.2%        6.80%
2031-2035                  2           176     0.3%        8,285    0.3%        8,609      0.3%        6.47%
---------------------------------------------------------------------------------------------------------------
Subtotal                 317        51,989   100.0%    2,474,105  100.0%    2,522,302    100.0%        6.63%
                                                                                      =========================
Eliminations (2)         (22)       (4,476)     --      (236,406)    --      (227,515)
-------------------------------------------------------------------------------------
Total                    295        47,513      --    $2,237,699     --    $2,294,787
=====================================================================================
2004 Total               268        45,819      --    $2,140,565     --    $2,100,720    100.0%        6.75%
===============================================================================================================

BY MATURITY DATE:
------------------
2006-2010                 18           400     0.8%   $   28,288    1.1%   $   25,889      1.0%        6.10%
2011-2015                 26           293     0.6%       27,245    1.1%       23,459      0.9%        6.11%
2016-2020                 19         1,352     2.6%       82,010    3.3%       76,035      3.0%        6.97%
2021-2025                 18           336     0.6%       47,069    1.9%       45,764      1.8%        7.45%
2026-2030                  9         1,262     2.4%       46,273    1.9%       48,880      1.9%        7.20%
2031-2035                 12         2,597     5.0%       98,924    4.0%      105,103      4.2%        6.80%
2036-2040                 58        11,415    22.0%      464,247   18.8%      483,252     19.2%        7.16%
2041-2045                128        28,252    54.3%    1,378,788   55.7%    1,414,720     56.1%        6.59%
2046 and after            29         6,082    11.7%      301,261   12.2%      299,200     11.9%        5.68%
---------------------------------------------------------------------------------------------------------------
Subtotal                 317        51,989   100.0%    2,474,105  100.0%    2,522,302    100.0%        6.63%
                                                                                      =========================
Eliminations (2)         (22)       (4,476)     --      (236,406)    --      (227,515)
-------------------------------------------------------------------------------------
Total                    295        47,513      --    $2,237,699     --    $2,294,787
=====================================================================================
2004 Total               268        45,819      --    $2,140,565     --    $2,100,720    100.0%        6.75%
===============================================================================================================

</TABLE>

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


                                       74
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The following table  summarizes the maturity dates of mortgage  revenue bonds we
hold as of December 31, 2005:

<TABLE>
<CAPTION>

                                         Outstanding                      Weighted
                                             Bond                          Average
(In thousands)                              Amount        Fair Value    Interest Rate
------------------------------           -----------      -----------   -------------
<S>                                      <C>              <C>                 <C>
Due in less than one year                $    15,102      $    15,102         4.97%
Due between one and five years                10,908           10,788         7.43%
Due after five years                       2,390,339        2,496,412         6.63%
                                         -----------      -----------      -------
 Total/weighted average                    2,416,349        2,522,302         6.63%
                                                                           =======
  Less: eliminations (1)                    (228,744)        (227,515)
                                         -----------      -----------
 Total                                   $ 2,187,605      $ 2,294,787
                                         ===========      ===========

</TABLE>

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

C. PORTFOLIO ACTIVITY

<TABLE>
<CAPTION>

Reconciliation of mortgage revenue bonds:             2005              2004
--------------------------------------------------------------------------------
(In thousands)
<S>                                                <C>              <C>
Balance at beginning of period                     $ 2,100,720      $ 1,871,009
  Acquisitions and additional fundings                 443,517          325,037
  Repayment proceeds                                  (104,279)         (26,870)
  Principal payments                                   (22,466)         (12,196)
  Realized gain                                          1,541              217
  Advance returned by Trustee                           (6,866)              --
  Impairment losses                                     (4,555)            (610)
  Net change in fair value                              86,323          (12,601)
  Accretion/amortization of yield adjustments           (5,384)          (8,079)
  Reclassification to other assets                     (34,238)            (900)
                                                   -----------      -----------
    Subtotal                                         2,454,313        2,135,007
  Less: change in eliminations (1)                    (159,526)         (34,287)
                                                   -----------      -----------
Balance at close of period                         $ 2,294,787      $ 2,100,720
                                                   ===========      ===========

</TABLE>

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

Mortgage revenue bonds acquired and/or additional  fundings made during 2005 and
2004 are summarized below:

<TABLE>
<CAPTION>

                                                           Weighted      Weighted
                                                            Average       Average
                                               Face      Construction    Permanent
(In thousands)                               Amount (1)      Rate      Interest Rate
--------------------------------------       ----------  ------------  -------------
<S>                                           <C>             <C>           <C>
2005
Construction/rehabilitation properties        $429,966        5.81%         6.17%
Additional funding of existing bonds            13,551        5.36%         6.60%
                                              --------     -------       -------
Total 2005 acquisitions                       $443,517        5.80%         6.18%
                                              ========     =======       =======

2004
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>

(1) Original principal amount at issuance.


                                       75
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Mortgage  revenue  bonds and notes  repaid  during 2005 and 2004 are  summarized
below:

<TABLE>
<CAPTION>

                                             Net Book                   Realized
(In thousands)                                Value       Proceeds   Gains (Losses)
---------------------------------            --------     --------   --------------
<S>                                          <C>          <C>           <C>
2005
Participating, stabilized                    $ 29,471     $ 30,402      $    931
Non-participating, stabilized                  31,233       32,450         1,217
Non-participating, not stabilized              42,034       41,427          (607)
                                             --------     --------      --------
Total                                        $102,738     $104,279      $  1,541
                                             ========     ========      ========
2004
 Non-participating, stabilized               $ 26,653     $ 26,870      $    217
                                             ========     ========      ========

</TABLE>

D. UNREALIZED GAINS AND LOSSES

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

<TABLE>
<CAPTION>

(In thousands)                                      2005                2004
                                                 -----------        -----------
<S>                                              <C>                <C>
Amortized cost basis                             $ 2,417,185        $ 2,116,213
Gross unrealized gains                               116,541             41,643
Gross unrealized losses                              (11,424)           (22,849)
                                                 -----------        -----------
Subtotal/fair value                                2,522,302          2,135,007
  Less: eliminations (1)                            (227,515)           (34,287)
                                                 -----------        -----------
Total fair value per balance sheet               $ 2,294,787        $ 2,100,720
                                                 ===========        ===========

</TABLE>

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

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

<TABLE>
<CAPTION>

(Dollars in thousands)             Less than       12 Months
                                   12 Months        or More           Total
                                  -----------      ----------      ----------
<S>                                 <C>             <C>             <C>
DECEMBER 31, 2005

Number                                    36              55              91
Fair value                          $253,063        $327,183        $580,246
Gross unrealized loss               $  6,775        $  4,649        $ 11,424
                                    --------        --------        --------
DECEMBER 31, 2004

Number                                    59              82             141
Fair value                          $457,025        $456,475        $913,500
Gross unrealized loss               $  7,694        $ 15,155        $ 22,849

</TABLE>

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


                                       76
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



E. SECURITIZED AND PLEDGED ASSETS

As of December 31, 2005,  mortgage revenue bonds with an aggregate fair value of
approximately $2.3 billion were securitized or pledged as collateral in relation
to financing arrangements (see Note 9).

F. IMPAIRMENT

During the second  quarter of 2005, we determined  that  construction  should be
halted on a property for which we had assumed the general partner  interest (see
Note 21). Based on the funds available to recover and the estimated value of the
land, we recognized an  impairment of the  associated  mortgage  revenue bond of
approximately $1.1 million. In the third quarter of 2005, we agreed in principle
to revise the terms of another  mortgage  revenue bond. In connection  with this
agreement,  we  recognized  an  impairment of the asset and recorded a charge of
$803,000.  During  the  fourth  quarter of 2005,  we  determined  that two bonds
secured by a property  would likely require term revisions to reduce the rate of
interest and,  accordingly,  recorded an impairment charge of approximately $2.7
million.

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

In 2003,  because of  developer  defaults  and a  softening  of the market of an
underlying  property,  we determined that one of our mortgage  revenue bonds was
impaired,  and wrote down the bond to its estimated  fair value,  recognizing an
impairment loss of approximately $1.8 million.

G. FORECLOSURE

In May 2005,  an affiliate of ours  foreclosed  upon the  properties  underlying
three of our mortgage revenue bonds.

Following the determination in 2003 that a revenue bond was impaired (see above)
the  first  mortgage  was  foreclosed  upon in  October  2004.  The  bonds  were
subsequently retired and we own the land valued at $900,000.

Foreclosed  properties are included in "Real Estate Owned" within Deferred Costs
and Other Assets on the consolidated balance sheets (see Note 5).

NOTE 4 - OTHER INVESTMENTS

Investments other than mortgage revenue bonds consisted of:

<TABLE>
<CAPTION>

(In thousands)                                                       2005            2004
--------------------------------------------------------------    -----------     -----------
<S>                                                                 <C>             <C>
Investment in equity interests in LIHTC properties                  $ 46,985        $ 40,132
Investment in properties under development                             4,300           3,157
Investment in ARCap                                                   19,874          19,054
Capri loans and preferred stock                                       26,884          84,000
Mortgage loans receivable                                            153,277          27,480
Notes receivable                                                      32,670           2,924
Other investments                                                     14,600          10,759
                                                                    --------        --------
Total other investments                                             $298,590        $187,506
                                                                    ========        ========

</TABLE>


                                       77
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



A. INVESTMENTS IN EQUITY INTERESTS IN LIHTC PROPERTIES

Through a subsidiary, we acquire equity interests in property ownership entities
on a short-term  basis for inclusion in Fund Management  offerings to investors.
We expect to  recapture  such  amounts  from the proceeds of the equity and debt
financing when the  investment  fund has closed.  The developer also  guarantees
repayment  of these  investments.  Substantially  all of these  investments  are
pledged as collateral  for our borrowings  under a warehouse  facility (see Note
10).

B. INVESTMENTS IN PROPERTIES UNDER DEVELOPMENT

We  invest  in  affiliated  entities  that  co-develop  properties.  Development
investments  include amounts  invested to fund  pre-development  and development
costs.  Investment funds we sponsor acquire the limited partnership 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 21).

C. INVESTMENT IN ARCAP

We hold approximately 150,000 units of Series A Convertible Preferred Membership
Interests in ARCap Investors,  LLC, a provider of portfolio management services.
We also hold 590,000  common units,  which we acquired upon  converting the same
number of preferred units in December 2005. The initial cost of all of the units
was $25 per unit.  The preferred  units carry a preferred  return of 12% and the
common units  receive a specified  yearly  dividend,  currently set at $4.00 per
unit for 2006. In December 2005, we received a common  distribution of $2.14 per
share following the conversion.

D. CAPRI LOANS AND PREFERRED STOCK

In July 2004, our subsidiary CM Investor LLC ("CM Investor") provided an interim
loan in the principal  amount of $84.0 million  ("Interim Loan") to CCLP and its
affiliates  (collectively  "Capri"),  which bore interest at a rate of 11.5% per
year and matured in January 2005.

In the first quarter of 2005,  we extended and  converted the loan,  adding $6.0
million to the loan amount.  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,  CCLP.  The other allows us to
participate  in the cash  flows  of,  and is  convertible  into a 49%  ownership
interest  in, Capri  Capital  Advisors  LLP  ("CCA"),  a pension  fund  advisory
business.

In the first  quarter  of 2005,  we  converted  the CCLP loan and  acquired  the
business as an addition to our Mortgage Banking segment (see Note 2).

In August 2005, in connection  with an acquisition  CCA  consummated,  we issued
approximately  $4.1 million of subsidiary equity SMUs (see Note 13) and received
a preferred  interest in CCA. In addition,  we have advanced  approximately $2.8
million to CCA through  December 31, 2005, in connection with this  acquisition.
See Note 22 regarding our planned acquisition of that business.

E. 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.


                                       78
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



F. NOTES RECEIVABLE

The balance in 2005  includes a $26.0  million  investment in a mortgage loan in
which we have  co-invested  with AMAC (which invested $5.0 million pursuant to a
Subordinated  Participation  Agreement),  and which we expect to sell to AMAC in
2006 (see Note 17).

NOTE 5 - DEFERRED COSTS AND OTHER ASSETS

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

<TABLE>
<CAPTION>

(In thousands)                                          2005             2004
---------------------------------------------        ----------       ----------
<S>                                                  <C>              <C>
Deferred financing and other costs                   $  38,059        $  39,675
Less: Accumulated amortization                         (14,031)         (11,116)
                                                     ---------        ---------

Net deferred costs                                      24,028           28,559

Real estate owned                                       35,608            1,152

Interest receivable                                     16,964           15,711
Fees receivable                                         27,897           21,242
Due from unconsolidated partnerships                    10,545            2,343
Furniture, fixtures and leasehold improvements           8,178            3,096
Deferred taxes (see Note 12)                             1,849               --
Other                                                   19,601            2,830
                                                     ---------        ---------

Total                                                $ 144,670        $  74,933
                                                     =========        =========

</TABLE>

Real  estate  owned  consists   predominantly  of  three  properties  underlying
defaulted mortgage revenue bonds for which we exercised our foreclosure  rights.
We obtained  valuations  as of the  foreclosure  date  indicating  that the fair
values of the  properties  are in excess of our carrying  amounts.  As a result,
management  has  concluded  that  there  was  no  impairment  related  to  these
foreclosures.  We are actively  marketing the  properties for sale and, as such,
the properties are classified as Held for Sale and we have not  depreciated  the
assets.

NOTE 6 - GOODWILL AND OTHER INTANGIBLE ASSETS

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

<TABLE>
<CAPTION>

           (In thousands)                               2005           2004
------------------------------------                 ----------     ----------
<S>                                                   <C>            <C>
Goodwill                                              $235,684       $206,397
Other intangible assets, net                           141,301        177,519
Mortgage servicing rights, net                          62,190         32,366
                                                      --------       --------

Total                                                 $439,175       $416,282
                                                      ========       ========

</TABLE>


                                       79
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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, 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
Additions                                   --            31,503         31,503
Reductions                                (2,216)           --           (2,216)
                                       ---------       ---------      ---------

Balance at December 31, 2005           $ 197,937       $  37,747      $ 235,684
                                       =========       =========      =========

</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 and we recorded the payments as additional
goodwill.  Additions  to Mortgage  Banking  goodwill in 2003 and 2004 related to
such payments which were based on:

     o    the  increase  in the fair 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.

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

The  reductions to Fund  Management  goodwill in 2004 and 2005  pertained to the
conversion  of SCUs (see Note 13),  the  deferred  tax impact of which served to
effectively lower the purchase price of CharterMac Capital,  partially offset in
2004  by  adjustments  to  estimated  liabilities  recorded  at the  time of the
acquisition.

