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

                                    FORM 10-K

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


                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2006

                                       OR

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

                         Commission File Number 0-23972

                      AMERICAN MORTGAGE ACCEPTANCE COMPANY
             (Exact name of registrant as specified in its charter)

           MASSACHUSETTS                                         13-6972380
(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, PAR VALUE $.10

                   Name of each exchange on which registered:
                             AMERICAN STOCK EXCHANGE

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

                                      NONE

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

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 [X] No [ ]

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

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

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated  filer or a  non-accelerated  filer (as defined in Rule 12b-2 of the
Exchange Act). Large Accelerated filer [ ] Accelerated filer [X] 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  approximate  aggregate  market  value of the voting and  non-voting  common
equity  held by  non-affiliates  of the  Registrant  as of  June  30,  2006  was
approximately $119,980,000.

As of March 1,  2007  there  were  8,402,049  outstanding  common  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 of Shareholders  to be held in June 2007,  which are  incorporated  into
Items 10, 11, 12, 13 and 14.






TABLE OF CONTENTS


                      AMERICAN MORTGAGE ACCEPTANCE COMPANY

                           ANNUAL REPORT ON FORM 10-K




                                                                                                               PAGE
                                                                                                        
PART I
                     Item 1.           Business                                                                   4
                     Item 1A.          Risk Factors                                                               7
                     Item 1B.          Unresolved Staff Comments                                                 15
                     Item 2.           Properties                                                                15
                     Item 3.           Legal Proceedings                                                         15
                     Item 4.           Submission of Matters to a Vote of Security Holders                       15
PART II
                     Item 5.           Market for Registrant's Common Equity, Related Stockholder Matters
                                        and Issuer Purchases of Equity Securities                                16
                     Item 6.           Selected Financial Data                                                   18
                     Item 7.           Management's Discussion and Analysis of Financial Condition and
                                        Results of Operations                                                    19
                     Item 7A.          Quantitative and Qualitative Disclosures about Market Risk                30
                     Item 8.           Financial Statements and Supplementary Data                               34
                     Item 9.           Changes in and Disagreements with Accountants on Accounting and
                                        Financial Disclosure                                                     68
                     Item 9A.          Controls and Procedures                                                   68
                     Item 9B.          Other Information                                                         68
PART III
                     Item 10.          Directors, Executive Officers and Corporate Governance                    69
                     Item 11.          Executive Compensation                                                    69
                     Item 12.          Security Ownership of Certain Beneficial Owners and Management and
                                        Related Stockholder Matters                                              69
                     Item 13.          Certain Relationships and Related Transactions, and Director
                                        Independence                                                             69
                     Item 14.          Principal Accounting Fees and Services                                    69
PART IV
                     Item 15.          Exhibits, Financial Statement Schedules                                   69
SIGNATURES                                                                                                       73



                                        2




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



Certain   statements  made  in  this  report  may  constitute   "forward-looking
statements"  within the meaning of Section 27A of the Securities Act of 1933, as
amended,  and Section 21E of the  Securities  Exchange Act of 1934,  as amended.
Such forward-looking  statements include statements regarding the intent, belief
or current  expectations  of us and our management  (which includes our Advisor)
and involve known and unknown risks,  uncertainties  and other factors which may
cause the actual results, performance or achievements to be materially different
from any future  results,  performance or  achievements  expressed or implied by
such forward-looking statements.  These factors, which are outlined in detail in
Item 1A of this document, include, but are not limited to the following:

     o    Risks of investing  in uninsured  and  non-investment  grade  mortgage
          assets;

     o    Competition in acquiring desirable investments;

     o    Interest rate fluctuations;

     o    Risks  associated  with  investments in real estate  generally and the
          properties which secure many of our investments;

     o    General economic conditions,  particularly as they affect the value of
          our assets and the credit status of our borrowers;

     o    Dependence on our external Advisor for all services  necessary for our
          operations;

     o    Conflicts which may arise among us and other entities  affiliated with
          our Advisor that have similar investment policies to ours;

     o    Risks associated with the repurchase  agreements we utilize to finance
          our investments and the ability to raise capital;

     o    Risks associated with the failure to qualify as a REIT; and

     o    Risks associated with Collateral Debt Obligation ("CDO") transactions,
          which include, but are not limited to:

          o    The inability to acquire eligible investments for a CDO issuance;

          o    Interest rate fluctuations on variable-rate swaps entered into to
               hedge fixed-rate loans;

          o    The inability to find  suitable  replacement  investments  within
               reinvestment periods; and

          o    The negative impact on our cash flow that may result from the use
               of  CDO  financings  with   over-collateralization  and  interest
               coverage requirements.

Readers  are  cautioned  not to place undue  reliance  on these  forward-looking
statements, which speak only as of the date of this annual report on Form 10-K.


                                       3




PART I


ITEM 1.  BUSINESS.

General
-------

American  Mortgage  Acceptance  Company  was  formed in 1991 as a  Massachusetts
business  trust.  We elected to be treated  as a real  estate  investment  trust
("REIT")  under the Internal  Revenue Code of 1986, as amended (the "Code").  We
are an externally managed REIT; all of our operations are conducted, pursuant to
an  Advisory  Services  Agreement,  by  CharterMac  AMI  Associates,  Inc.  (the
"Advisor"), a subsidiary of CharterMac, a publicly traded company. We operate in
one business  segment,  which  focuses on investing in mortgage  loans and other
debt instruments  secured by multifamily and commercial  property throughout the
United  States.  Throughout  this  report,  the terms "we",  "us",  "our",  "our
Company" and similar  terms are meant to refer to American  Mortgage  Acceptance
Company and its consolidated subsidiaries.

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

Additional  information  about us beyond  what is  included  in this Form  10-K,
including   our  CODE  OF  BUSINESS   CONDUCT  AND  ETHICS,   is   available  at
www.americanmortgageco.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 Strategy
-----------------

Our business plan focuses on originating and acquiring  mortgage loans and other
debt instruments secured by multifamily and commercial properties throughout the
United States. We invest in mezzanine loans,  construction loans, first mortgage
loans,  subordinated  interests in first mortgage loans and bridge loans.  These
mortgages may have fixed or variable interest rates. Additionally, we may invest
in  subordinate  commercial  mortgage-backed  securities  and other real  estate
assets.  We have also invested in government  insured or agency guaranteed first
mortgages, insured mortgage pass-through certificates or insured mortgage backed
securities, but we have divested ourselves of many of these assets.

We have begun  funding the growth in our  investment  portfolio by utilizing CDO
securitizations. A real estate CDO is a capital markets transaction in which the
holder of various forms of real estate debt instruments finances those assets by
selling  bonds  backed by the  assets.  We  securitized  $400.0  million  of our
investment  portfolio in November 2006, of which,  approximately  $383.1 million
had been originated when the securitization  closed, and we intend to securitize
additional growth in our investment portfolio using these types of transactions.
Securities  issued  in  CDO  transactions  will  not  be  registered  under  the
Securities  Act of 1933 and will not be  offered  or sold in the  United  States
absent registration or an applicable  exemption from registration  requirements.
In November  2006, we formed a subsidiary to accumulate  assets for the purposes
of executing a planned second CDO securitization.


                                       4




Investing
---------

We  seek to  leverage  the  expertise  of our  Advisor  and  its  affiliates  in
originating  the loans and other  assets in which we invest.  In  addition,  our
Advisor,  through its  affiliates,  provides  the  expertise to perform both the
initial  underwriting  of the  properties  which  serve as  direct  or  indirect
collateral  for our loans,  as well as the ongoing asset  management and special
servicing of those properties through construction, lease-up and stabilization.

We invest,  or have invested in, the following  types of commercial  real estate
loans:

     o    First mortgage loans;
     o    Subordinated B-notes and mezzanine loans;
     o    Bridge loans;
     o    Government insured and guaranteed investments; and
     o    Other investments

FIRST MORTGAGE LOANS

During 2006, we  significantly  grew our  investment  base by investing in first
mortgage  loans that are secured by multifamily  or commercial  properties.  The
loans, which are originated by affiliates of our Advisor,  may be in the form of
long-term fixed-rate financing obligations or subordinate interests in long-term
fixed-rate financing obligations.

We may also  invest in revenue  bonds that are  secured  by first  mortgages  on
affordable  multifamily housing properties  throughout the country.  The revenue
bonds  generally rank on par with tax-exempt  first mortgage  revenue bonds that
are owned by  CharterMac,  the parent of our Advisor.  The  proceeds  from these
revenue  bonds  are  generally  used  for the new  construction  or  substantial
rehabilitation of affordable multifamily properties.

SUBORDINATED B-NOTES AND MEZZANINE LOANS

We originate or acquire B-notes and mezzanine loans  (subordinate  loans secured
by interests in the borrowing entity) that typically finance newly stabilized or
transitional  multifamily  and commercial real estate  properties.  We originate
B-notes and mezzanine loans for office, retail or industrial properties as well.
The interest  rates we offer are either fixed or variable  rate.  We seek assets
secured by  properties  in real  estate  markets  with strong  fundamentals  and
transactions  with well  capitalized  developers or guarantors.  Our B-notes and
mezzanine transactions may involve us:

     1)   issuing  mezzanine  debt  subordinated  to an existing  first mortgage
          loan;
     2)   jointly bidding with a senior lender and closing  simultaneously  (the
          process can be seamless to the client);
     3)   acquiring a subordinated loan from a senior lender; or
     4)   originating  the entire debt  structure and selling the first mortgage
          to a senior lender.

B-notes and mezzanine loans are subordinate to senior  mortgages and may include
a  participating  component,  such as a right to a portion  of the cash flow and
proceeds  generated from the refinancing and sale of the underlying  properties.
Typically, they are secured by equity interests in the borrower and have limited
recourse to the borrower.

BRIDGE LOANS

We originate or acquire Bridge  financing on commercial  properties  nationwide.
Bridge  loans  are  secured  by first  mortgage  liens on  assets  undergoing  a
transition or  repositioning.  Due to the transitional  nature of the underlying
assets,  bridge loans typically require  additional  credit  enhancement such as
letters of credit or performance  guarantees.  Bridge loans are typically  short
term financings with terms ranging from 1 to 5 years.  The interest rates may be
either fixed or variable.


                                       5




GOVERNMENT INSURED AND GUARANTEED INVESTMENTS

Our debt  securities  investments  consist of  government  insured or guaranteed
investments,  primarily through the acquisition of Government  National Mortgage
Association  ("GNMA" or "Ginnie Mae") and Federal National Mortgage  Association
("FNMA"  or  "Fannie   Mae")   mortgage-backed   securities   and   pass-through
certificates.  We believe that government  agency insured lending offers safety,
liquidity  and  moderate  yields,  while also  providing a strong asset base for
collateralized borrowing on favorable terms.

OTHER INVESTMENTS

From time to time,  we may invest in assets  outside  of our  normal  investment
strategy  (for  example,   equity  investments  or  Commercial  Mortgage  Backed
Securities   ("CMBS"))  if  we  believe  that  making  such  an   investment  is
advantageous in maximizing our return on equity.

Financing
---------

During  2006,  we  began  financing  our  investment  growth  by  utilizing  CDO
securitizations.  Prior to a securitization,  we finance  investments  through a
mortgage loan repurchase facility, or similar arrangement,  which is repaid from
the proceeds received when the CDO securitization is complete.

We finance our remaining  investing  activity  primarily  through borrowing from
various  other  facilities  at  short-term  rates.  We have two debt  securities
repurchase  facilities and a line of credit with a related  party,  all of which
are used as financing sources.

For further information about these facilities,  see MANAGEMENT'S DISCUSSION AND
ANALYSIS -  LIQUIDITY  AND  CAPITAL  RESOURCES  and Notes 8, 9, 10 and 12 to the
consolidated financial statements.

In addition, we may also issue common shares to fund investing activity. We have
the  capacity  to raise  approximately  $170.0  million of  additional  funds by
issuing  either  common or  preferred  shares  pursuant to a shelf  registration
statement filed with the SEC.

From  time to time,  we may  also  issue  other  types  of  securities  to raise
additional  capital.  For example,  during  2005,  our  subsidiary  issued $25.0
million of variable rate preferred  securities,  the proceeds of which were used
to purchase FNMA certificates.

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

We compete with  various  financial  institutions  including  investment  banks,
commercial  banks,  insurance  companies,  other REITs,  opportunity and private
equity funds and pension fund advisors for investment opportunities.

Management and Governance
-------------------------

We have engaged our Advisor to manage our  day-to-day  affairs.  Our Advisor has
subcontracted  with  CharterMac  Capital LLC  ("CharterMac  Capital")  and ARCap
Servicing,  Inc.  ("ASI"),  subsidiaries of CharterMac,  to provide the services
necessary for our operations.  Through our Advisor,  CharterMac  Capital and ASI
offer us a core group of experienced  staff and executive  management  personnel
who provide us with services on both a full- and part-time basis. These services
include,  among other  things,  origination,  acquisition,  underwriting,  asset
monitoring,  portfolio management, legal, finance, accounting,  capital markets,
investor relations and loan servicing.

We have no  employees.  Our Advisor  receives  compensation  for the services it
provides to us as set forth in Item 8, FINANCIAL  STATEMENTS  AND  SUPPLEMENTARY
DATA; Item 11, EXECUTIVE  COMPENSATION;  and Item 13, CERTAIN  RELATIONSHIPS AND
RELATED TRANSACTIONS,  AND DIRECTOR INDEPENDENCE.  In addition, we reimburse our
Advisor and certain of its affiliates for expenses they incur in connection with
their  performance of services for us in accordance  with our Advisory  Services
Agreement ("Advisory Agreement").

We are governed by a board of trustees  comprised of five  independent  trustees
and three non-independent trustees who are affiliated with our Advisor.


                                       6




ITEM 1A.  RISK FACTORS.

An investment in our common shares involves a number of risks.  Before making an
investment decision, you should carefully consider all of the risks described in
this  document.  If any of the risks  discussed  actually  occur,  our business,
financial condition, results of operations and cash flows, and the value of your
investment, could be materially adversely affected.

For convenience, we have grouped these risk factors as follows:

     1.   Risks related to our investments
     2.   Risks related to our Advisor
     3.   Risks related to our debt obligations
     4.   Risks related to our classification as a REIT and not as an investment
          company
     5.   Risks related to our common shares and our shareholders

1. RISKS RELATED TO OUR INVESTMENTS

THERE ARE RISKS  ASSOCIATED WITH INVESTMENTS  SECURED BY REAL ESTATE,  WHICH MAY
NEGATIVELY AFFECT OUR EARNINGS

We derive most of our income by  investing,  directly  and  indirectly,  in debt
secured by multifamily or commercial properties.  Such investments subject us to
various types and degrees of risk that could  adversely  affect the value of our
investments and our ability to generate revenue and net income.

Multifamily and commercial property values and net operating income derived from
such  properties  are subject to volatility  and may be affected  adversely by a
number of factors, including, but not limited to:

     o    national,  regional  and  local  economic  conditions  (which  may  be
          adversely affected by industry slowdowns and other factors);
     o    local  real  estate  conditions  (such as an  oversupply  of  housing,
          retail, industrial, office or other commercial space and market demand
          for  condominium  units)  as  well as  national,  regional  and  local
          politics,  including  current or future  rent  stabilization  and rent
          control laws and agreements;
     o    stability of the controlling entity of our borrower and managing agent
          of the borrower's property;
     o    construction quality, age and design;
     o    demographic factors;
     o    retroactive changes to building or similar codes;
     o    increases in operating expenses (such as energy costs);
     o    the potential need to expend  additional  capital in order to preserve
          our  investment if a mortgage loan is called due to  construction  not
          being completed as required in the mortgage loan documents;
     o    the  ability to  increase  rents to generate  the funds  necessary  to
          maintain the properties  securing our investments in proper  condition
          which can depend  upon rent  limitations  imposed by the  federal  low
          income  housing  tax  credit  ("LIHTC")  Program  and city,  state and
          federal housing subsidy or similar programs;
     o    if a loan defaults, the value of the property securing the loan (plus,
          for properties that are financed through the LIHTC Program,  the value
          of the credits) may be less than the unamortized  principal  amount of
          the loan;
     o    the costs of removal of certain  hazardous  substances  released  on a
          property securing our investment;  a property operator could be liable
          for without  regard to whether  the owner or operator  knew of, or was
          responsible for, the release of such hazardous substances; and
     o    costs to comply with the  Americans  with  Disabilities  Act, fire and
          safety regulations, building codes, and other land use regulations.

These  conditions  and  events  may  increase  the  possibility  that a property
operator or developer may be unable to meet its  obligations  to us or otherwise
expose us to losses, thereby affecting our net income.

From time to time,  through the foreclosure  process,  we may also take title to
properties as a result of loan  defaults by  borrowers.  While our Advisor would
act to improve the operating  performance  of any such  properties  and actively
market them for sale,  the assets tend to be illiquid  and there is no assurance
that we would realize the full carrying amounts when the properties are sold.


                                       7




COMMERCIAL REAL ESTATE INVESTMENTS THAT ARE NON-INVESTMENT GRADE INVOLVE RISK OF
LOSS

GENERAL.  We intend to continue to originate  and acquire  non-investment  grade
mortgage  loans and mortgage  assets as part of our  investment  strategy.  Such
loans and assets may include first mortgage loans, mezzanine loans, construction
loans,  bridge loans,  subordinated  interests in first mortgage loans and CMBS.
While holding such interests,  we will be subject to risks of borrower defaults,
bankruptcies, fraud and losses and special hazard losses that are not covered by
standard hazard  insurance.  In the event of any default under mortgage loans we
hold, we will bear the risk of loss of principal and non-payment of interest and
fees  to  the  extent  of any  deficiency  between  the  value  of the  mortgage
collateral and the principal amount of the mortgage loan.

LIMITED  RECOURSE  LOANS MAY LIMIT OUR  RECOVERY  TO THE VALUE OF THE  MORTGAGED
PROPERTY. Our loans are generally  non-recourse,  although some may have limited
recourse  provisions for a short period.  In addition,  limited recourse against
the borrower may be further limited by applicable  provisions of the laws of the
jurisdictions in which the mortgaged  properties are located or by the selection
of remedies and the impact of those laws on that selection.  With respect to our
non-recourse  mortgage loans, in the event of a borrower  default,  the value of
the specific  mortgaged property and other assets, if any, pledged to secure the
relevant  mortgage  loan,  may be less than the amount  owed under the  mortgage
loan. As to those mortgage loans that provide for recourse  against the borrower
and its assets  generally,  there can be no assurance  that such  recourse  will
provide a recovery  in respect of a defaulted  mortgage  loan  greater  than the
liquidation value of the mortgaged property securing that mortgage loan.

In addition,  investment  in  subordinated  interests  in mortgage  loans do not
provide us with foreclosure remedies upon default. Should an investment default,
we may lose our entire investment in such loans.

COMPETITION  IN ACQUIRING  DESIRABLE  INVESTMENTS  MAY LIMIT THEIR  AVAILABILITY
WHICH COULD, IN TURN, NEGATIVELY AFFECT OUR ABILITY TO GENERATE NET INCOME

We compete for loan  investments  with  numerous  public and private real estate
investment  vehicles,  such as investment  banks,  commercial  banks,  insurance
companies,  other REITS,  opportunity  and private equity funds and pension fund
advisors.  Mortgages,  mezzanine loans, subordinated interests in CMBS and other
investments  are  often  obtained  through a  competitive  bidding  process.  In
addition,  competitors  may seek to establish  relationships  with the financial
institutions and other firms from which we intend to purchase such assets.  Many
of our  competitors  are  larger  than us, may have  access to  greater  capital
resources and other  resources,  and may have other  advantages  over us and our
Advisor  in  conducting   certain  business  and  providing   certain  services.
Competition may result in higher prices for mortgage assets,  lower yields and a
narrower  spread of yields over our borrowing  costs.  There can be no assurance
that we will achieve  investment  results that will allow any specified level of
cash distribution.

INTEREST RATE  FLUCTUATIONS  WILL AFFECT THE VALUE OF OUR ASSETS AND OUR ABILITY
TO GENERATE NET INCOME

Interest  rates are highly  sensitive to many  factors,  including  governmental
monetary and tax  policies,  domestic and  international  economic and political
considerations and other factors beyond our control.  Interest rate fluctuations
can adversely affect our net income in many ways and present a variety of risks,
including the risk of a mismatch between asset yields and borrowing rates.

Our  income  depends  primarily  on the  spread  between  income we earn and our
borrowing costs to fund investments.  Interest rate mismatch occurs because many
of our assets generate income at a fixed rate while our borrowings have interest
rates that reset relatively rapidly, such as monthly or quarterly.  In addition,
in periods of declining market rates,  income from our variable rate investments
would decline. Consequently,  changes in interest rates, particularly short-term
interest  rates,  may  influence  our net income and could  result in  operating
losses. See also Item 7A,  QUANTITATIVE AND QUALITATIVE  DISCLOSURE ABOUT MARKET
RISK.

PREPAYMENT RATES MAY NEGATIVELY AFFECT THE VALUE OF OUR INVESTMENTS.

The value of our  investments  may be affected by prepayment  rates.  Prepayment
rates are  influenced  by  changes in  current  interest  rates and a variety of
economic,  geographic  and other factors beyond our control,  and  consequently,
such  prepayment  rates cannot be  predicted  with  certainty.  To the extent we
originate mortgage loans, we expect that such mortgage loans will have a measure
of protection  from  prepayment in the form of  prepayment  lock-out  periods or


                                       8




prepayment   penalties.   In  periods  of  declining  mortgage  interest  rates,
prepayments on mortgages generally  increase.  If general interest rates decline
as well,  the  proceeds of such  prepayments  received  during such  periods are
likely to be  reinvested  by us in assets  yielding  less than the yields on the
investments  that were  prepaid.  In  addition,  the  market  value of  mortgage
investments may, because of the risk of prepayment,  benefit less from declining
interest rates than would other fixed-income securities.  Conversely, in periods
of rising interest rates,  prepayments on mortgages generally decrease, in which
case we would not have the  prepayment  proceeds  available  to invest in assets
with higher yields.  Under certain interest rate and prepayment scenarios we may
fail to recoup fully our cost of acquisition of certain investments.

WE MAY NOT ACCURATELY ASSESS INVESTMENT YIELDS,  WHICH MAY NEGATIVELY AFFECT OUR
EARNINGS

Before making any  investment,  our Advisor will consider the expected  yield of
the investment and the factors that may influence the yield actually obtained on
such investment.  These considerations will affect our or our Advisor's decision
whether  to  purchase  such an  investment  and the  price  offered  for such an
investment.  No  assurances  can be given  that we or our  Advisor  will make an
accurate  assessment of the yield to be produced by an investment.  Many factors
beyond our and our  Advisor's  control are likely to influence  the yield on the
investments,  including, but not limited to, competitive conditions in the local
real estate  market,  local and general  economic  conditions and the quality of
management of the  underlying  property.  Our Advisor's  inability to accurately
assess investment yields may result in our purchasing assets that do not perform
as well as expected, which may negatively affect our earnings.

PARTICIPATING INTERESTS IN MORTGAGES MAY NOT BE REALIZED

In  connection  with the  acquisition  and  origination  of  mortgages,  we have
obtained and may continue to obtain participating  interests that may entitle us
to payments  based upon a property's  cash flow,  profits or any increase in the
value of the property that would be realized  upon a refinancing  or sale of the
property.  As the  operation  of a  particular  property  is subject to numerous
variables and risks,  there can be no assurance  that a  participating  interest
will result in additional payments to us.

CONCENTRATION AND THE CREDIT QUALITY OF BORROWERS MAY RESULT IN LOSSES

We  have  not  established  any  limit  upon  the  geographic  concentration  of
properties  securing  our  investments  or the credit  quality of  borrowers  of
uninsured investments.  As a result,  properties securing our investments may be
overly concentrated in certain geographic areas and the underlying  borrowers of
our uninsured  investments may have low credit quality. As of December 31, 2006,
87.9% of our portfolio was comprised of non-insured  investments.  Of this group
of  assets,  19.8%,  19.4%  and  11.0%  were  secured  by  properties  in Texas,
California and New York, respectively.  We had no borrowers exceeding 10% of our
portfolio of investments in mortgage loans, notes receivable and revenue bonds.

2.  RISKS RELATED TO OUR ADVISOR

WE ARE  DEPENDENT  ON OUR  ADVISOR AND IF OUR ADVISOR  TERMINATES  THE  ADVISORY
AGREEMENT, WE MAY NOT BE ABLE TO FIND AN ADEQUATE REPLACEMENT ADVISOR

We  have no  employees,  although  we have  officers.  We have  entered  into an
Advisory  Agreement  with our Advisor under which it provides us with all of the
services  necessary for our operations.  We are dependent on our Advisor for the
management and  administration  of our business and investments.  The results of
our  operations  will be dependent upon the  availability  of, and our Advisor's
ability to identify and capitalize on, investment  opportunities.  The agreement
may be terminated:

     (i)  without cause by our Advisor; or
     (ii) with or without cause by a majority of our independent trustees.

The Advisor can terminate the agreement without penalty, but we are subject to a
termination  fee, except in certain  instances,  for termination or non-renewal,
equal to four  times  the asset  management  fee and four  times  the  incentive
management  fee that our Advisor  would have been  entitled  to receive  from us
during the four calendar  quarter  period  immediately  proceeding the effective
date of such  termination.  Termination  would be  effective  upon 60 days prior


                                       9




written  notice to the  non-terminating  party.  If our Advisor  terminates  our
agreement, we may not be able to find an adequate replacement advisor.

CONFLICTS OF INTEREST COULD ARISE AMONG US AND OUR RELATED PARTIES

Our Advisor has subcontracted to its affiliates, CharterMac Capital and ASI, its
obligation to provide services under the Advisory Agreement, and there are risks
involved  with this  arrangement.  Under our  Advisory  Agreement,  the Advisor,
CharterMac  Capital and ASI are  permitted  to act as advisor to other  entities
having investment policies similar to ours, including other REITs. Generally, in
conflict  situations with non-affiliated  entities,  our Advisor must present an
investment  opportunity  to us if  the  opportunity  is  within  our  investment
objectives and policies,  the  opportunity is of a character that could be taken
by us, and we have the financial resources to take advantage of the opportunity.

Additionally, CharterMac, the parent of the Advisor, has in the past, and may in
the future,  invest in first mortgage  loans,  including  taxable first mortgage
revenue bonds or other investments that are similar to those in which we invest.

