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, 2004

OR

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

Commission File Number 0-24650

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

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

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

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

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

None

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

Limited Partnership Interests and Beneficial Assignment Certificates

(Title of Class)

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

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

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

The approximate aggregate book value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of September 30, 2003 was
$17,353,000, based on Limited Partner equity as of such date.

DOCUMENTS INCORPORATED BY REFERENCE
None

PART I

Item 1. Business.

General
- -------

Independence Tax Credit Plus L.P. III (the "Partnership") is a limited
partnership which was formed under the laws of the State of Delaware on December
23, 1993. The general partner of the Partnership is Related Independence
Associates III L.P., a Delaware limited partnership (the "General Partner"). The
general partner of the General Partner is Related Independence Associates III
Inc., a Delaware corporation ("RIAI III") and is an affiliate of Related Capital
Company ("RCC"). On November 17, 2003, CharterMac acquired RCC, which is the
indirect parent of RCC Manager LLC, the sole shareholder of RIAI III. Pursuant
to the acquisition, CharterMac acquired controlling interests in the General
Partner. This acquisition did not affect the Partnership or its day-to-day
operations, as the majority of the General Partner's management team remained
unchanged.

On June 7, 1994, the Partnership commenced a public offering (the "Offering") of
Beneficial Assignment Certificates ("BACs") representing assignments of limited
partnership interests in the Partnership ("Limited Partnership Interests"),
managed by Related Equities Corporation (the "Dealer Manager"), pursuant to a
prospectus dated June 7, 1994 (the "Prospectus").

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

The Partnership's business is primarily to invest as a limited partner in other
partnerships ("Local Partnerships") owning apartment complexes ("Apartment
Complexes" or "Properties") that are eligible for the low-income housing tax
credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, some of
which may also be eligible for the historic rehabilitation tax credit ("Historic
Tax Credit"; together with Housing Tax Credits, "Tax Credits"). The
Partnership's investment in each Local Partnership represents from 98.99% to
99.98% other than one Local Partnership in which the Partnership's investment is
41.86%. As of March 31, 2004, the Partnership had acquired interests in twenty
Local Partnerships. As of March 31, 2004, approximately $35,051,000 (including
approximately $3,142,000 classified as a loan repayable from sale/refinancing
proceeds in accordance with the contribution agreement with one Local
Partnership and including acquisition fees of approximately $2,510,000) of net
proceeds has been invested in Local Partnerships of which approximately $326,000
remains to be contributed to the Local Partnerships for payment by them to the
original sellers of the Properties (including approximately $132,000 being held
in escrow), as certain benchmarks such as occupancy levels must be attained
prior to the release of such funds. The Partnership does not intend to acquire
interests in additional Local Partnerships.

Investment Objectives/General Incentives
- ----------------------------------------

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

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

2. Preserve and protect the Partnership's capital.

3. Participate in any capital appreciation in the value of the Properties and
provide distributions of Sale or Refinancing Proceeds upon the disposition of
the Properties.

2

4. Allocate passive losses to individual BACs holders to offset passive income
that they may realize from rental real estate investments and other passive
activities, and allocate passive losses to corporate BACs holders to offset
business income.

One of the Partnership's objectives is to entitle qualified BACs holders to Tax
Credits over the Credit Period. Each of the Local Partnerships in which the
Partnership has acquired an interest has been allocated by the relevant state
credit agencies the authority to recognize Tax Credits during the Credit Period
provided that the Local Partnership satisfies the rent restriction, minimum
set-aside and other requirements for recognition of the Tax Credits at all times
during such period. Once a Local Partnership has become eligible to recognize
Tax Credits, it may lose such eligibility and suffer an event of "recapture" if
its Property fails to remain in compliance with the Tax Credit requirements.
None of the Local Partnerships in which the Partnership has acquired an interest
has suffered an event of recapture.

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

Segments
- --------

The Partnership operates in one segment, which is the investment in multi-family
residential property.

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

The real estate business is highly competitive and substantially all of the
properties acquired by the Partnership are expected to have active competition
from similar properties in their respective vicinities. In addition, various
other limited partnerships have, in the past, and may, in the future, be formed
by the General Partner and/or its affiliates to engage in businesses which may
be competitive with the Partnership.

Employees
- ---------

The Partnership does not have any direct employees. All services are performed
for the Partnership by the General Partner and its affiliates. The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition, the Partnership reimburses the General Partner and
certain of its affiliates for expenses incurred in connection with the
performance by their employees of services for the Partnership in accordance
with the Partnership's Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement").

Item 2. Properties.

As of March 31, 2004, the Partnership had acquired an interest in twenty Local
Partnerships, all of which have been consolidated for accounting purposes.
Except for the interest in New Zion Apartments, L.P. ("New Zion"), the
Partnership's investment in each Local Partnership represents 98.99% or 99.89%
of the partnership interests in the Local Partnership. The Partnership's
investment in New Zion represents 42.39% of the partnership interest in the
Local Partnership (the other 58.12% limited partnership interest is owned by
affiliates of the Partnership, with the same management). Set forth below is a
schedule of the Local Partnerships including certain information concerning
their respective Apartment Complexes (the "Local Partnership Schedule"). Further
information concerning these Local Partnerships and their properties, including
any encumbrances affecting the properties, may be found in Schedule III to the
financial statements which are included herein.