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


                                       80
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



B. OTHER INTANGIBLE ASSETS

The components of other identified intangible assets are as follows:

<TABLE>
<CAPTION>

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

                                                        2005        2004         2005        2004       2005        2004
                                                      --------    --------     -------     -------    --------    --------
<S>                                           <C>     <C>         <C>          <C>         <C>        <C>         <C>
Amortized identified intangible assets:
  Trademarks and trade names                    --    $     --    $ 25,100     $    --     $ 1,338    $     --    $ 23,762
  Partnership service contracts                9.4      47,300      47,300      10,718       5,661      36,582      41,639
  Transactional relationships                 16.7     103,000     103,000      17,864       9,436      85,136      93,564
  General partner interests                    9.0       5,100       5,100       1,201         634       3,899       4,466
  Joint venture developer relationships        5.0       4,800       4,800       2,035       1,075       2,765       3,725
  Mortgage banking broker relationships        5.0       1,080          --         180          --         900          --
  Other identified intangibles                 9.3       4,427       4,427       3,181       2,703       1,246       1,724
                                              ----    --------    --------     -------     -------    --------    --------
Subtotal/weighted average life                13.8     165,707     189,727      35,179      20,847     130,528     168,880
                                              ====

Unamortized identified intangible assets:
  Mortgage banking licenses and approvals
   with no expiration                                   10,773       8,639          --          --      10,773       8,639
                                                      --------    --------     -------     -------    --------    --------

Total identified intangible
  assets                                              $176,480    $198,366     $35,179     $20,847    $141,301    $177,519
                                                      ========    ========     =======     =======    ========    ========

                                                                                 2005        2004       2003
                                                                               -------     -------    --------
Amortization expense recorded                                                  $14,332     $16,684    $  2,413
                                                                               =======     =======    ========

</TABLE>

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

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

                                            (In thousands)

                     2006                      $15,228
                     2007                      $15,228
                     2008                      $15,113
                     2009                      $13,679
                     2010                      $ 9,155

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


                                       81
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



C. MORTGAGE SERVICING RIGHTS

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

<TABLE>
<CAPTION>

Servicing Assets                                                (In  thousands)
--------------------------------------------------              --------------
<S>                                                                <C>
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
MSRs acquired                                                        45,400
MSRs capitalized                                                      9,581
Amortization                                                        (18,670)
Increase in reserves                                                 (6,487)
                                                                   --------
Balance at December 31, 2005                                       $ 62,190
                                                                   ========

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

Balance at December 31, 2003                                       $  6,745
Net reductions                                                         (266)
                                                                   --------
Balance at December 31, 2004                                          6,479
Net additions                                                         6,487
                                                                   --------
Balance at December 31, 2005                                       $ 12,966
                                                                   ========

</TABLE>

The estimated fair values of the MSRs, based upon third-party  valuations,  were
$79.8 million at December 31, 2005 and $39.3  million at December 31, 2004.  The
significant  assumptions used in estimating the fair values at December 31, 2005
were as follows:

                Weighted  average  discount rate         17.50%
                Weighted  average  pre-pay speed         10.88%
                Weighted  average lockout period         4.3 years
                Weighted  average default rate             .50%
                Cost to service loans                   $2,305
                Acquisition cost (per loan)             $1,456


                                       82
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The table below  illustrates  hypothetical  fair values of MSRs at December  31,
2005,  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, 2005                 $79,764

Prepayment speed:
   Fair value after impact of +10% change                78,855
   Fair value after impact of -10% change                80,757
   Fair value after impact of +20% change                77,989
   Fair value after impact of -20% change                81,759

Discount rate:
   Fair value after impact of +10% change                75,856
   Fair value after impact of -10% change                85,682
   Fair value after impact of +20% change                72,328
   Fair value after impact of -20% change                88,988

Default rate:
   Fair value after impact of +10% change                79,637
   Fair value after impact of -10% change                79,895
   Fair value after impact of +20% change                79,517
   Fair value after impact of -20% change                80,027

</TABLE>

D. IMPAIRMENT

The initial gross carrying amounts for identified  intangible  assets were based
on third party valuations. We review goodwill and intangible assets annually for
impairment.  Through December 31, 2005, we have concluded that these assets have
not been impaired.

NOTE 7 - CONSOLIDATED PARTNERSHIPS

Assets and liabilities of consolidated  partnerships  consisted of the following
at December 31:

<TABLE>
<CAPTION>

           (In thousands)                           2005             2004
------------------------------------             ----------       ----------
<S>                                              <C>              <C>
Investments in property partnerships             $3,025,762       $2,527,455

Land,  buildings and  improvements,
   net of accumulated depreciation                  329,869          124,869
Cash                                                172,622          152,558
Other assets                                         78,033           51,132
                                                 ----------       ----------
    Subtotal                                        580,524          328,559
                                                 ----------       ----------

Total assets                                     $3,606,286       $2,856,014
                                                 ==========       ==========

Notes payable                                    $  565,877       $  461,557
Due to property partnerships                        896,031          700,169
Other liabilities                                   165,648          145,367
                                                 ----------       ----------

Total liabilities                                $1,627,556       $1,307,093
                                                 ==========       ==========

</TABLE>

Income  from  investments  in  property  partnerships  is recorded on the equity
basis.


                                       83
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Of the notes payable  balance,  $457.3  million are guaranteed by certain equity
partners  of the  investment  funds.  Per  partnership  agreements,  the  equity
partners are also obligated to pay the principal and interest on the notes.  The
remaining  balance  of $108.6  million  is  collateralized  with the  underlying
properties  of the  consolidated  operating  partnerships.  All of this  debt is
non-recourse to the Company.

NOTE 8 - ACCOUNTS PAYABLE, ACCRUED EXPENSES AND OTHER LIABILITIES

Accounts  payable,  accrued  expenses  and other  liabilities  consisted  of the
following at December 31:

<TABLE>
<CAPTION>

       (In thousands)                              2005              2004
----------------------------                     --------          --------
<S>                                              <C>               <C>
Deferred revenues                                $ 70,025          $ 48,157
Distributions payable                              41,080            38,859
Deferred taxes (see Note 12)                         --              29,898
Accounts payable                                   22,314             8,611
Salaries and benefits                              15,816            13,794
Other                                              30,040            14,767
                                                 --------          --------

Total                                            $179,275          $154,086
                                                 ========          ========

</TABLE>

NOTE 9 - FINANCING ARRANGEMENTS

Our financing arrangements are securitization programs that effectively allow us
to borrow against the fair value of our mortgage  revenue bond  portfolio.  They
involve  the sales of senior  certificates  to third  party  investors  while we
retain subordinated  residual  certificated  interests.  The net effect of these
programs is that a portion of the  interest  we receive  from  mortgage  revenue
bonds is distributed to holders of the senior  certificates while we receive any
remaining  interest  via the residual  certificate  after  related  expenses are
deducted.

<TABLE>
<CAPTION>

Following are the components of financing arrangements at December 31:

(In thousands)                                  2005                2004
------------------------------               ----------          ----------
<S>                                          <C>                 <C>
P-FLOATs/RITES                               $  760,084          $  462,928
TIC/TOC                                         187,108                  --
MBIA:
    Floater Certificates                        382,500             405,500
    Auction Certificates                        100,000             100,000
Fixed-Rate Securitization                            --             100,000
                                             ----------          ----------

Total                                        $1,429,692          $1,068,428
                                             ==========          ==========

</TABLE>

A. P-FLOATS/RITES PROGRAM

We have  securitized  certain  mortgage  revenue bonds through the Merrill Lynch
Pierce Fenner & Smith  Incorporated  ("Merrill Lynch")  P-FLOATs/RITES  program.
There is no limit to the  number or amount  of bonds we can  securitize  through
this program.  Under the program, we transfer certain mortgage revenue bonds, or
trust  certificates  that  represent  senior  interests in the mortgage  revenue
bonds,  to Merrill  Lynch and they deposit each revenue bond into an  individual
special purpose trust. That trust, in turn, issues two types of securities:

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


                                       84
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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  mortgage revenue
bonds or trust  certificates  from the trust. When the mortgage 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  mortgage  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
mortgage revenue bonds as assets.

Credit  intermediation under this program is provided by either Merrill Lynch or
IXIS  Financial  Products.  To facilitate  the  securitization,  we have pledged
certain additional  mortgage revenue bonds (or trust  certificates  representing
senior interests in mortgage revenue bonds) as collateral for the benefit of the
credit intermediator or liquidity provider. At December 31, 2005, the total fair
value of such collateral was approximately $454.2 million.

B. TIC/TOC PROGRAM ("TIC/TOC")

We have securitized certain mortgage revenue bonds through the Goldman,  Sachs &
Co. ("Goldman Sachs") TIC/TOC program. There is no limit to the number or amount
of bonds we can securitize through this program.  Under the program, we transfer
trust  certificates  that represent senior interests in certain mortgage revenue
bonds to Goldman Sachs and they deposit these trust certificates into individual
special purpose trusts. Two types of securities are then issued by that trust:

     o    a Tender Option  Certificate  ("TOC"),  a short-term  senior  security
          which bears  interest at a floating  rate,  reset weekly at the lowest
          rate that will clear the market at par; and
     o    a Trust Inverse  Certificate  ("TIC"),  a subordinate  security  which
          receives the residual  interest  payment after payment of TOC interest
          and ongoing transaction fees.

The TOCs are sold to third party  investors and the TICs are generally sold back
to us.  We have the  right,  with at least 14 days  notice  to the  trustee,  to
purchase the  outstanding  TOCs and withdraw the underlying  trust  certificates
from the trust.  When the trust  certificates  are  deposited  into the  TIC/TOC
Trust,  we  receive  the  proceeds  from  the  sale  of the  TOCs  less  certain
transaction costs.

Due to the  repurchase  right,  we account for the net  proceeds  received  upon
transfer as secured  borrowings  and,  accordingly,  continue to account for the
mortgage revenue bonds as assets.

Credit  intermediation under this program is provided by IXIS Financial Products
through a credit default swap agreement  that is subject to annual  renewal.  To
facilitate the  securitization,  additional  trust  certificates  that represent
senior interests in certain mortgage revenue bonds are pledged as collateral for
the benefit of the credit  intermediator or liquidity provider.  At December 31,
2005, the total fair value of such collateral was approximately $21.3 million.

C. MBIA SECURITIZATION PROGRAM

We have  entered  into a surety  commitment  through  October  2011 with MBIA, a
financial insurer,  whereby MBIA has agreed to provide credit intermediation for
certain  pools of bonds in  exchange  for fees.  Under  the MBIA  securitization
program, we contribute  mortgage revenue bonds to Series Trusts,  seven of which
had been created as of December 31, 2005.  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   (both  described   below)   representing   proportional
          interests  in the  Senior  Certificate  and which bear  interest  at a
          floating rate; and


                                       85
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



     o    a Residual  Certificate,  which  represents  the remaining  beneficial
          ownership  interest in each Series  Trust and  receives  the  residual
          interest  payment after payment of the Floater or Auction  Certificate
          interest  and ongoing  transaction  fees.  Generally,  we retain these
          Residual Certificates.

The two securities issued by the Certificate Trust are as follows:

     o    The Floater  Certificates  have an interest rate that is reset weekly.
          The sale of these certificates  requires liquidity due to a put option
          available to the buyers of the  certificates.  A consortium  of highly
          rated  banks,  whose  commitments  are one-year  renewable  contracts,
          currently  supplies the liquidity.  We expect to renew or replace such
          commitments upon expiration of their terms.
     o    The  Auction  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.

To facilitate the  securitization,  we have pledged certain additional  mortgage
revenue  bonds as  collateral  for the  benefit of the credit  intermediator  or
liquidity  provider.  At  December  31,  2005,  the  total  fair  value  of this
collateral was approximately $189.8 million.

As of December 31, 2005, the maximum amount of capital we could raise under this
securitization  program was $650.0 million,  with a maximum of $425.0 million in
Floater Certificates and a maximum of $225.0 in Auction Certificates.

As with the other  securitization  programs,  we  account  for the net  proceeds
received  upon  transfer as secured  borrowings  and,  accordingly,  continue to
account for the mortgage revenue bonds as assets.

D. FIXED RATE SECURITIZATION

In March 2005, we terminated our $100.0 million  fixed-rate  securitization  and
remarketed the borrowings under the P-FLOATs/RITES program.

E. RESTRICTED ASSETS

Certain of our  subsidiaries  hold mortgage  revenue bonds which at December 31,
2005,  had an aggregate fair value of  approximately  $2.3 billion that serve as
collateral  for  securitized  borrowings or are  securitized.  The  subsidiaries
holding these bonds had net assets at December 31, 2005, of approximately $824.4
million.

F. COVENANTS

We  are  subject  to  customary  covenants  with  respect  to our  various  debt
facilities.  As of  December  31,  2005,  we were in  compliance  with  all such
covenants.


                                       86
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



G. COST OF FUNDS

Our annualized cost of funds relating to financing  arrangements and the related
amount of interest expense were as follows:

<TABLE>
<CAPTION>

                                                2005          2004          2003
                                             ---------     ---------     ---------
<S>                                          <C>           <C>           <C>
Cost of funds                                     3.65%         2.51%         2.40%
Interest expense (in millions)               $   44.8      $   24.6      $   17.1

Rate at December 31, excluding fees:
MBIA                                              3.21%         1.81%
TIC/TOC                                           3.29%           --
P-FLOATs/RITES                                    3.33%         1.87%

</TABLE>

NOTE 10 - NOTES PAYABLE

Notes payable included the following at December 31:

<TABLE>
<CAPTION>

(In thousands)                                  2005            2004
---------------------------------            ----------      ----------
<S>                                           <C>             <C>
CMC acquisition loan                          $ 19,765        $ 21,809
CMC warehouse line                             179,277          27,480
CharterMac Capital warehouse line               45,613          39,932
Capri acquisition lines                         60,000          85,000
Other                                              233             233
                                              --------        --------
  Total notes payable                         $304,888        $174,454
                                              ========        ========

</TABLE>

A. CMC ACQUISITION LOAN

In connection  with the  acquisition of CMC (See Note 2), we entered into a loan
with Bank of  America  which  expires in  December  2006 and bears  interest  at
six-month  LIBOR plus 2.25%.  The rate was 6.83% and 4.67% at December  31, 2005
and 2004,  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.

B. CMC WAREHOUSE LINE

CMC has a $250.0 million secured,  revolving  mortgage  warehouse  facility with
Bank of America that will revert to a $100.0 million  facility in February 2006,
matures in May 2006,  and is subject to annual  renewal.  The interest  rate for
each  warehouse  advance is the Federal  Funds rate at the end of each year plus
1.00%. The rate was 4.24% and 3.49% at December 31, 2005 and 2004, respectively.

C. CHARTERMAC CAPITAL WAREHOUSE LINE

CharterMac  Capital has entered into a warehouse facility in the amount of $90.0
million with Bank of America,  Merrill Lynch, C.D.C.,  Citicorp,  USA, HSBC Bank
USA, N.A. and Comerica  Bank.  This  facility  matures in October 2006 and bears
interest,  at our option,  at either  30-day  LIBOR plus 1.70% or the prime rate
plus .125%.  The  weighted  average net rate was 6.84% and 5.13% at December 31,
2005 and  2004,  respectively.  This  facility  is  collateralized  by a lien on
certain  limited  partnership  interests (See Note 4). Payments of interest only
are due on a monthly basis.  We have the option to extend this facility upon its
maturity  in  2006,  renegotiate  its  terms or  arrange  alternate  sources  of
financing to repay the  outstanding  balance.  We maintain  cash  collateral  of
approximately $2.3 million for this facility.