To the extent that these existing entities, as well as affiliated entities which
may be formed by affiliates of our Advisor in the future,  have funds  available
for investment at the same time as we do and a potentially  suitable  investment
is  offered  to us or the  affiliated  entities,  our  Advisor  will  review the
affiliated entities' and our investment portfolios and will determine whether or
not the  investment  should be made by one of the  affiliated  entities or by us
based upon factors such as the amount of funds available for  investment,  yield
and  portfolio  diversification.  If the  making  of a  mortgage  loan or  other
mortgage  investment  appears equally  appropriate  for us and these  affiliated
entities,  the mortgage loan or other mortgage investment will either be made by
a joint venture  between two or more of such entities (which may include us), or
will be  allocated  to one of such  entities  on a basis  of  rotation  with the
initial order of priority  determined by the dates of formation of the entities.
We also have a co-investment  agreement with a fund affiliated with (and managed
by an affiliate of) our Advisor  whereby we invest  equally in  commercial  real
estate loans.  In the event that there is a default with respect to any of these
investments,  however,  a  conflict  could  exist  with  respect  to  claims  on
underlying assets, proceeds from liquidation, etc.

In addition, Stephen M. Ross is the principal owner of The Related Companies L.P
("Related"),  as well as the Chairman and an indirect  owner of a 20.7% economic
interest in  CharterMac.  Jeff T. Blau,  one of our managing  trustees,  is also
President of Related. Affiliates of Related are the borrowers of commercial real
estate  loans  we  own  (see  Notes  2 and  20  to  the  consolidated  financial
statements)  and any  defaults  with  respect  to those  loans  would  present a
conflict of interest with respect to exercising our remedies.

CONFLICTS  OF INTEREST  COULD ARISE IN  TRANSACTIONS  WHERE WE LEND TO OR BORROW
FROM AFFILIATES OF OUR ADVISOR

Every transaction entered into between us and an affiliate of our Advisor raises
a potential  conflict of interest.  In addition to the initial  determination to
invest in mortgage  investments  secured by properties  owned by an affiliate of
our  Advisor,  such  conflicts  of  interest  with  respect  to  these  mortgage
investments include, among others, decisions regarding:

     o    whether to waive defaults of such affiliate;
     o    whether to foreclose on a loan; and
     o    whether to permit additional  financing on the properties securing our
          investments other than financing provided by us.

We have  invested  in, and may in the future  invest  in,  mortgage  investments
secured by properties in which affiliates of our Advisor own equity interests in
the borrower. Our declaration of trust requires that any transaction between our
Advisor  or any of  its  affiliates  and us be  approved  by a  majority  of our
trustees,  including  a majority  of the  independent  trustees,  not  otherwise
interested in the  transaction,  as being fair and  reasonable  and on terms not
less favorable to us than those available from unaffiliated third parties. As of
December 31, 2006, we had four first  mortgage loans with a total carrying value
of  approximately  $91.9 million,  and four  multifamily  housing first mortgage
bonds with a total  carrying  value of  approximately  $5.0 million to borrowers
that are affiliates of our Advisor, which represents 13.4% of our total assets.


                                       10




In June 2004, we entered into a revolving credit facility with CharterMac, which
provides up to $50.0 million in borrowings and bears interest at LIBOR plus 3.0%
basis points.  This facility was extended  through June 2007 and contains  terms
that are similar to those we would  obtain from a  third-party  lender.  In June
2007,  we will have the option to extend the  maturity  date one year,  which we
expect to do. As of December 31, 2006,  there was  approximately  $15.0  million
outstanding on this facility.

3. RISKS RELATED TO OUR DEBT OBLIGATIONS

SHORT-TERM REPURCHASE AGREEMENTS INVOLVE RISK OF LOSS

We finance,  and expect to continue  to  finance,  a portion of our  investments
through  collateralized  borrowing in the form of repurchase  agreements,  which
involve us selling assets  concurrently with our agreement to repurchase them at
a later date and at a fixed price.  During the repurchase  agreement  period, we
continue to receive  principal and interest  payments on the assets.  The use of
borrowing,  or  "leverage,"  to finance  our assets  involves a number of risks,
including the following:

     IF WE ARE UNABLE TO RENEW OUR  BORROWINGS  AT  FAVORABLE  RATES,  WE MAY BE
     FORCED TO SELL ASSETS, AND OUR PROFITABILITY MAY BE ADVERSELY AFFECTED.

     We rely on  short-term  repurchase  agreements  to finance a portion of our
     assets.  Our ability to achieve our  investment  objectives  depends on our
     ability to borrow money in  sufficient  amounts and on favorable  terms and
     our ability to renew or replace these short-term borrowings on a continuous
     basis as they  mature.  If we are not able to  renew  or  replace  maturing
     borrowings,  we would be forced to sell some of our assets  under  possibly
     adverse market conditions, which may adversely affect our profitability. As
     of December 31, 2006, we had  borrowings of  approximately  $163.6  million
     outstanding under our repurchase facilities.

     A DECLINE IN THE MARKET VALUE OF OUR ASSETS MAY RESULT IN MARGIN CALLS THAT
     MAY FORCE US TO SELL ASSETS UNDER ADVERSE MARKET CONDITIONS.

     Repurchase  agreements  involve  the  risk  that  the  market  value of the
     securities  sold by us may  decline  and that we will be  required  to post
     additional collateral, reduce the amount borrowed or suffer forced sales of
     the collateral. If forced sales were made at prices lower than the carrying
     value of the collateral,  we would experience  additional losses. If we are
     forced  to  liquidate  our  assets  to repay  borrowings,  there  can be no
     assurance that we will be able to maintain  compliance  with the REIT asset
     and source of income requirements.

     OUR USE OF  REPURCHASE  AGREEMENTS  TO BORROW  MONEY  MAY GIVE OUR  LENDERS
     GREATER RIGHTS IN THE EVENT OF BANKRUPTCY.

     Our repurchase agreements require us to pledge certain of our assets to the
     lender  to  secure  our  obligations  thereunder.   Borrowings  made  under
     repurchase  agreements  may qualify for  special  treatment  under the U.S.
     Bankruptcy  Code, which may make it difficult for us to recover our pledged
     assets if a lender files for  bankruptcy.  In addition,  if we were to file
     for  bankruptcy,  lenders under our  repurchase  agreements  may be able to
     avoid the automatic stay  provisions of the U.S.  Bankruptcy  Code and take
     possession of, and liquidate,  the assets we pledged under these agreements
     without delay.

THERE ARE RISKS ASSOCIATED WITH OUR CDO TRANSACTIONS

We are exposed to additional  risks when we finance a portion of our  investment
portfolio through a CDO transaction. Risks associated with financing investments
through a CDO include the following:

     WE MAY NOT BE ABLE TO ACQUIRE ELIGIBLE  INVESTMENTS FOR A CDO ISSUANCE,  OR
     MAY NOT BE ABLE TO ISSUE CDO  SECURITIES  ON  ATTRACTIVE  TERMS,  WHICH MAY
     REQUIRE US TO UTILIZE  MORE COSTLY  FINANCING  FOR OUR  INVESTMENTS,  OR TO
     LIQUIDATE THE INVESTMENTS.

     We have begun to  finance  certain of our  investments  on a  non-recourse,
     long-term basis through the issuance of CDOs. During the period that we are
     acquiring these  investments,  we finance our purchases  through  warehouse
     facilities.   We  use  these  facilities  to  finance  our  acquisition  of
     investments  until we have  accumulated  a sufficient  quantity of them, at


                                       11




     which time we may refinance these lines through a securitization, such as a
     CDO issuance,  or other types of long-term  financing.  As a result, we are
     subject to the risk that we will not be able to acquire a sufficient amount
     of eligible  investments to maximize the  efficiency of a CDO issuance.  In
     addition,  conditions in the capital  markets may make the issuance of CDOs
     less attractive to us when we do have a sufficient  pool of collateral.  If
     we are  unable  to  issue a CDO to  finance  these  investments,  we may be
     required to utilize other forms of potentially  less attractive  financing,
     or otherwise liquidate the collateral.

     WE  MAY  NOT  BE  ABLE  TO  FIND  SUITABLE   REPLACEMENT   INVESTMENTS   IN
     COLLATERALIZED DEBT OBLIGATIONS WITH REINVESTMENT PERIODS.

     Some CDOs have  periods  where  principal  proceeds  received  from  assets
     securing the  obligation  can be reinvested  for a defined  period of time,
     commonly referred to as a reinvestment period. Our ability to find suitable
     investments during any reinvestment period that meet the criteria set forth
     in the CDO  documentation  and by rating agencies may determine the success
     of  our  CDO  investments.   Our  potential   inability  to  find  suitable
     investments may, among other things:

          o    cause interest deficiencies;
          o    cause hyper-amortization of the senior CDO liabilities; and
          o    cause  us to  reduce  the life of our  CDOs  and  accelerate  the
               amortization of certain fees and expenses.

     THE USE OF CDO FINANCINGS WITH OVER-COLLATERALIZATION AND INTEREST COVERAGE
     REQUIREMENTS MAY HAVE A NEGATIVE IMPACT ON OUR CASH FLOW.

     The terms  governing  CDOs generally  provide that the principal  amount of
     investments  must exceed the  principal  balance of the related  bonds by a
     certain  amount  and that  interest  income  exceed  interest  expense by a
     certain  amount.  If  delinquencies  and/or losses or other factors cause a
     decline in collateral or cash flow levels,  the cash flow otherwise payable
     on our  investment  may be redirected  to repay the senior  classes of debt
     until such point as the CDO is in compliance  with the terms of the CDO. We
     cannot  assure you that the  performance  tests will be  satisfied.  If our
     investments  fail to perform as  anticipated,  our  over-collateralization,
     interest coverage or other credit  enhancement  expense associated with our
     CDO financings will increase.

     WE MAY BE REQUIRED TO  REPURCHASE  LOANS THAT WE HAVE SOLD OR TO  INDEMNIFY
     HOLDERS OF OUR CDOS.

     If any of the loans we originate or acquire and sell or securitize  through
     CDOs do not comply with  representations  and warranties that we make about
     certain  characteristics  of the loans,  the borrowers  and the  underlying
     properties,  we may be required to  repurchase  those loans or replace them
     with substitute loans. In addition, we may be required to indemnify persons
     for losses or expenses incurred as a result of a breach of a representation
     or warranty. Repurchases or indemnification payments could adversely affect
     our financial condition and operating results.

HEDGING TRANSACTIONS CAN LIMIT GAINS AND INCREASE EXPOSURE TO LOSSES

Hedging involves risk and hedging activities may not have the desired beneficial
impact  on our  results  of  operations,  financial  condition  or  cash  flows.
Moreover,  no  hedging  activity  can  completely  insulate  us from  the  risks
associated with changes in interest rates and prepayment rates.

We intend  generally to hedge as much of the  interest  rate risk as our Advisor
determines is in our best interests given the cost of such hedging transactions.
REIT  provisions  of the Code may limit our  ability  to hedge  our  assets  and
related  borrowings.  Any limitation on our use of hedging techniques may result
in greater interest rate risk.


                                       12




4.  RISKS  RELATED  TO OUR  CLASSIFICATION  AS A REIT  AND NOT AS AN  INVESTMENT
COMPANY

There are risks associated with being a REIT, which include the following:

FAILURE TO QUALIFY AS A REIT WOULD SUBJECT US TO FEDERAL, STATE AND LOCAL INCOME
TAXES,  WHICH WOULD REDUCE THE NET INCOME AND CASH AVAILABLE FOR DISTRIBUTION TO
OUR SHAREHOLDERS.

We offer  investors  the  opportunity  to invest  through an entity  intended to
qualify as a REIT for federal  income tax purposes.  The federal income tax laws
governing REITs are extremely complex, and interpretations of the federal income
tax laws  governing  REIT  qualification  are limited.  Given the highly complex
nature  of  the  rules  governing  REITs,  the  ongoing  importance  of  factual
determinations,  including  the tax  treatment  of  participation  interests  in
mortgage loans and mezzanine loans, and the possibility of future changes in its
circumstances, no assurance can be given that we will qualify for any particular
year.

If we fail to  qualify as a REIT in any  calendar  year and do not  qualify  for
certain statutory relief provisions,  we would be required to pay federal, state
and local income taxes on our taxable  income.  We might need to borrow money or
sell assets in order to pay that tax.  Our payment of income tax would  decrease
the  amount  of  our  cash  available  for  distribution  to  our  shareholders.
Furthermore,  if we fail to maintain our  qualification  as a REIT and we do not
qualify for certain statutory relief provisions,  we no longer would be required
to  distribute  substantially  all of our  taxable  income to our  shareholders.
Unless our failure to qualify as a REIT were excused or cured under  federal tax
laws,  we would be  disqualified  from  taxation as a REIT for the four  taxable
years following the year during which qualification was lost.

AS A REIT, OUR INCOME CAN ONLY COME FROM LIMITED TYPES OF SOURCES.

To qualify as a REIT, at least 75% of our gross income must come from  qualified
real  estate  sources  and at least  95% of our  gross  income  must  come  from
qualified real estate sources and certain other sources that are itemized in the
REIT tax laws.  In addition  to these  income  tests,  we must  satisfy  certain
requirements   concerning  our  assets  on  a  quarterly  basis,  including  the
requirement  that at least 75% of our  assets  qualify  as real  estate  assets.
Therefore,  we may  have  to  forego  opportunities  to  invest  in  potentially
profitable  businesses or assets  because they would  produce  income that could
jeopardize our status as a REIT.

FAILURE TO MAKE  REQUIRED  DISTRIBUTIONS  WOULD  SUBJECT US TO TAX,  WHICH WOULD
REDUCE THE CASH AVAILABLE FOR DISTRIBUTION TO OUR SHAREHOLDERS.

In order for us to qualify as a REIT, we must  distribute  to our  shareholders,
each calendar year, at least 90% of our taxable income (including  certain items
of non-cash  income),  determined  without regard to the deduction for dividends
paid and excluding  net capital  gains.  In addition,  we may be subject to a 4%
nondeductible  excise tax on the amount,  if any, by which our  distributions in
any calendar year are less than certain specified amounts.

Our taxable income may  substantially  exceed our net income as determined based
on  accounting  principles  generally  accepted in the United  States of America
("GAAP"),  because,  for example,  realized  capital  losses will be deducted in
determining  the REIT's GAAP net income,  but may not be deductible in computing
our taxable income.  In addition,  we may invest in assets that generate taxable
income in excess of net income or in advance of the corresponding cash flow from
the assets.  To the extent that we generate such  non-cash  taxable  income,  or
"phantom"  income,  in a taxable year, we may incur corporate income tax and the
4%  nondeductible  excise tax on that income if we do not distribute such income
to our  shareholders  in that year or we may be required  to use cash  reserves,
incur debt or liquidate  assets at rates or times that we regard as  unfavorable
in order to satisfy the  distribution  requirement and to avoid corporate income
tax and the 4% nondeductible excise tax in that year.

WE ARE ALSO SUBJECT TO OTHER TAX LIABILITIES.

As a REIT, we may be subject to federal,  state and local taxes on certain types
of income,  property  and  transactions.  Any of these  taxes  would  reduce our
operating cash flow.


                                       13




LIQUIDATION OF COLLATERAL MAY JEOPARDIZE OUR REIT STATUS.

To continue to qualify as a REIT, we must comply with requirements regarding our
assets and our sources of income.  If we are compelled to liquidate our mortgage
investments  to satisfy  our  obligations  to our  lenders,  we may be unable to
comply with these requirements, ultimately jeopardizing our status as a REIT.

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

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

LOSS OF INVESTMENT COMPANY ACT EXCLUSION WOULD ADVERSELY AFFECT US.

We intend to conduct our business so as not to become regulated as an investment
company under the  Investment  Company Act of 1940, as amended (the  "Investment
Company Act").  Towards this end, we rely on an exclusion from  regulation as an
investment  company  available  to entities  that are  primarily  engaged in the
business of purchasing or otherwise  acquiring  mortgages and other liens on and
interests in real estate. Under the current  interpretation of the SEC staff, in
order to qualify for this exclusion, we must maintain at least 55% of our assets
directly in these  qualifying  real estate  interests,  and 80% of our assets in
qualifying real estate interests and real estate-related  interests.  In meeting
the  55%  requirement,   we  treat  as  qualifying  real  estate  interests  our
investments  in whole mortgage loans and revenue bonds that are secured by first
mortgages  on  affordable  multifamily  housing  properties.  We also  treat  as
qualifying real estate interests our investments in  mortgage-backed  securities
issued  with  respect  to an  underlying  pool as to which  we hold  all  issued
certificates.   Mortgage-backed   securities  that  do  not  represent  all  the
certificates  issued with  respect to an  underlying  pool of  mortgages  may be
treated as securities separate from the underlying mortgage loans and, thus, may
not be  considered  qualifying  real estate  interests  for  purposes of the 55%
requirement. Instead, we treat our interests in these mortgage-backed securities
as  real   estate-related   interests.   Therefore,   our   ownership  of  these
mortgage-backed  securities  is  limited  by the  provisions  of the  Investment
Company Act.

If we fail to qualify for the exclusion for real estate  companies,  we would be
regulated  as an  investment  company  and  our  business  would  be  materially
adversely  affected.  As a regulated  investment  company, we would be prevented
from  conducting  our  business  as  described  in  this  document  because  the
Investment  Company Act contains various  restrictions that, among other things,
would  reduce our ability to borrow.  If the SEC or its staff  adopts a contrary
interpretation  with respect to the treatment of investments in mortgage  backed
securities,   we  could  be  required  to  sell  a  substantial  amount  of  our
mortgage-backed  securities  under  potentially  adverse market  conditions.  In
addition, in order to insure that we at all times qualify for the exclusion from
the Investment  Company Act, we may be precluded from acquiring  mortgage-backed
securities  whose yield is somewhat higher than the yield on those that could be
purchased in a manner  consistent  with the  exemption.  The net effect of these
factors may be to lower our net income.

5. RISKS RELATED TO OUR COMMON SHARES AND OUR SHAREHOLDERS

RESTRICTIONS ON SHARE ACCUMULATION IN REITS COULD DISCOURAGE A CHANGE OF CONTROL
OF OUR COMPANY.

In order for us to qualify  as a REIT,  not more than 50% of the number or value
of our outstanding shares may be owned, directly or indirectly, by five or fewer
individuals  during  the last half of a taxable  year or during a  proportionate
part of a shorter taxable year.

In order to prevent five or fewer  individuals  from  acquiring more than 50% of
our  outstanding  shares and a  resulting  failure  to  qualify  as a REIT,  our
declaration  of trust  provides  that, no person may own, or be deemed to own by
virtue  of the  attribution  provisions  of the  Code,  more  than  9.8%  of the
outstanding  shares.  The shares most recently  acquired by a person that are in
excess of the 9.8% limit  will not have any voting  rights and will be deemed to
have been offered for sale to us for a period subsequent to the acquisition. Any
person who acquires shares in excess of the 9.8% limit is obliged to immediately
give written notice to us and provide us with any  information we may request in
order to determine the effect of the acquisition on our status as a REIT.


                                       14




While these  restrictions  are  designed to prevent  any five  individuals  from
owning more than 50% of our shares,  preserving our status as a REIT,  they also
discourage a change in control of our company. These restrictions may also deter
tender offers that may be attractive to  shareholders  or limit the  opportunity
for  shareholders  to receive a premium for their  shares if an  investor  makes
purchases of shares to acquire a block of shares.

SUPERMAJORITY  VOTING REQUIREMENTS FOR ACQUISITIONS AND MERGERS COULD DISCOURAGE
A CHANGE OF CONTROL OF OUR COMPANY.

Our  declaration of trust requires that 80% of our  shareholders  and all of our
independent trustees approve exchange offers, mergers, consolidations or similar
transactions  involving us in which our  shareholders  receive  securities  in a
surviving entity having materially different investment objectives and policies,
or  that  is  anticipated  to  provide  significantly  greater  compensation  to
management,  except for  transactions  affected because of changes in applicable
law,  or  to  preserve  tax  advantages  for  a  majority  in  interest  of  our
shareholders.  These  restrictions  may also  deter  tender  offers  that may be
attractive to shareholders or limit the opportunity for  shareholders to receive
a premium for their shares if an investor makes purchases of shares to acquire a
block of shares.

ISSUANCES OF LARGE  AMOUNTS OF OUR COMMON  SHARES COULD CAUSE OUR SHARE PRICE TO
DECLINE.

Our  declaration  of trust permits our trustees to issue an unlimited  number of
shares (subject to SEC registration requirements and the consent of shareholders
if required pursuant to the rules of the American Stock Exchange).  The issuance
of common  shares  could cause  dilution  of our  existing  common  shares and a
decrease in the market price of our common shares.

OUR SHAREHOLDERS MAY HAVE PERSONAL LIABILITY FOR OUR ACTS AND OBLIGATIONS.

It is possible that certain  states may not  recognize the limited  liability of
shareholders,  although our declaration of trust provides that our  shareholders
shall not be subject to any personal  liability for our acts or obligations.  In
certain states,  our  shareholders  may be held  personally  liable for contract
claims where the underlying  agreement does not specifically exclude shareholder
liability.  Our shareholders may also be held personally liable for other claims
against  us,  such as tort  claims,  claims  for  taxes  and  certain  statutory
liability. Upon payment of any such liability, however, the shareholder will, in
the absence of willful  misconduct  on the  shareholder's  part,  be entitled to
reimbursement  from our general assets, to the extent such assets are sufficient
to satisfy the claim.

ITEM 1B. UNRESOLVED STAFF COMMENTS.

None.

ITEM 2. PROPERTIES.

We utilize  office  space of our Advisor and  otherwise  have no owned or leased
properties that we use to conduct our business.

As a result of not being  eligible  for sale  accounting  treatment  on  certain
properties  sold in 2004,  we have three  properties  classified  as real estate
owned - held and used. See Note 6 to the consolidated  financial  statements for
further discussion of these properties.

ITEM 3. LEGAL PROCEEDINGS.

We are not party to any pending material legal proceedings.

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

None.


                                       15




                                     PART II

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

As of March 8, 2007,  there were 224 registered  shareholders  owning  8,402,049
shares.  Our common shares have been listed on the American Stock Exchange since
July 1,  1999,  under the  symbol  "AMC".  Prior to July 1,  1999,  there was no
established public trading market for our shares.

The high and low common share prices for each  quarterly  period in the past two
fiscal years in which the shares were traded is as follows:




                                          2006                       2005
                                -----------------------     -----------------------

  Quarter Ended                    Low          High           Low           High
------------------              ---------     ---------     ---------     ---------
                                                              
March 31                        $   14.66     $   16.05     $   13.70     $   17.15
June 30                         $   14.15     $   15.86     $   13.44     $   16.44
September 30                    $   14.65     $   18.11     $   13.93     $   16.45
December 31                     $   16.13     $   19.82     $   13.14     $   14.99



The last reported sale price of our common shares on the American Stock Exchange
on March 8, 2007 was $9.80.

Incentive Share Option Plan
---------------------------

The following table provides  information  related to our Incentive Share Option
Plan as of December 31, 2006:




                      Equity Compensation Plan Information

                                             (a)                      (b)                         (c)

                                                                                          Number of securities
                                          Number of                                     remaining available for
                                      securities to be                                   future issuance under
                                    issued upon exercise        Weighted-average          equity compensation
                                       of outstanding          exercise price of            plans (excluding
                                      options, warrants       outstanding options,        securities reflected
                                         and rights           warrants and rights            in column (a))
                                    ----------------------    ---------------------     -----------------------
                                                                                       
Equity compensation plans
   approved by security holders              93,000                   $15.03                    652,941
Equity compensation plans not
   approved by security holders                  --                       --                         --
                                    ----------------------    ---------------------     -----------------------

Totals                                       93,000                   $15.03                    652,941
                                    ======================    =====================     =======================




                                       16




Dividends
---------

Cash  dividends per share for the years ended  December 31, 2005 and 2006 are as
set forth in the following table:



                                                                 Total Amount
Cash Dividends                                                    Distributed
for Quarter Ended                       Date Paid    Per Share   (in thousands)
-----------------                      -----------   ---------   --------------
                                                           
March 31, 2005                           5/13/05      $   0.40      $ 3,335
June 30, 2005                            8/12/05          0.40        3,324
September 30, 2005                      11/14/05          0.40        3,325
December 31, 2005                        2/14/06          0.40        3,322
Special dividends                       11/30/05          0.30        2,493
                                                      --------      -------

     Total for 2005                                   $   1.90      $15,799
                                                      ========      =======

March 31, 2006                           5/12/06      $   0.40      $ 3,322
June 30, 2006                            8/11/06          0.40        3,322
September 30, 2006                      11/13/06          0.40        3,331
Special dividends                        1/15/07          1.40       11,760
December 31, 2006                        2/14/07          0.40        3,360
                                                      --------      -------

     Total for 2006                                   $   3.00      $25,095
                                                      ========      =======



There are no material legal  restrictions  upon our present or future ability to
make  distributions  in accordance  with the  provisions of our  declaration  of
trust. Future distributions paid by us will be at the discretion of our board of
trustees  and will  depend on our actual  cash flow,  our  financial  condition,
capital  requirements,  REIT requirements and such other factors as the trustees
deem relevant.

Share Repurchases
-----------------

We did not  repurchase  any of our common  shares  during the fourth  quarter of
2006.

Other  information  required  by this item,  as well as  additional  information
regarding  our  share  repurchase  program  and share  compensation  paid to our
independent  trustees,  is  included  in  Notes  16 and  17 to our  consolidated
financial statements.


                                       17




ITEM 6.  SELECTED FINANCIAL DATA.

The information  set forth below presents our selected  financial data. See Item
7,  MANAGEMENT'S  DISCUSSION AND ANALYSIS OF FINANCIAL  CONDITION AND RESULTS OF
OPERATIONS  for factors  affecting the  comparability  of this data.  Additional
financial  information  is set forth in the  audited  financial  statements  and
footnotes  thereto  contained in Item 8, FINANCIAL  STATEMENTS AND SUPPLEMENTARY
DATA.




