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

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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, 1997

OR

[X] 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 Identification No.)
incorporation or organization)

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

Index to exhibits may be found on page 70
Page 1 of 81

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.

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 March 31, 1997, the Partnership has received $43,440,000 of Gross
Proceeds of the Offering from 2,810 investors ("BACs holders"). The Offering was
terminated on May 9, 1995. (Item 8, "Financial Statements and Supplementary
Data," Note 1).

The Partnership's business is primarily to invest 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 98.99% of the partnership interests in the
Local Partnership. As of March 31, 1997, the Partnership acquired interests in
seventeen Local Partnerships, one of which has not been consolidated and is
shown on the balance sheet, at cost, as property and equipment. As of March 31,
1997, approximately $26,824,000 (including approximately $2,950,000 classified
as a loan repayable from sale/refinancing proceeds in accordance with the
Contribution Agreement and not including acquisition fees of approximately
$1,962,000) of net proceeds has been invested in seventeen Local Partnerships of
which approximately $5,846,000 remains to be paid to the Local Partnerships, as
certain benchmarks such as occupancy levels must be attained prior to the
release of such funds. The Partnership has approximately $7,711,000 available
for future investments.

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 objects of the Partnership
are described below.

1. Entitle qualified BACs holders to Housing 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.

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.

-2-

One of the Partnership's objectives is to entitle qualified BACs holders to
Housing 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.

HUD previously released the American Community Partnerships Act (the
"ACPA"). The ACPA is HUD's blueprint for providing for the nation's housing
needs in an era of static or decreasing budget authority. Two key proposals in
the ACPA that could affect the Local Partnerships are: a discontinuation of
project-based Section 8 subsidy payments, and an attendant reduction in debt on
properties that were supported by the Section 8 payments. The ACPA calls for a
transition during which the project-based Section 8 payments would be converted
to a tenant-based voucher system. Any FHA insured debt would then be
"marked-to-market", that is revalued in light of the reduced income stream.

Several industry sources have commented to HUD and Congress that in the
event the ACPA was fully enacted in its present form, the reduction in mortgage
indebtedness would be considered taxable income to owners such as the limited
partners in the Partnership. Legislative relief has been proposed to exempt
"marked-to-market" debt from cancellation of indebtedness income treatment. At
present, there are several bills pending in Congress to address this tax relief
issue. Additionally, in the interim, HUD has agreed to annual extensions of any
expiring project-based Section 8 contracts, but there is no guarantee that such
extensions will be available in the future.

The Partnership is subject to the risks incident to potential losses
arising from the management and ownership of improved real estate. The
Partnership can also be affected by poor economic conditions generally, however
no more than 35% of the properties are located in any single state. The
Partnership intends to purchase additional properties which may further
diversify its portfolio. There are also substantial risks associated with owning
properties receiving government assistance, for example the possibility that
Congress may not appropriate funds to enable HUD to make rental assistance
payments. HUD also restricts annual cash distributions to partners based on
operating results and a percentage of the owners equity contribution. The
Partnership cannot sell or substantially liquidate its investments in subsidiary
partnerships during the period that the subsidy agreements are in existence,
without HUD's approval. Furthermore, there may not be market demand for
apartments at full market rents when the rental assistance contracts expire.

Competition

The real estate business is highly competitive and substantially all of the
properties acquired and to be acquired by the Partnership are expected to have
active competition from similar properties in their respective vicinities. The
Partnership will compete in the acquisition of properties with many other
entities engaged in real estate investment activities, some of which have
greater assets than the Partnership. In addition, the number of entities and the
amount available for investment in properties of a type suitable for investment
by the Partnership may increase, resulting in increased competition for such
investments and possible increases in the prices to be paid. 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.

-3-

Employees

The Partnership does not have any direct employees. All services are
performed for the Partnership by the General Partner and their 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.

The Partnership holds a 98.99% limited partnership interest in seventeen
Local Partnerships as of March 31, 1997. 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.

Local Partnership Schedule

Name and Location Percentage of Units
(Number of Units) Date Acquired Occupied at May 1,
- - ----------------- ------------- -----------------------------
1997 1996 1995
---- ---- ----
Edward Hotel
Limited Partnership
Los Angeles, CA (47) November 1994 100% 98% 0%*

Pacific-East L.P.
Brooklyn, NY (39) December 1994 97% 100% 97%

Overtown Development
Group, Ltd.
Miami, FL (65) December 1994 89% 90% 86%(1)

Sumpter Commons
Associates, L.P. April 1995 95% 100% 0%*
Brooklyn, NY (21)

Park Housing
Limited Partnership May 1995 97% 86%(1)
Hartford, CT (30)

Livingston Manor Urban
Renewal Associates, L.P. June 1995 94% 34%(1)
New Brunswick, NJ (50)

Jefferis Square Housing
Partnership L.P. June 1995 97% 0%*
Chester, PA (36)

2301 First Avenue
Limited Partnership August 1995 97% 96%
New York, NY (92)

-4-

Local Partnership Schedule
(continued)
Name and Location Percentage of Units
(Number of Units) Date Acquired Occupied at May 1,
- - ----------------- ------------- -----------------------------
1997 1996 1995
---- ---- ----
Lewis Street L.P. October 1995 100% 0%*
Buffalo, NY (32)

Savannah Park Housing
Limited Partnership October 1995 77% 92%
Washington, DC (64)

Brannon Group, L.C December 1995 95% 96%
Leisure City, FL (80)

Mansion Court Phase II
Venture December 1995 100% 0%*
Philadelphia, PA (19)

Primm Place Partners, L.P. December 1995 31%* 0%*
St. Louis, MI (128)

BK-9-A Partners L.P. December 1995 100% 100%
Brooklyn, NY (23)

BK-10K Partners L.P. December 1995 91% 100%
Brooklyn, NY (21)

Aspen-Olive Associates
Philadelphia, PA (22) October 1996 0%*

West Mill Creek Associates
III L.P.
Philadelphia, PA (72) January 1997 0%*

*Properties still in construction phase.

(1) Properties are in rent-up phase.

The Partnership invested in Local Partnerships owning existing Apartment
Complexes which receive either Federal or state subsidies. The U.S. Department
of Housing and Urban Development ("HUD"), through FHA, administers a variety of
subsidies for low- and moderate-income housing. FHA administers similar housing
programs for non-urban areas. The Federal programs generally provide one or a
combination of the following forms of assistance: (i) mortgage loan insurance,
(ii) rental subsidies and (iii) reduction of mortgage interest payments.

i) HUD provides mortgage insurance for rental housing projects pursuant to
a number of sections of Title II of the National Housing Act ("NHA"), including
Section 236, Section 221(d)(4), Section 221(d)(3) and Section 220. Under all of
these programs, HUD will generally provide insurance equal to 100% of the total
replacement cost of the project to non-profit owners and 90% of the total
replacement cost to limited-distribution owners. Mortgages are provided by
institutions approved by HUD, including banks, savings and loan companies and
local housing authorities. Section 221(d)(4) of NHA provides for federal
insurance of private construction and permanent mortgage loans to finance new
construction of rental apartment complexes containing five or more units. The
most significant difference between the 221(d)(4) program and the 221(d)(3)
program is the

-5-

maximum amount of the loan which may be obtained. Under the 221(d)(3) program,
non-profit sponsors may obtain a permanent mortgage equal to 100% of the total
replacement cost; no equity contribution is required of a non-profit sponsor. In
all other respects the 221(d)(3) program is substantially similar to the
221(d)(4) program.

ii) Many of the tenants in HUD insured projects receive some form of rental
assistance payments, primarily through the Section 8 Housing Assistance Payments
Program (the "Section 8 Program"). Apartment Complexes not receiving assistance
through the Section 8 Program ("Section 8 Payments") will generally have
limitations on the amounts of rent which may be charged. One requirement imposed
by HUD regulations effective for apartment complexes initially approved for
Section 8 payments on or after November 5, 1979 is to limit the amount of the
owner's annual cash distributions from operations to 10% of the owner's equity
investment in an apartment complex if the apartment complex is intended for
occupancy by families and to 6% of the owner's equity investment in an apartment
complex intended for occupancy by elderly persons. The owner's equity investment
in the apartment complex is 10% of the project's replacement cost as determined
by HUD.

iii) Section 236 Program. As well as providing mortgage insurance, the
Section 236 program also provides an interest credit subsidy which reduces the
cost of debt service on a project mortgage, thereby enabling the owner to charge
the tenants lower rents for their apartments. Interest credit subsidy payments
are made monthly by HUD directly to the mortgagee of the project. Each payment
is in an amount equal to the difference between (i) the monthly interest payment
required by the terms of the mortgage to pay principal, interest and the annual
mortgage insurance premium and (ii) the monthly payment which would have been
required for principal and interest if the mortgage loan bore interest at the
rate of 1%. These payments are credited against the amounts otherwise due from
the owner of the project, who makes monthly payments of the balance.

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. Rents for the
residential units are determined annually by HUD and reflect increases in
consumer price indices in various geographic areas.

Management continuously reviews the physical state of the properties and
budgets improvements when required which are generally funded from cash flow
from operations or release of replacement reserve escrows. No improvements are
expected to require additional financing.

Management continuously 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 general partners of the Local
Partnerships ("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 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").

-6-

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 liquidating 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.

Housing Tax Credits with respect to a given Apartment Complex are available
for a ten-year period that commences when the property is placed into service.
However, the annual Tax Credits available in the year in which the Apartment
Complex is placed in service, must be prorated based upon the 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 2301
First Avenue and Lewis Street 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.

-7-

PART II

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

As of March 31, 1997, 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.

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 plans to impose 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 such procedures will remain in effect until such time, if ever, as
further revision of the Revenue Act of 1987 may permit the Partnership to lessen
the scope of the restrictions.

As of June 12, 1997, the Partnership has approximately 2,810 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.

The Partnership has made no distributions to the BACs holders as of March
31, 1997. The Partnership does not anticipate providing cash distributions to
its BACs holders other than from net refinancing or sales proceeds.

There has recently been an increasing number of requests for the list of
BACs holders of limited partnerships such as the Partnership. Often these
requests are made by a person who, only a short time before making the request,
acquired merely a small number of BACs in the partnership and seeks the list for
an improper purpose, a purpose that is not in the best interests of the
partnership or is harmful to the partnership. In order to best serve and protect
the interests of the Partnership and all of its investors, the General Partner
of the Partnership has adopted a policy with respect to requests for the
Partnership's list of BACs holders. This policy is intended to protect investors
from unsolicited and coercive offers to acquire BACs holders' interest and does
not limit any other rights the General Partner may have under the Partnership
Agreement or applicable law.

-8-

Item 6. Selected Financial Data.