                                       87
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



D. CAPRI ACQUISITION LINES

The Capri  acquisition  lines with Bank of America bear interest at 60-day LIBOR
plus 1.65% and mature in March  2006.  During  2005,  we repaid a portion of the
balance  due and the total  facility  amount was reduced to $60.0  million.  The
weighted  average  interest rate on the loans was 5.81% at December 31, 2005 and
4.02% at December 31, 2004.

E. FUTURE PAYMENTS

Payments of all of the notes are due in 2006.  We have the ability and intent to
refinance all of the amounts owed through new  facilities or renewal of existing
facilities.  As the CMC acquisition loan, the CharterMac  Capital warehouse line
and the Capri  acquisition  lines mature in 2006, and are owed to one lender, we
are in negotiations to replace them with a master credit facility with that same
lender.

F. COVENANTS

We  are  subject  to  customary  covenants  with  respect  to our  various  debt
facilities.  As of  December  31,  2005,  we were in  compliance  with  all such
covenants.

NOTE 11 - FINANCIAL RISK MANAGEMENT AND DERIVATIVES

Our mortgage  revenue  bonds  generally  bear fixed rates of  interest,  but our
financing  arrangements  and notes  payable (see Notes 9 and 10) 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 resulting from the exposure
to variable rates on our financing  agreements  through the use of interest rate
swaps  indexed to the BMA rate,  the most widely used  tax-exempt  floating rate
index. 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.  The  average BMA rate was 2.45% in 2005,  1.22% in 2004,  and
1.03% in 2003.

At  inception,  we  designate  these swaps as hedging  instruments  in cash flow
hedges with the hedged item being 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.   Amounts  in  accumulated  other
comprehensive  income will be reclassified  into earnings in the same period and
during which the hedged forcasted  transaction  affects  earnings.  Since we are
hedging the variable interest payments in our floating rate securitizations, the
forcasted  transactions are the interest payments.  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.


                                       88
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



We have entered into swap agreements as follows:

<TABLE>
<CAPTION>

                                         Notional
                                          Amount
Counterparty                           (in millions)    Inception Date      Expiration Date          Rate
----------------------------------------------------------------------------------------------------------------
<S>                                      <C>             <C>                 <C>               <C>
CASH FLOW HEDGES:
Merrill Lynch Capital Services, Inc.     $  50.0          January 2001        January 2006     3.98%
Bank of America                            100.0          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%
                                       -------------
   Subtotal cash flow hedges               500.0
                                       -------------
FAIR VALUE SWAP:
Bank of America                             26.0         November 2005       November 2014     4.92%
                                       -------------
Total                                    $ 526.0
                                       =============

</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.

For the cash flow hedge swaps in place and others that have  expired,  there was
no  ineffectiveness  in the hedging  relationships  during the three years ended
December 31, 2005. During 2004, we entered into two contracts, whereby we agreed
to enter into two interest rate swaps in January of 2005. We recorded an expense
of $3.4  million  in 2004,  relating  to the  ineffective  portion  of these two
derivative  instruments.  This  expense  reversed  later  in 2004  when the same
derivatives started passing the effectiveness assessments. For all of the swaps,
we  expect  that  the  hedging  relationships  will be  effective  in  achieving
offsetting changes in cash flow throughout their terms.

Interest rate swaps for which we were in a net settlement liability position are
recorded in accounts  payable,  accrued expenses and other liabilities and those
for  which we are in a net  settlement  asset  position  are  recorded  in other
assets. The amounts recorded at December 31 were as follows:

<TABLE>
<CAPTION>

                                                    2005               2004
                                                  --------           --------
<S>                                                <C>                <C>
(in thousands)
Net liability position                             $  208             $2,736
Net asset position                                 $5,656             $1,050

</TABLE>

We record net amounts payable or receivable as adjustments to interest  expense.
Interest  expense includes  approximately  $2.7 million in 2005, $1.6 million in
2004 and $4.1  million  in 2003,  for  amounts  paid or  payable  under the swap
agreements.  Net swap receipts, if any, are taxable to us and,  accordingly,  to
our shareholders.

We estimate  that  approximately  $850,000 of net  unrealized  gain  included in
accumulated  other  comprehensive  income  will be  reclassified  into  interest
expense within the next twelve  months,  due to the fact our swaps have been and
we expect they will continue to be effective.


                                       89
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 12 - 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, the income
from those  investments does not subject us to income taxes. The Fund Management
and mortgage banking businesses are conducted in corporations and are subject to
income taxes.

The components of our pre-tax income were as follows:

<TABLE>
<CAPTION>

                                          2005          2004          2003
                                        --------      --------      --------
<S>                                     <C>           <C>           <C>
Not subject to tax                      $ 79,309      $ 80,085      $ 70,469
Subject to tax                           (48,872)      (31,965)       (9,955)
                                        --------      --------      --------
Total income before income taxes        $ 30,437      $ 48,120      $ 60,514
                                        ========      ========      ========

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

                                          2005          2004          2003
                                        --------      --------      --------
Current:
  Federal                               $ (1,783)     $  2,279      $  2,212
  State and local                          1,384         1,022         1,207
                                        --------      --------      --------
Total current                               (399)        3,301         3,419

Deferred federal, state and local       $(28,178)      (20,544)       (9,491)
                                        --------      --------      --------

Total tax benefit                       $(28,577)     $(17,243)     $ (6,072)
                                        ========      ========      ========

</TABLE>

The tax  benefit  does not  include  (1) the  current  tax  benefit  related  to
additional  tax deductions  for share based  compensation  which was credited to
beneficial  owners' equity or (2) the deferred tax benefit related to unrealized
losses on derivative contracts which was credited to other comprehensive income.

Deferred  income tax assets and  liabilities  are  computed  based on  temporary
differences  between the financial  statement and income tax bases of assets and
liabilities that existed at the balance sheet date.

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

<TABLE>
<CAPTION>

                                                  2005        2004        2003
                                                --------    --------    --------
<S>                                              <C>         <C>         <C>
Statutory tax rate                                35.0 %      35.0 %      35.0 %
Partnership income not subject to tax            (89.6)      (56.4)      (39.6)
State and local taxes, net of federal
  benefit                                        (19.0)       (8.2)       (1.8)
SCUs (see Note 13)                               (13.2)       (3.4)       (2.2)
Tax-exempt interest                               (6.1)         --          --
Share based compensation                          (0.7)       (1.4)       (0.2)
Other                                             (0.3)       (1.4)       (1.2)
                                                 -----       -----       -----
Effective tax rate                               (93.9)%     (35.8)%     (10.0)%
                                                 =====       =====       =====

</TABLE>


                                       90
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The components of the deferred tax assets and liabilities are as follows:

<TABLE>
<CAPTION>

                                                           2005          2004
                                                         --------      --------
<S>                                                      <C>           <C>
DEFERRED TAX ASSETS:
Deferred revenue                                         $ 31,142      $ 19,863
Share based compensation                                    3,216         3,464
Bad debts                                                   1,885         1,076
Tax credits and state operating loss carry forwards         1,026          --
Other, net                                                  1,746           514
                                                         --------      --------
Total deferred tax assets                                  39,015        24,917
                                                         --------      --------

DEFERRED TAX LIABILITIES:
Intangible assets                                         (26,575)      (43,418)
Deferred costs                                             (1,562)         (135)
Originated mortgage service rights                         (9,029)      (11,262)
                                                         --------      --------

Total deferred tax liabilities                            (37,166)      (54,815)
                                                         --------      --------

Net deferred tax asset (liability)                       $  1,849      $(29,898)
                                                         ========      ========

</TABLE>

At December  31,  2005,  our  corporate  subsidiaries  had the  following  carry
forwards:

Low income housing credits (expiring starting in 2024)     $      473
State net operating loss (expiring in 2025)                $      743
Alternative minimum tax credits (do not expire)            $      428

We  believe  that the net  deferred  tax asset is  recoverable  based on current
earnings projections for our businesses that are subject to taxation.

The Internal  Revenue Service is examining the  consolidated  corporate  federal
income tax return for our subsidiaries subject to taxes for the tax period ended
December 31, 2003. The examination is in a preliminary  stage and no significant
issues have yet been raised.

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
---------------- ------------- -------------- --------------- ----------- --------------- -------------- -------------
<S>              <C>           <C>            <C>                <C>          <C>           <C>             <C>
                                                                                  (In thousands)
Series A          June 1999      June 2009      June 2049         45          $2,000        $  90,000       6.625%
Series A-1        July 2000      June 2009      June 2049         48             500           24,000       7.100%
Series A-2       October 2001    June 2009      June 2049         62             500           31,000       6.300%
Series A-3        June 2002    October 2014    October 2052       60             500           30,000       6.800%
Series B          July 2000    November 2010  November 2050      110             500           55,000       7.600%
Series B-1       October 2001  November 2010  November 2050       37             500           18,500       6.800%
Series B-2        June 2002    October 2014    October 2052       50             500           25,000       7.200%
                                                                                            ---------
   Total                                                                                    $ 273,500
                                                                                            =========

</TABLE>


                                       91
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



We collectively  refer to the Series A Cumulative  Preferred Shares,  Series A-1
Cumulative  Preferred Shares,  Series A-2 Cumulative Preferred Shares and Series
A-3 Cumulative  Preferred Shares as the "Series A Shares." We collectively refer
to the Series B Subordinate  Cumulative Preferred Shares, Series B-1 Subordinate
Cumulative  Preferred  Shares and Series B-2  Subordinate  Cumulative  Preferred
Shares as the  "Series B  Shares."  We also  collectively  refer to the Series A
Shares and the Series B Shares as the "Preferred Shares."

The  Series A Shares  all have  identical  terms  except as to the  distribution
commencement  date and other  terms  listed in the table  above.  Likewise,  the
Series  B  Shares  all  have  identical  terms,  except  as to the  distribution
commencement  date and other terms listed in the table above.  Equity Issuer may
not redeem the Preferred  Shares before their mandatory  repurchase  dates.  The
Preferred Shares are subject to mandatory tender for remarketing and purchase on
such dates and each remarketing date thereafter at their respective  liquidation
amounts plus all distributions  accrued but unpaid. Each holder of the Preferred
Shares will be required to tender its shares on the dates listed  above,  unless
Equity Issuer  decides to remarket  them.  Holders of the  Preferred  Shares may
elect to retain their shares upon  remarketing,  with a new distribution rate to
be  determined  at  that  time  by the  remarketing  agent.  After  the  initial
remarketing  dates,  Equity Issuer may  repurchase  some or all of the Preferred
Shares, subject to certain conditions.  The Preferred Shares are not convertible
into our common shares.

The  Preferred  Shares have annual  preferred  dividends  payable  quarterly  in
arrears upon  declaration  by our Board of  Trustees,  but only to the extent of
tax-exempt  net income for the  particular  quarter.  With respect to payment of
distributions  and amounts upon  liquidation,  dissolution  or winding-up of our
Company, the Series A Shares rank, senior to:

     o    all classes or series of Convertible CRA Shares (see Note 14);
     o    all Series B shares; and
     o    our common shares.

With  respect  to  payment  of  distributions   and  amounts  upon  liquidation,
dissolution or winding-up of our Company, the Series B Shares rank senior to our
Convertible CRA Shares and common shares.

Equity  Issuer may not pay any  distributions  to the parent  trust until it has
either  paid  all  Preferred  Share  distributions,  or in the  case of the next
following  distribution  payment date,  set aside funds  sufficient for payment.
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.


                                       92
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



     FAILURE TO PAY DISTRIBUTIONS

     If  Equity  Issuer  has  not  paid,  in  full,  six  consecutive  quarterly
     distributions on the Preferred  Shares,  it is required to reconstitute its
     board of trustees  so that a majority of the board of trustees  consists of
     trustees who are independent with respect to Equity Issuer,  CharterMac and
     CharterMac Capital.

     ALLOCATION OF TAXABLE INTEREST INCOME AND MARKET DISCOUNT

     Equity Issuer will specially  allocate  taxable  interest income and market
     discount that is taxable as ordinary income to us. Market discount, if any,
     may arise where Equity Issuer  acquires a bond other than upon its original
     issuance  for less than its stated  redemption  price at  maturity  and the
     difference is greater than a minor amount  (generally 1/4 of 1% of a bond's
     stated  redemption  price at maturity  multiplied by the number of complete
     years to maturity).

In accordance with SFAS No. 150, we classify the Preferred Shares as liabilities
in our balance sheet and include the dividends  paid for those share as interest
expense in our statements 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
   Preferred        Date of      Number of     Preference     Total Face     Dividend
     Series         Issuance       Shares       per Share       Amount         Rate
----------------  ------------  -----------   -------------  ------------  ------------
<S>                 <C>              <C>           <C>        <C>              <C>
                                                    (In thousands)
Series A-4-1        May 2004         60            $500       $  30,000        5.75%
Series A-4-2        May 2004         58             500          29,000        6.00%
Series B-3-1        May 2004         50             500          25,000        6.00%
Series B-3-2        May 2004         40             500          20,000        6.30%
                                                              ---------
  Total                                                       $ 104,000
                                                              =========

</TABLE>

Except for the absence of a mandatory repurchase feature (and for specific terms
enumerated in the table above),

     o    the Series A-4-1and Series A-4-2 shares have the same  characteristics
          as the Series A Shares described above; and
     o    the Series B-3-1 and Series B-3-2 shares have the same characteristics
          as the Series B shares described above.

In  accordance  with SFAS No. 150, as these  shares are not subject to mandatory
repurchase,  we classify them as mezzanine  equity and the associated  dividends
are classified outside of interest expense in the statements of income.

C. MINORITY INTERESTS

Minority  interests in consolidated  subsidiaries  consisted of the following at
December 31:

<TABLE>
<CAPTION>

         (In thousands)                              2005             2004
--------------------------------                   --------         --------
<S>                                                <C>              <C>
Convertible SCUs of a subsidiary                   $250,866         $267,025
Convertible SMUs of a subsidiary                     11,408               --
CMC                                                      --            4,394
                                                   --------         --------

Total                                              $262,274         $271,419
                                                   ========         ========

</TABLE>


                                       93
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Income  allocated  to  minority  interests  was as follows  for the years  ended
December 31:

<TABLE>
<CAPTION>

(in thousands)                      2005            2004            2003
                                  --------        --------        --------
<S>                                <C>             <C>             <C>
Convertible SCUs                   $23,092         $28,174         $ 4,038
Convertible SMUs                       330              --              --
CMC                                     --             194             (54)
                                   -------         -------         -------

Total                              $23,422         $28,368         $ 3,984
                                   =======         =======         =======

</TABLE>

SCUS

In  connection  with our  acquisition  of  CharterMac  Capital (see Note 2), our
subsidiary  issued  membership  interests  in the form of 16.1  million  special
common units  ("SCUs").  SCU holders are entitled to  distributions  at the same
time  as,  and  only  if,  we  pay  distributions  on  our  common  shares.  SCU
distributions are calculated as the amount of common share distributions divided
by 0.72,  to adjust  for the  taxable  nature of the income  comprising  the SCU
distributions.  SCU  distributions  are  payable  only  to  the  extent  of  the
subsidiary's cash flow,  supplemented by a loan of all but $5.0 million from the
parent trust in the event of a shortfall.  Any remaining  shortfall  will accrue
interest  at a market  rate and will only be payable at the time the  subsidiary
has sufficient cash flow.