(In thousands except per share amounts)

                                          Year ended December 31,
                          --------------------------------------------------------
OPERATIONS                2006 (1)    2005 (2)      2004        2003        2002
----------                --------    --------    --------    --------    --------
                                                           
Total revenues            $38,628     $33,863     $21,200     $16,368     $10,458
                          =======     =======     =======     =======     =======

Income from continuing
  operations              $ 2,118     $14,801     $11,450     $11,733     $ 9,660
                          =======     =======     =======     =======     =======

Net income                $ 2,687     $15,235     $11,273     $11,884     $ 9,660
                          =======     =======     =======     =======     =======

Income from continuing
  operations per share,
  basic and diluted       $  0.25     $  1.78     $  1.37     $  1.50     $  1.61
                          =======     =======     =======     =======     =======

Net income per share,
  basic and diluted       $  0.32     $  1.83     $  1.35     $  1.52     $  1.61
                          =======     =======     =======     =======     =======

Dividends per share       $  3.00     $  1.90     $  1.60     $  1.60     $  1.51
                          =======     =======     =======     =======     =======





                                                                      December 31,
                                           ----------------------------------------------------------------
FINANCIAL POSITION                            2006          2005          2004          2003          2002
------------------                         ---------     ---------     ---------     ---------     --------
                                                                                    
Total assets                               $ 720,984     $ 400,723     $ 349,033     $ 327,107     $195,063
                                           =========     =========     =========     =========     ========

CDO notes payable                          $ 362,000     $      --     $      --     $      --     $     --
                                           =========     =========     =========     =========     ========

Debt securities repurchase facilities      $  79,427     $ 209,101     $ 157,633     $ 149,529     $ 87,880
                                           =========     =========     =========     =========     ========

Mortgage loan repurchase facility          $  84,149     $      --     $      --     $      --     $     --
                                           =========     =========     =========     =========     ========

Warehouse facility                         $      --     $   4,070     $   3,827     $  34,935     $  8,788
                                           =========     =========     =========     =========     ========

Line of credit - related party             $  15,000     $      --     $   4,600     $      --     $     --
                                           =========     =========     =========     =========     ========

Mortgages payable on real estate owned     $  39,944     $  40,487     $  56,993     $  15,993     $     --
                                           =========     =========     =========     =========     ========

Preferred shares of subsidiary
   (subject to mandatory repurchase)       $  25,000     $  25,000     $      --     $      --     $     --
                                           =========     =========     =========     =========     ========

Total liabilities                          $ 635,976     $ 286,540     $ 228,501     $ 206,212     $100,725
                                           =========     =========     =========     =========     ========

Total shareholders' equity                 $  85,008     $ 114,183     $ 120,532     $ 120,895     $ 94,338
                                           =========     =========     =========     =========     ========



(1)  During 2006, net income was significantly impacted by a gain resulting from
     the sale of our ARCap membership interests, offset by a substantial expense
     related to changes  in the fair  value of  certain  interest  rate swaps to
     which we do not apply hedge accounting, a loss incurred from the sale of 20
     FNMA securities and impairment charges recorded on two notes receivable and
     three mezzanine loans.
(2)  During 2005, net income was impacted by the recognition of fees relating to
     an early payoff of a GNMA certificate and a mezzanine loan.


                                       18




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

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

During 2006, we recognized impairment losses on several mortgage loans and notes
receivable.  As a result,  these charges have been recorded in impairment losses
on  investments  on our  consolidated  statements of income.  There were no such
losses recognized in the 2005 and 2004 periods.

During  2006,  we entered  into fair value  swaps to which we do not apply hedge
accounting.  As a result,  changes in the market value of these derivatives have
been recorded as gains and losses in other income on our consolidated statements
of  income.  There  were no such gains or losses  recorded  in prior  comparable
periods.

During August 2006, we sold our  membership  interests in ARCap,  resulting in a
significant  gain on the sale,  as well as additional  equity income  recognized
from a special  distribution  prior to the sale,  while  eliminating any further
equity  income.  Prior  comparable  periods,  included  equity  income  from the
investment  and 2005  included a  conversion  premium  for when we  converted  a
portion of our preferred membership units to common units.

During  2006,  we sold twenty debt  securities,  resulting in a reduction of net
income from impairment charges recorded, as well as the recognition of a loss on
the sale. There were no such losses or impairments  recorded in prior comparable
periods.

During March 2005, we issued $25.0 million of Floating Rate Preferred Securities
through  a  subsidiary.  Due  to  the  mandatory  redemption  feature  of  these
securities,  the payments or accruals of dividends  and other amounts to be paid
to the holders of these  securities are reported as interest costs. As a result,
these  interest costs are  classified as Interest -  Distributions  to Preferred
Shareholders of Subsidiary (Subject to Mandatory Repurchase). There were no such
interest costs in periods prior to 2005.

During  September  2005, the GNMA  certificate  and mezzanine  loan  investments
relating to one property  were repaid prior to its maturity  date.  This pay off
resulted in  significantly  higher levels of fees earned and gain on redemption.
There were no such fees recognized in any comparable period.

Investment Activity
-------------------

During the years ended December 31, we originated the following investments:




                              2006                      2005                       2004
                     ---------------------     ----------------------     ----------------------
                                  Weighted                   Weighted                   Weighted
                                   Average                    Average                    Average
                                  Interest                   Interest                   Interest
(In thousands)        Amount        Rate        Amount         Rate        Amount         Rate
                     --------     --------     --------      --------     --------      --------
                                                                        
Mortgage loans       $500,140        6.32%     $ 47,500        15.00%     $  8,500        11.64%
Debt securities            --          --        61,691         6.04%       34,823         5.60%
Notes receivable           --          --            --           --         4,517        12.96%
                     --------     -------      --------      -------      --------      -------
Total                $500,140        6.32%     $109,191         9.94%     $ 47,840         7.37%
                     ========     =======      ========      =======      ========      =======



During 2006, the  composition of our investment  portfolio  shifted to include a
large portion of mortgage loans that  collateralize  our CDO notes  payable,  or
will  collateralize a planned second CDO securitization in 2007. We have shifted
our investment  strategy away from debt securities and increased our investments
in mortgage loans, which are in the form of first mortgage loans,  mezzanine and
bridge loans and subordinated  B-notes. The increases in these types of mortgage
assets  allows us to increase our ability to obtain  leverage on those assets to
allow for further investment activity.


                                       19




Components of our 2006 mortgage investments are as follows:




(In thousands)                                                 Weighted
                                                               average
                                            Amount          interest rate
                                           --------         -------------
                                                           
Mortgage loans investments
   First mortgage loans                    $426,045              6.12%
   Bridge loans                              37,596              5.84
   Mezzanine loans                            6,500              8.32
   Subordinated B-notes                      29,999              9.25
                                           --------           -------
Total                                      $500,140              6.32 %
                                           ========           =======



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

The following is a summary of our operations:




                                                                  % Change                   % Change
                                                                   2006 vs                    2005 vs
(In thousands)                           2006          2005         2005          2004         2004
                                       --------      --------     --------      --------     --------
                                                                                 
Total revenues                         $ 38,628      $ 33,863         14.1 %    $ 21,200        59.7%
Total expenses                          (52,277)      (22,043)       137.2       (12,150)       81.4
Total other income                       15,767         2,981        428.9         2,400        24.2
Income from discontinued operations         569           434         31.1          (177)      345.2
                                       --------      --------      -------      --------     -------

Net income                             $  2,687      $ 15,235        (82.4)%    $ 11,273        35.1%
                                       ========      ========      =======      ========     =======



The growth in our annual revenues in both 2006 and 2005 resulted  primarily from
increases in investment volume activity, as well as fees received as a result of
an early paydown of a GNMA certificate and a mezzanine loan during 2005.

Expenses also increased for these periods due to:

     o    impairment  charges  recorded with respect to five mortgage  loans and
          notes receivable in 2006;
     o    financing costs  (particularly  due to higher debt balances and steady
          increases in interest rates);
     o    the increase in property operations, interest expense and depreciation
          costs for Real Estate Owned; and
     o    Advisory  fees for the 2005  period  due to higher  net  income and an
          increased asset base.

The 2006 expense increase was offset by reduced advisory fees because we did not
pay incentive management fees for that period.

Other income  increased  substantially  during 2006 as a result of a gain on the
sale of our ARCap Investors,  L.L.C.  ("ARCap") investment,  partially offset by
significant  losses  related  to  "mark  to  market"  adjustments  made  to  our
free-standing derivatives.


                                       20




REVENUES

Changes in components of our revenues were as follows:




(dollars in  thousands)
                                                              %              %        % of       % of       % of
                            Year Ended December 31,         Change         Change    Total      Total      Total
                       --------------------------------    2006 vs        2005 vs     2006       2005       2004
                         2006        2005        2004        2005           2004    Revenues   Revenues   Revenues
                       --------    --------    --------    --------       --------  --------   --------   --------
                                                                                    
Interest income:

  Mortgage loans       $19,637     $ 5,425     $ 1,808       262.0 %      200.1 %     50.8%      16.0%       8.5%


  Debt securities       10,497      12,823       9,734       (18.1)        31.7       27.2       37.9       45.9

  Notes receivable         387       1,563       2,546       (75.2)       (38.6)       1.0        4.6       12.0

  Revenue bonds            503         581         633       (13.4)        (8.2)       1.3        1.7        3.0

  Temporary
    investments            384         233          42        64.8        454.8        1.0        0.7        0.2

Fees related to
  the prepayment
  of assets                 --       5,581         181      (100.0)     2,983.4         --       16.5        0.9

Other revenues             286         954         153       (70.0)       523.5        0.7        2.8        0.7
                       -------     -------     -------     -------      -------      -----      -----      -----

  Subtotal              31,694      27,160      15,097        16.7         79.9       82.0       80.2       71.2
                       -------     -------     -------     -------      -------      -----      -----      -----


  Rental income          6,934       6,703       6,103         3.4          9.8       18.0       19.8       28.8
                       -------     -------     -------     -------      -------      -----      -----      -----


Total revenues         $38,628     $33,863     $21,200        14.1 %       59.7 %    100.0%     100.0%     100.0%
                       =======     =======     =======     =======      =======      =====      =====      =====



At December 31, we had the following investments (exclusive of Real Estate Owned
and temporary investments):




(dollars in thousands)
                                   2006                               2005                                  2004
                    ---------------------------------   ---------------------------------    ---------------------------------
                                             Weighted                            Weighted                             Weighted
                                             Average                             Average                              Average
                    Carrying                 Interest   Carrying                 Interest    Carrying                 Interest
                     Amount     % of Total     Rate      Amount     % of Total     Rate       Amount     % of Total     Rate
                    --------    ----------   --------   --------    ----------   --------    --------    ----------   --------
                                                                                             
Mortgage loans      $536,685        84.7%      7.15%    $ 51,981        17.6%      14.74%    $ 21,376         8.7%      11.68%
Debt securities       82,582        13.0       6.35      222,723        75.5        6.23      194,587        79.2        6.48
Notes receivable       9,213         1.5       9.79       13,725         4.7       10.00       23,111         9.4        9.43
Revenue bonds          4,967         0.8       8.70        6,626         2.2        8.68        6,672         2.7        8.69
                    --------      ------     ------     --------      ------      ------     --------      ------      ------
Total               $633,447       100.0%      7.01%    $295,055       100.0%       7.96%    $245,746       100.0%       7.36%
                    ========      ======     ======     ========      ======      ======     ========      ======      ======



Interest income from mortgage loans increased significantly in 2006 and 2005 due
to the funding of 58 first mortgage loans,  bridge notes,  mezzanine  loans, and
subordinated  B-notes in 2006, as well as the funding of three  mezzanine  loans
during  the second  half of 2004 and seven  mezzanine  loans  during  2005.  The
decrease in the weighted  average  interest  rates on mortgage loans during 2006
was due to a large  portion of  investments  made in the form of first  mortgage
loans,   which  are  significantly   lower  yielding  than  the  mezzanine  loan
investments we acquired in 2005.

Interest income from debt securities decreased during 2006, primarily due to the
sale of 20 FNMA  certificates  in November  2006, as well as the payoff of three
GNMA certificates during the year. The increase in the weighted average interest
rate on debt  securities  during  2006 is due to the  lower  yields  of the FNMA
certificates  sold  relative  to the  yields  of those  retained.  During  2005,
interest income from debt securities increased because of the funding of various
FNMA  certificates  during the latter half of 2004 and during  2005,  which were
lower yielding debt securities than the ones we previously held, thus decreasing
the weighted average interest rate.

Interest  income  from notes  receivable  decreased  during  both 2006 and 2005,
primarily  due to the payoff of several notes during these  periods,  as well as
three loans which defaulted in 2006.


                                       21




Interest income from revenue bonds decreased during both 2006 and 2005 primarily
due to the payoff of two revenue bonds in 2006 and two others in the latter half
of 2004.

Interest  income  from  temporary  investments  increased  during  2006 and 2005
primarily  due to excess  cash on hand  resulting  from the  payoff  of  several
mortgage loans and debt securities,  as well as the funds received from the sale
of our investment in ARCap and debt securities in 2006.

Fees related to prepayment of assets in 2005  represent the  recognition of fees
relating to an early payoff of a GNMA  certificate  and a mezzanine  loan during
that year,  which were  significantly  larger than fees received for investments
prepaid in 2004.  There were no such fees  recognized in 2006 as the  prepayment
fee on a comparable  transaction  was deferred and will be  recognized  over the
life of a refinanced loan we originated.

Other  revenues  increased  for  2005,  primarily  due to the  recognition  of a
commitment  fee and a  non-refundable  due  diligence fee during 2005. We had no
comparable transactions in 2006 or 2004.

Rental income increased during the 2005 period,  as compared to 2004,  primarily
due to the completion of  construction on one property in the portfolio in 2004,
thus, due to the  stabilization of the property in 2005, rental income increased
steadily during 2005 and into 2006.

EXPENSES

Changes in components of our expenses in 2006, 2005 and 2004 were as follows:




(dollars in  thousands)
                                                              %           % of       %         % of       % of
                            Year Ended December 31,         Change       Total     Change     Total      Total
                       --------------------------------    2006 vs        2006    2005 vs      2005       2004
                         2006        2005        2004        2005       Revenues    2004     Revenues   Revenues
                       --------    --------    --------    --------     --------  --------   --------   --------
                                                                                  
Interest               $19,149     $ 7,057     $ 4,017       171.3%        49.6%     75.7 %    20.8%     18.9%

Distributions to
  preferred
  shareholders           2,241       1,452          --        54.3          5.8     100.0       4.3        --

General and
  administrative         2,500       1,956       1,740        27.8          6.5      12.4       5.8       8.2

Impairment loss
  on investments        17,496          --          --       100.0         45.3     100.0        --        --

Fees to Advisor          3,483       4,347       1,956       (19.9)         9.0     122.2      12.8       9.2

Amortization and
  other                    160         294         411       (45.6)         0.4     (28.5)      0.9       1.9
                       -------     -------     -------     -------      -------   -------    ------    ------

Subtotal                45,029      15,106       8,124       198.1        116.6      85.9      44.6      38.3
                       -------     -------     -------     -------      -------   -------    ------    ------


Property operations      3,527       3,185       2,308        10.7          9.1      38.0       9.4      10.9

Depreciation             1,345       1,345       1,718          --          3.5     (21.7)      4.0       8.1

Mortgage interest
  for real estate
  owned, held and
  used                   2,376       2,407          --        (1.3)         6.2     100.0       7.1        --
                       -------     -------     -------     -------      -------   -------    ------    ------

Total expenses         $52,277     $22,043     $12,150       137.2%       135.3%     81.4 %    65.1%     57.3%
                       =======     =======     =======     =======      =======   =======    ======    ======




                                       22




Interest expense  increased for both 2006 and 2005,  primarily  related to trust
preferred  securities  and also due to the increased loan  originations  and the
increase in market  interest  rates  during 2005 and 2006.  Excluding  preferred
shares of a subsidiary  (subject to mandatory  repurchase) and mortgages on real
estate owned, we had total debt as follows as of December 31:




           (dollars in thousands)                   2006             2005             2004
--------------------------------------------     -----------      -----------      -----------
                                                                          
Total outstanding                                $   540,576      $   213,171      $   166,060
Weighted average interest rate (including
  effect of interest rate swaps)                        5.71%            4.33%            2.76%
Notional  amount  of  interest  rate swaps       $   512,084      $    30,000      $    30,000
Weighted average rate of interest rate swaps            5.17%            3.48%            3.48%



In accordance with SFAS No. 150,  ACCOUNTING FOR CERTAIN  FINANCIAL  INSTRUMENTS
WITH  CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY, we classify  distributions
made on preferred shares of our wholly owned  subsidiary  (issued in March 2005)
as interest expense.  Distributions to preferred  shareholders  increased during
2006,  as  compared  to 2005,  as the 2006  period  included  twelve  months  of
distributions  compared to nine months in 2005.  The increase is also due to the
increase in interest rates during 2005 and 2006, as the  distributions  are at a
variable rate, based on LIBOR. There were no such securities  outstanding during
2004.

General and administrative  expenses increased for both 2006 and 2005, primarily
due to increased  legal fees,  trustee fees and insurance.  The 2006 period also
includes higher share based compensation costs due to the accelerated vesting of
certain options in the first half of 2006 and a $150,000 legal settlement. These
increases were partially  offset by decreased  investor  services  expenses,  as
compared to 2005 (due to costs in 2005 related to changes in our trust agreement
for which we needed shareholder approval) and a decrease in excise taxes because
distributions were in excess of taxable earnings for the year.

Impairment  losses on assets  relate to debt  securities we sold in October 2006
that  no  longer  met  our  investment  return  criteria  (see  Note  3  to  the
consolidated  financial statements) and impairments  recognized on five mortgage
loans and notes receivable due to deteriorating  operating performance (see Note
2 to the consolidated financial statements).

Fees to Advisor  decreased  during  the 2006  period as  compared  to 2005 as we
incurred no  incentive  management  fee expense in 2006  because of the earnings
decline.  The  decrease is  partially  offset by higher  shared  services  costs
because of the expansion of our business. Unlike 2006, fees to Advisor increased
for the 2005  period as  compared  to 2004 due to the  payment  of an  incentive
management fee as well as increased shared services costs.

Amortization and other costs decreased for the 2006 and 2005 periods, due to the
deferred financing costs related to our warehouse facility being fully amortized
in August 2005.

Property  operations  represent all non-interest  costs at the property level on
all of our Real Estate  Owned - Held and Used  properties.  The increase for the
2006 period,  as compared to 2005, was mainly due to higher  property tax costs.
The  increase in the 2005 period,  as compared to 2004,  was due to debt service
costs associated with a mortgage payable on the Concord portfolio.

OTHER INCOME

Other income  increased during the 2006 period,  as compared to 2005,  primarily
due to a gain resulting from the sale of our ARCap  membership  interests offset
by a  substantial  expense  related  to  changes  in the fair  value of  certain
interest  rate  swaps to which we did not apply  hedge  accounting  and the loss
incurred on the sale of 20 FNMA securities.  The increase in 2005 as compared to
2004 was primarily due to a special  distribution we earned upon conversion of a
portion of our ARCap  investment from preferred  membership  interests to common
interests.

Funds from Operations
---------------------

Funds  from  operations  ("FFO"),  represents  net income or loss  (computed  in
accordance  with  GAAP),  excluding  gains or  losses  from  sales of  property,
excluding  depreciation and amortization  related to real property and including
funds from operations for unconsolidated  joint ventures  calculated on the same
basis.  FFO is calculated in accordance  with the National  Association  of Real
Estate  Investment  Trusts  ("NAREIT")  definition.  FFO does not represent cash


                                       23




generated  from  operating  activities  in  accordance  with  GAAP  and  is  not
necessarily  indicative of cash available to fund cash needs.  FFO should not be
considered  as an  alternative  to net income as an indicator  of the  Company's
operating  performance  or as an  alternative  to cash  flows  as a  measure  of
liquidity.  Our  management  considers FFO a  supplemental  measure of operating
performance,  and,  along with cash flows from operating  activities,  financing
activities,  and investing activities,  it provides investors with an indication
of our ability to incur and service debt, make capital expenditures, and to fund
other cash needs.

The  following  table  reconciles  GAAP net  income to FFO for the  years  ended
December 31,:




(In thousands)
                                              2006           2005            2004
                                            ---------      ---------      ---------
                                                                 
Net income                                  $   2,687      $  15,235      $  11,273

Add back: depreciation of real property         1,671          2,389          2,143
Less: gain on sale of real property              (230)            --             --
                                            ---------      ---------      ---------

FFO                                         $   4,128      $  17,624      $  13,416
                                            =========      =========      =========

Cash flows from:
Operating activities                        $   8,290      $  18,049      $  14,032
                                            =========      =========      =========
Investing activities                        $(320,856)     $ (64,512)     $ (22,592)
                                            =========      =========      =========
Financing activities                        $ 308,905      $  55,003      $   9,206
                                            =========      =========      =========

Weighted average shares outstanding:
Basic                                           8,323          8,316          8,336
                                            =========      =========      =========
Diluted                                         8,330          8,317          8,343
                                            =========      =========      =========



Since not all companies  calculate  FFO in a similar  fashion,  our  calculation
presented above may not be comparable to similarly  titled measures  reported by
other companies.

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

SOURCES OF FUNDS

We expect that cash  generated  from our  investments,  as well as our borrowing
capacity, will meet our needs for short-term liquidity and will be sufficient to
pay all expenses and distributions to our shareholders in amounts  sufficient to
retain our REIT status in the foreseeable  future. In order to qualify as a REIT
under the  Internal  Revenue  Code,  as amended,  we must,  among other  things,
distribute  at  least  90% of our  taxable  income.  We  believe  that we are in
compliance with the REIT-related provisions of the Code.

As of December 31, 2006, our credit facilities consisted of:

     o    a mortgage loan repurchase facility;
     o    debt securities repurchase facilities; and
     o    a line of credit with CharterMac.

Mortgage Loan Repurchase Facility
---------------------------------

During  2006,  we  began  financing  our  investment  growth  by  utilizing  CDO
securitizations.  Prior to a securitization,  we finance  investments  through a
mortgage loan repurchase  facility,  which is repaid from the proceeds  received
when the CDO securitization is complete.

During December 2006, we executed a repurchase  agreement with Citigroup  Global
Markets,  Inc.  ("Citigroup") for the purpose of funding investment activity for
loans that are to be placed into a second CDO  securitization.  Advance rates on
the borrowings from this facility,  ranging from 80% to 90% of collateral value,
are determined on a loan-by-loan basis. Interest on the borrowings, which ranges
from LIBOR plus 0.40% to LIBOR plus 1.25%,  is also determined on a loan-by-loan
basis. The repurchase facility expires upon inception of the CDO securitization,
or twelve months after the inception of the repurchase facility, whichever comes


                                       24




first.  At December 31, 2006, we had  approximately  $84.1 million of borrowings
outstanding under this facility, at a weighted average interest rate of 6.13%.

Debt Securities Repurchase Facilities
-------------------------------------

As a vehicle to leverage our investments in debt securities,  we have repurchase
agreements  with two  counter  parties,  RBC Capital  Markets and UBS  Financial
Services. These facilities offer advance rates between 94% and 97% of collateral
value and borrowing  rates  between LIBOR minus 0.03% and LIBOR plus 0.10%.  The
borrowings are subject to 30-day  settlement terms. As of December 31, 2006, the
amount  outstanding  under these repurchase  facilities was $79.4 million with a
weighted average interest rate of 4.68%.

Related Party Line of Credit
----------------------------

We finance our remaining  investing activity primarily through borrowings from a
credit facility we maintain with CharterMac. As of December 31, 2006, the amount
outstanding was $15.0 million with a weighted average interest rate of 8.35%. We
had approximately $35.0 million available to borrow on this line at December 31,
2006.

Other Financing
---------------

As noted above, in 2006, we began  financing our investment  growth by utilizing
CDO securitizations. At December 31, 2006, we had outstanding CDO securitization
certificates totaling $362.0 million at a weighted average rate of 5.73%.

From time to time,  we may also  issue  common  shares  or other  equity to fund
investing activity. During 2005, our subsidiary issued $25.0 million of variable
rate  Preferred  Securities.  The proceeds  received  were used to purchase FNMA
certificates.

We have capacity to raise  approximately  $170.0 million of additional  funds by
issuing  either  common or  preferred  shares  pursuant to a shelf  registration
statement filed with the SEC. If market conditions warrant, we may seek to raise
additional funds for investment through further  offerings,  although the timing
and amount of such offerings cannot be determined at this time.

SUMMARY OF CASH FLOWS

During the year ended  December 31, 2006, as compared to the year ended December
31, 2005, the net change in cash and cash equivalents decreased by approximately
$12.2 million.  Operating cash flows decreased by $9.8 million  primarily due to
lower cash earnings,  offset by an increase in distributions received from ARCap
and the favorable variance in timing of liabilities  payable. An increase in net
cash  used  in  investing  activities   (approximately  $256.3  million)  and  a
corresponding   increase   in  net  cash   provided  by   financing   activities
(approximately  $253.9 million) were due to a higher level of investing activity
in mortgage loans, subordinated B-notes and bridge loans during the 2006 period.
The higher  level of  investing  in 2006  corresponded  to the  increase  in net
borrowings.

During the year ended  December 31, 2005, as compared to the year ended December
31, 2004, the net change in cash and cash  equivalents  increased  approximately
$7.9  million.  Operating  cash flows  improved by  approximately  $4.0  million
primarily  due to higher  earnings.  An increase  in net cash used in  investing
activities (approximately $41.9 million) and an increase in net cash provided by
financing  activities  (approximately  $45.8 million) were due to an increase in
proceeds received from repurchase and warehouse facilities used for purchases of
mortgage loans and debt securities.

LIQUIDITY REQUIREMENTS AFTER DECEMBER 31, 2006

During January 2007, dividends of approximately $11.8 million ($1.40 per share),
which were declared in November 2006, were paid to common shareholders.

During February 2007, dividends of approximately $3.4 million ($0.40 per share),
which were declared in December 2006, were paid to common shareholders.


                                       25




We are 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.

Dividends
---------

The following table outlines our total dividends and return of capital  amounts,
determined in accordance with GAAP, for the year ended December 31:




(dollars in thousands)

                                        2006            2005            2004
                                     ----------      ----------      ----------
                                                            
Total dividends declared             $   25,095      $   15,799      $   13,337
Return of capital:
  Amount                             $   22,407      $      564      $    2,065
  Per share                          $     2.69      $      .07      $      .25
  Percent of total dividends              89.29%           3.57%          15.48%



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

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

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

     o    assessment of impairment of mortgage loans and notes;
     o    classification and valuation of mezzanine loan investments; and
     o    classification and valuation of real estate owned.

