Resource America (REXI) 10-K/A 2006 FY Annual report (amended)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

(Mark One)

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

For the fiscal year ended September 30, 2006

or

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

For the transition period from _________ to __________

Commission file number: 0-4408

RESOURCE AMERICA, INC.

(Exact name of registrant as specified in its charter)

Delaware  (State or other jurisdiction of incorporation or organization)	72-0654145 (I.R.S. Employer Identification No.)
One Crescent Drive, Suite 203 Navy Yard Corporate Center Philadelphia, PA  (Address of principal executive offices)	19112 (Zip Code)
Registrant’s telephone number, including area code:  215-546-5005
Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Name of each exchange on which registered
None	None

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

Common stock, par value $.01 per share

Title of class

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes oNo x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(a) of the Act. Yes oNo x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes xNo o

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. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No o

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

The aggregate market value of the voting common equity held by non-affiliates of the registrant, based on the closing price of such stock on the last business day of the registrant’s most recently completed second fiscal quarter (March 31, 2006) was approximately $207,494,000.

The number of outstanding shares of the registrant’s common stock on December 1, 2006 was 17,292,049 shares.

DOCUMENTS INCORPORATED BY REFERENCE

[None]

EXPLANATORY NOTE -- AMENDMENT

This Form 10-K/A amends the Company's Annual Report on Form 10-K for the fiscal year ended September 30, 2006, which was originally filed on December 14, 2006 (the "Original Filing"). This Form 10-K/A includes the separate financial statements of five entities that were deemed to be significant subsidiaries of the Company pursuant to Regulation S-X, Subsection 210.1-02(w) and 210.3-09.

These financial statements are being filed within the timeframe as permitted by Regulation S-X Subsection 210.3-09(b)(2).

Except as described above, this Form 10-K/A does not amend, update or change the financial statements or any other items or disclosures in the Original Filing.

RESOURCE AMERICA, INC. AND SUBSIDIARIES

INDEX TO ANNUAL REPORT

ON FORM 10-K

			Page
PART I
	Item 1:	Business	3 − 10
	Item 1A:	Risk Factors	10 − 15
	Item 1B:	Unresolved Staff Comments	15
	Item 2:	Properties	16
	Item 3:	Legal Proceedings	16
	Item 4:	Submission of Matters to a Vote of Security Holders	16
PART II
	Item 5:	Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	17 − 18
	Item 6:	Selected Financial Data	19
	Item 7:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	20 − 46
	Item 7A:	Quantitative and Qualitative Disclosures About Market Risk	47
	Item 8:	Financial Statements and Supplementary Data	48 − 93
	Item 9:	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	94
	Item 9A:	Controls and Procedures	94 − 95
	Item 9B:	Other Information	96
PART III
	Item 10:	Directors and Executive Officers of the Registrant	97 − 99
	Item 11:	Executive Compensation	100 − 103
	Item 12:	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	104 − 105
	Item 13:	Certain Relationships and Related Transactions	106 − 107
	Item 14:	Principal Accounting Fees and Services	108
PART IV
	Item 15:	Exhibits, Financial Statement Schedules	109 − 110
SIGNATURES			111

PART IV

ITEM 15.EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Annual Report on Form 10-K:

1. Financial Statements

        Report of Independent Registered Public Accounting Firm

        Consolidated Balance Sheets at September 30, 2006 and 2005

        Consolidated Statements of Income for the years ended September 30, 2006, 2005 and 2004

        Consolidated Statements of Changes in Stockholders' Equity and Comprehensive Income for

           the years ended September 30, 2006, 2005 and 2004

        Consolidated Statements of Cash Flows for the years ended September 30, 2006, 2005 and 2004

       Notes to Consolidated Financial Statements − September 30, 2006

2. Financial Statement Schedules

Schedule III - Investments in Real Estate

Schedule IV - Investments in Mortgage Loans on Real Estate

Schedule − Significant Subsidiary Financials

a) Consolidated Financial Statements for Trapeza Funding, LLC for the years ended December 31, 2006 and 2005 (unaudited)

b) Consolidated Financial Statements for Trapeza Funding II, LLC for the years ended December 31, 2006 and 2005 (unaudited)

c) Consolidated Financial Statements for Trapeza Funding II, LLC for the years ended December 31, 2005 and 2004 (unaudited)⁽¹⁾

d) Consolidated Financial Statements for Trapeza Funding III, LLC for the years ended December 31, 2006 and 2005 (unaudited)

e) Trapeza Capital Management, LLC Audited Financial Statements for the years ended December 31, 2006 and 2005

f) Trapeza Management Group, LLC Financial Statements for the years ended December 31, 2006 and 2005 (unaudited)

(1) Filed previously as an exhibit to our Annual Report on Form 10K/A for the fiscal year ended September 30, 2005 and by this reference incorporated herein.

Schedule (a)

UNAUDITED

Trapeza Funding, LLC

Consolidated Financial Statements (Unaudited)

Years ended December 31, 2006 and 2005

UNAUDITED

Trapeza Funding, LLC

Consolidated Financial Statements

Years ended December 31, 2006 and 2005

Contents

Consolidated Financial Statements
Consolidated Statements of Financial Condition	3
Consolidated Schedules of Investments	4
Consolidated Statements of Operations	6
Consolidated Statements of Changes in Members’ Interests	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Other Financial Information
Consolidating Statement of Financial Condition	20
Consolidating Statement of Operations	21

UNAUDITED

Trapeza Funding, LLC

Consolidated Statements of Financial Condition

	December 31
	2006		2005
Assets
Investments in trust preferred securities, at fair value (amortized cost $312,292,743 and $319,163,818)	$	314,978,303	$	323,519,767
Cash and cash equivalents		11,920,598		4,086,160
Investment in Trapeza Note I, LLC		9,304,230		8,893,125
Deferred debt issuance costs (net of accumulated amortization of $2,928,168 and $2,218,100)		5,215,721		5,925,789
Interest receivable on trust preferred securities		4,881,532		4,029,310
Net interest receivable from swap counterparty		18,456		10,454
Prepaid expenses		4,547		4,910
Other		7,743		1,248
Total Assets	$	346,331,130	$	346,470,763
Liabilities and Members’ Interests
Liabilities
Class A-1 Notes	$	160,129,324	$	160,129,324
Class A-2 Notes		19,830,257		19,830,257
Class B-1 Notes		54,600,000		54,600,000
Class B-2 Notes		2,000,000		2,000,000
Class B-3 Notes		16,000,000		16,000,000
Class C-1 Notes		29,600,000		29,600,000
Class C-2 Notes		10,000,000		10,000,000
Class D Notes		15,829,493		16,408,511
Interest payable		1,665,036		1,493,826
Unrealized depreciation on swap agreements		137,650		43,540
Professional fees		87,623		95,346
Collateral management fees		80,995		80,995
Trustee fees		11,546		11,546
Accrued expenses		41,250		41,250
Total Liabilities		310,013,174		310,334,595
Minority interest		35,617,993		35,472,597
Members’ Interests		699,963		663,571
Total Liabilities and Members’ Interests	$	346,331,130	$	346,470,763

See accompanying notes to consolidated financial statements.

3

UNAUDITED

Trapeza Funding, LLC

Consolidated Schedules of Investments

	December 31, 2006				December 31, 2005
	Principal Amount (000)		Fair Value		Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) *
Banks (81.76% and 82.24%)*
1st Source Capital Trust III, 6.95%, callable 11/15/2007, due 11/14/2032 (a)	$	10,000	$	9,935,910	$	10,000	$	9,935,056
Access National Capital Trust I, 3ML + 4.125%, callable 9/30/2007, due 9/30/2032 (a)		4,000		3,981,839		4,000		3,981,653
Ambank Capital Trust I, 3ML + 3.625%, callable 7/30/2007, due 7/30/2032 (a)		8,000		7,942,474		8,000		7,941,800
Bank of Kentucky Capital Trust I, 3ML+ 3.35%, callable 11/15/2007, due 11/14/2032 (a)		11,000		11,001,212		11,000		11,001,226
Banponce Trust I, 8.327%, callable 2/1/2007, due 2/1/2027		1,200		1,257,000		1,200		1,284,000
Colonial Capital II, 8.92%, callable 1/29/2007, due 1/15/2027		5,000		5,212,500		5,000		5,382,855
Community Bancshares Capital Trust III, 6ML+ 3.625%, callable 7/30/2007, due 7/30/2032 (a)		5,000		4,858,616		5,000		4,856,866
Community Capital Trust I, 9.75%, callable 1/31/2007, due 1/31/2027		1,850		1,914,750		1,850		1,979,500
FBOP Capital Trust XII, 6ML+ 3.625%, callable 7/30/2007, due 7/30/2032 (a)		11,000		11,000,000		11,000		11,000,000
FCB/SC Capital Trust I, 8.25%, callable 3/15/2008, due 3/15/2028 (a)		2,000		2,027,672		2,000		2,028,133
First Gothenburg Capital Trust I, 3ML + 3.35%, callable 11/15/2007, due 11/15/2032 (a)		4,000		3,943,687		4,000		3,943,027
First Group Capital Statutory Trust III, 3ML + 3.35%, callable 11/15/2007, due 11/15/2032 (a)		10,000		10,087,848		10,000		10,086,842
First Indiana Capital Trust I, 6.92%, callable 10/30/2007, due 10/30/2032 (a)		2,000		1,998,372		2,000		1,998,350
Franklin Bank Capital Trust I, 3ML + 3.35%, callable 11/15/2007, due 11/14/2032 (a)		11,000		10,906,244		11,000		10,905,145
GB&T Bancshares Statutory Trust I, 3ML + 3.40%, callable 10/30/2007, due 10/30/2032 (a)		11,000		10,877,097		11,000		10,875,704
Hanmi Capital Trust II, 3ML + 2.90%, callable 3/15/2009, due 3/15/2034 (a)		6,479		6,479,000		6,479		6,479,000
Iberiabank Statutory Trust I, 3ML+ 3.25%, callable 11/15/2007, due 11/15/2032 (a)		10,000		9,888,786		10,000		9,887,502
Industry Bancshares Capital Trust I, 6ML + 3.625%, callable 7/30/2007, due 7/30/2032 (a)		5,000		4,952,871		5,000		4,952,288
Local Financial Capital Trust II, 6ML + 3.625%, callable 7/30/2007, due 7/30/2032 (a)		10,000		9,860,500		10,000		9,858,773
Main Street Banks Statutory Trust I, 3ML + 3.25%, callable 11/15/2007, due 11/15/2032 (a)		5,000		4,944,334		5,000		4,943,690
MB Financial Capital Trust I, 8.60%, callable 9/30/2007, due 9/30/2032 (a)		5,000		5,000,000		5,000		5,000,000
MBNA Capital B, 3 ML+ 0.80%, callable 2/1/2007, due 2/1/2027		8,000		7,970,000		8,000		7,840,000
Merchants and Manufacturers Statutory Trust I, 3ML +3.35%, callable 11/12/2007, due 11/12/2032 (a)		8,000		7,924,899		8,000		7,924,046
Onbank Capital Trust I, 9.25%, callable 2/1/2007, due 2/1/2027		2,000		2,090,000		2,000		2,140,000
Pacific Mercantile Capital Trust I, 3ML+ 3.75%, callable 6/30/2007, due 7/15/2032 (a)		5,000		4,977,259		5,000		4,977,136
PMB Capital Trust I, 6ML + 3.625%, callable 8/30/2007, due 8/22/2032 (a)		5,000		4,952,866		5,000		4,952,300
Progress Capital Trust III, 3ML+ 3.35%, callable 11/15/2007, due 11/15/2032 (a)		6,000		5,952,045		6,000		5,951,483
Provident Capital Trust I, 8.60%, callable 12/1/2006, due 12/1/2026 (b)		−		−		7,500		8,025,000
Provident Trust I, 8.29%, callable 4/15/2008, due 4/15/2028		5,500		5,472,500		5,500		5,830,000
Reliance Capital Trust I, 8.17%, callable 5/1/2008, due 5/1/2028 (a)		1,000		1,002,828		1,000		1,002,875
Riverside Bancshares Statutory Trust I, 3ML + 3.45%, callable 10/1/2007, due 10/1/2032 (a)		10,000		9,888,235		10,000		9,886,970
Riverside Gulf Coast Capital Trust I, 3ML + 3.25%, callable 9/30/2007, due 7/29/2032 (a)		5,000		4,977,315		5,000		4,977,045
Sky Financial Capital Trust I, 9.34%, callable 5/1/2010, due 5/1/2030 (a)		3,500		3,676,519		3,500		3,678,539
South Financial Capital Trust II, 6 ML+ 3.625%, callable 7/30/2007, due 7/30/2032 (a)		11,000		10,896,317		11,000		10,895,033
Southcoast Capital Trust I, 3 ML+ 3.75%, callable 6/30/2007, due 5/3/2032 (a)		4,000		3,982,090		4,000		3,981,890
Sterling Bancshares Statutory Trust One, 3ML+ 3.45%, callable 8/30/2007, due 8/30/2032 (a)		10,000		9,888,283		10,000		9,887,008
Texas Capital Bancshares Statutory Trust I, 3ML + 3.35%, callable 11/19/2007, due 11/19/2032 (a)		10,000		9,888,764		10,000		9,887,501
UCBH Capital Trust II, 3ML + 3.45%, callable 11/7/2007, due 11/7/2032 (a)		11,000		11,000,000		11,000		11,000,000
Umpqua Statutory Trust II, 3ML+ 3.35%, callable 10/17/2007, due 10/17/2032 (a)		11,000		10,864,874		11,000		10,863,250
Union State Capital Trust I, 9.58%, callable 2/1/2007, due 2/1/2027 (a)		1,000		1,074,449		1,000		1,075,618
VCBI Capital Trust I, 6ML+ 3.40%, callable 11/15/2007, due 11/15/2032 (a)		3,000		2,971,816		3,000		2,971,500
Total Banks (amortized cost $254,836,211 and $261,712,655)			$	257,521,771			$	266,068,604

                See accompanying notes to consolidated financial statements.

4

UNAUDITED

Trapeza Funding, LLC

Consolidated Schedules of Investments (continued)

	December 31, 2006					December 31, 2005
	Principal Amount (000)		Fair Value			Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) * (continued)
Thrifts (18.24% and 17.76%)
BBC Capital Trust V, 3ML + 3.40%, callable 9/30/2007, due 9/27/2032 (a)	$	10,000	$	9,920,408		$	10,000	$	9,919,498
BankUnited Statutory Trust IV, 3ML + 3.40%, callable 11/15/2007, due 11/15/2032 (a)		11,000		10,877,464			11,000		10,876,086
Beal Financial Trust I, 6ML + 3.625%, callable 7/30/2007, due 7/30/2032 (a)		11,000		10,896,317			11,000		10,895,033
First Keystone Capital Trust I, 9.70%, callable 8/15/2007, due 8/15/2027 (a)		1,500		1,624,873			1,500		1,626,680
HFC Capital Trust IV, 6ML + 3.35%, callable 11/15/2007, due 11/15/2032 (a)		8,450		8,272,997			8,450		8,270,995
ITLA Capital Statutory Trust III, 6ML+ 3.40%, callable 10/30/2007, due 10/30/2032 (a)		11,000		10,905,960			11,000		10,904,877
Matrix Bancorp Capital Trust V, 6ML+ 3.625%, callable 7/25/2007, due 7/25/2032 (a)		5,000		4,958,513			5,000		4,957,994
Total Thrifts (amortized cost $57,456,532 and $57,451,163)				57,456,532					57,451,163
Total Investments in Trust Preferred Securities (amortized cost $312,292,743 and $319,163,818)			$	314,978,303				$	323,519,767
				Fair Value					Fair Value
Interest Rate Swap Agreements
Credit Suisse			$	(137,650	)			$	(43,540	)
Total Interest Rate Swap Agreements			$	(137,650	)			$	(43,540	)

*Amounts in parenthesis indicate percentage of investments in trust-preferred securities.
(a) Private placement, illiquid securities, where amortized cost approximates fair value.

(b) Investment called in December 2006 at par.

ML = Month Libor

 *             See accompanying notes to consolidated financial statements.

5

UNAUDITED

Trapeza Funding, LLC

Consolidated Statements of Operations

	Years ended December 31,
	2006			2005
Investment income
Interest	$	29,229,081		$	23,590,716
Equity in earnings of Trapeza Note I, LLC		2,169,846			2,875,914
Total investment income		31,398,927			26,466,630
Expenses
Interest		18,616,059			14,139,658
Collateral management fees		809,948			813,323
Amortization of deferred debt issuance costs		710,068			719,516
Trustee fees		121,440			124,448
Professional fees		120,501			104,933
Administration fee		67,253			64,085
Taxes		3,334			6,120
Other		185,845			193,895
Total expenses		20,634,448			16,165,978
Net investment income		10,764,479			10,300,652
Net unrealized (depreciation) appreciation on investment transactions:
Investments in trust preferred securities		(1,670,389	)		(481,207	)
Interest rate swap agreements		(94,110	)		206,613
Net unrealized depreciation on investment transactions		(1,764,499	)		(274,594	)
Net income before minority interest		8,999,980			10,026,058
Minority interest		7,292,720			8,137,839
Net income	$	1,707,260		$	1,888,219

See accompanying notes to consolidated financial statements.

6

UNAUDITED

Trapeza Funding, LLC

Consolidated Statements of Changes in Members’ Interests

Years ended December 31, 2006 and 2005

Balance at January 1, 2005	$	349,113
Net income		1,888,219
Distributions to members		(1,573,761	)
Balance at December 31, 2005		663,571
Net income		1,707,260
Distributions to members		(1,670,868	)
Balance at December 31, 2006	$	699,963

See accompanying notes to consolidated financial statements.

7

UNAUDITED

Trapeza Funding, LLC

Consolidated Statements of Cash Flows

	Years ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	1,707,260		$	1,888,219
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of deferred debt issuance costs		710,068			719,516
Accretion of discount of investments in trust preferred securities		(628,925	)		(325,175	)
Minority interest		7,292,720			8,137,839
Net unrealized depreciation on investment transactions		1,764,499			274,594
Net change in operating assets and liabilities:
Investment in trust preferred securities		7,500,000			1,500,000
Interest receivable on trust preferred securities		(852,222	)		(829,660	)
Net interest receivable from swap counterparty		(8,002	)		(20,150	)
Investment in Trapeza Note I, LLC		(411,105	)		(1,341,378	)
Prepaid expenses		363			(1,219	)
Other		(6,495	)		10,138
Interest payable		171,210			436,160
Professional fees		(7,723	)		6,150
Collateral management fees		−			(375	)
Trustee fees		−			(46	)
Minority interest		(7,147,324	)		(6,723,018	)
Net cash and cash equivalents provided by operating activities		10,084,324			3,731,595
Cash flows from financing activities
Principal payments on notes		(579,018	)		(1,591,488	)
Distributions to partners		(1,670,868	)		(1,573,761	)
Net cash and cash equivalents used in financing activities		(2,249,886	)		(3,165,249	)
Net increase in cash and cash equivalents		7,834,438			566,346
Cash and cash equivalents, beginning of year		4,086,160			3,519,814
Cash and cash equivalents, end of year	$	11,920,598		$	4,086,160
Supplemental disclosure of cash flow information
Net interest paid	$	18,452,850		$	13,723,648

See accompanying notes to consolidated financial statements.

8

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements

December 31, 2006

1. Organization and Purpose

Trapeza Funding, LLC (“Funding”), was organized on March 25, 2002 as a Delaware limited liability company. Funding commenced operations on June 1, 2002. Funding was organized for the purpose of being the General Partner of Trapeza Partners L.P. (the “Partnership”). Per the partnership agreement, the limited partners have no right to remove Funding at any time. Funding has complete and exclusive control of the management of the business affairs of the Partnership.

The Partnership was organized on May 21, 2002 as a Delaware limited partnership. The Partnership commenced operations on July 1, 2002. The Partnership was organized for the purpose of investing in membership interests and other securities to be issued by Trapeza CDO I, LLC (“Issuer I”), an affiliated collateralized debt obligation, which was formed by Funding. In addition, the Partnership also invested in Trapeza CDO II, LLC (“Issuer II”), an affiliated collateralized debt obligation, which closed on March 11, 2003. On May 15, 2003, Trapeza Note I, LLC (“Note I”) was formed to issue Class BB fixed rate notes and purchase 100% of the members’ interests of Issuer II. In addition, the Partnership’s investment in Issuer II was transferred to Note I at this time. The Partnership has an 11-year term, which Funding may extend on a year-to-year basis.