Each holder of SCUs has the right to:

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

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

Our  subsidiary may not pay any  distributions  to the parent trust until it has
paid all SCU  distributions.  Through  December 31, 2005, all SCU  distributions
have been paid.

As of December 31, 2005, there were  approximately 14.9 million SCUs outstanding
and approximately 15.2 million were outstanding at December 31, 2004.

SMUS

A majority of the Special  Membership  Units  ("SMUs") were issued in connection
with the  CCLP  acquisition  (See  Note  2).  Additional  SMUs  were  issued  in
connection with a preferred investment in CCA (see Note 4).

SMU holders are entitled to  distributions  at the same time as, and only if, we
pay distributions on our common shares.  SMU distributions  were initially $1.69
per year, subject to adjustment in the amount of 95% of the percentage increases
or decreases in the  dividends  paid by us on the common  shares.  Distributions
paid to SMU holders consist of taxable income.

Each holder of SMUs has the right to:

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


                                       94
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

Our  subsidiary may not pay any  distributions  to the parent trust until it has
paid all SMU  distributions.  Through  December 31, 2005, all SMU  distributions
have been paid.

As of December 31, 2005, there were approximately 539,000 SMUs outstanding,  all
of which were issued in 2005 as noted above.

CMC

We purchased the outstanding  minority  interest in CMC during the first quarter
of 2005 (see Note 2).

NOTE 14 - SHAREHOLDERS' EQUITY

A. SPECIAL PREFERRED VOTING SHARES

In connection  with our  acquisition  of  CharterMac  Capital (see Note 2), 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 CharterMac  Capital  entered into a voting  agreement
which governs the voting of all of their:

     o    special preferred voting shares,
     o    common shares issuable upon exchange of their SCUs, and
     o    any other common  shares  currently  owned or which may be acquired by
          them in the future.

The voting agreement  provides that the selling principals of CharterMac Capital
will:

     o    vote their common shares or special  preferred  voting shares in favor
          of the election of any  independent  trustee  approved by our board of
          trustees or in the same proportion as the unaffiliated  holders of our
          common shares vote in such election; and
     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 CRA SHARES

Our Convertible  Community  Reinvestment Act Preferred Shares  ("Convertible CRA
Shares") enable financial institutions to receive certain regulatory benefits in
connection  with their  investment.  We have developed a proprietary  method for
allocating these regulatory  benefits to specific  financial  institutions  that


                                       95
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



invest in the  Convertible  CRA Shares.  Other than the preferred  allocation of
regulatory benefits,  the preferred investors receive the same economic benefits
as our common shareholders including:

     o    receipt of the same dividends per share;
     o    pro rata allocation of earnings between the two classes of shares; and
     o    equal  ranking  with the common  shares  with  respect to rights  upon
          liquidation, dissolution or winding up of our Company.

The Convertible CRA Shares have no voting rights,  except on matters relating to
the terms of the  Convertible CRA Shares or to amendments to our Trust Agreement
which would adversely affect the Convertible CRA Shares.

For  Convertible  CRA shares issued prior to 2002, the investors have the option
to convert their shares into common shares at a predetermined  conversion price,
calculated as the greater of:

     o    our book  value per  common  share as set  forth in our most  recently
          issued  annual or  quarterly  report  filed  with the SEC prior to the
          respective Convertible CRA Share issuance date; or
     o    110%  of the  closing  price  of a  common  share  on  the  respective
          Convertible CRA Share's pricing date.

For  Convertible  CRA Shares  issued in 2002 and later,  conversion  into common
shares is on a one-for-one basis.

Upon  conversion,  the  investors  would no  longer  be  entitled  to a  special
allocation of the regulatory benefit.

At  December  31, 2005 and 2004,  we had the  following  Convertible  CRA Shares
outstanding:

(In thousands)
Convertible CRA Shares issued prior to 2002                   998
Convertible CRA Shares issued 2002 and later                5,554
                                                         --------
  Total outstanding                                         6,552
                                                         ========
Common shares issuable upon conversion                      6,487
                                                         ========

C. 4.4% CONVERTIBLE CRA PREFERRED SHARES

Our 4.4% Cumulative Perpetual Convertible  Community  Reinvestment Act Preferred
Shares  ("4.4%  Convertible  CRA  Preferred  Shares")  have the same CRA related
benefits of the Convertible CRA Shares and likewise have no voting rights except
on certain matters  relating to the terms of the 4.4%  Convertible CRA Preferred
Shares or to amendments to our Trust Agreement which would adversely  affect the
4.4% Convertible CRA Preferred Shares.

The shares rank senior to our common shares and the  Convertible CRA Shares with
respect to rights upon  liquidation,  dissolution  or winding up of our Company.
They rank  senior to our common  shares  and the  Convertible  CRA  Shares  with
respect  to  distributions,  which  are  cumulative  and  fixed  at  4.4% of the
liquidation amount of $50 per share. The shares have no stated maturity.

Beginning  July  2008,  the  4.4%  Convertible  CRA  Preferred  Shares  will  be
convertible  into our common shares at the option of the holders  thereof at any
time  at  a  conversion  rate  of  1.807664  common  shares  each  (a  total  of
approximately  3.9 million  common  shares),  subject to  stipulated  conversion
adjustment  conditions.  Also beginning July 2008, we may redeem the shares at a
price   equal  to  their   liquidation   amount  plus  any  accrued  and  unpaid
distributions.  The shares are also subject to remarketing  provisions beginning
in July 2015. All distributions have been paid through December 2005.


                                       96
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



D. ISSUANCES AND CONVERSIONS

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  agent for the  offerings was Meridian
Investments, Inc.

In June 2004, we sold 5.75 million  common shares to the public for net proceeds
of  approximately  $105.5  million after  deducting  underwriting  discounts and
commissions.  The underwriters for this offering were Wachovia  Securities,  UBS
Securities LLC, RBC Capital Markets Corporation and Legg Mason Wood Walker.

As noted above, we issued  approximately 2.2 million of our 4.4% Convertible CRA
Preferred  Shares in July  2005 for gross  proceeds  of $108.0  million.  Net of
underwriters  fees and  expenses,  our net proceeds  were  approximately  $104.7
million. Meridian Investments acted as placement agent for this offering.

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,  and the related
special preferred voting shares were redeemed at par.

During 2005, the holders of approximately 287,000 SCUs converted the units to an
equivalent  number of common shares,  and the related special  preferred  voting
shares were redeemed at par.

E. DIVIDEND REINVESTMENT PLAN

In May 2000, we  implemented a dividend  reinvestment  and common share purchase
plan. Under this plan, common shareholders may elect to have their distributions
automatically  reinvested  in  additional  common shares at a price equal to the
average of the high and low market price from the previous  day's  trading,  and
make cash payments for further  investment.  As of December 31, 2005, there were
approximately  129,000 shares  participating in the plan, which  represented 370
investors.

F. REPURCHASES

The board of  trustees  has  authorized  the  implementation  of a common  share
repurchase plan, enabling us to repurchase, from time to time, up to 1.5 million
common shares. This plan has no expiration date. The repurchases will be made in
the open market and the timing is dependent on the availability of common shares
and other  market  conditions.  There  were no  repurchases  made under the plan
during 2005, 2004 or 2003.

In addition to the repurchase  plan, we may repurchase  shares from employees in
connection with tax withholding  requirements  upon vesting of restricted  share
grants.  We  account  for  repurchased  common  shares  as  treasury  shares  of
beneficial  interest.  During the years ended December 31, we repurchased shares
as follows:

<TABLE>
<CAPTION>

(in thousands)                                       2005       2004       2003
                                                    ------     ------     ------
<S>                                                 <C>        <C>         <C>
Number of shares                                       187        111         14
Cost, including commissions and service charges     $4,165     $2,592     $  275

</TABLE>


                                       97
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



G. ACCUMULATED OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income were as follows:

<TABLE>
<CAPTION>

                              Net Unrealized
                              Gain/(Loss) on    Net Unrealized                Accumulated Other
                                  Mortgage      Gain/(Loss)on                   Comprehensive
(In thousands)                 Revenue Bonds     Derivatives       Other        Income (Loss)
                              --------------    --------------   ----------   -----------------
<S>                              <C>              <C>             <C>             <C>
Balance at January1, 2003        $ 66,541         $ (5,566)                       $ 60,975
Period change                     (35,146)           2,607                         (32,539)
                                 --------         --------                        --------
Balance at December 31, 2003       31,395           (2,959)                         28,436
Period change                     (15,806)          (1,078)                        (16,884)
                                 --------         --------                        --------
Balance at December 31, 2004       15,589           (4,037)                         11,552
Period change                      79,849            8,668        $     35          88,552
                                 --------         --------        --------        --------
Balance at December 31, 2005     $ 95,438         $  4,631        $     35        $100,104
                                 ========         ========        ========        ========

</TABLE>

NOTE 15 - SHARE BASED COMPENSATION

A. THE PLAN

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

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

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

     o    10% of the  number  of total  shares  outstanding  as of  December  31
          preceding issuances of such awards; and
     o    the limits  prescribed by the national  security  exchange or national
          quotation system on which the shares may then be listed.

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

B. SHARE OPTIONS

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

We granted the following options pursuant to the Plan:

<TABLE>
<CAPTION>

                                         Weighted
                                          Average                   Vesting
 Year                    Number       Exercise Price    Term        Period
-----------------------------------------------------------------------------
<S>                      <C>              <C>          <C>          <C>
 2000                    297,830          $11.56       10 years     3 years
 2002                     40,000           17.56       10 years     3 years
 2005                    656,515           24.35       10 years     3 years

</TABLE>


                                       98
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



As part of a  separate  agreement  in  connection  with the  CharterMac  Capital
acquisition  (see Note 2), we granted 1.0 million  options to our chairman at an
exercise price of $17.78. These options have a 10 year term and vest over a five
year period.

We used the following  assumptions in the Black-Scholes  option pricing model to
determine fair values of options granted (in 2005) or revalued (in 2003):

<TABLE>
<CAPTION>

                                                        2005             2003
                                                      --------         --------
<S>                                                    <C>              <C>
Risk free interest rate                                 3.01%            3.80%
Expected years until exercise                           2.00             7.10
Expected stock volatility                              20.38%           20.00%
Dividend yield                                          6.71%            6.80%

</TABLE>

The following table  summarizes  share option activity in our share option plans
as of the year ended December 31:

<TABLE>
<CAPTION>

                                            2005                        2004                       2003
                                 ------------------------------------------------------------------------------
                                                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  1,075,313      $17.36       1,119,914      $ 17.33       263,509     $ 12.47

Granted                             656,515       24.35              --           --     1,000,000       17.78
Forfeited                                --          --         (22,167)       17.56            --          --
Exercised                          (221,487)      17.18         (22,434)       15.73      (143,595)      11.56
                                 ------------------------------------------------------------------------------
Outstanding at end of year        1,510,341      $20.42       1,075,313      $ 17.36     1,119,914     $ 17.33
                                 ==============================================================================

Exercisable at end of year          474,591      $20.20         275,313      $ 16.13        93,247     $ 11.56
                                 ==============================================================================

Fair value of options granted
  during the year (in thousands) $    1,196                   $      --                 $    1,140
                                 ==========                   =========                 ==========

Compensation cost recorded
  (in thousands)                 $      895                   $     597                 $      459
                                 ==========                   =========                 ==========

</TABLE>

The following table summarizes  information about share options  outstanding and
exercisable at December 31, 2005:

<TABLE>
<CAPTION>

                                                Weighted
                                                Average
                                               Remaining
                            Number          Contractual Life       Number
      Exercise Price      Outstanding          (in Years)       Exercisable
      --------------      -----------       ----------------    -----------
<S>       <C>             <C>                      <C>            <C>
          $11.56             51,576                4.3             51,576
          $17.56              2,250                6.7              2,250
          $17.78            800,000                7.9            200,000
          $21.61             20,000                9.4                 --
          $24.44            636,515                9.0            220,765
                          ---------             ------            -------
                          1,510,341                8.3            474,591
                          =========             ======            =======

</TABLE>


                                       99
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



As of December 31, 2005, there were  approximately  4.1 million options or share
grants available for issuance under the Plan.

C. RESTRICTED SHARE GRANTS AND SCUS

In conjunction with the CharterMac  Capital  acquisition (see Note 2), we issued
restricted  common  shares to various  individuals  who are either  employees of
CharterMac Capital or are one of the selling principals. Of the shares issued in
2003, 52,863 vested immediately and the remainder vest over periods ranging from
three  months to four years.  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.

Also, in conjunction  with the CharterMac  Capital  acquisition,  our subsidiary
issued SCUs to employees other than the selling principals. These SCUs vest over
periods ranging from three to four years.

Grants issued were as follows for the years ended December 31:

<TABLE>
<CAPTION>

(in thousands except per share amounts)                     2005        2004        2003
                                                          --------    --------    --------
<S>                                                        <C>        <C>         <C>
Number of restricted shares granted                           122          110        778
Weighted average grant-date fair value per share           $22.39     $  20.27    $ 19.33
Total restricted shares grant value                        $2,737     $  2,228    $15,047
SCUs granted                                                   --           93        217
Weighted average grant-date fair value per SCU                 --     $  17.92    $ 17.92
Total SCU grant value                                          --     $  1,656    $ 3,863
Compensation cost recorded (net of forfeitures)            $7,543     $ 11,035    $ 2,845

</TABLE>

D. TRUSTEE GRANTS

Our  independent  trustees  receive a portion of their  annual  compensation  in
common  shares.  In 2005,  we issued  7,518 shares for trustee  compensation  as
compared to 6,885 in 2004.

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

Prior to our acquisition of CharterMac Capital,  pursuant to our Trust Agreement
and a  management  agreement,  CharterMac  Capital  was  entitled  to a  special
distribution  equal to .375%  per  annum of our  total  invested  assets  (which
equaled the face amount of the mortgage  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 CharterMac  Capital for the special  distribution.
After a special  allocation of 0.1% to  CharterMac  Capital,  we then  allocated
remaining profits to shareholders in accordance with their percentage interests.

For periods  subsequent to the CharterMac Capital  acquisition,  we allocate the
income of CCC (the subsidiary we created as CharterMac  Capital's direct parent)
first to the holders of the SCUs for an amount based on a proportionate share of
net income. Beginning in 2005, we made a similar allocation for SMU holders.


