INDEPENDENCE TAX CREDIT PLUS LP III - 10-K Annual Report

Back to GetFilings.com

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, 2002

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

Commission File Number 0-24650

INDEPENDENCE TAX CREDIT PLUS L.P. III
(Exact name of registrant as specified in its charter)

Delaware 13-3746339
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

625 Madison Avenue, New York, New York 10022
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code (212) 421-5333

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]

DOCUMENTS INCORPORATED BY REFERENCE

None

PART I

Item 1. Business.

GENERAL
- -------

Independence Tax Credit Plus L.P. III (the "Partnership") is a limited
partnership which was formed under the laws of the State of Delaware on December
23, 1993. The general partner of the Partnership is Related Independence
Associates III L.P., a Delaware limited partnership (the "General Partner"). The
general partner of the General Partner is Related Independence Associates III
Inc., a Delaware corporation ("RIAI III").

On June 7, 1994, 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"),
managed by Related Equities Corporation (the "Dealer Manager"), pursuant to a
prospectus dated June 7, 1994 (the "Prospectus").

As of the termination of the offering on May 9, 1995, the Partnership had
received $43,440,000 of gross proceeds of the Offering (the "Gross Proceeds")
from 2,810 investors ("BACs holders"). (See Item 8, "Financial Statements and
Supplementary Data," Note 1).

The Partnership's business is primarily to invest as a limited partner in other
partnerships ("Local Partnerships") owning apartment complexes ("Apartment
Complexes" or "Properties") that are eligible for the low-income housing tax
credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, some of
which may also be eligible for the historic rehabilitation tax credit ("Historic
Tax Credit"; together with Housing Tax Credits, "Tax Credits"). The
Partnership's investment in each Local Partnership represents from 98.99% to
99.98% with one Local Partnership at 41.86% of the Partnership's interests in
the Local Partnerships. As of March 31, 2002, the Partnership had acquired
interests in twenty Local Partnerships. As of March 31, 2002, approximately
$35,051,000 (including approximately $3,142,000 classified as a loan repayable
from sale/refinancing proceeds in accordance with the Contribution Agreement and
including acquisition fees of approximately $2,510,000) of net proceeds has been
invested in Local Partnerships of which approximately $193,000 remains to be
paid to the Local Partnerships (including approximately $297,000 being held in
escrow), as certain benchmarks such as occupancy levels must be attained prior
to the release of such funds. The Partnership does not intend to acquire
interests in additional Local Partnerships.

INVESTMENT OBJECTIVES/GENERAL INCENTIVES
- ----------------------------------------

The Partnership has been formed to invest in low-income Apartment Complexes that
are eligible for the Housing Tax Credit enacted in the Tax Reform Act of 1986.
Some Apartment Complexes may also be eligible for Historic Rehabilitation Tax
Credits ("Historic Complexes"). The investment objectives of the Partnership are
described below.

1. Entitle qualified BACs holders to Tax Credits over the period of the
Partnership's entitlement to claim Tax Credits (for each Property, generally ten
years from the date of investment or, if later, the date the Property is leased
to qualified tenants; referred to herein as the "Credit Period") with respect to
each Apartment Complex.

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
the Properties.

-2-

4. 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 agencies 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 such period. Once a Local Partnership has become eligible to recognize
Tax Credits, it may lose such eligibility and suffer an event of "recapture" if
its Property fails to remain in compliance with the Tax Credit requirements.
None of the Local Partnerships in which the Partnership has acquired an interest
has suffered an event of recapture.

There can be no assurance that the Partnership will achieve its investment
objectives as described above.

COMPETITION
- -----------

The real estate business is highly competitive and substantially all of the
properties acquired by the Partnership are expected to have active competition
from similar properties in their respective vicinities. In addition, various
other limited partnerships may, in the future, be formed by the General Partner
and/or its 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 the General Partner and its affiliates. The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition, the Partnership reimburses the General Partner and
certain of its affiliates from 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, 2002, the Partnership had acquired an interest in twenty Local
Partnerships, all of which have been consolidated for accounting purposes.
Except for the interest in New Zion Apartments, L.P. ("New Zion"), the
Partnership's investment in each Local Partnership represents 98.99% or 99.89%
of the partnership interests in the Local Partnership. The Partnership's
investment in New Zion represents 42.39% of the partnership interest in the
subsidiary partnership (the other 58.12% limited partnership interest is owned
by affiliates of the Partnership, with the same management). Set forth below is
a schedule of the 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 Schedule III to the
financial statements which are included herein.

-3-

LOCAL PARTNERSHIP SCHEDULE
--------------------------

-4-

LOCAL PARTNERSHIP SCHEDULE
--------------------------
(continued)

(a) As a result of prior litigation related to the Local General Partner of
Brannon Group, LC occupancy rate was not provided for this year by the
management agent.

* Properties in construction phase.

All leases are generally for periods not greater than one to two years and no
tenant occupies more than 10% of the rentable square footage.

Commercial tenants (to which average rental per square foot applies) comprise
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 indices 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 general partners of the Local Partnerships ("Local General
Partners") budget improvements which 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 included herein.

In connection with investments in development-stage Apartment Complexes, the
General Partner generally requires that the Local General Partners provide
completion guarantees and/or undertake to repurchase the Partnership's interest
in the Local Partnership if construction or rehabilitation is not completed
substantially on time or on budget ("Development Deficit Guarantees"). The
Development Deficit Guarantees generally also require the Local General Partner
to provide any funds necessary to cover net operating deficits of the Local
Partnership until such time as the Apartment Complex has achieved break-even
operations. The General

-5-

Partner generally requires that the Local General Partners undertake an
obligation to fund operating deficits of the Local Partnership (up to a stated
maximum amount) during a limited period of time (typically three to five years)
following the achievement of break-even operations ("Operating Deficit
Guarantees"). As of March 31, 2002, 2001 and 2000, the gross amounts of the
Operating Deficit Guarantees aggregate approximately $5,129,000, of which
$2,935,000 has expired as of March 31, 2002. Management does not expect that
expiration to have a material impact on liquidity, based on prior years'
fundings. As of March 31, 2002, approximately $1,347,000 has been funded under
the Operating Deficit Guaranty Agreements. Under the terms of the Development
and Operating Deficit Guarantees, amount funded will be treated as Operating
Loans which will not bear interest and which will be repaid only out of 50% of
available cash flow or out of available net sale or refinancing proceeds. In
some instances, the Local General Partners are required to undertake an
obligation to comply with a Rent-Up Guaranty Agreement, whereby the Local
General Partner agrees to pay liquidated damages if predetermined occupancy
rates are not achieved. These payments are made without right of repayment. In
cases where the General Partner deems it appropriate, the obligations of a Local
General Partner under the Development Deficit, Operating Deficit and/or Rent-Up
Guarantees are secured by letters of credit and/or cash escrow deposits.

Tax Credits with respect to a given Apartment Complex are available for a
ten-year period that commences when the property is leased to qualified tenants.
However, the annual Tax Credits available in the year in which the Apartment
Complex is leased, must be prorated based upon the number of months remaining in
the year. The amount of the annual 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 may be
allocated Tax Credits only beginning in the month following the month in which
it acquired its interest and Tax Credits allocated in any prior period are not
available to the Partnership.

Item 3. Legal Proceedings.

This information is incorporated by reference to the discussion of Lewis Street
L.P. and Brannon Group L.C. in the Results of Operations of Certain Local
Partnerships contained in Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.

Item 4. Submission of Matters to a Vote of Security Holders.

None.

PART II

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

As of March 31, 2002, the Partnership had issued and outstanding 43,440 Limited
Partnership Interests, each representing a $1,000 capital contribution to the
Partnership, or an aggregate capital contribution of $43,440,000. All of the
issued and outstanding Limited Partnership Interests have been issued to
Independence Assignor Inc. (the "Assignor Limited Partner"), which has in turn
issued 43,440 BACs to the purchasers thereof for an aggregate purchase price of
$43,440,000. Each BAC represents all of the economic and virtually all of the
ownership rights attributable to 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.

-6-

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 Partner has imposed limited
restrictions on the transferability of the BACs and the Limited Partnership
Interests in secondary market transactions. Implementation of the 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 these 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 May 1, 2002, the Partnership has approximately 2,512 registered holders of
an aggregate of 43,440 BACs.

All of the Partnership's general partnership interests, representing an
aggregate capital contribution of $1,000, are held by the General Partner.

There are no material legal restrictions in the Partnership Agreement on the
ability of the Partnership to make distributions. However, the Partnership has
made no distributions to the BACs holders as of March 31, 2002. The Partnership
does not anticipate providing cash distributions to its BACs holders other than
from net refinancing or sales proceeds.

