10-K 1 f10k_march2005-lib3.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2005 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-24656 LIBERTY TAX CREDIT PLUS III L.P. (Exact name of registrant as specified in its charter) Delaware 13-349,1408 ------------------------------------------------- ------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) 625 Madison Avenue, New York, New York 10022 ------------------------------------------------- ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 317-5700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests and Beneficial Assignment Certificates (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ ] No [X] The approximate aggregate book value of the voting and non-voting common equity held by non-affiliates of the Registrant as of September 30, 2004 was $(86,591,000), based on Limited Partner equity (deficit) as of such date. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Business General ------- Liberty Tax Credit Plus III L.P. (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on November 17, 1988. The General Partners of the Partnership are Related Credit Properties III L.P., a Delaware limited partnership (the "Related General Partner"), and Liberty GP III Inc., a Delaware corporation (the "Liberty General Partner", and together with the Related General Partner, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties III Inc., a Delaware corporation. On November 17, 2003, CharterMac acquired Related Capital Company, which is the indirect parent of RCC Manager LLC, the sole shareholder of Related Credit Properties III Inc. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. This acquisition did not affect the Partnership or its day-to-day operations, as the majority of the General Partners' management team remained unchanged. On May 2, 1989, the Partnership commenced a public offering (the "Offering") of Beneficial Assignment Certificates ("BACs") representing assignments of limited partnership interests in the Partnership ("Limited Partnership Interests"). As of March 30, 1990, (the date on which the Partnership held the final closing of the sale of BACs and on which the Offering was terminated), the Partnership had received $139,101,500 of gross proceeds of the Offering from 9,082 investors. The Partnership was formed to invest, as a limited partner, in other limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary Partnerships") each of which owns one or more leveraged low-income multifamily residential complexes ("Apartment Complexes") that are eligible for the low-income housing tax credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, and some of which ("Rehabilitation Projects"; and together with the Apartment Complexes, the "Properties") are eligible for the historic rehabilitation tax credit ("Historic Rehabilitation Tax Credit"; and together with the Housing Tax Credit, the "Tax Credits"). Some of the Apartment Complexes benefit from one or more other forms of federal or state housing assistance. The Partnership's investment in each Local Partnership represents from 27% to 98% of the Partnership interests in the Local Partnership. The Partnership does not anticipate making any additional investments. As of March 31, 2005, the Partnership has disposed of six of its 62 original Properties. See Item 2, Properties, below. Liberty Associates is the special limited partner in all of the remaining Local Partnerships. Liberty Associates has certain rights and obligations in its role as special limited partner which permit this affiliate of the registrant to exercise control over the management and policies of the Local Partnerships. The investment objectives of the Partnership are to: 1. Entitle qualified BACs holders to substantial Tax Credits over the period of the Partnership's entitlement to claim such Tax Credits (for each Property, generally ten years from the date of investment or, if later, the date the Property is placed in service; referred to herein as the "Credit Period") with respect to each Property. 2. Preserve and protect the Partnership's capital. 3. Participate in any capital appreciation in the value of the Properties and provide distributions of sale or refinancing proceeds upon the disposition of Properties. 4. Provide cash distributions when available from the operations of the Properties, current taxes on which are expected to be substantially deferred. 5. Allocate passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocate passive losses to corporate BACs holders to offset business income. One of the Partnership's objectives is to entitle qualified BACs holders to Tax Credits over the Credit Period. Each of the Local Partnerships in which the Partnership has acquired an interest has been allocated by the relevant state credit agency the authority to recognize Tax Credits during the Credit Period provided that the Local Partnership satisfies the rent restriction, minimum set-aside and other requirements for recognition of the Tax Credits at all times during the 15-year period (the "Compliance Period") commencing at the beginning of the Credit Period. Once a Local Partnership has become eligible to recognize Housing Tax Credits, it may lose such eligibility and suffer an event of "recapture" if (1) the Partnership ceases to meet qualification requirements , (2) there is a decrease in the qualified basis of the property, or (3) there is a reduction in the taxpayer's interest in the property at any time during the Compliance Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. The Tax Credits are attached to a Local Partnership for the Credit Period and are transferable with the property during the entirety of such ten year period. If trends in the real estate market warranted the sale of a property, the remaining Tax Credits would transfer to the new owner, thereby adding value to the property on the market. However such value declines each year and is not included in the financial statement carrying amount. The Credit Periods expired at various times through December 31, 2003 with respect to the Local Partnerships depending upon when the Credit Period commenced. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time the property investments themselves are reduced to estimated fair value (generally using the discounted cash flow valuation method). Through March 31, 2005, the Partnership has recorded approximately $23,937,000 as an aggregate loss on impairment of assets or reduction to estimated fair value. 2 While the value of the remaining Tax Credits are a factor in calculating fair value, the expiration of the Credit Period, in and of itself, is not the only factor in determining whether there is an impairment and generally does not have any adverse impact on the fair value of the Local Partnerships. The Partnership no longer continues to meet its primary objective of generating Tax Credits. The Partnership generated Tax Credits of approximately $69,000, $69,000 and $1,274,000 during the tax years 2004, 2003 and 2002, respectively. The Partnership continues to meet its objective of allocating passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocating passive losses to corporate BACs holders to offset business income. Cash distributions received from the Local Partnerships have been relatively immaterial. Management does not expect that the distributions received from the Local Partnerships will be sufficient to permit cash distributions to BACs holders. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds. There can be no assurance that the Partnership will continue to achieve any of its investment objectives in the future. Certain Subsidiary Partnerships are the beneficiaries of certain subsidy agreements pursuant to which the United States Department of Housing and Urban Development ("HUD") subsidizes the amount of rent that the Subsidiary Partnership earns. Pursuant to those subsidy agreements, the Subsidiary Partnerships are subject to HUD restrictions which limit annual cash distributions to partners and restrict the Subsidiary Partnerships from selling or otherwise liquidating their assets during the period that the agreement with HUD is in existence without HUD's approval. In order for certain Subsidiary Partnerships to qualify for the section 421A program ("Section 421A Program") and the inclusionary zoning program ("Inclusionary Zoning Program"), they must comply with certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants' incomes, the obligation to operate the property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines. Also, certain Subsidiary Partnerships obtain grants from local authorities to fund construction costs of the properties and in order to qualify must maintain the low-income nature of the property, among other provisions. The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 21% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. Sales of Underlying Properties/Local Partnership Interests ---------------------------------------------------------- General ------- The Partnership is currently in the process of disposing of its investments. It is anticipated that this process will take a number of years. As of March 31, 2005, the Partnership has sold its limited partnership interest in five Local Partnerships and the property and the related assets and liabilities of one Local Partnership. In addition, on December 29, 2004, the Partnership entered into an agreement to sell its limited partnership interest in another Local Partnership. There may be no assurance as to whether or when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment. On December 29, 2004, the Partnership entered into an agreement for the sale of its limited partnership interest in Lancashire Towers Associates, Ltd. ("Lancashire") to an affiliate of the Local General Partner (as defined herein) for a purchase price of $800,000. During the year ended March 31, 2005, in accordance with SFAS No. 144 the Partnership deemed the building impaired and wrote it down to its fair value which resulted in a loss on impairment of $1,700,000. The sales documents have been executed and the funds are being held in escrow waiting for approval of the sale from the Department of Housing and Urban Development (HUD). Subsequently, on May 2, 2005, Lancashire was sold. On October 7, 2004, the Partnership's limited partnership interest in Ashby Apartments, Ltd. ("Ashby") was sold to the Local General Partner for approximately $50,000, resulting in a capital contribution from the Local General Partner of approximately $18,000. The sale resulted in the liquidation of Ashby. On October 7, 2004, the Partnership's limited partnership interest in Meredith Apartments ("Meredith") was sold to the Local General Partner for approximately $50,000, resulting in a capital distribution to the Local General Partner of approximately $151,000. The sale resulted in the liquidation of Meredith. On October 7, 2004, the Partnership's limited partnership interest in Ritz Apartments LTD. ("Ritz") was sold to the Local General Partner for approximately $50,000, resulting in a capital distribution to the Local General Partner of approximately $34,000. The sale resulted in the liquidation of Ritz. On July 15, 2004, the Partnership's limited partnership interest in WPL Associates XXIII ("Benjamin's Corner") was sold to an unaffiliated third party purchaser for approximately $690,000, resulting in a gain in the amount of approximately $2,124,000. 3 On June 26, 2003, the property and the related assets and liabilities of Jefferson Place L.P. ("Jefferson Place") were sold to an unaffiliated third party for $13,650,000, resulting in a gain of approximately $13,943,000. Segments -------- The Partnership operates in one segment, which is the investment in multi-family residential properties. Competition ----------- The real estate business is highly competitive and substantially all of the Properties in which the Partnership has acquired an interest are subject to active competition from similar properties in their respective vicinities. In addition, various other limited partnerships may, in the future, be formed by the General Partners and/or their affiliates to engage in businesses which may be competitive with the Partnership. Employees --------- The Partnership does not have any direct employees. All services are performed for the Partnership by its General Partners and their affiliates. The General Partners receive compensation in connection with such activities as set forth in Items 11 and 13. In addition, the Partnership reimburses the General Partners and certain of their affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). Item 2. Properties As of March 31, 2005 the Partnership held a 98% limited partnership interest in 55 Local Partnerships and a 26.46% limited partnership interest in one Local Partnership (the other 71.54% limited partnership interest is held by an affiliate of the Partnership with the same management); together these 56 Local Partnerships own 60 apartment complexes. During the year ended March 31, 2005, the Partnership sold its limited partnership interest in four Local Partnerships. Through the year ended March 31, 2005, the Partnership has sold the property and the related assets and liabilities of one Local Partnership and its limited partnership interests in five Local Partnerships. Set forth below is a schedule of these Local Partnerships including certain information concerning their respective Apartment Complexes (the "Local Partnership Schedule"). Further information concerning these Local Partnerships and their Properties, including any encumbrances affecting the properties, may be found in Item 15, Schedule III. 4 Local Partnership Schedule --------------------------

5 Local Partnership Schedule -------------------------- (continued)

6 (a) Consists of five apartment complexes located throughout Michigan. (b) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2002 (see Note 10 in Item 8. Financial Statements and Supplemental Data). (c) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2004 (see Note 10 in Item 8. Financial Statements and Supplemental Data). (d) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2005 (see Note 10 in Item 8. Financial Statements and Supplemental Data). The General Partners have generally required, in connection with the Partnership's investments in the Local Partnerships, that the general partners of each Local Partnership (the "Local General Partners") undertake an obligation to fund operating deficits (up to a stated maximum amount) of the Local Partnership during a limited period of time following rent stabilization ("Guarantee Period"). In each case, the operating deficits have been funded by operating loans which will not bear interest and will be repaid only out of 50% of available cash flow or out of available net sale or refinancing proceeds. The gross amount of the Operating Deficit Guarantee Agreements (as defined herein) aggregated approximately $18,700,000, of which all have expired as of March 31, 2005. In cases where the General Partners deem it appropriate, the obligations of a Local General Partner under the operating deficit and/or rent-up guarantees are secured by letters of credit and/or cash escrow deposits. The Housing Tax Credits are available for a ten-year period which commences when the property is occupied by qualified tenants. However, the annual Housing Tax Credit available in the year in which the Apartment Complex was first occupied by qualified tenants must be prorated based upon the months remaining in the year after the Apartment Complex was placed in service. The amount of the annual Housing Tax Credit not available in the first year will be available in the eleventh year. In certain cases, the Partnership acquired its interest in a Local Partnership after the Local Partnership had placed its Apartment Complex in service. In these cases, the Partnership was allocated Housing Tax Credits only beginning in the month following the month in which the Partnership acquired its interest. In addition, Housing Tax Credits allocated in any prior period may not be claimed by the Partnership. The Partnership has also acquired Local Partnership Interests in which some of the Local Partnerships owning historic complexes qualify for the Historic Rehabilitation Tax Credit. The amount of the Historic Rehabilitation Tax Credit is generally 20% of qualified rehabilitation expenditures and is available in its entirety in the year the rehabilitated building is placed in service or, under certain circumstances, in the year in which the rehabilitation expenditure is made. As of March 31, 2005, the Credit Periods for all the properties have expired; however, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. All leases are generally for periods not exceeding one to two years and no tenant occupies more than 10% of the rentable square footage. Rent from commercial tenants (to which average rental per square foot applies) comprises less than 5% of the rental revenues of the Partnership. Maximum rents for the residential units are determined annually by HUD and reflect increases/decreases in consumer price indexes in various geographic areas. Market conditions, however, determine the amount of rent actually charged. Management annually reviews the physical state of the Properties and suggests to the respective Local General Partner budget improvements, which improvements are generally funded from cash flow from operations or release of replacement reserve escrows to the extent available. Management annually reviews the insurance coverage of the properties and believes such coverage is adequate. See Item 1, Business, above for the general competitive conditions to which the properties described above are subject. Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the property is located. Such taxes have approximated 1% of the aggregate cost of the properties as shown in Schedule III to the financial statements. Item 3. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders None 7 PART II Item 5. Market for the Registrant's Common Equity, Related Security Holder Matters And Issuer Purchases of Equity Securities The Partnership has issued 27,820.3 Limited Partnership Interests, each representing a $5,000 capital contribution to the Partnership, for aggregate Gross Proceeds of $139,101,500. All of the issued and outstanding Limited Partnership Interests have been issued to Liberty Credit Assignor III Inc. (the "Assignor Limited Partner"), which has in turn issued 139,101.5 BACs to the purchasers thereof for an aggregate purchase price of $139,101,500. Each BAC represents all of the economic and virtually all of the ownership rights attributable to one-fifth of a Limited Partnership Interest held by the Assignor Limited Partner. BACs may be converted into Limited Partnership Interests at no cost to the holder (other than the payment of transfer costs not to exceed $100), but Limited Partnership Interests so acquired are not thereafter convertible into BACs. Neither the BACs nor the Limited Partnership Interests are traded on any established trading market. The Partnership does not intend to include the BACs for quotation on NASDAQ or for listing on any national or regional stock exchange or any other established securities market. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in "publicly traded partnerships." Accordingly, the General Partners have imposed limited restrictions on the transferability of the BACs and the Limited Partnership Interests in secondary market transactions. Implementation of these restrictions should prevent a public trading market from developing and may adversely affect the ability of an investor to liquidate his or her investment quickly. It is expected that such procedures will remain in effect until such time, if ever, as further revision of the Revenue Act of 1987 may permit the Partnership to lessen the scope of the restrictions. As of June 2, 2005 the Partnership has approximately 9,112 registered holders of an aggregate of 139,101.5 BACs. All of the Partnership's general partnership interests, representing an aggregate capital contribution of $2,000, are held by the two General Partners. Certain Subsidiary Partnerships are subject to HUD restrictions which limit annual cash distributions to partners and restrict the Subsidiary Partnerships from selling or otherwise liquidating their assets during the period that the agreement with HUD is in existence without HUD's approval. Pursuant to the terms of the Partnership Agreement there are no material restrictions that restrict the ability of the Partnership to make distributions. However, the Partnership has made no distributions to BACs holders as of March 31, 2005. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds upon the disposition of Properties. 8 Item 6. Selected Financial Data The information set forth below presents selected financial data of the Partnership from the last five fiscal years. Additional financial information is set forth in the audited financial statements in Item 8 hereof.