The information set forth below presents selected financial data of the
Partnership. There were no operations prior to commencement of the Offering of
BACs on June 7, 1994. Additional financial information is set forth in the
audited financial statements in Item 8 hereof.

OPERATIONS Year Ended March 31
- - ---------- -------------------------------------------
1997 1996 1995
----------- ----------- -----------
Revenues $ 3,420,191 $ 2,289,930 $ 489,375
Operating expenses 4,840,028 2,573,212 465,423
----------- ----------- -----------

Net income (loss) before
minority interest (1,419,837) (283,282) 23,952

Minority interest in loss of
subsidiary partnerships 2,563 415 383
----------- ----------- -----------

Net income (loss) $(1,417,274) $ (282,867) $ 24,335
=========== =========== ===========

Net income (loss) per
weighted average BAC $ (32.30) $ (6.60) $ 1.79
=========== =========== ===========

FINANCIAL POSITION March 31
-----------------------------------------------------
1997 1996 1995 1994
----------- ----------- ----------- -----------
Total assets $76,809,088 $74,448,444 $35,005,729 $ 51,010
=========== =========== =========== ===========

Total liabilities $38,050,750 $34,647,450 $ 6,862,014 $ 125,423
=========== =========== =========== ===========

Minority interest $ 1,721,534 $ 1,346,916 $ 95,670 $ 0
=========== =========== =========== ===========

Total partners' capital $37,036,804 $38,454,078 $28,048,045 $ (74,413)
=========== =========== =========== ===========

During the years ended March 31, 1997, 1996 and 1995, total assets and
liabilities increased primarily due to the continued acquisition of Local
Partnerships. For the years ended March 31, 1997, 1996 and 1995 property and
equipment increased approximately $11,600,000 and $28,600,000 and $6,800,000
respectively, construction in progress increased approximately $600,000 and
$4,700,000 and $800,000, respectively, and mortgage notes increased
approximately $4,900,000, $16,000,000 and $2,800,000, respectively. For the
years ended March 31, 1996 and 1995, construction notes increased approximately
$600,000 and $2,200,000, respectively. For the years ended March 31, 1996 and
1995, the increase in assets was also due to capital contributions which were
not fully expended. For the year ended March 31, 1997, the increase in property
and equipment and construction in progress was partially offset by a decrease in
cash and cash equivalents, investments available for sale and cash held in
escrow as a result of the funding of such acquisitions and construction. For the
years ended March 31, 1997, 1996 and 1995, minority interest increased due to
capital contributions from local general partners.

Cash Distributions

The Partnership has made no distributions to the BACs holders as of March
31, 1997.

-9-

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

Liquidity and Capital Resources

The Partnership's primary source of funds include (i) interest earned on
Gross Proceeds which are invested in tax-exempt money market instruments pending
final payments to the Local Partnerships and (ii) working capital reserves in
the original amount of 2.5% of gross proceeds raised and interest earned
thereon. All these sources of funds are available to meet obligations of the
Partnership.

The Partnership has received $43,440,000 in gross proceeds for BACs
pursuant to a public offering resulting in net proceeds available for investment
of approximately $34,535,000 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, 1997, the Partnership has invested approximately
$26,824,000 (including approximately $2,950,000 classified as loans repayable
from sale/refinancing proceeds in accordance with the Contribution Agreement and
not including acquisition fees of approximately $1,962,000) of net proceeds in
seventeen Local Partnerships of which approximately $5,846,000 remains to be
paid to the Local Partnerships (including approximately $1,645,000 being held in
escrow) as certain benchmarks, such as occupancy level, must be attained prior
to the release of the funds. Two of the Local Partnerships were acquired during
the year ended March 31, 1997 for a combined purchase price of approximately
$6,228,000 not including acquisition fees of approximately $470,000, of which
approximately $3,549,000 remains to be paid. The Partnership has approximately
$7,711,000 available for future investments. During the year ended March 31,
1997, approximately $5,857,000 was paid to Local Partnerships, including
purchase price adjustments (of which approximately $1,251,000 was released from
escrow). An additional $150,000 was placed into escrow for purchase price
payments during the year ended March 31, 1997. The Partnership will be acquiring
additional properties, and 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 purchase price of approximately $8,700
during the year ended March 31, 1997.

During the year ended March 31, 1997, cash and cash equivalents decreased
approximately $1,760,000. This decrease is primarily due to construction in
progress of $10,810,000, acquisition of property and equipment of $875,000, a
net decrease in due to local general partners and affiliates relating to
investing and financing activities of $1,122,000, a decrease in accounts payable
and other liabilities of $1,479,000 and an increase in due from general partner
and affiliates of $317,000 which exceeded net cash provided by operating
activities of $160,000, net proceeds from mortgage notes and construction loans
of $4,820,000, a decrease in investments available for sale of $5,002,000, a
decrease in cash held in escrow of $2,478,000 and an increase in capitalization
of consolidated subsidiaries attributable to minority interest of $377,000.

A working capital reserve of approximately $1,086,000 has 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, 1997 and 1996, approximately $872,000 and
$888,000, respectively, of this reserve remained unused The General Partner
believes that these reserves, plus any cash distributions received from the
operations of the Local Partnerships, will be sufficient to fund the
Partnership's ongoing operations for the foreseeable future.

The Partnership has negotiated development deficit guarantees with the
Local Partnerships in which it has invested. The Local General Partners have
agreed to fund development deficit through the breakeven dates of each of the
Local Partnerships. As of March 31, 1997, 1996 and 1995 the gross amounts of
Development Deficit Guarantees for two, two and one Local Partnerships
aggregated approximately $2,782,000, $2,782,000 and $302,000, respectively, none
of which have expired as of March 31, 1997, 1996 and 1995. Such guarantees are
defined in their respective agreements. As of March 31, 1997, 1996 and 1995,
$10,000, $0 and $0 has been funded under the Development Deficit Guaranty
Agreements. All current development deficit guarantees expire within the next
three years. Management does not expect their expiration to have a material
impact on liquidity, based on prior years' fundings.

-10-

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, 1997,
1996 and 1995, the gross amounts of the Operating Deficit Guarantees aggregates
approximately $3,360,000, $2,991,000 and $393,000, respectively, none of which
have expired as of March 31, 1997, 1996 and 1995. All current operating deficit
guarantees expire within the next three years. As of March 31, 1997, 1996 and
1995, approximately $323,000, $62,500 and $0, respectively, has been funded
under the Operating Deficit Guaranty agreements. Amounts funded under such
agreements are treated as non-interest 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 a material impact on liquidity, based on
prior years' fundings.

In addition, several Local Partnerships have Rent-Up Guaranty Agreements,
in which the Local General Partner agrees to pay liquidating damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements vary for each Local Partnership, with maximum dollar amounts
to be funded for a specified period of time. As of March 31, 1997, 1996 and
1995, the gross amounts of these Rent-Up Guarantees for the Local Partnerships
aggregate approximately $1,326,000, $1,326,000 and $938,000, respectively, of
which approximately $542,000, $542,000 and $0 have expired as of March 31, 1997,
1996 and 1995, respectively. All current rent-up deficit guarantees expire
within the next three years. There has not been any funding under these guaranty
agreements. Amounts received under rental guaranty from the sellers of the
properties purchased by the Partnership will be treated as a reduction of the
asset. Management does not expect a material impact on liquidity, based on prior
years' fundings.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements, and
Development Deficit Guaranty Agreements are 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 $245,000 and $8,000 were accrued and unpaid as of March 31, 1997
and 1996, respectively.

HUD previously released the American Community Partnerships Act (the
"ACPA"). The ACPA is HUD's blueprint for providing for the nation's housing
needs in an era of static or decreasing budget authority. Two key proposals in
the ACPA that could affect the Local Partnerships are: a discontinuation of
project-based Section 8 subsidy payments, and an attendant reduction in debt on
properties that were supported by the Section 8 payments. The ACPA calls for a
transition during which the project-based Section 8 payments would be converted
to a tenant-based voucher system. Any FHA insured debt would then be
"marked-to-market", that is revalued in light of the reduced income stream.

Several industry sources have commented to HUD and Congress that in the
event the ACPA was fully enacted in its present form, the reduction in mortgage
indebtedness would be considered taxable income to owners such as the limited
partners in the Partnership. Legislative relief has been proposed to exempt
"marked-to-market" debt from cancellation of indebtedness income treatment. At
present, there are several bills pending in Congress to address this tax relief
issue. Additionally, in the interim, HUD has agreed to annual extensions of any
expiring project-based Section 8 contracts, but there is no guarantee that such
extensions will be available in the future.

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.

-11-

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 project 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

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.

Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, and any other costs incurred in acquiring the properties. A provision
for loss on impairment of assets is recorded when estimated amounts recoverable
through future operations and sale of the property on an undiscounted basis are
below depreciated cost. Property investments themselves are reduced to estimated
fair value (generally using discounted cash flows) when the property is
considered to be impaired and the depreciated cost exceeds estimate fair value.
Through March 31, 1997, the Partnership has not recorded any provisions for loss
on impairment of assets or reduction to estimated fair value.

The following is a summary of the results of operations of the Partnership
for the years ended March 31, 1997, 1996 and 1995 (the 1996, 1995 and 1994
Fiscal Years).

The net loss for the 1996 and 1995 Fiscal Years aggregated $1,417,274 and
$282,867,respectively. The net income for the 1994 Fiscal Year totaled $24,335.

The Partnership and BACs holders began recognizing Housing 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, it is expected that the amount of Tax Credits per BAC will gradually
increase over the first three years of the Partnership. Housing Tax Credits not
recognized in the first three years will be recognized in the 11th through 13th
years. The Partnership generated $2,386,725, $920,294 and $105,155 Housing Tax
Credits and $0, $1,451,336 and $0 Historic Tax Credits during the 1996, 1995 and
1994 tax years, respectively.

1996 vs. 1995

As of March 31, 1997 and 1996, the Partnership had acquired an interest in
seventeen and fifteen Local Partnerships, respectively (one and zero of which
were not consolidated and are shown on the balance sheet, at cost, as property
and equipment). The Partnership intends to utilize the net proceeds of the
offering to acquire additional interests in Local Partnerships.

-12-

The Partnership's results of operations for the years ended March 31, 1997
and 1996 consisted primarily of (1) approximately $535,000 and $910,000,
respectively, of tax-exempt interest income earned on funds not currently
invested in Local Partnerships and (2) the results of the Partnership's
investment in sixteen and fifteen consolidated Local Partnerships, respectively.