In January 2001, affiliates of Everest Properties, Inc. ("Everest") conducted a
tender offer for up to 1,104.47 BACs. In connection with a prior tender offer
for BACs, an affiliate of the General Partner entered into a standstill
agreement dated as of April 23, 1997 (the "Standstill"), which precluded Everest
from independently soliciting BACs (by tender offer or otherwise). At Everest's
request, the General Partner caused its affiliate to release Everest from the
Standstill for the limited purpose of permitting Everest to make its tender
offer. In connection with such arrangements, Everest agreed to cover all of the
Partnership's expenses with respect to processing the tender offer including
mailing costs, legal fees and other administrative costs incurred by the
Partnership. These reimbursements resulted in aggregate payments to the
Partnership of $4,573 which are reflected as "other income" on the financial
statements for Fiscal Year 2001.

-7-

Item 6. Selected Financial Data.

The information set forth below presents selected financial data of the
Partnership. Additional financial information is set forth in the audited
financial statements in Item 8 hereof.

During the year ended March 31, 2002 and 2001, total assets decreased primarily
due to depreciation and a decrease in cash and cash equivalents. During the year
ended March 31, 2002, total liabilities decreased primarily due to principal
payments on mortgage notes and construction loan. During the year ended March
31, 2000, total assets decreased primarily due to a decrease in construction in
process. The decrease in total liabilities is primarily due to principal
payments on mortgage notes. During the year ended March 31, 1999, total assets
increased primarily due to increases in property and equipment and construction
in progress. The increase in total liabilities is primarily due to the proceeds
from the mortgage notes payable and construction loans payable used to pay for
the property and equipment, and construction in progress acquisitions. During
the year ended March 31, 1998, total assets and liabilities increased primarily
due to the continued acquisition of Local Partnerships. For the year ended March
31, 1998, property and equipment increased approximately $18,000,000,
construction in progress (decreased) approximately $(700,000), and mortgage
notes increased approximately $6,000,000. For the year ended March 31, 1998,
minority interest increased due to capital contributions from local general
partners.

-8-

Selected Quarterly Financial Data (Unaudited)

CASH DISTRIBUTIONS
- ------------------
The Partnership has made no distributions to the BACs holders as of March 31,
2002 and none are expected until the Partnership begins to liquidate its assets.

-9-

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

LIQUIDITY AND CAPITAL RESOURCES
- ------------------------------

GENERAL
- -------

The Partnership's primary source of funds is interest earned on Gross Proceeds
which are invested in tax-exempt money market instruments pending final payments
to the Local Partnerships. This source of funds is available to meet obligations
of the Partnership.

The Partnership had received $43,440,000 in gross proceeds for BACs pursuant to
a public offering resulting in net proceeds available for investment of
approximately $35,000,000 after volume discounts, payment of sales commissions,
acquisition fees and expenses, organization and offering expenses and
establishment of a working capital reserve.

As of March 31, 2002, the Partnership has invested approximately $35,051,000
(including approximately $3,142,000 classified as loans repayable from
sale/refinancing proceeds in accordance with the Contribution Agreement and not
including acquisition fees of approximately $2,510,000) of net proceeds in
twenty Local Partnerships of which approximately $193,000 remains to be paid to
the Local Partnerships (not including approximately $297,000 being held in
escrow) as certain benchmarks, such as occupancy level, must be attained prior
to the release of the funds. The Partnership does not intend to acquire
additional properties. During the year ended March 31, 2002, approximately
$1,466,822 was paid to Local Partnerships (of which approximately $100,000 was
released from escrow). Although the Partnership will not be acquiring additional
properties, the Partnership may be required to fund potential purchase price
adjustments based on tax credit adjustor clauses. Such adjustments resulted in a
net decrease in the purchase price of approximately $23,000 during the year
ended March 31, 2001.

During the year ended March 31, 2002, cash and cash equivalents decreased
approximately $1,959,000. This decrease is due to acquisition of property and
equipment ($42,000), a net decrease in due to local general partners and
affiliates relating to investing and financing activities ($895,000), cash used
in operating activities ($936,000), repayments of construction loans ($689,000),
an increase in cash held in escrow relating to investing activities ($268,000)
and the net of proceeds and principal payments of mortgage loans ($110,000)
which exceeded an increase in capitalization of consolidated subsidiaries
attributable to minority interest $(983,000). Included in the adjustments to
reconcile the net loss to cash used in operating activities is depreciation and
amortization of approximately $2,727,000.

A working capital reserve had previously been established from the Partnership's
funds available for investment, which includes amounts which may be required for
potential purchase price adjustments based on tax credit adjustor clauses. At
March 31, 2002, all funds were used.

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the Local General Partners of the Local Partnerships
have agreed to fund operating deficits for a specified period of time. The terms
of the Operating Deficit Guaranty Agreements vary 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. As of March 31, 2002,
2001 and 2000, the gross amounts of the Operating Deficit Guarantees aggregate
approximately $5,129,000, of which $2,935,000 has expired as of March 31, 2002.
Management does not expect that expiration to have a material impact on
liquidity, based on prior years' fundings. As of March 31, 2002, approximately
$1,347,000 has been funded under the Operating Deficit Guaranty Agreements.
Amounts funded under such agreements are treated

-10-

as noninterest bearing loans, which will be paid only out of 50% of available
cash flow or out of available net sale or refinancing proceeds.

The Operating Deficit Guaranty Agreements was 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.

Partnership management fees owed to the General Partner amounting to
approximately $1,561,000 and $1,199,000 were accrued and unpaid as of March 31,
2002 and 2001, respectively. Without the General Partner's continued accrual
without payment of certain fees and expense reimbursements, the Partnership will
not be in a position to meet its obligations. The General Partner has continued
allowing the accrual without payment of these amounts but are under no
obligation to continue to do so.

For discussion of contingencies affecting certain subsidiary 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
subsidiary 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 will eliminate the ability to generate future Tax Credits
from such Local Partnership and may also result in recapture of tax credits if
the investment is lost before the expiration of the Credit 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 for 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 diversification of the portfolio may not protect against a general
downturn in the national economy. The Partnership has invested the proceeds of
its offering in seventeen Local Partnerships, all of which fully have their Tax
Credits in place. The Tax Credits are attached to the property for a period of
ten years, and are transferable with the property during the remainder of the
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 significant value to the property on the market, which are not included
in the financial statement carrying amount.

RESULTS OF OPERATIONS
- ---------------------

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 the properties. 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. 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 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.

-11-

Through March 31, 2002, the Partnership has not recorded any loss on impairment
of assets or reduction to estimated fair value.

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. These
assets are classified as property and equipment-held for sale and are not
depreciated. Through March 31, 2002, the Partnership has not recorded or
classified any property and equipment as held for sale.

The following is a summary of the results of operations of the Partnership for
the years ended March 31, 2002, 2001 and 2000 (the 2001, 2000 and 1999 Fiscal
Years).

The net loss for the 2001, 2000 and 1999 Fiscal Years aggregated $3,342,701,
$3,243,768 and $3,474,187, respectively.

The Partnership and BACs holders began recognizing Tax Credits with respect to a
Property when the Credit Period for such Property commenced. Because of the time
required for the acquisition, completion and rent-up of Properties, the amount
of Tax Credits per BAC has gradually increased over the first three years of the
Partnership. Tax Credits not recognized in the first three years will be
recognized in the 11th through 13th years. The Partnership generated $5,683,279,
$5,682,911 and $5,444,802 Housing Tax Credits during the 2001, 2000 and 1999,
tax years, respectively.

2001 VS. 2000
- -------------

Rental income increased approximately 1% for the 2001 Fiscal Year as compared to
the 2000 Fiscal Year.

Other income increased approximately $64,000 for the 2001 Fiscal Year as
compared to the 2000 Fiscal Year. This increase was primarily due to higher cash
and cash equivalent balances earning interest in 2001 at one Local Partnership.

Total expenses, excluding general and administrative, repairs and maintenance,
taxes and insurance, remained fairly consistent with a decrease of approximately
1% for the 2001 Fiscal Year as compared to the 2000 Fiscal year.

General and administrative increased approximately $516,000 for the 2001 Fiscal
Year as compared with the 2000 Fiscal Year. This increase was primarily due to
an increase in legal costs at one Local Partnership as well as small increases
at three other Local Partnerships.

Repairs and maintenance increased approximately $339,000 for the 2001 Fiscal
Year as compared with the 2000 Fiscal Year. This increase was primarily due to
carpet replacement at one Local Partnership, repairs due to a water heater
explosion at a second Local Partnership, painting and miscellaneous repairs at a
third Local Partnership and repairs to the building common area at a fourth
Local Partnership.