                                       100
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

(In thousands, except per share amounts)              Income      Shares*   Per Share
------------------------------------------------     --------    --------   ---------
<S>                                                  <C>          <C>        <C>
2005:
----

Net income                                           $59,014
Preferred dividends                                    2,020
                                                     -------
Net income allocable to shareholders (Basic EPS)      56,994      58,018     $   .98
Effect of dilutive securities                             --         273
                                                     -------     -------
Diluted EPS                                          $56,994      58,291     $   .98
                                                     =======     =======     =======

2004:
----

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

2003:
----

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

</TABLE>

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

NOTE 17 - RELATED PARTIES

A. CHARTERMAC CAPITAL AND TRCLP

Prior to the CharterMac Capital Acquisition
-------------------------------------------

Prior to our  acquisition  of CharterMac  Capital (see Note 2), we had engaged a
subsidiary  of  CharterMac  Capital  to  provide  us with  management  services.
Pursuant  to the  terms of the  management  agreement,  CharterMac  Capital,  as
Manager,  was  entitled  to receive  the fees and other  compensation  set forth
below:

Fees/Compensation*                   Amount
-----------------                    ------

Bond selection fee                   2.000% of the face  amount of each asset we
                                     invested in or acquired.
Special distributions/investment     0.375%  per  annum  of  our  total invested
  management fee                     assets.
Loan servicing fee                   0.250% per annum  based on the  outstanding
                                     face amount of  mortgage revenue bonds  and
                                     other investments we owned.
Operating expense                    For direct expenses incurred by the Manager
  reimbursement                      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.

*  CharterMac Capital could also earn  miscellaneous  compensation that 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  CharterMac  Capital  provided  certain  financial  guarantees to
facilitate leveraging by CharterMac, for which we would pay market rate fees. In
addition,  affiliates of CharterMac Capital provided financial guarantees to the


                                      101
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



owner (or  partners of the owners) of the  underlying  properties  securing  our
mortgage revenue bonds, for which we would pay market rate fees.

Subsequent to the CharterMac Capital Acquisition
------------------------------------------------

Subsequent  to the  CharterMac  Capital  acquisition  we revised the  management
agreement  and  the  fees   included  in  the   agreement   are   eliminated  in
consolidation.  The  Related  Companies,  L.P.,  ("TRCLP"),  which  is  majority
controlled by Stephen M. Ross (a selling principal of CharterMac  Capital who is
also Chairman of our Board of Trustees),  continues to provide  services under a
shared services  agreement.  The services  provided  include 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  CharterMac  Capital  included two of our  executive
officers (Alan P. Hirmes and Marc D.  Schnitzer),  both of whom are also members
of our board of trustees,  and an affiliate of TRCLP.  As a result of the equity
we issued in the CharterMac Capital  acquisition,  Mr. Ross and the affiliate of
TRCLP own  approximately  16.1% of CharterMac and our  management,  trustees and
employees (excluding Mr. Ross) own approximately 4.9% at December 31, 2005.

Amounts Paid and Incurred
-------------------------

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

<TABLE>
<CAPTION>

                                                                                     Paid or
                                                                                    Payable to
                                                                                    CharterMac
                                                                                   Capital and
                                                 Paid or Payable to TRCLP           Affiliates
                                         -----------------------------------------------------
                                          Year Ended    Year ended      Nov 18 -     Jan 1 -
                                          December 31,  December 31,     Dec 31       Nov 17
                                          ------------  ------------  ------------  ----------
          (In thousands)                      2005          2004          2003         2003
                                          ------------  ------------  ------------  ----------
<S>                                         <C>           <C>           <C>          <C>
Shared service agreement                    $   507       $ 4,252       $   755      $    --
Bond selection fees                              --            --            --        8,905
Special distribution/investment
  management fee                                 --            --            --        3,809
Bond servicing fees                              --            --            --        5,764
Expense reimbursement                            --            --            --          901
                                            -------       -------       -------      -------

                                            $   507       $ 4,252       $   755      $19,379
                                            =======       =======       =======      =======

</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 partnerships  that we consolidate (see Note 1). 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.


                                      102
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



As of December 31, 2005,  CharterMac Capital  controlled  certain  partnerships.
Those entities,  in turn, were the general partners of investment  partnerships.
These investment  partnerships,  in turn, were non-equity  managing  partners of
local partnerships that are obligors of certain of our mortgage revenue bonds.

In connection with the 2002 refinancing of a property partly owned by Stephen M.
Ross, 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  who are  affiliates  of the  Company.  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 property  partnerships
held in  investment  funds we manage  and  consolidate.  The fees  totaled  $3.2
million in 2005, $2.2 million in 2004 and $2.9 million in 2003.

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
investments.  This facility  expires in June 2006. In the opinion of management,
the terms of this  facility  are  consistent  with  those of  transactions  with
independent  third  parties.  As of December  31,  2005,  there were no advances
outstanding,  while  AMAC owed $4.6  million  as of  December  31,  2004,  at an
interest rate of 5.42%.

D. AMAC CO-INVESTMENT

We and AMAC have  entered into a  Subordinated  Participation  Agreement,  under
which AMAC has acquired a subordinated  participation equal to $5.0 million in a
note  receivable  investment we hold. Upon the inception of a new AMAC warehouse
facility  (which we anticipate  will occur in the first half of 2006), we expect
to sell the loan to AMAC at its $26.0 million par value.

E. AMAC SERVICE AGREEMENT

We collect asset management,  incentive  management,  expense  reimbursement and
acquisition  fees from AMAC.  These fees, which are included in fund sponsorship
income,  totaled  approximately  $4.9 million in 2005, $2.2 million in 2004, and
$227,000 in 2003.

We entered into a new agreement,  effective when the existing  agreement expires
in March  2006.  While  the  basis of  certain  of the fees we will earn will be
changed,  we do not  expect  the fees we earn to differ  significantly  from the
existing agreement absent the effect of AMAC's growth.

F. OTHER

We have invested  approximately  $5.4 million in funds sponsored by a subsidiary
of CCA which are included in Other Investments (see Note 4).

We  have  acquired  four  revenue  bonds  with  an  aggregate   face  amount  of
approximately  $34.5  million,  for which the  developer  is  Related  Apartment
Preservation, a subsidiary of TRCLP.

We have made a loan of $20,000,000 to CCA, a subsidiary of Capri Realty Advisors
Inc.  which  is  partially  owned  by the CEO of CMC,  one of our  subsidiaries.
Additionally,  one of our  subsidiaries  holds a preferred  interest in CCA (see
Note 4). We also advanced approximately $2.8 million to CCA through December 31,
2005.

CMC services a portfolio of loans for CreditRe Mortgage Capital,  which is owned
by TRCLP.


                                      103
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



NOTE 18 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

<TABLE>
<CAPTION>

  (In thousands, except per share amounts)                        2005 Quarter Ended
                                                -------------------------------------------------------
                                                March 31     June 30      September 30  December 31 (1)
                                                --------    ---------     ------------  ---------------
<S>                                             <C>          <C>            <C>            <C>
Total revenues                                  $ 58,739     $ 78,837       $ 78,318       $ 79,106

Income before income taxes                      $  6,420     $ 19,109       $ 13,662       $ (8,754)

Net income                                      $ 14,785     $ 19,444       $ 18,678       $  6,107

Net income per share

   Basic                                        $   0.26     $   0.34       $   0.31       $   0.08

   Diluted                                      $   0.25     $   0.33       $   0.31       $   0.08

Weighted average shares outstanding
   Basic                                          57,821       57,890         58,059         58,294
   Diluted                                        58,236       58,274         58,366         58,532

                                                                  2004 Quarter Ended
                                                -------------------------------------------------------
                                                March 31     June 30      September 30    December 31
                                                --------    ---------     ------------  ---------------

Total revenues                                  $ 46,313     $ 57,287       $ 59,793       $ 69,039

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

</TABLE>

(1)  Includes a $22.6 million  non-cash  pre-tax  charge (equal to $12.3 million
     after tax, or $0.21 per basic and diluted  share)  related to the write-off
     of the "Related Capital Company" trade-name intangible asset (see Note 6).


                                      104
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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 proceeds of the mortgage revenue
     bonds are used to finance the new construction, substantial rehabilitation,
     acquisition,  or refinancing of affordable  multifamily  housing throughout
     the United States.

     Through  this  segment,  we also  invest  in  other  entities,  such as our
     preferred and common  investments in ARCap, our  participating  loan to and
     preferred  investment in CCA and our investments in funds that CCA sponsors
     (see Note 6).

2.   Fund Management, which includes:

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

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

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

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

4.   Consolidated  Partnerships,  primarily  the LIHTC  equity  funds we sponsor
     through  the  Fund  Management  segment's  subsidiaries  and  which  we are
     required to  consolidate  in  accordance  with FIN 46(R),  as well as other
     partnerships  we control but in which we have little or no equity  interest
     (see Note 1).

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

The  table  below  includes  Cash  Available  for  Distribution  ("CAD")  as the
performance measure used by our chief decision maker to allocate resources among
the segments.  This is a revision to the measure presented in prior periods and,
accordingly,  segment results for 2004 and 2003 have been restated to conform to
the current year presentation.


                                      105
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



The following table provides more information regarding our segments:

<TABLE>
<CAPTION>

(In thousands)                                      2005           2004          2003
                                                 -----------    -----------   ----------
<S>                                              <C>            <C>            <C>
REVENUES
   Portfolio Investing                           $   169,577    $   141,910    $ 119,397
   Fund Management (1)                               117,752         92,663       18,342
   Mortgage Banking                                   43,572         21,028       17,690
   Consolidated partnerships (2)                      24,096         12,213           --
   Elimination of intersegment transactions          (59,997)       (35,382)      (3,189)
                                                 -----------    -----------    ---------
Consolidated                                     $   295,000    $   232,432    $ 152,240
                                                 ===========    ===========    =========

CAD
   Portfolio Investing                           $   102,927    $   106,317    $  86,155
   Fund Management (1)                                58,010         52,215       20,159
   Mortgage Banking                                   14,871          4,388        3,517
   Consolidated partnerships (2)                          --             --           --
                                                 -----------    -----------    ---------
   Total Segment CAD                                 175,808        162,920      109,831
   Preferred dividends                                (2,020)            --           --
   Subsidiary equity distributions                   (34,666)       (33,036)      (4,038)
   Dividends on subsidiary preferred stock           (25,123)       (22,840)     (18,898)
   Current tax benefit (expense)                         711         (3,413)      (2,826)
   Income allocated to minority interests                 --             --           54
   Income allocated to Manager                            --             --       (5,332)
                                                 -----------    -----------    ---------
   Consolidated CAD                                  114,710        103,631       78,791
   Fees deferred for GAAP (3)                        (23,930)       (27,096)     (14,924)
   Depreciation and amortization expense             (66,762)       (30,407)     (11,926)
   Mortgage revenue bond yield adjustments (4)           596             85       (1,946)
   Gain on sale of loans (5)                          11,140          6,805        7,749
   Loss on impairment of assets                       (4,555)          (757)      (1,759)
   Tax adjustment (6)                                 27,866         20,655        8,898
   Non-cash compensation (7)                          (8,541)       (11,753)      (2,282)
   Difference between subsidiary equity
    distributions and income allocated to
    subsidiary equity holders(8)                      11,245          4,862           --
   Preferred dividends / allocation to
    manager                                            2,020             --        5,338
   Other, net                                         (4,775)          (662)      (1,353)
                                                 -----------    -----------    ---------
Consolidated Net Income                          $    59,014    $    65,363    $  66,586
                                                 ===========    ===========    =========

DEPRECIATION AND AMORTIZATION (9)
   Portfolio Investing                           $     5,649    $     3,357    $   2,405
   Fund Management (1)(9)                             41,335         18,974        3,095
   Mortgage Banking                                   19,778          8,076        6,426
   Consolidated partnerships (2)                          --             --           --
   Elimination of intersegment transactions               --             --           --
                                                 -----------    -----------    ---------
Consolidated                                     $    66,762    $    30,407    $  11,926
                                                 ===========    ===========    =========

IDENTIFIABLE ASSETS AT DECEMBER 31
   Portfolio Investing                           $ 5,487,596    $ 4,748,608
   Fund Management (1)                               800,684        827,179
   Mortgage Banking                                  345,225         91,508
   Consolidated partnerships (2)                   3,610,031      2,856,014
   Elimination of intersegment balances           (3,264,708)    (2,786,088)
                                                 -----------    -----------
Consolidated                                     $ 6,978,828    $ 5,737,221
                                                 ===========    ===========

</TABLE>

(1) Prior to our  acquisition  of  CharterMac  Capital in  November  2003,  this
segment consisted only of our credit intermediation business.
(2) Consolidated beginning April 2004 pursuant to FIN 46(R). See Notes 1 and 7.
(3)  Represents  the net  difference  between  fees  received  at the  time of a
transaction  that  are  recognized  immediately  for CAD but  are  deferred  and
recognized over time for GAAP accounting (e.g.: fund sponsorship fees recognized
over the  relevant  service  periods)  or upon a later  event  (such as mortgage
origination fees recognized upon settlement of a loan sale).


                                      106
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



(4) Represents the  adjustment  for  amortization  of bond discounts or premiums
that are recognized  immediately  for CAD but are deferred and  recognized  over
time for GAAP  accounting,  as well as the difference  between  actual  interest
income received and income recognized under the effective yield method.
(5) Represents non-cash gain recognized on sale of mortgage loans when servicing
rights are retained and gains on sales of mortgage revenue bonds.
(6) Represents the difference  between the tax benefit recorded and the net cash
amount we expect to pay or receive in relation to the current period.
(7) Represents the add-back of amortization of costs  recognized for share-based
compensation and share-based trustee fees.
(8)  Represents  the  difference  between  actual  distributions  to SCU and SMU
holders  (which is based on the common share  distribution  rate) and accounting
allocation of earnings,  which is based on the  represented  portion of combined
common, CRA and subsidiary equity in allocating GAAP net income.
(9) 2005 includes write-off of trade name.

NOTE 20 - IMPACT OF HURRICANES

During the third  quarter of 2005,  two major  hurricanes  struck the Gulf Coast
region of the United  States.  A third struck the southern  United States during
the fourth  quarter.  All of our  businesses  are involved in  properties in the
areas affected by the storms.

Due  to  limited  access  to  certain  affected  properties,   as  well  as  the
complications  and  bureaucracy  involved  in  the  determination  of  insurance
coverage,  we are still  evaluating  the  extent of our  financial  exposure  on
several properties.  Based upon the information available to date, our financial
exposure is expected to be immaterial. However, it will take some time to assess
the full  ramifications of the hurricanes.  Other than insurance  considerations
(discussed below), examples of situations that are too early to assess include:

     o    the effects of the likely increase in repair and construction costs;
     o    whether  the  increase  in  physical   occupancy  in  the   properties
          underlying our investments will be permanent in nature;
     o    any  changes  that the  government  agencies  propose  for some of the
          financing  programs that we offer (i.e.  whether the IRS will make any
          proposed  temporary  changes  to the tax code for the  LIHTC  program)
          which if  enacted  could  make  additional  capital  available  to the
          affected properties; and
     o    what resources the local general partner will bring to bear.