3

Local Partnership Schedule
--------------------------

Name and Location % of Units Occupied at May 1,
------------------------------------
(Number of Units) Date Acquired 2004 2003 2002 2001 2000
- ----------------- ------------- ---- ---- ---- ---- ----

Edward Hotel Limited Partnership
Los Angeles, CA (47) November 1994 96% 91% 91% 100% 100%

Pacific-East L.P.
Brooklyn, NY (39) December 1994 100% 98% 100% 100% 97%

Overtown Development Group, Ltd.
Miami, FL (65) December 1994 72% 82% 91% 89% 79%

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

Park Housing Limited Partnership May 1995 97% 93% 100% 97% 97%
Hartford, CT (30)

Livingston Manor Urban Renewal
Associates, L.P. June 1995 100% 98% 100% 98% 98%
New Brunswick, NJ (50)

Jefferis Square Housing
Partnership L.P. June 1995 100% 100% 97% 100% 100%
Chester, PA (36)

2301 First Avenue Limited
Partnership August 1995 98% 99% 100% 98% 100%
New York, NY (92)

Lewis Street L.P. October 1995 84% 100% 91% 88% 91%
Buffalo, NY (32)

Savannah Park Housing
Limited Partnership October 1995 89% 75% 86% 84% 84%
Washington, DC (64)

Brannon Group, L.C December 1995 96% 96% 98% 88% (a)
Leisure City, FL (80)

Mansion Court Phase II Venture December 1995 100% 95% 100% 95% 90%
Philadelphia, PA (19)

Primm Place Partners, L.P. December 1995 99% 96% 94% 98% 100%
St. Louis, MI (128)

BK-9-A Partners L.P. December 1995 100% 96% 91% 100% 100%
Brooklyn, NY (23)

BK-10K Partners L.P. December 1995 100% 95% 90% 96% 91%
Brooklyn, NY (21)

Aspen-Olive Associates
Philadelphia, PA (22) October 1996 100% 100% 100% 100% 100%

West Mill Creek Associates III L.P.
Philadelphia, PA (72) January 1997 99% 99% 99% 100% 100%

4

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

Name and Location % of Units Occupied at May 1,
------------------------------------
(Number of Units) Date Acquired 2004 2003 2002 2001 2000
- ----------------- ------------- ---- ---- ---- ---- ----

Universal Court Associates
Philadelphia, PA (32) April 1997 88% 97% 100% 100% 94%

New Zion Apartments
Shreveport, LA (100) November 1997 96% 95% 88% 100% 99%

Dreitzer House
New York, NY (32) December 1997 100% 100% 100% 97% 100%

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

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

Commercial tenants (to which average rental per square foot applies) comprise
less than 5% of the rental revenues of the Partnership. Maximum rents for the
residential units are determined annually by HUD and reflect increases/decreases
in consumer price indices in various geographic areas. Market conditions,
however, determine the amount of rent actually charged.

Management continuously reviews the physical state of the properties and
suggests to the respective general partners of the Local Partnerships ("Local
General Partners") budget improvements which are generally funded from cash flow
from operations or release of replacement reserve escrows to the extent
available.

Management 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 required that the Local General Partners provide
completion guarantees and/or undertake to repurchase the Partnership's interest
in the Local Partnership if construction or rehabilitation was not completed
substantially on time or on budget ("Development Deficit Guarantees"). The
Development Deficit Guarantees generally also required 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 required that the Local General
Partners undertake an obligation to fund operating deficits of the Local
Partnership (up to a stated maximum amount) during a limited period of time
(typically three to five years) following the achievement of break-even
operations ("Operating Deficit Guarantees"). As of March 31, 2004, 2003 and
2002, the gross amounts of the Operating Deficit Guarantees aggregate
approximately $5,129,000, of which $3,273,000 has expired as of March 31, 2004.
Management does not expect that expiration to have a material impact on
liquidity, based on prior years' fundings. Amounts funded under such agreements
are treated as noninterest bearing loans, which will be paid only out of 50% of
available cash flow or out of available net sale or refinancing proceeds. In
some instances, the Local General Partners have been required to undertake an
obligation to comply with a Rent-Up Guaranty Agreement, whereby the Local
General Partner has agreed to pay liquidated damages if predetermined occupancy
rates are not achieved. These payments are made without right of repayment. In
cases where the General Partner has deemed it appropriate, the obligations of a

5

Local General Partner under the Development Deficit, Operating Deficit and/or
Rent-Up Guarantees have been secured by letters of credit and/or cash escrow
deposits.

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

Item 3. Legal Proceedings.

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

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

None.

PART II

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

As of March 31, 2004, 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 has imposed limited
restrictions on the transferability of the BACs and the Limited Partnership
Interests in secondary market transactions. Implementation of the restrictions
should prevent a public trading market from developing and may adversely affect
the ability of an investor to liquidate his or her investment quickly. It is
expected that these procedures will remain in effect until such time, if ever,
as further revision of the Revenue Act of 1987 may permit the Partnership to
lessen the scope of the restrictions.

As of May 13, 2004, the Partnership has approximately 2,531 registered holders
of an aggregate of 43,440 BACs.

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

There are no material legal restrictions in the Partnership Agreement on the
ability of the Partnership to make distributions. However, the Partnership has
made no distributions to the BACs holders as of March 31, 2004. The Partnership
does not anticipate providing cash distributions to its BACs holders other than
from net refinancing or sales proceeds.

6

Item 6. Selected Financial Data.