ASSESSMENT OF IMPAIRMENT OF MORTGAGE LOANS AND NOTES

SFAS No. 114,  ACCOUNTING  BY CREDITORS FOR  IMPAIRMENT  OF A LOAN,  establishes
standards  regarding  impairment  issues related to our mortgage loans and notes
receivable.  Our portfolio of mortgage loans and notes is periodically evaluated
for impairment to establish  appropriate loan loss reserves,  if necessary.  Our
Advisor has a credit review committee which meets monthly and reviews the status
of each loan and note and maintains a "watch list" of loans (including loans for
which we have  issued  guarantees)  for which  the  underlying  property  may be
experiencing  construction  cost overruns,  delays in  construction  completion,
occupancy shortfalls, lower than expected debt service coverage ratios, or other
matters which might cause the borrower to be unable to make  scheduled  interest
and principal payments. If a loan is experiencing difficulties,  members of this
credit  committee  work with the  borrower to try to resolve  the issues,  which
could include extending the loan term, making additional  advances,  or reducing
required payments.  If, in the judgment of our Advisor, it is determined that it
is probable that we will not receive all  contractually  required  payments when
they are due, the loan or note would be deemed impaired, and a loan loss reserve
established.

CLASSIFICATION AND VALUATION OF MEZZANINE LOAN INVESTMENTS

Our mezzanine loan  investments  bear interest at fixed or variable  rates,  and
some also include provisions that allow us to participate in a percentage of the
underlying  property's  cash flows from  operations  and proceeds from a sale or
refinancing.  At the  inception of each such  investment,  our  management  must
determine  whether  such  investment  should be accounted  for as a loan,  joint
venture or as real estate,  using the guidance  contained in the Third Notice to
Practitioners issued by the AICPA. Although the accounting  methodology does not
affect our cash flows from these  investments,  this  determination  affects the
balance sheet  classification of the investments as well as the  classification,
timing and amounts of reported earnings.


                                       26




Accounting  for the  investment as real estate is required if we expect that the
amount of profit, regardless of its nature, is over 50 percent of the property's
total expected residual profit. If a mezzanine  investment were accounted for as
an investment in real estate,  our  consolidated  balance  sheets would show the
underlying property and its related senior debt (if such debt were not also held
by us), and our  consolidated  statements of income would include the property's
rental revenues, operating expenses and depreciation.

If we expect to receive less than 50 percent of the property's  residual profit,
then  loan  or  joint  venture   accounting  is  applied.   Loan  accounting  is
appropriate:

     o    if the borrower has a substantial equity investment in the property;
     o    if we have recourse to substantial assets of the borrower;
     o    if the property is generating  sufficient  cash flow to service normal
          loan amortization; or
     o    if certain other conditions are met.

Under loan  accounting,  we recognize  interest  income as earned and additional
interest from participations as received. Joint venture accounting would require
that we only record our share of the net income from the underlying property.

Our  management  must  exercise  judgment  in  making  the  required  accounting
determinations. For each mezzanine arrangement, we project total cash flows over
the loan's term and our share in those cash flows,  and consider the  borrower's
equity,  the contractual  cap, if any, on total yield to us over the term of the
loan, market yields on comparable loans, borrower guarantees,  and other factors
in making an assessment of the proper  accounting.  To date, we have  determined
that all mezzanine investments should be accounted for as loans.

CLASSIFICATION AND VALUATION OF REAL ESTATE OWNED

The accounting for the foreclosure, ownership and subsequent sale of real estate
is governed by:

     o    SFAS No. 15,  ACCOUNTING  BY DEBTORS AND  CREDITORS  FOR TROUBLED DEBT
          RESTRUCTURINGS;
     o    SFAS No.  144,  ACCOUNTING  FOR THE  SALE OR  DISPOSAL  OF  LONG-LIVED
          ASSETS; and
     o    SFAS No. 66, ACCOUNTING FOR SALES OF REAL ESTATE.

During 2003, we exercised  our rights under  subordinated  promissory  notes and
other  documents to take possession of certain real estate  collateral.  We have
also purchased the first mortgage loans on all of the respective properties, and
acquired the real estate at foreclosure  auctions.  All of the  properties  were
subsequently sold, although the sale transaction for three of the properties did
not meet the sale  criteria of SFAS No. 66,  despite the fact that the purchaser
later secured permanent first-mortgage financing.

When a loan is in the  process of  foreclosure,  it is our  policy to  initially
reclassify  the balance of the loan into Real Estate  Owned-Held for Sale at the
lower of fair value of the real estate,  less  estimated  disposal  costs or the
carrying  amount  of the  loan,  and to cease  accrual  of  interest.  We obtain
independent  appraisals of all  foreclosed  real estate to assist  management in
evaluating  property  values.  To  date,  no  losses  have  been  recorded  upon
foreclosure.

It is our intent to sell foreclosed  properties within a short time period.  Due
to the  Held  for  Sale  classification,  we do  not  initially  depreciate  the
properties. If we do not sell a property or do not meet sale criteria within the
permissible  timeframe  for Held  for Sale  classification,  we  reclassify  the
property  into Real  Estate  Owned-Held  and Used or Subject  to Sales  Contract
categories and account for it as an operating  asset.  Depreciation  is recorded
for the asset  including a retroactive  adjustment  for the full period that the
property was classified as Real Estate Owned-Held for Sale. Income from property
operations is recorded  provided  realization and  collectibility of the amounts
are  considered  likely.  Likewise,  interest  income  on notes  receivable  for
properties  sold that do not meet the criteria for sale  recognition is recorded
to the extent that collectibility is considered likely.

This  accounting for real estate owned requires  substantial  judgment as to the
fair value of the assets, the likelihood of collecting income and our ability to
sell the  properties.  As of  December  31,  2006,  we believe  that the amounts
reported are fairly stated and realizable.


                                       27




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

We  have no  unconsolidated  subsidiaries,  special  purpose  off-balance  sheet
financing entities, or other off-balance sheet arrangements.

The  following  table  reflects our maximum  exposure and carrying  amount as of
December 31, 2006, for guarantees we have entered into:




                                             Maximum
                                             Exposure            Carrying
                                          (In thousands)          Amount
                                          --------------         ---------
                                                           
FNMA loan program (1)                        $   3,150           $      --
                                             ---------           ---------

                                             $   3,150           $      --
                                             =========           =========



(1)  These indemnification  agreements relate to a program we initiated and have
     since  discontinued.  We believe the risk of any cost  associated  with the
     indemnity agreement is minimal.

The maximum  exposure  amount is not indicative of any expected losses under the
guarantees.  For  full  description  of  these  guarantees,  see  Note 22 to the
consolidated financial statements.

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

In conducting business, we enter into various contractual  obligations.  Details
of these  obligations,  including  expected  settlement  periods,  are contained
below.




                                                                 Payments Due by Period
                                                                     (In thousands)
                                           -------------------------------------------------------------------
                                                         Less than                     3 - 5        More than
                                              Total       1 Year      1 - 3 Years      Years         5 Years
                                           ----------   -----------   -----------    ----------     ----------
                                                                                     
Debt:
  CDO notes payable (1)                    $  362,000   $        --   $        --    $       --     $  362,000
  Debt securities repurchase facilities
  (1)                                          79,427        79,427            --            --             --
  Mortgage loan repurchase facility (1)        84,149        84,149            --            --             --
  Mortgage payable on real estate owned
  (2)                                          39,944           527         1,254         1,411         36,752
  Preferred shares of subsidiary
   (subject to mandatory repurchase) (1)       25,000            --            --            --         25,000
Funding commitments:
  Future funding loan commitments               1,022         1,022            --            --             --
                                           ----------   -----------   -----------    ----------     ----------

Total                                      $  591,542   $   165,125   $     1,254    $    1,411     $  423,752
                                           ==========   ===========   ===========    ==========     ==========



(1) Includes  principal  amounts  only and  therefore  does not include  accrued
    interest of $3.1  million.  At  December  31,  2006,  the  weighted  average
    interest rate on debt that was recourse to us was 5.85%.
(2) Represents a first  mortgage on  properties we report as Real Estate Owned -
    Held and Used (Concord  Portfolio) as a sale of the  properties did not meet
    the  criteria  for sale  recognition  in  accordance  with  GAAP.  The first
    mortgage loan is  non-recourse  with respect to us, the debt service is paid
    from the cash flows of the properties and we will not be required to satisfy
    the obligation. (See Note 6 to the consolidated financial statements).


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

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

During the first quarter of 2006, we adopted  Statement of Financial  Accounting
Standards No. 123(R),  SHARE-BASED  PAYMENT  ("SFAS No.  123(R)") which replaces
SFAS No. 123,  ACCOUNTING FOR STOCK-BASED  COMPENSATION  ("SFAS No. 123"). Among


                                       28




other things,  SFAS No. 123(R) requires that companies record the value of stock
option grants as compensation expense,  while SFAS No. 123 allowed disclosure of
the impact  instead of recording  the  expense.  As we had been  accounting  for
share-based  payments as an expense  following the fair value provisions of SFAS
No. 123, the impact of adopting  this  standard was not material to us. See also
Note 17 to the consolidated financial statements.

In June 2006, the FASB issued  Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY
IN INCOME TAXES, AN  INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN 48"). FIN 48
establishes  new  evaluation  and  measurement  processes  for  all  income  tax
positions  taken.  FIN 48 also  requires  expanded  disclosures  of  income  tax
matters.  We expect that the adoption of this standard on January 1, 2007,  will
have an immaterial effect on our consolidated financial statements.

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

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

In January  2007,  the FASB  issued  SFAS No.  159,  THE FAIR  VALUE  OPTION FOR
FINANCIAL ASSETS AND FINANCIAL  LIABILITIES.  This statement was issued with the
intent to provide an  alternative  measurement  treatment for certain  financial
assets and liabilities.  The alternative  measurement would permit fair value to
be used for both initial and subsequent measurement,  with changes in fair value
recognized in earnings as those changes occur. This "Fair Value Option" would be
available on a contract by contract basis. The effective date for this statement
is the beginning of our 2008 fiscal year. The Company is currently assessing the
impact adoption may have on its financial statements.

There are no other new pending accounting  pronouncements  which we are required
to adopt that  would have a  significant  impact on our  consolidated  financial
statements.

Inflation
---------

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


                                       29




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

Market risk is the exposure to loss resulting from changes in interest rates and
equity prices.  The primary market risk to which we are exposed is interest rate
risk, which is highly sensitive to many factors, including governmental monetary
and  tax   policies,   domestic  and   international   economic  and   political
considerations and other factors beyond our control.

INTEREST RATE RISK

Interest  rate  fluctuations  can  adversely  affect our income in many ways and
present a variety of risks,  including the risk of mismatch between asset yields
and borrowing rates.

Our operating  results  depend in large part on  differences  between the income
from our assets (net of credit losses) and our borrowing costs. Although we have
originated  variable rate loans,  most of our assets  generate fixed returns and
have terms in excess of five years. We fund the origination and acquisition of a
significant portion of these assets with borrowings which have variable interest
rates that reset relatively rapidly,  such as weekly,  monthly or quarterly.  In
most cases,  the income from assets will  respond  more slowly to interest  rate
fluctuations  than the cost of  borrowings,  creating a mismatch  between  asset
yields  and  borrowing   rates.   Consequently,   changes  in  interest   rates,
particularly  short-term  interest  rates,  may  influence  our net income.  Our
borrowings under repurchase  facilities and our trust preferred  securities bear
interest at rates that fluctuate with LIBOR.

Various  financial  vehicles  exist which would allow our management to mitigate
the impact of interest  rate  fluctuations  on our cash flows and  earnings.  We
enter into certain  hedging  transactions to protect our positions from interest
rate  fluctuations and other charges in market  conditions.  These  transactions
include interest rate swaps and fair value hedges.

Based on the $92.9  million  unhedged  portion of $565.5  million of  borrowings
outstanding  at December  31, 2006, a 1% change in LIBOR would impact our annual
net income and cash flows by approximately  $929,000.  However,  as the interest
income from some of our loans is also based on LIBOR, a 1% change in LIBOR would
impact our  annual  net  income and cash flows from such loans by  approximately
$133,000.  The net effect of a 1% change in LIBOR  would  therefore  result in a
change of our annual net income by approximately $796,000. In addition, a change
in LIBOR could also impede the  collections  of  interest on our  variable  rate
loans,  as there might not be sufficient  cash flow at the properties to pay the
increased debt service. Because the value of our debt securities fluctuates with
changes in interest rates,  rate  fluctuations will also affect the market value
of our net assets.


                                       30




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


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

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

American Mortgage  Acceptance Company  management  assessed the effectiveness of
the Company's internal control over financial reporting as of December 31, 2006.
In  making  this  assessment,  management  used the  criteria  set  forth by the
Committee of Sponsoring  Organizations  of the Treadway  Commission  ("COSO") in
INTERNAL  CONTROL - INTEGRATED  FRAMEWORK.  Based upon our assessment we believe
that, as of December 31, 2006, our internal control over financial  reporting is
effective in accordance with those criteria.

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 32.


/s/ James L. Duggins                                     /s/ Robert L. Levy
--------------------                                     ------------------
James L. Duggins                                         Robert L. Levy
Chief Executive Officer                                  Chief Financial Officer
March 15, 2007                                           March 15, 2007


                                       31




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Trustees and Shareholders of
American Mortgage Acceptance Company
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 American  Mortgage  Acceptance  Company and subsidiaries  (the
"Company")  maintained effective internal control over financial reporting as of
December   31,   2006,   based  on  the   criteria   established   in   Internal
Control-Integrated Framework issued by the Committee of Sponsoring Organizations
of  the  Treadway  Commission.  The  Company's  management  is  responsible  for
maintaining  effective  internal  control over  financial  reporting and for its
assessment of the  effectiveness of internal  control over financial  reporting.
Our  responsibility  is to express an opinion on management's  assessment and an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting based on our audit.

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

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

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

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



                                       32




We have also  audited,  in accordance  with the standards of the Public  Company
Accounting   Oversight  Board  (United  States),   the  consolidated   financial
statements as of and for the year ended December 31, 2006 of the Company and our
report dated March 15, 2007 expressed an unqualified  opinion on those financial
statements.



/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2007



                                       33







ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
                                                                                  Page
                                                                                --------
                                                                             
(a) 1.    Financial Statements
          --------------------

          Report of Independent Registered Public Accounting Firm                  35

          Consolidated Balance Sheets as of December 31, 2006 and 2005             36

          Consolidated  Statements  of Income for the years ended  December  31,
          2006, 2005 and 2004                                                      37

          Consolidated  Statements of  Shareholders'  Equity for the years ended
          December 31, 2006, 2005 and 2004                                         38

          Consolidated Statements of Cash Flows for the years ended December 31,
          2006, 2005 and 2004                                                      39

          Notes to Consolidated Financial Statements                               41

(a) 2.    Financial Statement Schedules
          -----------------------------

          All  schedules  have been  omitted  because  they are not  required or
          because the required  information  is  contained  in the  consolidated
          financial statements or notes thereto.



                                       34




             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Trustees and Shareholders of
American Mortgage Acceptance Company
New York, New York


We have  audited  the  accompanying  consolidated  balance  sheets  of  American
Mortgage  Acceptance Company and subsidiaries (the "Company") as of December 31,
2006 and 2005, and the related consolidated statements of income,  shareholders'
equity,  and cash flows for each of the three years in the period ended December
31, 2006.  These financial  statements are the  responsibility  of the Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements 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
American  Mortgage  Acceptance  Company and subsidiaries as of December 31, 2006
and 2005,  and the results of their  operations and their cash flows for each of
the three years in the period  ended  December  31,  2006,  in  conformity  with
accounting principles generally accepted in the United States of America.

We have also  audited,  in accordance  with the standards of the Public  Company
Accounting  Oversight Board (United States),  the effectiveness of the Company's
internal control over financial  reporting as of December 31, 2006, based on the
criteria  established  in Internal  Control-Integrated  Framework  issued by the
Committee of Sponsoring  Organizations of the Treadway Commission and our report
dated March 15, 2007 expressed an unqualified opinion on management's assessment
of the effectiveness of the Company's internal control over financial  reporting
and an  unqualified  opinion  on the  effectiveness  of the  Company's  internal
control over financial reporting.



/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2007



                                       35




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                    (In thousands, except per share amounts)




                                     ASSETS

                                                                                December 31,
                                                                         ------------------------
                                                                           2006           2005
                                                                         ---------      ---------
                                                                                  
Cash and cash equivalents                                                $   7,553      $  11,214
 Restricted cash                                                            14,951             --
 Investments
   Mortgage loans receivable, net                                          536,685         51,981
   Debt securities available for sale, at fair value                        82,582        222,723
   Notes receivable, net                                                     9,213         13,725
   Revenue bonds available for sale, at fair value                           4,967          6,626
   ARCap                                                                        --         20,678
   Real estate owned - held and used, net                                   48,692         50,345
   Real estate owned - held for sale, net                                       --         18,448
Accounts receivable                                                          7,670          3,079
Deferred charges and other assets, net                                       8,671          1,904
                                                                         ---------      ---------

Total assets                                                             $ 720,984      $ 400,723
                                                                         =========      =========

                                LIABILITIES AND SHAREHOLDERS' EQUITY

Liabilities:
  CDO notes payable                                                      $ 362,000      $      --
  Debt securities repurchase facilities                                     79,427        209,101
  Mortgage loan repurchase facility                                         84,149             --
  Warehouse facility                                                            --          4,070
  Mortgages payable on real estate owned                                    39,944         40,487
  Preferred shares of subsidiary (subject to mandatory
   repurchase)                                                              25,000         25,000
  Line of credit - related party                                            15,000             --
  Accounts payable and accrued expenses                                     13,666          1,599
  Due to Advisor and affiliates                                              1,670          2,961
  Dividends payable                                                         15,120          3,322
                                                                         ---------      ---------

Total liabilities                                                          635,976        286,540
                                                                         ---------      ---------

Commitments and contingencies

Shareholders' equity:
  Shares of  beneficial  interest;  $0.10 par  value; 25,000
   shares  authorized;  8,815 issued and 8,400 outstanding in
   2006 and 8,719 issued and 8,304 outstanding in 2005                         881            871
  Treasury  shares of beneficial  interest at par; 415 shares
   in 2006 and 2005                                                            (42)           (42)
  Additional paid-in capital                                               127,971        126,357
  Share - based compensation                                                    --            (20)
  Accumulated deficit                                                      (40,174)       (17,766)
  Accumulated other comprehensive (loss) income                             (3,628)         4,783
                                                                         ---------      ---------

Total shareholders' equity                                                  85,008        114,183
                                                                         ---------      ---------

Total liabilities and shareholders' equity                               $ 720,984      $ 400,723
                                                                         =========      =========



          See accompanying notes to consolidated financial statements.


                                       36




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                     (In thousands except per share amounts)




                                                                                      Years Ended December 31,
                                                                                ------------------------------------
                                                                                  2006          2005          2004
                                                                                --------      --------      --------
                                                                                                   
Revenues:
  Interest income:
   Mortgage loans                                                               $ 19,637      $  5,425      $  1,808
   Debt securities                                                                10,497        12,823         9,734
   Notes receivable                                                                  387         1,563         2,546
   Revenue bonds                                                                     503           581           633
   Temporary investments                                                             384           233            42
  Rental income of real estate owned - held and used                               6,934         6,703         6,103
  Fees related to prepayment of investments                                           --         5,581           181
  Other revenues                                                                     286           954           153
                                                                                --------      --------      --------
   Total revenues                                                                 38,628        33,863        21,200
                                                                                --------      --------      --------

Expenses:
  Interest                                                                        19,149         7,057         4,017
  Interest - distributions to preferred shareholders of subsidiary (subject
   to mandatory repurchase)                                                        2,241         1,452            --
  Mortgage interest for real estate owned - held and used                          2,376         2,407            --
  Property operations of real estate owned - held and used                         3,527         3,185         2,308
  General and administrative                                                       2,500         1,956         1,740
  Impairment losses on investments                                                17,496          --              --
  Fees to Advisor                                                                  3,483         4,347         1,956
  Depreciation                                                                     1,345         1,345         1,718
  Amortization and other                                                             160           294           411
                                                                                --------      --------      --------
   Total expenses                                                                 52,277        22,043        12,150
                                                                                --------      --------      --------

Other income:
  Gain on sale of ARCap                                                           19,223            --            --
  Change in fair value of derivative instruments                                  (5,522)           --            --
  Equity in earnings of ARCap                                                      3,000         2,837         2,400
  (Loss) gain on sale or repayment of investments                                   (934)          183            --
  Other non-operating expense                                                         --           (39)           --
                                                                                --------      --------      --------

   Total other income                                                             15,767         2,981         2,400
                                                                                --------      --------      --------

   Income from continuing operations                                               2,118        14,801        11,450

   Income (loss) from discontinued operations                                        569           434          (177)
                                                                                --------      --------      --------

   Net income                                                                   $  2,687      $ 15,235      $ 11,273
                                                                                ========      ========      ========

Per share amounts (basic and diluted):

   Net income from continuing operations                                        $   0.25      $   1.78      $   1.37

   Net income (loss) from discontinued operations                               $   0.07      $   0.05      $  (0.02)
                                                                                --------      --------      --------

   Net income                                                                   $   0.32      $   1.83      $   1.35
                                                                                ========      ========      ========

  Dividends per share                                                           $   3.00      $   1.90      $   1.60
                                                                                ========      ========      ========

  Weighted average shares outstanding
   Basic                                                                           8,323         8,316         8,336
                                                                                ========      ========      ========
   Diluted                                                                         8,330         8,317         8,343
                                                                                ========      ========      ========



          See accompanying notes to consolidated financial statements.


                                       37




             AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                     (In thousands except per share amounts)




             )                                                                                TREASURY SHARES OF
                                                        SHARES OF BENEFICIAL INTEREST         BENEFICIAL INTEREST          ADDITONAL
                                                        -----------------------------       -----------------------         PAID-IN
                                                            SHARES          AMOUNT           SHARES         AMOUNT          CAPITAL
                                                           --------        --------         --------       --------        ---------
                                                                                                            
Balance at January 1, 2004                                    8,713        $    871            (375)       $    (38)       $126,779

Net income
Other comprehensive income:
  Net unrealized gain on interest rate derivatives
  Unrealized holding gain on investments
Plus: reclassification adjustment

Total other comprehensive income

Comprehensive income


Issuance of share based compensation                              3                                                              74
Amortization of share option costs
Purchase of treasury shares                                                                      (4)                            (53)

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

Balance at December 31, 2004                                  8,716             871            (379)            (38)        126,800

Net income
Other comprehensive income (loss):
  Net unrealized gain on interest rate derivatives
  Unrealized holding loss on investments
  Less: reclassification adjustment

Total other comprehensive income (loss)

Comprehensive income

Issuance of share based compensation                              3                                                              47

Amortization of share option costs
Purchase of treasury shares                                                                     (36)             (4)           (490)

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

Balance at December 31, 2005                                  8,719             871            (415)            (42)        126,357

Net income
Other comprehensive income (loss):
  Net unrealized loss on interest rate derivatives
  Unrealized holding loss on investments
   Plus: reclassification adjustment

Total other comprehensive income (loss)

Comprehensive loss

Reclassification of unamortized share based
  compensation upon adoption of SFAS No. 123(R)                                                                                 (20)
Options exercised and other share based compensation             96              10                                           1,614
Amortization of share option costs                                                                                               20

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

Balance at December 31, 2006                                  8,815        $    881            (415)       $    (42)       $127,971
                                                        ============================================================================




                                                                                                       ACCUMULATED OTHER
                                                       SHARE-BASED     ACCUMULATED     COMPREHENSIVE     COMPREHENSIVE
                                                      COMPENSATION       DEFICIT       INCOME (LOSS)     (LOSS) INCOME       TOTAL
                                                      ------------     -----------     -------------   -----------------   ---------
                                                                                                            
Balance at January 1, 2004                              $    (29)       $(15,138)                          $  8,450        $120,895

Net income                                                                11,273         $ 11,273                            11,273
Other comprehensive income:
  Net unrealized gain on interest rate derivatives                                            407
  Unrealized holding gain on investments                                                    1,219
Plus: reclassification adjustment                                                              41
                                                                                         --------
Total other comprehensive income                                                            1,667             1,667           1,667
                                                                                         --------
Comprehensive income                                                                     $ 12,940
                                                                                         ========

Issuance of share based compensation                         (34)                                                                40
Amortization of share option costs                            47                                                                 47
Purchase of treasury shares                                                                                                     (53)

Dividends                                                                (13,337)                                           (13,337)
                                                      ------------------------------------------------------------------------------

Balance at December 31, 2004                                 (16)        (17,202)                            10,117         120,532

Net income                                                                15,235         $ 15,235                            15,235
Other comprehensive income (loss):
  Net unrealized gain on interest rate derivatives                                            679
  Unrealized holding loss on investments                                                   (2,916)
  Less: reclassification adjustment                                                        (3,097)
                                                                                         --------
Total other comprehensive income (loss)                                                    (5,334)           (5,334)         (5,334)
                                                                                         --------
Comprehensive income                                                                     $  9,901
                                                                                         ========
Issuance of share based compensation                          (2)                                                                45

Amortization of share option costs                            (2)                                                                (2)
Purchase of treasury shares                                                                                                    (494)

Dividends                                                                (15,799)                                           (15,799)
                                                      ------------------------------------------------------------------------------

Balance at December 31, 2005                                 (20)        (17,766)                             4,783         114,183

Net income                                                                 2,687         $  2,687                             2,687
Other comprehensive income (loss):
  Net unrealized loss on interest rate derivatives                                         (3,642)
  Unrealized holding loss on investments                                                   (6,993)
   Plus: reclassification adjustment                                                        2,224
                                                                                         --------
Total other comprehensive income (loss)                                                    (8,411)           (8,411)         (8,411)
                                                                                         --------
Comprehensive loss                                                                       $ (5,724)
                                                                                         ========
Reclassification of unamortized share based
  compensation upon adoption of SFAS No. 123(R)               20
Options exercised and other share based compensation                                                                          1,624
Amortization of share option costs                                                                                               20

Dividends                                                                (25,095)                                           (25,095)
                                                      ------------------------------------------------------------------------------

Balance at December 31, 2006                            $     --        $(40,174)                          $ (3,628)       $ 85,008
                                                      ============================                     =============================




          See accompanying notes to consolidated financial statements.