During the year ended March 31, 1997, rental income and all categories of
expenses increased. The results of operations are not comparable due to the
continued acquisition, construction and rent up of properties and are not
reflective of future operations of the Partnership due to uncompleted property
construction and rent-up of properties and the continued utilization of the net
proceeds of the offering to invest in Local Partnerships. In addition, interest
income will decrease in future periods as a substantial portion of the proceeds
from the Offering are invested in Local Partnerships. Other income decreased
approximately $292,000 for the year ended March 31, 1997 as compared to 1996,
primarily due to a decrease in interest income as a result of the release of
proceeds to the Local Partnerships. For the years ended March 31, 1997 and 1996,
seven and five of the Partnership's sixteen and fifteen consolidated properties,
respectively, completed construction and were in various stages of rent up. In
addition, zero and two of the properties, respectively, had completed
construction in a previous fiscal year, but were in various stages of rent up
for the years ended March 31, 1997 and 1996. Also for the years ended March 31,
1997 and 1996, seven and zero of the properties had completed construction and
were rented up in a previous fiscal year. As of the end of the years ended March
31, 1997 and 1996, two and eight of the Partnership's sixteen and fifteen
consolidated properties, respectively, were still under construction and three
and five of the properties, respectively, had construction loans with a
commitment for permanent financing.

1995 vs. 1994

As of March 31, 1996 and 1995, the Partnership had acquired an interest in
fifteen and three Local Partnerships, respectively. The Partnership intends to
utilize the net proceeds of the offering to acquire additional interests in
Local Partnerships.

The Partnership's results of operations for the years ended March 31, 1996
and 1995 consisted primarily of (1) approximately $910,000 and $372,000,
respectively, of tax-exempt interest income earned on funds not currently
invested in Local Partnerships and (2) the results of the Partnership's
investment in fifteen and three consolidated Local Partnerships, respectively.

During the year ended March 31, 1996, all categories of income and expenses
increased and the results of operations are not comparable due to the continued
acquisition, construction and rent up of properties and are not reflective of
future operations of the Partnership due to uncompleted property construction
and rent-up of properties and the continued utilization of the net proceeds of
the offering to invest in Local Partnerships. In addition, interest income will
decrease in future periods since a substantial portion of the proceeds from the
Offering will be invested in Local Partnerships. For the years ended March 31,
1996 and 1995, five and two of the Partnership's fifteen and three consolidated
properties, respectively, completed construction and were in various stages of
rent up. In addition, one and zero of the properties, respectively, had
completed construction in a previous fiscal year, but were in various stages of
rent up for the years ended March 31, 1996 and 1995. Also for the years ended
March 31, 1996 and 1995, one and zero of the properties had completed
construction and were rented up in a previous fiscal year. As of the end of the
years ended March 31, 1996 and 1995, eight and one of the Partnership's fifteen
and three conslidated properties, respectively, were still under construction
and five and one of the properties, respectively, had construction loans with a
commitment for permanent financing.

Results of Operations of Certain Local Partnerships

2301 First Avenue Limited Partnership

2301 First Avenue Limited Partnership ("2301 First Avenue") is a defendant
in a lawsuit alleging personal injury. The amount of the claim may exceed 2301
First Avenue's insurance coverage limits. In the opinion of 2301 First Avenue's
management, the general contractor is responsible for the claim. However, the
building's

-13-

insurance carrier does not believe that any claim paid will exceed the insurance
coverage. A lawsuit by a Class Z limited partner seeking damages, in a material
amount, has been commenced against Voodoo Contracting Corp., the buildings'
general contractor, and the sole stockholder of the corporate general partner.
The plaintiff alleges breach of agreements involving several projects including
2301 First Avenue. The action is in the discovery stage and 2301 First Avenue
and the related defendants cannot estimate damages, if any. In connection with
the litigation, on November 6, 1996, a restraining order was signed prohibiting
"CPC", the investor and special limited partners and the attorney holding 2301
First Avenue's rent-up guaranty from making payments to the general partner's
sole stockholder and his affiliates. Since it is premature to make an evaluation
of the amount of 2301 First Avenue's potential loss, it is management's opinion
that no accrual for potential losses is currently warranted in the financial
statements. The Partnership's investment in and advances to 2301 First Avenue at
March 31, 1997 and 1996 was approximately $608,000 and $868,000, respectively,
and the minority interest balance was zero at each date. 2301 First Avenue's net
loss after minority interest amounted to approximately $261,000, $76,000 and $0
for the 1996, 1995 and 1994 Fiscal Years, respectively.

Lewis Street Limited Partnership

Lewis Street Limited Partnership ("Lewis Street") has been informed that it
is a potential defendant in a cause of action that may be brought by Lewis
Street's original developer. This litigation would be vigorously contested by
Lewis Street. Legal counsel for Lewis Street has indicated that the ultimate
liability, if any, with respect to this possible action cannot be determined at
this time. Since it is premature to make an evaluation of the amount of Lewis
Street's potential loss, it is management's opinion that no accrual for
potential losses is currently warranted in the financial statements. The
Partnership's investment in Lewis Street at March 31, 1997 and 1996 was
approximately $659,000 and $710,000, respectively, and the minority interest
balance was zero at each date. Lewis Street's net loss after minority interest
amounted to approximately $52,000, $0 and $0 for the 1996, 1995 and 1994 Fiscal
Years, respectively.

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 by increased 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 as, for example, for such items as fuel,
utilities and labor.

There has recently been an increasing number of requests for the list of
BACs holders of limited partnerships such as the Partnership. Often these
requests are made by a person who, only a short time before making the request,
acquired merely a small number of BACs in the partnership and seeks the list for
an improper purpose, a purpose that is not in the best interests of the
partnership or is harmful to the partnership. In order to best serve and protect
the interests of the Partnership and all of its investors, the General Partner
of the Partnership has adopted a policy with respect to requests for the
Partnership's list of BACs holders. This policy is intended to protect investors
from unsolicited and coercive offers to acquire BACs holders' interest and does
not limit any other rights the General Partner may have under the Partnership
Agreement or applicable law.

-14-

Item 8. Financial Statements and Supplementary Data.

Sequential
Page
----

(a) 1. Consolidated Financial Statements

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31, 1997 and 1996 49

Consolidated Statements of Operations for the years ended March 31,1997, 1996
and 1995 50

Consolidated Statements of Changes in Partners' Capital for the years ended
March 31, 1997, 1996 and 1995 51

Consolidated Statements of Cash Flows for the years ended March 31, 1997, 1996
and 1995 52

Notes to Consolidated Financial Statements 54

-15-

[LETTERHEAD OF TRIEN, ROSENBERG, ROSENBERG, WEINBERG, CIULLO & FAZZARI, LLP]

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,
1997 and 1996 and the related consolidated statements of operations, changes in
partners' capital and cash flows for the years ended March 31, 1997, 1996 and
1995 (the 1996, 1995 and 1994 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 sixteen (1996 Fiscal
Year), fifteen (1995 Fiscal Year) and three (1994 Fiscal Year) subsidiary
partnerships whose losses aggregated $1,339,398, $573,825 and $201,377 for
the years ended March 31, 1997, 1996 and 1995, respectively, and whose assets
constituted 75% and 70% of the Partnership's assets at March 31, 1997 and 1996,
respectively, presented in the accompanying consolidated financial statements.
The financial statements of these 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.

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 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,
1997 and 1996, and the results of their operations and their cash flows for the
years ended March 31, 1997, 1996 and 1995 in conformity with generally accepted
accounting principles.

Trien, Rosenberg, Rosenberg,
Weinberg, Ciullo & Fazzari, LLP

New York, New York
June 30, 1997

-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, 1996 and 1995,
and the related statements of operations, changes in partners' capital and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with 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, 1996 and 1995, 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 TRIGHT LLP

Los Angeles, California
February 17, 1997

[HOLTHOUSE CARLIN & VAN TRIGT LLP LOS ANGELES, CALIFORNIA 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, 1995 and 1994,
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, 1995 and 1994, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

/s/ HOLTHOUSE CARLIN & VAN TRIGHT LLP

February 5, 1996

[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, 1996, 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, 1996, and the results of its operations, the changes in partners'
deficit and cash flows for the year then ended, in conformity with generally
accepted accounting principles.

/s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland
January 17, 1997

[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, 1995, 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, 1995, and the results of its operations, the changes in partners'
deficit and cash flows for the year then ended, in conformity with generally
accepted accounting principles.

/s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland
January 23, 1996

[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, 1994, and the related statements of operations, changes in
partners' capital and cash flows for the year then ended. These financial
statements are t
he 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, 1994, 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
February 2, 1995

[BDO SEIDMAN, LLP LETTERHEAD]

Independent Auditors' Report

Overtown Development Group, Ltd.
(A Limited Partnership)
Miami Beach, Florida

We have audited the accompanying balance sheet of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 1996, and the related statements
of profit and loss, changes in partners' capital accounts, and cash flows for
the year then ended. These financial statements are the responsibility of the
management of the partnership. 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 Overtown Development Group,
Ltd. at December 31, 1996, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.

/s/ BDO SEIDMAN, LLP

Certified Public Accountants

Miami, Florida
February 13, 1997

[BDO SEIDMAN, LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

Overtown Development Group, Ltd.
(A Limited Partnership)
Miami Beach, Florida

We have audited the accompanying balance sheet of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 1995, and the related statements
of profit and loss, changes in partners' capital accounts, and cash flows for
the year then ended. These financial statements are the responsibility of the
management of the partnership. 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 Overtown Development Group,
Ltd. at December 31, 1995, and the results of its operations and its cash flows
for the year then ended, in conformity with generally accepted accounting
principles.

/s/ BDO SEIDMAN, LLP

Certified Public Accountants

Miami, Florida
January 25, 1996, except as to Note 3
which is as of March 28, 1996.

[BDO SEIDMAN, LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

Overtown Development Group, Ltd.
(A Limited Partnership)
Miami Beach, Florida

We have audited the accompanying balance sheet of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 1994, and the related statements
of profit and loss, changes in partners' capital accounts, and cash flows for
the period from September 1, 1994 (commencement of operations) to December 31,
1997. These financial statements are the responsibility of the management of the
partnership. 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 Overtown Development Group,
Ltd. at December 31, 1994, and the results of its operations and its cash flows
for the period from September 31, 1994, (commencement of operations) to December
31, 1994, in conformity with generally accepted accounting principles.

/s/ BDO SEIDMAN, LLP

Certified Public Accountants

Miami, Florida
February 28, 1995

[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, 1996, 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
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, 1996, and the results of its operations, changes in
partners' capital, and cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ LAWLOR, O'BRIEN & CHERVENAK, LLC

West Paterson, New Jersey
February l2 1997

[LAWLOR, O'BRIEN & LESKOWICZ, 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, 1995, and the related statements of operations, for the
period (from commencement of operations) August 1, 1995 through December 31,
1995, changes in partners' capital, and cash flows for the year ended December
31, 1995. 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, 1995, and the results of its operations for the period (from
commencement of operations) August 1, 1995 through December 31, 1995, changes in
partners' equity and its cash flows for the year ended December 31, 1995 in
conformity with generally accepted accounting principles.