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

Year Ended March 31,
----------------------------------------------------------------------------

OPERATIONS 2004 2003 2002 2001 2000
- ---------- ------------ ------------ ------------ ------------ ------------

Revenues $ 6,719,811 $ 6,408,871 $ 6,452,014 $ 6,332,726 $ 5,873,889

Operating expenses (10,014,054) (9,886,082) (10,465,208) (9,597,628) (9,357,207)
------------ ------------ ------------ ------------ ------------

Net loss before minority interest (3,294,243) (3,477,211) (4,013,194) (3,264,902) (3,483,318)

Minority interest in loss of sub-
sidiary partnerships 281,138 293,278 670,493 21,134 9,131
------------ ------------ ------------ ------------ ------------

Net loss $ (3,013,105) $ (3,183,933) $ (3,342,701) $ (3,243,768) $ (3,474,187)
============ ============ ============ ============ ============

Net loss per weighted average
BAC $ (68.67) $ (72.56) $ (76.18) $ (73.93) $ (79.18)
============ ============ ============ ============ ============

March 31,
----------------------------------------------------------------------------
FINANCIAL POSITION 2004 2003 2002 2001 2000
- ------------------ ------------ ------------ ------------ ------------ ------------

Total assets $ 73,610,412 $ 76,223,243 $ 78,982,075 $ 82,660,313 $ 86,067,310
============ ============ ============ ============ ============

Total liabilities $ 55,499,430 $ 54,524,974 $ 53,786,549 $ 54,434,413 $ 54,433,977
============ ============ ============ ============ ============

Minority interest $ 2,568,235 $ 3,142,417 $ 3,455,741 $ 3,143,414 $ 3,307,079
============ ============ ============ ============ ============

Total partners' capital $ 15,542,747 $ 18,555,852 $ 21,739,785 $ 25,082,486 $ 28,326,254
============ ============ ============ ============ ============

During the year ended March 31, 2004, 2003, 2002, 2001 and 2000, respectively,
total assets decreased primarily due to depreciation and a decrease in cash and
cash equivalents.

Cash Distributions
- ------------------

The Partnership has made no distributions to the BACs holders as of March 31,
2004.

7

Selected Quarterly Financial Data (Unaudited)

Quarter Ended
--------------------------------------------------------
June 30, September 30, December 31, March 31,
OPERATIONS 2003 2003 2003 2004
- ---------- ------------ ----------- ----------- -----------

Revenues $ 1,657,817 $ 1,623,365 $ 1,642,216 $ 1,796,413

Operating expenses (2,405,829) (2,411,472) (2,367,015) (2,829,738)
----------- ----------- ----------- -----------

Loss before minor-
ity interest (748,012) (788,107) (724,799) (1,033,325)

Minority interest in
loss of subsidiaries 48,958 70,047 67,374 94,759
----------- ----------- ----------- -----------

Net loss $ (699,054) $ (718,060) $ (657,425) $ (938,566)
=========== =========== =========== ===========

Net loss per
weighted average
BAC (15.93) (16.37) (14.98) (21.39)
=========== =========== =========== ===========

Quarter Ended
--------------------------------------------------------
June 30, September 30, December 31, March 31,
OPERATIONS 2003 2003 2003 2004
- ---------- ------------ ----------- ----------- -----------

Revenues $ 1,558,925 $ 1,603,146 $ 1,594,588 $ 1,652,212

Operating expenses (2,366,578) (2,352,230) (2,306,097) (2,861,177)
----------- ----------- ----------- -----------

Loss before minor-
ity interest (807,653) (749,084) (711,509) (1,208,965)

Minority interest in
loss (income) of
subsidiaries 7,664 17,075 (2,770) 271,309
----------- ----------- ----------- -----------

Net loss $ (799,989) $ (732,009) $ (714,279) $ (937,656)
=========== =========== =========== ===========

Net loss per
weighted average
BAC $ (18.23) $ (16.68) $ (16.28) $ (21.37)
=========== =========== =========== ===========

8

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

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

General
- -------

The Partnership's primary source of funds is rental revenues, which are fully
utilized at the property level.

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

As of March 31, 2004, the Partnership has invested approximately $35,051,000
(including approximately $3,142,000 classified as loans repayable from
sale/refinancing proceeds in accordance with the contribution agreement with one
Local Partnership and not including acquisition fees of approximately
$2,510,000) of net proceeds in twenty Local Partnerships of which approximately
$326,000 remains to be contributed to the Local Partnerships for payment by them
to the original sellers of the Properties (not including approximately $132,000
being held in escrow) as certain benchmarks, such as occupancy level, must be
attained prior to the release of the funds. The Partnership does not intend to
acquire additional properties. During the year ended March 31, 2004, the
Partnership did not make any payments to Local Partnerships. Although the
Partnership will not be acquiring additional properties, the Partnership may be
required to fund potential purchase price adjustments based on tax credit
adjustor clauses.

During the year ended March 31, 2004, cash and cash equivalents decreased
approximately $30,000. This decrease is due to acquisition of property and
equipment ($423,000), principal payments of mortgage notes ($466,000), an
increase in deferred costs ($37,000) and a decrease in capitalization of
consolidated subsidiaries attributable to minority interest $(293,000) which
exceeded cash provided by operating activities ($909,000), a net increase in due
to local general partners and affiliates relating to investing and financing
activities ($24,000) and a decrease in cash held in escrow relating to investing
activities ($257,000). Included in the adjustments to reconcile the net loss to
cash provided by operating activities is depreciation and amortization of
approximately $2,740,000.

A working capital reserve had previously been established from the Partnership's
funds available for investment, which includes amounts which may be required for
potential purchase price adjustments based on tax credit adjustor clauses. At
March 31, 2004, all funds were used.