All material intercompany transactions have been eliminated. Minority interest reflects the 99.99% of partners’ interest of the limited partners of the Partnership. The consolidated entity is referred to as the “Company.”

Trapeza Capital Management, LLC (the “Collateral Manager”), a Delaware limited liability company, is responsible for supervising and directing the investment of the collateral of Issuer I and Issuer II. Issuer I and Issuer II are charged a collateral management fee by the Collateral Manager, who is affiliated with Funding through common ownership.

Funding and the Collateral Manager are owned equally by Financial Stocks, Inc. (“FSI”) and Resource Financial Fund Management, Inc., a wholly-owned subsidiary of Resource America, Inc. (“REXI”) (collectively, the “Owners”). Resource Financial Fund Management, Inc. and FSI are Registered Investment Advisers under the Investment Advisers Act of 1940. REXI, a publicly traded company, is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for their own account and for outside investors in the financial fund management, real estate and equipment leasing sectors. The Owners and certain officers and directors of the Owners hold partnership interests of approximately 17% of the Partnership.

9

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

1. Organization and Purpose (continued)

Issuer I and II’s objective is to purchase, acquire, own, hold, sell, endorse, transfer, assign, pledge, finance, refinance, exchange, restructure, workout, advance and collect funds pursuant to and otherwise deal with and exercise rights of ownership with respect to the collateral of Issuer I and Issuer II, including other securities or equity interest owned from time to time by Issuer I and Issuer II, all in accordance with the terms of the indentures.

The business and affairs of Funding are managed by a Board of Managers. The Board of Managers has full, complete and exclusive authority, power and discretion to manage and control the business affairs and properties of Funding, to make all decisions regarding those matters and to perform any activities customary or incident to the management of Funding’s business.

2. Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Accounting

The Company’s accounting policies are in conformity with accounting principles generally accepted in the United States. The Company maintains its financial records in United States dollars. For financial reporting purposes, the Company follows the accrual basis of accounting.

Cash and Cash Equivalents

The Company considers all demand deposits with banks and other highly liquid investments with original maturities of three months or less to be cash equivalents.

Investment Transactions

The Company records transactions on their trade dates. Realized gains and losses on investments are determined on the specific identification basis for financial accounting purposes. Interest is accrued as earned or incurred and includes the amortization/accretion of premiums and discounts on debt securities.

10

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Investment Valuation

Investments are carried at fair value. Securities for which market quotations are not readily available are valued by procedures adopted by Funding. In valuing investments in which market quotations are not readily available, Funding utilizes data from a variety of different sources, taking into account the characteristics of a security, any changes in the credit quality of the securities in the portfolio, the overall movement of interest rates and other factors which, in Funding’s good faith and judgment, are relevant to the value of a security. For exchange-traded securities, management will obtain current market data and quotes from independent brokers.

The Company has invested a significant portion of the portfolio in private placement, illiquid issues having no ready market. At December 31, 2006, these securities aggregate $291,061,553 and have been valued in good faith by Funding as described in the preceding paragraph. Because of the inherent uncertainty of valuation, the fair values estimated by Funding may not necessarily represent the amounts that could be realized from sales or other dispositions of investments and the differences may be material.

Credit Risks and General Liquidity Considerations

Investments in trust preferred securities are subject to credit, interest rate and liquidity risks. Adverse changes in the financial condition of an issuer of trust preferred securities or in general economic conditions or both may impair the ability of the issuer to make payments of principal and interest. Adverse changes in the financial condition of an issuer may affect the liquidity of the market for an issuer’s securities and may reduce the market price of such securities. In addition, changes in general economic and regulatory conditions may affect the liquidity of the market for trust preferred securities in general and may reduce the values of some or all of the securities.

Allocation of Profits and Losses

The Company allocates profits to the members in proportion to their respective capital account balances until the cumulative profits for this current period and all prior fiscal years are equal to the cumulative losses allocated; thereafter, among the members in proportion to their respective units. Losses shall be allocated to the members in proportion to their respective capital account balances.

11

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

2. Summary of Significant Accounting Policies (continued)

Allocation of Profits and Losses (continued)

Funding’s investment in the Partnership is accounted for based on its pro-rata share of its investment in the Partnership. Profits and losses from non-portfolio income are allocated to all members in proportion to their allocable shares. Twenty percent (20%) of the cumulative net profits from portfolio investments are allocated to Funding.

Non-portfolio income of the Partnership, consisting primarily of income earned on short-term investments, is allocated to all limited partners of the Partnership in proportion to their respective capital account balances prior to the allocation of any other item.

Portfolio income of the Partnership, consisting primarily of interest income and profits and losses from the sale of such investments, is allocated to all partners of the Partnership in proportion to their respective contributed capital of the Partnership in relation to total contributed capital, but 20% of the cumulative net profits otherwise allocable to all partners of the Partnership will be allocated to Funding, defined as the incentive allocation. For the years ended December 31, 2006 and 2005, Funding received an incentive allocation of $1,423,644 and $1,616,558, respectively, and are included in interest reflected on the statements of operations.

Taxation

The Company is treated as a partnership for Federal income tax purposes and, therefore, no provision for federal income tax is recorded.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

12

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

3. Contributions, Withdrawals and Distributions

As of December 31, 2006, the Company has 300 membership units issued and outstanding. No member shall be required to make any additional contributions beyond their initial contribution. If the Board of Managers unanimously determines that the Company requires additional funds, any member may, but is not obligated to, advance such funds.

No member shall have the right to withdraw any of its capital contribution, except upon dissolution and liquidation of the Company. For the years ended December 31, 2006 and 2005, the Company made distributions of $1,670,868 and $1,573,761, respectively, to the members.

In accordance with the partnership agreement, each partner has contributed a specified amount of capital which is set forth in the partnership agreement. No limited partner is required to contribute any capital in excess of its commitment. As of August 13, 2003, all commitments of the Partnership were fully funded.

A limited partner will not have the right to redeem its interest in the Partnership. Funding, in its sole discretion, may redeem all or part of the partnership interest of any limited partner, for an amount equal to the capital account of the partnership interest being redeemed, if the limited partner consents to such redemption and all redemptions in any year do not exceed five percent of the aggregate allocable percentage of all limited partners.

Funding will cause the Partnership to distribute the lesser of (i) ninety percent (90%) of cash available from profits and (ii) all cash then available to the partnership less any reserves for partnership expenses or liabilities. All other distributions will be at the discretion of Funding. Funding will determine at its sole discretion the source of funds for all distributions. For the years ended December 31, 2006 and 2005, the Partnership made distributions of $6,876,967 and $6,435,312, respectively, to the partners.

4. Issuer I

Deferred Debt Issuance Costs

Deferred debt issuance costs of $8,143,889 are being amortized over the expected life of the related debt using the effective interest method. The expected life of the debt is period ending with the distribution date occurring in November 2012, as defined in the indenture. Amortization of deferred debt issuance costs commenced on November 19, 2002.

13

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

4. Issuer I (continued)

Collateral Management and Trustee Fees

Pursuant to a collateral management agreement, the Collateral Manager is entitled to a semiannual fee, payable in arrears on the distribution dates, equal to 0.10% per annum of the semi-annual asset amount (“Base Collateral Management Fee”), of the net outstanding portfolio collateral, as defined in the indenture. After certain expenses have been paid, the Collateral Manager is entitled to an additional semiannual fee equal to 0.15% per annum, calculated in the same manner as the Base Collateral Management Fee. For the years ended December 31, 2006 and 2005, total collateral management fees were $809,948 and $813,323, respectively, and are reflected on the consolidated statements of operations.

Pursuant to a trustee agreement, the trustee is entitled to a semiannual fee, on each distribution date, equal to 0.026% per annum of the sum of the aggregate principal amount of the investments plus cash and cash equivalents at the beginning of the period relating to such distribution dates, an annual fee of $13,000, and reimbursement of out of pocket expenses. For the years ended December 31, 2006 and 2005, total trustee fees were $102,289 and $102,656, respectively, and are included in total trustee fees reflected on the consolidated statements of operations.

On November 19, 2002, Issuer I issued notes (the “Notes”) at their respective principal values, which are secured by Issuer I’s investments and are non-recourse to the Company.

14

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

4. Issuer I (continued)

Notes Payable

At December 31, 2006 and 2005, Notes outstanding consisted of the following:

	2006		2005
	Principal		Principal		Interest Rate		Stated Maturity
Class A-1 Notes	$	160,129,324	$	160,129,324		For the period to but excluding the distribution date in November 2012, Libor + 0.78%; at all times thereafter, Libor + 1.28%		November 30, 2032
Class A-2 Notes	$	19,830,257	$	19,830,257		For the period to but excluding the distribution date in November 2012, 4.974%; at all times thereafter, 5.474%		November 30, 2032
Class B-1 Notes	$	54,600,000	$	54,600,000		See Class B-1 note		November 30, 2032
Class B-2 Notes	$	2,000,000	$	2,000,000		Libor + 1.20%		November 30, 2032
Class B-3 Notes	$	16,000,000	$	16,000,000		5.932%		November 30, 2032
Class C-1 Notes	$	29,600,000	$	29,600,000		Libor + 1.80%		November 30, 2032
Class C-2 Notes	$	10,000,000	$	10,000,000		6.482%		November 30, 2032
Class D Notes	$	15,829,493	$	16,408,511		Libor + 2.65%		November 30, 2032

Pursuant to the terms of the Class B-1 agency agreement, the holders of the Class B-1 Notes will be entitled to receive interest, certain third parties will be entitled to receive compensation, at an aggregate, floating rate per annum not to exceed Libor plus 1.05% in the aggregate after taking into consideration the effect of a basis swap to be entered into in connection with the Class B-1 Notes.

15

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

4. Issuer I (continued)

Interest Payments

Holders of the Notes are to receive semiannual interest payments on May 30 and November 30, commencing in May 2003 (the “Initial Payment Date”). The order of payment will be first to Class A, second, Class B, third, Class C and fourth to Class D, with each Class of Notes (includes Class A-1 and Class A-2) being senior to each of the other classes of Notes. No payments of interest on any class of Notes will be made until all accrued and unpaid interest on the Notes of each class that is senior to a class and that remain outstanding has been paid in full. No payment of principal of any class of Notes will be made until the principal of, and all accrued and unpaid interest, on the Notes of each class that is senior to such class and that remain outstanding have been paid in full, except as discussed below and as defined in the indenture.

In the event that the coverage tests, as defined in the indenture, are not satisfied as of any distribution date, each class of notes may be redeemed in the manner specified in the indenture.

Principal Payments

Principal payments will be applied as outlined below except as otherwise stated in the indenture.

Principal Turboing

On any distribution date on or after the distribution in May, 2003, but prior to the distribution date on or prior to the distribution date in November, 2007, the amount of funds available in the payment account in excess of the dividend yield of 27% will be applied to the payment of principal. Principal payments will be applied in the following manner. First, payment of principal of the Class D Notes until the Class D Notes have been paid in full. Next, payment of principal on the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal on the Class B Notes until the Class B Notes have been paid in full. Finally, payment of principal on the Class A Notes until the Class A Notes have been paid in full.

16

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

4. Issuer I (continued)

Principal Payments (continued)

Principal Proceeds

Principal proceeds will be applied in the following manner. First, payment of principal of the Class A Notes (includes Class A-1 and Class A-2) until the Class A Notes have been paid in full. Next, payment of principal on the Class B Notes until the Class B Notes have been paid in full. Next, payment of principal of the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal of the Class D Notes. Finally, the remainder to the members as a dividend on the members’ interests or as a return of capital of the members’ interests as provided in the Trapeza CDO I, LLC Agreement (the “Agreement”).

If on any distribution date, the amount available in the payment account from amounts received in the related due period are insufficient to make the full amount of the disbursements required by the priority of payments to different persons, the trustee will make the disbursements ratably in accordance with the indenture.

If the Notes and the members’ interests have not been released prior to November 30, 2032, it is expected that the Company or Collateral Manager, acting on behalf of Issuer I, will sell all of the investments and sell or liquidate all other collateral, and all net proceeds from such sales and liquidations and all available cash after the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses and (iii) interest (including any defaulted interest and interest on defaulted interest, any Class C deferred interest and interest on any Class C deferred interest and any Class D deferred interest and interest on any Class D deferred interest) and principal of the Notes, will be distributed to the members in accordance with the Agreement.

Acceleration of Maturity and Redemption

The indenture provides for an acceleration of maturity or redemption of all of the senior Notes and accrued and unpaid interest upon the occurrence of a default event. Default events include a) failure of Issuer I to pay interest for a period of three business days on any Class A or B senior Notes, b) failure of Issuer I to pay principal of any senior Note when such payment becomes due and payable at its stated maturity or redemption date, c) failure of Issuer I, on any distribution date to disburse amounts available to the interest collection account or principal collection account in accordance with the order of the priority of payments set forth in the indenture,  which continues for three business

17

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

4. Issuer I (continued)

Acceleration of Maturity and Redemption (continued)

days, d) Issuer I or pool of collateral becomes an investment company required to be registered under the Investment Company Act, e) default in performance, or a breach, of any other covenant or other agreement of Issuer I under the indenture or any representation of warranty of Issuer I made in the indenture or in any certificate or other writing proves to be incorrect in any material respect when made, and in both clauses, the continuation of such default or breach for a period of thirty days after Issuer I or the Collateral Manager has actual knowledge that such default or breach has occurred or after written notice to Issuer I and the Collateral Manager by the trustee, or to Issuer I, the Collateral Manager and the trustee by the holders of at least 25% in aggregate outstanding principal amount of the notes of the controlling class or hedge counterparty, f) one or more final judgments being rendered against Issuer I that exceed, in the aggregate, $5,000,000, and which remain unstayed, undischarged and unsatisfied for thirty days after such judgment(s) becomes nonappealable, unless adequate funds have been reserved or set aside for the payment thereof, and g) failure, on any measurement date, to cause the Class A/B overcollateralization ratio to be equal to or greater than 100%. Each of these conditions is further described in the indenture.

5. Interest Rate Swap Agreements

The Company maintains a policy of valuing its derivative instruments at fair values, with the resulting unrealized gain or loss included in the consolidated statement of operations.

A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset or otherwise determined notional amount.

Risks may arise as a result of the failure of the counterparty to the swap agreement. The loss incurred by the failure of a counterparty is generally limited to the net payment to be received by the Company and/or the termination value at the end of the agreement. Therefore, the Company considers the creditworthiness of each counterparty to a swap agreement in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates.

18

UNAUDITED

Trapeza Funding, LLC

Notes to Consolidated Financial Statements (continued)

5. Interest Rate Swap Agreements (continued)

The Company records a net receivable or payable for the net income or expense expected to be received or paid in the interest period. Net amounts received or paid on swap agreements are recorded as interest income or interest expense on the consolidated statements of operations. The amount recorded as interest income on basis swap agreements for the years ended December 31, 2006 and 2005 totaled $345,283 and $378,528, respectively.

The Company entered into interest rate swap agreements with Credit Suisse (“CS”) (formerly knows Credit Suisse First Boston) for the purpose of hedging interest rate and cash flow risk between the fixed-rate investments and floating-rate investments.

At December 31, 2006 and 2005, the Company had three interest rate swap agreements outstanding with CS, which pay on a semi-annual basis, as follows:

				Floating Rate		Rate Paid		December 31
Notional	Maturity		��	Received by		by the		2006			2005
Amount	Date			the Company		Company		Fair Value			Fair Value
$   2,000,000		11/30/07			6 month Libor + 3.41%		6.92%	$	34,770		$	47,912
$ 10,000,000		11/30/07			6 month Libor + 3.37%		6.95%		167,003			226,130
$ 54,600,000		11/30/12			1 month Libor + 1.015%		6 month Libor + 1.05%		(339,423	)		(317,582	)
								$	(137,650	)	$	(43,540	)

6. Related Party Transactions

The Partnership pays Funding an administration fee (payable semi-annually in advance) equal to one and one-half percent (1.5%) per annum of the aggregate capital accounts of the limited partners, which will be used to cover management fees and other ordinary and recurring administrative and related operating expenses. For the years ended December 31, 2006 and 2005, administration fees totaled $373,551 and $357,564, respectively.

In exchange for interests sold on behalf of the Partnership, Funding pays external broker-dealers an administration fee, equal to the percentage of equity raised by the broker-dealer multiplied by one-third of the total administration fee being charged by Funding to the Partnership. For the years ended December 31, 2006 and 2005, total administration fee expense totaled $67,253 and $64,085, respectively.

19

UNAUDITED

Other Financial Information

UNAUDITED

Trapeza Funding, LLC

Consolidating Statement of Financial Condition

December 31, 2006

	Trapeza Funding, LLC		Trapeza Partners L.P. Consolidated		Total		Eliminations			Trapeza Funding, LLC Consolidated
Assets
Investments in trust preferred securities, at fair value (amortized    cost $312,292,743)	$	−	$	314,978,303	$	314,978,303	$	−		$	314,978,303
Cash and cash equivalents		19,835		11,900,763		11,920,598		−			11,920,598
Investment in Trapeza Note I, LLC		−		9,304,230		9,304,230		−			9,304,230
Deferred debt issuance costs (net of accumulated amortization of     $2,928,168)		−		5,215,721		5,215,721		−			5,215,721
Interest receivable on trust preferred securities		−		4,881,532		4,881,532		−			4,881,532
Net interest receivable from swap counterparty		−		18,456		18,456		−			18,456
Prepaid expenses		−		4,547		4,547		−			4,547
Other		−		7,743		7,743		−			7,743
Investment in Trapeza Partners I L.P.		693,531		−		693,531		(693,531	)		−
Total Assets	$	713,366	$	346,311,295	$	347,024,661	$	(693,531	)	$	346,331,130
Liabilities and Partners’ Capital/Members’ Interest
Liabilities
Class A-1 Notes	$	−	$	160,129,324	$	160,129,324	$	−		$	160,129,324
Class A-2 Notes		−		19,830,257		19,830,257		−			19,830,257
Class B-1 Notes		−		54,600,000		54,600,000		−			54,600,000
Class B-2 Notes		−		2,000,000		2,000,000		−			2,000,000
Class B-3 Notes		−		16,000,000		16,000,000		−			16,000,000
Class C-1 Notes		−		29,600,000		29,600,000		−			29,600,000
Class C-2 Notes		−		10,000,000		10,000,000		−			10,000,000
Class D Notes		−		15,829,493		15,829,493		−			15,829,493
Interest payable		−		1,665,036		1,665,036		−			1,665,036
Unrealized depreciation on swap agreements		−		137,650		137,650		−			137,650
Professional fees		13,403		74,220		87,623		−			87,623
Collateral management fees		−		80,995		80,995		−			80,995
Trustee fees		−		11,546		11,546		−			11,546
Accrued expenses		−		41,250		41,250		−			41,250
Total Liabilities		13,403		309,999,771		310,013,174		−			310,013,174
Minority interest		−		6,017,363		6,017,363		29,600,630			35,617,993
Partners’ Capital/Members’ Interests
General Partner		−		693,531		693,531		(693,531	)		−
Limited Partners		−		29,600,630		29,600,630		(29,600,630	)		−
Members’ Interests		699,963		−		699,963		−			699,963
Total Partners’ Capital/Members’ Interests		699,963		30,294,161		30,994,124		(30,294,161	)		699,963
Total Liabilities and Partners’ Capital/Members’ Interests	$	713,366	$	346,311,295	$	347,024,661	$	(693,531	)	$	346,331,130