                                       38




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)




                                                                           Years Ended December 31,
                                                                   ---------------------------------------
                                                                      2006           2005           2004
                                                                   ---------      ---------      ---------
                                                                                        
Cash flows from operating activities:
   Net income                                                      $   2,687      $  15,235      $  11,273

   Adjustments to reconcile net income to net cash provided by
     operating activities:
     Depreciation expense                                              1,671          2,389          2,143
     Gain on sale of ARCap                                           (19,223)            --             --
     Equity in earnings of ARCap                                      (3,000)        (2,837)        (2,400)
     Net (gain) loss on impairment or disposal of assets              18,200           (183)            --
     Change in fair value of derivative instruments                    5,522             39             --
     Amortization and accretion                                         (207)           135            220
     Other non-cash expense                                               89             45             40
     Distributions received from ARCap                                 4,037          2,400          2,400
     Changes in operating assets and liabilities:
       Accounts receivable                                            (3,961)        (1,154)           273
       Other assets                                                      405           (705)            64
       Due to Advisor and affiliates                                  (1,291)         2,191            179
       Accounts payable and accrued expenses                           3,361            494           (160)
                                                                   ---------      ---------      ---------

Net cash provided by operating activities                              8,290         18,049         14,032
                                                                   ---------      ---------      ---------

Cash flows from investing activities:
   Funding and purchase of mortgage loans                           (509,083)       (42,246)        (8,802)
   Principal repayments of mortgage loans                              8,368         11,853          1,306
   Investment in debt securities                                          --        (64,173)       (43,943)
   Principal repayments or sale of debt securities                   131,813         29,627         17,787
   Prepayment penalty from debt security refinancing                   3,200             --             --
   Purchase of mortgage loans on real estate owned                        --        (17,150)            --
   Return of capital and proceeds from the sale of ARCap              37,181             --             --
   Increase in restricted cash                                       (14,951)            --             --
   Proceeds from sale of real estate owned                            17,951          7,474             --
   Principal repayment on real estate owned                               --            480             --
   Funding of notes receivable                                          (108)          (472)        (8,308)
   Repayment of notes receivable                                       3,122          9,883         21,286
   Principal repayment of revenue bonds                                1,651            212            891
   Additions to real estate owned                                         --             --         (2,809)
                                                                   ---------      ---------      ---------

Net cash used in investing activities                               (320,856)       (64,512)       (22,592)
                                                                   ---------      ---------      ---------
                                                                                                (continued)



          See accompanying notes to consolidated financial statements.

                                       39




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (continued)




                                                                               Years Ended December 31,
                                                                        ---------------------------------------
                                                                          2006            2005           2004
                                                                        ---------      ---------      ---------
                                                                                             
Cash flows from financing activities:
   Proceeds from CDO notes payable                                        362,000             --             --
   Proceeds from mortgage loan repurchase facility                        419,284             --             --
   Repayments of mortgage loan repurchase facility                       (335,135)            --             --
   Proceeds from debt securities repurchase facilities                     13,597        104,418         27,613
   Repayments of debt securities repurchase facilities                   (143,271)       (52,950)       (19,509)
   Proceeds from line of credit - related party                           206,242         32,561         15,361
   Repayments of line of credit - related party                          (191,242)       (37,161)       (10,761)
   Proceeds from warehouse facility                                            --            243          1,245
   Repayments of warehouse facility                                        (4,070)            --        (32,353)
   Proceeds from refinancing of real estate owned                              --             --         41,000
   Deferred financing costs                                                (6,760)          (802)            --
   Dividends paid to shareholders                                         (13,297)       (15,812)       (13,337)
   Treasury stock purchases                                                    --           (494)           (53)
   Stock options exercised                                                  1,557             --             --
   Issuance of preferred shares of subsidiary                                  --         25,000             --
                                                                        ---------      ---------      ---------

Net cash provided by financing activities                                 308,905         55,003          9,206
                                                                        ---------      ---------      ---------

Net (decrease) increase in cash and cash equivalents                       (3,661)         8,540            646

Cash and cash equivalents at the beginning of the year                     11,214          2,674          2,028
                                                                        ---------      ---------      ---------

Cash and cash equivalents at the end of the year                        $   7,553      $  11,214      $   2,674
                                                                        =========      =========      =========

Supplemental information:

   Interest paid (including distributions to preferred shareholders
     of subsidiary (subject to mandatory repurchase))                   $  19,399      $   8,383      $   3,822
                                                                        =========      =========      =========



          See accompanying notes to consolidated financial statements.

                                       40




              AMERICAN MORTGAGE ACCEPTANCE COMPANY 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 American Mortgage
Acceptance Company and its wholly owned subsidiaries.  All intercompany accounts
and  transactions  have  been  eliminated  in  consolidation.  Unless  otherwise
indicated,  we herein  refer to  American  Mortgage  Acceptance  Company and its
subsidiaries as "AMAC," "we", "us", "our", and "our Company".  We are externally
managed by CharterMac AMI Associates,  Inc.,  which acts as our Advisor and is a
subsidiary of CharterMac. We operate in one business segment.

During 2006, we formed several  subsidiaries  for the purposes of conducting our
first  Collateralized  Debt Obligation ("CDO")  securitization and to accumulate
assets for the purposes of executing a planned second CDO securitization.

Our  consolidated  financial  statements  are  prepared on the accrual  basis of
accounting in accordance with accounting  principles  generally  accepted in the
United States of America  ("GAAP").  The preparation of financial  statements in
conformity with GAAP requires us to make estimates and  assumptions  that affect
the reported  amounts of assets and liabilities and the disclosure of contingent
assets and  liabilities  at the date of the financial  statements as well as the
reported  amounts of revenues and expenses during the reporting  period.  Actual
results could differ from those estimates.

Certain  amounts from prior years have been  reclassified to conform to the 2006
presentation,  in particular,  the results of operations of two properties  sold
now recorded as  discontinued  operations.  In addition,  the asset balances for
2005 were  reclassified  from Real  Estate  Owned - Held and Used to Real Estate
Owned - Held for Sale.

b) Revenue Recognition

We derive our revenues from a variety of sources as follows:

     o    INTEREST  INCOME  FROM  MORTGAGE  LOANS  AND  NOTES  RECEIVABLE  -  We
          recognize  interest  on  mortgage  loans and notes  receivable  on the
          accrual basis as it becomes due. We amortize deferred loan origination
          costs  and fees on a  straight  line  basis,  which  approximates  the
          interest method, over the life of the applicable loan as an adjustment
          to interest  income.  Certain  mortgage loans contain  provisions that
          allow us to participate  in a percentage of the underlying  property's
          excess cash flows from  operations and excess  proceeds from a sale or
          refinancing.  We evaluate  these loans in accordance  with EITF 86-21,
          APPLICATION   OF  THE   AICPA   NOTICE  TO   PRACTITIONERS   REGARDING
          ACQUISITION, DEVELOPMENT, AND CONSTRUCTION ARRANGEMENTS TO ACQUISITION
          OF AN  OPERATING  PROPERTY  to  determine  the  classification  of the
          investment  as a loan.  This income is recognized on the accrual basis
          as it becomes  due. We place these assets on  non-accrual  status when
          collectibility is not assured.

     o    INTEREST INCOME ON DEBT SECURITIES - We recognize interest on GNMA and
          FNMA  certificates  on the accrual  basis as it becomes due.  Interest
          income also  includes  the  amortization  or accretion of premiums and
          discounts  arising at the purchase  date,  using the  effective  yield
          method.

     o    INTEREST  INCOME ON REVENUE BONDS - Interest income from revenue bonds
          is  recognized  on the accrual basis as it becomes due. We place these
          assets on non-accrual status when collectibility is not assured.

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

     o    INCOME  FROM  REAL  ESTATE  OWNED  - We  recognize  rental  income  on
          properties classified as Held and Used as earned.


                                       41




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



     o    OTHER REVENUES

          o    STANDBY  LOAN  COMMITMENT  FEES - We  receive  fees  for  issuing
               standby  loan  commitments.  If we do  not  expect  to  fund  the
               commitment,  we  recognize  the fee ratably  over the  commitment
               period.  If we  determine  that it is probable  that a commitment
               will be  exercised,  we defer the fee and, if the  commitment  is
               exercised, amortize it over the life of the loan as an adjustment
               to interest income;  if the commitment  expires  unexercised,  we
               recognize it upon expiration.

          o    STABILIZATION GUARANTEE AND LOAN ADMINISTRATION FEES - We receive
               fees from borrowers for guaranteeing  construction  loans made by
               third-party   lenders   for  the  period   between   construction
               completion  and funding of the  permanent  loan. We receive these
               fees in advance and amortize them over the guarantee periods.  We
               also receive loan  administration fees on these guaranteed loans,
               on a monthly  basis  during the  guarantee  period.  We recognize
               these fees when due.

          o    FNMA   LOAN   GUARANTEE   FEES   -  We   receive   monthly   loss
               sharing/guarantee fees related to the FNMA loan program (see Note
               22) and recognize them when due.

          o    PREPAYMENT  FEES - We may receive fees from  borrowers that repay
               loans earlier than their maturity  dates. We recognize these fees
               as  earned,  unless  a loan is  refinanced,  in  which  case  the
               prepayment  fees may be deferred and  amortized  over the life of
               the refinanced loan.

c) Investments in Debt Securities and Revenue Bonds

We account for our  investments in debt securities and revenue bonds pursuant to
SFAS No. 115,  ACCOUNTING FOR CERTAIN  INVESTMENTS IN DEBT AND EQUITY SECURITIES
("SFAS No. 115").  For  investments  classified as available for sale, we record
changes  in fair  value in other  comprehensive  income  unless we  consider  an
investment impaired,  or a decline in fair value to be other than temporary (see
IMPAIRMENT below).

          1.   Debt Securities

               We classify  our  investments  in GNMA and FNMA  certificates  as
               available for sale debt  securities  and use  third-party  quoted
               market prices as our primary source of valuation.

          2.   Revenue Bonds

               We classify our  investments  in revenue  bonds as available  for
               sale  debt  securities.  Because  revenue  bonds  have a  limited
               market, we estimate fair value for each bond as the present value
               of its expected cash flows using a discount  rate for  comparable
               investments.

          3.   Impairment

               For any  investments  classified as available for sale, a decline
               in market  value below cost that we deem other than  temporary is
               charged to earnings.  If, in the  judgment of our Advisor,  it is
               determined  probable  that we will not  receive  all  contractual
               payments  required  when due, the bond is deemed  impaired and is
               written down to its then estimated fair value, with the amount of
               the write-down accounted for as a realized loss.

          4.   Gain or Loss on Sale

               Realized  gains and losses on securities are included in earnings
               and  are  recorded  on  the  trade  date  and  calculated  as the
               difference  between the amount of cash  received and the carrying
               cost  of  the  specific  investment,  including  any  unamortized
               discounts, premiums, origination costs and fees.


                                       42




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



d) Mortgage Loans and Notes Receivable

We carry mortgage loans and notes receivable at cost, including unamortized loan
origination costs and fees.

For investments in mortgage loans and notes receivable, we follow the provisions
of Statement of Financial  Accounting Standards No. 114, ACCOUNTING BY CREDITORS
FOR  IMPAIRMENT  OF A LOAN  ("SFAS  No.  114").  Under  SFAS No.  114, a loan is
impaired when,  based on current  information and events,  it is probable that a
creditor will be unable to collect all amounts due according to the  contractual
terms of the loan agreement.  SFAS No. 114 requires  lenders to measure impaired
loans based on:

     (i)  the present  value of expected  future  cash flows  discounted  at the
          loans' effective interest rate;
     (ii) the loan's observable market price; or
     (iii) the fair value of the collateral if the loan is collateral-dependent.

We  periodically  evaluate our portfolio of mortgage loans and notes  receivable
for  possible  impairment  to  establish  appropriate  loan  loss  reserves,  if
necessary.  If, in the judgment of our Advisor, we determine that it is probable
that we will not receive all contractually  required payments when they are due,
we deem the loan or note impaired and establish a loan loss reserve.

e) Investment in ARCap

Prior to December  2005,  our investment in ARCap  Investors,  L.L.C.  ("ARCap")
consisted of preferred  membership  interests.  In December 2005, we converted a
portion of our preferred  interests to common  interests.  While we continued to
account for this  investment  under the equity method until we sold it in August
2006,  a portion  of the  equity  income  recorded  was  based on the  preferred
dividend,  while  the  balance  was based on our  proportionate  share of common
interests outstanding.

f) Real Estate Owned

Real  estate  owned  consists  of  properties  of  which we took  possession  by
exercising our rights under  subordinated  promissory notes and other documents.
In some cases, we also purchased the first mortgage loans on the properties.  We
recorded  these  properties at the lower of fair value of the real estate,  less
estimated  disposal costs,  or the carrying  amount of the foreclosed  loan. The
determination  of  fair  value  of the  real  estate  is  based  on  independent
appraisals. These properties fall into three classifications:

     o    Held for Sale - properties for which we are actively seeking a buyer;
     o    Held and Used - properties for which we are actively  seeking a buyer,
          but have held for longer than one year; and
     o    Subject to Sales  Contracts -  properties  for which the buyer has not
          contributed  sufficient equity to qualify for sale treatment  pursuant
          to Statement of Financial  Accounting Standards No. 66, ACCOUNTING FOR
          SALES OF REAL ESTATE ("SFAS No. 66").

When  the  foreclosure  process  is  complete  and we own  the  property,  it is
classified as Held for Sale. As it is our intent to sell those properties in the
near term, we do not  initially  depreciate  the assets.  For  properties  later
reclassified  as Held and Used, if full sale  recognition is not achieved within
one year, we record depreciation on the asset,  including an initial retroactive
adjustment for the entire period we owned the property. For properties sold, the
results  of  operations  of the  property  are  reclassified  into  income  from
discontinued operations for all periods presented.

Our  portfolio  of real estate  owned is  periodically  evaluated  for  possible
impairment. If, in the judgment of our Advisor, we determine that the property's
fair value is below its carrying value,  we will deem the property  impaired and
it will be written down to its then estimated fair value, with the amount of the
write-down accounted for as a realized loss.


                                       43




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



g) Cash and Cash Equivalents and Restricted Cash

Cash and cash  equivalents  include cash in banks and temporary  investments  in
short-term  instruments with original maturity dates equal to or less than three
months.  Restricted  cash includes  escrow deposits set aside for future funding
obligations or required collateral deposits made by us due to the decline in the
fair value of our cash flow hedges.

h) Loan Origination Costs and Fees

In accordance  with SFAS No. 91,  ACCOUNTING  FOR  NONREFUNDABLE  FEES AND COSTS
ASSOCIATED ORIGINATING OR ACQUIRING LOANS AND INITIAL DIRECT COSTS OF LEASES, we
capitalize  acquisition  fees and other direct expenses  incurred for activities
performed to originate mortgage loans and include them in Investment in Mortgage
Loans,  net of any  fees  received  from  borrowers  for loan  originations.  We
amortize these costs on a straight-line basis over the lives of the loans.

i) Mortgage Loan Repurchase Facility

We  finance  our  mortgage  loan  investments  that  are to be  placed  into CDO
securitizations  using  a  mortgage  loan  repurchase  facility  pursuant  to  a
repurchase  agreement.  We sell our mortgage loans to a counterparty for a price
set at approximately  80-90% of the value of the collateral,  as determined on a
loan-by-loan   basis.  We  account  for  these  transactions  as  collateralized
borrowings;  accordingly,  the loans remain on our  consolidated  balance sheets
with the proceeds from the sales recorded as debt. We defer the fees relating to
the facility and amortize them over the life of the CDO securitization.

j) Debt Securities Repurchase Facilities

We finance our investments in debt securities using repurchase facilities, under
which we sell the certificates to counterparties under an agreement requiring us
to repurchase them for a fixed price on a fixed date, generally 30 days from the
sale date.  We account  for these  transactions  as  collateralized  borrowings;
accordingly,  the securities remain on our consolidated  balance sheets with the
proceeds  from the sales  recorded  as debt.  The  difference  between  the sale
proceeds and the fixed  repurchase price is recorded as interest expense ratably
over the period between the sale and repurchase dates.

k) Subsidiary Equity

We account  for our  preferred  securities  under SFAS No. 150,  ACCOUNTING  FOR
CERTAIN  FINANCIAL  INSTRUMENTS  WITH  CHARACTERISTICS  OF BOTH  LIABILITIES AND
EQUITY,  which requires that  mandatorily  redeemable  financial  instruments be
classified as  liabilities  in the  consolidated  financial  statements  and the
payments or accruals of dividends and other amounts to be paid to the holders of
these securities be reported as interest costs. The fair value of the securities
approximates  the  liquidation  amount due to the variable  rate nature of their
dividends.

l) Stock Options

We account for stock options we issue under the fair value based method pursuant
to Statement of Financial Accounting  Standards No. 123(R),  SHARE-BASED PAYMENT
("SFAS  No.  123(R)").  Under  SFAS No.  123(R),  we are  required  to  select a
valuation technique or option pricing model that meets the criteria as stated in
the standard and we use the  Black-Scholes  model,  which  requires the input of
subjective assumptions.  These assumptions include estimating the length of time
optionees  will  retain  their  vested  stock  options  before  exercising  them
("expected term"), the estimated  volatility of the Company's common stock price
over the  expected  term  ("volatility"),  the risk free  interest  rate and the
dividend yield.

In accordance  with SFAS No. 123(R),  we accrue  compensation  cost based on the
estimated  fair value of the options  issued and  amortize  those costs over the
vesting period.  Because the grant  recipients are not our employees and vesting


                                       44




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



of the options is contingent upon the recipient  continuing to provide  services
to us, we estimate  the fair value of the options at each  period-end  up to the
vesting date and adjust recorded amounts accordingly.

m) Interest Rate Derivatives

We account for our interest rate swap agreements under SFAS No. 133,  ACCOUNTING
FOR DERIVATIVE  INSTRUMENTS  AND HEDGING  ACTIVITIES  ("SFAS No. 133"). We enter
into  interest rate swaps,  which are  designated,  at  inception,  as cash flow
hedges with the hedged  item being the  interest  payments on our  variable-rate
repurchase  facilities.  We record these swaps at fair value, and record changes
in fair value in other comprehensive income to the extent the hedge is effective
in achieving  offsetting cash flows. We reclassify  amounts in accumulated other
comprehensive  income into  earnings in the same period  during which the hedged
forecasted  transaction  affects  earnings.  Since we are hedging  the  interest
payments on our variable-rate debt, the forecasted transactions are the interest
payments.  We  record  the net  amounts  receivable  or  payable  under the swap
agreement as a component of interest expense.

We also  entered into  interest  rates swaps that hedged the changes in the fair
value of certain  investments.  We did not elect to apply  hedge  accounting  to
these  swaps and,  therefore,  the  changes in the fair value of these swaps are
included in net income.

n) Fair Value of Financial Instruments

As described  above,  our debt  securities,  revenue  bonds,  and interest  rate
derivatives  are carried at estimated fair values.  We have  determined that the
fair value of our remaining financial instruments,  including mortgage loans and
cash and cash equivalents,  notes receivable, and secured borrowings approximate
their  carrying  values  at  December  31,  2006 and  2005.  The  fair  value of
investments  in  mortgage  loans,  revenue  bonds,  notes  receivable,  and debt
securities are based on actual market price quotes or by determining the present
value of the  projected  future cash flows  using  appropriate  discount  rates,
credit losses and prepayment  assumptions.  Other  financial  instruments  carry
interest rates which are deemed to approximate market rates.

o) Income Taxes

We have qualified as a REIT under the Internal Revenue Code (the "Code"). A REIT
is  generally  not  subject  to federal  income tax on that  portion of its REIT
taxable income  ("Taxable  Income")  which is  distributed  to its  shareholders
provided that at least 90% of Taxable  Income is  distributed  and provided that
such income meets  certain  other  conditions.  Accordingly,  no  provision  for
federal  income taxes is  required.  We may be subject to state taxes in certain
jurisdictions.

p) New Accounting Pronouncements

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

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

In June 2006, the FASB issued  Interpretation No. 48, ACCOUNTING FOR UNCERTAINTY
IN INCOME TAXES, AN  INTERPRETATION OF FASB STATEMENT NO. 109 ("FIN 48"). FIN 48
establishes  new  evaluation  and  measurement  processes  for  all  income  tax
positions  taken.  FIN 48 also  requires  expanded  disclosures  of  income  tax


                                       45




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



matters.  We expect that the adoption of this standard on January 1, 2007,  will
have an immaterial effect on our consolidated financial statements.

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

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

In January  2007,  the FASB  issued  SFAS No.  159,  THE FAIR  VALUE  OPTION FOR
FINANCIAL ASSETS AND FINANCIAL  LIABILITIES.  This statement was issued with the
intent to provide an  alternative  measurement  treatment for certain  financial
assets and liabilities.  The alternative  measurement would permit fair value to
be used for both initial and subsequent measurement,  with changes in fair value
recognized in earnings as those changes occur. This "Fair Value Option" would be
available on a contract by contract basis. The effective date for this statement
is the beginning of our 2008 fiscal year. The Company is currently assessing the
impact adoption may have on its financial statements.


                                       46




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 2 - INVESTMENTS IN MORTGAGE LOANS

Information  relating to our  investments in mortgage loans as December 31, 2006
is as follows:

(Dollars in thousands)




                                                          FINAL
                                                         MATURITY                                   PERIODIC
              PROPERTY                   DESCRIPTION       DATE    CALL DATE (A)  INTEREST RATE   PAYMENT TERMS   PRIOR LIENS
------------------------------------     -----------     --------  -------------  -------------   -------------   -----------
                                                                                                 
FIRST MORTGAGE LOANS:
  The Victor (D)(E)(F)
   Camden, NJ                             Mixed Use        12/14       12/14          6.17%            (G)         $    --
  Washington Heights (E)(F)
   Worcester, MA                         Multifamily        5/16       12/15          6.85%            (G)              --
  Robert Plan (E)
   Bethpage, NY                            Office           4/16       04/16          6.77%            (H)              --
  Sage at Cupertino (E)(F)
   Cupertino, CA                         Multifamily        5/16       05/16          5.99%            (H)              --
  The Pines (E)
   Las Vegas, NV                         Multifamily        5/16       11/15          5.84%            (G)              --
  Forest Pointe (E)
   Lake Bluff, IL                        Multifamily        6/11       12/07          5.92%            (G)              --
  Harbour Pointe (E)
   Mukilteo, WA                            Retail           6/11       12/07          5.92%            (G)              --
  1800 Walt Whitman (E)
   Melville, NY                            Office           6/16       06/16          6.24%            (H)              --
  Ellington Plaza (E)
   Washington, DC                        Multifamily        9/16       09/09          5.82%            (H)              --
  Stone Cliff Heights (E)
   Aurora, CO                            Multifamily        8/16       02/16          6.08%            (G)              --
  Citrus Grove (E)
   Elk Grove, CA                         Multifamily        9/16       03/16          6.01%            (H)              --
  Courtyard Apartments (E)
   Albuquerque, NM                       Multifamily        8/11       08/09          5.93%            (H)              --
  The Crossroads at Chapel Hills (E)
   Colorado Springs, CO                  Multifamily        9/16       03/16          6.05%            (G)              --
  Arbors Apartments (E)
   Albuquerque, NM                       Multifamily        8/11       10/09          5.93%            (H)              --
  Westpointe Apartments (E)
   Stockton, CA                          Multifamily        9/13       02/16          6.28%            (G)              --
  Islip Terrace (E)
   Islip Terrace, NY                       Retail           8/11       07/09          6.12%            (I)              --
  236 W. 16th Street (E)
   New York, NY                          Multifamily        9/16       09/09          6.13%            (H)              --




                                         OUSTANDING
                                         FACE AMOUNT                                     CARRYING
                                              OF         IMPAIRMENT    UNAMORTIZED       AMOUNT OF    INTEREST INCOME
              PROPERTY                   MORTGAGES (B)    CHARGES     COSTS AND FEES   MORTGAGES (C)      IN 2006
------------------------------------     -------------   ----------   ---------------  -------------  ---------------
                                                                                          
FIRST MORTGAGE LOANS:
  The Victor (D)(E)(F)
   Camden, NJ                             $  31,000           --         $  (739)       $  30,261        $ 1,630
  Washington Heights (E)(F)
   Worcester, MA                             27,000           --              --           27,000          1,314
  Robert Plan (E)
   Bethpage, NY                              20,000           --              --           20,000          1,020
  Sage at Cupertino (E)(F)
   Cupertino, CA                             22,000           --              --           22,000            907
  The Pines (E)
   Las Vegas, NV                             13,000           --              --           13,000            713
  Forest Pointe (E)
   Lake Bluff, IL                            11,000           --              --           11,000            423
  Harbour Pointe (E)
   Mukilteo, WA                              11,000           --              --           11,000            423
  1800 Walt Whitman (E)
   Melville, NY                               7,000           --              --            7,000            265
  Ellington Plaza (E)
   Washington, DC                            13,500           --          (1,307)          12,193            309
  Stone Cliff Heights (E)
   Aurora, CO                                26,500           --              --           26,500            674
  Citrus Grove (E)
   Elk Grove, CA                             21,000           --              --           21,000            451
  Courtyard Apartments (E)
   Albuquerque, NM                            8,500           --              --            8,500            203
  The Crossroads at Chapel Hills (E)
   Colorado Springs, CO                       8,050           --              --            8,050            188
  Arbors Apartments (E)
   Albuquerque, NM                            7,500           --              --            7,500            179
  Westpointe Apartments (E)
   Stockton, CA                               6,500           --              --            6,500            140
  Islip Terrace (E)
   Islip Terrace, NY                          5,984           --              --            5,984            160
  236 W. 16th Street (E)
   New York, NY                               5,348           --              --            5,348            130
                                                                                                      (continued)



                                       47




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






                                                          FINAL
                                                         MATURITY                                   PERIODIC
              PROPERTY                   DESCRIPTION       DATE    CALL DATE (A)  INTEREST RATE   PAYMENT TERMS   PRIOR LIENS
------------------------------------     -----------     --------  -------------  -------------   -------------   -----------
                                                                                                      