We  identified  11  properties  (located  in  Texas,   Florida,   Louisiana  and
Mississippi)  which  experienced major damage and for which one or more funds we
have sponsored have provided equity.  Currently we do not expect that there will
be  financial  exposure  related  to these  properties  as we  believe  that the
properties  have  adequate  insurance  coverage,  but  in  virtually  all  cases
determinations are ongoing as to:

     o    how the insurance  companies involved will address damage with respect
          to that caused by wind versus that caused by flooding;
     o    the  level of  deductibles,  which  is  dependent  upon  the  category
          determinations;
     o    whether  outside  parties  (such as state  agencies)  will  mediate in
          disputes regarding insurance; and
     o    the financial resources of the insurers.

Our  mortgage  banking  subsidiaries  identified  six  properties  in  our  loan
servicing  portfolio that have  loss-sharing  arrangements  and which  sustained
major damage.  We believe that insurance is adequate to cover the damages and we
expect no financial losses with respect to these loans.

None of the mortgage  revenue  bonds in our  portfolio are secured by properties
that suffered major damage.


                                      107
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



Due to the  uncertainties  noted above, we are currently  unable to estimate the
extent of our direct  financial  exposure,  if any.  With  respect  to  exposure
regarding specified rates of return obligations,  as storm damage may reduce the
expected yields of the properties themselves, performance of the funds is likely
to be impacted as well. The obligations, however, provide for expected yields on
pools of properties,  some of which are performing above expected levels and the
funds  themselves  often  provide for  adjustors  that may mitigate the negative
impact that would arise from the construction  delays over the period covered by
the agreements.

NOTE 21 - COMMITMENTS AND CONTINGENCIES

PRS / CRG

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

After PRS approached us to discuss  financial  difficulties in its  construction
company,  we conducted a thorough review regarding its financial  condition (and
that of its  guarantors) and determined  that the PRS  construction  company was
experiencing significant financial difficulties, so that the transfer of control
of the PRS and CRG general partnership  interests to entities affiliated with us
- and the orderly termination of unfulfilled construction contracts - was in our
best  interest.  We could then  install  new  general  contractors  to  complete
construction and capable property  managers to complete  leasing.  We determined
that, if we did not obtain control of the  partnerships,  a bankruptcy filing by
or against PRS would be adverse to our  interests as it would  likely  result in
the reduction or cessation of bond payments, could possibly endanger our various
tax  credit  equity  investments,  and would  result  in delays in  construction
completion, the financial impact of which could not be quantified.

In April 2005, affiliates of ours acquired by assignment the general partnership
interests owned by PRS in seven of the "PRS Partnerships" indicated in the table
below.  We  sought  control  of the  PRS  Partnerships  because  PRS'  financial
difficulties  caused  construction  finance  shortfalls  that created  liquidity
problems for those partnerships. As a result, settlement agreements were entered
into  by  and  amongst  the  PRS  Partnerships,  the  PRS  project  owners,  the
guarantors,  various  affiliates  of ours and  other  third  parties  (the  "PRS
Settlements"). The PRS Settlements provide for, among other things:

     o    the termination of the PRS construction contracts;
     o    the settlement of construction claims and release of liens;
     o    the termination of management agreements for the PRS projects;
     o    the assignment of the development agreements to our affiliates;
     o    the  assignment of the interest in the general  partner of each of the
          PRS Partnerships to our affiliates;
     o    the termination of PRS' obligations  under the payment and performance
          bonds for each project; and
     o    mutual releases by and amongst the PRS Settlement parties.

The PRS Settlement  Agreements are, in essence, a complete cessation of business
between us and PRS.

Also in April  2005,  affiliates  of ours  acquired  by  assignment  the general
partnership  interests owned by CRG in five of the "CRG Partnerships"  indicated
in the table below.  We sought control of the CRG  Partnerships  because PRS was
the construction  general  contractor for those  partnerships and PRS' financial
difficulties caused construction  finance shortfalls that have created liquidity
problems for those  partnerships.  We entered into settlement  agreements by and
amongst the CRG Partnerships,  the CRG project owners,  the guarantors,  various
affiliates  of ours and other third  parties  (the "CRG  Settlements").  The CRG
Settlement Agreements provide for, among other things:


                                      108
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



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

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

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

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

With  respect  to the  Peine  Lakes  project,  it  continues  to move  along its
construction  phase and is now approximately  95% complete.  GCG has assumed the
full general partner interest and agreed to fund approximately $1.0 million into
the Peine  Partnership to aid in any cost overruns and any amounts due and owing
as a result of the action of PRS on the  project.  Should cost  overruns  exceed
$1.0  million,  we will  share in the  excess  in return  for a partial  general
partner interest.

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

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

Our potential exposure falls into three categories as follows:

         CASH REQUIRED  TO  BRING  THE  PROPERTIES TO BREAK-EVEN OPERATION - Our
              current estimate of the maximum amount of cash that we may need to
              provide to bring the  properties to break-even  operation,  taking
              into  account  delays  in  construction,  is  approximately  $15.0
              million.  This  estimate  is based upon our initial  analyses  and
              information  provided by the  developer,  and may  increase due to
              unforeseen construction delays and other factors, while the amount
              may be reduced by additional contributions by investors (which may


                                      109
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



               generate additional tax credits), reserves at the property level,
               syndication  of  state  tax  credits  or other  factors.  Through
               December 31, 2005, we had advanced  $14.9  million  either to the
               partnerships  or through the revolving  line of credit to the CRG
               partnerships.  These advances, and additional loans, are assessed
               periodically for  collectibility  and the impact on the potential
               impairment of existing  mortgage  revenue  bonds.  Given existing
               loan-to-value  ratios and the  variability  of the  likelihood of
               funding,  we cannot yet determine the ultimate amount of any such
               loans. At present, we do not anticipate that any such loans would
               require a charge to expense.

         POTENTIAL  IMPACT  ON  MORTGAGE REVENUE BONDS - Our  current  estimate,
              based on available  information,  is that expected cash flows from
              the underlying  properties are sufficient to provide debt service.
              As a result, we do not believe that there is  other-than-temporary
              impairment of any of the affected bonds, except as noted below.

         POTENTIAL  COST  TO  PROVIDE  SPECIFIED YIELDS - As noted in the  table
              below, 10 of the partnerships in question are part of equity funds
              for  which  we are  obligated  to  provide  specified  yields.  As
              construction  delays are likely to reduce the  expected  yields of
              the properties  themselves,  performance of the funds is likely to
              be  impacted  as  well.  The  obligations,  however,  provide  for
              expected  yields  on  pools  of  properties,  some  of  which  are
              performing  above expected levels and the funds  themselves  often
              provide for adjustors  that may mitigate the negative  impact that
              would arise from the construction delays over the guarantee period
              covered  by the  agreements.  Our  current  estimate  given  these
              factors,  and assuming that the property level  partnerships  meet
              their obligations under existing partnership  agreements,  is that
              no exposure under these agreements is probable at this time.

As a result of our analysis of the affected  properties,  we determined that the
development  of one property in the early stages of  construction  should not be
continued.  We plan to exercise our right to  foreclosure as holder of the first
mortgage  and will be able to recover  much of the funds  advanced  through  the
mortgage  revenue bond as well as take ownership of the underlying  land.  Based
upon the funds  available  to recover and the  estimated  value of the land,  we
recognized a write-down of  approximately  $1.1 million in the second quarter of
2005. This property was included in a credit  intermediated  CharterMac  Capital
sponsored  fund, and we exercised a right of substitution to remove it from that
fund and replaced it with other properties.

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

We have  consolidated  the  partnerships  for which we have  assumed the general
partnership  interests (except for the GCG  Partnerships,  which do not give our
affiliates  operational  control of the partnerships)  effective April 2005. The
partnerships in question are summarized as follows:


                                      110
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements

<TABLE>
<CAPTION>

                                                                                                         (In thousands)

                                                                                                                   Fair Value of
                               CharterMac     CharterMac                                                 Loan       Mortgage
                                Holds or       Capital                                                 Amounts       Revenue
                               Will Hold      Sponsored       Included       CharterMac     Third        Upon         Bonds
                                Mortgage       Fund is        in Credit       Capital       Parties      Full      Oustanding at
                                Revenue         Equity      Intermediated     Holds GP     Provided      Draw      December 31,
                    Number        Bond         Partner          Funds         Interest      Equity       Down          2005
                   --------    ----------     ----------    -------------    ----------    --------    --------    -------------
<S>                   <C>          <C>            <C>            <C>             <C>          <C>      <C>           <C>
PRS
  PARTNERSHIPS
Construction           3            3              2              1               2            1       $ 23,700      $ 23,718
Lease-Up               8            7              4              2               4            4         89,900        90,995
Rehab                  2            2              1              1               1            1         30,400        32,071
Stabilized             2            2             --             --              --            2         18,377        18,659
                   -------------------------------------------------------------------------------------------------------------
Subtotal              15           14              7              4               7            8        162,377       165,443
                   -------------------------------------------------------------------------------------------------------------

CRG
  PARTNERSHIPS
Construction           1            1              1             --               1           --          7,130            --
Lease-Up               3            1              3              2               1           --         10,550        10,550
Rehab                  3            3              3              3               3           --         71,611        75,137
Stabilized            --           --             --             --              --           --             --            --
                   -------------------------------------------------------------------------------------------------------------
Subtotal               7            5              7              5               5           --         89,291        85,687
                   -------------------------------------------------------------------------------------------------------------

GCG
  PARTNERSHIPS
Construction           2            2              2              1              --           --         27,770        15,744
Lease-Up              --           --             --             --              --           --             --            --
Rehab                 --           --             --             --              --           --             --            --
Stabilized            --           --             --             --              --           --             --            --
                   -------------------------------------------------------------------------------------------------------------
Subtotal               2            2              2              1              --           --         27,770        15,744
                   -------------------------------------------------------------------------------------------------------------

Total                 24           21             16             10              12            8       $279,438      $266,874
                   =============================================================================================================
Total eliminated in consolidation                                                                      $157,341      $154,960
                                                                                                    ============================

</TABLE>

FORWARD TRANSACTIONS

At December 31, 2005, our Mortgage Banking  subsidiaries had forward commitments
of approximately $193.5 million for mortgages to be funded in 2006 and later. As
each lending  commitment has an associated sale  commitment,  the fair values of
these  commitments  offset  each other and,  as a result,  we record no asset or
liability.  In addition,  those  subsidiaries  had commitments to sell mortgages
totaling $245.9 million.  Approximately $126.8 million of this amount was funded
as of December 31, 2005, and is included in Other  Investments as Mortgage Loans
Receivable. The balance of approximately $119.1 million is to be funded in 2006.

We have  entered  into  transactions  to  purchase  mortgage  revenue  bonds  at
predetermined  prices  and  interest  rates,  but  only if  construction  of the
property is completed.  These forward commitments create derivative  instruments
under  SFAS No.  133,  which  have been  designated  as a cash flow hedge of the
anticipated  funding of the  mortgage  revenue  bonds and are  recorded  at fair
value,  with changes in fair value recorded in other  accumulated  comprehensive
income until the mortgage  revenue bonds are funded.  The total potential amount
we could be required to fund is $135.4 million.

Additionally,  we have certain  other bonds that we fund on an as needed  basis.
The  remaining  balance to be funded on these  drawdown  bonds is  approximately
$800,000 at December 31, 2005.


                                      111
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



MORTGAGE BANKING LOSS SHARING AGREEMENTS

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, 2005, all but two of our loans
sold to Fannie Mae consisted of Level I loans,  meaning,  in most cases, that we
are responsible for the first 5% of the unpaid  principal  balance and a portion
of any additional losses to a maximum of 20% of the original  principal balance;
Fannie  Mae  bears  any  remaining  loss.  Pursuant  to this  agreement,  we are
responsible for funding 100% of mortgagor  delinquency  (principal and interest)
and  servicing  (taxes,  insurance and  foreclosure  costs)  advances  until the
amounts  advanced  exceed  5% of the  unpaid  principal  balance  at the date of
default. Thereafter, we may request interim loss sharing adjustments which allow
us to fund 25% of such advances until final settlement under the agreement.

We also participate in loss sharing  transactions  under Freddie Mac's Delegated
Underwriting  Initiative  ("DUI")  program  whereby we originate  loans that are
purchased  by Freddie  Mac.  The  aggregate  of all such loans  shall not exceed
$100.0 million.

Under the terms of our Master  Agreement  with Freddie Mac, we are  obligated to
reimburse  Freddie Mac for a portion of any loss that may result  from  borrower
defaults on DUI transactions.  For such loans, if a default occurs, our share of
the loss will be the first 5% of the  unpaid  principal  balance  and 25% of the
next 20% of the remaining  unpaid  principal  balance to a maximum of 10% of the
unpaid  principal  balance.  The loss on a defaulted  loan is  calculated as the
unpaid principal amount due, unpaid interest due and default  resolutions  costs
(taxes, insurance, operation and foreclosure costs) less recoveries.

Our maximum  exposure at December 31, 2005,  pursuant to these  agreements,  was
approximately $834.9 million  (representing what we would owe in accordance with
the loss sharing percentages described above if every loan defaulted),  although
this amount is not  indicative of our actual  potential  losses.  We maintain an
allowance  for loan losses for loans  originated  under these product lines at a
level that,  in  management's  judgment,  is  adequate to provide for  estimated
losses.  At December 31, 2005,  that reserve was  approximately  $13.0  million,
which, we believe, represents our actual potential losses at that time.

Our  Mortgage  Banking  subsidiaries  maintained,   as  of  December  31,  2005,
collateral  consisting  of  treasury  notes,  and  Fannie  Mae and  Freddie  Mac
securities  of  approximately  $13.4  million  and a  money  market  account  of
approximately  $1.1  million,  which is included  in cash and cash  equivalents,
including  restricted  cash, in the  consolidated  balance sheet, to satisfy the
Fannie Mae and Freddie Mac collateral requirements of $12.7 million.

We are also  required  by the Master  Agreement  with  Freddie  Mac to provide a
letter of  credit  in the  amount of 8% of the  original  principal  balance  as
collateral security for payment of the reimbursement obligation. A reimbursement
agreement with the Bank of America to provide a master letter of credit covering
the collateral requirement up to $8 million covers this requirement. At December
31, 2005, commitments under this agreement totaled $1.9 million.

MORTGAGE POOL CREDIT INTERMEDIATION

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


                                      112
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



amount,  which may be reduced to 40% if certain post closing conditions are met.
Our maximum exposure under the terms of the transaction as of December 31, 2005,
is approximately $7.4 million.

We  performed  due  diligence  on  each  property  in  the  pool,  including  an
examination  of  loan-to-value  and debt service  coverage both on a current and
"stressed"  basis. We analyzed the portfolio on a "stressed" basis by increasing
capitalization  rates and assuming an increase in the low floater bond rate.  As
of  December  31,  2005,  the  credit-intermediated  properties  are  performing
according to their  contractual  obligations and we do not anticipate any losses
to be incurred on this guarantee.  Should our analysis of risk of loss change in
the future, a provision for probable loss might be required pursuant to SFAS No.
5, ACCOUNTING FOR CONTINGENCIES.