20

UNAUDITED

Trapeza Funding, LLC

Consolidating Statement of Operations

December 31, 2006

	Trapeza Funding, LLC		Trapeza Partners L.P. Consolidated			Total			Eliminations			Trapeza Funding, LLC Consolidated
Investment income
Interest	$	−	$	29,229,081		$	29,229,081		$	−		$	29,229,081
Equity in earnings of Trapeza Note I, LLC		−		2,169,846			2,169,846			−			2,169,846
Incentive allocation		1,423,644		−			1,423,644			(1,423,644	)		−
Other		28		−			28			(28	)		−
Administration fee income		373,551		−			373,551			(373,551	)		−
Total investment income		1,797,223		31,398,927			33,196,150			(1,797,223	)		31,398,927
Expenses
Interest		−		18,616,059			18,616,059			−			18,616,059
Collateral management fees		−		809,948			809,948			−			809,948
Amortization of deferred debt issuance costs		−		710,068			710,068			−			710,068
Trustee fees		−		121,440			121,440			−			121,440
Professional fees		19,112		101,389			120,501			−			120,501
Administration fees		67,253		373,551			440,804			(373,551	)		67,253
Taxes		3,334		−			3,334			−			3,334
Other		264		185,581			185,845			−			185,845
Total expenses		89,963		20,918,036			21,007,999			(373,551	)		20,634,448
Net investment income		1,707,260		10,480,891			12,188,151			(1,423,672	)		10,764,479
Net unrealized depreciation on investment transactions
Investments in trust preferred securities		−		(1,670,389	)		(1,670,389	)		−			(1,670,389	)
Interest rate swap agreements		−		(94,110	)		(94,110	)		−			(94,110	)
Net unrealized depreciation on investment transactions		−		(1,764,499	)		(1,764,499	)		−			(1,764,499	)
Net income before minority interest		1,707,260		8,716,392			10,423,652			(1,423,672	)		8,999,980
Minority interest		−		1,598,145			1,598,145			5,694,575			7,292,720
Net income	$	1,707,260	$	7,118,247		$	8,825,507		$	(7,118,247	)	$	1,707,260

21

Schedule (b)

UNAUDITED

Trapeza Funding II, LLC

Consolidated Financial Statements (Unaudited)

Years ended December 31, 2006 and 2005

UNAUDITED

Trapeza Funding II, LLC

Consolidated Financial Statements

Years ended December 31, 2006 and 2005

Contents

Consolidated Financial Statements
Consolidated Statements of Financial Condition	2
Consolidated Schedules of Investments	3
Consolidated Statements of Operations	6
Consolidated Statements of Changes in Members’ Interests	7
Consolidated Statements of Cash Flows	8
Notes to Consolidated Financial Statements	9
Other Financial Information
Consolidating Statement of Financial Condition	27
Consolidating Statement of Operations	28

UNAUDITED

Trapeza Funding II, LLC

Consolidated Statements of Financial Condition

	December 31
	2006		2005
Assets
Investments in trust preferred securities, at fair value (amortized cost $680,566,011 and $689,352,865)	$	684,272,551	$	694,986,541
Cash and cash equivalents		33,006,291		19,627,097
Deferred debt issuance costs (net of accumulated amortization of $5,618,421 and $4,119,838)		12,376,270		13,874,853
Unrealized appreciation on swap agreements		5,252,592		5,865,799
Interest receivable on trust preferred securities		4,498,164		4,189,666
Net interest receivable from swap counterparty		1,353,765		436,729
Prepaid expenses		27,451		25,960
Total Assets	$	740,787,084	$	739,006,645
Liabilities and Members’ Interests
Liabilities
Class A1A Notes	$	238,996,446	$	238,996,446
Class A1B Notes		171,500,000		171,500,000
Class B Notes		52,000,000		52,000,000
Class C-1 Notes		74,750,000		74,750,000
Class C-2 Notes		86,050,000		86,050,000
Class D Notes		29,523,828		31,709,797
Class E Notes		3,428,569		4,285,713
Class BB Notes		5,000,000		6,428,571
Interest payable		13,905,741		11,232,196
Collateral management fees		590,570		590,570
Professional fees		149,454		158,859
Trustee fees		68,142		68,142
Accrued expenses		111,667		111,667
Total Liabilities		676,074,417		677,881,961
Minority interest		61,054,588		58,161,400
Members’ Interests		3,658,079		2,963,284
Total Liabilities and Members’ Interests	$	740,787,084	$	739,006,645

See accompanying notes to consolidated financial statements.

2

UNAUDITED

Trapeza Funding II, LLC

Consolidated Schedules of Investments

	December 31, 2006					December 31, 2005
	Principal Amount (000)		Fair Value			Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) *
Banks (79.99% and 80.30%)*
B.P.C. Corp Statutory Trust I, 3ML+ 3.250%, callable 6/18/2008, due 6/18/2033 (a)	$	3,000	$	3,000,000		$	3,000	$	3,000,000
Bank of Kentucky Capital Trust I, 3ML +3.350%, callable 11/15/2007, due 11/14/2032 (a)		6,000		6,000,666			6,000		6,000,674
Benjamin Franklin Capital Trust I, 6.940%, callable 11/15/2007, due 11/01/2032 (a)		9,000		8,931,600			9,000		8,930,681
BNC Bancorp Capital Trust I, 3ML+ 3.250%, callable 4/15/2008, due 4/15/2033 (a)		5,000		4,952,739			5,000		4,952,173
Catawba Valley Capital Trust I, 3 ML + 3.350%, callable 12/30/2007, due 12/30/2032 (a)		5,000		4,947,523			5,000		4,946,927
Catawba Valley Capital Trust II, 6.850%, callable 12/30/2007, due 12/30/2032 (a)		5,000		4,947,036			5,000		4,946,318
Cathay Capital Trust I, 3ML+ 3.150%, callable 6/30/2008, due 6/30/2033 (a)		6,550		6,550,000			6,550		6,550,000
Century Bancshares Capital Trust I, 6.850%, callable 1/15/2008, due 1/15/2033 (a)		3,000		3,003,344			3,000		3,003,389
Colonial Capital II, 8.920%, callable 1/29/2007, due 1/15/2027		10,500		10,946,250			10,500		11,303,996
Community Bankshares Capital Trust IV, 6ML+ 3.300%, callable 4/15/2008, due 4/15/2033 (a)		5,000		5,013,295			5,000		5,013,447
Corus Statutory Trust II, 3ML+ 3.100%, callable 6/30/2008, due 6/30/2033 (a)		9,000		8,932,953			9,000		8,932,198
CPB Capital Trust I, 3ML+ 3.250%, callable 4/7/2008, due 4/7/2033 (a)		5,000		5,000,000			5,000		5,000,000
F.N.B Statutory Trust I, 3ML + 3.250%, callable 3/31/2008, due 3/31/2033 (a)		22,330		22,330,000			22,330		22,330,000
FBOP Capital Trust XII, 6ML + 3.625%, callable 7/30/2007, due 7/30/2032 (a)		1,000		1,000,000			1,000		1,000,000
FBOP Capital Trust XV, 6ML+ 3.625%, callable 12/15/2007, due 12/15/2032 (a)		14,000		14,000,000			14,000		14,000,000
FBR Capital Trust I, 3ML+ 3.250%, callable 6/30/2008, due 3/30/2033 (a)		19,000		18,856,494			19,000		18,854,879
First Banks Statutory Trust I, 8.100%, callable 3/20/2008, due 3/20/2033 (a)		21,000		21,000,000			21,000		21,000,000
First Financial Statutory Trust II, 3ML+ 3.100%, callable 9/30/2008, due 9/30/2033 (a)		9,000		9,000,000			9,000		9,000,000
First Group Capital Statutory Trust III, 3ML+ 3.350%, callable 11/15/2007, due 11/15/2032 (a)		5,000		5,039,029			5,000		5,039,490
First Group Capital Statutory Trust V, 3ML+ 3.250%, callable 4/15/2008, due 4/15/2033 (a)		15,000		15,094,228			15,000		15,095,357
First Indiana Capital Trust I, 6.920%, callable 10/30/2007, due 10/30/2032 (a)		10,000		9,991,843			10,000		9,991,732
First Mutual Capital Trust II, 6.870%, callable 1/15/2008, due 1/15/2033 (a)		4,000		3,955,578			4,000		3,954,982
First National Bank Group Inc, 6.580%, callable 4/7/2008, due 4/7/2013 (a)		8,500		8,316,920			8,500		8,314,391
First South Bancorp Statutory Trust I, 3ML+ 3.250%, callable 6/9/2008, due 6/9/2033 (a)		9,000		9,000,000	��		9,000		9,000,000
First Southern Bancorp Statutory Trust I, 3ML+ 3.250%, callable 2/19/2008, due 2/19/2033 (a)		11,000		11,000,000			11,000		11,000,000
FNB/MT Statutory II, 3ML+ 3.250%, callable 5/30/2008, due 5/30/2033 (a)		5,000		4,996,672			5,000		4,996,634
Franklin Bancorp Capital Trust I, 3ML+ 3.250%, callable 2/28/2008, due 2/25/2033 (a)		7,000		6,932,918			7,000		6,932,138
GB&T Bancshares Statutory Trust I, 3ML+ 3.400%, callable 10/30/2007, due 10/30/2032 (a)		4,000		4,000,000			4,000		4,000,000
Guaranty (TX) Capital Trust II, 7.940%, callable 10/30/2012, due 10/30/2032 (a)		3,000		3,000,481			3,000		3,000,487
Hanmi Capital Trust II, 3ML+ 2.90%m, callable 3/15/2009, due 3/15/2034 (a)		5,301		5,301,000			5,301		5,301,000
Hudson United Capital Trust I, 6.850%, callable 3/30/2008, due 3/31/2033 (a)		20,000		19,931,743			20,000		19,930,843
IBC Capital Financial II, 8.250%, callable 3/1/2008, due 12/31/2026 (a)		300		300,000			300		300,000
Iberiabank Statutory Trust II, 3ML+ 3.150%, callable 6/17/2008, due 6/17/2033 (a)		9,000		9,040,804			9,000		9,041,262
ITLA Capital Statutory Trust III, 6ML+ 3.400%, callable 10/30/2007, due 10/30/2032 (a)		9,000		8,922,641			9,000		8,921,743
ITLA Capital Statutory Trust IV, 6ML+ 3.400%, callable 12/15/2007, due 12/10/2032 (a)		4,330		4,293,041			4,330		4,292,636
Lakeland Bancorp Capital Trust II, 5.710%, callable 6/30/2008, due 6/30/2033 (a)		9,000		8,960,834			9,000		8,960,218
Macatawa Statutory Trust I, 3ML+ 3.050%, callable 7/15/2008, due 7/15/2033 (a)		9,000		9,000,000			9,000		9,000,000
Main Street Banks Statutory Trust II, 3ML + 3.250%, callable 6/30/2008, due 6/30/2033 (a)		9,000		9,000,000			9,000		9,000,000
MainSource Statutory Trust II, 3ML+ 3.250%, callable 4/1/2008, due 4/1/2033 (a)		14,000		14,000,000			14,000		14,000,000
MainSource Statutory Trust III, 3ML+ 3.150%, callable 6/15/2008, due 6/15/2033 (a)		7,000		6,988,130			7,000		6,987,995
Mariner Capital Trust II, 3ML + 3.350%, callable 12/15/2007, due 12/10/2032 (a)		6,000		5,944,429			6,000		5,943,794
MBNA Capital B, 3ML+ 0.800%, callable 2/1/2007, due 2/1/2027		7,000		6,973,750			7,000		6,860,000

        See accompanying notes to consolidated financial statements.

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Consolidated Schedules of Investments (continued)

	December 31, 2006				December 31, 2005
	Principal Amount (000)		Fair Value		Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) *
Banks (79.99% and 80.30%)*
Merchants & Manufacturers Statutory Trust I, 3ML+ 3.350%, callable 11/12/2007,     due 11/12/2032 (a)	$	2,000	$	2,000,000	$	2,000	$	2,000,000
Merchants and Manufacturers Statutory Trust II, 8.250%, callable 5/30/2008,     due 5/30/2033 (a)		9,000		9,000,000		9,000		9,000,000
Mystic Financial Capital Trust II, 3ML+ 3.250%, callable 2/15/2008, due 2/15/2033 (a)		7,000		6,925,402		7,000		6,924,525
Nara Capital Trust III, 3ML+ 3.150%, callable 6/15/2008, due 6/15/2033 (a)		5,000		4,972,924		5,000		4,972,617
New Mexico Banquest Capital Trust I, 3ML + 3.350%, callable 12/30/2007, due 12/19/2032 (a)		9,000		9,064,792		9,000		9,065,528
North American Capital Trust I, 3ML+ 3.35%, callable 11/15/2007, due 11/15/2032 (a)		5,000		5,117,086		5,000		5,118,470
Northrim Capital Trust I, 3ML+ 3.150%, callable 5/15/2008, due 5/15/2033 (a)		8,000		7,918,384		8,000		7,917,428
Old Second Capital I, 7.800%, callable 6/30/2008, due 6/30/2033 (a)		1,500		1,500,000		1,500		1,500,000
Orion Bancorp Inc Statutory Trust I, 3ML+ 3.250%, callable 5/5/2008, due 5/5/2033 (a)		9,000		9,000,000		9,000		9,000,000
Pacific Crest Capital Trust I, 6.335%, callable 3/30/2008, due 3/20/2033 (a)		13,330		13,480,820		13,330		13,483,006
Pacific Crest Capital Trust II, 6.580%, callable 4/30/2008, due 4/30/2033 (a)		6,000		6,022,504		6,000		6,022,813
Provident Capital Trust I, 8.600%, callable 12/1/2006, due 12/1/2026 (b)		−		−		9,395		10,052,650
Provident Trust I, 8.290%, callable 4/15/2008, due 4/15/2028		6,500		6,467,500		6,500		6,890,000
Red River Statutory Trust II, 3ML+ 3.250%, callable 5/28/2008, due 5/28/2033 (a)		3,000		3,000,000		3,000		3,000,000
Seacoast Capital Trust II, 6.650%, callable 4/7/2008, due 4/7/2033 (a)		5,000		5,000,000		5,000		5,000,000
South Financial Capital Trust II, 6ML+ 3.25%, callable 7/30/2007, due 7/30/2032 (a)		6,500		6,438,633		6,500		6,437,868
Southcoast Capital Trust II, 3ML+ 3.350%, callable 12/30/2007, due 12/16/2032 (a)		7,000		6,935,443		7,000		6,934,710
State National Capital Trust I, 3ML+ 3.050%, callable 9/30/2008, due 9/30/2033 (a)		6,000		6,014,437		6,000		6,014,597
Stearns Financial Capital Trust, 3ML+ 3.150%, callable 3/30/2008, due 3/30/2033 (a)		10,000		9,984,888		10,000		9,984,714
Sterling Bank Houston Texas, 7.375%, callable 4/15/2013, due 4/15/2013 (a)		12,330		12,326,792		12,330		12,326,402
Sterling Bancshares Statutory Trust I, 3ML+ 3.450%, callable 8/30/2007, due 8/30/2032 (a)		10,000		10,000,000		10,000		10,000,000
UCBH Capital Trust II, 3ML+ 3.450%, callable 11/7/2007, due 11/7/2032 (a)		9,000		9,000,000		9,000		9,000,000
Umpqua Statutory Trust II Units, 3ML+ 3.350%, callable 10/17/2007, due 10/17/2032 (a)		9,000		8,889,196		9,000		8,887,855
United Bancorporation of Wyoming Capital Trust I, 3ML + 3.100%, callable 9/30/2008,     due 9/30/2033 (a)		6,000		6,011,403		6,000		6,011,528
VCBI Capital Trust II, 6 month libor + 3.300%, callable 12/30/2007, due 12/19/2032 (a)		1,670		1,660,032		1,670		1,659,921
Virginia Capital Trust II, 6 month libor + 3.300%, callable 12/30/2007, due 12/19/2032 (a)		13,330		13,250,843		13,330		13,249,962
Wesbanco Capital Trust II, 5.800%, callable 6/30/2008, due 6/30/2033 (a)		9,000		8,985,830		9,000		8,985,611
Woodforest Statutory Trust IV, 3ML+ 3.250%, callable 3/3/2008, due 3/3/2033 (a)		10,000		10,000,000		10,000		10,000,000
Total Banks (amortized cost $544,654,504 and $553,474,532)			$	547,362,850			$	558,069,589

See accompanying notes to consolidated financial statements.

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Consolidated Schedules of Investments (continued)

	December 31, 2006				December 31, 2005
	Principal Amount (000)		Fair Value		Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) * (continued)
Thrifts (20.01% and 19.70%)
BankUnited Statutory Trust IV, 3ML+ 3.400%, callable 11/15/2007, due 11/15/2032 (a)	$	6,000	$	6,000,000	$	6,000	$	6,000,000
BBC Capital Trust VI, 3ML+ 3.350%, callable 12/30/2007, due 12/10/2032 (a)		15,000		14,865,654		15,000		14,864,128
BBC Capital Trust XII, 6.650%, callable 4/7/2008, due 4/7/2033 (a)		3,670		3,670,000		3,670		3,670,000
Beal Financial Trust I, 6ML+ 3.625%, callable 7/30/2007, due 7/30/2032 (a)		9,000		8,915,009		9,000		8,913,949
Beal Financial Trust II, 3ML+ 3.350%, callable 3/27/2008, due 3/27/2033 (a)		13,000		12,892,743		13,000		12,891,554
Capital One Capital I, 3ML+ 1.550%, callable 2/1/2007, due 2/1/2027		4,000		4,005,000		4,000		4,020,000
Coastal Financial Capital Trust I, 3ML+ 3.050%, callable 9/30/2008, due 7/3/2033 (a)		9,000		9,078,004		9,000		9,078,891
Flagstar Statutory Trust IV, 6.750%, callable 3/30/2008, due 3/19/2033 (a)		22,330		22,237,499		22,330		22,236,250
Franklin Bank Capital Trust I, 3ML+ 3.35%, callable 11/15/2007, due 11/14/2032 (a)		9,000		8,922,827		9,000		8,921,915
HFC Capital Trust IV, 6 ML+3.350%, callable 11/15/2007, due 11/15/2032 (a)		6,550		6,411,958		6,550		6,410,385
IndyMac Capital Trust, 6.050%, callable 9/30/2008, due 7/11/2033 (a)		9,000		8,973,900		9,000		8,973,513
Progress Capital Trust III, 3ML + 3.350%, callable 11/15/2007, due 11/15/2032 (a)		4,000		3,967,855		4,000		3,967,474
Sterling Capital Trust IV, 3ML+ 3.150%, callable 5/15/2008, due 5/15/2033 (a)		9,000		8,969,252		9,000		8,968,893
Waypoint Capital Trust II, 3ML+ 3.300%, callable 1/7/2008, due 1/7/2033 (a)		3,000		3,000,000		3,000		3,000,000
Waypoint Capital Trust III, 3ML+ 3.250%, callable 3/13/2008, due 3/13/2033 (a)		15,000		15,000,000		15,000		15,000,000
Total Thrifts (amortized cost $135,911,507 and $135,878,333)				136,909,701				136,916,952
Total Investments in Trust Preferred Securities (amortized cost $680,566,011 and $689,352,865)			$	684,272,551			$	694,986,541

	Fair Value		Fair Value
Interest Rate Swap Agreements
Credit Suisse	$	5,252,592	$	5,865,799
Total Interest Rate Swap Agreements	$	5,252,592	$	5,865,799

*Amounts in parentheses indicate percentage of investments in trust preferred securities.

(a)Private placement, illiquid securities, where amortized cost approximates fair value.

(b)Investment called in December 2006 at par.