/s/ LAWLOR, O'BRIEN & LESKOWICZ, LLC

West Paterson, New Jersey
February 27,1996

[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, 1996, and the related statements of operations
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, 1996 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 4, 1997

[KOSTIN, RUFFKESS & COMPANY. LLC LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To The Partners
Park Housing Limited Partnership

We have audited the accompanying balance sheet of Park Housing Limited
Partnership as of December 31, 1995, and the related statements of income 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, 1995 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
January 19, 1996

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of Livingston Manor Urban Renewal
Associates, L.P. as of December 31, 1996, and the related statements of (loss),
changes in partners' equity and cash flows for the year 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 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 the
Partnership's general partner 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 Livingston Manor Urban Renewal
Associates, L.P. at December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ J. H. WILLIAMS & CO., LLP

Kingston, Pennsylvania
February 13, 1997

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of Livingston Manor Urban Renewal
Associates. L.P. as of December 31, 1995, and the related statements of income,
changes in partners' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's general
partner. 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 the
Partnership's general partner, 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 Livingston Manor Urban Renewal
Associates, L.P. at December 31. 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ J. H. WILLIAMS & CO., LLP

Kingston, Pennsylvania
February 29, 1996

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of Jefferis Square Housing
Partnership, L.P. as of December 31, 1996, and the related statements of (loss),
changes in partners' equity and cash flows for the year 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 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 the
Partnership's general partner 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 respect, the financial position of Jefferis Square Housing
Partnership, L.P. at December 31, 1996, and the results of its operations,
changes in its partners' equity and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ J. H. WILLIAMS & CO., LLP

Kingston, Pennsylvania
February 28, 1997

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of Jefferis Square Housing
Partnership, L.P. as of December 31. 1995, and the related statements of changes
in partners' equity and cash flows for the year then ended as more fully
described in Note 1. These financial statements are the responsibility of the
Partnership's general partner. 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 the
Partnership's general partner, 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 Jefferis Square Housing
Partnership, L.P. at December 31. 1995, and the changes in its partners' equity
and its cash flows for the year then ended as more fully described in Note 1 in
conformity with generally accepted accounting principles.

/s/ J. H. WILLIAMS & CO., LLP

Kingston, Pennsylvania
March 13, 1996

[LESHKOWITZ & COMPANY, LLP LETTERHEAD]

Independent Auditor's Report

To the Partners of
2301 First Avenue Limited Partnership:

We have audited the accompanying balance sheets of 2301 First Avenue
Limited Partnership as of December 31, 1996 and 1995, and the related statements
of operations, changes in partners' capital, and cash flows for the year ended
December 31, 1996 and for the period from April 1, 1995 (date of investor entry)
through December 31, 1995. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audits in accordance with 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 2301 First Avenue Limited
Partnership at December 31, 1996, and the results of its operations, changes in
partners' capital and its cash flows for the year ended December 31, 1996 and
for the period from April 1, 1995 (date of investor entry) through December 31,
1995 in conformity with generally accepted accounting principles.

/s/ LESHKOWITZ & COMPANY, LLP

New York, New York
January 16, 1997

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

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheet of Lewis Street Limited
Partnership as of December 31, 1996 and the related statements of operations,
partners' equity and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for 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, 1996 and the results of its operations, changes
in partners equity and cash flows for the year then ended, in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued reports
dated January 31, 1997 on our consideration of the Partnership's internal
control structure and on its compliance with laws and regulations.

/s/ TOSKI, SCHAEFER & CO., P.C.

Williamsville, New York
January 31, 1997

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

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheet of Lewis Street Limited
Partnership as of December 31, 1995 and the related statement of partners'
equity for the year then ended. These financial statements are the
responsibility of the general partners. Our responsibility is to express an
opinion on these financial statements based on our audit.

We conducted out 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 chat 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 Lewis Street Limited
Partnership as of December 31, 1995, in conformity with generally accepted
accounting principles.

/s/ TOSKI, SCHAEFER & CO., P.C.

Williamsville, New York
February 26, 1996

[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, 1996, 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, 1996, 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 29, 1997

[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. 1995, and the related statements of operations,
changes in partners' capital and cash flows for the period from October 18, 1995
(date of investor entry) through December 31, 1995. 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, 1995, and the results of its operations, the
changes in partners' capital and cash flows for the period from October 18, 1995
(date of investor entry) through December 1, 1995, in conformity with generally
accepted accounting principles.

/s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland
January 31, 1996

BDO BDO Seidman, LLP NationsBank Tower At International Place
Accountants and Consultants 100 S.E. 2nd Street Suite 2200
Miami Florida 33131
Telephone:(305)381-8000
Fax:(305)374-1135

Independent Auditors' Report

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

We have audited the accompanying balance sheet of Brannon Group, L.C. (A Limited
Liability Company) as of December 31, 1996, and the related statements of profit
and loss, changes in members' capital accounts, and cash flows for the year 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 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 Brannon Group, L.C. at December
31, 1996, and the results of its operations and its cash flows for the year then
ended in conformity with generally accepted accounting principles

/s/ BDO Seidman, LLP
Miami, Florida Certified Public Accountants
February 28, 1997

(BDO SEIDMAN, LLP LETTERHEAD)

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of Brannon Group, L.C. (A Limited
Liability company) as of December 31, 1995, and the related statements of profit
and loss, changes in members' capital accounts, and cash flows for the period
from November 1, 1995 (commencement of operations) to December 31, 1995. 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 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 Brannon Group, L.C. at December
31, 1995, and the results of its operations and its cash flows for the period
from November 1, 1995 (commencement of operations) to December 31, 1995, in
conformity with generally accepted accounting principles.

/s/ BDO SEIDMAN, LLP
Certified Public Accountants
Miami, Florida
April 10, 1996

J. H. WILLIAMS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
230 WYOMING AVENUE
KINGSTON, PA. 18704
----------
TELEPHONE (717) 288-365 1

To the Partners of
Mansion Court Phase II Venture (a Limited Partnership)
Philadelphia, Pennsylvania

We have audited the accompanying balance sheet of Mansion Court Phase II Venture
(a Limited Partnership) as of December 31, 1996, and the related statements of
(loss), changes in partners' equity, and cash flows for the year 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 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 Mansion Court Phase II Venture
at December 31, 1996, and the results of its operations, changes in partners'
equity and its cash flows for the year then ended in conformity with generally
accepted accounting principles.

/s/ J.H. Williams & Co., LP

Kingston, Pennsylvania
March 10, 1997

(J. H. WILLIAMS & CO., LLP LETTERHEAD)

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

We have audited the accompanying balance sheet of Mansion Court Phase II Venture
as of December 31, 1995, and the related statements of changes in partners'
equity, and cash flows for the three months then ended as more fully explained
in Note l to the financial statements. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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 Mansion Court Phase II venture
at December 31, 1995, and changes in partners' equity and its cash flows for the
three months then ended as more fully explained in Note l to the financial
statements in conformity with generally accepted accounting principles.

J. H. WILLIAMS & CO.. LLP

Kingston, Pennsylvania
March 6, 1996

Rubin, Brown, Gornstein & Co. LLP
Certified Public Accountants 230 South Bemiston Avenue
St. Louis, Missouri 63105
314/727-8150
RBG&CO. 314/727-9195 FAX
Internet http://www.rbgco.com

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, 1996 and the related statements
of 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, 1996 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 14, 1997

[RUBIN, BROWN, GORNSTEIN & CO. LLP 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, 1995 and the related statements
of 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, 1995 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 14, 1995

RAINES AND FISCHER CERTIFIED PUBLIC ACCOUNTANTS

535 FIFTH AVENUE TEL. 212 953 9200
25TH FLOOR FAX. 212 953 9366
NEW YORK, NY 10017

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, 1996 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, 1996, 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, 1997

(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, 1995 and the related statements of
operations, changes in partners' capital, and cash flows for the nine months
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, 1995, 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, 1996

RAINES AND FISCHER CERTIFIED PUBLIC ACCOUNTANTS

535 FIFTH AVENUE TEL. 212 953 9200
25TH FLOOR FAX. 212 953 9366
NEW YORK, NY 10017

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

To the Partners of BK-1OK Partners, L.P.:

We have audited the accompanying balance sheet of BK-1OK Partners, L.P. (A New
York Limited Partnership) as of December 31, 1996 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-1OK Partners, L.P. (A New
York Limited Partnership) as of December 31, 1996, 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 5, 1997

(RAINES AND FISCHER LETTERHEAD)

INDEPENDENT AUDITORS' REPORT

To the Partners of BK-IOK Partners, L.P.:

We have audited the accompanying balance sheet of BK-1OK Partners, L.P. (A New
York Limited Partnership) as of December 31, 1995 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-1OK Partners, L.P. (A New
York Limited Partnership) as of December 31, 1995, 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 26, 1996

J. H. WILLIAMS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
230 WYOMING AVENUE
----------
KINGSTON, PA. 18704
TELEPHONE (717) 288-3651

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

To the Partners of
Aspen-Olive Associates (a Limited Partnership)
Philadelphia, Pennsylvania

We have audited the accompanying balance sheet of Aspen-Olive Associates (a
Limited Partnership) as of December 31, 1996, and the related statements of
changes in partners' equity and cash flows for the year then ended as more fully
described in Note 1. These financial statements are the responsibility of the
Partnership's general partner. 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 Aspen-Olive Associates (a
Limited Partnership) at December 31, 1996, and the changes in its partners'
equity and its cash flows for the year then ended as more fully described in
Note 1 in conformity with generally accepted accounting principles.

/s/ J.H. Williams & Co., LLP

Kingston, Pennsylvania
March 15, 1997

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

March 31
----------------------------
1997 1996
------------ ------------
ASSETS

Property and equipment - at cost, less accumulated depreciation
(Notes 2 and 4) $ 47,064,479 $ 35,436,367
Construction in progress 6,147,275 5,532,919
Cash and cash equivalents (Notes 2 and 10) 7,573,213 9,333,536
Investments available for sale (Note 2) 6,500,000 11,502,412
Cash held in escrow (Note 5) 6,973,508 9,406,563
Deferred costs, less accumulated amortization (Notes 2 and 6) 1,656,870 2,302,208
Other assets 576,688 934,439
Due from local general partner and affiliates 317,056 0
------------ ------------

$ 76,809,089 $ 74,448,444
============ ============

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Mortgage notes payable (Note 7) $ 23,706,680 $ 18,790,300
Construction loan payable (Note 7) 8,165,460 8,261,957
Accounts payable and other liabilities 2,463,550 3,070,015
Due to local general partners and affiliates (Note 8) 3,480,031 4,496,145
Due to general partner and affiliates (Note 8) 235,030 29,033
------------ ------------

38,050,751 34,647,450

Minority interest 1,721,534 1,346,916
------------ ------------

Commitments and contingencies (Notes 7, 8 and 10)

Partners' capital:
Limited partners (43,440 BACs issued and outstanding) (Note 1) 37,052,563 38,455,664
General Partner (15,759) (1,586)
------------ ------------

Total partners' capital 37,036,804 38,454,078
------------ ------------

Total liabilities and partners' capital $ 76,809,089 $ 74,448,444
============ ============

See accompanying notes to consolidated financial statements.