YIELD TRANSACTIONS

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

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

Total potential exposure pursuant to these transactions is approximately  $729.8
million,  assuming the funds achieve no return whatsoever.  We have analyzed the
expected operations of the underlying properties and believe there is no risk of
loss at this time, as we have never yet been called upon to make payments  under
these  agreements.  Should our analysis of risk of loss change in the future,  a
provision for possible losses might be required pursuant to SFAS No. 5. The fair
value of these obligations, representing the deferral of the fee income over the
obligation  periods,  was $22.1 million as of December 31, 2005.  This amount is
included in deferred revenues on our consolidated  balance sheet.  Refer also to
PRS / CRG above, regarding potential exposure under existing obligations.

Some of the property-level  partnerships have financed their properties with the
proceeds  of  our  mortgage   revenue  bonds.   In  these  cases,   the  Primary
Intermediator has required that those mortgage revenue bonds be deposited into a
trust pursuant to which the mortgage  revenue bonds were divided into senior and
subordinated  interests  with  approximately  50% of each mortgage  revenue bond
being subordinated.  We have financed the senior trust interest and a portion of
certain of the subordinate trust interests using credit  intermediation from the
Primary  Intermediator as part of the P-FLOATs/RITES and TIC/TOC  securitization
programs  (see Note 9). We use the  remaining  subordinate  trust  interests  as
collateral in these  programs.  In connection with these  transactions,  we have
posted $162.4 million as collateral with a Primary  Intermediator in the form of
either cash or mortgage revenue bonds as of December 31, 2005.

OTHER

We have entered into several transactions pursuant to the terms of which we will
provide credit support to construction lenders for project completion and Fannie
Mae conversion.  In some instances,  we have also agreed to acquire subordinated
bonds to the extent the construction  period bonds do not fully convert. We also
provide payment, operating deficit, recapture and replacement reserve guarantees
as business  requirements for developers to obtain construction  financing.  Our
maximum  aggregate  exposure  relating to these  transactions  is  approximately
$221.7 million as of December 31, 2005. To date, we have had minimal exposure to
losses  under  these   transactions   and   anticipate  no  material   liquidity
requirements in satisfaction of any guarantee issued.


                                      113
<PAGE>



                           CHARTERMAC AND SUBSIDIARIES

                   Notes to Consolidated Financial Statements



LEASE OBLIGATIONS

The future minimum  payments for operating  leases as of December 31, 2005, were
as follows:

(In thousands)

<TABLE>
<CAPTION>

                                                 Minimum lease
                Year Ending December 31,            payments
             -----------------------------       -------------
<S>             <C>                                 <C>
                2006                                $  6,820
                2007                                   6,598
                2008                                   6,869
                2009                                   6,359
                2010                                   6,457
                Thereafter                            37,607
                                                 -------------
                  Total                              $70,710
                                                 =============

</TABLE>

We recorded rent expense of approximately  $8.4 million in 2005, $3.3 million in
2004 and $913,000 in 2003 (including amounts paid to TRCLP in 2003 and 2004).

OTHER CONTINGENCIES

At December 31, 2005, we had unused  letters of credit  totaling  $43.0 million,
including the $8.0 million described in MORTGAGE BANKING LOSS SHARING AGREEMENTS
above.

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

NOTE 22 - SUBSEQUENT EVENTS

In February 2006, we executed an agreement to acquire Capri Real Estate Services
("CRES") from CCA, subject to investor consent.  The consideration  paid was the
redemption of the preferred  interest we held in CCA,  valued at $4.1 million as
of  December  31,  2005,  plus $1.1  million of advances we had made to CCA with
respect to this  business  (see Note 4).  CRES is a manager  of hedge  funds and
other funds  concentrating  on investing in securities  of publicly  traded real
estate operating companies.  It will be included in our Fund Management segment.
This acquisition is not material to our revenues, net income or assets.

In March  2006,  Marc D.  Schnitzer  was  named  our  Chief  Executive  officer,
succeeding  Stephen  M.  Ross who had held that  position  on an  interim  basis
following  the  departure  of Stuart J. Boesky in November  2005.  Mr. Ross will
continue  as  chairman  of our Board of  Trustees  and Mr.  Schnitzer  will also
continue in his role as our President.


                                      114
<PAGE>



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.  To  remediate  the
               material  weaknesses in internal  controls  identified during the
               Company's   evaluation   pursuant   to   Section   404   of   the
               Sarbanes-Oxley  Act of 2002 as of the  year  ended  December  31,
               2004, during 2005, we have:

               (i)  hired a director of taxation, a newly created position;
               (ii) increased the use of third-party  tax service  providers for
                    the more complex areas of our tax  accounting  and increased
                    formality  and  rigor  of  controls  and   procedures   over
                    accounting for income taxes;
               (iii) strengthened  our due  diligence  procedures  in  reviewing
                    acquisition   candidates  to  ensure  that   interaction  of
                    accounting principles that might require prospective changes
                    are identified on a timely basis;
               (iv) strengthened  our analytical  procedures  with regard to the
                    preparation  and review of all  consolidation  eliminations;
                    and
               (v)  completed the  conversion of all  subsidiaries  to a unified
                    accounting system.

           Management believes  that the material  weaknesses  identified in the
           prior year have been remediated.

ITEM 9B.   OTHER INFORMATION

           None.


                                      115
<PAGE>



PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF OUR COMPANY

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 11.   EXECUTIVE COMPENSATION

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.


ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

           The  information  required  by this  item is  incorporated  herein by
           reference to our definitive  proxy  statement to be filed pursuant to
           Regulation 14A under the Exchange Act.


                                      116
<PAGE>



                                     PART IV

ITEM 15.  EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

<TABLE>
<CAPTION>

                                                                                   Sequential
                                                                                      Page
                                                                                   ----------

(a)1.     Financial Statements
<S>       <C>                                                                         <C>
          Report of Independent Registered Public Accounting Firm                      56

          Consolidated Balance Sheets as of December 31, 2005 and 2004                 57

          Consolidated  Statements  of Income for the years ended  December  31,
          2005, 2004 and 2003                                                          58

          Consolidated  Statements of  Shareholders'  Equity for the years ended
          December 31, 2005, 2004 and 2003                                             59

          Consolidated Statements of Cash Flows for the years ended December 31,
          2005, 2004 and 2003                                                          62

          Notes to Consolidated Financial Statements                                   64

(a)2.     Financial Statement Schedules

          Schedule I - Condensed Financial Information of Registrant                  130

          Schedule II - Valuation and Qualifying Accounts                             134

          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.*

3.1(d)    Amendment  No. 1  to Second Amended and Restated Trust Agreement dated
          as of September  20, 2005  (incorporated  by referenced to our Current
          Report on Form 8-K, filed with the Commission on September 22, 2005).

3.1(e)    Amendment  No. 2  to Second Amended and Restated Trust Agreement dated
          as  of  November  30,  2005   (incorporated   by   referenced  to  our
          Registration  Statement  on Form  8-A  filed  with the  Commission  on
          January 3, 2006).

3.2(a)    Fourth  Amended  and Restated  Bylaws  (incorporated  by referenced to
          our Current Report on Form 8-K, filed with the Commission on September
          22, 2005).

</TABLE>


                                      117
<PAGE>



<TABLE>
<CAPTION>

                                                                                   Sequential
                                                                                      Page
                                                                                   ----------
<S>       <C>
3.2(b)    Amendment No. 1 to Fourth Amended and Restated Bylaws*

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).

</TABLE>


                                      118
<PAGE>



<TABLE>
<CAPTION>

                                                                                   Sequential
                                                                                      Page
                                                                                   ----------
<S>       <C>
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).

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  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(t)     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(u)     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(v)     Ross  Non-Qualified Share Option Agreement  (incorporated by reference
          to our  Registration  Statement  on Form S-8,  filed on  November  24,
          2003).

</TABLE>


                                      119
<PAGE>



<TABLE>
<CAPTION>

                                                                                   Sequential
                                                                                      Page
                                                                                   ----------
<S>       <C>                                                                         <C>
10(w)     Registration Rights Agreement,  dated as of November 17, 2003, by  and
          among our Company and APH Associates  L.P., DLK Associates  L.P., Marc
          Associates,  L.P.,  Related  General II, L.P. and SJB Associates  L.P.
          (incorporated by reference to our Registration  Statement on Form S-8,
          filed on November 24, 2003).

10(x)     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(y)     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(z)     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(aa)    Restricted Share Plan (incorporated by reference to  our  Registration
          Statement  on Form S-8,  filed with the  Commission  on  November  24,
          2003).

10(ab)    Amended  and  Restated Incentive Share Plan (incorporated by reference
          to our Form S-8/A, filed with the Commission on March 2, 2004).

10(ac)    Form  of  Non-Qualified Share Option Award Agreement. (incorporated by
          reference to Exhibit  10(af) in our December 31, 2004 Annual Report on
          Form 10-K).

10(ad)    Form  of  Restricted Share Award Agreement. (incorporated by reference
          to Exhibit  10(ag) in our  December  31,  2004  Annual  Report on Form
          10-K).

10(ae)    Separation   and    consulting    agreement   with  Stuart  J.  Boesky
          (incorporated  by reference to our current  report on Form 8-K,  filed
          with the Commission on November 9, 2005).

10(af)    Amended  And  Restated  Credit  Agreement Dated As Of July 16, 2004 by
          and among  CharterMac,  Charter Mac  Corporation,  and Fleet  National
          Bank, As Agent and Lenders, as amended.*

10(ag)    Amended   and   Restated  Mortgage  Warehousing  Credit  and  Security
          Agreement,  dated as of March  18,  2005,  by and  between  CharterMac
          Mortgage Capital  Corporation,  Fleet National Bank, a Bank of America
          Company, as Agent and Lenders, as amended.*

10(ah)    Acquisition  Loan  Agreement,  dated  as  of December 24, 2001,  among
          Charter Mac Corporation,  as Borrower,  Fleet National Bank, as Agent,
          and the Lenders, as amended*

10(ai)    Ninth  Amended  and Restated  Loan  Agreement  $90,000,000  Tax Credit
          Warehouse  Capital Line of Credit to RCC Credit  Facility,  L.L.C.  as
          amended*

10(aj)    Investment  Agreement   and   Acquisition  of  Capri  Capital  Limited
          Partnership by CM Investor LLC dated March 11, 2005.*

10(ak)   Second  Amended  and  Restated  Advisory  Services   Agreement  between
         American  Mortgage  Acceptance  Company and CharterMac AMI  Associates,
         Inc.*

</TABLE>


                                      120
<PAGE>



<TABLE>
<CAPTION>

                                                                                   Sequential
                                                                                      Page
                                                                                   ----------
<S>       <C>                                                                         <C>
12        Ratio of earnings to fixed charges and preferred dividends.*                124

21        Subsidiaries of our Company.*                                               125

23        Consent of Independent Registered Public Accounting Firm*                   126

31.1      Chief Executive Officer  certification  pursuant to Section 302 of the
          Sarbanes- Oxley Act of 2002.*                                               127

31.2      Chief Financial Officer  certification  pursuant to Section 302 of the
          Sarbanes- Oxley Act of 2002.*                                               128

32        Certification  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of
          2002.*                                                                      129

* Filed herewith.

</TABLE>


                                      121
<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: March 15, 2006               By: /s/ Marc D. Schnitzer
                                       ---------------------
                                       Marc D. Schnitzer
                                       Managing Trustee, Chief Executive Officer
                                       and President




Date: March 15, 2006               By: /s/ Alan P. Hirmes
                                       ------------------
                                       Alan P. Hirmes
                                       Managing Trustee, Chief Operating Officer
                                       and Chief Financial Officer


                                      122
<PAGE>



                                POWER OF ATTORNEY

Each person whose signature  appears below hereby  constitutes and appoints Marc
D. Schnitzer 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/ Stephen M. Ross
-------------------          Managing Trustee,
Stephen M. Ross              Chairman of the Board               March 15, 2006

/s/ Alan P. Hirmes
------------------           Managing Trustee,
Alan P. Hirmes               Chief Operating Officer and
                             Chief Financial Officer             March 15, 2006

/s/ Peter T. Allen
------------------
Peter T. Allen               Managing Trustee                    March 15, 2006

/s/Andrew L. Farkas
-------------------
Andrew L. Farkas             Managing Trustee                    March 15, 2006

/s/ Thomas W. White
-------------------
Thomas W. White              Managing Trustee                    March 15, 2006

/s/ Marc D. Schnitzer
---------------------        Managing Trustee,
Marc D. Schnitzer            Chief Executive Officer
                             and President                       March 15, 2006

/s/ Jeff T. Blau
----------------
Jeff T. Blau                 Managing Trustee                    March 15, 2006

/s/ Robert A. Meister
---------------------
Robert A. Meister            Managing Trustee                    March 15, 2006

/s/ Jerome Y. Halperin
----------------------
Jerome Y. Halperin           Managing Trustee                    March 15, 2006

/s/ Janice Cook Roberts
-----------------------
Janice Cook Roberts          Managing Trustee                    March 15, 2006

/s/ Nathan Gantcher
-------------------
Nathan Gantcher              Managing Trustee                    March 15, 2006

/s/ Robert L. Loverd
--------------------
Robert L. Loverd             Managing Trustee                    March 15, 2006


                                      123
<PAGE>



                                                                      Exhibit 12

Ratio of Earnings to Combined Fixed Charges and Preference Dividends

<TABLE>
<CAPTION>

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

                                                  2005           2004           2003          2002            2001
                                                ---------      ---------      ---------     ---------      ---------
<S>                                             <C>            <C>            <C>           <C>            <C>
Interest expense                                $  82,817      $  52,409      $  23,919     $  19,004      $  16,132
Amortized capitalized costs related to
  indebtedness                                      2,642          3,310          2,163           940            727
Preference security dividend requirements
  of consolidated subsidiaries                     25,123         22,840         18,897        17,266         12,578
                                                ---------      ---------      ---------     ---------      ---------

  Total fixed charges                           $ 110,582      $  78,559      $  44,979     $  37,210      $  29,437
                                                =========      =========      =========     =========      =========


Net income before minority interests            $(295,673)     $(143,462)     $  64,498     $  62,613      $  38,985
Add:  Total fixed charges                         110,582         78,559         44,979        37,210         29,437
Less:  Preference security dividend
  requirements of consolidated subsidiaries       (25,123)       (22,840)       (18,897)      (17,266)       (12,578)
                                                ---------      ---------      ---------     ---------      ---------
Earnings                                        $(210,214)     $ (87,743)     $  90,580     $  82,557      $  55,844
                                                =========      =========      =========     =========      =========

Ratio of Earnings to Combined Fixed
  Charges and Preference Dividends               See NOTE       See NOTE          2.0:1         2.2:1           1.9:1

</TABLE>

For the  purposes  of  computing  the ratio of  earnings  to fixed  charges  and
preference  dividends,  earnings were  calculated  using income before  minority
interest  adding back total fixed  charges  less  preference  security  dividend
requirements  of  consolidated  subsidiaries.  Fixed charges consist of interest
expense,  recurring  fees and  amortization  of  capitalized  costs  related  to
indebtedness  and preference  security  dividend  requirements  of  consolidated
subsidiaries.