ML = Month Libor

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Operations

	Years ended December 31,
	2006			2005
Investment income
Interest	$	57,653,716		$	47,980,287
Expenses
Interest		36,745,732			30,382,232
Collateral management fees		1,739,165			1,740,103
Amortization		1,498,583			1,557,453
Trustee fees		267,049			269,990
Professional fees		188,694			169,841
Administration fees		111,861			102,584
Other		350,324			359,125
Total expenses		40,901,408			34,581,328
Net investment income		16,752,308			13,398,959
Net unrealized (depreciation) appreciation on investment transactions:
Investments in trust preferred securities		(1,927,136	)		(43,018	)
Interest rate swap agreements		(613,207	)		4,893,712
Net unrealized (depreciation) appreciation on investment transactions		(2,540,343	)		4,850,694
Net income before minority interest		14,211,965			18,249,653
Minority interest		11,400,618			14,809,563
Net income	$	2,811,347		$	3,440,090

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Changes in Members’ Interests

Years ended December 31, 2006 and 2005

Balance at January 1, 2005	$	1,432,866
Net income		3,440,090
Distributions to members		(1,909,672	)
Balance at December 31, 2005		2,963,284
Net income		2,811,347
Distributions to members		(2,116,552	)
Balance at December 31, 2006	$	3,658,079

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows

	Years ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	2,811,347		$	3,440,090
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of deferred debt issuance costs		1,498,583			1,557,453
Accretion of discount on investments in trust preferred securities		(608,146	)		(283,151	)
Minority interest		11,400,618			14,809,563
Net unrealized depreciation (appreciation) on investment transactions		2,540,343			(4,850,694	)
Net change in operating assets and liabilities:
Investment in trust preferred securities		9,395,000			1,500,000
Interest receivable on trust preferred securities		(308,498	)		(633,748	)
Net interest receivable from swap counterparty		(917,036	)		(1,196,570	)
Prepaid expenses		(1,491	)		836
Interest payable		2,673,545			3,726,407
Collateral management fees		−			(937	)
Professional fees		(9,405	)		(15,275	)
Trustee fees		−			(278	)
Minority interest		(8,507,430	)		(7,530,739	)
Net cash and cash equivalents provided by operating activities		19,967,430			10,522,957
Cash flows from financing activities
Principal payments on notes		(4,471,684	)		(4,241,205	)
Distributions to members		(2,116,552	)		(1,909,672	)
Net cash and cash equivalents used in financing activities		(6,588,236	)		(6,150,877	)
Net increase in cash and cash equivalents		13,379,194			4,372,080
Cash and cash equivalents, beginning of year		19,627,097			15,255,017
Cash and cash equivalents, end of year	$	33,006,291		$	19,627,097
Supplemental disclosure of cash flow information
Net interest paid	$	34,989,223		$	27,852,395

See accompanying notes to consolidated financial statements.

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Notes to Consolidated Financial Statements

December 31, 2006

1.Organization and Purpose

Trapeza Funding II, LLC (“Funding”), was organized on August 26, 2002 as a Delaware limited liability company. Funding commenced operations on November 1, 2002. Funding was organized for the purpose of being the general partner (the “General Partner”), of Trapeza Partners II L.P. (the “Partnership”). Per the partnership agreement, the limited partners have no right to remove Funding at any time. Funding has complete and exclusive control of the management of the business affairs of the Partnership.

The Partnership was organized on September 27, 2002 as a Delaware limited partnership. The Partnership commenced operations on November 19, 2002. The Partnership was organized for the purpose of investing in membership interests and other securities to be issued by Trapeza CDO II, LLC (“Issuer II”), an affiliated collateralized debt obligation, which was formed by Funding. On May 15, 2003, Trapeza Note I, LLC (“Note I”) was formed to issue Class BB fixed rate notes, purchase 100% of the membership interests of Issuer II and return a portion of equity to the Partnership for the purpose of investing in membership interests and other securities to be issued by Trapeza CDO III, LLC (“Issuer III”), an affiliated collateralized debt obligation. Issuer III closed on June 25, 2003. The Partnership has an 11-year term, which the General Partner may extend on a year-to-year basis.

All material intercompany transactions have been eliminated. Minority interest reflects the 99.99% of partners’ interest of the limited partners of the Partnership. The consolidated entity is referred to as the “Company.”

Trapeza Capital Management, LLC (the “Collateral Manager”), a Delaware limited liability company, is responsible for supervising and directing the investment the collateral of Issuer II and Issuer III. Issuer II and III are charged a collateral management fee by the Collateral Manager, who is affiliated with Funding through common ownership.

Funding and the Collateral Manager are owned equally by Financial Stocks, Inc. (“FSI”) and Resource Financial Fund Management, Inc., a wholly-owned subsidiary of Resource America, Inc. (“REXI”) (collectively, the “Owners”). Resource Financial Fund Management, Inc. and FSI are Registered Investment Advisers under the Investment Advisers Act of 1940. REXI, a publicly traded company, is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for their own account and for outside investors in the financial fund management, real estate and equipment leasing sectors. The Owners and certain officers and directors of the Owners hold partnership interests of approximately 17% of the Partnership.

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Notes to Consolidated Financial Statements (continued)

1.Organization and Purpose (continued)

Issuer II and Issuer III’s objective is to purchase, acquire, own, hold, sell, endorse, transfer, assign, pledge, finance, refinance, exchange, restructure, workout, advance and collect funds pursuant to and otherwise deal with and exercise rights of ownership with respect to the collateral of Issuer II and Issuer III, including other securities or equity interests owned from time to time by Issuer II and Issuer III, all in accordance with the terms of the indentures.

The business and affairs of Funding are managed by a Board of Managers. The Board of Managers has full, complete and exclusive authority, power and discretion to manage and control the business affairs and properties of Funding, to make all decisions regarding those matters and to perform any activities customary or incident to the management of Funding’s business.

2.Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Accounting

The Company’s accounting policies are in conformity with accounting principles generally accepted in the United States. The Company maintains its financial records in United States dollars. For financial reporting purposes, the Company follows the accrual basis of accounting.

Cash and Cash Equivalents

The Company considers all demand deposits with banks and other highly liquid investments with original maturities of three months or less to be cash equivalents.

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Notes to Consolidated Financial Statements (continued)

2.Summary of Significant Accounting Policies (continued)

Investment Transactions

The Company records transactions on their trade dates. Realized gains and losses on investments are determined on the specific identification basis for financial accounting purposes. Interest is accrued as earned or incurred and includes the amortization/accretion of premiums and discounts on debt securities.

Investment Valuation

Investments are carried at fair value. Securities for which market quotations are not readily available are valued by procedures adopted by Funding. In valuing investments in which market quotations are not readily available, Funding utilizes data from a variety of different sources, taking into account the characteristics of a security, any changes in the credit quality of the securities in the portfolio, the overall movement of interest rates and other factors which, in Funding’s good faith and judgment, are relevant to the value of a security. For exchange-traded securities, management will obtain current market data and quotes from independent brokers.

The Company has invested a significant portion of the portfolio in private placement, illiquid issues having no ready market. At December 31, 2006, these securities aggregate $655,880,051 and have been valued in good faith by Funding as described in the preceding paragraph. Because of the inherent uncertainty of valuation, the fair values estimated by Funding may not necessarily represent the amounts that could be realized from sales or other dispositions of investments and the differences may be material.

Credit Risks and General Liquidity Considerations

Investments in trust preferred securities are subject to credit, interest rate and liquidity risks. Adverse changes in the financial condition of an issuer of trust preferred securities or in general economic conditions or both may impair the ability of the issuer to make payments of principal and interest. Debt obligations are also subject to liquidity risk and the risk of market price fluctuations. Adverse changes in the financial condition of an issuer may affect the liquidity of the market for an issuer’s securities and may reduce the market price of such securities. In addition, changes in general economic and regulatory conditions may affect the liquidity of the market for trust preferred securities in general and may reduce the values of some or all of the securities.

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Notes to Consolidated Financial Statements (continued)

2.Summary of Significant Accounting Policies (continued)

Allocation of Profits and Losses

The Company allocates profits to the members in proportion to their respective capital account balances until the cumulative profits for this current period and all prior fiscal years are equal to the cumulative losses allocated; thereafter, among the members in proportion to their respective units. Losses shall be allocated to the members in proportion to their respective capital account balances.

Funding’s investment in the Partnership is accounted for based on its pro-rata share of its investment in the Partnership. Profits and losses from non-portfolio income are allocated to all members in proportion to their allocable shares. Twenty percent of the cumulative net profits from portfolio investments are allocated to Funding.

Non-portfolio income of the Partnership, consisting primarily of income earned on short-term investments, is allocated to all limited partners in proportion to their respective capital account balances prior to the allocation of any other item.

Portfolio income of the Partnership, consisting primarily of interest income and profits and losses from the sale of such investments, are allocated to all partners of the Partnership in proportion to their respective contributed capital of the Partnership in relation to total contributed capital, but 20% of the cumulative net profits otherwise allocable to all partners will be allocated to Funding, defined as the incentive allocation. For the years ended December 31, 2006 and 2005, Funding received incentive allocations of $2,307,689and $2,982,801, respectively, which are included in interest reflected on the statements of operations.

Taxation

The Company is treated as a partnership for Federal income tax purposes and, therefore, no provision for federal income tax is recorded.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

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Notes to Consolidated Financial Statements (continued)

3.Contributions, Withdrawals and Distributions

As of December 31, 2006, the Company has 100 membership units issued and outstanding. No member shall be required to make any additional contributions beyond their initial contribution. If the Board of Managers unanimously determines that the Company requires additional funds, any member may, but is not obligated to, advance such funds.

No member shall have the right to withdraw any of its capital contribution, except upon dissolution and liquidation of the Company. For the years ended December 31, 2006 and 2005, the Company made distributions of $2,116,552 and $1,909,672, respectively, to the members.

In accordance with the partnership agreement, each partner has contributed a specified amount of capital which is set forth in the partnership agreement. No limited partner is required to contribute any capital in excess of its commitment. As of December 24, 2002, all commitments of the Partnership were fully funded.

A limited partner will not have the right to redeem its interest in the Partnership. Funding, in its sole discretion, may redeem all or part of the partnership interest of any limited partner, for an amount equal to the capital account of the partnership interest being redeemed, if the limited partner consents to such redemption and all redemptions in any year do not exceed 5% of the aggregate allocable percentage of all limited partners.

3.Contributions, Withdrawals and Distributions (continued)

Funding will cause the Partnership to distribute the lesser of (i) 90% of cash available from profits and (ii) all cash then available to the partnership less any reserves for partnership expenses or liabilities. All other distributions will be at the discretion of Funding. Funding will determine at its sole discretion the source of funds for all distributions. For the years ended December 31, 2006 and 2005, the Partnership made distributions of $8,364,458 and $7,423,843, respectively, to the partners.

4.Issuer II

Deferred Debt Issuance Costs

Deferred debt issuance costs of $9,831,231 are being amortized over the expected life of the related debt using the effective interest method. The expected life of the debt is the period ending with the distribution date occurring in April 2013, as defined in the indenture (“Indenture II”). Amortization of deferred debt issuance costs commenced on March 11, 2003.

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Notes to Consolidated Financial Statements (continued)

4.Issuer II (continued)

Collateral Management and Trustee Fees

Pursuant to a collateral management agreement, the Collateral Manager is entitled to a semiannual fee up to and including the distribution date occurring in April 2008, payable in arrears on the distribution dates, equal to the greater of $375,000 or 0.25% per annum of the semi-annual asset amount (“Collateral Management Fee”), of the net outstanding portfolio collateral, as defined in Indenture II. After the distribution occurring in April 2008 the fee will be 0.25% per annum of the semi-annual asset amount. For the years ended December 31, 2006 and 2005, total collateral management fees were $989,165 and $990,103, respectively, and are included in the total collateral management fees on the consolidated statements of operations.

Pursuant to a trustee agreement, the trustee is entitled to a semiannual fee, on each distribution date, equal to 0.023625% per annum of the sum of the aggregate principal amount of the investments plus cash and cash equivalents at the beginning of the period relating to such distribution dates, an annual fee of $15,000, and reimbursement of out of pocket expenses. For the years ended December 31, 2006 and 2005, total trustee fees were $114,085 and $114,178, respectively, and are included in total trustee fees on the consolidated statements of operations.

Notes Payable

On March 11, 2003, Issuer II issued notes (the “Notes”) at their respective principal values, which are secured by Issuer II’s investments and are non-recourse to the Company.

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Notes to Consolidated Financial Statements (continued)

4.Issuer II (continued)

Notes Payable (continued)

At December 31, 2006 and 2005, Notes outstanding consisted of the following:

	2006 Principal		2005 Principal		Interest Rate		Stated Maturity
Class A1A Notes	$	130,499,115	$	130,499,115		Libor + 0.65% until the distribution date in April 2013 and Libor + 1.30% thereafter		October 5, 2033
Class A1B Notes	$	100,000,000	$	100,000,000		Libor + 0.88%		October 5, 2033
Class B Notes	$	27,000,000	$	27,000,000		Libor + 0.70%		October 5, 2033
Class C-1 Floating Notes	$	43,500,000	$	43,500,000		Libor + 1.90%		October 5, 2033
Class C-2 Fixed Notes	$	54,800,000	$	54,800,000		5.20% until the distribution date in April 2008 and Libor + 1.90% thereafter		October 5, 2033
Class D Notes	$	17,549,087	$	18,450,000		Libor + 2.65%		October 5, 2033

Interest Payments

Holders of the Notes are to receive semiannual interest payments on October 5 and April 5, commencing in October 2003 (the “Initial Payment Date”). The order of payment will be first to Class A1A, second, Class A1B, third, Class B, fourth to Class C, and fifth Class D of notes being senior to each of the other classes of notes. No payments of interest on any class of notes will be made until all accrued and unpaid interest on the notes of each class that is senior to a class and that remain outstanding has been paid in full. No payment of principal of any class of notes will be made until the principal of and all accrued and unpaid interest, on the notes of each class that is senior to such class and that remain outstanding have been paid in full, except as discussed below and defined in the indenture.

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Notes to Consolidated Financial Statements (continued)

4.Issuer II (continued)

Interest Payments (continued)

In the event that the coverage tests, as defined in Indenture II, are not satisfied as of any distribution date, each class of notes may be redeemed in the manner specified in Indenture II.

Principal Payments

Principal payments will be applied as outlined below except as otherwise stated in the indenture.

Principal Turboing

On the distribution date occurring in October 2003, the greater of $250,000, and the amount of funds available in the payment account in excess of the dividend yield of 23.5% will be applied to the payment of principal. On any distribution date after October 2003, but prior to the distribution date occurring in April 2008, the amount of funds available in the payment account in excess of the dividend yield of 23.5% will be applied to the payment of principal. Principal payments will be applied in the following manner. First, payment of principal of the Class D Notes until the Class D Notes have been paid in full. Next, payment of principal on the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal on the Class B Notes until the Class B Notes have been paid in full. Next, payment of principal on the Class A1B Notes until the Class A1B Notes have been paid in full. Finally, payment of principal on the Class A1A Notes until the Class A1A Notes have been paid in full.

Principal Proceeds

Principal proceeds will be applied in the following manner. First, payment of principal of the Class A1A notes until the Class A1A notes have been paid in full. Next, payment of principal on the Class A1B notes until the Class A1B notes have been paid in full. Next, payment of principal of the Class B notes until the Class B notes have been paid in full. Next, payment of principal of the Class C notes until Class C notes have been paid in full. Next, payment of principal of the Class D notes. Finally, the remainder to the members as a dividend on the members’ interests or as a return of capital of the members’ interests as provided in Issuer II’s Agreement (“Agreement II”).

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Notes to Consolidated Financial Statements (continued)

4.Issuer II (continued)

Principal Payments (continued)

Principal Proceeds (continued)

If on any distribution date, the amount available in the payment account from amounts received in the related due period are insufficient to make the full amount of the disbursements required by the priority of payments to different persons, the trustee will make the disbursements ratably in accordance with Indenture II.

If the notes and the member’s interests have not been released prior to October 5, 2033, it is expected that Issuer II or Collateral Manager, acting on behalf of Issuer II, will sell all of the investments and sell or liquidate all other collateral, and all net proceeds from such sales and liquidations and all available cash after the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses and (iii) interest (including any defaulted interest and interest on defaulted interest, any Class C deferred interest and interest on any Class C deferred interest and any Class D deferred interest and interest on any Class D deferred interest) and principal of the notes, will be distributed to the members in accordance with Agreement II.

Acceleration of Maturity and Redemption

Indenture II provides for an acceleration of maturity or redemption of all of the senior notes and accrued and unpaid interest upon the occurrence of a default event. Default events include a) failure of Issuer II to pay interest for a period of three business days on any Class A or B senior Notes, b) failure of Issuer II to pay principal of any senior Note when such payment becomes due and payable at its stated maturity or redemption date, c) failure of Issuer II, on any distribution date to disburse amounts available to the interest collection account or principal collection account in accordance with the order of the priority of payments set forth in Indenture II, which continues for three business days, d) Issuer II or pool of collateral becomes an investment company required to be registered under the Investment Company Act, e) default in performance, or a breach, of any other covenant or other agreement of Issuer II under the Indenture II or any representation of warranty of Issuer II made in Indenture II or in any certificate or other writing proves to be incorrect in any material respect when made, and in both clauses, the continuation of such default or breach for a period of thirty days after Issuer II or the Collateral Manager has actual knowledge that such default or breach has occurred or after written notice to Issuer II and the Collateral Manager by the trustee, or to Issuer II, the Collateral Manager and the Trustee by the holders of at least 25% in aggregate outstanding principal amount of the Notes of the controlling class or hedge counterparty, f) one or more final judgments being rendered against Issuer II that exceed, in the aggregate, $5,000,000, and which remain unstayed, undischarged and unsatisfied for 30 days after such judgment(s) becomes nonappealable, unless adequate funds have been reserved or set aside for the payment thereof, and g) failure, on any measurement date, to cause the Class A/B overcollateralization ratio to be equal to or greater than 100%. Each of these conditions is further described in Indenture II.

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Notes to Consolidated Financial Statements (continued)

5.Note I

Deferred Debt Issuance Costs

Deferred debt issuance costs of $300,000 are being amortized over the expected life of the related debt using the effective interest method. The expected life of the debt is April 2010, as defined in the fiscal and collateral agency agreement (“Note Agreement”), assuming all scheduled principal payments are made when due. Amortization of deferred debt issuance costs commenced on May 15, 2003.

Notes Payable

On May 15, 2003, Note I issued Notes at their respective principal value, which are secured by Note I’s investments and are non-recourse to the Company.

At December 31, 2006 and 2005, the Notes outstanding consisted of the following:

	2006 Principal		2005 Principal		Interest Rate		Stated Maturity
Class BB Notes	$	5,000,000	$	6,428,571		11.00%		October 5, 2033

Holders of the Notes are to receive semiannual interest payments on October 5 and April 5, commencing in October 2003 (the “Initial Payment Date”). On each payment date, in addition to scheduled interest, Note I shall prepay the scheduled principal to the holders of the notes, if and only to the extent Note I receives payments on membership interests and funds available on deposit in the note collection account to pay scheduled principal. If Note I fails to pay any of the scheduled principal due to insufficient funds received by Note I in respect to the membership interests, such unpaid scheduled principal shall not be considered “due and payable” for any purposes hereunder and will be deferred until such date as Note I receives sufficient payments.

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Notes to Consolidated Financial Statements (continued)

5.Note I

Notes Payable (continued)

In the event that the coverage tests, as defined in the Note Agreement, are not satisfied as of any distribution date, the notes may be redeemed in the manner specified in the Note Agreement.

If the notes and the members’ interests have not been released prior to October 5, 2033, it is expected that Note I or Collateral Manager, acting on behalf of the Note I, will sell all of the investments and all eligible investments and sell or liquidate all other collateral, and all net proceeds from such sales and liquidations and all available cash after the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses and (iii) interest and principal of the notes, will be distributed to the members in accordance with the Note Agreement.

The Note Agreement provides for an option by holders of more than 50% of the notes outstanding an acceleration of maturity or redemption of all of the notes and accrued and unpaid interest upon the occurrence of a default event. Default events include a) Note I fails to perform its obligations under the Note Agreement, and such failure could reasonably be expected to have a material adverse effect on the interest of the holders and has not been cured within 30 days after the date of an officer obtaining actual knowledge of such default, or, b) a court or governmental authority of competent jurisdiction enters an order appointing, without consent of Note I, a custodian, receiver, trustee or each officer with similar powers with respect to Note I or with respect to any substantial part of Note I’s property, or constituting an order for relief or reorganization or any petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of Note I, or any such petition shall be filed against the issuer and such petition shall not be dismissed within 60 days.

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Notes to Consolidated Financial Statements (continued)

6.Issuer III

Deferred Debt Issuance Costs

Deferred debt issuance costs of $7,863,460 are being amortized over the expected life of the related debt using the effective interest method. The expected life of the debt is the period ending with the distribution date occurring in July 2013, as defined in the indenture (“Indenture III”). Amortization of deferred debt issuance costs commenced on June 25, 2003.

Collateral Management and Trustee Fees

Pursuant to a collateral management agreement, the Collateral Manager is entitled to a semiannual fee, payable in arrears on the distribution dates, equal to 0.10% per annum of the semi-annual asset amount (“Base Collateral Management Fee”), of the net outstanding portfolio collateral, as defined in Indenture III. After certain expenses have been paid, the Collateral Manager is entitled to an additional semiannual fee equal to 0.15% per annum, calculated in the same manner as the Base Collateral Management Fee. For the years ended December 31, 2006 and 2005, total collateral management fees were $750,000 and $750,000, respectively, and are included in total collateral management fees on the consolidated statements of operations.