* Reclassified for comparative purposes. During the year ended March 31, 2005 and 2004, total assets and liabilities decreased primarily due to a decrease in property and equipment and mortgage notes payable resulting from the sale of Local Partnerships. During the years ended March 31, 2001 through 2003, total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment. During the years ended March 31, 2001 through 2003, total liabilities increased primarily due to the accrual of principal and interest payments at one of the Local Partnerships along with the increase in obligations at the remaining Local Partnerships. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- Through March 31, 2005, the Partnership had originally invested approximately $109,000,000 (not including acquisition fees) of net proceeds in 62 Local Partnerships, of which approximately $170,000 remains to be paid including approximately $160,000 held in escrow. During the year ended March 31, 2005, the Partnership sold its limited partnership interest in four Local Partnerships. Through the year ended March 31, 2005, the Partnership has sold the property and the related assets and liabilities of one Local Partnership and its limited partnership interest in five Local Partnerships. For a discussion of these sales, see Note 10 in Item 8. Short-Term ---------- During the year ended March 31, 2005, the Partnership's primary sources of funds included: (i) working capital reserves; (ii) interest earned on the working capital reserves; (iii) cash distributions from operations of the Local Partnerships; and (iv) sales proceeds and distributions. Such funds are available to meet the obligations of the Partnership but are not expected to be significant. During the year ended March 31, 2005, cash distributions of approximately $399,000 were received by the Partnership from operations of the Local Partnerships. Additionally, during the year ended March 31, 2005, approximately $690,000 of sales proceeds were received by the Partnership from the sale of property. For the year ended March 31, 2005, cash and cash equivalents of the Partnership decreased approximately $697,000. This decrease was attributable to a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($57,000), acquisition of property and equipment ($1,545,000), net repayments on mortgage notes ($2,620,000) and an increase in deferred costs ($33,000) which exceeded cash provided by operating activities ($1,653,000), an increase in advances from debt guarantor ($960,000), a net decrease in cash held in escrow relating to investing activities ($185,000), proceeds from sale of properties ($691,000) and a net decrease in due to Local General Partners and affiliates relating to investing activities ($68,000). Included in the adjustments to reconcile the net loss to net cash provided by operating activities is depreciation and amortization ($9,192,000), gain on discontinued operations ($903,000) and an increase in due to debt guarantor in the amount of $3,234,000. Total expenses for the years ended March 31, 2005, 2004, and 2003, excluding depreciation and amortization, loss on impairment of fixed assets, interest and general and administrative-related parties, totaled $20,139,078, $19,618,644 and $19,638,054, respectively. For the years ended March 31, 2005 and 2004, accounts payable, accrued interest payable and security deposits payable were as follows: Accounts payable as of March 31, 2005 and 2004 was $5,393,345 and $6,547,074, respectively. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, local general partner advances and in certain circumstances advances from the Partnership. Because the provisions of the secondary loans defer the payment of accrued interest of the respective Local Partnerships, the Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. Accrued interest payable as of March 31, 2005 and 2004 was $17,012,106 and $15,895,951, respectively. Accrued interest payable represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount indicated in the above table and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. In addition, each Local Partnership's mortgage notes are collateralized by the land and buildings of the respective Local Partnership, and are without further recourse to the Partnership. The Partnership has an unconsolidated working capital reserve of approximately $343,000 at March 31, 2005. Cash distributions received from the Local Partnerships remain relatively immaterial. These distributions, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership. During the years ended March 31, 2005, 2004 and 2003, the amounts received from operations of the Local Partnerships were approximately $399,000, $330,000 and $774,000, respectively. Partnership management fees owed to the General Partners amounted to approximately $11,045,000 and $9,810,000 and were accrued and unpaid at March 31, 2005 and 2004. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. The General Partners have allowed for the accrual without payment of these amounts but are under no obligation to continue to do so. Long-Term --------- The Partnership is not expected to have access to additional sources of financing, and in particular will not have the ability to assess BACs holders for additional capital contributions to provide capital if needed by the Partnership. Accordingly, if circumstances arise that cause a Local Partnership to require capital in addition to that contributed by the Partnership and any equity of the Local General Partner, the only sources from which such capital needs will be able to be satisfied (other than the limited reserves available at the Partnership level) will be additional third party debt financing (which may not be available if, as expected, the Property owned by the Local Partnership is already substantially leveraged or, as in the case of the New York program properties, the incurrence of third party debt is not permitted) or additional equity contributions of the Local General Partner or other equity sources (which could adversely affect the Partnership's interest in operating cash flow and/or proceeds of sale or refinancing of the Property and result in adverse tax consequences to the BACs holders). There can be no assurance that any of such sources would be readily available in sufficient proportions to fund the capital requirements of the Local Partnerships in question, particularly if the residual value of a Property is uncertain. If such sources are not available, such Local Partnership would risk foreclosure on its Property if it was unable to renegotiate the terms of its first mortgage and any other debt with the lenders thereof. The risks associated with the need of such Local Partnership to refinance its underlying first mortgage debt are exacerbated by the probability 10 that the term of certain favorable assistance programs from which a Local Partnership may benefit will expire prior to the end of the Compliance Period with respect to such Local Partnership's Property. For a discussion of contingencies affecting certain Local Partnerships, see Results of Operations of Certain Local Partnerships below. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies is not anticipated to impact future results of operations, liquidity or financial condition in a material way. However, the Partnership's loss of its investment in a Local Partnership may also result in recapture of Tax Credits if the investment is lost before the expiration of the Compliance Period. Except as described above, management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the Properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining Properties in the portfolio may be experiencing upswings. However, the geographic diversifications of the portfolio may not protect against a general downturn in the national economy. Critical Accounting Policies ---------------------------- In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. The summary should be read in conjunction with the more complete discussion of the Partnership's accounting policies included in Note 2 to the consolidated financial statements in this annual report on Form 10-K. Property and Equipment ---------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. In accordance with FASB 144, "Accounting for the Impairment of Disposal of Long-Lived Assets", the results of discontinued operations are reported as a separate component of income before extraordinary items on the Consolidated Statements of Operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the Consolidated Balance Sheets. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2005, the Partnership has recorded $1,700,000 as a loss on impairment of assets which is included in discontinued operations. Through March 31, 2005, the Partnership has recorded approximately $23,937,000 as a loss on impairment of assets. At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. Property and equipment that are held for sale are included in discontinued operations. There are two assets classified as property and equipment-held for sale as of March 31, 2005: Michigan Rural Housing limited Partnership ("Michigan Rural") and Lancashire Towers Associates Limited Partnership ("Lancashire"). Subsequently, on May 3, 2005, the Partnership sold its limited partnership interest in Lancashire (see Note 16). Revenue Recognition ------------------- Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and as rents become due and charged to tenants' accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned. Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income, and other rental related miscellaneous items. 11 Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