Taxes increased approximately $40,000 for the 2001 Fiscal Year as compared to
the 2000 Fiscal Year. This increase was primarily due to an underaccrual in 2000
at two Local Partnerships.

Insurance increased approximately $62,000 for the 2001 Fiscal Year as compared
to the 2000 Fiscal Year. This increase was primarily due to an underaccrual
during 2000 at one Local Partnership.

-12-

2000 VS. 1999
- -------------
Rental income increased approximately 8% for the 2000 Fiscal Year as compared to
the 1999 Fiscal Year. This increase was primarily due to the rent up of one
Local Partnerships.

Total expenses, excluding operating and insurance remained fairly consistent,
with an increase of approximately 1% for the 2000 Fiscal Year as compared to the
1999 Fiscal Year.

Operating increased approximately $111,000 for the 2000 Fiscal Year as compared
to the 1999 Fiscal Year. This increase was primarily due to the rent up of one
Local Partnership.

Insurance increased approximately $30,000 for the 2000 Fiscal Year as compared
to the 1999 Fiscal Year. This increase was primarily due to an underaccrual at
two Local Partnerships in the 1999 Fiscal Year.

RESULTS OF OPERATIONS OF CERTAIN LOCAL PARTNERSHIPS
- ---------------------------------------------------

LEWIS STREET L.P.
- -----------------
In January of 1998, Lewis Street Limited Partnership ("Lewis Street") was
informed that it was a defendant in a cause of action for the alleged value of
work and services provided by Phase Three Paul, for interference with
contractual relations and for fraud that was brought by the project's original
developer. The complaint seeks damages for the alleged value of work and
services provided in the amount of $296,940 and damages to reputation in the
amount of at least $1,000,000 plus unspecified punitive damages. This litigation
will be vigorously contested by the Local Partnership. Legal counsel for the
Local Partnership has indicated that the ultimate liability, if any, with
respect to this possible action cannot be determined at this time. The
Partnership's investment in Lewis Street at March 31, 2002 and 2001 was
approximately $700,000 and $800,000, respectively, and the minority interest
balance was zero at each date. Lewis Street's net loss after minority interest
amounted to approximately $101,000, $100,000 and $98,000 for the 2001, 2000, and
1999 Fiscal Years, respectively.

BRANNON GROUP L.L.C.
- --------------------
In January 2002, the parties settled Civil Action 00 Civil 2715 (JGK) which
commenced on April 7, 2000, in the United States District Court for the Southern
District of New York. It was styled "RubinBaum LLP, Plaintiff v. Related
Corporate Partners V, L.P., Related Corporate SLP, L.P. (the "Related
Defendants"), the Brannon Group, L.L.C., D. Reid Brannon and Ivan Brannon (the
"Brannon Defendants"), Defendants, v. Independence SLP III, L.P., the
Partnership and Keys 288, LLC, (the "Third Party Defendants"). The managing
members of the Brannon Group L.L.C. were removed by an affiliate of the General
Partner for breaching their fiduciary duties and contractual obligations. An
affiliate of the General Partner was admitted as the new managing member. The
Related Defendants asserted cross-claims against the Brannon Defendants for
breach of fiduciary duties, breach of contract, an accounting and a declaratory
judgement that, inter alia, Reid and Ivan Brannon were properly removed as
managing members of the Brannon Group L.L.C. The Brannon Defendants asserted
claims against the Related Defendants and the Third Party Defendants for breach
of contract, breach of fiduciary duty, intentional interference with
advantageous business relationships, breach of the implied covenant of good
faith and fair dealing, unjust enrichment, declaratory and injunctive relief.
They sought to recover unspecified compensatory and punitive damages,
prejudgment and post-judgement interest, costs and attorney's fees as well as
injunctive and declaratory relief.

A settlement agreement was signed by all respective parties as of November 22,
2001, whereby payment of development fees due to the Brannons was made in
accordance with the regulations. The Brannons were reinstated as managing
members, who, as managing members shall cause the Company to install a
comprehensive security system. The General Partner on behalf of the Partnership
waived the requirement of the Brannons to place $150,000 in escrow under

-13-

the Operating Deficit Guarantee. In addition, the Brannons waived 99% of their
1% of allocation of losses and tax credits with respect to Phase 3 of the
Project. In addition, any advances made by related parties will be treated as
voluntary loans, and be repaid out of company cash flow on a PARI PASSU basis
with any payments on the development fee amount discussed above. The court
signed the order dismissing the case on January 23, 2002.

OTHER
- -----

The Partnership's investment as a limited partner in the Local Partnerships is
subject to the risks of potential losses arising from management and ownership
of improved real estate. The Partnership's investments also could be adversely
affected by poor economic conditions generally, which could increase vacancy
levels and rental payment defaults and increase operating expenses, any or all
of which could threaten the financing 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 include 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 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.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

-14-

Item 8. Financial Statements and Supplementary Data.

-15-

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)

We have audited the consolidated balance sheets of Independence Tax Credit Plus
L.P. III and Subsidiaries (A Delaware Limited Partnership) as of March 31, 2002
and 2001, and the related consolidated statements of operations, changes in
partners' capital (deficit), and cash flows for the years ended March 31, 2002,
2001 and 2000 (the 2001, 2000 and 1999 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 for fifteen (2001 Fiscal
Year) and twenty (2000 and 1999 Fiscal Years) subsidiary partnerships whose
losses aggregated $2,428,205, $2,566,254 and $2,970,037 for the years ended
March 31, 2002, 2001 and 2000, respectively, and whose assets constituted 68%
and 96% of the Partnership's assets at March 31, 2002 and 2001, respectively,
presented in the accompanying consolidated financial statements. The financial
statements for fifteen (2001 Fiscal Year) and nineteen (2000 and 1999 Fiscal
Years) 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 for one
(2000 and 1999 Fiscal Years) subsidiary partnership were not audited.

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, 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 Independence Tax Credit Plus L.P. III and Subsidiaries at March 31, 2002 and
2001, and the results of their operations and their cash flows for the years
ended March 31, 2002, 2001 and 2000, in conformity with U.S. generally accepted
accounting principles.

TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI LLP

New York, New York
June 5, 2002

-16-

[HOLTHOUSE CARLIN & VAN TRIGT LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of the
Edward Hotel Limited Partnership:

We have audited the accompanying balance sheets of Edward Hotel Limited
Partnership (a California limited partnership) as of December 31, 2001 and 2000,
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 Edward Hotel Limited
Partnership as of December 31, 2001 and 2000, 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 information included in the
accompanying Schedule I 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/ Holthouse Carlin & Van Trigt LLP
Los Angeles, California
February 21, 2002

-17-

[HOLTHOUSE CARLIN & VAN TRIGT LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of the
Edward Hotel Limited Partnership:

We have audited the accompanying balance sheets of Edward Hotel Limited
Partnership (a California limited partnership) as of December 31, 2000 and 1999,
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 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 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 Edward Hotel Limited
Partnership as of December 31, 2000 and 1999, and the results of its operations
and its cash flows for the years then ended in conformity with 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 information included in the
accompanying Schedule I 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/ Holthouse Carlin & Van Trigt LLP
Los Angeles, California
January 23, 2001

-18-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Pacific-East L.P.

We have audited the accompanying balance sheet of Pacific-East L.P. as of
December 31, 2001, and the related statements of operations, 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. 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 Pacific-East L.P. as of
December 31, 2001, and the results of its operations, the changes in partners'
deficit 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
February 6, 2002

-19-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Pacific-East L.P.

We have audited the accompanying balance sheet of Pacific-East L.P. as of
December 31, 2000, and the related statements of operations, 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 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 Pacific-East L.P. as of
December 31, 2000, 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.

/s/ Reznick Fedder & Silverman
Atlanta, Georgia
January 16, 2001

-20-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Pacific-East L.P.

We have audited the accompanying balance sheet of Pacific-East L.P. as of
December 31, 1999, and the related statements of operations, 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 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 Pacific-East L.P. as of
December 31, 1999, 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 4, 2000

-21-

[SMITH, ORTIZ, GOMEZ AND BUZZI, P.A. LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

The Partners
Overtown Development Group, Ltd.
(A Limited Partnership):

We have audited the accompanying balance sheets of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 2001 and 2000, and the related
statement of operations, changes in partners' capital, and cash flows for the
years then ended. These financial statements are the responsibility of Overtown
Development Group, Ltd. management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audit 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 our audit provides a reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Overtown
Development Group, Ltd. as of December 31, 2001 and 2000, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Smith, Ortiz, Gomez and Buzzi, P.A.
Miami, Florida
January 29, 2002

-22-

[SMITH, ORTIZ, GOMEZ AND BUZZI, P.A. LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

The Partners
Overtown Development Group, Ltd.
(A Limited Partnership):

We have audited the accompanying balance sheets of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 2000 and 1999, and the related
statement of operations, changes in partners' capital, and cash flows for the
years then ended. These financial statements are the responsibility of Overtown
Development Group, Ltd. management. Our responsibility is to express an opinion
on these financial statements based on our audits.