Pursuant to a trustee agreement, the trustee is entitled to a semiannual fee, on each distribution date, equal to 0.0225% per annum of the sum of the aggregate principal amount of the investments plus cash and cash equivalents at the beginning of the period relating to such distribution dates, as defined in Indenture III. For the years ended December 31, 2006 and 2005, total trustee fees were $86,550 and $84,342, respectively, and are included in total trustee fees on the consolidated statements of operations.

Notes Payable

On June 25, 2003, Issuer III issued Notes at their respective principal values, which are secured by Issuer III’s investments and are non-recourse to the Company.

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Notes to Consolidated Financial Statements (continued)

6.Issuer III (continued)

Notes Payable (continued)

At December 31, 2006 and 2005, the Notes outstanding consisted of the following:

	2006 Principal		2005 Principal		Interest Rate		Stated Maturity
Class A1A Notes	$	108,497,331	$	108,497,331		Libor + 0.63%		January 20, 2034
Class A1B Notes	$	71,500,000	$	71,500,000		Libor + 0.85%		January 20, 2034
Class B Notes	$	25,000,000	$	25,000,000		See Class B note		January 20, 2034
Class C-1 Notes	$	31,250,000	$	31,250,000		Libor + 1.75%		January 20, 2034
Class C-2 Notes	$	31,250,000	$	31,250,000		Libor + 1.75%		January 20, 2034
Class D Notes	$	11,974,741	$	13,259,797		Libor + 2.65%		January 20, 2034
Class E Notes (1)	$	4,571,426	$	5,714,284		10.00%		January 20, 2034

(1) The Partnership owns 25% of the Class E notes.

Pursuant to the terms of the Class B agency agreement, the holders of the Class B Notes will be entitled to receive interest, certain third parties will be entitled to receive compensation, at an aggregate, floating rate per annum not to exceed Libor plus 1.05% in the aggregate after taking into consideration the effect of a basis swap to be entered into in connection with the Class B Notes.

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Notes to Consolidated Financial Statements (continued)

6.Issuer III (continued)

Interest Payments

Holders of the Notes are to receive semiannual interest payments on January 20 and July 20, commencing in January 2004 (the “Initial Payment Date”). The order of payment will be first to Class A1A, second, Class A1B, third, Class B, fourth, Class C (includes Class C-1 and Class C-2), fifth to Class D and sixth to Class E with each Class of Notes being senior to each of the other classes of notes. No payments of interest on any class of Notes will be made until all accrued and unpaid interest on the Notes of each class that is senior to a class and that remain outstanding has been paid in full. No payment of principal of any class of Notes will be made until the principal of, and all accrued and unpaid interest, on the Notes of each class that is senior to such class and that remain outstanding have been paid in full, except as discussed below and as defined in the indenture.

In the event that the coverage tests, as defined in Indenture III, are not satisfied as of any distribution date, each class of Notes may be redeemed in the manner specified in Indenture III.

Principal Payments

Principal payments will be applied as outlined below except as otherwise stated in the indenture.

Principal Turboing

On each distribution date occurring on or prior to the distribution date in July 2008, the greater of $125,000 and the amount of funds available for distribution in the payment account in excess of the amount necessary to achieve a yield equal to 22.25% as of such distribution date, will be applied to the payment of principal of, first, the Class D Notes, second, the Class C Notes, third, the Class B Notes, fourth, the Class A1B Notes, and, fifth, the Class A1A Notes, until each such Class of Notes has been paid in full.

On each distribution date on and prior to the distribution date in July 2010, the sum of $571,429 and any amount that would have been paid on a prior distribution but was not available, will be applied to the payment of principal of Class E Notes.

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Notes to Consolidated Financial Statements (continued)

6.Issuer III (continued)

Principal Payments (continued)

Principal Proceeds

Principal proceeds will be applied in the following manner. First, payment of principal of the Class A1A Notes until the Class A1A Notes have been paid in full. Next, payment of principal on the Class A1B Notes until the Class A1B Notes have been paid in full. Next, payment of principal on the Class B Notes until the Class B Notes have been paid in full. Next, payment of principal of the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal of the Class D Notes. Next, payment of principal of the Class E Notes. Finally, the remainder to the members as a dividend on the members’ interests or as a return of capital of the members’ interests as provided in the Trapeza CDO III, LLC Agreement (“Agreement III”).

If on any distribution date, the amount available in the payment account from amounts received in the related due period are insufficient to make the full amount of the disbursements required by the priority of payments to different persons, the trustee will make the disbursements ratably in accordance with Indenture III.

If the Notes and the members’ interests have not been released prior to January 20, 2034, it is expected that Issuer III or Collateral Manager, acting on behalf of Issuer III, will sell all of the investments and all eligible investments and sell or liquidate all other collateral, and all net proceeds from such sales and liquidations and all available cash after the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses and (iii) interest (including any defaulted interest and interest on defaulted interest, any Class C deferred interest and interest on any Class C deferred interest, any Class D deferred interest and interest on any Class D deferred interest, and any Class E deferred interest and interest on any Class E deferred interest) and principal of the Notes, will be distributed to the members in accordance with the Agreement III.

Acceleration of Maturity and Redemption

Indenture III provides for an acceleration of maturity or redemption of all of the senior Notes and accrued and unpaid interest upon the occurrence of a default event. Default events include a) failure of Issuer III to pay interest for a period of three business days on any Class A or B senior Notes, b) failure of Issuer III to pay principal of any senior Note when such payment becomes due and payable at its stated maturity or redemption date, c) failure of Issuer III, on any distribution date to disburse amounts available to the interest collection account or

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Notes to Consolidated Financial Statements (continued)

6.Issuer III (continued)

Acceleration of Maturity and Redemption (continued)

principal collection account in accordance with the order of the priority of payments set forth in Indenture III, which continues for three business days, d) Issuer III or pool of collateral becomes an investment company required to be registered under the Investment Company Act, e) default in performance, or a breach, of any other covenant or other agreement of Issuer III under Indenture III or any representation of warranty of Issuer III made in Indenture III or in any certificate or other writing proves to be incorrect in any material respect when made, and in both clauses, the continuation of such default or breach for a period of 30 days after Issuer III or the General Partner has actual knowledge that such default or breach has occurred or after written notice to Issuer III and the General Partner by the trustee, or to Issuer III, the General Partner and the Trustee by the holders of at least 25% in aggregate outstanding principal amount of the Notes of the controlling class or hedge counterparty, f) one or more final judgments being rendered against Issuer III that exceed, in the aggregate, $5,000,000, and which remain unstayed, undischarged and unsatisfied for thirty days after such judgment(s) becomes nonappealable, unless adequate funds have been reserved or set aside for the payment thereof, and g) failure, on any measurement date, to cause the Class A/B overcollateralization ratio to be equal to or greater than 100%. Each of these conditions is further described in Indenture III.

7.Interest Rate Swap Agreements

The Company maintains a policy of valuing its derivative instruments at fair values, with the resulting unrealized gain or loss included in the consolidated statement of operations.

A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset or otherwise determined notional amount.

Risks may arise as a result of the failure of the counterparty to the swap agreement. The loss incurred by the failure of a counterparty is generally limited to the net payment to be received by the Company and/or the termination value at the end of the agreement. Therefore, the Company considers the creditworthiness of each counterparty to a swap agreement in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates.

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Notes to Consolidated Financial Statements (continued)

7.Interest Rate Swap Agreements (continued)

The Company records a net receivable or payable for the net income or expense expected to be received or paid in the interest period. Net amounts received or paid on swap agreements are recorded as interest income or interest expense on the consolidated statements of operations. The amount recorded as interest income on basis swap agreements for the years ended December 31, 2006 and 2005 totaled $125,509 and $197,269, respectively.

The Company entered into interest rate swap agreements with Credit Suisse (“CS”) (formerly known as Credit Suisse First Boston) for the purpose of hedging interest rate and cash flow risk between the fixed-rate investments and floating-rate investments.

At December 31, 2006 and 2005, the Company had nine interest rate swap agreements outstanding with CS, which pay as follows:

			Floating Rate		Rate/Amount		December 31
Notional	Maturity		Received by		Paid by the		2006			2005
Amount	Date		the Company		Company		Fair Value			Fair Value
$  3,330,000		4/5/10		6 month Libor + 3.4425%		7.375%	$	131,941		$	125,378
$  8,670,000		4/5/08		6 month Libor + 3.30%		6.65%		238,957			279,301
$13,330,000		4/5/08		6 month Libor + 3.35%		6.75%		384,242			413,468
$13,330,000		4/5/08		6 month Libor + 3.35%		6.335%		438,780			545,880
$13,330,000		4/5/08		6 month Libor + 4.69%		8.10%		357,614			452,246
$47,330,000		4/5/08		6 month Libor + 3.32%		6.952%		1,108,651			1,205,244
$69,500,000		7/20/08		6 month Libor + 3.25%		6.35%		2,927,760			3,025,285
$25,000,000		7/20/13		6 month Libor + 1.0875%		6 month Libor + 1.05%		(748,707	)		(555,025	)
$  9,000,000		7/20/08		6 month Libor + 3.145%		6.05%		413,354			442,046
							$	5,252,592		$	5,933,823

At December 31, 2006 and 2005, the Company had one interest rate cap agreement outstanding with CS, which pays on a semi-annual basis as follows:

			Floating Rate		Rate/Amount		December 31
Notional	Maturity		Received by		Paid by the		2006		2005
Amount	Date		the Company		Company		Fair Value		Fair Value
$82,000,000		4/5/07		Excess above 7.00% as discussed below	$	69,000	$	−	$	(68,024	)

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Notes to Consolidated Financial Statements (continued)

7.Interest Rate Swap Agreements (continued)

The Partnership made its final payment of $69,000 in April 2006 satisfying its obligation under the interest rate cap agreement. In addition, under the terms of the agreement if the six-month London Interbank Offered Rate (“Libor”) exceeds the Cap Strike Rate of 7.00%, the Partnership will receive the amount the six-month Libor exceeds the Cap Strike rate.

8.Related Party Transactions

The Partnership pays Funding an administration fee (payable semi-annually in advance) equal to 1.5% per annum of the aggregate capital accounts of the limited partners, which will be used to cover management fees and other ordinary and recurring administrative and related operating expenses. For the years ended December 31, 2006 and 2005, administration fees totaled $657,578 and $603,039, respectively.

In exchange for interests sold on behalf of the Partnership, Funding pays external broker-dealers an administration fee, equal to the percentage of equity raised by the broker-dealer multiplied by one-third of the total administration fee being charged by Funding to the Partnership. For the years ended December 31, 2006 and 2005, total administration fee expense totaled $111,861 and $102,584, respectively.

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Other Financial Information

UNAUDITED

Trapeza Funding II, LLC

Consolidating Statement of Financial Condition

December 31, 2006

	Trapeza Funding II, LLC		Trapeza Partners II L.P. Consolidated		Total		Eliminations			Trapeza Funding II, LLC Consolidated
Assets
Investments in trust preferred securities, at fair value (amortized cost $680,566,011)	$	−	$	684,272,551	$	684,272,551	$	−		$	684,272,551
Cash and cash equivalents		5,677		33,000,614		33,006,291		−			33,006,291
Deferred debt issuance costs (net of accumulated amortization of $5,618,421)		−		12,376,270		12,376,270		−			12,376,270
Unrealized appreciation on swap agreements		−		5,252,592		5,252,592		−			5,252,592
Interest receivable on trust preferred securities		−		4,498,164		4,498,164		−			4,498,164
Net interest receivable from swap counterparty		−		1,353,765		1,353,765		−			1,353,765
Prepaid expenses		−		27,451		27,451		−			27,451
Investment in Trapeza Partners II L.P.		3,665,805		−		3,665,805		(3,665,805	)		−
Total Assets	$	3,671,482	$	740,781,407	$	744,452,889	$	(3,665,805	)	$	740,787,084
Liabilities and Partners’ Capital/Members’ Interests
Liabilities
Class A1A notes	$	−	$	238,996,446	$	238,996,446	$	−		$	238,996,446
Class A1B notes		−		171,500,000		171,500,000		−			171,500,000
Class B notes		−		52,000,000		52,000,000		−			52,000,000
Class C-1 notes		−		74,750,000		74,750,000		−			74,750,000
Class C-2 notes		−		86,050,000		86,050,000		−			86,050,000
Class D notes		−		29,523,828		29,523,828		−			29,523,828
Class E notes		−		3,428,569		3,428,569		−			3,428,569
Class BB notes		−		5,000,000		5,000,000		−			5,000,000
Interest payable		−		13,905,741		13,905,741		−			13,905,741
Collateral management fees		−		590,570		590,570		−			590,570
Professional fees		13,403		136,051		149,454		−			149,454
Trustee fees		−		68,142		68,142		−			68,142
Accrued expenses		−		111,667		111,667		−			111,667
Total Liabilities		13,403		676,061,014		676,074,417		−			676,074,417
Minority interest		−		9,304,230		9,304,230		51,750,358			61,054,588
Partners’ Capital/Members’ Interests
Members’ Interests		3,658,079		−		3,658,079		−			3,658,079
General Partner		−		3,665,805		3,665,805		(3,665,805	)		−
Limited Partners		−		51,750,358		51,750,358		(51,750,358	)		−
Total Partners’ Capital/Members’ Interests		3,658,079		55,416,163		59,074,242		(55,416,163	)		3,658,079
Total Liabilities and Partners’ Capital/Members’ Interests	$	3,671,482	$	740,781,407	$	744,452,889	$	(3,665,805	)	$	740,787,084

27

UNAUDITED

Trapeza Funding II, LLC

Consolidating Statement of Operations

Year ended December 31, 2006

	Trapeza Funding II, LLC		Trapeza Partners II L.P. Consolidated			Total			Eliminations			Trapeza Funding II, LLC Consolidated
Investment income
Interest	$	−	$	57,653,716		$	57,653,716		$	−		$	57,653,716
Incentive allocation		2,307,689		−			2,307,689			(2,307,689	)		−
Administration fee income		657,583		−			657,583			(657,583	)		−
Other		29		−			29			(29	)		−
Total investment income		2,965,301		57,653,716			60,619,017			(2,965,301	)		57,653,716
Expenses
Interest		−		36,745,732			36,745,732			−			36,745,732
Collateral management fees		−		1,739,165			1,739,165			−			1,739,165
Amortization		−		1,498,583			1,498,583			−			1,498,583
Trustee fees		−		267,049			267,049			−			267,049
Professional fees		19,112		169,582			188,694			−			188,694
Administration fees		111,861		657,578			769,439			(657,578	)		111,861
Other		22,981		327,343			350,324			−			350,324
Total expenses		153,954		41,405,032			41,558,986			(657,578	)		40,901,408
Net investment income		2,811,347		16,248,684			19,060,031			(2,307,723	)		16,752,308
Net unrealized depreciation on investment transactions
Investments in trust preferred securities		−		(1,927,136	)		(1,927,136	)		−			(1,927,136	)
Interest rate swap agreements		−		(613,207	)		(613,207	)		−			(613,207	)
Net unrealized depreciation on investment transactions		−		(2,540,343	)		(2,540,343	)		−			(2,540,343	)
Net income before minority interest		2,811,347		13,708,341			16,519,688			(2,307,723	)		14,211,965
Minority interest		−		2,169,846			2,169,846			9,230,772			11,400,618
Net income	$	2,811,347	$	11,538,495		$	14,349,842		$	(11,538,495	)	$	2,811,347

28

Schedule (d) 

UNAUDITED

Trapeza Funding III, LLC

Consolidated Financial Statements (Unaudited)

Years ended December 31, 2006 and 2005

UNAUDITED

Trapeza Funding III, LLC

Consolidated Financial Statements

Years ended December 31, 2006 and 2005

Contents

Consolidated Financial Statements
Consolidated Statements of Financial Condition	2
Consolidated Schedules of Investments	3
Consolidated Statements of Operations	5
Consolidated Statements of Changes in Members’ Interests	6
Consolidated Statements of Cash Flows	7
Notes to Consolidated Financial Statements	8
Other Financial Information
Consolidating Statement of Financial Condition	20
Consolidating Statement of Operations	21

UNAUDITED

Trapeza Funding III, LLC

Consolidated Statements of Financial Condition

	December 31
	2006		2005
Assets
Investments in trust preferred securities, at fair value (amortized cost $399,514,182 and $399,499,096)	$	400,160,302	$	400,172,908
Cash and cash equivalents		8,697,140		7,360,269
Deferred debt issuance costs (net of accumulated amortization of $2,520,541 and $1,730,717)		6,940,081		7,729,905
Unrealized appreciation on swap agreements		2,633,121		3,073,174
Interest receivable on trust preferred securities		898,945		800,625
Net interest receivable from swap counterparty		164,573		85,208
Prepaid expenses		30,790		28,617
Other		156,103		142,966
Total Assets	$	419,681,055	$	419,393,672
Liabilities and Members’ Interests
Liabilities
Class A1A Notes	$	144,996,417	$	144,996,417
Class A1B Notes		95,000,000		95,000,000
Class B Notes		33,000,000		33,000,000
Class C-1 Notes		44,500,000		44,500,000
Class C-2 Notes		44,500,000		44,500,000
Class D Notes		12,635,371		13,500,000
Class E Notes		5,714,284		7,142,856
Interest payable		2,428,836		2,124,435
Collateral management fees		122,222		122,222
Professional fees		89,816		93,275
Trustee fees		13,535		13,535
Accrued expenses		166,390		183,466
Total Liabilities		383,166,871		385,176,206
Minority interest		34,931,801		32,951,996
Members’ Interests		1,582,383		1,265,470
Total Liabilities and Members’ Interests	$	419,681,055	$	419,393,672

See accompanying notes to consolidated financial statements.