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the Local General Partners of the Local Partnerships
have agreed to fund operating deficits for a specified period of time. The terms
of the Operating Deficit Guaranty Agreements vary for each Local Partnership,
with maximum dollar amounts to be funded for a specified period of time,
generally three years, commencing on the break-even date. As of March 31, 2004,
2003 and 2002, the gross amounts of the Operating Deficit Guarantees aggregate
approximately $5,129,000, of which $3,273,000 has expired as of March 31, 2004.
Management does not expect that expiration to have a material impact on
liquidity, based on prior years' fundings. Amounts funded under such agreements
are treated as noninterest bearing loans, which will be paid only out of 50% of
available cash flow or out of available net sale or refinancing proceeds.

The Operating Deficit Guaranty Agreements were negotiated to protect the
Partnership's interest in the Local Partnerships and to provide incentive to the
Local General Partners to generate positive cash flow.

Partnership management fees owed to the General Partner amounting to
approximately $2,205,000 and $1,892,000 were accrued and unpaid as of March 31,
2004 and 2003, respectively. Without the General Partner's continued accrual
without payment of certain fees and expense reimbursements, the Partnership will
not be in a position to meet its obligations. The General Partner has continued
allowing the accrual without payment of these amounts but is under no obligation
to continue to do so.

For discussion of contingencies affecting certain subsidiary partnerships, see
Results of Operations of Certain Local Partnerships, below. Since the maximum
loss the Partnership would be liable for is its net investment in the respective

9

subsidiary partnerships, the resolution of the existing contingencies is not
anticipated to impact future results of operations, liquidity or financial
condition in a material way. However, the Partnership's loss of its investment
in a Local Partnership will eliminate the ability to generate future Tax Credits
from such Local Partnership and may also result in recapture of tax credits if
the investment is lost before the expiration of the Credit Period.

Except as described above, management is not aware of any trends or events,
commitments or uncertainties, which have not otherwise been disclosed that will
or are likely to impact liquidity in a material way. Management believes the
only impact would be for laws that have not yet been adopted. The portfolio is
diversified by the location of the properties around the United States so that
if one area of the country is experiencing downturns in the economy, the
remaining properties in the portfolio may be experiencing upswings. However, the
geographic diversification of the portfolio may not protect against a general
downturn in the national economy. The Partnership has invested the proceeds of
its offering in twenty Local Partnerships, all of which fully have their Tax
Credits in place. The Tax Credits are attached to the property for a period of
ten years, and are transferable with the property during the remainder of the
ten-year period. If trends in the real estate market warranted the sale of a
property, the remaining Tax Credits would transfer to the new owner, thereby
adding value to the property on the market. However, such value declines each
year and is not included in the financial statement carrying amount.

Tabular Disclosure of Contractual Obligations
- ---------------------------------------------

The following table summarizes the Partnership's commitments as of March 31,
2004 to make future payments under its debt agreements and other contractual
obligations.

Less
than 1 - 3 3 -5 More than
Total 1 Year Years Years 5 Years
----------- ----------- ----------- ----------- -----------

Mortgage notes
payable (a) $42,847,861 $ 597,329 $ 1,124,864 $ 1,311,576 $39,814,092
Land lease obliga-
tions (b) 930,942 38,358 42,504 42,504 807,576
----------- ----------- ----------- ----------- -----------

Total $43,778,803 $ 635,687 $ 1,167,368 $ 1,354,080 $40,621,668
=========== =========== =========== =========== ===========

(a) The mortgage and construction notes, which are collateralized by land and
buildings, are payable in aggregate monthly installments of approximately
$93,000 including principal and interest at rates varying from 0% to 10%
per annum, through the year 2046. Each subsidiary partnership's mortgage
note payable is collateralized by the land and buildings of the respective
subsidiary partnership, the assignment of certain subsidiary partnership's
rents and leases, and is without further recourse.

(b) One of the subsidiary partnerships is leasing the land on which its
apartment complex is located for a term of 50 years, which commenced in
August 1996, with monthly rent payments of $1,449.

Off Balance Sheet Arrangements
- ------------------------------

The Partnership has no off-balance sheet arrangements.

Critical Accounting Policies
- ----------------------------

In preparing the consolidated financial statements, management has made
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting periods. Actual results could differ
from those estimates. Set forth below is a summary of the accounting policies
that management believes are critical to the preparation of the consolidated
financial statements. The summary should be read in conjunction with the more
complete discussion of the Partnership's accounting policies included in Note 2
to the consolidated financial statements in this annual report on Form 10-K.

10

Property and Equipment
- ----------------------

Property and equipment to be held and used are carried at cost which 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.
The Partnership complies with Statement of Financial Accounting Standards (SFAS)
No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets". A loss
on impairment of assets is recorded when management estimates amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time property investments
themselves are reduced to estimated fair value (generally using discounted cash
flows).

Through March 31, 2004, the Partnership has not recorded any loss on impairment
of assets or reduction to estimated fair value.

At the time management commits to a plan to dispose of assets, said assets are
adjusted to the lower of carrying amount or fair value less costs to sell. These
assets are classified as property and equipment-held for sale and are not
depreciated. Through March 31, 2004, the Partnership has not recorded or
classified any property and equipment as held for sale.

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.

New Accounting Pronouncements
- -----------------------------

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 is applicable immediately for variable interest entities created after
January 31, 2003. For variable interest entities created before February 1,
2003, the provisions of FIN 46 are applicable no later than December 15, 2003.
The Partnership has not created any variable interest entities after January 31,
2003. In December 2003 the FASB redeliberated certain proposed modifications and
revised FIN 46 ("FIN 46 (R)"). The revised provisions are applicable no later
than the first reporting period ending after March 15, 2004. The adoption of FIN
46 and FIN 46 (R) is not anticipated to have a material impact on the
Partnership's financial reporting and disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, could be classified as equity or "mezzanine" equity, by now requiring
those instruments to be classified as liabilities ( or assets in some
circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 generally was effective for all
financial instruments entered into or modified after May 31, 2003, and was
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003. The Partnership evaluated SFAS No. 150 and determined that it
does not have an impact on the Partnership's financial reporting and
disclosures.