  253 Elizabeth Street (E)
   New York, NY                          Multifamily        9/16       09/09          6.13%            (H)              --
  515 E. 5th Street (E)
   New York, NY                          Multifamily        9/16       09/09          6.13%            (H)              --
  Valley Village  (E)
   Bakersfield, CA                         Retail           9/16       03/16          5.78%            (I)              --
  Rite Aid  (E)
   Arroyo Grande, CA                       Retail          10/16       04/16          5.57%            (I)              --
  Garden Lakes (E)
   Phoenix, AZ                             Office          10/16       07/16          6.06%            (G)              --
  Highland Square II (E)
   Greenville, SC                        Multifamily       10/16       10/09          6.04%            (G)              --
  Wasilla Portfolio (E)
   Wasilla, AK                           Multifamily        7/16       12/15          6.05%            (I)              --
  Manhattan Beach (E)
   Manhattan Beach, CA                     Other           11/16       05/16          6.22%            (I)              --
  Alvin Center (E)
   San Jose, CA                            Office          11/16       05/16          5.79%            (I)              --
  Davidson Building (E)
   Fife, WA                                Office          11/16       05/16          6.26%            (G)              --
  Equinox  (E)(F)
   Great Neck, NY                          Retail          11/16       05/16          5.68%            (G)              --
  Tiburon at Buckhead (E)
   Atlanta, GA                           Multifamily       11/16       11/08          5.90%            (H)              --
  Camden Village (E)
   Fremont, CA                           Multifamily       11/09       11/08          6.53%            (G)              --
  Talega Corporate Center (E)
   San Clemente, CA                        Office          12/11       12/10          5.94%            (G)              --
  Tennyson Retail Center (E)
   Hayward, CA                             Retail           1/17       07/16          5.80%            (I)              --
  Connecticut Village Apartments (J)
   Gaffney, SC                           Multifamily       12/16       12/09          6.08%            (H)              --
  Oakland Apartments (J)
   Abbeville, SC                         Multifamily       12/16       12/09          6.08%            (H)              --
  Westwood Apartments (J)
   Manning, SC                           Multifamily       12/16       12/09          6.08%            (H)              --




                                         OUSTANDING
                                         FACE AMOUNT                                     CARRYING
                                              OF         IMPAIRMENT    UNAMORTIZED       AMOUNT OF    INTEREST INCOME
              PROPERTY                   MORTGAGES (B)    CHARGES     COSTS AND FEES   MORTGAGES (C)      IN 2006
------------------------------------     -------------   ----------   ---------------  -------------  ---------------
                                                                                              
  253 Elizabeth Street (E)
   New York, NY                               5,236           --              --            5,236            129
  515 E. 5th Street (E)
   New York, NY                               3,416           --              --            3,416             83
  Valley Village  (E)
   Bakersfield, CA                            2,994           --              --            2,994             68
  Rite Aid  (E)
   Arroyo Grande, CA                          2,497           --              --            2,497             36
  Garden Lakes (E)
   Phoenix, AZ                                2,300           --              --            2,300             37
  Highland Square II (E)
   Greenville, SC                             4,700           --              --            4,700             74
  Wasilla Portfolio (E)
   Wasilla, AK                                9,168           --              --            9,168            300
  Manhattan Beach (E)
   Manhattan Beach, CA                        1,570           --              --            1,570             22
  Alvin Center (E)
   San Jose, CA                               2,847           --              --            2,847             25
  Davidson Building (E)
   Fife, WA                                   6,500           --              --            6,500            103
  Equinox  (E)(F)
   Great Neck, NY                            12,680           --              --           12,680            164
  Tiburon at Buckhead (E)
   Atlanta, GA                               21,500           --              --           21,500            325
  Camden Village (E)
   Fremont, CA                               23,400           --              --           23,400            237
  Talega Corporate Center (E)
   San Clemente, CA                           8,700           --              --            8,700             80
  Tennyson Retail Center (E)
   Hayward, CA                                2,300           --              --            2,300              5
  Connecticut Village Apartments (J)
   Gaffney, SC                                2,720           --              --            2,720             50
  Oakland Apartments (J)
   Abbeville, SC                                361           --              --              361              2
  Westwood Apartments (J)
   Manning, SC                                  795           --              --              795              4
                                                                                                      (continued)



                                       48




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






                                                          FINAL
                                                         MATURITY                                   PERIODIC
              PROPERTY                   DESCRIPTION       DATE    CALL DATE (A)  INTEREST RATE   PAYMENT TERMS   PRIOR LIENS
------------------------------------     -----------     --------  -------------  -------------   -------------   -----------
                                                                                                      
  Lincoln Apartments (J)
   Walterboro, SC                        Multifamily       12/16       12/09          6.08%            (H)              --
  Raymonia Apartments (J)
   Vidalia, GA                           Multifamily       12/16       12/09          6.08%            (H)              --
  Westlake Apartments (J)
   Savannah, GA                          Multifamily       12/16       12/09          6.08%            (G)              --
  Twelve Atlantic Station (J)
   Atlanta, GA                           Hotel/Mote1        1/09       11/08          6.38%            (G)              --
  The Sanctuary Lofts
   Apartments (J)
   San Marcos, TX                        Multifamily        1/12       10/11          6.08%            (H)              --
  Woodside at Holladay
   Apartments (K)
   Holladay, UT                          Multifamily       12/16       06/16          5.82%            (H)              --
  Office Depot  (K)
   Arlington, TX                           Retail           1/17        N/A           5.79%            (I)              --
  Cedar Glen Apartments (K)
   Suisun City, CA                       Multifamily        1/12       12/09          5.81%            (H)              --
  Venon Center (K)
   Los Angeles, CA                         Retail           1/17       07/16          5.51%            (I)              --
  Desert View
   Coolidge, AZ                          Multifamily        5/06        N/A          10.00%            (G)              --

Subtotal First Mortgage Loans


BRIDGE LOANS:
  Queen Vista Apartments (J)
   Seattle, TX                           Multifamily        5/06        N/A           5.875%           (G)              --
  Summit East Apartments (J)
   Seattle, WA                           Multifamily       12/09       05/09          5.875%           (G)              --
  Highland Crest Apartments (J)
   Seattle, WA                           Multifamily       12/09       05/09          5.875%           (G)              --
  Los Alamitos Center Plaza (J)
   Los Alamitos, TX                      Multifamily        7/08        N/A           5.500%           (I)              --
  Reserve at Autumn Creek (J)
   Friendswood, TX                       Multifamily       11/16        N/A           5.875%           (G)              --

Subtotal Bridge Loans





                                         OUSTANDING
                                         FACE AMOUNT                                     CARRYING
                                              OF         IMPAIRMENT    UNAMORTIZED       AMOUNT OF    INTEREST INCOME
              PROPERTY                   MORTGAGES (B)    CHARGES     COSTS AND FEES   MORTGAGES (C)      IN 2006
------------------------------------     -------------   ----------   ---------------  -------------  ---------------
                                                                                           
  Lincoln Apartments (J)
   Walterboro, SC                             1,445           --              --            1,445              7
  Raymonia Apartments (J)
   Vidalia, GA                                1,445           --              --            1,445              7
  Westlake Apartments (J)
   Savannah, GA                               3,234           --              --            3,234             17
  Twelve Atlantic Station (J)
   Atlanta, GA                               17,000           --              --           17,000            127
  The Sanctuary Lofts
   Apartments (J)
   San Marcos, TX                            23,000           --              --           23,000             78
  Woodside at Holladay
   Apartments (K)
   Holladay, UT                               3,500           --              --            3,500             18
  Office Depot  (K)
   Arlington, TX                              2,900           --              --            2,900              6
  Cedar Glen Apartments (K)
   Suisun City, CA                           17,200           --              --           17,200             36
  Venon Center (K)
   Los Angeles, CA                            4,800           --              --            4,800              2
  Desert View
   Coolidge, AZ                                  --           --              --               --             58
                                         ----------------------------------------------------------------------------
Subtotal First Mortgage Loans               433,090           --          (2,046)         431,044         11,229
                                         ----------------------------------------------------------------------------

BRIDGE LOANS:
  Queen Vista Apartments (J)
   Seattle, TX                               10,764           --              --           10,764             65
  Summit East Apartments (J)
   Seattle, WA                                5,345           --              --            5,345             32
  Highland Crest Apartments (J)
   Seattle, WA                                3,891           --              --            3,891             24
  Los Alamitos Center Plaza (J)
   Los Alamitos, TX                           3,796           --              --            3,796             27
  Reserve at Autumn Creek (J)
   Friendswood, TX                           13,800           --              --           13,800            132
                                         ----------------------------------------------------------------------------
Subtotal Bridge Loans                        37,596           --              --           37,596            280
                                         ----------------------------------------------------------------------------
                                                                                                      (continued)



                                       49




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






                                                          FINAL
                                                         MATURITY                                   PERIODIC
              PROPERTY                   DESCRIPTION       DATE    CALL DATE (A)  INTEREST RATE   PAYMENT TERMS   PRIOR LIENS
------------------------------------     -----------     --------  -------------  -------------   -------------   -----------
                                                                                                  
MEZZANINE LOANS:
  The Hollows (E) (L) (M) (N)
   Greenville, NC                        Multifamily        1/42       02/12         10.00% (S)        (G)           8,755
  Northbrooke
   Harris County, TX                     Multifamily        8/43        N/A          11.50% (S)        (G)              --
  Club at Brazos (L) (M) (N)
   Rosenberg, TX                         Multifamily        5/43       06/08         10.00% (S)        (G)          14,384
  Del Mar Villas (O)(P)
   Dallas, TX                            Multifamily        5/06        N/A       LIBOR + 4.625%       (G)           5,554
  Villas at Highpoint (N)
   Lewisville, TX                        Multifamily        4/33       04/13         14.57%            (G)          18,800
  Villas at Highpoint (N)
   Lewisville, TX                        Multifamily        4/33       04/13         23.76%            (G)          18,800
  Sawmill Plaza (E)(N)
   Columbus, OH                            Retail          10/14       09/14         13.50%            (I)          15,859
  Champaign Offices (E)(N)
   Champaign, IL                           Office          10/11       05/11         10.67%            (I)          25,950
  Atlantic - Hearthstone (N)(Q)
   Hillsborough, NJ                      Multifamily        4/07       04/07            20%            (G)          11,030
  South Burnswick (N)
   South Brunswick, NJ                     Retail           6/15       06/15         10.25%            (G)          36,750
  Pasadena (N)(Q)
   Pasadena, FL                          Multifamily       12/07        N/A       LIBOR + 12.75%       (G)          34,559
  222 Pearson (N)(R)
   Chicago, IL                           Multifamily        8/07        N/A       LIBOR + 11.50%       (G)          17,800
  Bayfront Villas (N)(Q)
   Gulfport, FL                          Multifamily        8/07        N/A       LIBOR + 12.75%       (G)          15,773
  Marbella (N)(R)
   Clearwater, FL                        Multifamily        9/06        N/A       LIBOR + 12.50%       (G)          19,492
  Hotel QT (E) (N)
   New York, NY                            Hotel           10/08       10/07          8.32%            (G)          20,000


Subtotal Mezzanine Loans                                                                                                --





                                         OUSTANDING
                                         FACE AMOUNT                                     CARRYING
                                              OF         IMPAIRMENT    UNAMORTIZED       AMOUNT OF    INTEREST INCOME
              PROPERTY                   MORTGAGES (B)    CHARGES     COSTS AND FEES   MORTGAGES (C)      IN 2006
------------------------------------     -------------   ----------   ---------------  -------------  ---------------
                                                                                            
MEZZANINE LOANS:
  The Hollows (E) (L) (M) (N)
   Greenville, NC                             1,549           --             (80)           1,469            172
  Northbrooke
   Harris County, TX                             --           --              --               --             50
  Club at Brazos (L) (M) (N)
   Rosenberg, TX                              1,962           --             (70)           1,892            198
  Del Mar Villas (O)(P)
   Dallas, TX                                   765         (765)             --               --             30
  Villas at Highpoint (N)
   Lewisville, TX                             2,599           --            (130)           2,469            384
  Villas at Highpoint (N)
   Lewisville, TX                               693           --             (36)             657            165
  Sawmill Plaza (E)(N)
   Columbus, OH                               1,988           --              --            1,988            266
  Champaign Offices (E)(N)
   Champaign, IL                              1,898           --             (27)           1,871            210
  Atlantic - Hearthstone (N)(Q)
   Hillsborough, NJ                           5,592         (900)            (24)           4,668          1,031
  South Burnswick (N)
   South Brunswick, NJ                        3,250           --              --            3,250            338
  Pasadena (N)(Q)
   Pasadena, FL                               9,012       (9,012)             --               --          1,448
  222 Pearson (N)(R)
   Chicago, IL                                7,500           --             (19)           7,481          1,257
  Bayfront Villas (N)(Q)
   Gulfport, FL                               2,952       (2,952)             --               --            481
  Marbella (N)(R)
   Clearwater, FL                             5,800           --              --            5,800          1,069
  Hotel QT (E) (N)
   New York, NY                               6,500           --              --            6,500             38
                                         ----------------------------------------------------------------------------

Subtotal Mezzanine Loans                     52,060      (13,629)           (386)          38,045          7,137
                                         ----------------------------------------------------------------------------
                                                                                                      (continued)



                                       50




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS






                                                          FINAL
                                                         MATURITY                                   PERIODIC
              PROPERTY                   DESCRIPTION       DATE    CALL DATE (A)  INTEREST RATE   PAYMENT TERMS   PRIOR LIENS
------------------------------------     -----------     --------  -------------  -------------   -------------   -----------
                                                                                                
SUBORDINATED B-NOTES
  Twelve Atlantic Station (J) (O)
   Atlantic, GA                             Hotel          11/09       11/08          8.08%            (G)         17,000
  Highland Crest Apartments (J) (O)
   Seattle, WA                           Multifamily       12/09       05/09          8.63%            (G)          3,891
  Pierre Laclede Center (E) (N)
   Clayton, MO                              Office          9/11       04/08          7.44%            (G)         56,250
  Queen Vista Apartments (J) (O)
   Seattle, WA                           Multifamily       12/09       05/09          8.63%            (G)         10,764
  Summit East Apartments (J) (O)
   Seattle, WA                           Multifamily       12/09       05/09          8.63%            (G)          5,345
  Intech (E) (N)
   Indianapolis, IN                        Office          10/15       07/15          9.05%            (G)         44,500
  Ellington (E) (O)
   Washington, DC                        Multifamily        9/16       09/09         10.00%            (G)         40,800

Subtotal Subordinated B-notes

2006 Total Mortgage Loans

2005 Total Mortgage Loans (T)




                                         OUSTANDING
                                         FACE AMOUNT                                     CARRYING
                                              OF         IMPAIRMENT    UNAMORTIZED       AMOUNT OF    INTEREST INCOME
              PROPERTY                   MORTGAGES (B)    CHARGES     COSTS AND FEES   MORTGAGES (C)      IN 2006
------------------------------------     -------------   ----------   ---------------  -------------  ---------------
                                                                                          
SUBORDINATED B-NOTES
  Twelve Atlantic Station (J) (O)
   Atlantic, GA                               2,500           --              --            2,500              7
  Highland Crest Apartments (J) (O)
   Seattle, WA                                  730           --              --              730              4
  Pierre Laclede Center (E) (N)
   Clayton, MO                                3,375           --              --            3,375             21
  Queen Vista Apartments (J) (O)
   Seattle, WA                                2,018           --              --            2,018             12
  Summit East Apartments (J) (O)
   Seattle, WA                                1,002           --              --            1,002              6
  Intech (E) (N)
   Indianapolis, IN                           5,500           --            (197)           5,303            327
  Ellington (E) (O)
   Washington, DC                            16,669           --          (1,597)          15,072            614
                                         ----------------------------------------------------------------------------
Subtotal Subordinated B-notes                31,794           --          (1,794)          30,000        $   991
                                         ----------------------------------------------------------------------------
2006 Total Mortgage Loans                  $554,540      (13,629)        $(4,226)        $536,685        $19,637
                                         ============================================================================
2005 Total Mortgage Loans (T)              $ 52,707           --         $  (726)        $ 51,981        $ 5,425
                                         ============================================================================



                                       51




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



(A)  Call date means the date the loan can either be called by us or paid off by
     borrower, which may result in prepayment penalties.

(B)  As of December 31, 2006,  all interest  payments on the mortgage  loans are
     current, except as noted.

(C)  Carrying amounts of the loans are net of unamortized  origination costs and
     fees and loan discounts.

(D)  In 2005, we purchased a $5.0 million subordinated  mortgage secured by this
     property.  During 2006, we purchased the remaining $26.0 million portion of
     this first mortgage loan from  CharterMac at  approximately  its face value
     (see Note 20).

(E)  Loans are  pledged as  collateral  on $362.0  million of Series I CRE notes
     issued during 2006 (see Note 8).

(F)  Borrower is a related party (see Note 20).

(G)  Interest only payments due monthly, with loan balance due at maturity.

(H)  Currently  interest  only  payments due monthly,  followed by principal and
     interest payments due at various future dates.

(I)  Principal and interest payments due monthly.

(J)  At December 31, 2006,  loans are pledged as  collateral  under the mortgage
     loan repurchase facility with Citigroup (see Note 10).

(K)  Subsequent to December 31, 2006, loans were pledged as collateral under the
     mortgage loan repurchase facility with Citigroup (see Note 10).

(L)  The Hollows and the Club at Brazos loans are participating  mezzanine loans
     with a maximum annual return of 16% and 14%, respectively. We can share 50%
     of  excess  operating  cash  flows,  as  well  as 25%  of  excess  sale  or
     refinancing proceeds on both loans.

(M)  The principal  balance of the mezzanine loan is secured by the  partnership
     interests  of the  entity  that owns the  underlying  property  and a third
     mortgage deed of trust. Interest payments on the mezzanine loan are secured
     by a second  mortgage  deed of trust  and are  guaranteed  for the first 36
     months after  construction  completion by an entity  related to the general
     partner of the entity that owns the underlying property.

(N)  We do not have an  interest  in the first lien  position  relating  to this
     loan.

(O)  We have an interest in the first lien position relating to this loan.

(P)  During 2006, this mezzanine loan stopped making required interest payments,
     causing it to be in default.  We  recognized  an  impairment  charge on the
     mezzanine loan  ($765,000),  as well as a related note receivable (see Note
     4).

(Q)  During 2006, these mezzanine loans did not make required interest payments,
     causing them to be in default.  We recognized  impairment  charges of $12.9
     million for these loans due to  construction  and sales issues  relating to
     the underlying  properties.  We have  determined the impairment  amounts by
     analyzing  the cash flows of the  respective  projects  upon  completion of
     construction  at the  property  level and  determining  a fair value of the
     properties.  As a result the  carrying  amounts  have been  written down to
     reflect these values as follows:


                                       52




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



          Pasadena                                     $    9,012
          Bayfront Villas                                   2,952
          Atlantic Hearthstue                                 900
                                                       ----------
               Total                                    $  12,864
                                                         ========

(R)  During 2006, these mezzanine loans did not make required interest payments,
     causing  them  to be in  default.  We  are  currently  in  the  process  of
     determining  the necessary steps we need to take to protect our investment.
     We have done an internal analysis for the property  underlying the mortgage
     and the  analysis  indicates  that the value of the  property  exceeds  the
     carrying  amount of our  investment.  Accordingly,  we have not recorded an
     allowance for probable losses on this investment.

(S)  Interest on the mezzanine loan is based on a fixed percentage of the unpaid
     principal  balance of the related first  mortgage loan. The amount shown is
     the approximate effective rate earned on the balance of the mezzanine loan.
     The mezzanine loan also provides for payments of additional  interest based
     on a percentage of cash flow remaining after debt service and participation
     in sale or refinancing  proceeds and certain  provisions that cap our total
     yield,  including additional interest and participations,  over the term of
     the loan.

(T)  The weighted  average  interest rate on the portfolio at December 31, 2005,
     was 14.74%.

Further information relating to investments in mortgage loans is as follows:

(In thousands)



                                                                                                   2006           2005
                                                                                                ---------      ---------
                                                                                                         
Balance at beginning of year                                                                    $  51,981      $  21,376
Advances made                                                                                     509,991         42,247
Loan origination fees (net of acquisition expenses)                                                    --           (279)
Repayments                                                                                         (8,368)       (11,853)
Amortization of costs and fees                                                                        507            236
Impairment losses                                                                                 (13,629)            --
Prepayment penalty from debt security refinancing, net of unamortized loan origination fees        (3,005)            --
Discount on swap                                                                                     (792)           254
                                                                                                ---------      ---------

Balance at end of year                                                                          $ 536,685      $  51,981
                                                                                                =========      =========




                                       53





              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 3 - INVESTMENTS IN DEBT SECURITIES - AVAILABLE FOR SALE

Information  relating  to our debt  securities  as of  December  31,  2006 is as
follows:




(In thousands)
                                                  Date Purchased/
                                   Certificate        Final             Stated
Name                                 Number        Payment Date      Interest Rate
----------------------------       -----------    ---------------    -------------
                                                               
GNMA CERTIFICATES

SunCoast Capital Group, Ltd.         G002412          6/23/97           7.000%
                                                      4/20/27

Village at Marshfield                519281           3/11/02           7.475%
                                                      1/15/42

Cantera Crossing                     532663           3/28/02           6.500%
                                                       6/1/29

Burlington                           595515           11/1/02           5.900%
                                                      4/15/31
FNMA DUS CERTIFICATES

Coventry Place                       384920            5/9/03           6.480%
                                                       3/1/32

Elmwood Gardens                      386113           5/15/03           5.350%
                                                       5/1/33

Pomono                               386995           9/21/04           6.220%
                                                       7/1/34

Maple Street                         387093           10/4/04           5.750%
                                                      10/1/22

Beach Grove                          387114          12/21/04           5.620%
                                                       9/1/34

York                                 386631          12/29/04           5.490%
                                                       8/1/33

Inn at Summit Ridge                  385258           1/10/05           6.650%

                                                       5/1/27

Wyndhurst                            386641           2/28/05           5.800%

                                                      12/1/33

FNMA 830083                          830083           11/9/05           7.218%

                                                       7/1/35

FNMA 254568                          254568          11/10/05           6.799%

                                                      11/1/32

FNMA 255366                          255366          11/10/05           6.470%

                                                       7/1/34

FNMA 254611                          254611          11/10/05           6.823%

                                                      12/1/32

Total interest income from debt securities sold or repaid during 2006


2006 Total


2005 Total (1)





(In thousands)
                                      Amortized            Unrealized
                                        Cost at           Gain(Loss) at         Balance at        Interest Income
Name                               December 31, 2006    December 31, 2006    December 31, 2006        in 2006
----------------------------       -----------------    -----------------    -----------------    ---------------
                                                                                         
GNMA CERTIFICATES

SunCoast Capital Group, Ltd.          $     54              $      2            $     56             $     4


Village at Marshfield                   20,963                  (216)             20,747               1,420


Cantera Crossing                         6,197                   340               6,537                 412


Burlington                               6,480                   (61)              6,419                 379

FNMA DUS CERTIFICATES

Coventry Place                             761                   (26)                735                  43


Elmwood Gardens                          5,320                  (194)              5,126                 280


Pomono                                   5,735                  (186)              5,549                 317


Maple Street                             1,455                   (19)              1,436                  79


Beach Grove                              1,252                   (42)              1,210                  68


York                                    12,564                  (441)             12,123                 666


Inn at Summit Ridge                      1,511                    13               1,524                  89



Wyndhurst                                3,014                   (88)              2,926                 162



FNMA 830083                              1,045                    43               1,088                  92



FNMA 254568                              8,458                   (18)              8,440                 532



FNMA 255366                              6,623                    (9)              2,055                 424



FNMA 254611                              2,064                   (12)              6,611                 140



Total interest income from debt
  securities sold or repaid
  during 2006                               --                    --                  --               5,390
                                   ------------------------------------------------------------------------------

2006 Total                            $ 83,496              $   (914)           $ 82,582             $10,497
                                   ==============================================================================

2005 Total (1)                        $218,891              $  3,832            $222,723             $12,823
                                   ==============================================================================


Twenty  certificates  were sold during  2006.  The sale  resulted  in  aggregate
impairment  losses of  approximately  $2.2 million and a loss on sale associated
with the write-off of unamortized premiums related to the securities,  which was
approximately $784,000.
(1)  The weighted  average  interest rate on the portfolio at December 31, 2005,
     was 6.23%.

                                       54




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Information regarding our investments in debt securities is as follows:




                                                           December 31,
                                                  -----------------------------
(In thousands)                                      2006                 2005
                                                  ---------           ---------
                                                                
Amortized cost                                    $  83,496           $ 218,891

Unrealized gains                                        359               5,707
Unrealized losses                                    (1,273)             (1,875)
                                                  ---------           ---------
Net unrealized (loss) gain                             (914)              3,832
                                                  ---------           ---------

Fair value                                        $  82,582           $ 222,723
                                                  =========           =========



The fair value and gross unrealized losses of our debt securities  aggregated by
length of time that these  individual  debt securities have been in a continuous
unrealized  loss  position,  at December 31, 2006 and 2005, is summarized in the
table below:




(dollars in thousands)

                                      December 31, 2006                               December 31, 2005
                          ----------------------------------------       ------------------------------------------
                          Less than       12 Months                      Less than       12 Months
                          12 Months        or More         Total         12 Months        or More           Total
                          ---------       ---------      ---------       ---------       ---------        ---------
                                                                                         
Number of securities             3               9             12               8              16               24
Fair value                 $35,799         $37,579        $73,378         $25,905         $56,281          $82,186
Gross unrealized loss      $   246         $ 1,027        $ 1,273         $   197         $ 1,678          $ 1,875



The unrealized losses shown above are as a result of increases in interest rates
subsequent to the acquisition of the securities.  All of the debt securities are
performing according to their terms. Furthermore, we have the intent and ability
to hold these  securities to maturity,  or at least until  interest rates change
such that the fair value is no longer less than book value. Accordingly, we have
concluded that these declines in value are temporary.

At December  31,  2006,  all of our debt  securities  were  partially  or wholly
pledged as collateral under our debt securities  repurchase facilities (see Note
9).

NOTE 4 - NOTES RECEIVABLE

Our notes receivable are  collateralized by equity interests in the owner of the
underlying property and consist of the following as of December 31, 2006:




                                 (In thousands)
                                                     Carrying          Interest
Property                         Location             Amount             Rate
------------------------------------------------------------------------------------
                                                         
Del Mar Villas                   Dallas, TX          $  4,940     LIBOR + 4.625% (1)
Oaks of Baytown                  Baytown, TX            2,975     LIBOR + 4.500% (1)
Quay Point                       Houston, TX            1,298     LIBOR + 3.600% (1)
                                                     --------
    2006 Total                                       $  9,213
                                                     ========
    2005 Total                                       $ 13,725
                                                     ========



(1) 30-day LIBOR at December 31, 2006 was 5.33%.