NOTE:  Earnings  (as  defined  in  Regulation  S-K) were  insufficient  to cover
Combined Fixed Charges and Preference  Dividends  (also as defined in Regulation
S-K) by $320.8  million  for the year ended  December  31,  2005,  and by $166.3
million for the year ended  December 31,  2004,  yielding a ratio of earnings to
combined fixed charges and preference  dividends of -1.9:1 in 2005 and -1.1:1 in
2004. These shortfalls are due to the consolidation of partnerships deemed to be
variable interest entities  ("consolidated  partnerships") pursuant to Financial
Interpretation  46(R) ("FIN 46(R)").  Pursuant to Regulation S-K, the definition
of Earnings  does not permit the  subtraction  of amounts  allocated to minority
interests  in  consolidated  subsidiaries  if  those  subsidiaries  incur  fixed
charges.  The inclusion of the  consolidated  partnerships  in the  consolidated
financial statements affected this ratio as follows:

     o    Combined Fixed Charges and Preference  Dividends  (which,  as defined,
          totaled  $110.6  million in 2005 and $78.6  million in 2004)  includes
          consolidated partnership interest expense of $26.3 million in 2005 and
          $21.4 million in 2004,  although  these  expenses are paid directly by
          the consolidated partnerships; and
     o    Earnings (which, as defined,  was a loss of $210.2 million in 2005 and
          $87.7 million in 2004)  includes  consolidated  partnership  operating
          losses  totaling  $349.5  million in 2005 and $220.0  million in 2004,
          although  virtually  all such  operating  losses are  absorbed  by the
          limited partners of the consolidated partnerships.


                                      124
<PAGE>



                                                                      Exhibit 21



               Subsidiaries of the Company as of December 31, 2005
               ---------------------------------------------------

CM Holding Trust, a Delaware statutory trust

CharterMac Equity Issuer Trust, a Delaware statutory trust

CharterMac Corporation, a Delaware corporation

    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 Originatioin Trust I and CharterMac Corporation
   --------------------------------------------------------------------------

CharterMac Residual Holder LLC, a Delaware limited liability company

                     Subsidiaries of CharterMac Corporation
                     --------------------------------------

CharterMac Mortgage Capital Corp., Inc. a Delaware corporation

CharterMac Capital Company, LLC, a Delaware limited liability company

CM Investor LLC, a Delaware limited liability company

CharterMac Mortgage Partners Corp., a Delaware corporation

Centerbrook Holdings LLC, a Delaware limited liability company

                 Subsidiaries of CharterMac Capital Company LLC
                 ----------------------------------------------

CharterMac  Capital LLC, a Delaware limited liability company (formerly known as
Related Capital Company LLC)

                     Subsidiaries of CharterMac Capital LLC
                     --------------------------------------

RCC Manager LLC, a Delaware limited liability company

RCC Credit Facility LLC, a Delaware limited liability company

                         Subsidiaries of RCC Manager LLC
                         -------------------------------

CharterMac  AMI  Associates  Inc.,  a Delaware  corporation  (formerly  known as
Related AMI Associates Inc.)


                                      125
<PAGE>



                                                                      Exhibit 23



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference

     o    in  the  Registration   Statement  (Form  S-3/A  No.   333-120077)  of
          CharterMac,
     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  and its post  effective
          amendment on Form POS AM 1 No. 333-111919) of CharterMac.

of our reports dated March 15, 2006,  relating to the financial  statements  and
financial statement  schedules of CharterMac and subsidiaries,  and management's
report  on the  effectiveness  of  internal  control  over  financial  reporting
appearing in the Annual Report on Form 10-K of CharterMac and  subsidiaries  for
the year ended December 31, 2005.


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

March 15, 2006


                                      126
<PAGE>



                                                                    Exhibit 31.1



                                  CERTIFICATION


I, Marc D. Schnitzer, hereby certify that:

     1.  I have reviewed this annual report on Form 10-K of CharterMac;
     2.  Based  on my  knowledge,  this  report  does  not  contain  any  untrue
         statement of a material fact or omit to state a material fact necessary
         in order to make the  statements  made,  in light of the  circumstances
         under which such  statements  were made, not misleading with respect to
         the period covered by this annual report;
     3.  Based on my knowledge,  the financial  statements,  and other financial
         information  included  in this  annual  report,  fairly  present in all
         material  respects the financial  condition,  results of operations and
         cash flows of the  registrant as of, and for, the periods  presented in
         this report;
     4.  The registrant's  other  certifying  officers and I are responsible for
         establishing  and  maintaining  disclosure  controls and procedures (as
         defined in Exchange Act Rules  13a-15(e)  and  15d-15(e))  and internal
         control  over  financial  reporting  (as defined in Exchange  Act Rules
         13a-15(f) and 15d-15(f)) for the registrant and we have:

         a) designed such  disclosure  controls and  procedures,  or caused such
         disclosure   controls  and   procedures   to  be  designed   under  our
         supervision,  to  ensure  the  material  information  relating  to  the
         registrant,  including its consolidated subsidiaries,  is made known to
         us by others within those entities,  particularly  during the period in
         which this annual report is being prepared;

         b) designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principals;

         c) evaluated the effectiveness of the registrant's  disclosure controls
         and procedures  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:  March 15, 2006                               By:  /s/ Marc D. Schnitzer
       --------------                                    ---------------------
                                                         Marc D. Schnitzer
                                                         Chief Executive Officer


                                      127
<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:  March 15, 2006                               By:  /s/ Alan P. Hirmes
       --------------                                    ------------------
                                                         Alan P. Hirmes
                                                         Chief Financial Officer


                                      128
<PAGE>



                                                                      Exhibit 32



                            CERTIFICATION PURSUANT TO
                             18.U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Annual Report of CharterMac (the "Company") on Form 10-K
for the year ending December 31, 2005, as filed with the Securities and Exchange
Commission  on the date  hereof  (the  "Report"),  I,  Marc D. Schnitzer,  Chief
Executive Officer of the Company and I, 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/ Marc D. Schnitzer                           By: /s/ Alan P. Hirmes
     ---------------------                               ------------------
     Marc D. Schnitzer                                   Alan P. Hirmes
     Chief Executive Officer                             Chief Financial Officer
     March 15, 2006                                      March 15, 2006


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


                                      129
<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,
                                                               ------------------------------
                                                                   2005              2004
                                                               ------------       -----------

                                           ASSETS
<S>                                                            <C>                <C>
Mortgage revenue bonds-at fair value                           $     81,539       $   113,024
Cash and cash equivalents                                            52,791            12,957
Deferred costs - net of amortization of $7,485 and
  $5,355                                                              5,095             6,080
Due from subsidiaries                                               133,162           126,546
Intangible assets - net of amortization of $2,503 and
  $2,158                                                                603               949
Investment in subsidiaries                                          740,289           615,625
Other investments                                                    57,086            25,596
Other assets                                                          9,955             5,752
Loan to affiliate                                                        --             4,600

                                                               ------------       -----------
Total Assets                                                     $1,080,520       $   911,129
                                                               ============       ===========

                            LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
   Accounts payable, accrued expenses and other
     liabilities                                                      4,802             4,492
   Distributions payable                                             25,883            23,915
                                                               ------------       -----------

Total liabilities                                                    30,685            28,407
                                                               ------------       -----------

Commitments and contingencies

Shareholders' equity:
   Beneficial owners equity:
     4.4% Convertible CRA preferred  shares; no par value
        (2,160 shares issued and  outstanding in 2005 and
        none issued and outstanding in 2004)                        104,498                --
     Convertible CRA  Shares  (6,552  shares  issued  and
        outstanding in 2005 and  2004)                              104,369           108,745
     Special   preferred  voting  shares;  no  par  value
      (14,885  shares issued and  outstanding in 2005 and
      15,172 shares issued and outstanding in 2004)                     150               152
     Common  shares;   no  par   value   (100,000  shares
        authorized; 52,309 issued and 51,988  outstanding
        in 2005 and 51,363 issued and 51,229  outstanding
        in 2004)                                                    752,042           773,165
   Restricted shares granted                                         (4,193)           (7,922)
   Treasury  shares of beneficial  interest - common,  at
    cost (321 shares in 2005 and 134 shares in 2004)                 (7,135)           (2,970)
   Accumulated other comprehensive income                           100,104            11,552
                                                               ------------       -----------
Total shareholders' equity                                        1,049,835           882,722
                                                               ------------       -----------

Total liabilities and shareholders' equity                       $1,080,520       $   911,129
                                                               ============       ===========

</TABLE>

                 See accompanying notes to financial statements


                                      130
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>

                                                                             Years Ended December 31,
                                                                     --------------------------------------
                                                                        2005           2004         2003
                                                                     ----------     ----------   ----------
                                                                                  (In thousands)
<S>                                                                  <C>            <C>          <C>
Revenues:
   Mortgage revenue bond interest income                             $    7,267     $    7,948   $    8,309
   Other revenues                                                         8,591          4,212        4,191
                                                                     ----------     ----------   ----------
     Total revenues                                                      15,858         12,160       12,500
                                                                     ----------     ----------   ----------


Expenses:
   Interest expense                                                           4             35           --
   General and administrative                                             8,503          6,958        7,146
   Depreciation and amortization                                          1,895          1,630        1,140
   Loss on impairment of assets                                             296            147           --
                                                                     ----------     ----------   ----------
     Total expenses                                                      10,698          8,770        8,286
                                                                     ----------     ----------   ----------

Income before equity in earnings of subsidiaries
   and investments and loss on repayment of mortgage revenue bonds        5,160          3,390        4,214

Equity in earnings of subsidiaries                                       50,874         59,792       60,604

Equity in earnings of investments                                         3,038          2,219        2,219

Loss on repayment of mortgage revenue bonds                                 (58)           (38)        (451)
                                                                     ----------     ----------   ----------


Net income                                                           $   59,014     $   65,363   $   66,586
                                                                     ==========     ==========   ==========

Allocation of net income to:
   Special distribution to Manager                                   $       --     $       --   $    5,332
                                                                     ----------     ----------   ----------
   Manager                                                           $       --     $       --   $        6
                                                                     ----------     ----------   ----------
   4.4% Convertible CRA preferred shareholders                       $    2,020     $       --   $       --
   Common shareholders                                               $   50,558     $   56,786   $   54,608
   Convertible CRA shareholders                                      $    6,436          8,577        6,640
                                                                     ----------     ----------   ----------
     Total                                                           $   59,014     $   65,363   $   61,248
                                                                     ----------     ----------   ----------

</TABLE>

                 See accompanying notes to financial statements


                                      131
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                       CONDENSED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                           Years Ended December 31,
                                                                  ----------------------------------------
                                                                     2005           2004           2003
                                                                  ----------     ----------     ----------
<S>                                                               <C>            <C>            <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income                                                     $  59,014      $  65,363      $  66,586
   Adjustments to reconcile net income to net cash used in
     operating activities:
   Loss on repayment of mortgage revenue bonds                           58             38            451
   Loss on impairment of assets                                         296            147             --
   Depreciation and amortization                                      1,895          1,630          1,140
   Equity in earnings of subsidiaries                               (50,874)       (59,792)       (60,604)
   Non-cash compensation expense                                      8,661            597             --
   Other non-cash expense                                             1,107            525          1,534
   Changes in operating assets and liabilities:
     Other assets                                                    (4,595)           180           (205)
     Accounts payable, accrued expenses and other liabilities        (3,300)        (5,752)        (3,354)
     Loans to affiliates                                              4,600         (4,600)            --
     Due to / from subsidiaries                                      (6,616)       (25,275)       (59,963)
                                                                  ---------      ---------      ---------
Net cash provided by (used in) operating activities                  10,246        (26,939)       (54,415)
                                                                  ---------      ---------      ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
   Repayments of mortgage revenue bonds and notes                    17,518          2,935         18,006
   Mortgage revenue bond acquisitions and fundings                   (3,405)        (2,390)       (12,708)
   Deferred investment acquisition costs                                (47)            --           (767)
   Investment in subsidiaries                                        38,398          3,108         29,135
   Other investments                                                (34,494)          (742)        (3,631)
                                                                  ---------      ---------      ---------
Net cash provided by investing activities                            17,970          2,911         30,035
                                                                  ---------      ---------      ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
   Distributions to shareholders                                    (96,582)       (84,395)       (65,121)
   Issuance of  common shares and convertible CRA shares                 --        110,803        107,500
   Issuance of preferred shares                                     108,000             --             --
   Proceeds from stock options exercised                              3,804            308          1,651
   Retirement of special preferred voting shares                         (2)           (10)            --
   Deferred financing costs                                          (3,602)        (6,484)        (7,261)
                                                                  ---------      ---------      ---------

Net cash provided by financing activities                            11,618         20,222         36,769
                                                                  ---------      ---------      ---------

Net increase (decrease) in cash and cash equivalents                 39,834         (3,806)        12,389

Cash and cash equivalents at the beginning of the period             12,957         16,763          4,374
                                                                  ---------      ---------      ---------

Cash and cash equivalents at the end of the period                $  52,791      $  12,957      $  16,763
                                                                  =========      =========      =========

Supplemental information

Supplemental disclosure of non-cash activities:

   Contribution of mortgage revenue bonds to subsidiaries         $  15,715      $      --      $  69,266
                                                                  =========      =========      =========


   Distribution of mortgage revenue bonds from subsidiaries       $      --      $  12,664      $      --
                                                                  =========      =========      =========

</TABLE>

                 See accompanying notes to financial statements


                                      132
<PAGE>



                                   CHARTERMAC
                                   SCHEDULE I
                  CONDENSED FINANCIAL INFORMATION OF REGISTRANT

                     NOTES TO CONDENSED FINANCIAL STATEMENTS


1.  Introduction and Basis of Presentation

Basis of Financial Information

The accompanying  condensed financial  statements (the "Parent Company Financial
Statements") are for CharterMac (not including its subsidiaries).

The Parent Company Financial Statements,  including the notes thereto, should be
read in conjunction  with our  consolidated  financial  statements and the notes
thereto which are included in this Form 10-K.

2. Cash Dividends received from subsidiaries

The table below reflects the cash dividends  received for each of the last three
fiscal years from subsidiaries and 50% or less owned persons accounted for under
the equity method.

<TABLE>
<CAPTION>

(In thousands)                                2005         2004         2003
                                            --------     --------     --------
<S>                                          <C>           <C>          <C>
Consolidated subsidiaries CMC                $   --        $2,200       $1,942
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.


                                      133
<PAGE>



                                   Schedule II

                        Valuation and Qualifying Accounts
                                December 31, 2005

<TABLE>
<CAPTION>

                                                           Additions
                                                   -------------------------
                                                                  Charged to
                                    Balance at     Charged to       Other                         Balance at
(in thousands)                     beginning of     costs and     Accounts -     Deductions -       end of
Description                           period        expenses       Describe        Describe         period
-------------------------------    ------------    -----------    -----------    -------------    ----------
<S>                                  <C>             <C>           <C>             <C>             <C>
Allowance for Doubtful Accounts
2005                                 $ 2,379         $ 2,555       $    --         $   537 (1)     $ 4,397
2004                                     107           2,272            --              --           2,379
2003                                      --             107            --              --             107

</TABLE>

(1) Reversal of reserves for 3 investment funds.


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