(a) The mortgage and construction notes, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $909,000, including principal and interest at rates varying from 0% to 11.5% per annum, through the year 2044. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of certain Subsidiary Partnership's rent and leases. (b) R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, unless certain events occur, through February 1, 2006. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $54,153,086, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. (c) Three of the Subsidiary Partnerships are leasing the land on which the Properties are located, for terms ranging from 28 to 99 years. The leases on these Properties are noncancelable. At December 31, 2004, those Subsidiary Partnerships were committed to minimum future annual rentals on the leases aggregating $68,084 for each of the next five years, and $2,511,276 total thereafter. (d) See Note 8(C) (i) in Item 8. Financial Statements and Supplementary Data (e) See Note 8(C) (ii) in Item 8. Financial Statements and Supplementary Data Off Balance Sheet Arrangements ------------------------------ The Partnership has no off-balance sheet arrangements. 12 New Accounting Pronouncements ----------------------------- On December 16, 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29 ("SFAS No. 153"). The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal period beginning after June 15, 2005. The Company does not believe that the adoption of SFAS No. 153 on June 15, 2005 will have a material effect on the Company's consolidated financial statements. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 is applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created before February 1, 2003, the provisions of FIN 46 were applicable no later than December 15, 2003. The Partnership has not created any variable interest entities after January 31, 2003. In December 2003 the FASB redeliberated certain proposed modifications and revised FIN 46 ("FIN 46 (R)"). The revised provisions were applicable no later than the first reporting period ending after March 15, 2004. The adoption of FIN 46 (R) did not have a material impact on the Partnership's financial reporting and disclosures. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The guidance in SFAS No. 150 generally was effective for all financial instruments entered into or modified after May 31, 2003, and was otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Partnership has evaluated SFAS No. 150 and determined that it does not have an impact on the Partnership's financial reporting and disclosures. Results of Operations --------------------- The following is a summary of the results of operations of the Partnership for the years ended March 31, 2005, 2004 and 2003 ("Fiscal 2004", "Fiscal 2003" and "Fiscal 2002", respectively). The majority of the Local Partnerships' income continues to be in the form of rental income, with the corresponding expenses (excluding loss on impairment of assets) being divided among operations, depreciation and mortgage interest. The loss from operations for the 2004, 2003 and 2002 Fiscal Years totaled $13,767,372, $13,310,262 and $16,575,474, respectively. 2004 vs. 2003 ------------- Rental income decreased approximately 1% for Fiscal 2004 as compared to Fiscal 2003, primarily due to increased vacancies at one Local Partnership and the Housing Assistance payments contract which expired during 2004 at a second Local Partnership. Other income increased approximately $299,000 for Fiscal 2004 as compared to Fiscal 2003, primarily due to one Local Partnership modifying its primary mortgage loan during the year ended December 31, 2004. The primary mortgage was reduced in the amount of $1,500,000 with a corresponding increase in the support loan. In addition, the note holder forgave all the delinquent interest and related fees associated with the mortgage amounting to approximately $293,000 which is included in other income. Total expenses, excluding repairs and maintenance, remained fairly consistent with an increase of less than 1% for Fiscal 2004 as compared to Fiscal 2003. Repairs and maintenance increased approximately $559,000 for Fiscal 2004 as compared to Fiscal 2003, primarily due to the painting of the building's exterior at one Local Partnership, landscaping and an increase in payroll at a second Local Partnership and an increase in security costs and the painting of the building's exterior at a third Local Partnership. 2003 vs. 2002 ------------- Rental income increased approximately 1% for Fiscal 2003 as compared to Fiscal 2002 primarily due to rental rate increases. Other income decreased approximately $323,000 for Fiscal 2003 as compared to Fiscal 2002 primarily due to a decrease in reserve balances earning interest at three Local Partnerships, a physical improvement grant received in 2002 at a fourth Local Partnership, insurance recovery income received in 2002 at a fifth Local Partnership and forgiveness of late fees at another Local Partnership. Total expenses, excluding insurance, remained fairly consistent with a decrease of approximately 7% for Fiscal 2003 as compared to Fiscal 2002. Insurance expense increased approximately $259,000 for Fiscal 2003 as compared to Fiscal 2002 primarily due to increases in insurance premiums at the Local Partnerships. Results of Operations of Certain Local Partnerships --------------------------------------------------- (a) Subsidiary Partnership - Going Concerns and Uncertainties 13 R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") ------------------------------------------------------------------------------- River Place has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, unless certain events occur, through February 1, 2006. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $54,153,086, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. Management anticipates that River Place will be unable to make all of the required debt service payments during 2005. However, there is no guarantee that GRS, or any other persons, will continue to make these payments on behalf of River Place. These items raise substantial doubt about River Place's ability to continue as a going concern. The financial statements of River Place have been prepared assuming that River Place will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in River Place has been written down to zero by prior years' losses and the minority interest balance was approximately $883,000 at both March 31, 2005 and 2004. The net loss after minority interest for River Place amounted to approximately $3,526,000, $3,249,000 and $3,127,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Brandywine Court Associates, L.P. ("Brandywine") ------------------------------------------------ The financial statements of Brandywine have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Brandywine as a going concern. Brandywine has had recurring net losses and continues to have a substantial working capital deficit. Furthermore, Brandywine's management continues to anticipate that the property will need a new roof in the near future, the cost of which is expected to exceed $150,000. Also, Brandywine's HAP Contract expires in 2005 and there can be no assurance that it will be renewed. Brandywine's management has determined that the Property is not eligible for financial relief from the United States Department of Housing and Urban Development, since the Property would require relief of debt in excess of the parameters allowed. Brandywine's management continues to seek a buyer for the Property. In view of these matters, there is substantial doubt as to the Partnership's ability to continue as a going concern. The Partnership's investment in Brandywine has been written down to zero by prior years' losses and the minority interest balance was approximately $0 at both March 31, 2005 and 2004. The net loss after minority interest for Brandywine amounted to approximately $94,000, $101,000 and $665,000 (which includes a $553,000 loss on impairment of fixed assets) for the years ended March 31, 2005, 2004 and 2003, respectively. Gentle Pines - West Columbia Associates, L.P. ("Gentle Pines") -------------------------------------------------------------- The financial statements of Gentle Pines have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Gentle Pines as a going concern. Gentle Pines has had recurring net losses and continues to have a substantial working capital deficit. The apartment units are no longer supported by project-based housing subsidies. The Partnership has made no payments on its mortgage since May 2004. As a result of this default, the mortgagee (HUD), as remedies, may call the loan, take possession of the Project's assets or foreclose on the Project's real estate. Accordingly, the entire balance of the mortgage loan has been classified as a current liability as of December 31, 2004. Management believes that HUD will sell, or attempt to sell, the mortgage note on March 16, 2005. If the sale is successful, the Partnership intends to offer the new note holder the Partnership's deed in lieu of foreclosure. In view of these matters, there is substantial doubt as to Gentle Pines' ability to continue as a going concern. The Partnership's investment in Gentle Pines has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2005 and 2004. The net loss after minority interest for Gentle Pines amounted to approximately $437,000, $100,000 and $1,887,000 (which includes a $1,601,000 loss on impairment of fixed assets) for the years ended March 31, 2005, 2004 and 2003, respectively. Affordable Flatbush Associates ("Affordable Flatbush") ------------------------------------------------------ The financial statements of Affordable Flatbush have been prepared assuming that it will continue as a going concern. Affordable Flatbush has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. The Partnership's investment in Affordable Flatbush was written down to zero by prior years' losses and the minority interest was approximately $14,000 and $10,000 at March 31, 2005 and 2004, respectively. The net loss after minority interest for Affordable Flatbush amounted to approximately $34,000, $86,000 and $61,000 for the years ended March 31, 2005, 2004, and 2003, respectively. Citrus Meadows Apartments, LTD. ("Citrus Meadows") -------------------------------------------------- The financial statements of Citrus Meadows have been prepared assuming that it will continue as a going concern. Citrus Meadows incurred a net loss of $776,599 during the current period and has incurred a Partner's deficit of $7,507,024 since inception. Current economic conditions have limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management has reduced expenses and increased advertising to attract new tenants. Also, nonessential capital expenditures have either been eliminated or postponed. With record low interest rates, more people are purchasing housing instead of renting. At this time, the Local General Partner is funding the deficit. Because it is unclear whether Citrus Meadows will be successful in accomplishing these objectives, there is uncertainty about Citrus Meadow's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should Citrus Meadows be unable to continue as a going concern. The Partnership's investment in Citrus Meadows has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2005 and 2004. The net loss after minority interest amounted to approximately $777,000, $568,000 and $912,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Subsequently, on May 6, 2005, Gentle Pines transferred the deed to the property and the related assets and liabilities to an unaffiliated third party in lieu of disclosure. b) Subsidiary Partnership - Other Jefferson Limited Partnership ("Jefferson") ------------------------------------------- At December 31, 2004 and 2003, Jefferson's current liabilities exceeded its current assets by approximately $130,000 and $97,000, respectively. Although this condition could raise substantial doubt about Jefferson's ability to continue as a going concern, such doubt is alleviated by the fact that $72,891 and $115,711 of current liabilities at December 31, 2004 and 2003, respectively, are to related parties which do not intend to pursue payment beyond Jefferson's 14 ability to pay. Accordingly, management believes that Jefferson has the ability to continue as a going concern for at least one year from December 31, 2004. The Partnership's investment in Jefferson was written down to zero by prior years' losses and the minority interest balance was $0 at each date. The net loss after minority interest for Jefferson amounted to approximately $151,000, $217,000 and $150,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Manhattan A Associates ("Manhattan A") -------------------------------------- The financial statements of Manhattan A have been prepared on the basis that it is to continue as a going concern. The limited partners have made assertions that they will continue to fund cash flow shortfalls as they have in the past. The Partnership's investment in Manhattan A was approximately $755,000 at March 31, 2005 and the minority interest for Manhattan A was $0 at both March 31, 2005 and 2004. The net loss after minority interest for Manhattan A amounted to approximately $113,000, $25,000 and $55,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Site H Development Co. ("Site H") --------------------------------- The Partnership has not been provided with the Site H audited financial statements for fiscal years 2005, 2004 and 2003, and as such has used estimates in its Consolidated Financial Statements for three years. Other Subsidiary Partnerships ----------------------------- Three of the Subsidiary Partnerships are leasing the land on which the Properties are located for terms ranging from 28 to 99 years. The leases for these Properties are noncancelable. At December 31, 2004, those Subsidiary Partnerships were committed to minimum annual rentals on the leases aggregating $68,084 for each of the next five years, and $2,511,276 in total thereafter. Other ----- The Partnership's investments in the Local Partnerships are subject to the risks incident to management and ownership of improved real estate. The Partnership's investments also could be adversely affected by poor economic conditions, which could increase vacancy levels, rental payment defaults, and operating expenses, any or all of which could threaten the financial viability of one or more of the Local Partnerships. There also are substantial risks associated with the operation of apartment complexes receiving government assistance. These risks stem from governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the complexes, difficulties in obtaining government approval for rent increases, limitations on the percentage of income which low and moderate-income tenants may pay as rent, the possibility that Congress may not appropriate funds to enable HUD to make the rental assistance payments it has contracted to make, and the possibility that when the rental assistance contracts expire there may not be market demand for apartments at full market rents in a Local Partnership's Apartment Complex. The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Inflation also affects the Local Partnerships adversely by increasing operating costs, for example, for such items as fuel, utilities and labor. However, continued inflation should allow for appreciated values of the Local Partnerships' Apartment Complexes over a period of time as rental revenues and replacement costs continue to increase. Item 7A. Quantitative and Qualitative Disclosures about Market Risk The Partnership has mortgage notes that are payable in aggregate monthly installments including principal and interest at rates varying from 0% to 11.5% per annum. The Partnership does not believe there is a material risk associated with the various interest rates associated with the mortgage notes as the majority of the Local Partnership mortgage notes have fixed rates. The Partnership currently discloses in Item 8, Note 3 of the Notes to Consolidated Financial Statements, the fair value of the mortgage notes payable. The Partnership does not have any market risk sensitive instruments. 15 Item 8. Financial Statements and Supplementary Data Sequential Page ---------- (a) 1. Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 17 Consolidated Balance Sheets at March 31, 2005 and 2004 142 Consolidated Statements of Operations for the Years Ended March 31, 2005, 2004 and 2003 143 Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 31, 2005, 2004 and 2003 144 Consolidated Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and 2003 145 Notes to Consolidated Financial Statements 146 16 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) We have audited the consolidated balance sheets of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) (the "Partnership") as of March 31, 2005 and 2004, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for the years ended March 31, 2005, 2004 and 2003 (the 2004, 2003 and 2002 Fiscal Years, respectively). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of 57 (Fiscal 2004), 58 (Fiscal 2003) and 60 (Fiscal 2002) subsidiary partnerships whose losses aggregated ($12,756,453), ($15,889,757) and ($15,565,338) for the 2004, 2003 and 2002 Fiscal Years, respectively, and whose assets constituted 91% and 90% of the Partnership's assets at March 31, 2005 and 2004, respectively, presented in the accompanying consolidated financial statements. The financial statements of 56 (Fiscal 2004), 57 (Fiscal 2003) and 59 (Fiscal 2002) subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. The financial statements of one (Fiscal 2004, Fiscal 2003 and Fiscal 2002) subsidiary partnership was unaudited. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based upon our audits, and the reports of the other auditors referred to above, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Liberty Tax Credit Plus III L.P. and Subsidiaries at March 31, 2005 and 2004, and the results of their operations and their cash flows for the years ended March 31, 2005, 2004 and 2003, in conformity with U.S. generally accepted accounting principles. As discussed in Note 12(a), the consolidated financial statements include the financial statements of four subsidiary partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These subsidiary partnerships' net losses aggregated $4,833,531 (Fiscal 2004), $4,016,930 (Fiscal 2003) and $6,590,417 (Fiscal 2002), and their assets aggregated $18,259,224 and $19,370,800 at March 31, 2005 and 2004, respectively. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 15, 2005 17 [Letterhead of BERDON, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of C.V. Bronx Associates, L.P. We have audited the accompanying balance sheets of C.V. Bronx Associates, L.P. (a Delaware limited partnership) (the "Partnership) as of December 31, 2004 and 2003, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of C.V. Bronx Associates, L.P. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Berdon LLP Certified Public Accountants New York, N.Y. January 28, 2005 18 [Letterhead of BERDON, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of C.V. Bronx Associates, L.P. We have audited the accompanying balance sheets of C.V. Bronx Associates, L.P. (a Delaware limited partnership) (the "Partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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 C.V. Bronx Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Berdon LLP Certified Public Accountants New York, N.Y. February 6, 2004 19 [Letterhead of LAYTON & RICHARDSON, P.C.] INDEPENDENT AUDITOR'S REPORT Partners of Michigan Rural Housing Limited Partnership We have audited the accompanying balance sheets of Michigan Rural Housing Limited Partnership (a Michigan partnership) as of December 31, 2004 and 2003, and the related statements of income, changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Michigan Rural Housing Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. /s/ Layton & Richardson, P.C. Certified Public Accountants East Lansing, Michigan February 8, 2005 20 [Letterhead of THEO CARSON & ASSOCIATES] INDEPENDENT AUDITOR'S REPORT To the Partners Michigan Rural Housing Limited Partnership I have audited the accompanying balance sheets of Michigan Rural Housing Limited Partnership (a Michigan partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' deficit, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I have conducted the audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that the audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Michigan Rural Housing Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Theo C. Carson & Associates Kalamazoo, Michigan February 4, 2004 21 [Letterhead of COLE, EVANS & PETERSON] INDEPENDENT AUDITORS' REPORT To the Partners Jefferson Limited Partnership Shreveport, Louisiana We have audited the accompanying balance sheets of Jefferson Limited Partnership at December 31, 2004 and December 31, 2003, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of Jefferson Limited Partnership at December 31, 2004 and December 31, 2003, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Our audits were made primarily for the purpose of forming an opinion on the basic financial statements for the years ended December 31, 2004 and December 31, 2003 taken as a whole. The supplementary Schedule 1 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Cole, Evans & Peterson January 25, 2005 Shreveport, Louisiana 22 [Letterhead of COLE, EVANS & PETERSON] INDEPENDENT AUDITORS' REPORT To the Partners Jefferson Limited Partnership Shreveport, Louisiana We have audited the accompanying balance sheets of Jefferson Limited Partnership at December 31, 2003 and December 31, 2002, and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. These standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of Jefferson Limited Partnership at December 31, 2003 and December 31, 2002, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Our audits were made primarily for the purpose of forming an opinion on the basic financial statements for the years ended December 31, 2003 and December 31, 2002 taken as a whole. The supplementary Schedule 1 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Cole, Evans & Peterson January 31, 2004 Shreveport, Louisiana 23 [Letterhead of DAMIANO & BURK] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. (A Limited Partnership) Providence, RI We have audited the accompanying balance sheet of Project No. HIP010 of Inter-Tribal Indian Village Housing Development Associates, L.P. (a limited partnership) as of December 31, 2004, and the related statements of operations and changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2004 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our reports dated January 20, 2005, on our consideration of Inter-Tribal Indian Village Housing Development Associates, L.P.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grants, agreements and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of the audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information included in the report shown on pages 13-19 is presented for the purposes of additional analysis and is not a required part of the basic financial statements of Inter-Tribal Indian Village Housing Development Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the financial statements taken as a whole. /s/ Damiano & Burk CPAs, PC Lincoln, Rhode Island January 20, 2005 24 [Letterhead of DAMIANO & BURK] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. (A Limited Partnership) Providence, RI We have audited the accompanying balance sheet of Project No. HIP010 of Inter-Tribal Indian Village Housing Development Associates, L.P. (a limited partnership) as of December 31, 2003, and the related statements of operations and changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the project's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2003 and the results of its operations, changes in partners' deficit and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our reports on our test of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of the audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The accompanying supplementary information included in the report shown on pages 13-19 is presented for the purposes of additional analysis and are not a required part of the basic financial statements of Inter-Tribal Indian Village Housing Development Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Damiano & Burk CPAs, PC Lincoln, Rhode Island January 19, 2004 25 [Letterhead of DAMIANO & BURK] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. (A Limited Partnership) Providence, RI We have audited the accompanying balance sheet of Project No. HIP010 of Inter-Tribal Indian Village Housing Development Associates, L.P. (a limited partnership) as of December 31, 2002, and the related statements of operations and changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the project's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2002 and the results of its operations, changes in partners' deficit and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our reports on our test of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of the audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. The accompanying supplementary information included in the report shown on pages 13-19 is presented for the purposes of additional analysis and are not a required part of the basic financial statements of Inter-Tribal Indian Village Housing Development Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Damiano & Burk CPAs, PC Lincoln, Rhode Island January 22, 2003 26 [Letterhead of REZNICK GROUP. P.C.] INDEPENDENT AUDITORS' REPORT To the Partners RBM Associates We have audited the accompanying balance sheets of RBM Associates as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of RBM Associates as of December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report for the year ended December 31, 2004, dated February 4, 2005, on our consideration of RBM Associates' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2004 supplemental information on pages 23 through 26 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Baltimore, Maryland February 4, 2005 27 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners RBM Associates We have audited the accompanying balance sheets of RBM Associates as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 RBM Associates as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report for the year ended December 31, 2003, dated January 30, 2004, on our consideration of RBM Associates' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 24 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 30, 2004 28 [Letterhead of McKONLY & ASBURY LLP] INDEPENDENT AUDITOR'S REPORT The Partners of Glenbrook Associates Rural Development Lancaster, Pennsylvania Lebanon, Pennsylvania We have audited the accompanying Balance Sheets of Glenbrook Associates (a limited partnership) as of December 31, 2004 and 2003, and the related Statements of Income, Partners' Equity, and Cash Flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Glenbrook Associates at December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 28, 2005 on our consideration of Glenbrook Associates' internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements, and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be considered in assessing the results of our audits. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on page 16 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ McKonly & Asbury, LLP Harrisburg, Pennsylvania January 28, 2005 29 [Letterhead of McKONLY & ASBURY LLP] INDEPENDENT AUDITOR'S REPORT The Partners of Glenbrook Associates Lancaster, Pennsylvania Rural Development Allentown, Pennsylvania We have audited the accompanying balance sheets of Glenbrook Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of income, partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Glenbrook Associates at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with auditing standards generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 28, 2004 on our consideration of Glenbrook Associates' internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on page 16 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ McKonly & Asbury, LLP Harrisburg, Pennsylvania January 28, 2004 30 [Letterhead of FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners of Affordable Flatbush Associates (A New York Limited Partnership) We have audited the accompanying balance sheets of Affordable Flatbush Associates (A New York Limited Partnership) as of December 31, 2004 and December 31, 2003, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, except for the uncertainties around the ability of Affordable Flatbush Associates to continue as a going concern, as referenced below, the financial statements referred to above present fairly, in all material respects, the financial position of Affordable Flatbush Associates (A New York Limited Partnership) at December 31, 2004 and December 31, 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Feldman, Holtzman, Lupo & Zerbo, LLC Pompton Lakes, New Jersey February 28, 2005 31 [Letterhead of FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners of Affordable Flatbush Associates (A New York Limited Partnership) We have audited the accompanying balance sheets of Affordable Flatbush Associates (A New York Limited Partnership) as of December 31, 2003 and December 31, 2002, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Affordable Flatbush Associates (A New York Limited Partnership) at December 31, 2003 and December 31, 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Feldman, Holtzman, Lupo & Zerbo, LLC Pompton Lakes, New Jersey February 27, 2004 32 [Letterhead of WESSEL & COMPANY] INDEPENDENT AUDITOR'S REPORT To the Partners of Barclay Village II, Ltd. We have audited the accompanying balance sheets of Barclay Village II, Ltd. (a limited partnership) PHFA No. R-0039-8F as of December 31, 2004 and 2003, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Project'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 of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States and Pennsylvania Housing Finance Agency regulations. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Barclay Village II, Ltd., PHFA No. R-0039-8F, as of December 31, 2004 and 2003, and the results of its operations, changes in partners' capital, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 13 to 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITING OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development and the Pennsylvania Housing Finance Agency regulations, we have also issued a report dated January 28, 2005, on our consideration of Barclay Village II, Ltd.'s internal control and on our test of its compliance certain provisions of laws, regulations, contracts, grant agreements, and other matters and with specific requirements applicable to major HUD Programs, Pennsylvania Housing Finance Agency regulations, and specific requirements applicable to Fair Housing and Nondiscrimination. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 13 to 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Wessel & Company Certified Public Accountants Johnstown, Pennsylvania January 28, 2005 33 [Letterhead of WESSEL & COMPANY] INDEPENDENT AUDITOR'S REPORT To the Partners of Barclay Village II, Ltd. We have audited the accompanying balance sheets of Barclay Village II, Ltd. (a limited partnership) PHFA No. R-0039-8F as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Project'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 of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States and Pennsylvania Housing Finance Agency regulations. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Barclay Village II, Ltd., PHFA No. R-0039-8F, as of December 31, 2003 and 2002, and the results of its operations, changes in partners' capital, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 13 to 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITING OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development and the Pennsylvania Housing Finance Agency regulations, we have also issued a report dated January 23, 2004, on our consideration of Barclay Village II, Ltd.'s internal control and on our test of its compliance certain provisions of laws, regulations, contracts and with specific requirements applicable to major HUD Programs, Pennsylvania Housing Finance Agency regulations, and specific requirements applicable to Fair Housing and Nondiscrimination. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Wessel & Company Certified Public Accountants Johnstown, Pennsylvania January 23, 2004 34 [Letterhead of BERDON, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of 1850 Second Avenue Associates, L.P. New York, New York We have audited the accompanying balance sheets of 1850 Second Avenue Associates, L.P. (a Delaware limited partnership) as of December 31, 2004 and 2003, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 1850 Second Avenue Associates, L.P. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Berdon, LLP Certified Public Accountants New York, N.Y. February 10, 2005 35 [Letterhead of BERDON, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of 1850 Second Avenue Associates, L.P. New York, New York We have audited the accompanying balance sheets of 1850 Second Avenue Associates, L.P. (a Delaware limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of 1850 Second Avenue Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Berdon, LLP Certified Public Accountants New York, N.Y. February 3, 2004 36 [Reznick Group, P.C. Letterhead] INDEPENDENT AUDITORS' REPORT To the Partners R.P.P. Limited Dividend Housing Association Limited Partnership We have audited the accompanying balance sheet of R.P.P. Limited Dividend Housing Association Limited Partnership (the Partnership) as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of R.P.P. Limited Dividend Housing Association Limited Partnership at December 31, 2004 and 2003, and the results of its operations, the changes in partners' deficit and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note F, the Partnership has been unable to generate sufficient cash flow to meet its debt service requirements and is in default under those obligations. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result from the outcome of this uncertainty. /s/ Reznick Group, P.C. Bethesda, Maryland January 26, 2005 37 [Ernst & Young Letterhead] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Partners R.P.P. Limited Dividend Housing Association Limited Partnership We have audited the accompanying balance sheets of R.P.P. Limited Dividend Housing Association Limited Partnership (the Partnership) as of December 31, 2002 and 2001, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of R.P.P. Limited Dividend Housing Association Limited Partnership at December 31, 2002 and 2001, and the results of its operations, and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 6, the Partnership has been unable to generate sufficient cash flow to meet its debt service requirements and is in default under those obligations. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result from the outcome of this uncertainty. /s/ Ernst & Young LLP West Palm Beach, Florida January 24, 2003 38 [Letterhead of DICKEY, WOLF & HUMBARD, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Williamsburg Residential II, L.P. We have audited the balance sheets of Williamsburg Residential II, L.P. (a Kansas Limited Partnership) as of December 31, 2004 and 2003, and the related statements of operations, changes in partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential II, L.P. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO January 31, 2005 39 [Letterhead of DICKEY, WOLF & HUMBARD, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Williamsburg Residential II, L.P. We have audited the balance sheets of Williamsburg Residential II, L.P. (a Kansas Limited Partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential II, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO January 8, 2004 40 [Letterhead of FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners of West 104th Street Associates, L.P. (a Delaware Limited Partnership) We have audited the accompanying balance sheets of West 104th Street Associates, L.P. (a Delaware Limited Partnership) as of December 31, 2004 and December 31, 2003, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West 104th Street Associates, L.P. at December 31, 2004 and December 31, 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC Pompton Lakes, New Jersey February 28, 2005 41 [Letterhead of FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners of West 104th Street Associates, L.P. (a Delaware Limited Partnership) We have audited the accompanying balance sheets of West 104th Street Associates, L.P. (a Delaware Limited Partnership) as of December 31, 2003 and December 31, 2002, and the related statements of operations, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West 104th Street Associates, L.P. at December 31, 2003 and December 31, 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ FELDMAN, HOLTZMAN, LUPO & ZERBO, LLC Pompton Lakes, New Jersey February 27, 2004 42 INDEPENDENT ACCOUNTANTS' REPORT To the Partners of Meredith Apartments, Ltd. We have audited the accompanying balance sheet of Meredith Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital and cash flows for the years then ended September 29, 2004 and for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Meredith Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 30, 2004 43 INDEPENDENT ACCOUNTANTS' REPORT To the Partners of Meredith Apartments, Ltd. We have audited the accompanying balance sheet of Meredith Apartments, Ltd. (a Limited Partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Meredith Apartments, Ltd. at December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah January 12, 2004 44 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ritz Apartments, Ltd. We have audited the accompanying balance sheet of Ritz Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ritz Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 30, 2004 45 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ritz Apartments, Ltd. We have audited the accompanying balance sheet of Ritz Apartments, Ltd. (a Limited Partnership) as of December 31, 2003 and 2002 and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ritz Apartments, Ltd. at December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah January 9, 2004 46 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ashby Apartments, Ltd. We have audited the accompanying balance sheet of Ashby Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital (deficit) and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ashby Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 23, 2004 47 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ashby Apartments, Ltd. We have audited the accompanying balance sheet of Ashby Apartments, Ltd. (a Limited Partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Ashby Apartments, Ltd. at December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended, in conformity accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah January 12, 2004 48 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2004, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2004, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 7, 2005 on our consideration of the Partnership's internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 7, 2005 Carmel, Indiana 49 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (an Ohio Limited Partnership) as of December 31, 2003, and the related statements of profit and (loss), changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 South Toledo Associates, Ltd. (an Ohio Limited Partnership) as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 6, 2004 on our consideration of the Partnership's internal controls and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 6, 2004 Carmel, Indiana 50 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (an Ohio Limited Partnership) as of December 31, 2002, and the related statements of profit and (loss), changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 South Toledo Associates, Ltd. (an Ohio Limited Partnership) as of December 31, 2002, and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report dated January 7, 2003 on our consideration of the Partnership's internal controls and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 7, 2003 Carmel, Indiana 51 [Letterhead of REZNICK GROUP, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Dunlap School Venture We have audited the accompanying balance sheets of Dunlap School Venture as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dunlap School Venture at December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report for the year ended December 31, 2004, dated February 11, 2005, on our consideration of Dunlap School Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2004 supplemental information on pages 24 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Baltimore, Maryland February 11, 2005 52 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Dunlap School Venture We have audited the accompanying balance sheet of Dunlap School Venture as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dunlap School Venture at December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report for the year ended December 31, 2003, dated January 30, 2004, on our consideration of Dunlap School Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 25 through 28 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 30, 2004 53 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Philipsburg Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Philipsburg Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0210-8E, as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Philipsburg Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0210-8E, as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated February 2, 2005 on our consideration Philipsburg Elderly Housing Associates (A Maine Limited Partnership) internal control and on our test of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 14-17 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine February 2, 2005 54 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Philipsburg Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Philipsburg Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0210-8E, as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Philipsburg Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0210-8E, as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 16, 2004 on our consideration Philipsburg Elderly Housing Associates (A Maine Limited Partnership) internal control and on our test of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 15-18 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine January 16, 2004 55 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Franklin Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Franklin Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0383-8E, as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Franklin Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0383-8E, as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 25, 2005 on our consideration of Franklin Elderly Housing Associates' (A Maine Limited Partnership) internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 15-17 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine January 25, 2005 56 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Franklin Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Franklin Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0383-8E, as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Franklin Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0383-8E, as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 23, 2004 on our consideration of internal controls over financial reporting of Franklin Elderly Housing Associates (A Maine Limited Partnership) internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 15-18 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine January 23, 2004 57 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0488-8E, as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0488-8E, as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 24, 2005 on our consideration of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) internal controls over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 15-18 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine January 24, 2005 58 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0488-8E, as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership), PHFA Project Number R-0488-8E, as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 16, 2004 on our consideration of internal controls over financial reporting of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be used in conjunction with this report in considering the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information included on pages 14-17 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership, but is supplementary information required by the Pennsylvania Housing Finance Agency (PHFA). Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine January 16, 2004 59 [Letterhead of Saltz, Shamis & Goldfarb, Inc.] Independent Auditor's Report ---------------------------- The General and Limited Partners Lancashire Towers Associates Limited Partnership We have audited the accompanying balance sheets of Lancashire Towers Associates Limited Partnership (An Ohio Limited Partnership) as of December 31, 2004 and 2003, and the related statement of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Project'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 of America and GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lancashire Towers Associates Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 13, 2005 on our consideration of Lancashire Towers Associates Limited Partnership's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and over compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or over compliance. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audits. /s/ Saltz, Shamis & Goldfarb, Inc. CERTIFIED PUBLIC ACCOUNTANTS Cleveland, Ohio January 13, 2005 60 [Letterhead of Bick Fredman & Co] Independent Auditor's Report ---------------------------- The General and Limited Partners Lancashire Towers Associates Limited Partnership We have audited the accompanying balance sheets of Lancashire Towers Associates Limited Partnership (An Ohio Limited Partnership) as of December 31, 2002 and 2001, and the related statement of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Project'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 of America and GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Lancashire Towers Associates Limited Partnership as of December 31, 2002 and 2001, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 10, 2003 on our consideration of Lancashire Towers Associates Limited Partnership's internal control and reports dated January 10, 2003 on its compliance with laws and regulations. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Bick Fredman & Co Cleveland, Ohio January 10, 2003 61 [Letterhead of FASMAN, KLEIN & FELDSTEIN] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners, Brewery Renaissance Associates, L.P. We have audited the accompanying balance sheet of Brewery Renaissance Associates, L.P. (the Partnership) as of December 31, 2004 and 2003 and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Brewery Renaissance Associates, L.P. as of December 31, 2004 and 2003 and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, /s/ FASMAN, KLEIN & FELDSTEIN New City, NY February 10, 2005 62 [Letterhead of FASMAN, KLEIN & FELDSTEIN] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners, Brewery Renaissance Associates, L.P. We have audited the accompanying balance sheet of Brewery Renaissance Associates, L.P. (the Partnership) as of December 31, 2003 and 2002 and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Brewery Renaissance Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. Respectfully submitted, /s/ FASMAN, KLEIN & FELDSTEIN New City, NY February 4, 2004 63 [Letterhead of ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Brandywine Court Associates, L.P. Marlton, New Jersey We have audited the accompanying balance sheets of BRANDYWINE COURT ASSOCIATES, L.P. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 063-94015, as of December 31, 2004 and 2003 and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of BRANDYWINE COURT ASSOCIATES, L.P. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 063-94015, as of December 31, 2004 and 2003, and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that BRANDYWINE COURT ASSOCIATES, L.P. (A LIMITED PARTNERSHIP) will continue as a going concern. As described in Note B and reported in the accompanying financial statements, BRANDYWINE COURT ASSOCIATES, L.P. (A LIMITED PARTNERSHIP) has had recurring net losses and has an increasing working capital deficit in recent years. These conditions raise substantial doubt about BRANDYWINE COURT ASSOCIATES, L.P. (A LIMITED PARTNERSHIP) ability to continue as a going concern. Management's plans in regard to those matters are described in Note B. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Partnership cannot continue in existence. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have issued reports dated February 1, 2005 on our consideration of BRANDYWINE COURT ASSOCIATES, L.P.'S (A LIMITED PARTNERSHIP), HUD PROJECT NO. 063-94015, internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. These reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd. Philadelphia, Pennsylvania February 1, 2005 64 [Letterhead of ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Brandywine Court Associates, L.P. Marlton, New Jersey We have audited the accompanying balance sheets of Brandywine Court Associates, L.P. (A Limited Partnership), HUD Project No. 063-94015, as of December 31, 2003 and 2002 and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brandywine Court Associates, L.P. (A Limited Partnership), HUD Project No. 063-94015, as of December 31, 2003 and 2002, and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that Brandywine Court Associates, L.P. (A Limited Partnership) will continue as a going concern. As described in Note B and reported in the accompanying financial statements, Brandywine Court Associates, L.P. (A Limited Partnership) has had recurring net losses and has an increasing working capital deficit in recent years. These conditions raise substantial doubt about Brandywine Court Associates, L.P. (A Limited Partnership) ability to continue as a going concern. Management's plans in regard to those matters are described in Note B. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Partnership cannot continue in existence. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have issued reports dated January 20, 2004 on our consideration of Brandywine Court Associates, L.P.'s (A Limited Partnership), HUD Project No. 063-94015, internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. These reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd. Philadelphia, Pennsylvania January 20, 2004 65 [Letterhead of J.H. WILLIAMS & CO., LLP] INDEPENDENT AUDITORS' REPORT To the Partners Art Apartments Associates (a Limited Partnership) Philadelphia, Pennsylvania We have audited the accompanying balance sheets of Art Apartments Associates (a Limited Partnership) as of December 31, 2004 and 2003 and the related statements of income, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's partners and contracted management agent. 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's partners and contracted management agent, as well as 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 Art Apartments Associates (a Limited Partnership) at December 31, 2004 and 2003, and its results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ J. H. Williams & Co., LLP Kingston, Pennsylvania February 9, 2005 66 [Letterhead of J.H. WILLIAMS & CO., LLP] INDEPENDENT AUDITORS' REPORT To the Partners Art Apartments Associates (a Limited Partnership) Philadelphia, Pennsylvania We have audited the accompanying balance sheets of Art Apartments Associates (a Limited Partnership) as of December 31, 2003 and 2002 and the related statements of statements of income, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's partners and contracted management agent. 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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Partnership's general partner and contracted management agent, as well as 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 Art Apartments Associates (a Limited Partnership) at December 31, 2003 and 2002, and its results of its operations, changes in partners' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ J. H. Williams & Co., LLP Kingston, Pennsylvania February 12, 2004 67 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Village at Carriage Hills, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of The Village at Carriage Hills Ltd., a limited partnership, RHS Project No.: 48-001-630980039 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 The Village at Carriage Hills, Ltd., RHS Project No.: 48-001-630980039 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 23, 2005 on our consideration of The Village at Carriage Hills, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2005 68 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Village at Carriage Hills, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of The Village at Carriage Hills Ltd., a limited partnership, RHS Project No.: 48-001-630980039 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 The Village at Carriage Hills, Ltd., RHS Project No.: 48-001-630980039 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 15, 2004 on our consideration of The Village at Carriage Hills, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 15, 2004 69 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mountainview Apartments, Ltd. Newport, Tennessee We have audited the accompanying balance sheets of Mountainview Apartments, Ltd., a limited partnership, RHS Project No.: 48-015-63097225 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Mountainview Apartments, Ltd., RHS Project No.: 48-015-63097225 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 18, 2005 on our consideration of Mountainview Apartments, Ltd.'s, internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 18, 2005 70 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mountainview Apartments, Ltd. Newport, Tennessee We have audited the accompanying balance sheets of Mountainview Apartments, Ltd., a limited partnership, RHS Project No.: 48-015-63097225 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Mountainview Apartments, Ltd., RHS Project No.: 48-015-63097225 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 6, 2004 on our consideration of Mountainview Apartments, Ltd.'s, internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 6, 2004 71 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Park Village, Limited Jackson, Mississippi We have audited the accompanying balance sheets of The Park Village, Limited, a limited partnership, as of December 31, 2004 and 2003, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 The Park Village, Limited, as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with auditing principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2005 72 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Park Village, Limited Jackson, Mississippi We have audited the accompanying balance sheets of The Park Village, Limited, a limited partnership, as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 The Park Village, Limited, as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with auditing principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2004 73 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners River Oaks Apartments, Ltd. Oneonta, Alabama We have audited the accompanying balance sheets of River Oaks Apartments, Ltd., a limited partnership, RHS Project No.: 01-005-630988076 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 River Oaks Apartments, Ltd., RHS Project No.: 01-005-630988076 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 11 through 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 23, 2005 on our consideration of River Oaks Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2005 74 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners River Oaks Apartments, Ltd. Oneonta, Alabama We have audited the accompanying balance sheets of River Oaks Apartments, Ltd., a limited partnership, RHS Project No.: 01-005-630988076 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 River Oaks Apartments, Ltd., RHS Project No.: 01-005-630988076 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 11 through 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 23, 2004 on our consideration of River Oaks Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2004 75 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Forrest Ridge, Ltd. Forrest City, Arkansas We have audited the accompanying balance sheets of Forrest Ridge Apartments, Ltd., a limited partnership, RHS Project No.: 03-062-630899211 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Forrest Ridge Apartments, Ltd., RHS Project No.: 03-062-630899211 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 17, 2005 on our consideration of Forrest Ridge Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 17, 2005 76 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Forrest Ridge, Ltd. Forrest City, Arkansas We have audited the accompanying balance sheets of Forrest Ridge Apartments, Ltd., a limited partnership, RHS Project No.: 03-062-630899211 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Forrest Ridge Apartments, Ltd., RHS Project No.: 03-062-630899211 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 17, 2004 on our consideration of Forrest Ridge Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 17, 2004 77 [Letterhead of SCHOONOVER BOYER AND ASSOCIATES] INDEPENDENT AUDITORS' REPORT The Partners The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan Limited Partnership) We have audited the accompanying balance sheets of The Hearthside Limited Dividend Housing Association Limited Partnership, (a Michigan limited partnership) as of December 31, 2004 and 2003, and the related statements of income (loss), partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hearthside Limited Dividend Housing Association Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Schoonover Boyer & Associates Columbus, Ohio January 28, 2005 78 [Letterhead of SCHOONOVER BOYER AND ASSOCIATES] INDEPENDENT AUDITORS' REPORT The Partners The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan Limited Partnership) We have audited the accompanying balance sheets of The Hearthside Limited Dividend Housing Association Limited Partnership, (a Michigan limited partnership) as of December 31, 2003 and 2002, and the related statements of income (loss), partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hearthside Limited Dividend Housing Association Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Schoonover Boyer & Associates Columbus, Ohio January 22, 2004 79 [Letterhead of PAILET, MEUNIER AND LeBLANC, L.L.P.] INDEPENDENT AUDITOR'S REPORT To the Partners of Redemptorist Limited Partnership New Orleans, Louisiana We have audited the accompanying balance sheets of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2004 and 2003, and the related statements of income, changes in partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2004 and 2003, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated January 31, 2005, on our consideration of Redemptorist Limited Partnership's internal control, and reports dated January 31, 2005, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 18 to 32 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Redemptorist Limited Partnership. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic financial statements taken as a whole. /s/ Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana January 31, 2005 80 [Letterhead of PAILET, MEUNIER AND LeBLANC, L.L.P.] INDEPENDENT AUDITOR'S REPORT To the Partners of Redemptorist Limited Partnership New Orleans, Louisiana We have audited the accompanying balance sheets of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2003 and 2002, and the related statements of income, changes in partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated March 2, 2004, on our consideration of Redemptorist Limited Partnership's internal control, and reports dated March 2, 2004, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 18 to 32 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Redemptorist Limited Partnership. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects, in relation to the basic financial statements taken as a whole. /s/ Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana March 2, 2004 81 [Letterhead of SATTY, LEVINE & CIACCO, CPAs, P.C.] To the Partners Manhattan A Associates (A Limited Partnership) New York, New York We have audited the accompanying balance sheet of Manhattan A Associates (a limited partnership) as of December 31, 2004 and 2003, and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits with standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Manhattan A Associates as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on page ten and eleven is presented for purposes of additional analysis and is not a required part of the basic financial statements of Manhattan A Associates. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Satty, Levine & Ciacco, CPAs, P.C. Jericho, New York January 25, 2005 82 [Letterhead of SATTY, LEVINE & CIACCO, CPAs, P.C.] To the Partners Manhattan A Associates (A Limited Partnership) New York, New York We have audited the accompanying balance sheet of Manhattan A Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion of these financial statements based on our audits. We conducted our audits with standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Manhattan A Associates as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on page ten is presented for purposes of additional analysis and is not a required part of the basic financial statements of Manhattan A Associates. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Satty, Levine & Ciacco, CPAs, P.C. Jericho, New York February 6, 2004 83 [Letterhead of Merina & Company, LLP] INDEPENDENT AUDITOR'S REPORT To the Partners/Owners Weidler Associates Limited Partnership Portland, Oregon We have audited the accompanying balance sheets of Weidler Associates Limited Partnership as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Weidler Associates Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Merina & Company West Linn, Oregon February 15, 2005 84 [Letterhead of Merina & Company, LLP] INDEPENDENT AUDITOR'S REPORT To the Partners/Owners Weidler Associates Limited Partnership Portland, Oregon We have audited the accompanying balance sheet of Weidler Associates Limited Partnership as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Weidler Associates Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Merina & Company West Linn, Oregon February 26, 2004 85 [Letterhead of ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Gentle Pines - West Columbia Associates, L.P. Marlton, New Jersey We have audited the accompanying balance sheets of GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 054-94007, as of December 31, 2004 and 2003, and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 054-94007, as of December 31, 2004 and 2003, and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2004 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P. (A LIMITED PARTNERSHIP) will continue as a going concern. As described in Notes A, B, and D and reported in the accompanying financial statements, GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P. (A LIMITED PARTNERSHIP) has lost its Project-based housing subsidiaries and defaulted on its mortgage, which has exacerbated its recurring net losses and working capital deficit. These conditions raise substantial doubt about GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P.'S (A LIMITED PARTNERSHIP) ability to continue as a going concern. Management's plans in regard to those matters are described in Note B. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Partnership cannot continue in existence. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have issued reports dated February 9, 2005 on our consideration of GENTLE PINES - WEST COLUMBIA ASSOCIATES, L.P.'S (A LIMITED PARTNERSHIP), HUD PROJECT NO. 054-94007, internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd Philadelphia, Pennsylvania February 9, 2005 86 [Letterhead of ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Gentle Pines - West Columbia Associates, L.P. Marlton, New Jersey We have audited the accompanying balance sheets of Gentle Pines - West Columbia Associates, L.P. (A Limited Partnership), HUD Project No. 054-94007, as of December 31, 2003 and 2002, and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Gentle Pines - West Columbia Associates, L.P. (A Limited Partnership), HUD Project No. 054-94007, as of December 31, 2003 and 2002, and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2003 in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that Gental Pines - West Columbia Associates, L.P. (A Limited Partnership) will continue as a going concern. As described in Note B and reported in the accompanying financial statements, Gentle Pines - West Columbia Associates, L.P. (A Limited Partnership) has had recurring net losses and has an increasing working capital deficit in recent years. These conditions raise substantial doubt about Gentle Pines - West Columbia Associates, L.P.'s (A Limited Partnership) ability to continue as a going concern. Management's plans in regard to those matters are described in Note B. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Partnership cannot continue in existence. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have issued reports dated January 29, 2004 on our consideration of Gentle Pines - West Columbia Associates, L.P.'s (A Limited Partnership), HUD Project No. 054-94007, internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd Philadelphia, Pennsylvania January 29, 2004 87 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Lake Forest Estates II, Ltd. Livingston, Alabama We have audited the accompanying balance sheets of Lake Forest Estates II, Ltd., a limited partnership, RHS Project No.: 01-060-630996944 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Lake Forest Estates II, Ltd., RHS Project No.: 01-060-630996944 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 6, 2005 on our consideration of Lake Forest Estates II, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama January 28, 2005 88 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Lake Forest Estates II, Ltd. Livingston, Alabama We have audited the accompanying balance sheets of Lake Forest Estates II, Ltd., a limited partnership, RHS Project No.: 01-060-630996944 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Lake Forest Estates II, Ltd., RHS Project No.: 01-060-630996944 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 6, 2004 on our consideration of Lake Forest Estates II, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 6, 2004 89 [Letterhead of AMILCAR TORRES RIVERA, CPA] INDEPENDENT AUDITOR'S REPORT To the Partners Las Camelias Limited Partnership I have audited the accompanying balance sheets of Las Camelias Limited Partnership as of December 31, 2004 and 2003, and the related statements of loss, changes in Partner's Deficiency and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America which require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Las Camelias Limited Partnership as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Amilcar Torres Rivera, CPA San Juan, Puerto Rico Stamp #1941826 of the Puerto Rico Society of CPA's was affixed to the original. January 26, 2005 90 [Letterhead of AMILCAR TORRES RIVERA, CPA] INDEPENDENT AUDITOR'S REPORT To the Partners Las Camelias Limited Partnership I have audited the accompanying balance sheets of Las Camelias Limited Partnership as of December 31, 2003 and 2002, and the related statements of loss, changes in Partner's Deficiency and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America which require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Las Camelias Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Amilcar Torres Rivera, CPA San Juan, Puerto Rico Stamp #1941826 of the Puerto Rico Society of CPA's was affixed to the original. January 30, 2004 91 [Letterhead of DAVID W. SCOTT, CPA, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of WPL Associates XXIII Limited Partnership 5335 SW Meadows Road, Suite 190 Lake Oswego, Oregon 97035 We have audited the accompanying balance sheet of WPL Associates XXIII Limited Partnership, as of July 15, 2004, and the related statements of operations, changes in partnerships' capital, and cash flows for the period then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 WPL Associates XXIII Limited Partnership at July 15, 2004, and the results of its operations and its cash flows for the period then ended, in conformity with generally accepted accounting principles. /s/ David W. Scott, CPA, P.C. Portland, Oregon November 18, 2004 92 [Letterhead of DAVID W. SCOTT, CPA, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of WPL Associates XXIII Limited Partnership 522 NW 23rd, Suite 200 Portland, Oregon 97201 We have audited the accompanying balance sheet of WPL Associates XXIII Limited Partnership, as of December 31, 2003, and the related statements of operations, changes in partnerships' capital, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 WPL Associates XXIII Limited Partnership at December 31, 2003, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ David W. Scott, CPA, P.C. Portland, Oregon February 27, 2004 93 [Letterhead of DAVID W. SCOTT, CPA, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of WPL Associates XXIII Limited Partnership 522 NW 23rd, Suite 200 Portland, Oregon 97201 We have audited the accompanying balance sheet of WPL Associates XXIII Limited Partnership, as of December 31, 2002, and the related statements of operations, changes in partnerships' capital, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 WPL Associates XXIII Limited Partnership at December 31, 2002, and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles. /s/ David W. Scott, CPA, P.C. Portland, Oregon February 27, 2003 94 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Broadway Townhouses L.P. We have audited the accompanying balance sheet of Broadway Townhouses L.P. as of December 31, 2003, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Broadway Townhouses L.P. as of December 31, 2003, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 20, 2004 on our consideration of Broadway Townhouses L.P.'s internal control and on its compliance with specific requirements applicable to major HUD programs and fair housing and non-discrimination. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 24 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Bethesda, Maryland January 20, 2004 Taxpayer Identification Number: 52-1088612 Lead Auditor: James P. Martinko 95 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Broadway Townhouses L.P. We have audited the accompanying balance sheet of Broadway Townhouses L.P. as of December 31, 2002, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Broadway Townhouses L.P. as of December 31, 2002, and the results of its operations, the changes in partners' equity (deficit) and cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards and the "Consolidated Audit Guide for Audits of HUD Programs," we have also issued reports dated January 30, 2003 on our consideration of Broadway Townhouses L.P.'s internal control and on its compliance with specific requirements applicable to major HUD programs and fair housing and non-discrimination. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 24 through 28 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Bethesda, Maryland January 20, 2003 Taxpayer Identification Number: 52-1088612 Lead Auditor: James P. Martinko 96 [Letterhead of LUGO - CARRERAS & ASSOCIADOS, CSP] INDEPENDENT AUDITORS' REPORT To the Partners of Puerto Rico Historic Zone Limited Dividend Partnership We have audited the accompanying balance sheet of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2004, and the related statements of operations, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for my opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2004, and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development we have also issued a report dated January 31, 2005, on our consideration of Puerto Rico Historic Zone Limited Dividend Partnership's internal control and reports dated January 31, 2005, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Fair Housing and Non-Discrimination, and special requirements applicable to non-major HUD program transactions. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 19 through 28 is presented for the purpose of additional analysis and is not required as part of the basic financial statement. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Juan P. Santiago Lic. No. 692, In force I.D. No. 66-0528810 Stamp No. 2027804 was affixed to the original of this report. San Juan, Puerto Rico January 31, 2005 97 [Letterhead of JUAN P. SANTIAGO & ASSOCIATES] INDEPENDENT AUDITORS' REPORT To the Partners of Puerto Rico Historic Zone Limited Dividend Partnership We have audited the accompanying balance sheet of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2003, and the related statements of operations, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for my opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2003, and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development we have also issued a report dated January 29, 2004, on our consideration of Puerto Rico Historic Zone Limited Dividend Partnership's internal control and reports dated January 29, 2004, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Fair Housing and Non-Discrimination, and special requirements applicable to non-major HUD program transactions. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 19 through 28 is presented for the purpose of additional analysis and is not required as part of the basic financial statement. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Juan P. Santiago Lic. No. 692, In force I.D. No. 66-0528810 Stamp No. 1934615 was affixed to the original of this report. San Juan, Puerto Rico February 29, 2004 98 [Letterhead of JUAN P. SANTIAGO & ASSOCIATES] INDEPENDENT AUDITORS' REPORT To the Partners of Puerto Rico Historic Zone Limited Dividend Partnership We have audited the accompanying balance sheet of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2002, and the related statements of operations, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards and Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for my opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2002, and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended in conformity with generally accepted accounting principles. In accordance with Government Auditing Standards and the Consolidated Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development we have also issued a report dated February 20, 2003, on our consideration of Puerto Rico Historic Zone Limited Dividend Partnership's internal control and reports dated February 20 2003, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Fair Housing and Non-Discrimination, and special requirements applicable to non-major HUD program transactions. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 19 through 28 is presented for the purpose of additional analysis and is not required as part of the basic financial statement. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Juan P. Santiago Lic. No. 692, In force I.D. No. 66-0528810 Stamp No. 1853087 was affixed to the original of this report. San Juan, Puerto Rico February 20, 2003 99 [Letterhead of CABLISH, GENTILE & GAY] INDEPENDENT AUDITORS' REPORT To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-94043 (a limited partnership) (the Partnership), as of December 31, 2004, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Citrus Meadows Apartments, Ltd. at December 31, 2004 and the results of its operations, cash flows and changes in partners' equity (deficit) for the year then ended in conformity with generally accepted accounting principles in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 12 through 16) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated February 7, 2005 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated February 7, 2005 on major HUD programs, and the nonmajor HUD program. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership's significant operating losses and low occupancy rate raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Cablish, Gentile & Gay, CPA's LLC BRADENTON, FLORIDA February 7, 2005 100 [Letterhead of CABLISH, GENTILE & GAY] INDEPENDENT AUDITORS' REPORT To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-94043 (a limited partnership) (the Partnership), as of December 31, 2003, and the related statements of profit and loss, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Citrus Meadows Apartments, Ltd. at December 31, 2003 and the results of its operations, cash flows and changes in partners' equity (deficit) for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 11 through 16) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated January 28, 2004 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated January 28, 2004 on major HUD programs, and the nonmajor HUD program. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership's significant operating losses and low occupancy rate raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Cablish, Gentile & Gay, CPA's LLC BRADENTON, FLORIDA January 28, 2004 101 [Letterhead of CABLISH, GENTILE & GAY] INDEPENDENT AUDITORS' REPORT To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-36654 (a limited partnership) (the Partnership), as of December 31, 2002, and the related statements of profit and loss, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards, Government Auditing Standards, issued by the Comptroller General of the United States and the Consolidated Audit Guide for Audits of HUD Programs, issued by the U.S. Department of Housing and Urban Development, Office of Inspector General, in August 1997. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Citrus Meadows Apartments, Ltd. at December 31, 2002 and the results of its operations, cash flows and changes in partners' equity (deficit) for the year then ended in conformity with generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 11 through 15) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly presented in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated February 1, 2003 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated February 1, 2003 on major HUD programs, and the nonmajor HUD program. /s/ Cablish, Gentile & Gay, CPA BRADENTON, FLORIDA February 1, 2003 102 [Letterhead of REZNICK GROUP, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Sartain School Venture We have audited the accompanying balance sheets of Sartain School Venture as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sartain School Venture as of December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report for the year ended December 31, 2004, dated February 4, 2005, on our consideration of Sartain School Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2004 supplemental information on pages 24 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Baltimore, Maryland February 4, 2005 103 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Sartain School Venture We have audited the accompanying balance sheet of Sartain School Venture as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Sartain School Venture as of December 31, 2003 and 2002, and the results of its operations, changes in partners' deficit and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report for the year ended December 31, 2003, dated February 6, 2004, on our consideration of Sartain School Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 24 through 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland February 6, 2004 104 [LETTEHEAD OF ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Driftwood Terrace Associates, Ltd. Marlton, New Jersey We have audited the accompanying balance sheets of DRIFTWOOD TERRACE ASSOCIATES, LTD. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 066-94031, as of December 31, 2004 and 2003 and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of DRIFTWOOD TERRACE ASSOCIATES, LTD. (A LIMITED PARTNERSHIP), HUD PROJECT NO. 066-94031, as of December 31, 2004 and 2003 and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated January 13, 2005 on our consideration of DRIFTWOOD TERRACE ASSOCIATES, LTD.'S (A LIMITED PARTNERSHIP), HUD PROJECT NO. 066-94031, internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements and other matters. the purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd. Philadelphia, Pennsylvania January 13, 2005 105 [LETTEHEAD OF ASHER & COMPANY, LTD.] Independent Auditors' Report The Partners Driftwood Terrace Associates, Ltd. Marlton, New Jersey We have audited the accompanying balance sheets of Driftwood Terrace Associates, Ltd. (A Limited Partnership), HUD Project No. 066-94031, as of December 31, 2003 and 2002 and the related statements of loss, Partners' capital and cash flows for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Driftwood Terrace Associates, Ltd. (A Limited Partnership), HUD Project No. 066-94031, as of December 31, 2003 and 2002 and the results of its operations, changes in its Partners' capital, and its cash flows for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated January 20, 2004 on our consideration of Driftwood Terrace Associates, Ltd.'s (A Limited Partnership), HUD Project No. 066-94031, internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Asher & Company, Ltd. Philadelphia, Pennsylvania January 20, 2004 106 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Holly Hill, Ltd. Greenville, Tennessee We have audited the accompanying balance sheets of Holly Hill, Ltd., a limited partnership, RHS Project No.: 48-030-621264791 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Holly Hill, Ltd., RHS Project No.: 48-030-621264791 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 23, 2005 on our consideration of Holly Hill, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2005 107 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Holly Hill, Ltd. Greenville, Tennessee We have audited the accompanying balance sheets of Holly Hill, Ltd., a limited partnership, RHS Project No.: 48-030-621264791 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Holly Hill, Ltd., RHS Project No.: 48-030-621264791 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 23, 2004 on our consideration of Holly Hill, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2004 108 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mayfair Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Mayfair Apartments, Ltd., a limited partnership, RHS Project No.: 48-032-630957575 as of December 31, 2004 and 2003, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Mayfair Apartments, Ltd., RHS Project No.: 48-032-630957575 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with auditing standards generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with auditing standards generally accepted in the United States of America, we have also issued a report dated February 20, 2005 on our consideration of Mayfair Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2005 109 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mayfair Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Mayfair Apartments, Ltd., a limited partnership, RHS Project No.: 48-032-630957575 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Mayfair Apartments, Ltd., RHS Project No.: 48-032-630957575 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with auditing standards generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with auditing standards generally accepted in the United States of America, we have also issued a report dated February 20, 2004 on our consideration of Mayfair Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2004 110 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Foxcroft Apartments, Ltd. Troy, Alabama We have audited the accompanying balance sheets of Foxcroft Apartments, Ltd., a limited partnership, RHS Project No.: 01-055-630971151 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Foxcroft Apartments, Ltd., RHS Project No.: 01-055-630971151 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 17, 2005 on our consideration of Foxcroft Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 17, 2005 111 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Foxcroft Apartments, Ltd. Troy, Alabama We have audited the accompanying balance sheets of Foxcroft Apartments, Ltd., a limited partnership, RHS Project No.: 01-055-630971151 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Foxcroft Apartments, Ltd., RHS Project No.: 01-055-630971151 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 17, 2004 on our consideration of Foxcroft Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 17, 2004 112 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Canterbury Apartments, Ltd. Indianola, Mississippi We have audited the accompanying balance sheets of Canterbury Apartments, Ltd., a limited partnership, RHS Project No.: 28-067-630979083 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Canterbury Apartments, Ltd., RHS Project No.: 28-067-630979083 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 22, 2005 on our consideration of Canterbury Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 22, 2005 113 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Canterbury Apartments, Ltd. Indianola, Mississippi We have audited the accompanying balance sheets of Canterbury Apartments, Ltd., a limited partnership, RHS Project No.: 28-067-630979083 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Canterbury Apartments, Ltd., RHS Project No.: 28-067-630979083 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 20, 2004 on our consideration of Canterbury Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2004 114 [Letterhead from Reznick Group, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Cutler Canal III Associates, Ltd. We have audited the accompanying balance sheets of Cutler Canal III Associates, Ltd., as of December 31, 2004 and 2003, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cutler Canal III Associates, Ltd., as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 18 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Atlanta, Georgia February 1, 2005 115 [Letterhead from Reznick, Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Cutler Canal III Associates, Ltd. We have audited the accompanying balance sheet of Cutler Canal III Associates, Ltd., as of December 31, 2003 and 2002, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Cutler Canal III Associates, Ltd., as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick, Fedder & Silverman Atlanta, Georgia January 27, 2004 116 [Letterhead of MUELLER, PROST, PURK & WILLBRAND, P.C.] To the Partners Jefferson Place, L.P. Omaha, Nebraska INDEPENDENT AUDITORS' REPORT We have audited the accompanying balance sheets in liquidation of JEFFERSON PLACE, L.P., (A Missouri Limited Partnership) (the "Partnership"), as of July 31, 2003, December 31, 2002 and 2001, and the related statements of income, changes in partners' deficit and cash flows for the period and years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Note 1, to the financial statements, the partners of Jefferson Place approved a plan of liquidation on May 1, 2003, and the Partnership began liquidation shortly thereafter. As a result, the Partnership changed its basis of accounting for the period ended July 31, 2003, from the accrual basis to the liquidation basis. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of JEFFERSON PLACE, L.P., as of July 31, 2003, December 31, 2002 and 2001, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. /s/ Mueller, Prost, Purk & Willbrand, P.C. Certified Public Accountants St. Louis, MO October 29, 2003 117 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Callaway Village, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of Callaway Village, Ltd., a limited partnership, RHS Project No.: 48-001-581172107 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Callaway Village, Ltd., RHS Project No.: 48-001-581172107 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 11 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2004 and 2003, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 22, 2005 on our consideration of Callaway Village, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 22, 2005 118 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Callaway Village, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of Callaway Village, Ltd., a limited partnership, RHS Project No.: 48-001-581172107 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Callaway Village, Ltd., RHS Project No.: 48-001-581172107 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 21, 2004 on our consideration of Callaway Village, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 21, 2004 119 [Letterhead of FISHBEIN & COMPANY, P.C..] INDEPENDENT AUDITORS' REPORT To the Partners Commerce Square Apartments Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheet of COMMERCE SQUARE APARTMENTS ASSOCIATES, L.P., as of December 31, 2004, and the related statements of profit and loss, partners' deficiency and cash flows for the year then ended. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statement of Commerce Square Apartments Associates, L.P. as of December 31, 2003, were audited by other auditors whose report dated January 31, 2004 expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes considerations 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 Partnership' 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, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 Commerce Square Apartments Associates, L.P., as of December 31, 2004, and the results of its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information included in this report (shown on pages 12 to 14) is presented for the purposes of additional analysis and is not a required part of the basic financial statements of Commerce Square Apartments Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Fishbein & Company, P.C. January 28, 2005 Horsham, Pennsylvania 120 [Letterhead of Mayer Hoffman McCann P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Commerce Square Apartments Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheets of Commerce Square Apartments Associates, L.P., as of December 31, 2003 and 2002, and the related statements of loss, partners' capital (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of Commerce Square Apartments Associates, L.P.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted auditing standards and standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARD, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Commerce Square Apartments Associates, L.P., as of December 31, 2003 and 2002, and the results of its operations, partners' capital (deficiency) and cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The additional information, shown on pages 12 to 23 is presented for the purpose of additional analysis and is not required part of the basic financial statements of Commerce Square Apartments Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 31, 2004, on our consideration of Commerce Square Apartments Associates, L.P.'s internal control and reports dated January 31, 2004, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Fair Housing and Non-Discrimination. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Mayer Hoffman McCann P.C. January 31, 2004 Plymouth Meeting, Pennsylvania 121 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT To the Partners West 132nd Development Partnership We have audited the accompanying balance sheet of West 132nd Development Partnership as of December 31, 2004 and the related statements of operations, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 West 132nd Development Partnership, as of December 31, 2004 and the results of its operations, changes in partners' equity and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP Certified Public Accountants New York, New York January 24, 2005 122 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT To the Partners West 132nd Development Partnership We have audited the accompanying balance sheets of West 132nd Development Partnership as of December 31, 2003 and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 West 132nd Development Partnership, as of December 31, 2003 and the results of its operations, changes in partners' equity and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP New York, New York February 4, 2004 123 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT To the Partners West 132nd Development Partnership We have audited the accompanying balance sheets of West 132nd Development Partnership as of December 31, 2002 and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West 132nd Development Partnership, as of December 31, 2002 and the results of its operations, changes in partners' equity and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP New York, New York January 6, 2003 124 [Letterhead of Koch Group & Company, LLP] Independent Auditor's Report To the Partners L.I.H. Chestnut Associates, L.P. We have audited the accompanying balance sheets of L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of L.I.H Chestnut Associates, L.P.'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficiency) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (pages 23 to 26) is presented for purposes of additional analysis and is not a required part of the of L.I.H. Chestnut Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated February 11, 2005 on our consideration of L.I.H. Chestnut Associates, L.P.'s (a Pennsylvania limited partnership) internal control over financial reporting and on our tests of its compliance with certain provision of laws, regulations, contracts and grants. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits. /s/ Koch Group & Company, LLP New York, New York February 11, 2005 125 [Letterhead of Koch Group & Company, LLP] Independent Auditor's Report To the Partners L.I.H. Chestnut Associates, L.P. We have audited the accompanying balance sheets of L.I.H. Chestnut Associates, L.P. (A Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of L.I.H Chestnut Associates, L.P.'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of L.I.H. Chestnut Associates, L.P. (A Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficiency) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (pages 23 to 26) is presented for purposes of additional analysis and is not a required part of the of L.I.H. Chestnut Associates, L.P. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated February 9, 2004 on our consideration of L.I.H. Chestnut Associates, L.P.'s (A Pennsylvania limited partnership) internal control over financial reporting and on our tests of its compliance with certain provision of laws, regulators, contracts and grants. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits. /s/ Koch Group & Company, LLP New York, New York February 9, 2004 126 [Letterhead of REZNICK GROUP, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Diamond Phase II Venture We have audited the accompanying balance sheets of Diamond Phase II Venture as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, financial statements referred to above present fairly, in all material respects, the financial position of Diamond Phase II Venture at December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report dated January 28, 2005, on our consideration of Diamond Phase II Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2004 supplemental information on pages 25 through 28 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Baltimore, Maryland January 28, 2005 127 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Diamond Phase II Venture We have audited the accompanying balance sheet of Diamond Phase II Venture as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, financial statements referred to above present fairly, in all material respects, the financial position of Diamond Phase II Venture at December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report for the year ended December 31, 2003, dated February 6, 2004, on our consideration of Diamond Phase II Venture's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 26 through 29 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland February 6, 2004 128 [Letterhead of REZNICK GROUP, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Bookbindery Associates We have audited the accompanying balance sheets of Bookbindery Associates as of December 31, 2004 and 2003, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bookbindery Associates as of December 31, 2004 and 2003, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report for the year ended December 31, 2004, dated January 21, 2005, on our consideration of Bookbindery Associates' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The 2004 supplemental information on pages 27 through 30 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, P.C. Baltimore, Maryland January 21, 2005 129 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Bookbindery Associates We have audited the accompanying balance sheet of Bookbindery Associates as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership'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 of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Bookbindery Associates as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued a report for the year ended December 31, 2003, dated January 23, 2004, on our consideration of Bookbindery Associates' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 28 through 31 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 23, 2004 130 [Letterhead of BUCHBINDER TUNICK & COMPANY LLP] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of The Hamlet, Ltd. We have audited the accompanying balance sheets of The Hamlet, Ltd. (a Florida limited partnership) (Partnership) as of December 31, 2004 and 2003, and the related statements of operations, partners' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hamlet, Ltd. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ BUCHBINDER TUNICK & COMPANY LLP Rockville, Maryland January 26, 2005 131 [Letterhead of BUCHBINDER TUNICK & COMPANY LLP] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of The Hamlet, Ltd. We have audited the accompanying balance sheets of The Hamlet, Ltd. (a Florida limited partnership) (Partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hamlet, Ltd. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ BUCHBINDER TUNICK & COMPANY LLP Rockville, Maryland January 28, 2004 132 [Letterhead of ISRAEL ROLON, CPA] INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION TO THE PARTNERS OF STOP 22 LIMITED PARTNERSHIP I have audited the accompanying balance sheet of Stop 22 Limited Partnership, H.U.D. Project No.: R2-46-E-006-014 and R2-46-E-00l-013, as of December 31, 2004, and the related statements of loss, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stop 22 Limited Partnership, as of December 31, 2004, and the results of its operations, changes in partners' deficit, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, I have also issued reports dated February 11, 2005, on my consideration of Stop 22 Limited Partnership's internal control over financial reporting, and on my test of its compliance with certain provision of laws, regulations, contracts and grant agreements, and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of my audit. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages to 21 to 29) is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ISRAEL ROLON, C.P.A. SAN JUAN, PUERTO RICO February 11, 2005 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 66-0392808 STAMP NUMBER 2016960 WAS AFFIXED TO THE ORIGINAL OF THIS REPORT. 133 [Letterhead of ISRAEL ROLON, CPA] INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION TO THE PARTNERS OF STOP 22 LIMITED PARTNERSHIP I have audited the accompanying balance sheet of Stop 22 Limited Partnership, H.U.D. Project No.: R2-46-E-006-014 and R2-46-E-00l-013, as of December 31, 2003, and the related statements of loss, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stop 22 Limited Partnership, as of December 31, 2003, and the results of its operations, changes in partners' deficit, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, I have also issued reports dated February 12, 2004, on my consideration of Stop 22 Limited Partnership's internal control, and on my test of its compliance with certain provision of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of my audit. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages to 21 to 29) is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ISRAEL ROLON, C.P.A. SAN JUAN, PUERTO RICO February 12, 2004 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 66-0392808 STAMP NUMBER 1929520 WAS AFFIXED TO THE ORIGINAL OF THIS REPORT. 134 [Letterhead of ISRAEL ROLON, CPA] INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY INFORMATION TO THE PARTNERS OF STOP 22 LIMITED PARTNERSHIP I have audited the accompanying balance sheet of Stop 22 Limited Partnership, H.U.D. Project No.: R2-46-E-006-014 and R2-46-E-00l-013, as of December 31, 2002, and the related statements of loss, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stop 22 Limited Partnership, as of December 31, 2002, and the results of its operations, changes in partners' deficit, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, I have also issued reports dated February 13, 2003, on my consideration of Stop 22 Limited Partnership's internal control, and on my test of its compliance with certain provision of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of my audit. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages to 21 to 29) is presented for purposes of additional analysis and is not a required part of the basic financial statements of the Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements, and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ ISRAEL ROLON, C.P.A. SAN JUAN, PUERTO RICO February 13, 2003 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 66-0392808 STAMP NUMBER 1772481 WAS AFFIXED TO THE ORIGINAL OF THIS REPORT. 135 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Knob Hill Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Knob Hill Apartments, Ltd. a limited partnership, RHS Project No.: 48-032-638979224 as of December 31, 2004 and 2003, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Knob Hill Apartments, Ltd., RHS Project No 48-032-638979224 as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 20, 2005 on our consideration of Knob Hill Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2005 136 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Knob Hill Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Knob Hill Apartments, Ltd. a limited partnership, RHS Project No.: 48-032-638979224 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that the 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 Knob Hill Apartments, Ltd., RHS Project No 48-032-638979224 as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated February 20, 2004 on our consideration of Knob Hill Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2004 137 [Letterhead of Salmin, Celona, Wehrle & Flaherty, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Conifer James Street Associates We have audited the accompanying balance sheet of Conifer James Street Associates (a limited partnership) as of December 31, 2004 and 2003, and the related statements of operations and partners' capital (deficit), and cash flows for the years then ended. These statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Conifer James Street Associates as of December 31, 2004 and 2003, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Salmin, Celona, Wehrle & Flaherty, LLP Rochester, New York January 19, 2005 138 [Letterhead of Salmin, Celona, Wehrle & Flaherty, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Conifer James Street Associates We have audited the accompanying balance sheets of Conifer James Street Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations and partners' capital (deficit), and cash flows for the years then ended. These statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Conifer James Street Associates as of December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Salmin, Celona, Wehrle & Flaherty, LLP Rochester, New York January 27, 2004 139 [Letterhead of RBG & CO.] Independent Auditors' Report S2100-020 To The Partners Longfellow Heights Apartments, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Longfellow Heights Apartments, L.P., Project No. MHDC No. 89-583, a limited partnership, as of December 31, 2004 and 2003, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis of 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, as well as 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 Longfellow Heights Apartments, L.P. as of December 31, 2004 and 2003, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 15 to 24) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Rubin, Brown, Gornstern & Co. LLP St. Louis, Missouri January 31, 2005 140 [Letterhead of RBG & CO.] Independent Auditors' Report S2100-020 To The Partners Longfellow Heights Apartments, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Longfellow Heights Apartments, L.P., Project No. MHDC No. 89-583, a limited partnership, as of December 31, 2003 and 2002, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership'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 of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Longfellow Heights Apartments, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 15 to 24) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. /s/ Rubin, Brown, Gornstern & Co. LLP St. Louis, Missouri January 29, 2004 141 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

* Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 142 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

* Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 143 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

See accompanying notes to consolidated financial statements. 144 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

* Reclassified for comparative purposes. 145 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 1 - General Liberty Tax Credit Plus III L.P., a Delaware limited partnership (the "Partnership"), was organized on November 17, 1988. The Partnership had no operations until commencement of the public offering on May 2, 1989. The general partners of the Partnership are Related Credit Properties III L.P., a Delaware limited partnership (the "Related General Partner"), and Liberty GP III Inc., a Delaware corporation (the "Liberty General Partner", and together with the Related General Partner, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties III Inc., a Delaware corporation. On November 17, 2003, CharterMac acquired Related Capital Company, which is the indirect parent of RCC Manager LLC, the sole shareholder of Related Credit Properties III Inc. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. This acquisition did not affect the Partnership or its day-to-day operations, as the majority of the General Partners' management team remained unchanged. The Partnership's business is to invest in other limited partnerships ("Local Partnerships" or "Subsidiaries" or "Subsidiary Partnerships") owning leveraged apartment complexes ("Apartment Complexes") that are eligible for the low-income housing tax credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, and to a lesser extent in Local Partnerships owning properties ("Rehabilitation Projects"` and together with the apartment complexes, the "Properties") that are eligible for the historic rehabilitation tax credit ("Historic Rehabilitation Tax Credit"; and together with the Housing Tax Credit, the "Tax Credits"). As of March 31, 2005, the Credit Periods for all the properties have expired; however, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. During the year ended March 31, 2005, the Partnership sold its limited partnership interest in four Local Partnerships. Through the year ended March 31, 2005, the Partnership sold the property and the related assets and liabilities of one Local Partnership and its limited partnership interest in five Local Partnerships. For a discussion of these sales, see Note 10 in Item 8. The Partnership is authorized to issue a total of 150,000 Beneficial Assignment Certificates ("BACs"), which have been registered with the Securities and Exchange Commission for sale to the public. Each BAC represents all of the economic and virtually all of the ownership rights attributable to one-fifth of a limited partnership interest. As of March 31, 2005, 139,101.5 have been issued, and no further issuance of BACs is anticipated. The offering was completed on March 30, 1990. The terms of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") provide, among other things, that net profits or losses and distributions of cash flow are, in general, allocated 99% to the limited partners and BACs holders and 1% to the general partners. NOTE 2 - Summary of Significant Accounting Policies a) Basis of Consolidation The consolidated financial statements include the accounts of the Partnership and 60, 61 and 62 Subsidiary Partnerships in which the Partnership is the principal limited partner for the years ended March 31, 2005, 2004, and 2003, respectively. Through the rights of the Partnership and/or an affiliate of the General Partners (which has a contractual obligation to act on behalf of the Partnership) to remove the general partner of the Subsidiary Partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the Subsidiary Partnerships. For financial reporting purposes, the Partnership's fiscal year ends on March 31. All Subsidiaries have fiscal years ending December 31. Accounts of the Subsidiaries have been adjusted for intercompany transactions from January 1 through March 31. The Partnership's fiscal year ends March 31 in order to allow adequate time for the Subsidiaries financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with U.S. generally accepted accounting principles "GAAP"). All intercompany accounts and transactions with the Subsidiary Partnerships have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated Subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners. Losses attributable to minority interest which exceed the minority interest's investment in a Subsidiary have been charged to the Partnership. Such losses aggregated approximately $177,000, $0 and $298,000 for the years ended March 31, 2005, 2004 and 2003, respectively (the 2004, 2003 and 2002 fiscal years, respectively). The Partnership's investment in each Subsidiary is equal to the respective Subsidiary partners' equity less minority interest capital, if any. In consolidation, all Subsidiary Partnerships' losses are included in the Partnership's capital account except for losses allocated to minority interest capital. b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and investments in short-term highly liquid instruments purchased with original maturities of three months or less. Cash held in escrow has various use restrictions and is not considered a cash equivalent. c) Property and Equipment Property and equipment to be held and used are carried at cost, which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using 146 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. In accordance with FASB 144, "Accounting for the Impairment of Disposal of Long-Lived Assets", the results of discontinued operations are reported as a separate component of income before extraordinary items on the Consolidated Statements of Operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financials statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the Consolidated Balance Sheets. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2005, the Partnership has recorded $1,700,000 as a loss on impairment of assets which is included in discontinued operations. Through March 31, 2005, the Partnership has recorded approximately $23,937,000 as a loss on impairment of assets. At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. There are two assets classified as property and equipment-held for sale as of March 31, 2005: Michigan Rural Housing Limited Partnership ("Michigan Rural") and Lancashire Towers Associates Limited Partnership ("Lancashire"). Subsequently, on May 3, 2005 the Partnership sold its limited partnership interest in Lancashire (see Note 16). d) Revenue Recognition Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and as rents become due and charged to tenants' accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned. Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income, and other rental related miscellaneous items. Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

Interest income is earned on cash and cash equivalent balances and cash held in escrow balances. Other income includes income from forfeited security deposits, late charges, laundry and vending income, and other rental related miscellaneous items. e) Income Taxes The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31 (see Note 9). 147 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 f) Loss Contingencies The Partnership records loss contingencies as a charge to income when information becomes available which indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. g) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. h) New Accounting Pronouncements On December 16, 2004, the FASB issued Statement of Financial Accounting Standards ("SFAS") No. 153, Exchanges of Nonmonetary Assets - An Amendment of APB Opinion No. 29 ("SFAS No. 153"). The amendments made by SFAS No. 153 are based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for nonmonetary exchanges of similar productive assets and replace it with a broader exception for exchanges of nonmonetary assets that do not have "commercial substance." SFAS No. 153 is effective for nonmonetary asset exchanges occurring in fiscal period beginning after June 15, 2005. The Company does not believe that the adoption of SFAS No. 153 on June 15, 2005 will have a material effect on the Company's consolidated financial statements. In January 2003, the Financial Accounting Standards Board issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46"). FIN 46 was applicable immediately for variable interest entities created after January 31, 2003. For variable interest entities created before February 1, 2003, the provisions of FIN 46 are applicable no later than July 1, 2003. The Partnership has not created any variable interest entities after January 31, 2003. In December 2003 the FASB redeliberated certain proposed modifications and revised FIN 46 ("FIN 46 (R)"). The revised provisions were applicable no later than the first reporting period ending after March 15, 2004. The adoption of FIN 46 and FIN 46 (R) did not have a material impact on the Partnership's financial reporting and disclosures. In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150 changes the accounting for certain financial instruments that, under previous guidance, could be classified as equity or "mezzanine" equity, by now requiring those instruments to be classified as liabilities (or assets in some circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150 requires disclosure regarding the terms of those instruments and settlement alternatives. The guidance in SFAS No. 150 generally was effective for all financial instruments entered into or modified after May 31, 2003, and was otherwise effective at the beginning of the first interim period beginning after June 15, 2003. The Partnership has evaluated SFAS No. 150 and determined that it does not have an impact on the Partnership's financial reporting and disclosures. NOTE 3 - Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments (all of which are held for non-trading purposes) for which it is practicable to estimate that value: Cash and Cash Equivalents and Cash Held in Escrow --------------------------------------------------------- The carrying amount approximates fair value. Mortgage Notes Payable ---------------------- The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans. The estimated fair values of the Partnership's mortgage note payable from operations are as follows:

148 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 The estimated fair values of the Partnership's mortgage notes payable from discontinued operations are as follows:

(*) Management believes it is not practicable to estimate the fair value of the mortgage notes payable because mortgage programs with similar characteristics are not currently available to the Local Partnerships. Due to Local General Partners and Affiliates -------------------------------------------- The estimated fair value of the Partnership's due to the Local General Partners and affiliates from operations are as follows:

The estimated fair value of the Partnership's due to the Local General Partners and affiliates from discontinued operations are as follows:

(*) Management believes it is not practicable to estimate the fair value of due to Local General Partners and affiliates, because market information on such unique loans are not currently available to the Local Partnership. The carrying amount of other financial instruments that require such disclosure approximates fair value. NOTE 4 - Property and Equipment The components of property and equipment from operations are as follows:

Included in property and equipment are $8,346,089 of acquisition fees paid to the general partners and $2,908,694 of acquisition expenses as of March 31, 2005 and 2004. In addition, as of March 31, 2005 and 2004, buildings and improvements include $14,677,111 of capitalized interest. Depreciation expense for the years ended March 31, 2005, 2004 and 2003 amounted to $9,023,735, $8,982,072 and $10,621,390, respectively. 149 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 In connection with the rehabilitation of the properties, the Subsidiary Partnerships have incurred developers' fees of $25,440,729 as of both March 31, 2005 and 2004 to the Local General Partner and affiliates. Such fees have been included in the cost of property and equipment. During the 2004 and 2003 Fiscal Years, there was a decrease in accumulated depreciation in the amount of $10,396,886 and $10,938,328, respectively, and $7,320,799 and $0 of these write-offs are related to the discontinued assets. The components of property and equipment held for sale from discontinued operations are as follows:

Impairment of Fixed Assets -------------------------- Gentle Pines - West Columbia Associates, L.P. ("Gentle Pines") -------------------------------------------------------------- During the year ended March 31, 2003, in accordance with SFAS No. 144, the management of Gentle Pines deemed buildings to be impaired and were written down to their fair value. Fair value, which was determined by reference to the debt level that Gentle Pines can carry given that no debt relief has been arranged and that a lower rent level is expected, was less than the carrying value by approximately $1,600,888. This impairment loss has been charged to operations for the year ended March 31, 2004. As a result of the impairment loss on the fixed assets, buildings and the related accumulated depreciation were reduced by $3,950,981 and $2,350,093, respectively. Brandywine Court Associates, L.P. ("Brandywine") ------------------------------------------------ During the year ended March 31, 2003, in accordance with SFAS No. 144, Brandywine deemed buildings to be impaired and wrote them down to their fair value. Fair value, which was determined by reference to the debt level that Brandywine can carry given that no debt relief is available from either the Jacksonville Housing Authority or the United States Department of Housing and Urban Development and that a lower rent level is expected, exceeded the net carrying value by $552,992. This impairment loss was charged to operations for the year ended March 31, 2004. As a result of the impairment loss on the fixed assets, buildings and the related accumulated depreciation were reduced by $1,603,338 and $1,050,346, respectively. Lancashire Towers Associates Limited Partnership ("Lancashire") --------------------------------------------------------------- On December 29, 2004, the Partnership entered into an agreement for the sale of its limited partnership interest in Lancashire to an affiliate of the Local General Partner for a purchase price of $800,000. At this time, in accordance with SFAS No. 144 the Partnership deemed the building impaired and wrote it down to its fair value which resulted in a loss on impairment of $1,700,000. The sales documents have been executed and the funds are being held in escrow waiting for approval of the sale from the Department of Housing and Urban Development ("HUD"). Subsequently, on May 2, 2005, Lancashire was sold. NOTE 5 - Cash Held in Escrow The components of cash held in escrow from operations are as follows:

150 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 The discontinued assets cash held in escrow consists of the following:

*Represents amounts to be paid to seller upon meeting specified rental achievement criteria. NOTE 6 - Deferred Costs The components of deferred costs and their periods of amortization from operations are as follows:

* Over the life of the related mortgages. Amortization of deferred costs for the years ended March 31, 2005, 2004 and 2003 amounted to $171,411, $158,844 and $579,945, respectively. During the years ended March 31, 2004 and 2003, there was a decrease in accumulated amortization due to the write-off of fully amortized costs in the amount of $103,629 and $69,121, respectively. Of these decreases, $64,414 and $0, respectively, were related to the discontinued assets. There were no deferred costs relating to discontinued assets as of March 31, 2005 and 2004. NOTE 7 - Mortgage Notes Payable The mortgage and construction notes, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $909,000, including principal and interest at rates varying from 0% to 11.5% per annum, through the year 2044. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of certain Subsidiary Partnership's rent and leases. Citrus Meadows Apartments, Ltd. ("Citrus Meadows") ------------------------------------------------------ On July 23, 2002, Citrus Meadows refinanced its existing mortgage indebtedness in the amount of $5,009,000. The new mortgage in the amount of $5,318,700 bears interest at the rate of 6.85% per annum and matures on August 1, 2037. Financing costs of approximately $248,000 were incurred, and a replacement reserve of approximately $212,000 and mortgage insurance and tax reserve of approximately $93,000 were established. South Toledo Associates, Ltd. ("South Toledo") ---------------------------------------------- On February 6, 2002, South Toledo refinanced its existing mortgage indebtedness in the amount of $776,626. The new mortgage in the amount of $879,900 bears interest at the rate of 6.75% per annum and matures on March 1, 2042. Financing costs of approximately $39,000 were incurred, and a replacement reserve of approximately $28,000 and mortgage insurance and tax reserve of approximately $9,000 were established. Inter-Tribal Indian Village Housing Development Associates, L.P. ("Indian -------------------------------------------------------------------------------- Village") --------- Indian Village received $57,000 in additional financing through a note signed in fiscal year 2002. The note is non-interest bearing and due in full July 18, 2032. 151 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 Annual principal payment requirements as of March 31, 2005 for each of the next five fiscal years and thereafter are as follows:

The mortgage agreements require monthly deposits to replacement reserves of approximately $98,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (Note 5). L.I.H Chestnut Associates, L.P. ("Chestnut") -------------------------------------------- Chestnut's Mortgage Agreement contains various covenants pertaining to payment of monthly loan installments and maintenance of reserve funds. At December 31, 2004 and 2003, Chestnut was in violation of such covenants. As of June 24, 2005, Pennsylvania Housing Finance Agency ("PHFA") has not waived the reserve funds requirements, and accordingly, Chestnut is currently in default. Under the terms of the Mortgage Agreement, if any event of default, as defined, occurs, and is continuing, other rights may be enforced on behalf of the lenders, inclusive of possession of the Property. Accordingly, the entire balance of the mortgage note has been classified as a current liability as of December 31, 2004. Accrued interest payable at March 31, 2005 and 2004 was approximately $17,012,000 and $15,896,000, respectively. Interest accrues on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. Annual principal payment requirements as of March 31, 2005 for each of the next five fiscal years and thereafter for the discontinuing liabilities are as follows:

Accrued interest payable for the discontinued liabilities at March 31, 2005 and 2004 was $0 for both years. Interest accrues on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. NOTE 8 - Related Party Transactions As of March 31, 2005, Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General Partners, has a 1% and .998% (see Note 12a with respect to River Place) interest as a special limited partner in 55 and one of the Local Partnerships, respectively. The General Partners and their affiliates and the Local General Partners and their affiliates perform services for the Partnership and the Local Partnerships, respectively. The costs incurred for the years ended March 31, 2005, 2004 and 2003 are as follows: A) Guarantees In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" ("FASB Interpretation No. 45"), was issued. The accounting recognition provisions of FASB Interpretation No. 45 were effective January 1, 2003 on a prospective basis. They require that a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the 152 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 obligation undertaken in issuing or modifying any guarantee after December 31, 2002. Under prior accounting principles, a guarantee would not have been recognized as a liability until a loss was probable and reasonably estimated. At March 31, 2005, the Partnership has not issued or modified any existing guarantees and has determined that the adoption of the accounting recognition provision of FASB Interpretation No. 45 would not have an impact on the Partnership's future financial position or results of operations. The Partnership negotiated Operating Deficit Guarantee Agreements with all Local Partnerships in which the General Partners of the Local Partnerships agreed to fund operating deficits for a specified period of time. The terms of the Operating Deficit Guarantee Agreements vary for each Local Partnership, with the maximum dollar amounts to be funded for a specified period of time, generally three years, commencing at stabilization. The gross amount of the operating deficit guarantees aggregated approximately $18,700,000 of which all have expired as of March 31, 2004. The Operating Deficit Guarantee Agreements were negotiated to protect the Partnership's interest in the Local Partnerships and to provide incentive to the Local General Partners to generate positive cash flow. B) Related Party Fees The costs incurred to related parties for the years ended March 31, 2005, 2004 and 2003 were as follows:

* Reclassified for comparative purposes. Related Party Fees - discontinued operations

(i) The General Partners are entitled to receive a partnership management fee after payment of all Partnership expenses, which, together with the local annual administrative fees, will not exceed a maximum of 0.5% per annum of invested assets (as defined in the Partnership Agreement), for administering the affairs of the Partnership. The partnership management fee, subject to the foregoing limitation, will be determined by the General Partners in their sole discretion based upon their review of the Partnership's investments. Unpaid partnership management fees for any year will be accrued without interest and will be payable only to the extent of available funds after the Partnership has made the distributions to the BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partners amounting to approximately $11,045,000 and $9,810,000 were accrued and unpaid at March 31, 2005 and 2004. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. The General Partners have allowed for the accrual without payment of these amounts but are under no obligation to continue to do so. (ii) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership's behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the Subsidiary Partnerships' performance. 153 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 (iii) The Subsidiary Partnerships incurred property management fees amounting to $2,333,822, $2,366,865 and $2,362,241 for the years ended March 31, 2005, 2004 and 2003, respectively. Of these fees, $1,768,969, $1,805,921 and $1,781,921, respectively, was incurred by affiliates of the Local General Partners, which includes $245,206, $308,953 and $358,738 of fees relating to discontinued operations. (iv) Liberty Associates, a special limited partner of the Subsidiary Partnerships, is entitled to receive a local administrative fee of up to $2,500 per year from each Subsidiary Partnership. Liberty Associates received cash distributions from the Local Partnerships of, approximately, $6,000, $10,000 and $8,000 during the years ended March 31, 2005, 2004 and 2003, respectively. Pursuant to the Partnership Agreement and the Local Partnership Agreements, the General Partners and Liberty Associates received their allocable pro rata share of profits, losses and tax credits from the Partnership and the Local Partnerships, respectively. C) Due to Local General Partners and Affiliates Due to Local General Partners and affiliates at March 31, 2005 and 2004 consists of the following:

Due to Local General Partners and affiliates at March 31, 2005 and 2004 included in the discontinued liabilities consists of the following:

154 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 (ii) Land note payable consists of the following:

Interest expense incurred on land note payable amounted to $60,000 for each of the three years ended March 31, 2005, 2004 and 2003. The Partnership had negotiated Operating Deficit Guaranty Agreements with all Local Partnerships by which the general partners of the Local Partnerships had agreed to fund operating deficits for a specified period of time. The terms of the Operating Deficit Guaranty Agreements varied for each Local Partnership, with maximum dollar amounts to be funded for a specified period of time, generally three years, commencing on the break-even date. Amounts funded under the Operating Deficit Guaranty Agreements were treated as non-interest bearing loans, which will be paid only out of available cash flow or out of available net sale or refinancing proceeds. As of March 31, 2005, there was approximately $2,134,000 advanced under the Operating Deficit Guaranty Agreements. Any amounts funded under such agreements would be reflected under "Due to local general partner and affiliates" on our financial statements. As of March 31, 2005, all Operating Deficit Guaranty Agreements have expired. NOTE 9 - Taxable Net Loss A reconciliation of the financial statement net loss to the taxable net loss for the Partnership and its consolidated Subsidiaries follows:

NOTE 10 - Sale of Properties The Partnership is currently in the process of disposing of its investments. It is anticipated that this process will take a number of years. As of March 31, 2005, the Partnership has sold its limited partnership interest in five Local Partnerships and the property and the related assets and liabilities of one Local Partnership. In addition, on December 29, 2004, the Partnership entered into an agreement to sell its limited partnership interest in another Local Partnership. There may be no assurance as to when the Partnership will dispose 155 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 of its remaining investments or the amount of proceeds which may be received. However, based on the historical operating results of the Local Partnerships and the current economic conditions, including changes in tax laws, it is unlikely that the proceeds from such sales received by the Partnership will be sufficient to return to the limited partners their original investment. On December 29, 2004, the Partnership entered into an agreement for the sale of its limited partnership interest in Lancashire Towers Associates, Ltd. ("Lancashire") to an affiliate of the Local General Partner (as defined herein) for a purchase price of $800,000. During the year ended March 31, 2005, in accordance with SFAS No. 144 the Partnership deemed the building impaired and wrote it down to its fair value which resulted in a loss on impairment of $1,700,000. The sales documents have been executed and the funds are being held in escrow waiting for approval of the sale from the Department of Housing and Urban Development (HUD). Subsequently, on May 2, 2005, Lancashire was sold. On October 7, 2004, the Partnership's limited partnership interest in Ashby Apartments, Ltd. ("Ashby") was sold to the Local General Partner for approximately $50,000, resulting in a capital contribution from the Local General Partner of approximately $18,000. The sale resulted in the liquidation of Ashby. On October 7, 2004, the Partnership's limited partnership interest in Meredith Apartments ("Meredith") was sold to the Local General Partner for approximately $50,000, resulting in a capital distribution to the Local General Partner of approximately $151,000. The sale resulted in the liquidation of Meredith. On October 7, 2004, the Partnership's limited partnership interest in Ritz Apartments LTD. ("Ritz") was sold to the Local General Partner for approximately $50,000, resulting in a capital distribution to the Local General Partner of approximately $34,000. The sale resulted in the liquidation of Ritz. On July 15, 2004, the Partnership's limited partnership interest in WPL Associates XXIII ("Benjamin's Corner") was sold to an unaffiliated third party purchaser for approximately $690,000, resulting in a gain in the amount of approximately $2,124,000. On June 26, 2003, the property and the related assets and liabilities of Jefferson Place L.P. ("Jefferson Place") were sold to an unaffiliated third party for $13,650,000, resulting in a gain of approximately $13,943,000. NOTE 11 - Forgiveness of Debt On March 29, 2001, Lancashire executed a note purchase agreement with the note holder whereby all liabilities and obligations of Lancashire to such note holder were settled. The loan was paid off from the amount of allowable surplus cash distributable to the partners in 2001 and, therefore, no permission from HUD was necessary to consummate this transaction. The resultant forgiveness of debt of $2,156,560 has been recorded as an extraordinary item in the financial statements during the year ended March 31, 2002. NOTE 12 - Commitments and Contingencies a) Subsidiary Partnerships - Going Concerns R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") ------------------------------------------------------------------------------- River Place has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, unless certain events occur, through February 1, 2006. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $54,153,086, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. Management anticipates that River Place will be unable to make all of the required debt service payments during 2005. However, there is no guarantee that GRS, or any other persons, will continue to make these payments on behalf of River Place. These items raise substantial doubt about River Place's ability to continue as a going concern. The financial statements of River Place have been prepared assuming that River Place will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in River Place has been written down to zero by prior years' losses and the minority interest balance was approximately $883,000 at both March 31, 2005 and 2004. The net loss after minority interest for River Place amounted to approximately $3,526,000, $3,249,000 and $3,127,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Brandywine Court Associates, L.P. ("Brandywine") ------------------------------------------------ The financial statements of Brandywine have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Brandywine as a going concern. Brandywine has had recurring net losses and continues to have a substantial working capital deficit. Furthermore, Brandywine's management continues to anticipate that the property will need a new roof in the near future, the cost of which is expected to exceed $150,000. Also, Brandywine's HAP Contract expires in 2005 and there can be no assurance that it will be renewed. Brandywine's management has determined that the Property is not eligible for financial relief from the United States Department of Housing and Urban Development, since the Property 156 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 would require relief of debt in excess of the parameters allowed. Brandywine's management continues to seek a buyer for the Property. In view of these matters, there is substantial doubt as to the Partnership's ability to continue as a going concern. The Partnership's investment in Brandywine has been written down to zero by prior years' losses and the minority interest balance was approximately $0 at both March 31, 2005 and 2004. The net loss after minority interest for Brandywine amounted to approximately $94,000, $101,000 and $665,000 (which includes a $553,000 loss on impairment of fixed assets) for the years ended March 31, 2005, 2004 and 2003, respectively. Gentle Pines - West Columbia Associates, L.P. ("Gentle Pines") -------------------------------------------------------------- The financial statements of Gentle Pines have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Gentle Pines as a going concern. Gentle Pines has had recurring net losses and continues to have a substantial working capital deficit. The apartment units are no longer supported by project-based housing subsidies. The Partnership has made no payments on its mortgage since May 2004. As a result of this default, the mortgagee (HUD), as remedies, may call the loan, take possession of the Project's assets or foreclose on the Project's real estate. Accordingly, the entire balance of the mortgage loan has been classified as a current liability as of December 31, 2004. Management believes that HUD will sell, or attempt to sell, the mortgage note. In view of these matters, there is substantial doubt as to Gentle Pines' ability to continue as a going concern. The Partnership's investment in Gentle Pines has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2005 and 2004. The net loss after minority interest for Gentle Pines amounted to approximately $437,000, $100,000 and $1,887,000 (which includes a $1,601,000 loss on impairment of fixed assets) for the years ended March 31, 2005, 2004 and 2003, respectively. Subsequently, on May 6, 2005, Gentle Pines transferred the deed to the property and the related assets and liabilities to an unaffiliated third party in lieu of foreclosure. Affordable Flatbush Associates ("Affordable Flatbush") ------------------------------------------------------ The financial statements of Affordable Flatbush have been prepared assuming that it will continue as a going concern. Affordable Flatbush has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. The Partnership's investment in Affordable Flatbush was written down to zero by prior years' losses and the minority interest was approximately $14,000 and $10,000 at March 31, 2005 and 2004, respectively. The net loss after minority interest for Affordable Flatbush amounted to approximately $34,000, $86,000 and $61,000 for the years ended March 31, 2005, 2004, and 2003, respectively. Citrus Meadows Apartments, LTD. ("Citrus Meadows") -------------------------------------------------- The financial statements of Citrus Meadows have been prepared assuming that it will continue as a going concern. Citrus Meadows incurred a net loss of $776,599 during the current period and has incurred a Partner's deficit of $7,507,024 since inception. Current economic conditions have limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management has reduced expenses and increased advertising to attract new tenants. Also, nonessential capital expenditures have either been eliminated or postponed. With record low interest rates, more people are purchasing housing instead of renting. At this time, the Local General Partner is funding the deficit. Because it is unclear whether Citrus Meadows will be successful in accomplishing these objectives, there is uncertainty about Citrus Meadow's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should Citrus Meadows be unable to continue as a going concern. The Partnership's investment in Citrus Meadows has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2005 and 2004. The net loss after minority interest amounted to approximately $777,000, $568,000 and $912,000 for the years ended March 31, 2005, 2004 and 2003, respectively. b) Subsidiary Partnership - Other Jefferson Limited Partnership ("Jefferson") ------------------------------------------- At December 31, 2004 and 2003, Jefferson's current liabilities exceeded its current assets by approximately $130,000 and $97,000, respectively. Although this condition could raise substantial doubt about Jefferson's ability to continue as a going concern, such doubt is alleviated by the fact that $72,891 and $115,711 of current liabilities at December 31, 2004 and 2003, respectively, are to related parties which do not intend to pursue payment beyond Jefferson's ability to pay. Accordingly, management believes that Jefferson has the ability to continue as a going concern for at least one year from December 31, 2004. The Partnership's investment in Jefferson was written down to zero by prior years' losses and the minority interest balance was $0 at each date. The net loss after minority interest for Jefferson amounted to approximately $151,000, $217,000 and $150,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Manhattan A Associates ("Manhattan A") -------------------------------------- The financial statements of Manhattan A have been prepared on the basis that it is to continue as a going concern. The limited partners have made assertions that they will continue to fund cash flow shortfalls as they have in the past. The Partnership's investment in Manhattan A was approximately $755,000 at March 31, 2005 and the minority interest for Manhattan A was $0 at both March 31, 2005 and 2004. The net loss after minority interest for Manhattan A amounted to approximately $113,000, $25,000 and $55,000 for the years ended March 31, 2005, 2004 and 2003, respectively. Site H Development Co. ("Site H") --------------------------------- The Partnership has not been provided with the Site H audited financial statements for fiscal years 2005, 2004 and 2003, and as such has used estimates in its Consolidated Financial Statements for three years. 157 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 Leases ------ Three of the Subsidiary Partnerships are leasing the land on which the Properties are located, for terms ranging from 28 to 99 years. The leases on these Properties are noncancelable. At December 31, 2004 those Subsidiary Partnerships were committed to minimum future annual rentals on the leases aggregating $68,084 for each of the next five years, and $2,511,276 total thereafter. One Local Partnership has entered into an agreement (Master Lease) that expires in 2012, wherein the Local Partnership is guaranteed annual rental revenue. The following is a schedule by year of future minimum rentals to be received under the Master Lease as of December 31, 2004:

c) Uninsured Cash and Cash Equivalents The Partnership maintains its cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of March 31, 2005, uninsured cash and cash equivalents approximated $2,291,000. d) Cash Distributions Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective Local Partnership agreements and/or HUD. Such cash distributions are typically made from surplus cash flow. e) Tax Credits A portion of Housing Tax Credits are subject to recapture in future years if (1) the Local Partnership ceases to meet qualification requirements, (2) there is a decrease in the qualified basis of the Property, or (3) there is a reduction in the taxpayer's interest in the Property at any time during the 15-year Compliance Period that began with the first tax year of the Credit Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. During the tax years 2004, 2003 and 2002, the Partnership generated Housing Tax Credits of approximately $69,000, $69,000 and $1,274,000, respectively. f) Other The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 20% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. In order for certain Subsidiaries to qualify for the Section 421A Program and the Inclusionary Zoning Program, they are subject to certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants' incomes, the obligation to operate the Property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines. Also, certain Subsidiary Partnerships obtain grants from local authorities to fund construction costs of the Properties and in order to qualify must maintain the low-income nature of the Property, among other provisions. River Place ----------- In order to enhance the marketability of the Variable Rate Limited Obligation Multifamily Housing Revenue Refunding Bonds (the "2000 Bonds"), GRS entered into an agreement with a bank whereby the bank issued a direct-pay letter of credit on the account of River Place in favor of the Authority in the initial stated amount equal to the initial aggregate principal amount of bonds plus 49 days of interest on such amount totaling approximately $24,382,857 and $25,622,663 as of December 31, 2004 and 2003, respectively. The letter of credit, which was due to expire May 1, 2003, was extended. The extended letter of credit expires on the earlier of: (i) May 16, 2007, unless extended; (ii) 10 days subsequent to receipt of Default; (iii) date which the 2000 Bonds are fully repaid; or (iv) date which the 2000 Bonds become supported by a Substitute Credit Facility. 158 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 13 - Discontinued Operations The following table summarizes the financial position and results of operations of the Local Partnerships that are classified as discontinued operations. As of March 31, 2005, Ashby, Benjamin's Corner, Lancashire, Meredith, Michigan Rural and Ritz were classified as discontinued operations in the Consolidated Financial Statements. Consolidated Balance Sheets:

For the year ended March 31, 2005, Ashby, Benjamin's Corner, Lancashire, Meredith, Michigan Rural and Ritz were classified as discontinued operations on the Consolidated Financial Statements. For the years ended March 31, 2004 and 2003, Ashby, Benjamin's Corner, Jefferson Place, Lancashire, Meredith, Michigan Rural and Ritz were classified as discontinued operations on the Consolidated Statements of Operations. 159 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 Consolidated Statements of Discontinued Operations:

160 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 14 - Selected Quarterly Financial Data (Unaudited) The following table summarizes the Partnership's quarterly results of operations for the years ended March 31, 2005 and 2004. The fluctuations between the quarters are primarily due to the sales of Local Partnerships (see Note 10).