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

The following is a summary of the results of operations of the Partnership for
the years ended March 31, 2004, 2003 and 2002 (the 2003, 2002 and 2001 Fiscal
Years).

The net loss for the 2003, 2002 and 2001 Fiscal Years aggregated $3,013,105,
$3,183,933 and $3,342,701, respectively.

11

The Partnership and BACs holders began recognizing Tax Credits with respect to a
Property when the Credit Period for such Property commenced. Because of the time
required for the acquisition, completion and rent-up of Properties, the amount
of Tax Credits per BAC gradually increased over the first three years of the
Partnership. Tax Credits not recognized in the first three years will be
recognized in the 11th through 13th years. The Partnership generated $5,683,281,
$5,683,279 and $5,683,279 Housing Tax Credits during the 2003, 2002 and 2001,
tax years, respectively.

2003 vs. 2002
- -------------

Rental income increased approximately 4% for 2003 Fiscal Year as compared to the
2002 Fiscal Year, primarily due to rental rate increases.

Other income increased approximately $94,000 for the 2003 Fiscal Year as
compared to the 2002 Fiscal Year. This increase was primarily due to an increase
in investment income at one Local Partnership and a loss on disposal of assets
which was offset by other income in the 2002 Fiscal Year at another Local
Partnership.

Repairs and Maintenance increased approximately $205,000 for the 2003 Fiscal
Year as compared to the 2002 Fiscal Year, primarily due to an increase in
carpentry and building repairs at two Local Partnerships, an increase in
maintenance payroll at another Local Partnership and an increase in painting at
two other Local Partnerships.

2002 vs. 2001
- -------------

Rental income increased approximately 4% for the 2002 Fiscal Year as compared to
the 2001 Fiscal Year.

Other income decreased approximately $257,000 for the 2002 Fiscal Year as
compared to 2001 Fiscal Year. This decrease was primarily due to a decrease in
interest income earned in 2002 at the Partnership level and Local Partnerships
due to a decrease in interest rates, as well as lower cash and cash equivalent
balances earning interest.

General and administrative decreased approximately $457,000 for the 2002 Fiscal
Year as compared to 2001 Fiscal Year. This decrease was primarily due to the
settlement of legal action in 2001 at one Local Partnership as well as an
overaccrual of general and administrative expenses in the 2001 Fiscal Year at a
second Local Partnership.

Repairs and maintenance decreased approximately $134,000 for the 2002 Fiscal
Year as compared to 2001 Fiscal Year. This decrease was primarily due to an
overaccrual of repairs and maintenance in the 2001 Fiscal Year at one Local
Partnership.

Insurance expense increased approximately $57,000 for the 2002 Fiscal Year as
compared to 2001 Fiscal Year. This increase was primarily due to an increase in
insurance premiums at the Local Partnerships.

Results of Operations of Certain Local Partnerships
- ---------------------------------------------------

Lewis Street L.P.
- -----------------
In January of 1998, Lewis Street Limited Partnership ("Lewis Street") was
informed that it was a defendant in cause of action 1998-755 filed in Erie
County Supreme Court for the alleged value of work and services provided by
Phase Three Paul for interference with contractual relations and for fraud that
was brought by the project's original developer. The complaint seeks damages for
the alleged value of work and services provided in the amount of $296,940 and
damages to reputation in the amount of at least $1,000,000 plus unspecified
punitive damages. On October 3, 2003, the Appellate Division ruled in favor of
Lewis Street. Lewis Street has been advised by the plaintiff that it does not
intend to pursue any further litigation. The Partnership's investment in Lewis
Street at March 31, 2004 and 2003 was approximately $529,000 and $590,000,
respectively, and the minority interest balance was zero at each date. Lewis
Street's net loss after minority interest amounted to approximately $74,000,
$111,000 and $101,000 for the 2003, 2002, and 2001 Fiscal Years, respectively.

12

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

There also are substantial risks associated with the operation of Apartment
Complexes receiving government assistance. These include governmental
regulations concerning tenant eligibility, which may make it more difficult to
rent apartments in the complexes; difficulties in obtaining government approval
for rent increases; limitations on the percentage of income which low and
moderate-income tenants may pay as rent; the possibility that Congress may not
appropriate funds to enable HUD to make the rental assistance payments it has
contracted to make; and that when the rental assistance contracts expire there
may not be market demand for apartments at full market rents in a Local
Partnership's Apartment Complex.

The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of higher
operating and replacement costs. Inflation also affects the Local Partnerships
adversely by increasing operating costs, for example, for such items as fuel,
utilities and labor.

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

The Partnership does not have any market risk sensitive instruments.