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

Year Ended March 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------

Revenues
Rental income $ 2,737,310 $ 1,315,538 $ 113,536
Other income 682,881 974,392 375,839
----------- ----------- -----------

3,420,191 2,289,930 489,375
----------- ----------- -----------

Expenses
General and administrative 1,118,716 676,153 117,249
General and administrative-related parties (Note 8) 494,031 417,432 102,753
Repairs and maintenance 345,582 96,978 21,770
Operating and other 427,306 196,438 36,266
Real estate taxes 109,362 26,095 23,803
Insurance 187,773 80,571 15,552
Financial, principally interest 772,263 423,277 102,454
Depreciation and amortization 1,384,995 656,268 45,576
----------- ----------- -----------

Total expenses 4,840,028 2,573,212 465,423
----------- ----------- -----------

Net income (loss) before minority interest (1,419,837) (283,282) 23,952

Minority interest in loss of subsidiary partnerships 2,563 415 383
----------- ----------- -----------

Net income (loss) $(1,417,274) $ (282,867) $ 24,335
=========== =========== ===========

Net income (loss) - limited partners $(1,403,101) $ (280,038) $ 24,092
=========== =========== ===========

Weighted average number of BACs outstanding 43,440 42,407 13,470
=========== =========== ===========

Net income (loss) per weighted average BAC $ (32.30) $ (6.60) $ 1.79
=========== =========== ===========

See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL

Limited General
Total Partners Partner
------------ ------------ ------------
Partners' capital-
April 1, 1994 $ (124,413) $ (125,413) $ 1,000
Capital contributions 31,430,000 31,430,000 0

Offering costs (3,281,877) (3,281,877) 0

Net income 24,335 24,092 243
------------ ------------ ------------

Partners' capital-
March 31, 1995 28,048,045 28,046,802 1,243

Capital contributions 12,010,000 12,010,000 0

Offering costs (1,321,100) (1,321,100) 0

Net loss (282,867) (280,038) (2,829)
------------ ------------ ------------

Partners' capital-
March 31, 1996 38,454,078 38,455,664 (1,586)

Net loss (1,417,274) (1,403,101) (14,173)
------------ ------------ ------------

Partners' capital-
March 31, 1997 $ 37,036,804 $ 37,052,563 $ (15,759)
============ ============ ============

See accompanying notes to consolidated financial statements.

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

Years Ended March 31
--------------------------------------------
1997 1996 1995
------------ ------------ ------------

Cash flows from operating activities:
Net income (loss) $ (1,417,274) $ (282,867) $ 24,335
------------ ------------ ------------
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 1,384,995 656,268 45,576
Minority interest in loss of subsidiary partnerships (2,563) (415) (383)
(Increase) decrease in assets:
Cash held in escrow (45,158) (752,883) (5,278)
Other assets 357,751 (821,769) (112,670)
Increase (decrease) in liabilities:
Accounts payable and other liabilities (366,636) 2,531,185 318,332
Increase in due to local general partners and affiliates 65,509 30,406 34,854
Decrease in due to local general partners and affiliates (22,316) (79,307) 0
Due to general partners and affiliates 205,997 31,950 4,278
------------ ------------ ------------
Total adjustments 1,577,579 1,595,435 284,709
------------ ------------ ------------
Net cash provided by operating activities 160,305 1,312,568 309,044
------------ ------------ ------------
Cash flows from investing activities:
Acquisition of property and equipment (874,638) (11,552,820) (5,833,185)
Decrease (increase) in investments available for sale 5,002,412 8,497,588 (20,000,000)
Construction in progress (10,809,645) (17,921,132) (819,291)
Decrease (increase) in cash held in escrow 2,478,213 (3,733,375) (779,427)
Deferred acquisition costs 0 0 (1,885,800)
Increase in deferred costs 0 (916,737) (70,865)
(Decrease) increase in accounts payable and other liabilities (1,479,462) 0 21,353
Decrease in due to local general partners and affiliates (1,304,711) (335,905) (21,353)
Increase in due to local general partners and affiliates 1,148,356 0 0
Increase in due from general partner and affiliates (317,056) 0 0
------------ ------------ ------------
Net cash used in investing activities (6,156,531) (25,962,381) (29,388,568)
------------ ------------ ------------

Cash flows from financing activities:
Capital contributions received 0 12,010,000 31,430,000
Proceeds from mortgage notes 4,706,715 11,085,550 3,135,083
Principal payments of mortgage notes (955,253) (802,053) (328,770)
Proceeds from construction loans 2,967,158 8,261,957 2,214,890
Repayments of construction loans (1,898,737) 0 0
(Decrease) increase in due to general partner and affiliates 0 (287,114) 154,592
Increase in due to local general partners and affiliates 19,950 960,603 462,000
Decrease in due to local general partners and affiliates (985,707) (306,880) 0
Increase in offering costs 0 (1,321,100) (3,281,877)
Decrease (increase) in deferred financing costs 4,596 (898,230) (124,502)
Increase in capitalization of consolidated subsidiaries
attributable to minority interest 377,181 601,661 96,053
------------ ------------ ------------
Net cash provided by financing activities 4,235,903 29,304,394 33,757,469
------------ ------------ ------------

See accompanying notes to consolidated financial statements.

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

Years Ended March 31
1997 1996 1995
------------ ------------ ------------

Net decrease in cash and cash equivalents $ (1,760,323) $ 4,654,581 $ 4,677,945

Cash and cash equivalents at beginning of year 9,333,536 4,678,955 1,010
------------ ------------ ------------

Cash and cash equivalents at end of year $ 7,573,213 $ 9,333,536 $ 4,678,955
============ ============ ============

Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 705,544 $ 533,435 $ 102,830

Supplemental disclosure of noncash investing and financing activities:
Capitalization of acquisition costs $ 532,418 $ 1,225,842 $ 275,710

Development fees and other costs due to local general
partners and affiliates capitalized to property and equipment $ 0 $ 0 $ 741,332

Construction in progress reclassified to property and equipment $ 11,062,675 $ 13,406,553 $ 0

Increase in property and equipment through increase
in due to local general partners and affiliates $ 0 $ 3,010,395 $ 0

Increase in construction in progress through
accounts payable and other liabilities $ 752,724 $ 199,049 $ 0

Increase in construction in progress through
due to local general partners and affiliates $ 62,80 $ 0 $ 0

Mortgage notes payable converted from
construction notes payable $ 1,164,918 $ 2,214,890 $ 0

Increase in escrow deposits funded through
proceeds from mortgage notes payable $ 0 $ 4,135,600 $ 0

Reduction in mortgage notes payable assumed
by a minority interest partner $ 0 $ 650,000 $ 0

Increase in property and equipment through
accounts payable and other liabilities $ 486,909 $ 0 $ 0

Increase in deferred financing costs through
construction in progress $ 15,000 $ 0 $ 0

Increase in construction in progress through
deferred financing costs $ 66,857 $ 0 $ 0

See accompanying notes to consolidated financial statements.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

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 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, 1997, the Partnership has acquired a limited partnership
interest in seventeen subsidiary partnerships, one of which has not been
consolidated and is shown on the balance sheet, at cost, as property and
equipment. The Partnership anticipates acquiring limited partnership interests
in additional subsidiary partnerships in the future.

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. As of March 31, 1997, the Partnership has raised a
total of $43,440,000 representing 43,440 BACs.

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

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 books and
records of the Partnership are maintained on the accrual basis of accounting, in
accordance with generally accepted accounting principles ("GAAP").

b) Basis of Consolidation

The consolidated financial statements include the accounts of the
Partnership and seventeen (one and zero of which has not been consolidated and
is shown on the balance sheet, at cost, as property and equipment), fifteen and
three subsidiary partnerships in which the Partnership is a limited partner for
the years ended March 31, 1997, 1996 and 1995, respectively, (the 1996, 1995 and
1994 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 has a controlling financial interst in the subsidiary partnerships.
All intercompany accounts and transactions with the subsidiary partnerships have
been eliminated in consolidation.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 2 - Summary of Significant Accounting Policies (Continued)

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 $10,300 and $5,200 for the years ended March 31,
1997 and 1996, 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) Investments Available For Sale

At inception, the Company adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
("SFAS") No. 115 "Accounting for Certain Investments in Debt and Equity
Securities. At March 31, 1997, the Company has classified its securities as
available-for-sale.

Available-for-sale securities are carried at fair value with net unrealized
gain (loss) reported as a separate component of shareholders' equity until
realized. A decline in the market value of any available-for-sale security below
cost that is deemed other than temporary is charged to earnings resulting in the
establishment of a new cost basis for the security.

At March 31, 1997 and 1996, the Partnership's investments classified as
investments available for sale are carried at cost which approximates fair
market value, have maturities of less than one year and consists of municipal
bonds and municipal bond instruments. As further clarification, the maturities
of the investments are approximately one month and therefore there are no
material unrealized gains or losses.

e) Property and Equipment

In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of". Under SFAS No. 121, the Partnership is required to review long-lived assets
and certain identifiable intangibles for impairment whenever events or changes
in circumstances indicate that the book value of an asset may not be
recoverable. An impairment loss should be recognized whenever the review
demonstrates that the book value of a long-lived asset is not recoverable.
Effective April 1, 1996, the Partnership adopted SFAS No. 121, consistent with
the required adoption period.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 2 - Summary of Significant Accounting Policies (Continued)

Property and equipment are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Cost includes the purchase price, acquisition fees and
expenses, 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 provision for loss on impairment of
assets is recorded when estimated amounts recoverable through future operations
and sale of the property on an undiscounted basis are below depreciated cost.
Property investments themselves are reduced to estimated fair value (generally
using discounted cash flows) when the property is considered to be impaired and
the depreciated cost exceeds estimated fair value. Through March 31, 1997, the
Partnership has not recorded any provisions for loss on impairment of assets or
reduction to estimated fair value.

f) 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).

g) Organization and Offering Costs

Costs incurred to organize the Partnership, including but not limited to
legal, accounting and registration fees, are considered deferred organization
expenses. These costs are capitalized and are being amortized over a 60-month
period. Costs incurred in connection with obtaining permanent mortgage financing
are amortized over the lives of the related mortgage notes. 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.

h) 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.

i) 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.

j) Use of Estimates

The preparation of financial statements in conformity with 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.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 3 - Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments (all of which are held for non-trading
purposes) for which it is practicable to estimate that value:

Cash and Cash Equivalents, 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.