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, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Overtown
Development Group, Ltd. as of December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Smith, Ortiz, Gomez and Buzzi, P.A.
Miami, Florida
January 31, 2001

-23-

[LAWLOR, O'BRIEN & CHERVENAK, LLC LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Sumpter Commons Associates, L.P.

We have audited the accompanying balance sheet of Sumpter Commons Associates,
L.P. as of December 31, 2001, 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 audit.

We conducted our audit in accordance with generally accepted auditing standards
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 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 Sumpter Commons Associates,
L.P. as of December 31, 2001, and the results of its operations, changes in
partners' capital (deficit), and cash flows for the year then ended in
conformity with generally accepted accounting principles in the United States of
America.

/s/ Lawlor, O'Brien & Chervenak, LLC
Totowa, New Jersey
February 25, 2002

-24-

[LAWLOR, O'BRIEN & CHERVENAK, LLC LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Sumpter Commons Associates, L.P.

We have audited the accompanying balance sheet of Sumpter Commons Associates,
L.P. as of December 31, 2000, 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 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 our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sumpter Commons Associates,
L.P. as of December 31, 2000, and the results of its operations, changes in
partners' capital (deficit), and cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ Lawlor, O'Brien & Chervenak, LLC
Totowa, New Jersey
February 14, 2001

-25-

[LAWLOR, O'BRIEN & CHERVENAK, LLC LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Sumpter Commons Associates, L.P.

We have audited the accompanying balance sheet of Sumpter Commons Associates,
L.P. as of December 31, 1999, and the related statements of operations, 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 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 our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sumpter Commons Associates,
L.P. as of December 31, 1999, and the results of its operations, changes in
partners' deficit, and cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ Lawlor, O'Brien & Chervenak, LLC
Totowa, New Jersey
February 15, 2000

-26-

[KOSTIN, RUFFKESS & COMPANY, LLC LETTERHEAD]

To The Partners
Park Housing Limited Partnership

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of Park Housing Limited
Partnership as of December 31, 2001, and the related statements of operations
and changes in partners' 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 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 Park Housing Limited
Partnership as of December 31, 2001, and the results of its operations and cash
flows for the year then ended, in accordance with accounting principles
generally accepted in the United States of America.

/s/ Kostin, Ruffkess & Company, LLC
Farmington, Connecticut
January 24, 2002

-27-

[KOSTIN, RUFFKESS & COMPANY, LLC LETTERHEAD]

To The Partners
Park Housing Limited Partnership

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of Park Housing Limited
Partnership as of December 31, 2000, and the related statements of operations
and partners' 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 Park Housing Limited
Partnership as of December 31, 2000, and the results of its operations and cash
flows for the year then ended, in accordance with generally accepted accounting
principles.

/s/ Kostin, Ruffkess & Company, LLC
West Hartford, Connecticut
February 6, 2001

-28-

[KOSTIN, RUFFKESS & COMPANY, LLC LETTERHEAD]

To The Partners
Park Housing Limited Partnership

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of Park Housing Limited
Partnership as of December 31, 1999, and the related statements of revenues,
expenses and partners' 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 Park Housing Limited
Partnership as of December 31, 1999, and the results of its operations and cash
flows for the year then ended, in accordance with generally accepted accounting
principles.

/s/ Kostin, Ruffkess & Company, LLC
West Hartford, Connecticut
February 2, 2000

-29-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Livingston Manor Urban Renewal Associates, L.P.

We have audited the accompanying balance sheets of Livingston Manor Urban
Renewal Associates, L.P. as of December 31, 2001, and the related statements of
operations, 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. The financial statements of Livingston
Manor Urban Renewal Associates, L.P. for the year ended December 31, 2000, were
audited by other auditors whose report, dated January 16, 2001, expressed an
unqualified opinion on those statements.

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 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Livingston Manor Urban
Renewal Associates, L.P. as of December 31, 2001, and the results of its
operations, the 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 25, 2002

-30-

[ZINER, KENNEDY & LEHAN LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Livingston Manor Urban Renewal Associates, L.P.

We have audited the accompanying balance sheets of Livingston Manor Urban
Renewal Associates, L.P. as of December 31, 2000 and 1999, 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 general partner 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 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 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 opinions.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Livingston Manor Urban Renewal
Associates, L.P. at December 31, 2000 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Ziner, Kennedy & Lehan LLP
Boston, Massachusetts
January 16, 2001

-31-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Jefferis Square Housing Partnership, L.P.

We have audited the accompanying balance sheet of Jefferis Square Housing
Partnership, L.P. as of December 31, 2001, and the related statements of
operations, 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. The financial statements of Jefferis
Square Housing Partners, L.P. for the year ended December 31, 2000, were audited
by other auditors, whose report, dated January 15, 2001, 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 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 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Jefferis Square Housing
Partnership, L.P. as of December 31, 2001, 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 25, 2002

-32-

[ZINER, KENNEDY & LEHAN LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Jefferis Square Housing Partnership, L.P.

We have audited the accompanying balance sheets of Jefferis Square Housing
Partnership, L.P. (a Pennsylvania limited partnership) as of December 31, 2000
and 1999, 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 general 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 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 the
Partnership's general 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 Jefferis Square Housing
Partnership, L.P. at December 31, 2000 and 1999, and the results of its
operations, changes in partners' equity and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

/s/ Ziner, Kennedy & Lehan, LLP
Boston, Massachusetts
January 15, 2001

-33-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
2301 First Avenue Limited Partnership

We have audited the accompanying balance sheet of 2301 First Avenue Limited
Partnership, as of December 31, 2001, 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. The financial statements of 2301 First Avenue Limited Partnership, as
of December 31, 2000 were audited by other auditors whose report dated February
8, 2001 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 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 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 2301 First Avenue Limited
Partnership. as of December 31, 2001, and the results of its operations, the
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.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental information on page 17 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
Atlanta, Georgia
February 7, 2002

-34-

[FRIEDMAN ALPREN & GREEN LLP LETTERHEAD]

Independent Auditors' Report

To the Partners of
2301 First Avenue Limited Partnership:

We have audited the accompanying balance sheet of 2301 First Avenue Limited
Partnership as of December 31, 2000, and the related statements of operations,
changes in partners' capital deficiency 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 2301 First Avenue Limited
Partnership as of December 31, 2000, 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/ Friedman Alpren & Green LLP
New York, NY
February 8, 2001

-35-

[FRIEDMAN ALPREN & GREEN LLP LETTERHEAD]

Independent Auditors' Report

To the Partners of
2301 First Avenue Limited Partnership:

We have audited the accompanying balance sheet of 2301 First Avenue Limited
Partnership as of December 31, 1999, and the related statements of operations,
changes in partners' capital deficiency 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 2301 First Avenue Limited
Partnership as of December 31, 1999, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ Friedman Alpren & Green LLP
New York, NY
February 3, 2000

-36-

[TOSKI, SCHAEFER & CO., P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheets of Lewis Street Limited
Partnership as of December 31, 2001 and 2000 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 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 Lewis Street Limited
Partnership as of December 31, 2001 and 2000 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, we have also issued a report
dated January 25, 2002 on our consideration of the Partnership's internal
control and on its compliance with laws and regulations applicable to the
financial statements. 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/ Toski, Schaefer & Co., P.C.
Williamsville, New York
January 25, 2002

-37-

[TOSKI, SCHAEFER & CO., P.C. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheets of Lewis Street Limited
Partnership as of December 31, 2000 and 1999 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 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 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 Lewis Street Limited
Partnership as of December 31, 2000 and 1999 and the results of its operations,
changes in partners' equity and cash flows for the years then ended, in
conformity with generally accepted accounting principles.