2

UNAUDITED

Trapeza Funding III, LLC

Consolidated Schedules of Investments

	December 31, 2006				December 31, 2005
	Principal Amount (000)		Fair Value		Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) *
Banks (85.84% and 85.84%)*
Alabama National Statutory Trust III, 3 ML + 3.050%, callable 9/26/2008, due 9/26/2033 (a)	$	11,210	$	11,210,000	$	11,210	$	11,210,000
Ambank Holdings Capital Trust I, 3 ML + 3.150%, callable 6/30/2008, due 6/30/2033 (a)		9,000		8,936,973		9,000		8,936,265
Arrow Capital Statutory Trust II, 6.530%, callable 7/23/2008, due 7/23/2033 (a)		10,000		10,000,000		10,000		10,000,000
Cathay Capital Trust I, 3 ML + 3.150%, callable 6/30/2008, due 6/30/2033 (a)		10,450		10,450,000		10,450		10,450,000
CB Trico Capital Trust, 3 ML + 3.050%, callable 10/7/2008, due 10/20/2033 (a)		10,000		10,000,000		10,000		10,000,000
Centerstate Banks Florida Statutory Trust I, 3 ML + 3.050%, callable 9/22/2008, due 9/22/2033 (a)		10,000		10,000,000		10,000		10,000,000
Corus Statutory Trust II, 3 ML + 3.100%, callable 6/30/2008, due 6/30/2033 (a)		11,000		10,917,574		11,000		10,916,638
F.N.B. Statutory Trust I, 3 ML + 3.250%, callable 3/31/2008, due 3/31/2033 (a)		1,000		1,000,000		1,000		1,000,000
FBR Capital Trust I, 3 ML + 3.250%, callable 6/30/2008, due 3/30/2033 (a)		1,000		992,394		1,000		992,309
FBR Capital Trust II, 3 ML + 3.100%, callable 9/30/2008, due 9/30/2033 (a)		11,000		11,014,716		11,000		11,014,878
First Community / CA Statutory Trust VI, 3 ML + 3.050%, callable 9/15/2008, due 9/15/2033 (a)		10,000		10,104,066		10,000		10,105,239
First Financial OH Statutory Trust II, 3 ML + 3.100%, callable 9/30/2008, due 9/30/2033 (a)		11,000		11,000,000		11,000		11,000,000
First Group Capital Statutory Trust VII, 3 ML + 2.900%, callable 10/30/2008, due 10/30/2033 (a)		12,000		12,064,245		12,000		12,065,017
First South Preferred Trust I, 3 ML + 2.950%, callable 9/30/2008, due 9/30/2033 (a)		10,000		10,059,164		10,000		10,059,839
FNB Statutory Trust I, 3 ML + 3.250%, callable 3/31/2008, due 3/31/2033 (a)		11,000		11,000,000		11,000		11,000,000
Heartland Financial Statutory Trust III, 3 ML + 8.250%, callable 10/10/2008, due 10/10/2033 (a)		11,000		11,000,000		11,000		11,000,000
Iberiabank Statutory Trust II, 3 ML + 3.150%, callable 6/17/2008, due 6/17/2033 (a)		1,000		1,004,560		1,000		1,004,610
Industry Bancshares Capital Trust II, 3 ML + 3.050%, callable 8/30/2008, due 8/30/2033 (a)		2,000		1,971,375		2,000		1,971,045
James Monroe Statutory Trust II, 3 ML + 3.100%, callable 7/31/2008, due 7/31/2033 (a)		4,000		4,000,000		4,000		4,000,000
Lakeland Bancorp Capital Trust II, 5.710%, callable 6/30/2008, due 6/30/2033 (a)		11,000		10,951,939		11,000		10,951,180
Lakeland Statutory Trust II, 3 ML + 3.050%, callable 10/1/2008, due 10/1/2033 (a)		12,000		12,000,000		12,000		12,000,000
Lone Star National Capital Trust II, 3 ML + 2.950%, callable 9/30/2008, due 9/30/2033 (a)		10,000		10,057,256		10,000		10,057,909
Macatawa Statutory Trust I, 3 ML + 3.050%, callable 7/15/2008, due 7/15/2033 (a)		11,000		11,000,000		11,000		11,000,000
Main Street Banks Statutory Trust II, 3 ML + 3.250%, callable 6/30/2008, due 6/30/2033 (a)		9,000		9,000,000		9,000		9,000,000
Mariner Capital Trust IV, 3 ML + 3.050%, callable 8/30/2008, due 8/30/2033 (a)		12,000		12,052,472		12,000		12,053,077
Merchants and Manufacturers Statutory Trust II, 8.250%, callable 5/30/2008, due 5/30/2033 (a)		1,000		1,000,000		1,000		1,000,000
Merchants and Manufacturers Statutory Trust III, 8.250%, callable 10/15/2008, due 10/15/2033 (a)		3,500		3,500,000		3,500		3,500,000
Merchants and Manufacturers Statutory Trust IV, 3 ML + 2.950%, callable 10/15/2008, due 10/15/2033 (a)		7,500		7,500,000		7,500		7,500,000
National Bancshares Capital Trust II, 3 ML + 3.000%, callable 9/15/2008, due 9/15/2033 (a)		7,000		7,004,231		7,000		7,004,279
Orion Bancorp, Inc. Statutory Trust I, 3 ML + 3.250%, callable 5/5/2008, due 5/5/2033 (a)		11,000		11,000,000		11,000		11,000,000
Ozark Capital Statutory Trust II, 3 ML + 2.900%, callable 9/29/2008, due 9/29/2033 (a)		6,000		6,000,000		6,000		6,000,000
Raton Capital Trust I, 3 ML + 2.900%, callable 9/30/2008, due 9/30/2033 (a)		5,000		5,047,694		5,000		5,048,242
Salin Statutory Trust I, 3 ML + 2.950%, callable 10/17/2008, due 10/17/2033 (a)		11,000		11,000,000		11,000		11,000,000
Sleepy Hollow Capital Trust I, 3 ML + 3.050%, callable 8/15/2008, due 8/30/2033 (a)		4,000		4,013,357		4,000		4,013,510
SNB Capital Trust IV, 3 ML + 3.000%, callable 9/30/2008, due 9/30/2033 (a)		5,000		5,028,162		5,000		5,028,481
Southside Statutory Trust III, 3 ML + 2.940%, callable 9/30/2008, due 9/4/2033 (a)		12,000		12,000,000		12,000		12,000,000
St. Josephs Financial Capital Trust I, 3 ML + 3.050%, callable 9/30/2008, due 7/11/2033 (a)		3,000		3,036,268		3,000		3,036,681
Sterling Bank Houston Texas, 7.375%, callable 4/15/2013, due 4/15/2013 (a)		4,670		4,670,000		4,670		4,670,000
Summit Bank Corporation Capital Trust I, 3 ML + 3.100%, callable 9/30/2008, due 9/30/2033 (a)		12,000		11,939,808		12,000		11,939,140
United Bancorporation of Wyoming Capital Trust I, 3 ML + 3.100%, callable 9/30/2008, due 9/30/2033 (a)		9,000		9,028,662		9,000		9,028,981
Wesbanco Capital Trust II, 5.800%, callable 6/30/2008, due 6/30/2033 (a)		4,000		3,993,677		4,000		3,993,579
West Bancorporation Capital Trust I, 6.975%, callable 9/30/2010, due 7/18/2033 (a)		11,000		10,944,654		11,000		10,943,954
Wintrust Capital Trust III, 3 ML + 3.250%, callable 4/7/2008, due 4/7/2033 (a)		5,000		5,000,000		5,000		5,000,000
Total Banks (amortized cost $343,493,247 and 343,494,853)			$	343,493,247			$	343,494,853

See accompanying notes to consolidated financial statements.

3

UNAUDITED

Trapeza Funding III, LLC

Consolidated Schedules of Investments (continued)

	December 31, 2006				December 31, 2005
	Principal Amount (000)		Fair Value		Principal Amount (000)		Fair Value
Investments in Trust Preferred Securities - (100%) * (continued)
Thrifts (14.16% and 14.16%)
BankSouth of Georgia Statutory Trust I, 3ML + 3.150%, callable 9/23/2008, due 9/23/2033 (a)	$	5,000	$	5,000,000	$	5,000	$	5,000,000
BSC Capital Trust I, 3 ML + 2.900%, callable 9/30/2008, due 9/30/2033 (a)		12,000		12,032,628		12,000		12,033,000
Capital One Capital I, 3 ML + 1.550%, callable 2/1/2007, due 2/1/2027		3,000		3,003,751		3,000		3,015,000
Coastal Capital Trust II, 3 ML + 3.050%, callable 6/30/2008, due 6/30/2033 (a)		10,000		9,970,421		10,000		9,970,082
Coastal Financial Capital Trust I, 3 ML + 3.050%, callable 9/30/2008, due 7/3/2033 (a)		6,000		6,052,303		6,000		6,052,897
Flagstar Statutory III, 6.550%, callable 4/7/2008, due 4/7/2033 (a)		5,000		5,000,000		5,000		5,000,000
Flagstar Statutory Trust IV, 6.750%, callable 3/30/2008, due 3/19/2033 (a)		2,670		2,646,326		2,670		2,646,006
IndyMac Capital Trust V, 6.050%, callable 9/30/2008, due 7/11/2033 (a)		12,000		11,965,061		12,000		11,964,543
Sterling Capital Trust IV, 3 ML + 3.150%, callable 5/15/2008, due 5/15/2033 (a)		1,000		996,565		1,000		996,527
Total Thrifts (amortized cost $56,020,935 and $56,004,243)				56,667,055				56,678,055
Total Investments in Trust Preferred Securities (amortized cost $399,514,182 and $399,499,096)			$	400,160,302			$	400,172,908

	Fair Value		Fair Value
Interest Rate Swap Agreements
Credit Suisse	$	2,633,121	$	3,073,174
Total Interest Rate Swap Agreements	$	2,633,121	$	3,073,174

*Amounts in parentheses indicate percentage of investments in trust preferred securities.

(a) Private placement, illiquid securities, where amortized cost approximates fair value.

ML = Month Libor

See accompanying notes to consolidated financial statements

4

UNAUDITED

Trapeza Funding III, LLC

Consolidated Statements of Operations

	Years ended December 31,
	2006			2005
Investment income
Interest	$	32,722,335		$	26,594,501
Expenses
Interest		21,706,749			17,283,476
Collateral management fees		1,000,000			1,000,000
Amortization		789,824			813,316
Trustee fees		120,699			121,365
Professional fees		117,090			109,620
Administration fees		35,798			32,858
Other		190,452			203,786
Total expenses		23,960,612			19,564,421
Net investment income		8,761,723			7,030,080
Net unrealized (depreciation) appreciation on investment transactions:
Investments in trust preferred securities		(27,692	)		9,759
Interest rate swap agreements		(440,053	)		1,913,603
Net unrealized (depreciation) appreciation on investment transactions		(467,745	)		1,923,362
Net income before minority interest		8,293,978			8,953,442
Minority interest		6,914,556			7,500,787
Net income	$	1,379,422		$	1,452,655

See accompanying notes to consolidated financial statements

5

UNAUDITED

Trapeza Funding III, LLC

Consolidated Statements of Changes in Members’ Interests

Years ended December 31, 2006 and 2005

Balance at January 1, 2005	$	632,569
Net income		1,452,655
Distributions to members		(819,754	)
Balance at December 31, 2005		1,265,470
Net income		1,379,422
Distributions to members		(1,062,509	)
Balance at December 31, 2006	$	1,582,383

See accompanying notes to consolidated financial statements

6

UNAUDITED

Trapeza Funding III, LLC

Consolidated Statements of Cash Flows

	Years ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	1,379,422		$	1,452,655
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization of deferred debt issuance costs		789,824			813,316
Accretion of discount on investments in trust preferred securities		(15,086	)		(17,468	)
Minority interest		6,914,556			7,500,787
Net unrealized depreciation (appreciation) on investment transactions		467,745			(1,923,362	)
Net change in operating assets and liabilities:
Interest receivable on trust preferred securities		(98,320	)		(183,445	)
Net interest receivable from swap counterparty		(79,365	)		(149,864	)
Prepaid expenses		(2,173	)		(1,357	)
Other		(13,137	)		(9,968	)
Interest payable		304,401			606,952
Professional fees		(3,459	)		6,310
Trustee fees		−			375
Accrued expenses		(17,076	)		10,917
Minority interest		(4,934,751	)		(3,700,381	)
Net cash and cash equivalents provided by operating activities		4,692,581			4,405,467
Cash flows from financing activities
Principal payments on notes		(2,293,201	)		(1,678,572	)
Distributions to members		(1,062,509	)		(819,754	)
Net cash and cash equivalents used in financing activities		(3,355,710	)		(2,498,326	)
Net increase in cash and cash equivalents		1,336,871			1,907,141
Cash and cash equivalents, beginning of year		7,360,269			5,453,128
Cash and cash equivalents, end of year	$	8,697,140		$	7,360,269
Supplemental disclosure of cash flow information
Net interest paid	$	22,481,713		$	16,826,388

See accompanying notes to consolidated financial statements

7

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements

December 31, 2006

1.Organization and Purpose

Trapeza Funding III, LLC (“Funding”), was organized on January 30, 2003 as a Delaware limited liability company. Funding commenced operations on April 1, 2003. Funding was organized for the purpose of being the general partner of Trapeza Partners III L.P. (the “Partnership”). Per the partnership agreement, the limited partners have no right to remove Funding at any time. Funding has complete and exclusive control of the management of the business affairs of the Partnership.

The Partnership was organized on February 27, 2003 as a Delaware limited partnership. The Partnership commenced operations on April 1, 2003. The Partnership was organized for the purpose of investing in membership interests and other securities to be issued by Trapeza CDO IV, LLC (“Issuer IV”), which was formed by Funding. Funding also formed Trapeza CDO III, LLC (“Issuer III”). The Partnership has an 11-year term, which Funding may extend on a year-to-year basis.

Minority interest reflects the 99.99% of partners’ interest of the limited partners of the Partnership. The consolidated entity is referred to as the “Company.”

Trapeza Capital Management, LLC (the “Collateral Manager”), a Delaware limited liability company, is responsible for supervising and directing the investment of the collateral of Issuer IV. Issuer IV is charged a collateral management fee by the Collateral Manager, who is affiliated with Funding through common ownership. All material intercompany transactions have been eliminated.

Funding and the Collateral Manager are owned equally by Financial Stocks, Inc. (“FSI”) and Resource Financial Fund Management, Inc., a wholly-owned subsidiary of Resource America, Inc. (“REXI”) (collectively, the “Owners”). Resource Financial Fund Management, Inc. and FSI are Registered Investment Advisers under the Investment Advisers Act of 1940. REXI, a publicly traded company, is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities on their own account and for outside investors in the financial fund management, real estate and equipment leasing sectors. The Owners hold partnership interests of approximately 11% of the Partnership.

Issuer IV’s objective is to purchase, acquire, own, hold, sell, endorse, transfer, assign, pledge, finance, refinance, exchange, restructure, workout, advance and collect funds pursuant to and otherwise deal with and exercise rights of ownership with respect to the collateral of Issuer IV, including other securities or equity interests owned from time to time by Issuer IV, all in accordance with the terms of the indenture.

8

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

1.Organization and Purpose (continued)

The business and affairs of Funding are managed by a Board of Managers. The Board of Managers has full, complete and exclusive authority, power and discretion to manage and control the business affairs and properties of Funding, to make all decisions regarding those matters and to perform any activities customary or incident to the management of Funding’s business.

2.Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Accounting

The Company’s accounting policies are in conformity with accounting principles generally accepted in the United States. The Company maintains its financial records in United States dollars. For financial reporting purposes, the Company follows the accrual basis of accounting.

Cash and Cash Equivalents

The Company considers all demand deposits with banks and other highly liquid investments with original maturities of three months or less to be cash equivalents.

Investment Transactions

The Partnership records transactions on their trade dates. Realized gains and losses on investments are determined on the specific identification basis for financial accounting purposes. Interest is accrued as earned or incurred and includes the amortization/accretion of premiums and discounts on debt securities.

Investment Valuation

Investments are carried at fair value. Securities for which market quotations are not readily available are valued by procedures adopted by Funding. In valuing investments in which market quotations are not readily available, Funding utilizes data from a variety of different sources, taking into account the characteristics of a security, any changes in the credit quality of the securities in the portfolio, the overall movement of interest rates and other factors which, in Funding’s good faith and judgment, are relevant to the value of a security. For exchange-traded securities, management will obtain current market data and quotes from independent brokers.

9

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

2.Summary of Significant Accounting Policies (continued)

Investment Valuation (continued)

The Company has invested a significant portion of the portfolio in private placement, illiquid issues having no ready market. At December 31, 2006, these securities aggregate $397,156,551 and have been valued in good faith by Funding as described in the preceding paragraph. Because of the inherent uncertainty of valuation, the fair values estimated by Funding may not necessarily represent the amounts that could be realized from sales or other dispositions of investments and the differences may be material.

Credit Risks and General Liquidity Considerations

Investments in trust preferred securities are subject to credit, interest rate and liquidity risks. Adverse changes in the financial condition of an issuer of trust preferred securities or in general economic conditions or both may impair the ability of an issuer to make payments of principal and interest. Debt obligations are also subject to liquidity risk and the risk of market price fluctuations. Adverse changes in the financial condition of an issuer may affect the liquidity of the market for an issuer’s securities and may reduce the market price of such securities. In addition, changes in general economic and regulatory conditions may affect the liquidity of the market for trust preferred securities in general and may reduce the values of some or all of the securities.

Allocation of Profits and Losses

The Company allocates profits to the members in proportion to their respective capital account balances until the cumulative profits for this current period and all prior fiscal years are equal to the cumulative losses allocated; thereafter, among the members in proportion to their respective units. Losses are allocated to the members in proportion to their respective capital account balances.

10

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

2.Summary of Significant Accounting Policies (continued)

Allocation of Profits and Losses (continued)

Funding’s investment in the Partnership is accounted for based on its pro-rata share of its investment in the Partnership. Profits and losses from non-portfolio income are allocated to all members in proportion to their allocable shares. Twenty percent (20%) of the cumulative net profits from portfolio investments are allocated to Funding.

Non-portfolio income of the Partnership, consisting primarily of income earned on short-term investments, is allocated to all limited partners of the Partnership in proportion to their respective capital account balances prior to the allocation of any other item.

Portfolio income of the Partnership, consisting primarily of accrued interest and profits and losses from the sale of such investments, is allocated to all partners of the Partnership in proportion to their respective contributed capital in relation to total contributed capital of the Partnership, but 20% of the cumulative net profits otherwise allocable to all partners will be allocated to Funding, defined as the incentive allocation. For the years ended December 31, 2006 and 2005, Funding received an incentive allocation of $1,120,573 and $1,219,613, respectively, and are included in interest reflected on the statements of operations.

Taxation

The Company is treated as a partnership for Federal income tax purposes and, therefore, no provision for federal income tax is recorded.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

3.Contributions, Withdrawals and Distributions

As of December 31, 2006, the Company has 100 Membership Units issued and outstanding. No member shall be required to make any additional contributions beyond their initial contribution. If the Board of Managers unanimously determines that the Company requires additional funds, any member may, but is not obligated to, advance such funds.

11

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

3.Contributions, Withdrawals and Distributions (continued)

No member shall have the right to withdraw any of its capital contribution, except upon dissolution and liquidation of the Company. The Company is required to make a distribution to each member at least quarterly. For the years ended December 31, 2006 and 2005, the Company made distributions of $1,062,509 and $819,754, respectively, to the members.

In accordance with the partnership agreement, each partner has contributed a specified amount of capital which is set forth in the partnership agreement. No limited partner is required to contribute any capital in excess of its commitment. As of June 4, 2003, all commitments of the Partnership are fully funded.

A limited partner will not have the right to redeem its interest in the Partnership. Funding, in its sole discretion, may redeem all or part of the partnership interest of any limited partner, for an amount equal to the capital account of the partnership interest being redeemed, if the limited partner consents to such redemption and all redemptions in any year do not exceed 5% of the aggregate allocable percentage of all limited partners.

Funding will cause the Partnership to distribute the lesser of (i) 90% of cash available from profits and (ii) all cash then available to the partnership less any reserves for partnership expenses or liabilities. All other distributions will be at the discretion of Funding. Funding will determine at its sole discretion the source of funds for all distributions. For the years ended December 31, 2006 and 2005, the Partnership made distributions of $3,951,470 and $2,934,377, respectively, to the partners.

4.Issuer IV

Deferred Debt Issuance Costs

Deferred debt issuance costs of $9,460,622 are being amortized over the expected life of the related debt using the effective interest method. The expected life of the debt is the period ending with the distribution date occurring in November 2013, as defined in the indenture. Amortization of deferred debt issuance costs commenced on October 21, 2003.

12

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

4.Issuer IV (continued)

Collateral Management and Trustee Fees

Pursuant to a collateral management agreement, the Collateral Manager is entitled to a semiannual fee, payable in arrears on the distribution dates, equal to 0.10% per annum of the semi-annual asset amount (“Base Collateral Management Fee”), of the net outstanding portfolio collateral, as defined in the indenture. After certain expenses have been paid, the Collateral Manager is entitled to an additional semiannual fee equal to 0.15% per annum, calculated in the same manner as the Base Collateral Management Fee. For the years ended December 31, 2006 and 2005, collateral management fees were $1,000,000 and $1,000,000, respectively, and are reflected on the consolidated statements of operations.

Pursuant to a trustee agreement, the trustee is entitled to a semiannual fee, on each distribution date, equal to 0.0225% per annum of the sum of the aggregate principal amount of the investments plus cash and cash equivalents at the beginning of the period relating to such distribution dates, as defined in the indenture. For the years ended December 31, 2006 and 2005, total trustee fees were $110,400 and $110,775, respectively, and are reflected on the consolidated statements of operations.

13

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

4.Issuer IV (continued)

Notes Payable

On October 21, 2003, Issuer IV issued notes (the “Notes”) at their respective principal values, which are secured by Issuer IV’s investments and are non-recourse to the Company.