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

March 31, 1997 March 31, 1996
------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------

Mortgage notes payable for which it is:

Practicable to estimate fair value $ 1,403,311 $ 1,282,385 $ 6,831,785 $ 6,814,870
Not practicable $22,303,369 (a) $11,958,515 (a)

Construction Loans Payable for which it is:

Practicable to estimate fair value $ 1,353,030 $ 316,302 $ 1,449,527 $ 1,359,215
Not Practicable $ 6,812,430 (a) $ 6,812,430 (a)

(a) 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.

The carrying amount of other assets and liabilities reported on the
statement of financial position that require such disclosure approximates fair
value.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 4 - Property and Equipment

The components of property and equipment and their estimated useful lives
are as follows:

March 31 Estimated
------------------------- Useful Lives
1997 1996 (Years)
----------- ----------- ------------

Land $ 1,066,980 $ 1,184,481 --
Building and improvements 45,710,274 34,509,701 20-40
Investment in limited partnership (a) 1,577,356 0
Furniture and fixtures 647,867 351,655 6-12
----------- -----------

49,002,477 36,045,837
Less: Accumulated depreciation 1,937,998 609,470
----------- -----------

$47,064,479 $35,436,367
=========== ===========

(a) Represents the Partnership's investment, at cost, as of March 31, 1997
in West Mill Creek Associates III L.P. which was acquired in January 1997 and
was not consolidated in the accompanying financial statements.

Included in property and equipment at March 31, 1997 and 1996 was
$1,962,092 and $1,501,552, respectively, of acquisition fees paid to the General
Partner and $943,592 and $845,223, respectively, of acquisition expenses. In
addition, as of March 31, 1997 and 1996, building and improvements and
construction in progress includes $598,355 and $418,579, respectively, of
capitalized interest.

In connection with the rehabilitation of the properties, the subsidiary
partnerships have incurred developer's fees of $5,626,681 and $5,148,029 to the
local general partners and affiliates as of March 31, 1997 and 1996,
respectively. Such fees have been included in the cost of property and
equipment.

Depreciation expense for the years ended March 31, 1997, 1996 and 1995
amounted to $1,328,528, $567,897 and $41,573, respectively.

NOTE 5 - Cash Held in Escrow

Cash held in escrow consists of the following:

March 31
--------------------------
1997 1996
---------- ----------
Purchase price payments* $1,644,979 $2,745,731
Construction 4,322,325 5,770,166
Real estate taxes, insurance and other 803,319 758,161
Reserve for replacements 202,885 132,505
---------- ----------

$6,973,508 $9,406,563
========== ==========

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

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 6 - Deferred Costs

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

March 31, March 31,
1997 1996 Period
---------- ----------- -----------
Financing costs $ 966,279 $ 1,022,732 *
Deferred acquisition costs 702,034 1,234,452 **
Organization costs 137,398 137,398 60 months
---------- -----------
1,805,711 2,394,582
Less: Accumulated amortization 148,841 92,374
---------- -----------

$1,656,870 $ 2,302,208
========== ===========

*Over the life of the related mortgages.

**Will be capitalized as part of the cost of future acquisitions.

Amortization expense for the year ended March 31, 1997 and 1996 amounted to
$56,467, $88,371 and $4,003, 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
$39,000 including principal and interest at rates varying from 0% to 10.5% per
annum, through the year 2033. 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, 1997 for each of the
next five fiscal years and thereafter, are as follows:

Fiscal Year Ending Amount
------------------ ------

1997 $ 1,502,738
1998 202,820
1999 215,729
2000 224,377
2001 239,631
Thereafter 21,321,385
-----------
$23,706,680
===========

The mortgage agreements require monthly deposits to replacement reserves of
approximately $15,500 and monthly deposits to escrow accounts for real estate
taxes, hazard and mortgage insurance and other (Note 5).

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 7 - Mortgage and Construction Notes Payable (Continued)

As of December 31, 1996, four subsidiary partnerships have construction
loan commitments totaling approximately $9,562,000. As of December 31, 1996,
such loans have an outstanding balance of approximately $8,165,000.

In addition, the U.S. Department of Housing and Urban Development ("HUD")
has committed to provide an Upfront Grant totaling $4,160,000 towards the
construction and development of one Local Partnership. Grant funds totaling
$3,153,274 were utilized by the Local Partnership as of December 31, 1996.

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 receives their pro-rata share of profits,
losses and tax credits.

The General Partner and its affiliates perform services for the
Partnership. The costs incurred for the year ended March 31, 1997 are as
follows:

A) Acquisition Fees

The General Partner is entitled to a consulting and monitoring fee equal to
6.0% of the gross proceeds of the offering paid upon investor closings, for its
services in connection with assisting the Local Partnerships in acquiring
apartment complexes and supervising the contruction of the complexes. Such fees
are capitalized as a cost of the investments upon closing of subsidiary
partnerships acquisitions. As of both March 31, 1997 and 1996, $2,606,400 of
such costs have been incurred, of which 1,962,092 and 1,501,552, respectively
have been capitalized.

B) Public Offering Costs

Costs incurred to organize the Partnership and certain costs of offering
the BACs including but not limited to legal, accounting, and registration fees
are considered organization and offering expenses. These costs have been
capitalized. Related Equities Corporation (the "Dealer Manager") is entitled to
a non-accountable organization and offering expense allowance equal to 2.5% of
Gross Proceeds, in consideration of which it is obligated to pay all such
expenses up to the amount of such allowance. The Partnership is obligated to pay
all such expenses that are in excess of 2.5% of Gross Proceeds and up to 3.5% of
Gross Proceeds and the Dealer Manager is responsible for all such expenses in
excess of 3.5% of Gross Proceeds. The selling commissions and a non-accountable
marketing expense allowance are considered offering expenses. These costs are
charged directly to limited partners' capital. As of both March 31, 1997 and
1996, offering costs totaled $1,470,400, and along with selling commissions (see
Note 8(C)) were charged directly to limited partner's capital.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 8 - Related Party Transactions (Continued)

C) Selling Commissions and Fees

The Partnership has paid up to 7.5% of the aggregate purchase price of BACs
sold, without regard to quantity discounts, to Related Equities Corporation. To
the extent other broker/dealers sold the interests such amounts were fully
reallocated to the other broker/dealers. As of both March 31, 1997 and 1996,
$3,258,000 was paid or incurred to Related Equities Corporation and then fully
reallocated to other unaffiliated broker/dealers.

D) Guarantees

The Partnership has negotiated development deficit guarantees with the
Local Partnerships in which it has invested. The Local General Partners have
agreed to fund development deficit through the breakeven dates of each of the
Local Partnerships. As of March 31, 1997, 1996 and 1995 the gross amounts of
Development Deficit Guarantees for two, two and one Local Partnerships
aggregated approximately $2,782,000, $2,782,000 and $302,000, respectively, none
of which have expired as of March 31, 1997, 1996 and 1995. Such guarantees are
defined in their respective agreements. As of March 31, 1997, 1996 and 1995,
$10,000, $0 and $0, respectively, has been funded under the Development Deficit
Guaranty Agreements. All current development deficit guarantees expire within
the next three years.

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, 1997,
1996 and 1995, the gross amounts of the Operating Deficit Guarantees aggregates
approximately $3,360,000, $2,991,000 and $393,000, respectively, none of which
have expired as of March 31, 1997, 1996 and 1995. All current operating deficit
guarantees expire within the next three years. As of March 31, 1997, 1996 and
1995, approximately $323,000, $62,500 and $0, respectively, has been funded
under the Operating Deficit Guaranty agreements. Amounts funded under such
agreements are treated as non-interest bearing loans, which will be paid only
out of 50% of available cash flow or out of available net sale or refinancing
proceeds.

In addition, several Local Partnerships have Rent-Up Guaranty Agreements,
in which the Local General Partner agrees to pay liquidating damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements vary for each Local Partnership, with maximum dollar amounts
to be funded for a specified period of time. As of March 31, 1997, 1996 and
1995, the gross amounts of these Rent-Up Guarantees for the Local Partnerships
aggregate approximately $1,326,000, $1,326,000 and $938,000, respectively, of
which approximately $542,000, $542,000 and $0 have expired as of March 31, 1997,
1996 and 1995, respectively. All current rent-up deficit guarantees expire
within the next three years. There has not been any funding under these guaranty
agreements. Amounts received under rental guaranty from the sellers of the
properties purchased by the Partnership will be treated as a reduction of the
asset.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements and
Development 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.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 8 - Related Party Transactions (Continued)

E) Other Related Party Expenses

The costs incurred to related parties for the years ended March 31, 1997,
1996 and 1995 were as follows:

Year Ended March 31
--------------------------------
1997 1996 1995
-------- -------- --------

Partnership management fees (a) $237,252 $245,805 $ 43,764
Expense reimbursement (b) 91,999 79,409 50,989
Property management fees (c) 139,780 75,718 8,000
Local administrative fees (d) 25,000 16,500 0
-------- -------- --------

$494,031 $417,432 $102,753
======== ======== ========

(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 $245,000 and $8,000 were
accrued and unpaid as of March 31, 1997 and 1996, respectively.

(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.

(c) Property management fees incurred by Local Partnerships amounted to
$180,668 and $94,682 for the years ended March 31, 1997 and 1996 respectively.
Of these fees, $139,780 and $75,718 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.