13

Item 8. Financial Statements and Supplementary Data.
Sequential
Page
----------

(a) 1. Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm 15

Consolidated Balance Sheets at March 31, 2004 and 2003 58

Consolidated Statements of Operations for the Years Ended
March 31, 2004, 2003 and 2002 59

Consolidated Statements of Changes in Partners' Capital
(Deficit) for the Years Ended March 31, 2004, 2003 and
2002 60

Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and 2002 61

Notes to Consolidated Financial Statements 63

14

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

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, 2004
and 2003, and the related consolidated statements of operations, changes in
partners' capital (deficit), and cash flows for the years ended March 31, 2004,
2003 and 2002 (the 2003, 2002 and 2001 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 (2003 Fiscal
Year), sixteen (2002 Fiscal Year) and fifteen (2001 Fiscal Year) subsidiary
partnerships whose losses aggregated $2,103,161, $2,266,539 and $2,428,205 for
the years ended March 31, 2004, 2003 and 2002, respectively, and whose assets
constituted 67% of the Partnership's assets at March 31, 2004 and 2003,
presented in the accompanying consolidated financial statements. The financial
statements for sixteen (2003 Fiscal Year), sixteen (2002 Fiscal Year) and
fifteen (2001 Fiscal Year) 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 audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, based upon our audits, and the reports of the other auditors
referred to above, the consolidated financial statements referred to in the
first paragraph present fairly, in all material respects, the financial position
of Independence Tax Credit Plus L.P. III and Subsidiaries at March 31, 2004 and
2003, and the results of their operations and their cash flows for the years
ended March 31, 2004, 2003 and 2002, in conformity with U.S. generally accepted
accounting principles.

TRIEN ROSENBERG ROSENBERG
WEINBERG CIULLO & FAZZARI LLP

New York, New York
June 14, 2004

15

[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, 2003 and 2002,
and the related statements of operations, changes in partners' capital (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edward Hotel Limited
Partnership as of December 31, 2003 and 2002, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in the
accompanying Schedule I is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

/s/ Holthouse Carlin & Van Trigt LLP
Santa Monica, California
January 30, 2004

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, 2002 and 2001,
and the related statements of operations, changes in partners' capital (deficit)
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Edward Hotel Limited
Partnership as of December 31, 2002 and 2001, and the results of its operations
and its cash flows for the years then ended in conformity with accounting
principles generally accepted in the United States of America.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The information included in the
accompanying Schedule I is presented for purposes of additional analysis and is
not a required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

/s/ Holthouse Carlin & Van Trigt LLP
Santa Monica, California
January 31, 2003

17

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Pacific-East L.P.

We have audited the accompanying balance sheets of Pacific-East L.P. as of
December 31, 2003 and 2002, and the related statements of operations, changes in
partners' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific-East L.P. as of
December 31, 2003 and 2002, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Reznick Fedder & Silverman
Atlanta, Georgia
January 22, 2004

18

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Pacific-East L.P.

We have audited the accompanying balance sheets of Pacific-East L.P. as of
December 31, 2002 and 2001, and the related statements of operations, changes in
partners' deficit and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pacific-East L.P. as of
December 31, 2002 and 2001, and the results of its operations and its cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Reznick Fedder & Silverman
Atlanta, Georgia
February 3, 2003

19

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

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

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

We have audited the accompanying balance sheets of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 2003 and 2002, and the related
statement of operations, changes in partners' capital, and cash flows for the
years then ended. These financial statements are the responsibility of Overtown
Development Group, Ltd. management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Overtown
Development Group, Ltd. as of December 31, 2003 and 2002, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Smith, Ortiz, Gomez and Buzzi, P.A.
Miami, Florida
February 4, 2004

20

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

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

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

We have audited the accompanying balance sheets of Overtown Development Group,
Ltd. (A Limited Partnership) as of December 31, 2002 and 2001, and the related
statement of operations, changes in partners' capital, and cash flows for the
years then ended. These financial statements are the responsibility of Overtown
Development Group, Ltd. management. Our responsibility is to express an opinion
on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, based on our audits, the financial statements referred to above
present fairly, in all material respects, the financial position of Overtown
Development Group, Ltd. as of December 31, 2002 and 2001, and the results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

/s/ Smith, Ortiz, Gomez and Buzzi, P.A.
Miami, Florida
February 4, 2003

21

[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, 2003, 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
in the United States of America and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sumpter Commons Associates,
L.P. as of December 31, 2003, and the results of its operations, changes in
partners' (deficit), and cash flows for the year then ended in conformity with
generally accepted accounting principles in the United States of America.

/s/ Lawlor, O'Brien & Chervenak, LLC
Totowa, New Jersey
February 16, 2004

22

[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, 2002, 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
in the United States of America and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sumpter Commons Associates,
L.P. as of December 31, 2002, and the results of its operations, changes in
partners' (deficit), and cash flows for the year then ended in conformity with
generally accepted accounting principles in the United States of America.

/s/ Lawlor, O'Brien & Chervenak, LLC
Totowa, New Jersey
February 15, 2003

23

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

INDEPENDENT AUDITORS' REPORT

To the Partners
Sumpter Commons Associates, L.P.

We have audited the accompanying balance sheet of Sumpter Commons Associates,
L.P. as of December 31, 2001, and the related statements of operations, changes
in partners' capital (deficit), and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Sumpter Commons Associates,
L.P. as of December 31, 2001, and the results of its operations, changes in
partners' capital (deficit), and cash flows for the year then ended in
conformity with generally accepted accounting principles in the United States of
America.

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

24

[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, 2003, and the related statements of operations
and changes in partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Park Housing Limited
Partnership as of December 31, 2003, and the results of its operations and cash
flows for the year then ended, in accordance with accounting principles
generally accepted in the United States of America.

/s/ Kostin, Ruffkess & Company, LLC
Farmington, Connecticut
January 20, 2004

25

[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, 2002, and the related statements of operations
and changes in partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Park Housing Limited
Partnership as of December 31, 2002, and the results of its operations and cash
flows for the year then ended, in accordance with accounting principles
generally accepted in the United States of America.