At December 31, 2006 and 2005, the Notes outstanding consisted of the following:

	2006 Principal		2005 Principal		Interest Rate		Stated Maturity
Class A1A Notes	$	144,996,417	$	144,996,417		Libor + 0.58% until and including the distribution date in November 2013; at all times thereafter, Libor + 1.16%		May 24, 2034
Class A1B Notes	$	95,000,000	$	95,000,000		Libor + 0.83%		May 24, 2034
Class B Notes	$	33,000,000	$	33,000,000		See Class B note		May 24, 2034
Class C-1 Notes	$	44,500,000	$	44,500,000		Libor + 1.65%		May 24, 2034
Class C-2 Notes	$	44,500,000	$	44,500,000		5.006% until the last day of the interest period immediately prior to the distribution date in November 2008 and Libor + 1.65%, thereafter		May 24, 2034
Class D Notes	$	12,635,371	$	13,500,000		Libor + 2.60%		May 24, 2034
Class E Notes	$	5,714,284	$	7,142,856		10.00%		May 24, 2034

Pursuant to the terms of the Class B agency agreement, the holders of the Class B Notes will be entitled to receive interest, certain third parties will be entitled to receive compensation, at an aggregate, floating rate per annum not to exceed Libor plus 1.25% in the aggregate, after taking into consideration the effect of a basis swap to be entered into in connection with the Class B Notes.

14

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

4.Issuer IV (continued)

Interest Payments

Holders of the Notes are to receive semiannual interest payments on May 24 and November 24, commencing in May 2004 (the “Initial Payment Date”). The order of payment will be first to Class A1A, second, Class A1B, third, Class B, fourth to Class C, fifth to Class D and sixth to Class E with each Class of Notes being senior to each of the other classes of Notes. No payments of interest on any class of Notes will be made until all accrued and unpaid interest on the Notes of each class that is senior to a class and that remain outstanding has been paid in full. No payment of principal of any class of Notes will be made until the principal of, and all accrued and unpaid interest on the Notes of each class that is senior to such class and that remain outstanding have been paid in full, except as discussed below and as defined in the indenture.

In the event that the coverage tests, as defined in the indenture, are not satisfied as of any distribution date, each class of notes may be redeemed in the manner specified in the indenture.

Principal Payments

Principal payments will be applied as outlined below except as otherwise stated in the indenture.

Principal Turboing

On each distribution date occurring on or prior to the distribution date in November 2008, the greater of $125,000 and the amount of funds available in the payment account in excess of the amount necessary to achieve a yield equal to 23.25% will be applied to the payment of principal. Principal payments will be applied in the following manner. First, payment of principal of the Class D Notes until the Class D Notes have been paid in full. Next, payment of principal of the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal of the Class B Notes until the Class B Notes have been paid in full. Next, payment of principal of Class A1B Notes until the Class A1B Notes have been paid in full. Finally, payment of principal of the Class A1A Notes until the Class A1A Notes have been paid in full.

15

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

4.Issuer IV (continued)

Principal Payments (continued)

Principal Turboing (continued)

On each distribution date on and prior to the distribution date in November 2010, the sum of $714,286 and any amount that would have been paid on a prior distribution but was not available, will be applied to the payment of principal of Class E Notes.

Principal Proceeds

Principal proceeds will be applied in the following manner. First, payment of principal of the Class A1A Notes until the Class A1A Notes have been paid in full. Next, payment of principal on the Class A1B Notes until the Class A1B Notes have been paid in full. Next, payment of principal of the Class B Notes until the Class B Notes have been paid in full. Next, payment of principal of the Class C Notes until the Class C Notes have been paid in full. Next, payment of principal of the Class D Notes until the Class D Notes have been paid in full. Next, payment of principal of the Class E Notes. Finally, the remainder to the members as a dividend on the members’ interests or as a return of capital of the members’ interests as provided in the Trapeza CDO IV, LLC Agreement (the “Agreement”).

If on any distribution date, the amount available in the payment account from amounts received in the related due period are insufficient to make the full amount of the disbursements required by the priority of payments to different persons, the trustee will make the disbursements ratably in accordance with the indenture.

If the Notes and the members’ interests have not been released prior to May 24, 2034, it is expected that the Company or Collateral Manager, acting on behalf of the Company, will sell all of the investments and sell or liquidate all other collateral, and all net proceeds from such sales and liquidations and all available cash after the payment (in the order of priorities set forth above) of all (i) fees, (ii) expenses and (iii) interest (including any defaulted interest and interest on defaulted interest, any Class C deferred interest and interest on any Class C deferred interest, and any Class D deferred interest and interest on any Class D deferred interest, and any Class E deferred interest and interest on any Class E deferred interest) and principal of the Notes, will be distributed to the members in accordance with the Agreement.

16

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

4.Issuer IV (continued)

Acceleration of Maturity and Redemption

The indenture provides for an acceleration of maturity or redemption of all of the senior Notes and accrued and unpaid interest upon the occurrence of a default event. Default events include a) failure of Issuer IV to pay interest for a period of three business days on any Class A or B senior Notes, b) failure of Issuer IV to pay principal of any senior Note when such payment becomes due and payable at its stated maturity or redemption date, c) failure of Issuer IV, on any distribution date to disburse amounts available to the interest collection account or principal collection account in accordance with the order of the priority of payments set forth in the indenture, which continues for three business days, d) Issuer IV or pool of collateral becomes an investment company required to be registered under the Investment Company Act, e) default in performance, or a breach, of any other covenant or other agreement of Issuer IV under the indenture or any representation of warranty of Issuer IV made in the indenture or in any certificate or other writing proves to be incorrect in any material respect when made, and in both clauses, the continuation of such default or breach for a period of 30 days after Issuer IV or the General Partner has actual knowledge that such default or breach has occurred or after written notice to Issuer IV and the General Partner by the trustee, or to Issuer IV, the General Partner and the trustee by the holders of at least 25% in aggregate outstanding principal amount of the Notes of the controlling class or hedge counterparty, f) one or more final judgments being rendered against Issuer IV that exceed, in the aggregate, $5,000,000, and which remain unstayed, undischarged and unsatisfied for 30 days after such judgment(s) becomes nonappealable, unless adequate funds have been reserved or set aside for the payment thereof, and g) failure, on any measurement date, to cause the Class A/B overcollateralization ratio to be equal to or greater than 100%. Each of these conditions is further described in the indenture.

5.Interest Rate Swap Agreements

The Company maintains a policy of valuing its derivative instruments at fair values, with the resulting unrealized gain or loss included in the consolidated statement of operations.

A swap is an agreement that obligates two parties to exchange a series of cash flows at specified intervals based upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset or otherwise determined notional amount.

17

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

5.Interest Rate Swap Agreements (continued)

Risks may arise as a result of the failure of the counterparty to the swap agreement. The loss incurred by the failure of a counterparty is generally limited to the net payment to be received by the Company and/or the termination value at the end of the agreement. Therefore, the Company considers the creditworthiness of each counterparty to a swap agreement in evaluating potential credit risk. Additionally, risks may arise from unanticipated movements in interest rates.

The Company records a net receivable or payable for the net income or expense expected to be received or paid in the interest period. Net amounts received or paid on swap agreements are recorded as interest income or interest expense on the consolidated statements of operations. The amount recorded as interest income on basis swap agreements for the years ended December 31, 2006 and 2005 totaled $334,903 and $324,591, respectively.

The Company entered into interest rate swap agreements with Credit Suisse (“CS”) (formerly known as Credit Suisse First Boston) and SunTrust Equity Funding, LLC (“SunTrust”), for the purpose of hedging interest rate and cash flow risk between the fixed-rate investments and floating-rate investments.

At December 31, 2006 and 2005, the Company has one interest rate swap agreement outstanding with CS and one interest rate swap agreement outstanding with SunTrust. They pay as follows:

Notional Amount	Maturity Date		Floating Rate Received by the Company		Rate/Amount Paid by the Company		2006 Fair Value			2005 Fair Value
$75,000,000		11/24/08		6 month Libor + 3.15%		6.385%	$	2,701,922		$	3,214,102
$33,000,000		11/24/13		1 month Libor + 1.25%		6 month Libor + 1.29		(245,691	)		(195,703	)
							$	2,456,231		$	3,018,399

At December 31, 2005 and 2004, the Company has one rate cap agreement outstanding with CS which pays on a semi-annual basis, as follows:

Notional Amount	Maturity Date		Floating Rate Received by the Company		Rate/Amount Paid by the Company		2006 Fair Value		2005 Fair Value
$52,500,000		5/24/20		N/A	$	85,000	$	176,890	$	54,775

18

UNAUDITED

Trapeza Funding III, LLC

Notes to Consolidated Financial Statements (continued)

6.Related Party Transactions

The Partnership pays Funding an administration fee (payable semi-annually in advance) equal to 1.5% per annum of the aggregate capital accounts of the limited partners, which will be used to cover management fees and other ordinary and recurring administrative and related operating expenses. For the years ended December 31, 2006 and 2005, administration fees totaled $342,323 and $314,209, respectively.

In exchange for interests sold on behalf of the Partnership, Funding pays external broker-dealers an administration fee, equal to the percentage of equity raised by the broker-dealer multiplied by one-third of the total administration fee being charged by Funding to the Partnership. For the years ended December 31, 2006 and 2005, total administration fee expense totaled $35,798 and $32,858, respectively, and is reflected on the consolidated statements of operations.

19

UNAUDITED

Other Financial Information

UNAUDITED

Trapeza Funding III, LLC

Consolidating Statement of Financial Condition

December 31, 2006

	Trapeza Funding III, LLC		Trapeza Partners III L.P. Consolidated		Total		Eliminations			Trapeza Funding III, LLC Consolidated
Assets
Investments in trust preferred securities, at fair value (amortized cost $399,514,182)	$	−	$	400,160,302	$	400,160,302	$	−		$	400,160,302
Cash and cash equivalents		30,018		8,667,122		8,697,140		−			8,697,140
Deferred debt issuance costs (net of accumulated amortization of $2,520,541)		−		6,940,081		6,940,081		−			6,940,081
Unrealized appreciation on swap agreements		−		2,633,121		2,633,121		−			2,633,121
Interest receivable on trust preferred securities.		−		898,945		898,945		−			898,945
Net interest receivable from swap counterparty		−		164,573		164,573		−			164,573
Prepaid expenses		27,794		2,996		30,790		−			30,790
Other		−		156,103		156,103		−			156,103
Investment in Trapeza Partners III L.P.		1,689,899		−		1,689,899		(1,689,899	)		−
Total Assets	$	1,747,711	$	419,623,243	$	421,370,954	$	(1,689,899	)	$	419,681,055
Liabilities and Partners’ Capital/Members’ Interests
Liabilities
Class A1A Notes	$	−	$	144,996,417	$	144,996,417	$	−		$	144,996,417
Class A1B Notes		−		95,000,000		95,000,000		−			95,000,000
Class B Notes		−		33,000,000		33,000,000		−			33,000,000
Class C-1 Notes		−		44,500,000		44,500,000		−			44,500,000
Class C-2 Notes		−		44,500,000		44,500,000		−			44,500,000
Class D Notes		−		12,635,371		12,635,371		−			12,635,371
Class E Notes		−		5,714,284		5,714,284		−			5,714,284
Interest payable		−		2,428,836		2,428,836		−			2,428,836
Collateral management fees		−		122,222		122,222		−			122,222
Professional fees		13,938		75,878		89,816		−			89,816
Trustee fees		−		13,535		13,535		−			13,535
Accrued expenses		151,390		15,000		166,390		−			166,390
Total Liabilities		165,328		383,001,543		383,166,871		−			383,166,871
Minority interest		−		10,420,234		10,420,234		24,511,567			34,931,801
Partners’ Capital/Members’ Interests
Members’ Interests		1,582,383		−		1,582,383		−			1,582,383
General Partner		−		1,689,899		1,689,899		(1,689,899	)		−
Limited Partners		−		24,511,567		24,511,567		(24,511,567	)		−
Total Partners’ Capital/Members’ Interests		1,582,383		26,201,466		27,783,849		(26,201,466	)		1,582,383
Total Liabilities and Partners’ Capital/Members’ Interests	$	1,747,711	$	419,623,243	$	421,370,954	$	(1,689,899	)	$	419,681,055

20

UNAUDITED

Trapeza Funding III, LLC

Consolidating Statement of Operations

Year ended December 31, 2006

	Trapeza Funding III, LLC		Trapeza Partners III L.P. Consolidated			Total			Eliminations			Trapeza Funding III, LLC Consolidated
Investment income
Interest	$	−	$	32,722,335		$	32,722,335		$	−		$	32,722,335
Administration fee income		342,323		−			342,323			(342,323	)		−
Incentive allocation		1,120,573		−			1,120,573			(1,120,573	)		−
Other		31		−			31			(31	)		−
Total investment income		1,462,927		32,722,335			34,185,262			(1,462,927	)		32,722,335
Expenses
Interest		−		21,706,749			21,706,749			−			21,706,749
Collateral management fees		−		1,000,000			1,000,000			−			1,000,000
Amortization		−		789,824			789,824			−			789,824
Trustee fees		−		120,699			120,699			−			120,699
Professional fees		19,682		97,408			117,090			−			117,090
Administration fees		35,798		342,323			378,121			(342,323	)		35,798
Other		28,025		162,427			190,452			−			190,452
Total expenses		83,505		24,219,430			24,302,935			(342,323	)		23,960,612
Net investment income		1,379,422		8,502,905			9,882,327			(1,120,604	)		8,761,723
Net unrealized depreciation on investment transactions:
Investments in trust preferred securities		−		(27,692	)		(27,692	)		−			(27,692	)
Interest rate swap agreements		−		(440,053	)		(440,053	)		−			(440,053	)
Net unrealized depreciation on investment transactions		−		(467,745	)		(467,745	)		−			(467,745	)
Net income before minority interest		1,379,422		8,035,160			9,414,582			(1,120,604	)		8,293,978
Minority interest		−		2,432,263			2,432,263			4,482,293			6,914,556
Net income	$	1,379,422	$	5,602,897		$	6,982,319		$	(5,602,897	)	$	1,379,422

21

Schedule (e)

Trapeza Capital Management Group, LLC

Audited Financial Statements

Years ended December 31, 2006 and 2005 with Report of Independent Auditors

Trapeza Capital Management, LLC

Audited Financial Statements

Years ended December 31, 2006 and 2005

Contents

Report of Independent Auditors	1
Audited Financial Statements
Statements of Financial Condition	2
Statements of Operations	3
Statements of Changes in Members’ Interests	4
Statements of Cash Flows	5
Notes to Audited Financial Statements	6

Report of Independent Auditors

To the Members of

Trapeza Capital Management, LLC:

We have audited the accompanying statements of financial condition of Trapeza Capital Management, LLC (the “Company”), as of December 31, 2006 and 2005, and the related statements of operations, changes in members’ interests and cash flows for the years then ended. 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 auditing standards generally accepted in the 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. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Trapeza Capital Management, LLC at December 31, 2006 and 2005, and the results of its operations, changes in its members’ interests and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

February 2, 2007

Trapeza Capital Management, LLC

Statements of Financial Condition 

	December 31
	2006		2005
Assets
Collateral management fees	$	2,456,957	$	1,630,506
Cash and cash equivalents		876,088		462,006
Prepaid expenses		179,006		134,462
Computer equipment and database configuration (net of accumulated depreciation of $94,559 and $57,327)		22,041		51,293
Investment in Trapeza Partners II L.P.		−		4,444,074
Website redesign (net of accumulated depreciation of $39,100 and $27,153)		−		11,947
Total Assets	$	3,534,092	$	6,734,288
Liabilities and Members’ Interests
Liabilities
Loan payable	$	−	$	700,000
Interest payable		−		7,998
Trustee fees		245,000		445,000
Professional fees		44,000		44,000
Accounts payable		14,976		18,485
Accrued expenses		809,682		283,521
Total Liabilities		1,113,658		1,499,004
Members’ Interests		2,420,434		5,235,284
Total Members’ Interests		2,420,434		5,235,284
Total Liabilities and Members’ Interests	$	3,534,092	$	6,734,288

See accompanying notes to financial statements.

2

Trapeza Capital Management, LLC

Statements of Operations

	Years ended December 31,
	2006		2005
Investment income
Collateral management fees	$	6,834,693	$	4,841,971
Structuring and portfolio management fee		1,818,167		−
Equity in earnings of Trapeza Partners II L.P.		433,147		1,076,438
Reimbursement income		114,309		−
Interest		16,459		5,960
Assignment fee		−		758,715
Total investment income		9,216,775		6,683,084
Expenses
Wages, payroll taxes and benefits		1,010,012		400,171
Consulting and advisory fees		528,000		528,000
Professional fees		389,035		39,810
Licensing fees		218,370		129,413
Rent		66,889		42,525
Taxes		56,429		96,091
Amortization/depreciation		49,179		49,203
Telephone and internet		18,206		10,354
Supplies		18,063		14,247
Meals, entertainment and travel		17,384		−
Financial publications		15,196		14,028
Delivery services		11,214		10,229
Interest expense		10,802		55,139
Printing		1,583		1,461
Other		51,879		24,554
Total expenses		2,462,241		1,415,225
Net income	$	6,754,534	$	5,267,859

See accompanying notes to financial statements.

3

Trapeza Capital Management, LLC

Statements of Changes in Members’ Interests

Years ended December 31, 2006 and 2005

Balance at January 1, 2005	$	3,374,182
Capital contributions, net of placement costs		72,000
Net income		5,267,859
Distributions to members		(3,478,757	)
Balance at December 31, 2005		5,235,284
Net income		6,754,534
Distributions to members - cash		(4,993,568	)
Distributions to members - non-cash		(4,575,816	)
Balance at December 31, 2006	$	2,420,434

See accompanying notes to financial statements.

4

Trapeza Capital Management, LLC

Statements of Cash Flows

	Years ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	6,754,534		$	5,267,859
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization/depreciation		49,179			49,203
Equity in earnings of Trapeza Partners II L.P.		(433,147	)		(1,076,438	)
Net change in operating assets and liabilities:
Collateral management fees		(826,451	)		(247,432	)
Prepaid expenses		(44,544	)		(55,317	)
Investment in Trapeza Partners II L.P.		301,405			540,867
Accounts receivable		−			30,000
Computer equipment and database configuration		(7,980	)		557
Interest payable		(7,998	)		(4,838	)
License fee payable		−			(5,110	)
Trustee fees		(200,000	)		(98,001	)
Accounts payable		(3,509	)		3,485
Accrued expenses		526,161			24,936
Net cash and cash equivalents provided by operating activities		6,107,650			4,429,771
Cash flows from financing activities
Principal payments on loan		(700,000	)		(1,200,000	)
Proceeds from capital contributions, net of placement costs		−			72,000
Distributions to members - cash		(4,993,568	)		(3,478,757	)
Net cash and cash equivalents used in financing activities		(5,693,568	)		(4,606,757	)
Net increase (decrease) in cash and cash equivalents		414,082			(176,986	)
Cash and cash equivalents, beginning of year		462,006			638,992
Cash and cash equivalents, end of year	$	876,088		$	462,006
Supplemental disclosure of cash flow information
Interest paid	$	18,800		$	61,079
Distributions to members - non-cash	$	4,575,816		$	−

See accompanying notes to financial statements.

5

Trapeza Capital Management, LLC

Notes to Audited Financial Statements

December 31, 2006

1.Organization and Purpose

Trapeza Capital Management, LLC (the “Company”), was organized on August 26, 2002 as a Delaware limited liability company. The Company commenced operations on November 19, 2002. The Company was organized for the purpose of supervising and directing the investment and reinvestment of collateral for nine collateralized debt obligations, Trapeza CDO I, LLC (“Issuer I”), Trapeza CDO II, LLC (“Issuer II”), Trapeza CDO III, LLC (“Issuer III”), Trapeza CDO IV, LLC (“Issuer IV”), Trapeza CDO V, Ltd. (“Issuer V”), Trapeza CDO Edge, Ltd. (“Issuer Edge”), Trapeza CDO IX, Ltd. (“Issuer IX”), Trapeza CDO X, Ltd. (“Issuer X”) and Trapeza CDO XI, Ltd. (“Issuer XI”), (collectively the “Issuers”).

The Company shall provide services to the Issuers as follows, 1) supervise and direct the administration of the collateral, 2) determine, upon request of the trustee, when payments received in respect to the collateral shall be applied as principal proceeds, 3) monitor the collateral on behalf of the Issuers and, on an ongoing basis, provide to the Issuers and the trustee all schedules and other information and data relating to the collateral which the Issuers or the trustee, on behalf of the noteholders, is required to prepare and deliver, 4) take or direct the trustee to sell or dispose of any collateral subject to the requirements of such in the indentures and 5) cause the trustee to exercise or acquire any rights or remedies with respect to such collateral (including waiving any default or voting to accelerate the maturity of any defaulted security).