                                       55




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



During 2006,  all of these notes  stopped  making  required  interest  payments,
causing  them  to  be  in  default.   As  information   regarding   these  loans
materialized, we recognized impairment charges on the Del Mar Villas and Oaks of
Baytown  notes due to  deteriorating  operating  performance  of the  underlying
properties  and recorded a charge of $2.4 million.  We determined the impairment
amounts by analyzing the real estate  markets in the locations of the properties
and determining a fair value based on the types of the properties.  As a result,
the carrying  amounts have been  written down to reflect  these fair values.  We
determined that no impairment of Quay Point existed as of 12/31/06.

NOTE 5 - INVESTMENT IN ARCAP

We owned 485,000 units Series A Convertible  Preferred  Membership  Interests in
ARCap as well as 315,000  common  units,  which we acquired  upon  converting an
equal number of preferred  units in December 2005. The initial cost of all units
was $25 each.

During August 2006, we sold our  membership  interests and common units in ARCap
to  CharterMac  (see also Note 20).  In  connection  with the sale,  we received
proceeds of $38.8  million,  consisting of $24.5 million for the purchase of the
interests and $14.3 million of special  distributions for income earned prior to
consummation of the sale. Of the distributions,  we recorded approximately $12.6
million  as a  return  of  capital  and the  sales  proceeds  yielded  a gain of
approximately  $19.2 million. We expect to receive an additional $1.7 million of
proceeds  in  September  2007 which is included  in the gain  recognized  and is
recorded in accounts  receivable in the consolidated  balance sheet.  Contingent
upon future  events,  we may receive an additional  $791,000 of proceeds in 2007
and 2008 which would result in additional gain when received.

NOTE 6 - REAL ESTATE OWNED

Our real estate owned consisted of the following:




(dollars in thousands)
                                                                                           Carrying Value
                                                                                               as of
                                                                                            December 31,
                                                                                ----------------------------------
                                         Number of Units      Location              2006                 2005
                                         -------------------------------------------------------------------------
                                                                                            
Real Estate Owned - Held and Used, net

     Concord Portfolio (1)                    852             Houston, TX         $53,100               $53,407
     Less: accumulated depreciation                                                (4,408)               (3,062)
                                                                                  -------               -------
     Net                                                                          $48,692               $50,345
                                                                                  =======               =======

Mortgages Payable on Real Estate Owned

     Concord Portfolio                                                            $39,944               $40,487
                                                                                  =======               =======

Real Estate Owned - Held for Sale, net

     Reserve at Autumn Creek (2)              212         Friendswood, TX         $    --               $19,462
     Less: accumulated depreciation                                                    --                (1,014)
                                                                                  -------               -------
     Net                                                                          $    --               $18,448
                                                                                  =======               =======



(1) The three  properties  underlying  these  notes  receivable  stopped  paying
interest  in  May  2003.  We   subsequently   exercised  our  rights  under  the
subordinated  promissory  notes and other  documents and took  possession of all
three properties.  We purchased the first mortgages and acquired the real estate
at foreclosure  auctions and sold all three properties to a qualified  501(c)(3)
entity during 2003.  Because we provided 100%  financing to the  purchaser,  the
transaction did not meet the criteria for sale recognition  pursuant to SFAS No.
66, and we  classified  the  properties  as Real Estate Owned - Subject to Sales
Contracts.  Following  the  provisions  of  SFAS  No.  66,  we  account  for the
properties under the deposit method.

During 2004, the properties  were  refinanced  with UBS Real Estate  Investments
Inc., who provided first mortgages of $41.0 million for these properties, and we
reclassified  the  properties  as  Real  Estate  Owned  - Held  and  Used as the


                                       56




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



refinancing  did not qualify as a sale under SFAS No. 66. We recorded  the $41.0
million amortizing  mortgage as a liability and began to record  depreciation on
the  properties  in  2004,  as  well  as  retroactively  for  the  period  since
foreclosure.  We  recognize  income  associated  with a  10-year  $12.8  million
mezzanine  loan,  with a stated  interest rate of 8.00% (our remaining  economic
interest in the properties),  as rental income, property operations and mortgage
interest on Real Estate Owned - Held and Used on our consolidated  statements of
income.

The  following  is a  schedule  of future  principal  payments  on the  mortgage
payable.

                     2007                     $  577
                     2008                        612
                     2009                        649
                     2010                        688
                     2011                      3,196
                                              ------
                     Thereafter
                                              $5,722
                                              ======

(2) During 2006,  this property was sold,  resulting in a gain of  approximately
$230,000.  We have  reclassified  results of property  operations as income from
discontinued operations for the periods prior to the sale.

NOTE 7 - CONCENTRATION

As of December 31, 2006,  87.9% of our  portfolio  was  comprised of  noninsured
investments.  Of this group of assets,  19.8%,  19.4% and 11.0% were  secured by
properties in Texas, California and New York, respectively.  We had no borrowers
exceeding  10%  of  our  portfolio  of  investments  in  mortgage  loans,  notes
receivable and revenue bonds.

NOTE 8 - CDO NOTES PAYABLE

During  2006,  we issued  approximately  $400.0  million of notes and  preferred
shares for our first CDO securitization through a wholly owned subsidiary,  AMAC
CDO Funding I ("AMAC  CDO").  The CDO  consists of $362.0  million  Series I CRE
notes and $12.0  million  of  non-investment  grade  notes and $26.0  million of
preferred  shares,  both of which we  retained.  The  Series I CRE notes have an
absolute maturity of November 2050 and carry a combined weighted average rate of
5.73%. We incurred  approximately $6.8 million of costs related to our first CDO
securitization,  which are being  amortized  on a  straight-line  basis over the
average life of the CDO.

We retained all of the non-investment  grade securities and the preferred shares
in a wholly owned subsidiary,  AMAC CDO I Equity, LLC ("AMAC Equity").  AMAC CDO
holds the assets,  consisting  primarily of first  mortgage  loans,  subordinate
interests in first mortgage loans, mezzanine loans and bridge loans, which serve
as  collateral  for the CDO (see Note 2). As of December 31, 2006,  these assets
totaled  $383.1  million and the  remainder of the proceeds is held in escrow to
fund additional assets.

The CDO  may be  replenished,  pursuant  to  certain  rating  agency  guidelines
relating to credit quality and  diversification  and  substitute  collateral for
loans  that are repaid  during  the first  five  years of the CDO is  permitted.
Thereafter,  the CDO  securities  will  be  retired  in  sequential  order  from
senior-most to junior-most as loans are repaid. The financial statements of both
wholly owned  subsidiaries  are  consolidated in our financial  statements.  The
Series I CRE notes are treated as a secured  financing,  and are non-recourse to
us. Proceeds from the issuance of these notes were used to repay all outstanding
debt  under a  mortgage  loan  repurchase  facility  (see  Note  10) and to fund
additional investments.

NOTE 9 - DEBT SECURITIES REPURCHASE FACILITIES

As a vehicle to leverage our investments in debt  securities,  we had repurchase
agreements  with four  counterparties,  Greenwich  Capital,  Bear  Stearns,  RBC
Capital  Markets and UBS Financial  Services.  Subsequent to the sale of 20 debt
securities  (see Note 3), we paid off two of these  four  repurchase  facilities
with the sale  proceeds.  The  remaining  RBC Capital  Markets and UBS Financial
Services  repurchase  agreements  offer  advance  rates  between 94% and 97% and


                                       57




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



borrowing  rates  between  the  LIBOR  minus  0.03% and LIBOR  plus  0.10%.  The
borrowings are subject to 30-day  settlement  terms. As of December 31, 2006 and
2005, the amount  outstanding under repurchase  facilities was $79.4 million and
$209.1 million,  respectively,  and weighted average interest rate was 4.68% and
4.30%, respectively.

All of our debt  securities  are pledged as collateral in connection  with these
repurchase facilities (see Note 3).

NOTE 10 - MORTGAGE LOAN REPURCHASE FACILITIES

We executed two new  repurchase  facilities  during 2006 in connection  with CDO
financing.  The first facility with Bank of America  ("BOA") was put in place to
fund  investments  that were  placed  into our first CDO  securitization,  which
occurred  in November  2006 and the  repurchase  facility  expired at that time.
Advance rates on the  borrowings  from this  facility  ranged from 50% to 95% of
collateral  value,  as  determined  on a  loan-by-loan  basis.  Interest  on the
borrowings,  which  ranged from LIBOR plus 0.50% to LIBOR plus  2.25%,  was also
determined on a loan-by-loan basis. The outstanding balance of this facility was
paid down with the proceeds received from the CDO securitization (see Note 8).

During December 2006, we executed a second  repurchase  agreement with Citigroup
Global  Markets  Inc.  ("Citigroup").  The  purpose of this  facility is to fund
investments  that are to be priced  into a  planned  second  CDO  securitzation.
Advance rates on the borrowings  from this facility,  ranging from 80% to 90% of
collateral  value,  are  determined  on a  loan-by-loan  basis.  Interest on the
borrowings,  which  range from LIBOR  plus  0.40% to LIBOR plus  1.25%,  is also
determined on a loan-by-loan  basis.  The repurchase  facility  expires upon the
closing  of the  associates  CDO  securitization,  or  twelve  months  after the
inception of the repurchase  facility,  whichever  comes first.  At December 31,
2006 we had  approximately  $84.1 million of borrowings  outstanding  under this
facility, at a weighted average interest rate of 6.13%.

NOTE 11 - WAREHOUSE FACILITY

During   February  2006,  we  repaid  the  remaining   outstanding   balance  of
approximately $4.1 million on a facility we had used to fund investments. We can
no longer borrow from this facility, as it has matured.

NOTE 12 - LINE OF CREDIT - RELATED PARTY

We have a revolving credit facility (the "Revolving  Facility") with CharterMac.
The  Revolving  Facility,  which is  unsecured,  provides up to $50.0 million in
borrowings to be used to purchase new investments and for general purposes,  and
bears  interest at 30-day LIBOR plus 3.00%.  The Revolving  Facility  expires in
June 2007 with a one-year optional extension. In the opinion of our Advisor, the
terms  of  this  facility  are  consistent  with  those  of  transactions   with
independent  third  parties.  At December  31, 2005,  there were no  outstanding
borrowings  under this facility.  As of December 31, 2006, we had  approximately
$15.0 million in borrowings outstanding, bearing interest at 8.35%.

NOTE 13 - SUBSIDIARY EQUITY

During March 2005, AMAC Capital Financing I, a wholly owned  subsidiary,  issued
25,000 Floating Rate Preferred  Securities with a stated  liquidation  amount of
$1,000 per security. We received approximately $24.2 million in proceeds, net of
closing  costs.  The  securities  are callable in March 2010 and bear  interest,
re-set  quarterly,  equal to 30-day LIBOR plus 3.75%.  At December 31, 2006, the
rate was 9.12%.


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              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 14 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consisted of the following:




 (In thousands)                                        December 31,   December 31,
                                                          2006            2005
                                                       -----------    -----------
                                                                   
Interest rate derivatives (see Note 15)                   $ 8,673        $    39
Refundable deposits (1)                                     1,161             --
Accrued interest payable                                    3,078            409
Other                                                         754          1,151
                                                          -------        -------

                                                          $13,666        $ 1,599
                                                          =======        =======



(1) Includes  refundable deposits collected during the due diligence period of a
loan transaction which are payable to other parties.

NOTE 15 - DERIVATIVE INSTRUMENTS

CASH FLOW HEDGES OF DEBT

Our borrowings  under repurchase  facilities,  CDO notes payable and our related
party line of credit incur interest at variable  rates,  exposing us to interest
rate risk. We have  established a policy for risk  management and our objectives
and  strategies for use of derivative  instruments to potentially  mitigate such
risks.

As of  December  31,  2006,  we had 31  interest  rate swaps  with an  aggregate
notional amount of $512.1 million, which will expire on dates ranging from March
2008  through  November  2016 and are  designated  as cash flow  hedges with the
hedged  item  being  the  interest  payments  on  our  variable-rate  repurchase
facilities.  These swaps are recorded at fair value,  with changes in fair value
recorded  in  comprehensive  income to the extent the  hedges are  effective  in
achieving  offsetting  cash flows.  Amounts in accumulated  other  comprehensive
income will be  reclassified  into  earnings in the same period during which the
hedged  forecasted  transaction  affects  earnings.  Since  we are  hedging  the
interest payments on our variable-rate debt, the forecasted transactions are the
interest payments.

We assess  both at  inception  and on an ongoing  basis,  whether  the swaps are
effective in  offsetting  changes in the variable cash flows of the hedged item.
We measure  ineffectiveness  of our cash flow  hedges on a  quarterly  basis and
record any  ineffectiveness  in other  income on the  consolidated  statement of
income.  With the  exceptioin of one swap,  our swaps have been effective and we
expect  they will  continue to be  effective  in the  future.  We have  recorded
ineffectiveness  of  approximately  $212,000 related to the $333.4 million total
return  swap.  This swap  includes an embedded  financing  component,  which has
caused and will continue to cause, some ineffectiveness.

We terminated 33 swaps, 28 of which were classified as free standing derivatives
(see below) when we issued the CDO in  November  2006,  at which time we entered
into a total return swap with a notional amount of approximately $333.4 million,
which will convert the variable cash flows from the CDO to fixed cash flows.  We
have designated this swap as a cash flow hedge.

We estimate that approximately $503,000 of the net unrealized losses included in
accumulated other comprehensive (loss) income will be reclassified into interest
expense within the next twelve months.

FREE-STANDING DERIVATIVES RELATED TO INVESTMENTS

We  have  three  interest  rate  swaps  with an  aggregate  notional  amount  of
approximately  $20.2  million,  which expire on dates ranging from February 2017
through  July  2017,  that are  hedging  changes  in the fair  value of  certain
investments.  We had 28 others (as noted  above)  that were used  similarly  for
assets  securitized  through our first CDO transaction  which were terminated at
that  time.  We did not elect to apply  hedge  accounting  to these  swaps  and,
therefore, the changes in their fair values are included in net income.


                                       59




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



We are  required  to  maintain  a  minimum  balance  of  collateral  with BOA in
connection  with these  interest rate swaps.  From time to time, as market rates
fluctuate,  we may be called upon to post additional cash collateral with BOA to
maintain the fair value of the swaps.  These  payments are held as deposits with
BOA and will be used to settle the swap at termination date if market rates fall
below the fixed rates on the swaps.  At December  31,  2006,  we had no deposits
held by BOA.

FINANCIAL STATEMENT IMPACT

Interest rate swaps for which we were in a net settlement liability position are
recorded in accounts  payable and accrued  expenses  (see Note 14) and those for
which we are in a net settlement asset position are recorded in deferred charges
and other assets. The amounts recorded were as follows:




(In thousands)                                      December 31,       December 31,
                                                       2006                2005
                                                    -----------        -----------
                                                                    
Net asset position                                     $1,143             $  808
Net liability position                                 $8,673             $   39



Net income included the following  related to our free standing  derivatives and
interest rate hedges:




                                          Year ended December 31,
                                   ------------------------------------
(In thousands)                      2006           2005           2004
                                   ------         ------         ------
                                                        
Interest income                    $(659)         $ (42)         $  --
Interest expense                     128            110            628
Other income                         212             --             --
                                   -----          -----          -----

Net                                $(319)         $  68          $ 628
                                   =====          =====          =====



The  decrease in the fair value of our  free-standing  derivatives  for the year
ended  December  31,  2006,  was $5.5  million and is recorded as a reduction of
other income on our consolidated statements of income.

NOTE 16 - SHAREHOLDERS' EQUITY

Common Shares
-------------

Our  independent  trustees  receive a portion of their  annual  compensation  in
common  shares.  In 2006,  we issued  2,040 shares for trustee  compensation  as
compared to 3,036 in 2005.  An  additional  2,120 were issued in January 2007 in
connection with 2006 services.  Expense we recognized related to the 2005 grants
was  approximately  $45,000.  Expense related to those shares issued in 2006 and
2007 was approximately $66,000.

Share Repurchase Program
------------------------

In August 2003, our Board of Trustees approved a share repurchase plan. The plan
enables us to repurchase,  from time to time, up to 1,000,000 common shares. The
repurchases will be made in the open market, and the timing will be dependent on
the  availability  of shares and other  market  conditions.  This program has no
expiration date.  During 2005 and 2004, we repurchased  36,000 and 4,000 shares,
respectively, at a cost of approximately $494,000 and $53,000,  respectively. We
made no such repurchases during 2006.


                                       60




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



Accumulated Other Comprehensive (loss) Income
---------------------------------------------

Changes in  accumulated  other  comprehensive  (loss)  income  consisted  of the
following:




(In thousands)                                         Net unrealized
                                      Net unrealized   (loss) gain on
                                      gain (loss) on    interest rate
                                        investments      derivatives      Total
                                      --------------   --------------   ---------
                                                                
Balance at January 1, 2004               $  8,728        $   (278)       $  8,450
Period change                               1,260             407           1,667
                                         --------        --------        --------
Balance at December 31, 2004                9,988             129          10,117
Period change                              (6,013)            679          (5,334)
                                         --------        --------        --------
Balance at December 31, 2005                3,975             808           4,783
Period change                              (4,769)         (3,642)         (8,411)
                                         --------        --------        --------
Balance at December 31, 2006             $   (794)       $ (2,834)       $ (3,628)
                                         ========        ========        ========



NOTE 17 - INCENTIVE SHARE OPTION PLAN

In  accordance  with our Amended and Restated  Incentive  Share Option Plan (the
"Plan"), our Board of Trustees can award share options to trustees, officers and
employees of our Advisor and its affiliates. A maximum of 839,993 options can be
granted,  with annual  limits based upon 10% of the shares  outstanding  at year
end,  as  specified  in the Plan.  Option  terms and  vesting  requirements  are
determined  at the time of grant,  provided  that the term is no longer than ten
years.

Our  compensation  committee  granted the  following  options to employees of an
affiliate  of our  Advisor  pursuant  to the Plan (none were  granted in 2006 or
2004):




 Year                Number       Exercise Price         Term         Vesting Period
 ------------    -------------    ---------------    -------------    --------------
                                                              
 2003               190,000           $15.03           10 years           3 years
 2005                65,062           $17.20           10 years           3 years



The weighted average  assumptions used for valuing these options and the results
of the valuations were as follows:




                                              2006 (1)         2005           2004
                                              --------       --------       --------
                                                                    
Dividend Yield                                  9.98%         10.95%          9.30%

Estimated Volatility                           25.00%         26.00%         16.00%

Risk Free Interest Rate                         4.73%          4.36%          3.93%

Expected Lives (years)                          4.9            8.0            8.3



(1)  These  weighted  average  assumptions  are as of March 31,  2006,  the last
     period these  options were  re-valued,  as both grants were vested  shortly
     after this date and fully amortized.


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              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



The following table  summarizes  share option activity in our share option plans
for the years ended December 31:




                                                 2006                        2005                        2004
                                       ------------------------    ------------------------    ------------------------
                                                      Weighted                    Weighted                    Weighted
                                                       Average                     Average                     Average
                                                      Exercise                    Exercise                    Exercise
                                        Options         Price       Options         Price       Options         Price
                                       ---------      ---------    ---------      ---------    ---------      ---------
                                                                                            
Outstanding
   at Beginning of Year                  187,052      $   15.78      130,000      $   15.03      190,000      $   15.03
Granted                                       --             --       65,052          17.20           --             --
Forfeited                                     --             --       (8,000)         15.03      (60,000)         15.03
Exercised                                (94,052)         16.53           --             --           --             --
                                       ---------      ---------    ---------      ---------    ---------      ---------

Outstanding
   at End of Year                         93,000          15.03      187,052      $   15.78      130,000      $   15.03
                                       =========      =========    =========      =========    =========      =========
Fair Value of options granted
   during the year (at grant date)     $      --      $      --    $  64,000      $   17.20    $      --      $      --
                                       =========      =========    =========      =========    =========      =========
Compensation cost recognized           $  59,000 (1)               $      --                   $  45,500
                                       ============                =========                   =========



(1)  Includes  accelerated  vesting of 2005 grants upon the  termination  of the
optionee.




                                                        As of December 31, 2006
                                          ---------------------------------------------------
                                                                    Weighted
                                                                     Average
                                                       Weighted     Remaining     Aggregate
                                                        Average    Contractual    Intrinsic
                                                       Exercise        Term         Value
                                           Options       Price      (in years)  (in thousands)
                                          ---------------------------------------------------
                                                                        
Vested and expected to vest at
  end of period                             93,000     $  15.03         6.3         $  172
                                          ===================================================

Exercisable at end of year                  93,000     $  15.03         6.3         $  172
                                          ===================================================



The aggregate  intrinsic  value at December 31, 2006,  represents the difference
between  our  closing  share  price on the last  trading day of the year and the
exercise prices of the outstanding options. This amount will change based on the
fair market value of our shares.

As of  December  31,  2006,  the  cost of all of our  share  options  was  fully
amortized,   and  there  was  no  unrecognized   compensation  cost  related  to
share-based  compensation  grants.  There  were  652,941  shares  available  for
issuance as of December 31, 2006.


                                       62




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



NOTE 18 - EARNINGS PER SHARE

Diluted net income per share is calculated  using the weighted average number of
shares  outstanding  during the period plus the  additional  dilutive  effect of
common share  equivalents.  The dilutive effect of outstanding  share options is
calculated using the treasury stock method.

(In thousands, except per share amounts)




Year Ended December 31, 2006                    Income        Shares      Per Share
                                               --------      --------     ---------
                                                                  
   Basic EPS                                   $ 2,687         8,323       $  0.32

   Effect of dilutive securities                    --             7            --
                                               -------       -------       -------

   Diluted EPS                                 $ 2,687         8,330       $  0.32
                                               =======       =======       =======


Year Ended December 31, 2005


   Basic EPS                                   $15,235         8,316       $  1.83

   Effect of dilutive securities                    --             1            --
                                               -------       -------       -------

   Diluted EPS                                 $15,235         8,317       $  1.83
                                               =======       =======       =======


Year Ended December 31, 2004


   Basic EPS                                   $11,273         8,336       $  1.35

   Effect of dilutive securities                    --             7            --
                                               -------       -------       -------

   Diluted EPS                                 $11,273         8,343       $  1.35
                                               =======       =======       =======



NOTE 19 - DISCONTINUED OPERATIONS

Income or loss from  discontinued  operations  included the following related to
the Reserve at Autumn Creek (which we sold from our Real Estate Owned  portfolio
in  October  2006)  and the  Plaza at San  Jacinto  (which we sold from our Real
Estate Owned portfolio in 2005):




(in thousands)                                Year Ended December 31,
                                         -------------------------------
                                         2006 (1)       2005       2004
                                         --------      ------     ------
                                                         
Revenues                                  $  663       $2,280     $  811
                                          ======       ======     ======
Net income (loss)                         $  569       $  434     $ (177)
                                          ======       ======     ======



(1) 2006 net income includes an approximate $230,000 gain on the sale realted to
the Autumn Creek property.

NOTE 20 - RELATED PARTY TRANSACTIONS

Fees to Advisor
---------------

Pursuant to the March 2006 amended Advisory Services  Agreement with our Advisor
(the  "Amended  Advisory  Agreement"),  we pay  certain  fees,  in  addition  to
reimbursements of certain  administrative  and other costs our Advisor incurs on
our behalf, for its ongoing management and operations of our Company:

Fees/Compensation              Annual Amount
-----------------              -------------

I. Asset management fees       Our  Advisor  receives  an  asset  management fee
                               equal  to 1.75%  per  year of our equity balance,
                               reduced  by   certain   costs   to  us  from  the
                               repurchasing  of our common shares, and excluding
                               one time  events  pursuant to changes in GAAP, as
                               well as certain approved non-cash charges.


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              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



II. Loan origination fees      Our Advisor is  entitled to receive, with respect
                               to   each  investment  originated   by   us,  the
                               origination  points,  if any,  paid by borrowers.
                               In connection with the acquisition of investments
                               for us, the Advisor may also act as an advisor to
                               third parties which  participate  with us in such
                               investments  and may receive  origination points,
                               if   any,  from   such   third   parties or their
                               borrowers.

III.  Annual incentive         Subject  to  (1)  a  minimum annual  distribution
      management fees          being made to  shareholders  from cash  available
                               for  distribution ("CAD") of $1.45 per share  and
                               (2)  the  Company  achieving   at  least   annual
                               Adjusted  Funds from  Operations  (defined below)
                               per share of  $1.60 (net of  this incentive fee),
                               the   Advisor  shall  be   entitled   to  receive
                               incentive compensation for each fiscal year in an
                               amount equal to the product of:

                               (A) 25% of the dollar amount by which

                                   (1)  Adjusted  Funds From  Operations  before
                                        this incentive management fee  per share
                                        (based on the  weighted  average  number
                                        of   shares   outstanding),    excluding
                                        non-cash  gains  or  losses  due  to the
                                        recording of fair  value hedges

                                   exceed

                                   (2)  an  amount  equal to the  greater of:

                                        (a)(i) the weighted average of  (x)  $20
                                               and (y) the prices per  share  of
                                               any  secondary  offerings  by the
                                               Company multiplied by

                                           (ii) the Ten Year  U.S. Treasury Rate
                                               plus 2% per annum; and;

                                        (b) $1.45

                               multiplied by

                               (B) the   weighted   average   number  of  shares
                                   outstanding during such year.

                               "Adjusted Funds From Operations" means net income
                               (computed  in  accordance  with  GAAP)  including
                               realized    gains    (or  losses)   from     debt
                               restructuring   and   sales   of   assets,   plus
                               depreciation  and  amortization on real property,
                               and   after   adjustments    for   unconsolidated
                               partnerships  and  joint ventures.

                               "CAD" means  cash  available  for  distributions,
                               which   shall  consist  of  our  net  income  (as
                               determined pursuant to GAAP) adjusted for certain
                               non-cash   charges  (as  determined  pursuant  to
                               GAAP).

IV. Shared services expenses   Our  Advisor  is  reimbursed  by  us  for (i) the
                               actual  costs to the Advisor of goods,  materials
                               and  services  used  for  and by us obtained from
                               unaffiliated parties,  (ii)  the costs of certain
                               personnel  employed  by the  Advisor and directly
                               involved  in the  organization  and  business  of
                               our company and for legal,  accounting   transfer
                               agent,   reinvestment    and    redemption   plan
                               administration,   data   processing,  duplication
                               and  investor  communications  services performed
                               by employees of officers of the Advisor.