In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report
dated January 31, 2001 on our consideration of the Partnership's internal
control and on its compliance with laws and regulations applicable to the
financial statements. 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/ Toski, Schaefer & Co., P.C.
Williamsville, New York
January 31, 2001

-38-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Savannah Park Housing
Limited Partnership

We have audited the accompanying balance sheet of Savannah Park Housing Limited
Partnership as of December 31, 2001, and the related statements of operations,
partners' 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 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 Savannah Park Housing Limited
Partnership as of December 31, 2001, and the results of its operations, the
changes in partners' capital and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Bethesda, Maryland
March 11, 2002

-39-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Savannah Park Housing
Limited Partnership

We have audited the accompanying balance sheet of Savannah Park Housing Limited
Partnership as of December 31, 2000, and the related statements of operations,
changes in partners' 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 Savannah Park Housing Limited
Partnership as of December 31, 2000, and the results of its operations, the
changes in partners' capital and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
partnership will continue as a going concern. As discussed in note B to the
financial statements, the partnership's declining cash flow and defaults on its
land lease and a note payable raise substantial doubt about the partnership's
ability to continue as a going concern. Management's plans in regard to these
matters are also described in note B. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.

/s/ Reznick Fedder & Silverman
Bethesda, Maryland
March 2, 2001

-40-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Savannah Park Housing
Limited Partnership

We have audited the accompanying balance sheet of Savannah Park Housing Limited
Partnership as of December 31, 1999, and the related statements of operations,
changes in partners' 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 Savannah Park Housing Limited
Partnership as of December 31, 1999, and the results of its operations, the
changes in partners' capital and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 27, 2000

-41-

[BDO Seidman, LLP LETTERHEAD]

Independent Auditors' Report

Brannon Group, L.C.
(A Limited Liability Company)
Coral Gables, Florida

We have audited the accompanying balance sheets of Brannon Group, L.C. (A
Limited Liability Company) as of December 31, 2001, and the related statements
of profit and loss, changes in members' capital accounts, and cash flows for the
years then ended. These financial statements are the responsibility of the
management of the company. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
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 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 Brannon Group, L.C. at December
31, 2001, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles in the
United States of America

Our audits were made for the purpose of forming an opinion on the basic combined
financial statements for the year ended December 31, 2001 taken as whole. The
supplemental material presented on pages 15 to 18 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audits of the basic combined 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/ BDO Seidman, LLP
Certified Public Accountants
Miami, Florida
February 22, 2002

-42-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Mansion Court Associates

We have audited the accompanying balance sheet of Mansion Court Phase II Venture
as of December 31, 2001, and the related statements of operations, 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. The financial statements of Mansion Court Phase II Venture for the
year ended December 31, 2000, were audited by other auditors whose report, dated
January 28, 2001, 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 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 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 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Mansion Court Phase II
Venture as of December 31, 2001, and the results of its operations, the 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 18, 2002

-43-

[ZINER, KENNEDY & LEHAN LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Mansion Court Phase II Venture
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Mansion Court Phase II
Venture (a Pennsylvania limited partnership) as of December 31, 2000 and 1999
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 general 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 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 Mansion Court Phase II Venture
at December 31, 2000 and 1999, and the results of its operations, changes in
partners' equity and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Ziner, Kennedy & Lehan LLP
Boston, Massachusetts
January 28, 2001

-44-

[ZINER, KENNEDY & LEHAN LLP
[RBG & CO. LETTERHEAD]

Independent Auditors' Report

Partners
Primm Place Partners, L.P.
St. Louis, Missouri

We have audited the accompanying balance sheet of Primm Place Partners, L.P., a
Missouri limited partnership, as of December 31, 2001 and the related statements
of income, 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 Primm Place Partners, L.P., as
of December 31, 2001, 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/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
January 18, 2002

-45-

[ZINER, KENNEDY & LEHAN LLP
[RBG & CO. LETTERHEAD]

Independent Auditors' Report

Partners
Primm Place Partners, L.P.
St. Louis, Missouri

We have audited the accompanying balance sheet of Primm Place Partners, L.P., a
Missouri limited partnership, as of December 31, 2000 and the related statements
of income, 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
...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 Primm Place Partners, L.P., as
of December 31, 2000, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
January 19, 2001

-46-

[RBG & CO. LETTERHEAD]

Independent Auditors' Report

Partners
Primm Place Partners, L.P.
St. Louis, Missouri

We have audited the accompanying balance sheet of Primm Place Partners, L.P., a
Missouri limited partnership, as of December 31, 1999 and the related statements
of income, 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.
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 Primm Place Partners, L.P., as
of December 31, 1999, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting principles.

/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
February 3, 2000

-47-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-9-A Partners, L.P.:

We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001 and the related statements of
operations, changes in partners' 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 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 BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 11, 2002

-48-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-9-A Partners, L.P.:

We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2000 and the related statements of
operations, changes in partners' 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 BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2000, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

/s/ Raines & Fischer
New York, New York
January 24, 2001

-49-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-9-A Partners, L.P.:

We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 1999 and the related statements of
operations, changes in partners' 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 BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 1999, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

/s/ Raines & Fischer
New York, New York
February 9, 2000

-50-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-10K Partners, L.P.:

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001 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 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 BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 9, 2002

-51-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-10K Partners, L.P.:

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2000 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 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 BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2000, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

/s/ Raines & Fischer
New York, New York
February 6, 2001

-52-

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-10K Partners, L.P.:

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 1999 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 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 BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 1999, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with generally accepted accounting principles.

/s/ Raines & Fischer
New York, New York
February 9, 2000

-53-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Aspen-Olive Associates

We have audited the accompanying balance sheet of Aspen-Olive Associates as of
December 31, 2001, and the related statements of operations, 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. The financial statements of Aspen-Olive Associates for the year ended
December 31, 2000, were audited by other auditors whose report, dated January
13, 2001, 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 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 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Aspen-Olive Associates as of
December 31, 2001, and the results of its operations, the 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 18, 2002

-54-

[ZINER, KENNEDY & LEHAN LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Aspen-Olive Associates
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Aspen-Olive Associates (a
Pennsylvania limited partnership) as of December 31, 2000 and 1999 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 general 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 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 the
Partnership's general 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 Aspen-Olive Associates at
December 31, 2000 and 1999 and the results of its operations, changes in
partners' equity and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Ziner, Kennedy & Lehan LLP
Boston, Massachusetts
January 13, 2001

-55-

[ASHER & COMPANY, LTD. LETTERHEAD]

Independent Auditors' Report

The Partners
West Mill Creek Associates III
T/A Jameson Court
Marlton, New Jersey

We have audited the accompanying balance sheets of West Mill Creek Associates
III T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2001 and 2000 and the related statements of 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 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 West Mill Creek Associates III
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2001 and 2000, and the results of its operations, changes in its
Partners' capital 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 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.

In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report
dated January 23, 2002 on our consideration of West Mill Creek Associates III's
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, internal
control over financial reporting and 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.

/s/ ASHER & COMPANY, Ltd.
January 23, 2002

-56-

[ASHER & COMPANY, LTD. LETTERHEAD]

Independent Auditors' Report

The Partners
West Mill Creek Associates III
T/A Jameson Court
Marlton, New Jersey

We have audited the accompanying balance sheets of West Mill Creek Associates
III T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2000 and 1999 and the related statements of profit and 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 these financial statements based on
our audits.

We conducted our audits 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 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 Mill Creek Associates III
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2000 and 1999, and the results of its operations, changes in its
Partners' capital and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

Our audits were 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 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.

In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report
dated January 22, 2001 on our consideration of West Mill Creek Associates III's
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, internal
control over financial reporting and 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.

/s/ ASHER & COMPANY, Ltd.
January 22, 2001 except for Note C
as to which the date is February 20, 2001

-57-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Universal Court Associates

We have audited the accompanying balance sheet of Universal Court Associates, as
of December 31, 2001, and the related statements of operations, 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. The financial statements of Universal Court Associates for the year
ended December 31, 2000, were audited by other auditors whose report, dated
January 17, 2001, 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 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 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 2001 financial statements referred to above present fairly,
in all material respects, the financial position of Universal Court Associates.
as of December 31, 2001, and the results of its operations, the 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.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 8, 2002

-58-

[ZINER, KENNEDY & LEHAN LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Universal Court Associates

We have audited the accompanying balance sheets of Universal Court Associates (a
Pennsylvania limited partnership) as of December 31, 2000 and 1999 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 general partners and contracted agent. Our responsibility is to
express an opinion on these financial statements based on our audits.