The Company is owned equally by Financial Stocks, Inc. (“FSI”) and Resource Fund Financial Management, Inc., a wholly-owned subsidiary of Resource America, Inc. (“REXI”). Resource Financial Fund Management, Inc. and FSI are Registered Investment Advisers under the Investment Advisers Act of 1940. REXI, a publicly traded company, is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for their own account and for outside investors in the financial fund management, real estate and equipment leasing sectors.

The business and affairs of the Company shall be managed by a Board of Managers. The Board of Managers has full, complete and exclusive authority, power and discretion to manage and control the business affairs and properties of the Company, to make all decisions regarding those matters and to perform any activities customary or incident to the management of the Company’s business. The Company shall continue in perpetuity, unless sooner terminated upon unanimous determination of the members to terminate the Company.

6

Trapeza Capital Management, LLC

Notes to Audited Financial Statements (continued)

1.Organization and Purpose (continued)

The Company owned a partnership interest of approximately 9% in Trapeza Partners II L.P. (the “Partnership”). The Partnership was organized for the purpose of investing inmembership interests and other securities to be issued by Issuer II and Issuer III, affiliated collateralized debt obligations, which were formed by Trapeza Funding II, LLC, (the “General Partner”), a Delaware limited liability company. In June 2006, the Company assigned this partnership interest equally to its owners in a non-cash distribution.

2.Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Accounting

The Company’s accounting policies are in conformity with accounting principles generally accepted in the United States. The Company maintains its financial records in United States dollars. For financial reporting purposes, the Company follows the accrual basis of accounting.

Cash and Cash Equivalents

The Company considers all demand deposits with banks and other highly liquid investments with original maturities of three months or less to be cash equivalents.

Allocation of Profits and Losses

Profits and losses shall be allocated to the members in proportion to their respective capital account balances.

Use of Estimates

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

7

Trapeza Capital Management, LLC

Notes to Audited Financial Statements (continued)

2.Summary of Significant Accounting Policies (continued)

Taxation

The Company is treated as a partnership for Federal income tax purposes and, therefore, no provision for federal income tax is recorded.

3.Note Purchase and Security Agreement

Pursuant to an agreement dated March 11, 2003, the Company entered into a Note Purchase and Security Agreement with Credit Suisse Securities (USA) LLC (“CS”) (formerly known as Credit Suisse First Boston, LLC), the initial purchaser of the notes, and Credit Suisse, Cayman Island Branch, (formerly known as Credit Suisse First Boston, Cayman Islands Branch), purchaser of the notes. Under the terms of the agreement, the Company authorized the issue and sale of $3,700,000 aggregate principal amount of its floating rate senior notes due October 15, 2006. At December 31, 2006, the notes had been repaid in full. At December 31, 2005 the outstanding note balance was $700,000.

Interest on the principal amount of the notes was required to be paid to the holder of the notes on each payment date. Computed interest equaled the sum of the product of libor plus 1%, the sum of the aggregate outstanding principal balance of the notes, any past due interest and any additional amounts due and payable, on such payment date. For the years ended December 31, 2006 and 2005, interest expense attributable to the repayment of the notes was $10,802 and $55,139, respectively, as reflected in the statements of operations.

4.Trustee Fees Payable

The Company maintains a cash account restricted for future payment of trustee fees deposited from the closing of specific collateral. Depending upon the contractual terms, the trustee fees will be paid to the Bank of New York or Deutsche Bank annually over the next four years on the anniversary date of each specific collateral involved. An initial trustee fee was paid to the Bank of New York or Deutsche Bank at the time of the closing of the collateral.

8

Trapeza Capital Management, LLC

Notes to Audited Financial Statements (continued)

5.Contributions, Withdrawals and Distributions

As of December 31, 2006, the Company has 100 membership units issued and outstanding. No member shall be required to make any additional contributions beyond their initial contribution. If the Board of Managers unanimously determines that the Company requires additional funds, any member may, but is not obligated to, advance such funds.

No member shall have the right to withdraw any of its capital contribution, except upon dissolution and liquidation of the Company. For the years ended December 31, 2006 and 2005, the Company made cash distributions of $4,993,568 and $3,478,757, respectively, to the members. The Company also made a non-cash distribution in the amount of $4,575,816 in 2006 (see note 1).

6.Related Party Transactions

Issuer	Payment Frequency		Base Collateral Mgmt Fee		Subordinate Collateral Mgmt Fee		Total Collateral Management Fees 2006		Total Collateral Management Fees 2005
I		Semiannual		0.10%(1)		0.15%	$	809,947	$	813,323
II		Semiannual		0.25%(1)		-		989,165		990,103
III		Semiannual		0.10%(1)		0.15%		750,000		749,999
IV		Semiannual		0.10%(1)		0.15%		1,000,000		1,000,000
V		Semiannual		0.10%(1)		0.20%(3)		1,050,000		1,050,046
Edge		Quarterly		0.10%(2)		0.15%		612,852		238,500
IX		Quarterly		0.10%(2)		0.15%		728,914		-
X		Quarterly		0.10%(2)		0.15%(4)		677,148		-
XI		Quarterly		0.10%(2)		0.15%(5)		216,667		-
						Total Fees	$	6,834,693	$	4,841,971

(1)   Fee (per annum) based on the semi-annual asset amount of the net outstanding portfolio collateral as defined in the indenture.

(2)   Fee (per annum) based on the quarterly asset amount of the net outstanding portfolio collateral as defined in the indenture.

(3)   The Collateral Manager is also entitled to additional incentive fees of 0.05%, 0.10%, and 0.15% per annum in arrears dependent upon the target returns reached on the preference shares defined in the indenture.

(4)   The Collateral Manager is also entitled an additional incentive fee of 0.15% per annum in arrears dependent upon the target returns reached on the preference shares defined in the indenture.

(5)   The Collateral Manager is also entitled to an additional subordinate collateral management fee of 0.05% per annum in arrears. The cumulative amount will be payable on any redemption date of notes and on each distribution date on or after the auction date.

9

Trapeza Capital Management, LLC

Notes to Audited Financial Statements (continued)

7.Assignment Fee

In April 2005, the Company received an assignment fee in the amount of $758,715 in connection with the facilitation of the purchase and sale of trust preferred collateral from one financial institution to another during the warehouse period of Issuer Edge. This fee was initially deferred as the Company continued to manage the securities. In August 2005, the securities were sold into Issuer Edge and the income was recognized at that time.

8.Portfolio Management Fee

In November 2006, the Company received a structuring fee in the amount of $1,000,000 in connection with the formation of Issuer XI. In addition, the Company received a portfolio management fee in the amount of $818,176 in connection with the management of trust preferred collateral during the warehouse period and subsequent sale of such collateral to Issuer XI. All collateral that existed on the warehouse line at a discount was negotiated with Issuer XI to be purchased at par.

10

Schedule (f)

UNAUDITED

Trapeza Management Group, LLC

Financial Statements (Unaudited)

Years ended December 31, 2006 and 2005

UNAUDITED

Trapeza Management Group, LLC

Financial Statements

Years ended December 31, 2006 and 2005

Contents

Consolidated Financial Statements
Consolidated Statements of Financial Condition	2
Consolidated Statements of Operations	3
Consolidated Statements of Changes in Members’ Interests	4
Consolidated Statements of Cash Flows	5
Notes to Consolidated Financial Statements	6

UNAUDITED

Trapeza Management Group, LLC

Statements of Financial Condition

	December 31
	2006		2005
Assets
Collateral management fees	$	1,242,638	$	903,624
Cash and cash equivalents		70,414		87,558
Prepaid expenses		34,803		46,458
Database configuration (net of accumulated amortization of $18,923 and $11,598)		3,052		10,377
Total Assets	$	1,350,907	$	1,048,017
Liabilities and Members’ Interests
Liabilities
Professional fees	$	8,400	$	12,500
Accrued expenses		23,928		31,630
Total Liabilities		32,328		44,130
Members’ Interests		1,318,579		1,003,887
Total Members’ Interests		1,318,579		1,003,887
Total Liabilities and Members’ Interests	$	1,350,907	$	1,048,017

See accompanying notes to financial statements.

2

UNAUDITED

Trapeza Management Group, LLC

Statements of Operations

	Years ended December 31,
	2006		2005
Investment income
Collateral management fees	$	2,722,269	$	2,737,777
Reimbursement income		8,332		−
Total investment income		2,730,601		2,737,777
Expenses
Wages, payroll taxes and benefits		103,840		131,644
Licensing fees		53,372		87,348
Insurance		43,825		45,204
Professional fees		23,937		19,036
Rent		11,662		15,678
Taxes		8,827		73,960
Amortization/depreciation		7,325		7,325
Supplies		3,907		5,500
Financial publications		3,847		5,172
Telephone		2,840		3,818
Delivery services		2,805		3,523
Printing		220		135
Other		549		3,431
Total expenses		266,956		401,774
Net income	$	2,463,645	$	2,336,003

See accompanying notes to financial statements.

3

UNAUDITED

Trapeza Management Group, LLC

Statements of Changes in Members’ Interests

Years ended December 31, 2006 and 2005

Balance at January 1, 2005	$	574,862
Net income		2,336,003
Distributions to members		(1,906,978	)
Balance at December 31, 2005		1,003,887
Net income		2,463,645
Distributions to members		(2,148,953	)
Balance at December 31, 2006	$	1,318,579

See accompanying notes to financial statements.

4

UNAUDITED

Trapeza Management Group, LLC

Statements of Cash Flows

	Years ended December 31,
	2006			2005
Cash flows from operating activities
Net income	$	2,463,645		$	2,336,003
Adjustments to reconcile net income to net cash and cash equivalents provided by operating activities:
Amortization/depreciation		7,325			7,325
Net change in operating assets and liabilities:
Collateral management fees		(339,014	)		(335,118	)
Prepaid expenses		11,655			(15,120	)
Accounts payable		(4,100	)		(2,500	)
Accrued expenses		(7,702	)		7,091
License fee payable		−			(2,023	)
Taxes payable		−			(32,293	)
Net cash and cash equivalents provided by operating activities		2,131,809			1,963,365
Cash flows from financing activities
Distributions to members		(2,148,953	)		(1,906,978	)
Net cash and cash equivalents used in financing activities		(2,148,953	)		(1,906,978	)
Net (decrease) increase in cash and cash equivalents		(17,144	)		56,387
Cash and cash equivalents, beginning of year		87,558			31,171
Cash and cash equivalents, end of year	$	70,414		$	87,558

See accompanying notes to financial statements.

5

UNAUDITED

Trapeza Management Group, LLC

Notes to Financial Statements

December 31, 2006

1.Organization and Purpose

Trapeza Management Group, LLC (the “Company”), was organized on April 1, 2004 as a Delaware limited liability company. The Company commenced operations on April 1, 2004. The Company was organized for the purpose of supervising and directing the investment and reinvestment of collateral for two collateralized debt obligations, Trapeza CDO VI, LLC (“Issuer VI”) and Trapeza CDO VII, LLC (“Issuer VII”).

The Company shall provide services to the Issuers as follows, 1) supervise and direct the administration of the collateral, 2) determine, upon request of the trustee, when payments received in respect to the collateral shall be applied as principal proceeds, 3) monitor the collateral on behalf of the Issuers and, on an ongoing basis, provide to the Issuers and the trustee all schedules and other information and data relating to the collateral which the Issuers or the trustee, on behalf of the noteholders, is required to prepare and deliver, 4) take or direct the trustee to sell or dispose of any collateral subject to the requirements of such in the indentures and 5) cause the trustee to exercise or acquire any rights or remedies with respect to such collateral (including waiving any default or voting to accelerate the maturity of any defaulted security).

The Company is owned equally by Financial Stocks, Inc. (“FSI”), SunTrust Equity Funding, LLC (“SunTrust”), and Resource Fund Financial Management, Inc., a wholly-owned subsidiary of Resource America, Inc. (“REXI”). Resource Financial Fund Management, Inc. and FSI are Registered Investment Advisers under the Investment Advisers Act of 1940. SunTrust is a financial holding company that provides deposit, credit and trust and investment services. REXI, a publicly traded company, is a specialized asset management company that uses industry specific expertise to generate and administer investment opportunities for their own account and for outside investors in the financial fund management, real estate and equipment leasing sectors.

The business and affairs of the Company shall be managed by a Board of Managers. The Board of Managers has full, complete and exclusive authority, power and discretion to manage and control the business affairs and properties of the Company, to make all decisions regarding those matters and to perform any activities customary or incident to the management of the Company’s business. The Company shall continue in perpetuity, unless sooner terminated upon unanimous determination of the members to terminate the Company.

6

UNAUDITED

Trapeza Management Group, LLC

Notes to Financial Statements (continued)

2.Summary of Significant Accounting Policies

The following is a summary of the significant accounting policies followed by the Company in the preparation of its financial statements.

Basis of Accounting

The Company’s accounting policies are in conformity with accounting principles generally accepted in the United States. The Company maintains its financial records in United States dollars. For financial reporting purposes, the Company follows the accrual basis of accounting.

Cash and Cash Equivalents

The Company considers all demand deposits with banks and other highly liquid investments with original maturities of three months or less to be cash equivalents.

Allocation of Profits and Losses

Profits and losses shall be allocated to the members in proportion to their respective capital account balances.

Use of Estimates

The preparation of these financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.

Taxation

The Company is treated as a partnership for Federal income tax purposes and, therefore, no provision for federal income tax is recorded.

7

UNAUDITED

Trapeza Management Group, LLC

Notes to Financial Statements (continued)

3.Contributions, Withdrawals and Distributions

As of December 31, 2006, the Company has 300 membership units issued and outstanding. No member shall be required to make any additional contributions beyond their initial contribution. If the Board of Managers unanimously determines that the Company requires additional funds, any member may, but is not obligated to, advance such funds.

No member shall have the right to withdraw any of its capital contribution, except upon dissolution and liquidation of the Company. For the years ended December 31, 2006 and December 31, 2005, the Company made distributions of $2,148,953 and $1,906,978, respectively, to the members.

4.Related Party Transactions

Pursuant to the collateral management agreements with Issuer VI and VII, the Collateral Manager is entitled to a semiannual fee, payable in arrears on the distribution dates, equal to 0.10% per annum of the semi-annual asset amount (“Base Collateral Management Fee”), of the net outstanding portfolio collateral, as defined in the indenture. After certain expenses have been paid, the Collateral Manager is entitled to an additional semiannual fee equal to 0.25% per annum, calculated in the same manner as the Base Collateral Management Fee. The Collateral Manager is entitled to additional incentive fees of 0.05%, 0.10%, and 0.25% per annum in arrears dependent upon the target returns reached on the preference shares as defined in the indenture. For the years ended December 31, 2006 and December 31, 2005, total collateral management fees were $2,722,269 and $2,737,777, respectively.

8

a) Exhibits

Exhibit No.                  Description

3.1	Restated Certificate of Incorporation of Resource America. (1)
3.2	Amended and Restated Bylaws of Resource America, Inc. (1)
10.1	Master Separation and Distribution Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.2	Registration Rights Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.3	Tax Matters Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.4	Transition Services Agreement between Atlas America, Inc. and Resource America, Inc. dated May 14, 2004. (2)
10.5	Employment Agreement between Steven J. Kessler and Resource America, Inc., dated October 5, 1999. (1)
10.5(a)	Employment Agreement between Jonathan Z. Cohen and Resource America, Inc., dated October 5, 1999. (9)
10.6(a)	Fourth Modification, dated June 30, 2005, of Revolving Credit Agreement, Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXXIV, Inc., Resource Properties XL, Inc., Resource Properties XXX, Inc., Resource Properties XXXI, Inc. and Sovereign Bank. (3)

10.6(b)	Fifth Modification, dated September 29, 2005, of Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXXIV, Inc., Resource Properties XL, Inc., Resource Properties XXX, Inc. Resource Properties XXXI, Inc. and Sovereign Bank. (4)
10.6(c)	Seventh Modification, dated July 2006, of Revolving Credit Loan and Security Agreement dated July 27, 1999 by and between Resource America, Inc., Resource Properties XXX, Inc., Resource Properties XLI, Inc., Resource Capital Investor, Inc. and Sovereign Bank. (10)
10.7(a)	Credit Agreement dated July 31, 2006 between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank and between Resource America, Inc. and National City Bank. (7)

10.7(b)	Guaranty and Suretyship Agreement dated July 31, 2006 between Resource America, Inc., Resource Leasing, Inc. and National City Bank. (7)
10.7(c)	First Amendment to Credit Agreement dated August 14, 2006 between LEAF Financial Corporation, LEAF Funding, Inc. and National City Bank. (8)
10.8	First Amendment to Guaranty of Payment dated June 18, 2004 between Resource America, Inc. and Commerce Bank, National Association. (2)
10.9	Revolving Credit Agreement and Assignment dated as of May 27, 2004 among Lease Equity Appreciation Fund I, L.P., LEAF Financial Corporation and Sovereign Bank. (2)
10.10	Pooling and Servicing Agreement, dated July 13, 2005, among LEAF Funding, Inc., LEAF Financial Corporation, Merrill Lynch, Pierce, Fenner & Smith Incorporated and The Bank of New York. (4)
10.10 (a)	Assignment, Assumption and Amendment Agreement, dated September 29, 2006, among LEAF Funding, Inc., Merrill Lynch Equipment Finance LLC, Merrill Lynch Commercial Finance Corp. and U.S. Bank National Association. (10)
10.11	2005 Omnibus Equity Compensation Plan. (3)
10.12	Grant of Incentive Stock Option Pursuant to the Resource America, Inc. 2005 Omnibus Equity Compensation Plan. (6)
10.13	Grant of Non-Qualified Stock Option Pursuant to the Resource America, Inc. 2005 Omnibus Equity Compensation Plan. (6)
10.14	2005 Omnibus Equity Compensation Plan - Form of Stock Award Agreement (5)
10.15	Loan and Security Agreement, dated July 2006, among Resource America, Inc. and Commerce Bank, N.A. (10)
21.1	Subsidiaries of Resource America, Inc. (10)
23.1	Consent of Grant Thornton LLP. (10)
23.2	Consent of Ernst & Young LLP.
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 1350 18 U.S.C., as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended December 31, 1999 and by this reference incorporated herein.

(2) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2004 and by this reference incorporated herein.

(3) Filed previously as an exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 2005 and by this reference incorporated herein.

(4) Filed previously as an exhibit to our Annual Report on Form 10K for the fiscal year ended September 30, 2005 and by this reference incorporated herein.

(5) Filed previously as an exhibit to our Report on Form 8-K filed on February 15, 2006 and by this reference incorporated herein.

(6) Filed previously as an exhibit to our Annual Report on Form 10K/A for the fiscal year ended September 30, 2005 and by this reference incorporated herein.

(7) Filed previously as an exhibit to our Report on Form 8-K filed on August 4, 2006 and by this reference incorporated herein.

(8) Filed previously as an exhibit to our Report on Form 8-K filed on August 17, 2006 and by this reference incorporated herein.

(9) Filed previously as an exhibit to our Annual Report on Form 10K for the fiscal year ended September 30, 2000 and by this reference incorporated herein.

(10) Filed previously as an exhibit to our Annual Report on Form 10K for the fiscal year ended September 30, 2006 and by this reference incorporated herein.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	RESOURCE AMERICA, INC.
Date: March 29, 2007	By:	/s/ Jonathan Z. Cohen
		Chief Executive Officer and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

/s/ Edward E. Cohen	Chairman of the Board	March 29, 2007
EDWARD E. COHEN
/s/ Jonathan Z. Cohen	Director, President	March 29, 2007
JONATHAN Z. COHEN	and Chief Executive Officer
/s/ Carlos C. Campbell	Director	March 29, 2007
CARLOS C. CAMPBELL
/s/ Andrew M. Lubin	Director	March 29, 2007
ANDREW M. LUBIN
/s/ Michael J. Bradley	Director	March 29, 2007
MICHAEL J. BRADLEY
/s/ Hersh Kozlov	Director	March 29, 2007
HERSH KOZLOV
/s/ Kenneth A. Kind	Director	March 29, 2007
KENNETH A. KIND
/s/ John S. White	Director	March 29, 2007
JOHN S. WHITE
/s/ Steven J. Kessler	Executive Vice President	March 29, 2007
STEVEN J. KESSLER	and Chief Financial Officer