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 8 - Related Party Transactions (Continued)

F) Due to Local General Partners and Affiliates

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

March 31,
-------------------------
1997 1996
---------- ----------

Operating advances $ 33,648 $ 32,445
Development fee payable 2,695,502 3,089,099
Other capitalized costs 116,335 155,120
Construction costs payable 98,101 281,061
General Partner distributions 0 110,000
General Partner loan payable (i) 117,521 97,571
Construction advances 390,981 650,901
Management and other operating fees 27,943 79,948
---------- ----------

$3,480,031 $4,496,145
========== ==========
(i) General Partner loan payable consist of the following:

Sumpter Commons Associates, L.P. - $ 117,521 $ 97,571
========== ==========
This loan bears interest at 8% per annum
and is expected to be paid in 1997

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 9 - Income Taxes

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

For the Year Ended December 31,
---------------------------------------------
1996 1995 1994
Financial statement

net (loss) income $(1,417,274) $ (282,867) $ 24,335

Differences between depreciation
and amortization expense records
for financial reporting purposes
and the accelerated costs
recovery system utilized
for income tax purposes (134,273) (37,001) 497

Differences resulting from parent
company having a different fiscal
year for income tax and financial
reporting purposes 0 78,935 (124,879)
Tax exempt interest income (595,958) (937,526) (171,485)

Other, including accruals for financial reporting not
deductible for tax purposes until paid 119,542 94,112 5,116
----------- ----------- -----------
Net loss as shown on the income tax return
for the calendar year ended $(2,027,963) $(1,084,347) $ (266,416)
=========== =========== ===========

NOTE 10 - Commitments and Contingencies

a) Subsidiary Partnerships - Litigation

2301 First Avenue Limited Partnership

2301 First Avenue Limited Partnership ("2301 First Avenue") is a defendant
in a lawsuit alleging personal injury. The amount of the claim may exceed 2301
First Avenue's insurance coverage limits. In the opinion of 2301 First Avenue's
management, the general contractor is responsible for the claim. However, the
building's insurance carrier does not believe that any claim paid will exceed
the insurance coverage. A lawsuit by a Class Z limited partner seeking damages,
in a material amount, has been commenced against Voodoo Contracting Corp., the
buildings' general contractor, and the sole stockholder of the corporate general
partner. The plaintiff alleges breach of agreements involving several projects
including 2301 First Avenue. The action is in the discovery stage and 2301 First
Avenue and the related defendants cannot estimate damages, if any. In connection
with the litigation, on November 6, 1996, a restraining order was signed
prohibiting "CPC", the investor and special limited partners and

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997

NOTE 10 - Commitments and Contingencies (Continued)

the attorney holding 2301 First Avenue's rent-up guaranty from making payments
to the general partner's sole stockholder and his affiliates. Since it is
premature to make an evaluation of the amount of 2301 First Avenue's potential
loss, it is management's opinion that no accrual for potential losses is
currently warranted in the financial statements. The Partnership's investment in
and advances to 2301 First Avenue at March 31, 1997 and 1996 was approximately
$608,000 and $868,000, respectively, and the minority interest balance was zero
at each date. 2301 First Avenue's net loss after minority interest amounted to
approximately $261,000, $76,000 and $0 for the 1996, 1995 and 1994 Fiscal Years,
respectively.

Lewis Street Limited Partnership

Lewis Street Limited Partnership ("Lewis Street") has been informed that it
is a potential defendant in a cause of action that may be brought by Lewis
Street's original developer. This litigation would be vigorously contested by
Lewis Street. Legal counsel for Lewis Street has indicated that the ultimate
liability, if any, with respect to this possible action cannot be determined at
this time. Since it is premature to make an evaluation of the amount of Lewis
Street's potential loss, it is management's opinion that no accrual for
potential losses is currently warranted in the financial statements. The
Partnership's investment in Lewis Street at March 31, 1997 and 1996 was
approximately $659,000 and $710,000, respectively, and the minority interest
balance was zero at each date. Lewis Street's net loss after minority interest
amounted to approximately $52,000, $0 and $0 for the 1996, 1995 and 1994 Fiscal
Years, respectively.

b) Leases

One of the subsidiary partnerships is leasing the land on which the Project
is located, for a term of 50 years and monthly rent payments of $1,449.

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
$6,648,000 at March 31, 1997.

d) Other

The Partnership is subject to the risks incident to potential losses
arising from the management and ownership of improved real estate. The
Partnership can also be affected by poor economic conditions generally, however
no more than 35% of the properties are located in any single state. The
Partnership intends to purchase additional properties which may further
diversify its portfolio. There are also substantial risks associated with owning
properties receiving government assistance, for example the possibility that
Congress may not appropriate funds to enable HUD to make rental assistance
payments. HUD also restricts annual cash distributions to partners based on
operating results and a percentage of the owners equity contribution. The
Partnership cannot sell or substantially liquidate its investments in subsidiary
partnerships during the period that the subsidy agreements are in existence,
without HUD's approval. Furthermore, there may not be market demand for
apartments at full market rents when the rental assistance contracts expire.

The Partnership and BACs holders will begin to recognize Housing Tax
Credits with respect to a Property when the Credit Period for such Property
commences. Because of the time required for the acquisition, completion and
rent-up of Properties, it is expected that the amount of Tax Credits per BAC
will gradually increase over the first three years of the Partnership. Housing
Tax Credits not recognized in the first three years will be recognized in the
11th through 13th years. The Partnership generated $2,386,725, $920,294 and
$105,155 Housing Tax Credits and $0 and $1,451,336 and $0 Historic Tax Credits
during the 1996, 1995 and 1994 tax years, respectively.

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 Related Independence Associates III L.P.,
the General Partner. Certain information concerning the directors and executive
officers of Related Independence Associates III Inc. ("RIAI III"), the sole
general partner of the General Partner, is set forth below.

Name Position
---- --------
Stephen M. Ross Director

J. Michael Fried President, Chief Executive Officer and Director

Alan P. Hirmes Senior Vice President

Stuart J. Boesky Vice President

Marc D. Schnitzer Vice President

Richard A. Palermo Treasurer

Lynn A. McMahon Secretary

STEPHEN M. ROSS, 57, is a Director of RIAI III. Mr. Ross is also 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.

J. MICHAEL FRIED, 53, is President, Chief Executive Officer and a Director
of RIAI III. Mr. Fried is the sole shareholder of one of the general partners of
Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is responsible
for all of Capital's syndication, finance, acquisition and investor reporting
activities. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.

ALAN P. HIRMES, 42, is a Senior Vice President of RIAI III. Mr. Hirmes 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.

STUART J. BOESKY,41, is a Vice President of RIAI III. Mr. Boesky practiced
real estate and tax law in New York City with the law firm of Shipley &
Rothstein from 1984 until February 1986 when he joined Capital. From 1983 to
1984 Mr. Boesky practiced law with the Boston law firm of Kaye Fialkow Richard &
Rothstein (which subsequently merged with Strook & Strook & Lavan) and from 1978
to 1980 was a consultant specializing in real estate at the accounting firm of
Laventhol & Horwath. Mr. Boesky graduated from Michigan State University with a
Bachelor of Arts degree and from Wayne State School of Law with a Juris Doctor
degree. He then received a Master of Laws degree in Taxation from Boston
University School of Law.

MARC D. SCHNITZER, 36, is a Vice President of RIAI III. He is responsible
both for financial restructurings 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.

RICHARD A. PALERMO, 37, is Treasurer of RIAI III. Mr. Palermo has been a
Certified Public Accountant in New York since 1985. Prior to joining Related in
September 1993, Mr. Palermo was employed by Sterling Grace Capital Management
from October 1990 to September 1993, Integrated Resources, Inc. from October
1988 to October 1990 and E.F. Hutton & Company, Inc. from June 1986 to October
1988. From October 1982 to June 1986, Mr. Palermo was employed by Marks Shron &
Company and Mann Judd Landau, certified public accountants. Mr. Palermo
graduated from Adelphi University with a Bachelor of Business Administration
Degree.

LYNN A. McMAHON, 41, is Secretary of RIAI III. Since 1983, she has served
as Assistant to the President of Capital. From 1978 to 1983 she was employed at
Sony Corporation of America in the Government Relations Department.

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.

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

Name and Address Amount and Nature of Percent
Title of Class of Beneficial Owner Beneficial Ownership of Class
- - -------------- ------------------- -------------------- --------

General Partnership Related Independence $1,000 capital contribution 100%
Interest in the Partnership Associates III L.P. -directly owned
625 Madison Avenue
New York, NY 10022

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.

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.

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.

The firm of Battle Fowler LLP renders legal services to the Partnership.
Martin L. Edelman, a former director, is counsel to Battle Fowler LLP.

PART IV

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

Sequential
Page

(a)1. Consolidated Financial Statements

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31, 1997 and
1996 49

Consolidated Statements of Operations for the years
ended March 31, 1997, 1996 and 1995 50

Consolidated Statements of Changes in Partners'
Capital for the years ended March 31, 1997, 1996 and
1995 51

Consolidated Statements of Cash Flows for the years
ended March 31, 1997, 1996 and 1995 52

Notes to Consolidated Financial Statements 54

(a)2. Consolidated Financial Statement Schedules

Independent Auditors' Report 76

Schedule I - Condensed Financial Information of
Registrant 77

Schedule III - Real Estate and Accumulated
Depreciation 80

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

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

Sequential
Page

(a) 3. Exhibits

(3A) Agreement of Limited Partnership of Independence Tax
Credit Plus L.P. III as adopted on December 23, 1993*

(3B) Form of Amended and Restated Agreement of Limited
Partnership of Independence Tax Credit Plus L.P. III,
attached to the Prospectus as Exhibit A**

(3C) Certificate of Limited Partnership of Independence Tax
Credit Plus L.P. III as filed on December 23, 1993*

(10A) Form of Subscription Agreement attached to the Prospectus
as Exhibit B**

(10B) Escrow Agreement between Independence Tax Credit Plus L.P.
III and Bankers Trust Company*

(10C) Form of Purchase and Sales Agreement pertaining to the
Partnership's acquisition of Local Partnership Interests*

(10D) Form of Amended and Restated Agreement of Limited
Partnership of Local Partnerships*

(21) Subsidiaries of the Registrant 72

(27) Financial Data Schedule (filed herewith) 81

*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.

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

(c) Subsidiaries of the Registrant (Exhibit 21)

Jurisdiction of
Organization
------------

Edward Hotel Limited Partnership CA

Pacific-East L.P. NY

Overtown Development Group, Ltd. FL

Sumpter Commons Associates, L.P. NY

Park Housing Limited Partnership CT

Livingston Manor Urban Renewal Associates, L.P. NJ

Jefferis Square Housing Partnership, L.P. PA

2301 First Avenue Limited Partnership NY

Lewis Street Limited Partnership NY

Savannah Park Housing Limited Partnership DC

Brannon Group, L.C FL

Mansion Court Phase II Venture PA

Primm Place Partners, L.P. MI

BK-9-A Partners L.P. NY

BK-10K Partners L.P. NY

Aspen-Olive Associates PA

West Mill Creek Associates, III L.P. PA

(d) Not applicable

Supplemental Information to be furnished with Reports Filed Pursuant to
Section 15(d) of the Act by Registrants which have Not Registered Securities
Pursuant to Section 12 of the Act.

No annual report to security holders covering the Registrant's last fiscal
year nor any proxy statement, form of proxy or other proxy soliciting material
with respect to any annual or other meeting of security holders has been sent to
security holders.