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 the
Partnership's general partners and contracted management agent, 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 Universal Court Associates at
December 31, 2000 and 1999, and the results of its operations, changes in its
partners' equity and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

/s/ Ziner, Kennedy & Lehan LLP
Boston, Massachusetts
January 17, 2001

-59-

[COLE, EVANS & PETERSON LETTERHEAD]

INDEPENDENT AUDITORS' REPORT ON THE BASIC FINANCIAL
STATEMENTS AND SUPPLEMENTAL INFORMATION

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 2001, and the related
statements of income, partners' 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 U.S. 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 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 New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 2001 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with U.S. generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2001 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are 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 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 February 8, 2002 on our
consideration of New Zion Apartments Limited Partnership's internal control, and
reports dated February 8, 2002, on its compliance with laws and regulations,
compliance with specific requirements applicable to Fair Housing and
Non-Discrimination, and compliance with specific requirements applicable to
major HUD-assisted programs. 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/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 8, 2002

-60-

[COLE, EVANS & PETERSON LETTERHEAD]

INDEPENDENT AUDITORS' REPORT ON THE BASIC FINANCIAL
STATEMENTS AND SUPPLEMENTAL INFORMATION

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 2000, and the related
statements of income, partners' 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
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 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 New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 2000 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2000 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are 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 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 February 16, 2001 on our
consideration of New Zion Apartments Limited Partnership's internal control, and
reports dated February 16, 2001, on its compliance with laws and regulations,
compliance with specific requirements applicable to Fair Housing and
Non-Discrimination, and compliance with specific requirements applicable to
major HUD-assisted programs. 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/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 16, 2001

-61-

[COLE, EVANS & PETERSON LETTERHEAD]

INDEPENDENT AUDITORS' REPORT ON THE BASIC FINANCIAL
STATEMENTS AND SUPPLEMENTAL INFORMATION

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 1999, and the related
statements of income, partners' 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
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 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 New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 1999 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 1999 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are 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.

As discussed in Note 13 to the financial statements, the Partnership has changed
its method of accounting for organization costs.

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 February 12, 2000 on our
consideration of New Zion Apartments Limited Partnership's internal control, and
reports dated February 12, 2000, on its compliance with laws and regulations,
compliance with specific requirements applicable to Fair Housing and
Non-Discrimination, and compliance with specific requirements applicable to
major HUD-assisted programs.

/s/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 12, 2000

-62-

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Dreitzer Limited Partnership

We have audited the accompanying balance sheets of Dreitzer Limited Partnership
as of December 31, 2001 and 2000, 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 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 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 Dreitzer Limited Partnership as
of December 31, 2001 and 2000, 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/ Reznick Fedder & Silverman
Atlanta, Georgia
February 7, 2002

-63-

[ALAN S. CHALFIN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To The Parnters
Dreitzer Limited Partnersip

I have audited the accompanying balance sheet of Dreitzer Limited Partnership as
of December 31, 1999, and the related income statement and statements of
partners' equity 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. The financial statements of the Dreitzer Limited Partnership as of
December 31, 1998 were audited by another auditor whose report dated March 2,
1999 expressed an unqualified opinion on those statements.

I conducted my audits in accordance with generally accepted auditing standards.
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 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 Dreitzer Limited Partnership as of
December 31, 1999 and the results of its operations, changes in partners' equity
and cash flows in the year then ended, in conformity with generally accepted
accounting principles.

Alan S. Chalfin
Eastchester, NY
February 4, 2000

-64-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

See accompanying notes to consolidated financial statements.

-65-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

See accompanying notes to consolidated financial statements.

-66-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

See accompanying notes to consolidated financial statements.

-67-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

-68-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
(continued)

See accompanying notes to consolidated financial statements.

-69-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

NOTE 1 - General

Independence Tax Credit Plus L.P. III (a Delaware limited partnership) (the
"Partnership") was organized on December 23, 1993 and commenced the public
offering on June 7, 1994. The general partner of the Partnership is Related
Independence Associates III L.P., a Delaware limited partnership (the "General
Partner").

The Partnership's business is to invest as a limited partner in other
partnerships ("Local Partnerships," "subsidiaries" or "subsidiary partnerships")
owning apartment complexes that are eligible for the low-income housing tax
credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, some of
which complexes may also be eligible for the historic rehabilitation tax credit
("Historic Tax Credit"; together with Housing Tax Credits, "Tax Credits").

As of March 31, 2002, the Partnership had acquired a limited partnership
interest in twenty subsidiary partnerships.

The Partnership was authorized to issue a total of 100,000 ($100,000,000)
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 a
limited partnership interest in the Partnership. As of the termination of the
offering on May 9, 1995, the Partnership had received $43,440,000 of gross
proceeds of the Offering (the "Gross Proceeds") from 2,810 investors ("BACs
holders").

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 partner.

NOTE 2 - Summary of Significant Accounting Policies

a) Basis of Accounting

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").

b) Basis of Consolidation

The consolidated financial statements include the accounts of the Partnership
and twenty subsidiary partnerships in which the Partnership is a limited partner
for the years ended March 31, 2002, 2001 and 2000, respectively, (the 2001, 2000
and 1999 Fiscal Years). Through the rights of the Partnership and/or affiliate
of the General Partner, which affiliate has a contractual obligation to act on
behalf of the Partnership, to remove the general partner of the subsidiary local
partnerships and to approve certain major operating and financial decisions, the
Partnership

-70-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

has a controlling financial interest in the subsidiary partnerships. 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 interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated approximately $20,000 $22,000 and $24,000 for the years ended March
31, 2002, 2001 and 2000, respectively. The Partnership's investment in each
subsidiary is equal to the respective subsidiary's partners' equity less
minority interest capital, if any. In consolidation, all subsidiary partnership
losses are included in the Partnership's capital account except for losses
allocated to minority interest capital.

c) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, and investments
in short-term highly liquid investments purchased with original maturities of
three months or less.

d) 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 the properties. 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. 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, property
investments themselves are reduced to estimated fair value (generally using
discounted cash flows).

Through March 31, 2002, the Partnership has not recorded any loss on impairment
of assets or reduction to estimated fair value.

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. These
assets are classified as property and equipment-held for sale and are not
depreciated. Through March 31, 2002, the Partnership has not recorded or
classified any property and equipment as held for sale.

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 (Note 9).

-71-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

f) Offering Costs

Costs incurred to sell BACs, including brokerage and the nonaccountable expense
allowance, are considered selling and offering expenses. These costs are charged
directly to limited partners' capital.

In April of 1998, the Financial Accounting Standards Board issued Statement of
Position 98-5 ("SOP 98-5") "Reporting on the Costs of Start-Up Activities." SOP
98-5 provides guidance on the financial reporting of start-up costs and
organization costs. SOP 98-5 is effective for all fiscal quarters of fiscal
years beginning after December 15, 1998. Such change in accounting principle
amounted to $131,653 for the year ended March 31, 2000.

g) Deferred Acquisition Costs

Acquisition costs and fees incurred in connection with the proposed purchase of
interests in certain subsidiary partnerships have been deferred. In the event
these partnerships are acquired, these amounts will be capitalized as property
costs. If the subsidiary partnerships are not acquired, these amounts will be
charged to operations.

h) 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.

i) Use of Estimates

The preparation of financial statements in conformity with U.S. generally
accepted accounting principles requires management to make estimates and
assumptions that affect certain reported amounts and disclosures. Accordingly,
actual results could differ from those estimates.

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 nontrading
purposes) for which it is practicable to estimate that value:

CASH AND CASH EQUIVALENTS, INVESTMENTS AVAILABLE-FOR-SALE AND CASH HELD IN
ESCROW
- --------------------------------------------------------------------------
The carrying amount approximates fair value.

MORTGAGE NOTES PAYABLE
- ----------------------
The fair value of mortgage notes payable and construction loans payable is
estimated, where practicable, based on the borrowing rate currently available
for similar loans.

-72-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

The estimated fair values of the Partnership's mortgage notes payable and
construction loans payable are as follows:

*Management believes it is not practical to estimate the fair value of the
mortgage notes payable because mortgage programs with similar characteristics
are not currently available to the partnerships.

Management believes it is not practical to estimate the fair value of due to
local and general partners and affiliates because market information on such
unique loans are not currently available to the partnerships.

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 and their estimated useful lives are as
follows:

Included in property and equipment is $2,509,717 of acquisition fees paid to the
General Partner and $1,178,468 of acquisition expenses as of March 31, 2002 and
2001, respectively. In addi-

-73-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

tion, as of March 31, 2002 and 2001, building and improvements and construction
in progress includes $1,106,837 of capitalized interest.

In connection with the rehabilitation of the properties, the subsidiary
partnerships have incurred developer's fees of $8,980,181 to the local general
partners and affiliates as of March 31, 2002 and 2001. Such fees have been
included in the cost of property and equipment.

Depreciation expense for the years ended March 31, 2002, 2001 and 2000 amounted
to $2,664,316, $2,763,153 and $2,685,015, respectively.

NOTE 5 - Cash Held in Escrow

Cash held in escrow consists of the following:

*Represents amounts to be paid to seller upon completion of properties under
construction and upon meeting specified rental achievement criteria.