* Reclassified for comparative purposes. 161 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2005 NOTE 15 - Subsequent Events On May 26, 2005, the Partnership sold 50% of its limited partnership interest in Michigan Rural Housing Limited Partnership ("Michigan Rural") to an affiliate of the Local General Partner for $100,000. The unaffiliated party has the option to buy the remaining interest during the period starting on January 1, 2007 and ending on February 28, 2007. There is no guarantee that the sale will actually occur. On May 6, 2005, Gentle Pines - West Columbia Associates, L.P. transferred the deed to the property and the related assets and liabilities to an unaffiliated third party in lieu of foreclosure. The transfer will result in a gain of approximately $3,445,000 which will be recognized on the Partnership's Form 10-Q dated June 30, 2005. On May 2, 2005, HUD approved the sale of Lancashire as stated in Note 10 and the Partnership received the $800,000 previously held in escrow. The sale will result in a loss of approximately $168,000 which will be recognized on the Partnership's Form 10-Q dated June 30, 2005. On April 29, 2005, the property and the related assets and liabilities of Brandywine Court Associates, L.P. ("Brandywine") were sold to an unaffiliated third party for approximately $1,380,000. The sale will result in a gain of approximately $1,369,000 which will be recognized on the Partnership's Form 10-Q dated June 30, 2005. On April 22, 2005, the Partnership sold 10% of its limited partnership interest in Stop 22 Limited Partnership ("Stop 22") to the Local General Partner for $200,000. The Local General Partner has the option to buy the remaining interest during the period starting on January 1, 2006 and ending January 31, 2006. There is no guarantee that the sale will occur. 162 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer and Chief Financial Officer of Related Credit Properties III Inc., the general partner of Related Credit Properties III L.P. and of Liberty GP III Inc., each of which is a general partner of the Partnership, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") as of the end of the period covered by this report. Based on such evaluation, such officer has concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in Partnership's internal control over financial reporting during the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. PART III Item 10. Directors and Executive Officers of the Registrant The Partnership has no directors or executive officers. On November 17, 2003, CharterMac acquired Related Capital Company, which is indirect parent of RCC Manager L.L.C., the sole shareholder of the general partner of the Related General Partner. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. Alan P. Hirmes replaced Stephen M. Ross as Director of the general partner of the Related General Partner and also replaced Michael Brenner as Director of the Liberty General Partner, each effective April 1, 2004, as a result of this acquisition. This acquisition did not affect the Partnership or its day-to-day operations as the majority of the General Partners' management team remained unchanged. The Partnership has not adopted a separate code of ethics because the Partnership has no directors or executive officers. However, the parent company of Related Capital Company, which controls the General Partners, has adopted a code of ethics. See http://www.chartermac.com. The Partnership's affairs are managed and controlled by the General Partners. Certain information concerning the directors and executive officers of the Liberty General Partner and of Related Credit Properties III Inc., the general partner of the Related General Partner, are set forth below. Related Credit Properties III, L.P. ----------------------------------- Name Position ---- -------- Alan P. Hirmes Director, President and Chief Executive Officer Stuart J. Boesky Senior Vice President Marc D. Schnitzer Vice President Denise L. Kiley Vice President (a) Glenn F. Hopps Treasurer and Assistant Vice President Teresa Wicelinski Secretary (a) On February 25, 2005, Ms. Kiley announced her retirement as Chief Credit Officer and trustee of CharterMac, the indirect parent of RCC Manager LLC, the sole shareholder of the General Partner. Upon her retirement, she will also resign from her position as Vice President of the General Partner. ALAN P. HIRMES, 50, has been a Certified Public Accountant in New York since 1978. Prior to joining Related Capital Company ("Capital") in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice President of Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr. Hirmes also serves on the Board of Trustees of CharterMac and American Mortgage Acceptance Company ("AMAC"). STUART J. BOESKY, 49, practiced real estate and tax law in New York City with the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of Kaye, Fialkow, Richard & Rothstein (which subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980 was a consultant specializing in real estate at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor degree. He then received a Master of Laws degree in Taxation from Boston University School of Law. Mr. Boesky also serves on the Board of Trustees of CharterMac and AMAC. MARC D. SCHNITZER, 44, joined Capital in January 1988 after receiving his Master of Business Administration degree from The Wharton School of The University of Pennsylvania in December 1987. From 1983 to 1986, Mr. Schnitzer was a Financial Analyst with The First Boston Corporation in New York, an international investment banking firm. Mr. Schnitzer received a Bachelor of Science degree, summa cum laude, in Business Administration, from the School of Management at Boston University in May 1983. Mr. Schnitzer also serves on the Board of Trustees of CharterMac. 163 DENISE L. KILEY, 45, is responsible for overseeing the due diligence and asset management of all multifamily residential properties invested in Capital sponsored corporate, public and private equity and debt funds. Prior to joining Capital in 1990, Ms. Kiley had experience acquiring, financing and asset managing multifamily residential properties. From 1981 through 1985, she was an auditor with Price Waterhouse. Ms. Kiley holds a Bachelor of Science degree in Accounting from Boston College. Ms. Kiley also serves on the Board of Trustees of CharterMac. As noted above, Ms. Kiley is retiring from CharterMac. GLENN F. HOPPS, 42, joined Capital in December, 1990, and prior to that date was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science degree in Accounting. TERESA WICELINSKI, 39, joined Capital in June 1992, and prior to that date was employed by Friedman, Alpren & Green, certified public accountants. Ms. Wicelinski graduated from Pace University with a Bachelor of Arts degree in Accounting. Liberty GP III Inc. ------------------- Name Position ---- -------- Alan P. Hirmes Director, President and Chief Executive Officer Stuart J. Boesky Executive Vice President Marc D. Schnitzer Vice President Denise L. Kiley Vice President (a) Glenn F. Hopps Treasurer Teresa Wicelinski Secretary Biographical information with respect to Messrs. Hirmes, Boesky, Hopps, Schnitzer, Ms. Kiley and Ms. Wicelinski is set forth above. Item 11. Executive Compensation The Partnership has no officers or directors. The Partnership does not pay or accrue any fees, salaries or other forms of compensation to the directors or officers of the Liberty General Partner or of the general partner of the Related General Partner for their services. Certain directors and officers of the Liberty General Partner and of the general partner of the Related General Partner receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. Under the terms of the Partnership Agreement, the General Partners and their affiliates are entitled to receive compensation from the Partnership in consideration of certain services rendered to the partnership by such parties. In addition, the General Partners are entitled to 1% of all cash distributions and Tax Credit allocations and a subordinated 15% interest in net sales or refinancing proceeds. See Note 8 to the Financial Statements in Item 8 for a presentation of the types and amounts of compensation paid to the General Partners and their affiliates, which information is incorporated herein by reference thereto. Tabular information concerning salaries, bonuses and other types of compensation payable to executive officers have not been included in this annual report. As noted above, the Partnership has no executive officers. The levels of compensation payable to the General Partners and/or their affiliates is limited by the terms of the Partnership Agreement and may not be increased therefrom on a discretionary basis. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters

As of March 31, 2005, Liberty Associates holds a 1% and .998% (see Item 7 with respect to River Place) limited partnership interest in 55 and 1 Local Partnerships, respectively. Except as set forth in the table below, no person is known by the Partnership to be the beneficial owner of more than 5% of the Limited Partnership Interests or BACs, neither the Liberty General Partner nor any director or executive officer of the Liberty General Partner owns any Limited Partnership Interests or BACs, and neither the Related General Partner nor any director or executive officer of the general partner of the Related General Partner owns any Limited Partnership Interests or BACs. The following table sets forth the number of BACs beneficially owned, as of June 2, 2005, by (i) each BACs holder known to the Partnership to be a beneficial owner of more than 5% of the BACs, (ii) each director and executive officer of the general partner of the Related General Partner and Liberty General Partner and (iii) the directors and executive officers of the general partner of the Related General Partner and Liberty General Partner as a group. Unless otherwise noted, all BACs are owned directly with sole voting and dispositive powers. 164

(1) The address for each of the persons in the table is 625 Madison Avenue, New York, New York 10022. (2) As set forth in the Schedule 13D filed by Lehigh Tax Credit Partners L.L.C. ("Lehigh I") and Lehigh Tax Credit Partners, Inc., (the "Managing Member") on June 10, 1997 with the Securities and Exchange Commission (the "Commission") and pursuant to a letter agreement dated April 4, 1997 among the Partnership, Lehigh I and the General Partners (the "Standstill Agreement"), Lehigh I agreed that, prior to April 4, 2007 (the "Standstill Expiration Date"), it will not and it will cause certain affiliates (including Lehigh II) not to (i) acquire, attempt to acquire or make a proposal to acquire, directly or indirectly, more than 45% (including BACs acquired through all other means) of the outstanding BACs, (ii) seek to propose to enter into, directly or indirectly, any merger, consolidation, business combination, sale or acquisition of assets, liquidation, dissolution or other similar transaction involving the Partnership, (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" or "consents" (as such terms are used in the proxy rules of the Commission) to vote any voting securities of the Partnership, (iv) form, join or otherwise participate in a "group" (within the meaning of Section 13 (d)(3) of the Securities and Exchange Act of 1934) with respect to any voting securities of the Partnership, except those affiliates bound by the Standstill Agreement will not be deemed to have violated it and formed a "group" solely by acting in accordance with the Standstill Agreement, (v) disclose in writing to any third party any intention, plan or arrangement inconsistent with the terms of the Standstill Agreement, or (vi) loan money to, advise, assist or encourage any person in connection with any action inconsistent with the terms of the Standstill Agreement. In addition, Lehigh I agreed that, until the Standstill Expiration Date, it will not sell any BACs acquired by it unless the buyer of such BACs agrees to be bound by the Standstill Agreement; provided, however, that Lehigh I may make transfers in the secondary market to any purchaser which represents that following such sale it will not own three (3%) percent or more of the BACs outstanding. By the terms of the Standstill Agreement, Lehigh I also agreed to vote its BACs in the same manner as a majority of all voting BACs holders; provided, however, that Lehigh I is entitled to vote its BACs as it determines with regard to any proposal (i) to remove the General Partners as a general partner of the Partnership or (ii) concerning the reduction of any fees, profits, distributions or allocations for the benefit of the General Partners or their affiliates. The address of each of the Partnership, Lehigh I and the General Partners is 625 Madison Avenue, New York, New York 10022. (3) All of such BACs represent BACs owned directly by Lehigh I and Lehigh Tax Credit Partners II, L.L.C. ("Lehigh II") for which the Managing Member serves as managing member. As of June 2, 2005, Lehigh I held 6,458.33 BACs and Lehigh II held 6,520.33 BACs. (4) Each such party serves as a director and executive officer of the Managing Member and owns an equity interest therein, except for J. Michael Fried, who owns only an economic interest. Item 13. Certain Relationships and Related Transactions The Partnership has and will continue to have certain relationships with the General Partners and its affiliates, as discussed in Item 11 and in Note 8 to the Financial Statements in Item 8, which are incorporated herein by reference thereto. However, there have been no direct financial transactions between the Partnership and the directors and executive officers of the Liberty General Partner or the directors and executive officers of the general partner of the Related General Partner. Item 14. Principal Accountant Fees and Services Audit Fees ---------- The aggregate fees billed by Trien Rosenberg Rosenberg Weinberg Ciullo and Fazzari LLP and their respective affiliates for professional services rendered for the audit of our annual financial statements and for the reviews of the financial statements included in the Partnership's Quarterly Reports on Form 10-Q were $57,200 for both the years ended March 31, 2005 and 2004. Audit Related Fees ------------------ None 165 Tax Fees -------- The aggregate fees billed by Weiser LLP (formerly, Rubin and Katz LLP) and their respective affiliates for professional services rendered for the preparation of our annual tax returns for the years ended December 31, 2004 and 2003 were approximately $12,000 and $11,500, respectively. All Other Fees -------------- None The Partnership is not required to have, and does not have, a stand alone audit committee. 166 PART IV Item 15. Exhibits and Financial Statement Schedules Sequential Page ---------- (a) 1. Financial Statements -------------------- Report of Independent Registered Public Accounting Firm 17 Consolidated Balance Sheets at March 31, 2005 and 2004 142 Consolidated Statements of Operations for the Years Ended March 31, 2005, 2004 and 2003 143 Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 31, 2005, 2004 and 2003 144 Consolidated Statements of Cash Flows for the Years Ended March 31, 2005, 2004 and 2003 145 Notes to Consolidated Financial Statements 146 (a) 2. Financial Statement Schedules ----------------------------- Report of Independent Registered Public Accounting Firm 173 Schedule I - Condensed Financial Information of Registrant 174 Schedule III - Real Estate and Accumulated Depreciation 177 All other schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes thereto. (a)3. Exhibits -------- (3A) Form of Amended and Restated Agreement of Limited Partnership of Liberty Tax Credit Plus III L.P. (attached to Prospectus as Exhibit A)** (3B) Certificate of Limited Partnership of Liberty Tax Credit Plus III L.P., together with amendments filed on November 17, 1988** (4) Form of Subscription Agreement (attached to Prospectus as Exhibit B) (10A) Escrow Agreement between Registrant and Bankers Trust Company** (10B) Forms of Purchase Agreements for purchase of Local Partnership Interests** (21) Subsidiaries of the Registrant 168 (31.1) Certification Pursuant to Rule13a-14(a) or Rule 15d-14(a) 171 (32.1) Certification Pursuant to Rule 13a-14(b) or rule 15d-14(b) and Section 1350 of Title 18 of the United States Code (18 U.S.C. 1350) 172 ** Incorporated herein by reference to exhibits filed with Pre-Effective Amendment No. 1 to Liberty Tax Credit Plus III L.P.'s Registration Statement on Form S-11 (Registration No. 33-25732) 167 Item 15. Exhibits and Financial Statement Schedules (continued) Jurisdiction of Organization --------------- Subsidiaries of the Registrant (Exhibit 21) ------------------------------ C.V. Bronx Associates, L.P. NY Michigan Rural Housing Limited Partnership MI Jefferson Limited Partnership LA Inter-Tribal Indian Village Housing Development Associates, L.P. RI RBM Associates PA Glenbrook Associates PA Affordable Flatbush Associates NY Barclay Village II, LTD. PA 1850 Second Avenue Associates, L.P. NY R.P.P. Limited Dividend Housing MI Williamsburg Residential II, L.P. KS West 104th Street Associates L.P. NY South Toledo Associates, LTD. OH Dunlap School Venture PA Philipsburg Elderly Housing Associates PA Franklin Elderly Housing Associates PA Wade D. Mertz Elderly Housing Associates PA Lancashire Towers Associates Limited Partnership OH Brewery Renaissance Associates NY Brandywine Court Associates, L.P. FL Art Apartments Associates PA The Village at Carriage Hills, LTD. TN Mountainview Apartments, LTD. TN The Park Village, Limited MS River Oaks Apartments, LTD. AL Forrest Ridge Apartments, LTD. AR The Hearthside Limited Dividend Housing Association Limited Partnership MI Redemptorist Limited Partnership LA Manhattan A Associates NY Broadhurst Willows, L.P. NY Weidler Associates Limited Partnership OR Gentle Pines-West Columbia Associates, L.P. SC Lake Forest Estates II, LTD. AL Las Camelias Limited Partnership PR Broadway Townhouses L.P. NJ Puerto Rico Historic Zone Limited Dividend Partnership PR Citrus Meadows Apartments, LTD. FL Sartain School Venture PA Driftwood Terrace Associates, LTD. FL Holly Hill, LTD. TN Mayfair Apartments LTD. TN Foxcroft Apartments LTD. AL Canterbury Apartments, LTD. MS Cutler Canal III Associates, LTD. FL Callaway Village, LTD. TN Commerce Square Apartments Associates L.P. DE West 132nd Development Partnership NY Site H Development Co. NY L.I.H. Chestnut Associates, L.P. PA Diamond Phase II Venture PA Bookbindery Associates PA The Hamlet, LTD. FL Stop 22 Limited Partnership PR Knob Hill Apartments, LTD. TN Conifer James Street Associates NY Longfellow Heights Apartments, L.P. MO (d) Not applicable 168 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. LIBERTY TAX CREDIT PLUS III L.P. -------------------------------- (Registrant) By: RELATED CREDIT PROPERTIES III L.P., a General Partner By: Related Credit Properties III Inc., its general partner Date: June 28, 2005 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Director, President, Chief Executive Officer and Chief Financial Officer By: LIBERTY GP III INC., a General Partner Date: June 28, 2005 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Director, President, Chief Executive Officer and Chief Financial Officer 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:

CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of Related Credit Properties III Inc. the general partner of Related Credit Properties III L.P. and of Liberty GP III Inc, each of which is a General Partner of Liberty Tax Credit Plus III L.P. (the "Partnership"), hereby certify that: 1. I have reviewed this annual report on Form 10-K for the year ended March 31, 2005 of the Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(f) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Partnership and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Partnership including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Partnership's disclosure controls and procedures and presented in this report my conclusion about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Partnership's internal control over financial reporting that occurred during the Partnership's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Partnership's auditors and to the boards of directors of the General Partners: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Partnership's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal control over financial reporting. Date: June 28, 2005 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Chief Executive Officer and Chief Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Annual Report of Liberty Tax Credit Plus III L.P. (the "Partnership") on Form 10-K for the year ended March 31, 2005 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of Related Credit Properties III Inc., the General Partner of Related Credit Properties III, L.P. and of Liberty GP III Inc., each of which is a general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the SEC or its staff upon request. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Chief Executive Officer and Chief Financial Officer June 28, 2005 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) In connection with our audits of the consolidated financial statements of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) included in the Form 10-K as presented in our opinion dated June 15 on page 17, and based on the reports of other auditors, we have also audited supporting Schedule I for the 2004, 2003 and 2002 Fiscal Years and Schedule III at March 31, 2005. In our opinion, and based on the reports of the other auditors, these consolidated schedules present fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. As discussed in Note 12(a), the consolidated financial statements include the financial statements of four subsidiary partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These subsidiary partnerships' net losses aggregated $4,833,531 (Fiscal 2004), $4,016,930 (Fiscal 2003) and $6,590,417 (Fiscal 2002), and their assets aggregated $18,259,224 and $19,370,800 at March 31, 2005 and 2004, respectively. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 15, 2005 173 LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT Summarized condensed financial information of registrant (not including consolidated subsidiary partnerships) CONDENSED BALANCE SHEETS ASSETS

Investments in subsidiary partnerships are recorded in accordance with the equity method of accounting, under which investments are not reduced below zero. Accordingly, partners' equity on the consolidated balance sheet will differ from partners' equity shown above. 174 LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS

* Includes suspended prior year losses in excess of investment in accordance with the equity method of accounting amounting to $(2,214,646), $(13,138,050) and $0, for 2005, 2004, and 2003, respectively. 175 s LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS

176 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2005

177 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2005 (continued)

178 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2005 (continued)

(a) Personal property is depreciated primarily by the straight-line method over the estimated useful life ranging from 5 to 10 years. (b) Since all properties were acquired as operating properties, depreciation is computed using primarily the straight-line method over the estimated useful life determined by the Partnership date of acquisition. (c) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2002. (d) The Property and the related assets and liabilities were sold during the fiscal year ended March 31, 2004. (e) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2005. (f) These properties are included in discontinued operations for the year ended March 31, 2005. 179 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2005 (continued)

At the time the local partnerships were acquired by Liberty Tax Credit Plus III L.P., the entire purchase price paid by Liberty Tax Credit Plus III L.P. was pushed down to the local partnerships as property and equipment with an offsetting credit to capital. Since the projects were in the construction phase at the time of acquisition, the capital accounts were insignificant at the time of purchase. Therefore, there are no material differences between the original cost basis for tax and GAAP. 180

LIBERTY TAX CREDIT PLUS III LP 10-K