/s/ Kostin, Ruffkess & Company, LLC
Farmington, Connecticut
January 24, 2003

26

[KOSTIN, RUFFKESS & COMPANY, LLC LETTERHEAD]

To The Partners
Park Housing Limited Partnership

INDEPENDENT AUDITORS' REPORT

We have audited the accompanying balance sheet of Park Housing Limited
Partnership as of December 31, 2001, and the related statements of operations
and changes in partners' capital, and cash flows for the year then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Park Housing Limited
Partnership as of December 31, 2001, and the results of its operations and cash
flows for the year then ended, in accordance with accounting principles
generally accepted in the United States of America.

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

27

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of Livingston Manor Urban
Renewal Associates, L.P. as of December 31, 2002 and 2001, and the related
statements of operations, changes in partners' equity (deficit) and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits 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. as of December 31, 2002 and 2001, and the results of its
operations, the changes in partners' equity (deficit) and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 17, 2003

28

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of Jefferis Square Housing
Partnership, L.P. as of December 31, 2003 and 2002, and the related statements
of operations, changes in partners' equity (deficit) and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferis Square Housing
Partnership, L.P. as of December 31, 2003 and 2002, and the results of its
operations, changes in partners' equity (deficit) and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 13, 2004

29

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheets of Jefferis Square Housing
Partnership, L.P. (a Pennsylvania limited partnership) as of December 31, 2002
and 2001, and the related statements of operations, changes in partners' equity
(deficit) and cash flows for the years then ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferis Square Housing
Partnership, L.P. as of December 31, 2002 and 2001, and the results of its
operations, changes in partners' equity (deficit) and its cash flows for the
years then ended, in conformity with accounting principles generally accepted in
the United States of America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 7, 2003

30

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' 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, 2002 and 2001, and the related statements of
operations, changes in partners' equity (deficit), and cash flows for the years
then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of 2301 First Avenue Limited
Partnership, as of December 31, 2002 and 2001, and the results of its operations
and its cash flows for the years then ended, in conformity with accounting
principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 17
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

/s/ Reznick Fedder & Silverman
Atlanta, Georgia
February 8, 2003

31

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

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheets of Lewis Street Limited
Partnership as of December 31, 2003 and 2002 and the related statements of
operations, partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lewis Street Limited
Partnership as of December 31, 2003 and 2002 and the results of its operations,
changes in partners' equity and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

In accordance with Government Auditing Standards, we have also issued a report
dated January 16, 2004 on our consideration of the Partnership's internal
control and on its compliance with laws and regulations applicable to the
financial statements. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

/s/ Toski, Schaefer & Co., P.C.
Williamsville, New York
January 16, 2004

32

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

INDEPENDENT AUDITOR'S REPORT

The Partners
Lewis Street Limited Partnership:

We have audited the accompanying balance sheets of Lewis Street Limited
Partnership as of December 31, 2002 and 2001 and the related statements of
operations, partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and Government Auditing Standards, issued by the
Comptroller General of the United States. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lewis Street Limited
Partnership as of December 31, 2002 and 2001 and the results of its operations,
changes in partners' equity and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

In accordance with Government Auditing Standards, we have also issued a report
dated January 23, 2003 on our consideration of the Partnership's internal
control and on its compliance with laws and regulations applicable to the
financial statements. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

/s/ Toski, Schaefer & Co., P.C.
Williamsville, New York
January 23, 2003

33

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Savannah Park Housing
Limited Partnership

We have audited the accompanying balance sheets of Savannah Park Housing Limited
Partnership as of December 31, 2003 and 2002, and the related statements of
operations, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Savannah Park Housing Limited
Partnership as of December 31, 2003 and 2002, and the results of its operations,
the changes in partners' capital and cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Bethesda, Maryland
February 24, 2004

34

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Savannah Park Housing
Limited Partnership

We have audited the accompanying balance sheet of Savannah Park Housing Limited
Partnership as of December 31, 2001, and the related statements of operations,
partners' capital and cash flows for the year then ended. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Savannah Park Housing Limited
Partnership as of December 31, 2001, and the results of its operations, the
changes in partners' capital and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

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

35

[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, 2003, and the related statements of profit
and loss, changes in members' capital, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brannon Group, L.C. at December
31, 2003, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America

Our audit was made for the purpose of forming an opinion on the basic financial
statements for the year ended December 31, 2003 taken as whole. The supplemental
information presented on pages 16 to 17 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. This
information has been subjected to the auditing procedures applied in our 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/ BDO Seidman, LLP
Certified Public Accountants
Miami, Florida
February 19, 2004

36

[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, 2002, and the related statements of profit
and loss, changes in members' capital, 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 auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Brannon Group, L.C. at December
31, 2002, and the results of its operations and its cash flows for the year then
ended in conformity with accounting principles generally accepted in the United
States of America

Our audit was made for the purpose of forming an opinion on the basic financial
statements for the year ended December 31, 2002 taken as whole. The supplemental
information presented on pages 16 to 17 is presented for purposes of additional
analysis and is not a required part of the basic financial statements. This
information has been subjected to the auditing procedures applied in our 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/ BDO Seidman, LLP
Certified Public Accountants
Miami, Florida
February 22, 2003, except for Note 9,
which is as of March 7, 2003

37

[BDO Seidman, LLP LETTERHEAD]

Independent Auditors' Report

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

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

We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our 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, 2001, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles in the
United States of America

Our audit was made for the purpose of forming an opinion on the basic combined
financial statements for the year ended December 31, 2001 taken as whole. The
supplemental material presented on pages 15 to 18 is presented for purposes of
additional analysis and is not a required part of the basic financial
statements. This information has been subjected to the auditing procedures
applied in our audit of the basic combined financial statements and, in our
opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.