NOTE 6 - Deferred Costs

The components of deferred costs and their periods of amortization are as
follows:

*Over the life of the related mortgages.

Amortization expense for the years ended March 31, 2002, 2001 and 2000 amounted
to $62,849, $46,767 and $64,126, respectively.

NOTE 7 - Mortgage and Construction Notes Payable

The mortgage and construction notes, which are collateralized by land and
buildings, are payable in aggregate monthly installments of approximately
$79,000 including principal and inter-

-74-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

est at rates varying from 0% to 10% per annum, through the year 2046. Each
subsidiary partnership's mortgage note payable is collateralized by the land and
buildings of the respective subsidiary partnership, the assignment of certain
subsidiary partnership's rents and leases, and is without further recourse.

Annual principal payment requirements, as of March 31, 2002 for each of the next
five fiscal years and thereafter, are as follows:

The mortgage agreements require monthly deposits to replacement reserves of
approximately $16,000 and monthly deposits to escrow accounts for real estate
taxes, hazard and mortgage insurance and other (Note 5).

As of December 31, 2001, one subsidiary partnership has a construction loan
commitment totaling approximately $1,300,000. As of December 31, 2001, such loan
has an outstanding balance of approximately $600,000.

NOTE 8 - Related Party Transactions

An affiliate of the General Partner has a .01% interest as a special limited
partner, in each of the Local Partnerships.

Pursuant to the Partnership Agreement and the Local Partnership Agreements, the
General Partner and affiliate receive their pro rata shares of profits, losses
and tax credits.

A) Guarantees

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the general partners of the Local Partnerships have
agreed to fund operating deficits for a specified period of time. The terms of
the Operating Deficit Guaranty Agreements vary 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. As of March 31, 2002, 2001 and
2000, the gross amounts of the Operating Deficit Guarantees aggregate
approximately $5,129,000, of which $2,935,000 has expired as of March 31, 2002.
As of March 31, 2002, approximately $1,347,000 has been funded under the
Operating Deficit Guaranty Agreements. Amounts funded under such agreements are
treated as noninterest bearing loans, which will be paid only out of 50% of
available cash flow or out of available net sale or refinancing proceeds.
Management does not expect the expiration of such guarantees to have a material
impact on liquidity, based on prior years' fundings.

-75-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

The Operating Deficit Guaranty 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) Other Related Party Expenses

The General Partner and its affiliates perform services for the Partnership. The
costs incurred to the General Partner and other related parties for the years
ended March 31, 2002, 2001 and 2000 were as follows:

(a) The General Partner is entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
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. Subject to the foregoing limitation, the partnership
management fee will be determined by the General Partner in its sole discretion
based upon its 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
distributions to the limited partners 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 Partner amounting to approximately $1,561,000 and $1,199,000 were
accrued and unpaid as of March 31, 2002 and 2001, respectively. Without the
General Partner's continued accrual without payment the Partnership will not be
in a position to meet its obligations. The General Partner has continued
allowing the accrual without payment of these amounts but are under no
obligation to continue to do so.

(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
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 Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.

-76-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

(c) Property management fees incurred by Local Partnerships amounted to
$458,450, $384,918 and $395,395 for the years ended March 31, 2002, 2001 and
2000, respectively. Of these fees, $286,286, $235,206 and $312,194 were incurred
to affiliates of the subsidiary partnerships' general partners.

(d) Independence SLP III L.P., a limited partner of the subsidiary partnerships,
is entitled to receive a local administrative fee of up to $5,000 per year from
each subsidiary partnership.

C) Due to Local General Partners and Affiliates

Due to local general partners and affiliates consists of the following:

-77-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

NOTE 9 - Income Taxes

A reconciliation of the financial statement net loss to the income tax loss for
the Partnership and its consolidated subsidiaries follows:

NOTE 10 - Commitments and Contingencies

a) Legal Proceedings

LEWIS STREET L.P.
- -----------------
In January of 1998, Lewis Street Limited Partnership ("Lewis Street") was
informed that it was a defendant in a cause of action for the alleged value of
work and services provided by Phase Three Paul for interference with contractual
relations and for fraud that was brought by the project's original developer.
The complaint seeks damages for the alleged value of work and services provided
in the amount of $296,940 and damages to reputation in the amount of at least
$1,000,000 plus unspecified punitive damages. This litigation will be vigorously
contested by the Local Partnership. Legal counsel for the Local Partnership has
indicated that the ultimate liability, if any, with respect to this possible
action cannot be determined at this time. The Partnership's investment in Lewis
Street at March 31, 2002 and 2001 was approximately $700,000 and $800,000,
respectively, and the minority interest balance was zero at each date. Lewis
Street's net loss after minority interest amounted to approximately $101,000,
$100,000 and $98,000 for the 2001, 2000, and 1999 Fiscal Years, respectively.

BRANNON GROUP L.L.C.
- --------------------
In January 2002, the parties settled Civil Action 00 Civil 2715 (JGK) which
commenced on April 7, 2000, in the United States District Court for the Southern
District of New York. It was styled

-78-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

"RubinBaum LLP, Plaintiff v. Related Corporate Partners V, L.P., Related
Corporate SLP, L.P. (the "Related Defendants"), the Brannon Group, L.L.C., D.
Reid Brannon and Ivan Brannon (the "Brannon Defendants"), Defendants, v.
Independence SLP III, L.P., the Partnership and Keys 288, LLC, (the "Third Party
Defendants"). The managing members of the Brannon Group L.L.C. were removed by
an affiliate of the General Partner for breaching their fiduciary duties and
contractual obligations. An affiliate of the General Partner was admitted as the
new managing member. The Related Defendants asserted cross-claims against the
Brannon Defendants for breach of fiduciary duties, breach of contract, an
accounting and a declaratory judgment that, inter alia, Reid and Ivan Brannon
were properly removed as managing members of the Brannon Group L.L.C. The
Brannon Defendants asserted claims against the Related Defendants and the Third
Party Defendants for breach of contract, breach of fiduciary duty, intentional
interference with advantageous business relationships, breach of the implied
covenant of good faith and fair dealing, unjust enrichment, declaratory and
injunctive relief. They sought to recover unspecified compensatory and punitive
damages, prejudgment and post-judgment interest, costs and attorney's fees as
well as injunctive and declaratory relief.

A settlement agreement was signed by all respective parties as of November 22,
2001, whereby payment of development fees due to the Brannons was made in
accordance with the regulations. The Brannons were reinstated as managing
members, who, as managing members shall cause the Company to install a
comprehensive security system. The General Partner on behalf of the Partnership
waived the requirement of the Brannons to place $150,000 in escrow under the
Operating Deficit Guarantee. In addition, the Brannons waived 99% of their 1% of
allocation of losses and tax credits with respect to Phase 3 of the Project. In
addition, any advances made by related parties will be treated as voluntary
loans, and be repaid out of company cash flow on a PARI PASSU basis with any
payments on the development fee amount discussed above. The court signed the
order dismissing the case on January 23, 2002.

b) Leases

One of the subsidiary partnerships is leasing the land on which the Project is
located, for a term of 50 years, which commenced in August 1996, and monthly
rent payments of $1,449. Estimated future minimum payments due under the terms
of the lease are as follows:

2002 $ 28,159
2003 21,252
2004 21,252
2005 21,252
2006 21,252
Thereafter 850,080
---------
$ 963,247

As of December 31, 2001, the Partnership is currently in default on the lease
agreement. For the year ended December 31, 2001, $17,387 has been paid under the
terms of the lease and $6,906 remains payable.

c) Uninsured Cash and Cash Equivalents

The Partnership maintains its cash and cash equivalents in various banks. The
accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured cash and cash equivalents approximated
$430,000 at March 31, 2002.

-79-

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2002

d) Other

The Partnership and BACs holders began to recognize Tax Credits with respect to
a Property when the Credit Period for such Property commenced. Because of the
time required for the acquisition, completion and rent-up of Properties, the
amount of Tax Credits per BAC have gradually increased over the first three
years of the Partnership. Tax Credits not recognized in the first three years
will be recognized in the 11th through 13th years. The Partnership generated
$5,683,279, $5,682,911 and $5,444,802 Tax Credits during the 2001, 2000 and 1999
tax years, respectively.

-80-

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

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The Partnership has no directors or executive officers. The Partnership's
affairs are managed and controlled by the General Partner. Certain information
concerning the directors and executive officers of RIAI III, the sole general
partner of the General Partner, is set forth below.