                                       64




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



V. Termination                 The Advisor  can terminate the agreement  without
                               penalty,  but we are  subject  to  a  termination
                               fee,   except   in    certain    instances,   for
                               termination  or non-renewal,  equal to four times
                               the  asset   management  fee  and  four times the
                               incentive  management  fee that our Advisor would
                               have been entitled  to receive from us during the
                               four   calendar   quarter   period    immediately
                               proceeding   the   effective   date   of     such
                               termination. Termination  would be effective upon
                               60   days    prior   written    notice   to   the
                               non-terminating  party. If our Advisor terminates
                               our agreement,  we  may  not  be  able to find an
                               adequate  replacement advisor.

The costs paid or payable to our Advisor were as follows:




(in thousands)                                     Years Ended December 31,
                                              ----------------------------------
                                               2006          2005          2004
                                              ------        ------        ------
                                                                 
Asset management fees                         $1,810        $1,545        $1,274
Incentive management  fee                       --           1,855            --
Shared service expenses                        1,673           947           682
                                              ------        ------        ------

                                              $3,483        $4,347        $1,956
                                              ======        ======        ======



Prior to the  March  2006  Amendment  to the  Amended  Advisory  Agreement,  the
following  fees were paid to the  Advisor  differently  that they are  currently
paid.

     o    ASSET  MANAGEMENT FEES - We paid asset  management fees to our Advisor
          calculated on a set percentage for each asset class.
     o    LOAN  ORIGINATION  FEES -  origination  points paid by borrowers  were
          first paid to our  Advisor  for  amounts  up to 1.0% of the  principal
          amount of each note and we received any excess origination points paid
          by borrowers, if any, above the 1.0%.

Other Related Party Transactions
--------------------------------

In September 2005, we sold a mortgage loan, at par, to CharterMac.

During April 2006, we purchased a first mortgage loan from  CharterMac (see Note
2).  Including  this loan,  during 2006 we  partially  or fully  funded 58 first
mortgage  loans  and  subordinated   notes,  with  a  carrying  amount  totaling
approximately   $500.1  million,   originated  by  CharterMac  Mortgage  Capital
Corporation  ("CMC"),  an  affiliate of our  Advisor.  Additionally,  CharterMac
subsidiaries  may act as a broker on our behalf from time to time in origination
transactions.  CMC received  approximately $2.0 million in loan origination fees
related to these originations, all of which were paid by the borrowers.

In 2006, included in the origination activity above, we funded:

     o    two first  mortgage  loans  aggregating  $39.7  million to  properties
          developed by a company controlled by the chairman of CharterMac;
     o    a first  mortgage  loan ($31.0  million) to a property of which a fund
          managed by a subsidiary of CharterMac is the 99.98% limited partner of
          the borrower; and
     o    a first  mortgage  loan  ($22.0  million)  to a  property  that  has a
          preferred  equity interest in it made by CharterMac Urban Capital Fund
          I LLC, a fund managed by a subsidiary of CharterMac.

In the opinion of  management,  the terms of these  transactions  are consistent
with those  transactions  with  independent  third  parties (see also Note 2 for
detailed terms of loans).


                                       65




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



During April 2006, we amended our loan agreement with CharterMac to increase our
borrowing capacity to $50.0 million and extend the maturity date of the facility
to June 2007 (see Note 12).

During  September 2006, a subsidiary of CharterMac  funded a first mortgage note
in the amount of approximately  $27.3 million as part of a refinancing of one of
our loans (see Note 2).

During August 2006, we entered into a  co-investment  agreement  with ARCap Real
Estate Special Situations Mortgage Fund, L.L.C.  ("ARESS");  a fund managed by a
subsidiary  of  CharterMac,  whereby  we and ARESS will  participate  equally in
investment  opportunities  that are  originated by affiliates and which meet the
investment criteria of both companies.

During  March  2007,  a $32.5  million  mezzanine  loan was  funded to a special
purpose  entity  controlled by the chairman of  CharterMac,  who also controls a
separate special purpose entity that is guaranteeing the loan (see Note 23).

NOTE 21 - SELECTED QUARTERLY FINANCIAL DATA




                                                                         (unaudited)
                                                                    2006 Quarter Ended
                                                    ----------------------------------------------------
(In thousands except per share amounts)

                                                    March 31  June 30  September 30 (1)  December 31 (2)
                                                    --------  -------  ----------------  ---------------
                                                                                 
Total revenues                                       $7,416    $8,996      $10,213           $12,003
                                                     ======    ======      =======           =======

Net income (loss)                                    $2,169    $5,215      $ 1,234           $(5,931)
                                                     ======    ======      =======           =======

Net income (loss) from continuing operations per
  share (basic and diluted)                          $ 0.27    $ 0.60      $  0.14           $ (0.74)
                                                     ======    ======      =======           =======

Net income (loss) from discontinued operations per
  share (basic and diluted)                          $(0.01)   $ 0.03      $  0.01           $  0.04
                                                     ======    ======      =======           =======

Net income per share (basic and diluted)             $ 0.26    $ 0.63      $  0.15           $ (0.70)
                                                     ======    ======      =======           =======





                                                                    2005 Quarter Ended
                                                    --------------------------------------------------

                                                    March 31  June 30  September 30 (3)    December 31
                                                    --------  -------  ----------------    -----------
                                                                                  
Total revenues                                      $ 6,183    $7,276      $12,766            $7,638
                                                    =======    ======      =======            ======

Net income                                          $ 2,827    $3,069      $ 7,312            $2,027
                                                    =======    ======      =======            ======

Net income from continuing operations per share
  (basic and diluted)                               $  0.30    $ 0.33      $  0.83            $ 0.32
                                                    =======    ======      =======            ======

Net income (loss) from discontinued operations per
  share (basic and diluted)                         $  0.04    $ 0.04      $  0.05            $(0.08)
                                                    =======    ======      =======            ======

Net income per share (basic and diluted)            $  0.34    $ 0.37      $  0.88            $ 0.24
                                                    =======    ======      =======            ======



     (1)  Includes  a gain  resulting  from  the  sale of our  ARCap  membership
          interests ($19.2  million),  an expense related to changes in the fair
          value of certain  interest  rate swaps to which we do not apply  hedge
          accounting  ($8.4  million),  losses  relating  to the sale of 20 FNMA
          securities ($3.0 million) and impairment  losses recorded on two notes
          receivable and one mezzanine loan ($2.4 million).
     (2)  Includes  impairment  losses  relating to three mezzanine loans ($12.9
          million),  and income  recognized  from increases in the fair value of
          certain interest rate swaps ($2.9 million).
     (3)  Includes  $5.6  million of fees  relating to an early payoff of a debt
          security and a mezzanine loan.

NOTE 22 - COMMITMENTS AND CONTINGENCIES

a) Legal

On October 27, 2003,  prior to taking  possession of the real estate  collateral
supporting a loan investment, we were named in a lawsuit, Concord Gulfgate, Ltd.
vs. Robert  Parker,  Sunrise  Housing  Ltd.,  and American  Mortgage  Acceptance
Company,  Cause No.  2003-59290 in the 133rd  Judicial  District Court of Harris


                                       66




              AMERICAN MORTGAGE ACCEPTANCE COMPANY AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS



County,  Texas.  The suit  alleged  that the loan  transaction  was not properly
authorized by the borrower and was not for a legitimate  borrower  purpose.  The
suit claimed,  among other causes of action against the  respective  defendants,
wrongful foreclosure of the real estate collateral,  tortious  interference with
contract and civil  conspiracy.  The suit sought,  among other  relief,  actual,
consequential,  and exemplary damages, and a declaration that the loan documents
were  unenforceable  and constituted a cloud on title. The case went to trial in
September  2006 and was  settled for  $150,000.  This  amount is  recognized  in
general and administrative expenses in our consolidated statements of income.

b) Guarantees

Prior to 2000,  we entered into a loan  program with Fannie Mae,  under which we
agreed to guarantee a  first-loss  position on certain  loans,  which could have
potentially  resulted  in an  aggregate  exposure of $7.5  million.  In June and
October  of 2000,  we  originated  two loans  totaling  $3.3  million  under the
program.  In September  2003, we transferred and assigned all of our obligations
with  respect to these two loans to CMC, a  subsidiary  of  CharterMac,  both of
which  are  affiliates  of the  Advisor.  Pursuant  to the  agreement  with CMC,
CharterMac guaranteed CMC's obligations, and we agreed to indemnify both CMC and
CharterMac  for any losses  incurred in exchange for retaining all fees which we
were  otherwise  entitled  to receive  from  Fannie Mae under the  program.  The
maximum exposure at December 31, 2006, was $3.2 million, although we expect that
we will not be called upon to fund these  guarantees,  and  therefore,  have not
recorded a liability.

In the first quarter of 2003, we  discontinued  our loan program with Fannie Mae
and will issue no further guarantees pursuant to such program.

For these  guarantees,  we monitor the status of the  underlying  properties and
evaluate our exposure under the  guarantees.  To date, we have concluded that no
accrual  for  probable  losses is  required  under  SFAS No. 5,  ACCOUNTING  FOR
CONTINGENCIES.

Future Funding Commitments
--------------------------

We are committed to additionally fund the following  mezzanine loans at December
31, 2006:




                                                                          (dollars in thousands)
                                                                             MAXIMUM AMOUNT OF
                                                                                COMMITMENT
                                                                        --------------------------
                                                            NO. OF APT.                 LESS THAN
ISSUE DATE       PROJECT                LOCATION              UNITS          TOTAL        1 YEAR
--------------------------------------------------------------------------------------------------
                                                                          
  Apr-05         Atlantic Hearthstone   Hillsborough, NJ        198         $1,022       $1,022
                                                            --------------------------------------

TOTAL FUTURE FUNDING COMMITMENTS                                198         $1,022       $1,022
                                                            ======================================



NOTE 23 - SUBSEQUENT EVENTS

During  March  2007,  a $32.5  million  mezzanine  loan was  funded to a special
purpose entity  controlled by the chairman of  CharterMac.  The guarantor on the
loan is also a special  purpose entity  controlled by the chairman of CharterMac
(see Note 20).

During March 2007, one of our non-independent trustees has retired.


                                       67




ITEM  9.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

None.

ITEM 9A.  CONTROLS AND PROCEDURES.

(a)       EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.  Our Chief Executive
          Officer and Chief Financial  Officer have evaluated the  effectiveness
          of  our  disclosure  controls  and  procedures  (as  defined  in  Rule
          13a-15(e) or Rule 15a-15(e) under the Securities Exchange Act of 1934,
          as amended (the  "Exchange  Act")) as of the end of the period covered
          by this annual report.  Based on such  evaluation,  such officers have
          concluded that our disclosure controls and procedures as of the end of
          the period covered by this annual report were effective to ensure that
          information  required  to be  disclosed  by the Company in the reports
          that the Company  files or submits under the Exchange Act is recorded,
          processed,  summarized and reported, within the time periods specified
          in the SEC rules and forms,  and to ensure  that such  information  is
          accumulated and  communicated to the Company's  management,  including
          the  Chief  Executive   Officer  and  Chief  Financial   Officer,   as
          appropriate, to allow timely decisions regarding required disclosure.

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

ITEM 9B.  OTHER INFORMATION.

None.


                                       68




                                    PART III


ITEM 10.  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

          Incorporated by reference to the Company's  definitive proxy statement
          to be filed pursuant to Regulation  14A under the Securities  Exchange
          Act of 1934, as amended (the "Exchange Act").

ITEM 11.  EXECUTIVE COMPENSATION.

          Incorporated by reference to the Company's  definitive proxy statement
          to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 12.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
          RELATED STOCKHOLDER MATTERS.

          Incorporated by reference to the Company's  definitive proxy statement
          to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 13.  CERTAIN   RELATIONSHIPS  AND   RELATED   TRANSACTIONS,   AND  DIRECTOR
          INDEPENDENCE.

          Incorporated by reference to the Company's  definitive proxy statement
          to be filed pursuant to Regulation 14A under the Exchange Act.

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES.

          Incorporated by reference to the Company's  definitive proxy statement
          to be filed pursuant to Regulation 14A under the Exchange Act.

                                     PART IV

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES.




                                                                                  Sequential
                                                                                     Page
                                                                                  ----------
                                                                                
(a) 1.    Financial Statements

          Report of Independent Registered Public Accounting Firm                     35

          Consolidated Balance Sheets as of December 31, 2006 and 2005                36

          Consolidated  Statements  of Income for the years ended  December  31,
          2006, 2005 and 2004                                                         37

          Consolidated  Statements of  Shareholders'  Equity for the years ended
          December 31, 2006, 2005 and 2004                                            38

          Consolidated Statements of Cash Flows for the years ended December 31,
          2006, 2005 and 2004                                                         39

          Notes to Consolidated Financial Statements                                  41



(a) 2.    Financial Statement Schedules

          All  schedules  have been  omitted  because  they are not  required or
          because the required  information  is  contained  in the  consolidated
          financial statements or notes thereto.


                                       69




ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)




                                                                                  Sequential
                                                                                     Page
                                                                                  ----------
                                                                                
(a) 3.    Exhibits
          --------

3.1       Third Amended and Restated  Declaration  of Trust,  dated June 8, 2005
          (incorporated by reference to Appendix A to Proxy Statement filed with
          the Commission on April 28, 2005).

3.2       Amended and Restated Bylaws of American Mortgage Acceptance Company, a
          real estate investment trust  (incorporated by reference to Exhibit to
          Appendix B to Proxy  Statement  filed with the Commission on April 28,
          2005).

3.3       Amendment  to the Amended  and  Restated  Bylaws of American  Mortgage
          Acceptance Company  (incorporated by reference to Exhibit 10(a) to the
          Company's December 31, 2005 Annual Report on Form 10-K).

3.4       Amendment  No.  2 to the  Amended  and  Restated  Bylaws  of  American
          Mortgage   Acceptance   Company,   a  real  estate   investment  trust
          (incorporated  by reference to our Current Report on Form 8-K filed on
          November 6, 2006).

10(a)     Second  Amended and Restated  Advisory Service  Agreement  between the
          Company and CharterMac AMI Associates Inc.  (incorporated by reference
          to Exhibit 10(a) to the  Company's  December 31, 2005 Annual Report on
          Form 10-K).

10(b)     Amendment  to  the  Second  Amended  and  Restated  Advisory  Services
          Agreement,  dated July 26,  2006,  by and  between  American  Mortgage
          Acceptance  Company,  a Massachusetts real estate investment trust and
          CharterMac AMI Associates,  Inc., a Delaware corporation (incorporated
          by  reference  to our  Current  Report  on Form 8-K  filed on July 31,
          2006).

10(c)     Form  of Non-Qualified  Share Option Award Agreement  (incorporated by
          reference to Exhibit 10(g) to the  Company's  December 31, 2005 Annual
          Report of Form 10-K).

10(d)     Amended  and  Restated  Incentive  Share  Option  Plan  of the Company
          (incorporated  by reference to our Current Report on Form 8-K filed on
          August 26, 2004).

10(e)     First  Amendment  to the Amended and Restated  Incentive  Share Option
          Plan of the Company,  dated June 9, 2004 (incorporated by reference to
          Exhibit 10(e) to the Company's June 30, 2004 Amended  Quarterly Report
          on Form 10-Q/A).

10(f)     Loan  Agreement between  CharterMac and American  Mortgage  Acceptance
          Company as of June 30,  2004  (incorporated  by  reference  to Exhibit
          10(d) to the Company's December 31, 2005 Annual Report on Form 10-K).

10(g)     Master  Repurchase  Agreement,  dated  March 29, 2006,  among AMAC CDO
          Funding I, as seller and Bank of America,  N.A.  together with Banc of
          America  Securities  LLC, as buyer  (incorporated  by reference to our
          Current Report on Form 8-K filed on April 4, 2006).

10(h)     Amendment  No. 1 to Master Repurchase  Agreement,  dated September 14,
          2006,  by and among AMAC CDO Funding I, as seller and Bank of America,
          N.A.   together  with  Banc  of  America   Securities  LLC,  as  buyer
          (incorporated  by reference to our Current Report on Form 8-K filed on
          September 19, 2006).



                                       70




ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)




                                                                                  Sequential
                                                                                     Page
                                                                                  ----------
                                                                                
10(i)     Custodial  Agreement,  dated  March  29,  2006,  by and among AMAC CDO
          Funding I, a Cayman Islands exempted company,  as seller,  and Bank of
          America, N.A., a national banking association organized under the laws
          of the United States  together with Banc of America  Securities LLC, a
          limited  liability  company  organized under the laws of Delaware,  as
          buyer  and   Lasalle   Bank   National   Association,   as   custodian
          (incorporated  by reference to our Current Report on Form 8-K filed on
          April 4, 2006).

10(j)     Guarantee,  dated  March 29,  2006,  by American  Mortgage  Acceptance
          Company, as guarantor,  in favor of Bank of America,  N.A. and Banc of
          America   Securities   LLC,  as  buyer   (incorporated   by  reference
          (incorporated  by reference to our Current Report on Form 8-K filed on
          April 4, 2006).

10(k)     First Amendment  to the Loan Agreement,  dated June 30, 2005,  between
          American Mortgage Acceptance  Company, as borrower and CharterMac,  as
          lender  (incorporated  by reference to our Current  Report on Form 8-K
          filed on April 26, 2006).

10(l)     Second  Amendment  to the Loan Agreement,  dated as of April 19, 2006,
          between  American  Mortgage   Acceptance   Company,  as  borrower  and
          CharterMac, as lender (incorporated by reference to our Current Report
          on Form 8-K filed on April 26, 2006).

10(m)     Amended  and Restated  Credit Note,  dated April 19, 2006, in favor of
          CharterMac lender  (incorporated by reference to our Current Report on
          Form 8-K filed on April 26, 2006).

10(n)     Securities  Purchase  Agreement,  dated  August 15, 2006, by and among
          CharterMac,  Charter Mac  Corporation,  CM Arcap  Investors  LLC,  The
          Common  Members  listed on Schedule I thereto,  The Preferred  Members
          listed on Schedule I thereto,  Arcap  Investors,  L.L.C.,  Arcap Reit,
          Inc. and AI Sellers Representative,  L.L.C. (incorporated by reference
          to our Current Report on Form 8-K filed on August 21, 2006).

10(o)     Pledge  And Security Agreement,  dated September 14, 2006, by American
          Mortgage  Acceptance  Company,  a  Massachusetts  business  trust,  as
          pledgor for the benefit of Bank of America,  N.A., a national  banking
          association and Banc of America  Securities  LLC, a limited  liability
          company organized under the laws of Delaware,  as buyer  (incorporated
          by reference to our Current  Report on Form 8-K filed on September 19,
          2006).

21        Subsidiaries of our Company*

23        Consent of Independent Registered Public Accounting Firm*

23(a)     Consent  of   Ernst & Young  LLP  with  respect  to  incorporation  by
          reference of its report relating to the financial  statements of ARCap
          Investors, LLC in the Company's Registration Statement on form S-3 and
          Form S-8  (incorporated by reference to Exhibit 23(a) to the Company's
          December 31, 2004, Annual Report on Form 10-K/A).

24.1      Power of Attorney (Included on signature page hereto)

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

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

32.1      Certification  pursuant  to Section 906 of the  Sarbanes-Oxley  Act of
          2002*



                                       71




ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES (CONTINUED)




                                                                                  Sequential
                                                                                     Page
                                                                                  ----------
                                                                                
99.       Additional Exhibits

99(a)     The  2004 Financial  Statements of ARCap Investors,  LLC which invests
          primarily in subordinated commercial  mortgage-backed  securities,  as
          required by Regulation  S-X, Rule 3-09  (Incorporated  by reference to
          Exhibit  99(a) to the  Company's  December 31, 2004,  Annual Report on
          Form 10-K/A).

          *  Filed herewith



                                       72




                                   SIGNATURES
                                   ----------


Pursuant to the  requirements of Section 13 or 15(d) of the Securities  Exchange
Act of 1934,  the  registrant  has duly  caused  this report to be signed on its
behalf by the registrant and in the capacities and dates indicated.


                      AMERICAN MORTGAGE ACCEPTANCE COMPANY
                                  (Registrant)



Date:  March 15, 2007                    By:  /s/ James L. Duggins
                                              --------------------
                                              James L. Duggins
                                              Chief Executive Officer
                                              (Principal Executive Officer)

Date:  March 15, 2007                    By:  /s/ Robert L. Levy
                                              ------------------
                                              Robert L. Levy
                                              Chief Financial Officer
                                              (Principal Financial Officer
                                               and Principal Accounting Officer)


                                       73




                                POWER OF ATTORNEY

Each person whose signature appears below hereby  constitutes and appoints James
L. Duggins and Robert L. Levy,  and each or either of them,  his true and lawful
attorney-in-fact with full power of substitution and resubstitution, for him and
in his name,  place and stead,  in any and all  capacities,  to sign any and all
amendments to this Annual  Report,  and to cause the same to be filed,  with all
exhibits  thereto  and  other  documents  in  connection  therewith,   with  the
Securities 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 the registrant
and in the capacities and on the dates indicated:



      Signature                   Title                      Date
----------------------       ----------------          ----------------


/s/ Jeff T. Blau
----------------
Jeff T. Blau                 Managing Trustee           March 15, 2007


/s/ James L. Duggins
--------------------
James L. Duggins             Managing Trustee           March 15, 2007


/s/ George P. Jahn
------------------
George P. Jahn               Managing Trustee           March 15, 2007


/s/ Harry Levine
----------------
Harry Levine                 Managing Trustee           March 15, 2007


/s/ Scott M. Mannes
-------------------
Scott M. Mannes              Managing Trustee           March 15, 2007


/s/ Stanley R. Perla
--------------------
Stanley R. Perla             Managing Trustee           March 15, 2007


/s/ Richard M. Rosan
--------------------
Richard M. Rosan             Managing Trustee           March 15, 2007


/s/ Marc D. Schnitzer
---------------------
Marc D. Schnitzer            Chairman                   March 15, 2007


                                       74




                                                                      Exhibit 21



               Subsidiaries of the Company as of December 31, 2006
               ---------------------------------------------------

AMAC Credit Facility, LLC, a Delaware limited liability company

AMAC Capital Financing I, a Delaware statutory trust

AMAC CDO Funding I, a Cayman Islands exempt company

AMAC CDO Equity, LLC, a Delaware limited liability company

AMAC CDO I Advancing, LLC, a Delaware limited liability company

AMAC CRE Funding II, LTD, a Cayman Islands exempt company


                                       75




                                                                      Exhibit 23



            CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


We consent to the  incorporation  by reference  in  Registration  Statement  No.
333-87440 of American Mortgage  Acceptance  Company and subsidiaries on Form S-3
and in Registration  Statement No.  333-118572 of American  Mortgage  Acceptance
Company  and  subsidiaries  on Form S-8 of our  reports  dated  March  15,  2007
relating  to  the  consolidated   financial   statements  of  American  Mortgage
Acceptance  Company and  management's  report on the  effectiveness  of internal
control over financial  reporting appearing in the Annual Report on Form 10-K of
American  Mortgage  Acceptance  Company  and  subsidiaries  for the  year  ended
December 31, 2006.



/s/ DELOITTE & TOUCHE LLP
New York, New York
March 15, 2007



                                       76




                                                                    Exhibit 31.1

                                  CERTIFICATION

I, James L. Duggins, hereby certify that:

     1.  I have reviewed  this annual  report on Form 10-K of American  Mortgage
         Acceptance Company;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary 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 annual 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 have:

          a) designed such disclosure  controls and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;

         b) designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principals;

          c) evaluated the effectiveness of the registrant's disclosure controls
          and  procedures  and presented in this 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 the
          registrant's  board of directors (or persons performing the equivalent
          functions):

         a) all significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal control over financial reporting.


         Date:  March 15, 2007                     By: /s/ James L. Duggins
                --------------                         --------------------
                                                       James L. Duggins
                                                       Chief Executive Officer


                                       77





                                                                    Exhibit 31.2

                                  CERTIFICATION

I, Robert L. Levy, hereby certify that:

     1.  I have reviewed  this annual  report on Form 10-K of American  Mortgage
         Acceptance Company;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary 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 annual 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 have:

          a) designed such disclosure  controls and  procedures,  or caused such
          disclosure   controls  and   procedures  to  be  designed   under  our
          supervision,  to ensure  that  material  information  relating  to the
          registrant,  including its consolidated subsidiaries, is made known to
          us by others within those entities,  particularly during the period in
          which this annual report is being prepared;

         b) designed such internal control over financial  reporting,  or caused
         such internal control over financial reporting to be designed under our
         supervision,  to provide reasonable assurance regarding the reliability
         of financial reporting and the preparation of financial  statements for
         external  purposes in accordance  with  generally  accepted  accounting
         principals;

          c) evaluated the effectiveness of the registrant's disclosure controls
          and  procedures  and presented in this 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 the
          registrant's  board of directors (or persons performing the equivalent
          functions):

         a) all significant  deficiencies and material  weaknesses in the design
         or operation of internal  control over  financial  reporting  which are
         reasonably  likely to  adversely  affect  the  registrant's  ability to
         record, process, summarize and report financial information; and

         b) any fraud,  whether or not  material,  that  involves  management or
         other  employees  who  have a  significant  role  in  the  registrant's
         internal control over financial reporting.


         Date:  March 15, 2007                     By: /s/ Robert L. Levy
                --------------                         ------------------
                                                       Robert L. Levy
                                                       Chief Financial Officer


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                                                                    Exhibit 32.1



                            CERTIFICATION PURSUANT TO
                             18.U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In connection  with the Annual Report of American  Mortgage  Acceptance  Company
(the  "Company")  on Form 10-K for the year ending  December 31, 2006,  as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, James L.  Duggins,  Chief  Executive  Officer of the Company and I, Robert L.
Levy,  Chief Financial  Officer of the Company,  certify,  pursuant to 18 U.S.C.
Section 1350, as adopted  pursuant to Section 906 of the  Sarbanes-Oxley  Act of
2002, that:


       (1) The Report fully complies with the  requirements  of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and


       (2) The  information  contained  in the Report  fairly  presents,  in all
material  respects,  the  financial  condition  and results of operations of the
Company.


By:  /s/ James L. Duggins                            By: /s/ Robert L. Levy
     --------------------                                ------------------
     James L. Duggins                                    Robert L. Levy
     Chief Executive Officer                             Chief Financial Officer
     March 15, 2007                                      March 15, 2007


A signed  original of this  written  statement  required by Section 906 has been
provided to the Company and will be retained by the Company and furnished to the
Securities and Exchange Commission or its staff upon request.


                                       79