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: July 2, 1997 By: /s/J. Michael Fried
-----------------------------
J. Michael Fried
President, Chief Executive Officer
and Director (principal executive 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 and Chief
/s/J. Michael Fried Executive Officer
- - ---------------------------- (principal executive officer) and Director of
J. Michael Fried Related Independence Associates III Inc. July 2, 1997

/s/Alan P. Hirmes
- - ---------------------------- Senior Vice President (principal financial
Alan P. Hirmes officer) of Related Independence
Associates III Inc. July 2, 1997

/s/Richard Palermo Treasurer (principal accounting officer)
- - ---------------------------- of Related Independence Associates
Richard Palermo III Inc. July 2, 1997

/s/Stephen M. Ross
- - ---------------------------- Director of Related Independence
Stephen M. Ross Associates III Inc. July 2, 1997

[LETTERHEAD OF TRIEN, ROSENBERG, ROSENBERG, WEINBERG, CIULLO & FAZZARI, LLP]

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 included in the Form 10-K
as presented in our opinion dated June 30, 1997, and based on the reports of
other auditors, we have also audited supporting Schedule I for the 1996, 1995
and 1994 Fiscal Years and Schedule III as of March 31, 1997. 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 30, 1997

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

CONDENSED BALANCE SHEETS

ASSETS

March 31,
----------------------------
1997 1996*
----------- -----------

Cash and cash equivalents $ 6,284,385 $ 5,928,019
Investments available for sale 6,500,000 11,502,412
Investment in subsidiary partnerships 21,714,210 16,800,968
Cash held in escrow 1,644,979 2,745,731
Due from subsidiary partnerships 317,056 65,974
Other assets 786,239 1,423,107
----------- -----------

Total assets $37,246,869 $38,466,211
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL

Due to general partner and affiliates $ 208,530 $ 10,033
Other liabilities 1,535 2,100
----------- -----------

Total liabilities 210,065 12,133

Partners' capital 37,036,804 38,454,078
----------- -----------

Total liabilities and partners' capital $37,246,869 $38,466,211
=========== ===========

* Reclassified for comparative purposes

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

CONDENSED STATEMENTS OF OPERATIONS

Year Ended March 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------

Revenues
Interest income $ 545,693 $ 927,746 $ 373,756
Other 150 50 0
----------- ----------- -----------

Total revenues $ 545,843 $ 927,796 $ 373,756
=========== =========== ===========

Expenses

Administrative and management 256,133 284,381 51,174
Administrative and management-related parties 329,251 325,214 94,753
Amortization 10,000 10,000 2,500
----------- ----------- -----------

Total expenses 595,384 619,595 148,427
----------- ----------- -----------

Income (loss) from operations (49,541) 308,201 225,329

Equity in loss of subsidiary partnerships (1,367,733) (591,068) (200,994)
----------- ----------- -----------

Net income (loss) $(1,417,274) $ (282,867) $ 24,335
=========== =========== ===========

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

Year Ended March 31,
-------------------------------------------------------
1997 1996* 1995
------------ ------------ ------------

Cash flows from operating activities:
Net income (loss) $ (1,417,274) $ (282,867) $ 24,335
------------ ------------ ------------

Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:

Equity in loss of subsidiary partnerships 1,367,733 591,068 200,994
Due from subsidiary partnerships (251,082) (65,974) (701,321)
Decrease (increase) in other assets 636,868 234,483 (1,657,590)
Increase (decrease) in liabilities:
Due to general partners and affiliates 198,497 (274,164) 158,870
Other liabilities (565) (34,673) 36,677
------------ ------------ ------------

Total adjustments 1,951,451 450,740 (1,962,370)
------------ ------------ ------------

Net cash provided by (used in) operating activities 534,177 167,873 (1,938,035)
------------ ------------ ------------

Cash flows from investing activities:

Decrease (increase) in investments available for sale 5,002,412 8,497,588 (20,000,000)
Capital contributions 0 12,010,000 31,430,000
Offering costs 0 (1,321,100) (3,281,877)
Investment in subsidiary partnerships (6,290,122) (15,126,721) (1,764,988)
Distributions from subsidiary partnerships 9,147 0 0
Decrease (increase) in cash held in escrow 1,100,752 (2,108,231) (637,500)
------------ ------------ ------------

Net cash (used in) provided by investing activities (177,811) 1,951,536 5,745,635
------------ ------------ ------------

Net increase in cash and cash equivalents 356,366 2,119,409 3,807,600

Cash and cash equivalents, beginning of year 5,928,019 3,808,610 1,010
------------ ------------ ------------

Cash and cash equivalents, end of year $ 6,284,385 $ 5,928,019 $ 3,808,610
============ ============ ============

* Reclassified for comparative purposes

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 1997

Initial Cost to Partnership Cost Capitalized
--------------------------- Subsequent to
Buildings and Acquisition:
Description Encumbrances Land Improvements Improvements
----------- ------------ ---- ------------ ------------

Apartment Complexes

Edward Hotel Limited Partnership
Los Angeles, CA $ 2,399,459 $ 275,000 $ 591,240 $ 2,557,555
Pacific East, L.P.
Brooklyn, NY 2,171,777 1,950 3,125,584 143,675
Overtown Development Group, Ltd.
Miami, FL 1,475,632 52,284 2,627,099 135,126
Sumpter Commons Associates, L.P. 1,253,898 500 1,862,916 34,302
Park Housing Limited Partnership 853,311 5,000 2,343,351 51,634
Livingston Manor Urban Renewal
Associates, L.P. 2,930,000 119,988 7,047,532 154,700
Jefferis Square Housing
Partnership, L.P. 1,900,000 55,158 0 4,517,047
2301 First Avenue Limited Partnership 5,558,532 64,350 5,818,269 70,718
Lewis Street Limited Partnership 1,503,030 7,000 0 2,734,203
Savannah Park Housing Limited
Partnership 899,034 0 2,049,888 2,039,026
Brannon Group, L.C 2,006,668 380,000 2,598,402 51,102
Mansion Court Phase II Venture 1,058,130 1,732 339,661 2,377,721
Primm Place Partners, L.P. 5,520,000 168,258 0 (52,552)
BK-9-A Partners L.P. 1,109,454 0 1,517,313 (69,740)
BK-10K Partnres L.P. 1,233,215 11,000 1,637,762 (20,633)
Investment in Partnership

$31,872,140 $ 1,142,220 $31,559,017 $14,723,884

Gross Amount at which Carried At Close of Period
------------------------------------------------- Year of
Buildings and Investment in Accumulated Construction/
Description Land Improvements Partnership Total Depreciation Renovation
----------- ---- ------------ ----------- ----- ------------ ----------

Apartment Complexes

Edward Hotel Limited Partnership
Los Angeles, CA $ 280,505 $ 3,143,290 $ 0 $ 3,423,795 $ 166,094 1994-95
Pacific East, L.P.
Brooklyn, NY 7,456 3,263,753 0 3,271,209 316,082 1994-95
Overtown Development Group, Ltd.
Miami, FL 57,790 2,756,719 0 2,814,509 163,598 1994-95
Sumpter Commons Associates, L.P. 3,055 1,894,663 0 1,897,718 95,543 1995-96
Park Housing Limited Partnership 7,555 2,392,430 0 2,399,985 92,085 1995-96
Livingston Manor Urban Renewal
Associates, L.P. 122,543 7,199,677 0 7,322,220 179,773 1995-96
Jefferis Square Housing
Partnership, L.P. 38,729 4,533,476 0 4,572,205 64,374 1995-96
2301 First Avenue Limited Partnership 66,905 5,886,432 0 5,953,337 394,793 1995-96
Lewis Street Limited Partnership 9,555 2,731,648 0 2,741,203 52,904 1995-96
Savannah Park Housing Limited
Partnership 2,555 4,086,359 0 4,088,914 133,707 1995-96
Brannon Group, L.C 382,555 2,646,949 0 3,029,504 108,666 1995-96
Mansion Court Phase II Venture 4,505 2,714,609 0 2,719,114 18,182 1995-96
Primm Place Partners, L.P. 67,159 48,547 0 115,706 3,237 1995-96
BK-9-A Partners L.P. 2,555 1,445,018 0 1,447,573 70,362 1995-96
BK-10K Partnres L.P. 13,558 1,614,571 0 1,628,129 78,598 1995-96
Investment in Partnership 1,577,356(c) 1,577,356

$ 1,066,980 $46,358,141 $ 1,577,356 $49,002,477 $1,937,998

Life on which
Depreciation in
Latest Income
Date Statements is
Description Acquired Computed(a)(b)
----------- -------- --------------

Apartment Complexes

Edward Hotel Limited Partnership
Los Angeles, CA Nov. 1994 40 years
Pacific East, L.P.
Brooklyn, NY Dec. 1994 27.5 years
Overtown Development Group, Ltd.
Miami, FL Dec. 1994 40 years
Sumpter Commons Associates, L.P. Apr. 1995 27.5 years
Park Housing Limited Partnership May 1995 27.5 years
Livingston Manor Urban Renewal
Associates, L.P. June 1995 40 years
Jefferis Square Housing
Partnership, L.P. June 1995 27.5 years
2301 First Avenue Limited Partnership Aug. 1995 27.5 years
Lewis Street Limited Partnership Oct. 1995 27.5 years
Savannah Park Housing Limited
Partnership Oct. 1995 27.5 years
Brannon Group, L.C Dec. 1995 20 - 40 years
Mansion Court Phase II Venture Dec. 1995 27.5 years
Primm Place Partners, L.P. Dec. 1995 27.5 years
BK-9-A Partners L.P. Dec. 1995 27.5 years
BK-10K Partnres L.P. Dec. 1995 27.5 years
Investment in Partnership

(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 6 - 12 years.

(c) Represents the Partnership's investment, at cost, as of March 31, 1997 in
West Mill Creek Associates III L.P. which was acquired in January 1997 and
was not consolidated in the accompanying financial statements.

Cost of Property and Equipment Accumulated Depreciation
------------------------------ ---------- --------------------------------------
Year Ended March 31
------------------------------ ----------------------------------------------------------
1997 1996 1995 1997 1996 1995
----------- ----------- ----------- ----------- ----------- -----------

Balance at beginning of period $36,045,837 $ 6,850,227 $ 0 $ 609,470 $ 41,573 $ 0
Additions during period:
Improvements 12,956,640 29,195,610 6,850,227
Depreciation expense 1,328,528 567,897 41,573

Deductions during period:
Dispositions 0 0 0 0 0 0
----------- ----------- ----------- ----------- ----------- -----------
Balance at close of period $49,002,477 $36,045,837 $ 6,850,227 $ 1,937,998 $ 609,470 $ 41,573
=========== =========== =========== =========== =========== ===========

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.