STEPHEN M. ROSS, 62, President, Director and shareholder of The Related Realty
Group, Inc., the General Partner of The Related Companies, L.P. He graduated
from the University of Michigan School of Business Administration with a
Bachelor of Science degree and from Wayne State University School of Law with a
Juris Doctor degree. Mr. Ross then received a Master of Laws degree in taxation
from New York University School of Law. He joined the accounting firm of Coopers
& Lybrand in Detroit as a tax specialist and later moved to New York, where he
worked for two large Wall Street investment banking firms in their real estate
and corporate finance departments. Mr. Ross formed the predecessor of The
Related Companies, L.P. in 1972 to develop, manage, finance and acquire
subsidized and conventional apartment developments. Mr. Ross also serves on the
Board of Trustees of Charter Municipal Mortgage Acceptance Company.

ALAN P. HIRMES, 47, has been a Certified Public Accountant in New York since
1978. Prior to joining Related 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 Directors of Aegis Realty, Inc.,
Charter Municipal Mortgage Acceptance Company and American Mortgage Acceptance
Company.

STUART J. BOESKY, 46, 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 LLP) 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

-81-

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 Directors of Aegis Realty, Inc., Charter Municipal
Mortgage Acceptance Company and American Mortgage Acceptance Company.

MARC D. SCHNITZER, 41, is responsible both for financial restructuring of real
estate properties and directing Related's acquisitions of properties generating
Housing Tax Credits. Mr. Schnitzer received a Masters of Business Administration
from The Wharton School of the University of Pennsylvania in December 1987
before joining Related in January 1988. From 1983 to January 1986, he was a
financial analyst for the First Boston Corporation in New York. Mr. Schnitzer
graduated summa cum laude with a Bachelor of Science in Business Administration
from the School of Management at Boston University in May 1983.

DENISE L. KILEY, 42, is responsible for overseeing the due diligence and asset
management of all multifamily residential properties invested in RCC sponsored
corporate, public and private equity and debt funds. Prior to joining Related 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 in Accounting from
Boston College.

GLENN F. HOPPS, 39, joined Related 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, 36, joined Related 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.

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 directors or
officers of the General Partner for their services. However, under the terms of
the Partnership Agreement, the Partnership has entered into certain arrangements
with the General Partner and its affiliates, which provide for compensation to
be paid to the General Partner and its affiliates. Such arrangements include
(but are not limited to) agreements to pay nonrecurring Acquisition Fees, a
nonaccountable Acquisition Expense allowance, an accountable expense
reimbursement and Subordinated Disposition Fees to the General Partner and/or
its affiliates. In addition, the General Partner is entitled to a subordinated
interest in Cash from Sales or Financings and a 1% interest in Net Income, Net
Loss, Distributions of Adjusted Cash from Operations and Cash from Sales or
Financings. Certain directors and officers of the General Partner receive
compensation from the General Partner and its affiliates for services performed
for various affiliated entities which may include services performed for the
Partnership. The maximum annual partnership management fee paid to the General
Partner is 0.5% of invested assets. See Note 8 to the Financial Statements in
Item 8 above, which is incorporated herein by reference.

Tabular information concerning salaries, bonuses and other types of compensation
payable to executive officers has not been included in this annual report. As
noted above, the Partnership has no executive officers. The levels of
compensation payable to the General Partner and/or its affiliates is limited by
the terms of the Partnership Agreement and may not be increased therefrom on a
discretionary basis.

-82-

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Independence SLP III L.P., a limited partnership whose general partner is the
general partner of the General Partner of the Partnership and which acts as the
special limited partner of each Local Partnership, holds a .01% limited
partnership interest in each Local Partnership. See Note 8 to the Financial
Statements in Item 8 above, which information is incorporated herein by
reference thereto. The following table sets forth the number of BACs
beneficially owned, as of June 1, 2002, 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 General Partner and
(iii) the directors and executive officers of the general partner of the General
Partner as a group. Unless otherwise noted, all BACs are owned directly with
sole voting and dispositive powers.

Except as set forth below, no person is known by the Partnership to be the
beneficial owner of more than five percent of the Limited Partnership Interests
and/or BACs; and neither the General Partner nor any director or officer of the
General Partner beneficially owns any Limited Partnership Interests or BACs.

-83-

(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 Schedule 13D filed by Lehigh Tax Credit Partners III L.L.C.
("Lehigh III") and Lehigh Tax Credit Partners, Inc., (the "Managing Member") on
January 25, 1999 with the Securities and Exchange Commission (the "Commission")
and pursuant to a letter agreement dated October 6, 1998 among the Partnership,
Lehigh III and the General Partner (the "Standstill Agreement"), Lehigh III
agreed that, prior to October 6, 2008 (the "Standstill Expiration Date"), it
will not and it will cause certain affiliates not to (i) 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, (ii) form, join or otherwise
participate in a "group" (within the meaning of Section 13 (d)(3) of the Act)
with respect to any voting securities of the Partnership, except that 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, (iii) disclose in writing to any third party intention, plan or
arrangement inconsistent with the terms of the Standstill Agreement, or (iv)
loan money to, advise, assist or encourage any person in connection with any
action inconsistent with the terms of the Standstill Agreement, Lehigh III also
agreed to vote its BACs in the same manner as a majority of all voting BACs
holders; provided, however, Lehigh is entitled to vote its BACs as it determines
with regard to any proposal (i) to remove the General Partner 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 Partner or
its affiliates. The addresses of each of the Partnership, Lehigh III and the
General Partner is 625 Madison Avenue, New York, New York 10022.

(3) Each such party serves as a director and executive officer of the Managing
Member and owns an equity interest therein except J. Michael Fried who owns only
an economic interest.

-84-

Item 13. Certain Relationships and Related Transactions.

The Partnership has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11 and also Note 8 to
the Financial Statements in Item 8 above, which is incorporated herein by
reference thereto. However, there have been no direct financial transactions
between the Partnership and the directors and officers of the General Partner.

-85-

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

-86-

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)

*Incorporated herein as an exhibit by reference to exhibits filed
with Post-Effective Amendment No. 4 to the Registration Statement
on Form S-11 {Registration No. 33-37704}

**Incorporated herein as an exhibit by reference to exhibits
filed with Post-Effective Amendment No. 8 to the Registration
Statement on Form S-11 {Registration No. 33-37704}

(b) REPORTS ON FORM 8-K
-------------------

No reports on Form 8-K were filed during the quarter.

-87-

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)

(d) Not applicable

-88-

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.

INDEPENDENCE TAX CREDIT PLUS L.P. III
-------------------------------------
(Registrant)

By: RELATED INDEPENDENCE ASSOCIATES III L.P.,
General Partner

By: RELATED INDEPENDENCE ASSOCIATES III INC.,
General Partner

Date: June 14, 2002 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
President
(principal executive and 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:

SIGNATURE TITLE DATE
- ---------------- --------------------------- --------------

President
/s/ Alan P. Hirmes (principal executive and
- ------------------ financial officer) of Related
Alan P. Hirmes Independence Associates III Inc. June 14, 2002

/s/ Glenn F. Hopps Treasurer (principal
- ------------------ accounting officer) of Related
Glenn F. Hopps Independence Associates III Inc. June 14, 2002

/s/ Stephen M. Ross Director of Related
- ------------------- Independence Associates III Inc. June 14, 2002
Stephen M. Ross

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners of
Independence Tax Credit Plus L.P. III and Subsidiaries
(A Delaware Limited Partnership)

In connection with our audits of the consolidated financial statements of
Independence Tax Credit Plus L.P. III and Subsidiaries (A Delaware Limited
Partnership) included in the Form 10-K as presented in our opinion dated June 5,
2002 on page 16, and based on the reports of other auditors, we have also
audited supporting Schedule I for the 2001, 2000 and 1999 Fiscal Years and
Schedule III as of March 31, 2002. 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.

TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI LLP

New York, New York
June 5, 2002

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)

CONDENSED BALANCE SHEETS

ASSETS

Investment in subsidiary partnerships are recorded in accordance with the equity
method of accounting, wherein the investments are not reduced below zero.
Accordingly, partners' capital on the consolidated balance sheets will differ
from partners' capital shown above.

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Not Including Consolidated Subsidiary Partnerships)

CONDENSED STATEMENTS OF OPERATIONS

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CONDENSED STATEMENTS OF CASH FLOWS

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2002

(a) Depreciation is computed using primarily the straight-line method over the
estimated useful lives determined by the Partnership date of acquisition.

(b) Personal property is depreciated primarily by the straight-line method over
the estimated useful lives of 5 - 12 years.

INDEPENDENCE TAX CREDIT PLUS L.P. III
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2002
(continued)

At the time the local partnerships were acquired by Independence Tax Credit Plus
III Limited Partnership, the entire purchase price paid by Independence Tax
Credit Plus III Limited Partnership 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.