/s/ BDO Seidman, LLP
Certified Public Accountants
Miami, Florida
February 22, 2002

38

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Mansion Court Phase II Venture
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Mansion Court Phase II
Venture as of December 31, 2003 and 2002, and the related statements of
operations, changes in partners' equity (deficit) and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Partnership's management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansion Court Phase II Venture
at December 31, 2003 and 2002, and the results of its operations, changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 6, 2004

39

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Mansion Court Phase II Venture
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Mansion Court Phase II
Venture as of December 31, 2002 and 2001, and the related statements of
operations, changes in partners' equity (deficit) and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the Partnership's management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansion Court Phase II Venture
at December 31, 2002 and 2001, and the results of its operations, changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 24, 2003

40

[RUBIN BROWN GORNSTEIN & CO. LLP]
[RBG & CO. LETTERHEAD]

Independent Auditors' Report

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

We have audited the accompanying balance sheet of Primm Place Partners, L.P.,
Project No. MT95-650, a limited partnership, as of December 31, 2003, and the
related statements of profit and loss, partners' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Primm Place Partners, L.P., as
of December 31, 2003, and the results of its operations and its cash flows for
the year then ended, in conformity with accounting principles generally accepted
in the United States of America.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information (shown on pages 15 to 17) is presented for purposes of additional
analysis and is not a required part of the basic financial statements. Such
information has been subjected to the auditing procedures applied in the audit
of the financial statements and, in our opinion, is fairly stated in all
material respects in relation to the financial statements taken as a whole.

/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
February 6, 2004

41

[RUBIN BROWN GORNSTEIN & CO. LLP]
[RBG & CO. LETTERHEAD]

Independent Auditors' Report

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

We have audited the accompanying balance sheet of Primm Place Partners, L.P., a
Missouri limited partnership, as of December 31, 2002 and 2001, and the related
statements of income, partners' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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 Primm Place Partners, L.P., as
of December 31, 2002 and 2001, and the results of its operations and its cash
flows for the years then ended in conformity with accounting principles
generally accepted in the United States of America.

/s/ Rubin, Brown, Gornstein & Co. LLP
St. Louis, Missouri
January 17, 2003

42

[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, 2003 and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2003, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 10, 2004

43

[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, 2002 and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2002, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 7, 2003

44

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001 and the related statements of
operations, changes in partners' capital, and cash flows for the year then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-9-A Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

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

45

[RAINES AND FISCHER LETTERHEAD]

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

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

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2003 and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2003, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 19, 2004

46

[RAINES AND FISCHER LETTERHEAD]

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

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

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2002 and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2002, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

/s/ Raines & Fischer
New York, New York
February 5, 2003

47

[RAINES AND FISCHER LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

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

We have audited the accompanying balance sheet of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001 and the related statements of
operations, changes in partners' capital (deficit), and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of BK-10K Partners, L.P. (A New
York Limited Partnership) as of December 31, 2001, and the results of its
operations, changes in its partners' capital and its cash flows for the year
then ended in conformity with accounting principles generally accepted in the
United States of America.

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

48

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Aspen-Olive Associates

We have audited the accompanying balance sheets of Aspen-Olive Associates as of
December 31, 2003 and 2002, and the related statements of operations, changes in
partners' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aspen-Olive Associates as of
December 31, 2003 and 2002, and the results of its operations, the changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 30, 2004

49

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Aspen-Olive Associates

We have audited the accompanying balance sheets of Aspen-Olive Associates as of
December 31, 2002 and 2001, and the related statements of operations, changes in
partners' equity (deficit) and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aspen-Olive Associates as of
December 31, 2002 and 2001, and the results of its operations, the changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 17, 2003

50

[ASHER & COMPANY, LTD. LETTERHEAD]

Independent Auditors' Report

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

We have audited the accompanying balance sheets of West Mill Creek Associates
III T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2003 and 2002 and the related statements of loss, Partners' capital
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of West Mill Creek Associates III
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2003 and 2002, and the results of its operations, changes in its
Partners' capital and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements of West Mill Creek Associates
III T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476. Such
information has been subjected to the auditing procedures applied in the audits
of the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

In accordance with Government Auditing Standards, we have also issued a report
dated January 22, 2004 on our consideration of West Mill Creek Associates III's
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, internal
control over financial reporting and our tests of its compliance with certain
provisions of laws, regulations, contracts and grants. That report is an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.

/s/ ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
January 22, 2004

51

[ASHER & COMPANY, LTD. LETTERHEAD]

Independent Auditors' Report

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

We have audited the accompanying balance sheets of West Mill Creek Associates
III T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2002 and 2001 and the related statements of loss, Partners' capital
and cash flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and the standards applicable to financial audits
contained in Government Auditing Standards, issued by the Comptroller General of
the United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of West Mill Creek Associates III
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, as of
December 31, 2002 and 2001, and the results of its operations, changes in its
Partners' capital and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards, we have also issued a report
dated January 15, 2003 on our consideration of West Mill Creek Associates III's
T/A Jameson Court (A Limited Partnership), PHFA Project No. 0-0476, internal
control over financial reporting and our tests of its compliance with certain
provisions of laws, regulations, contracts and grants. That report is an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.

/s/ ASHER & COMPANY, Ltd.
Philadelphia, Pennsylvania
January 15, 2003

52

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Universal Court Associates

We have audited the accompanying balance sheets of Universal Court Associates,
as of December 31, 2002 and 2001, and the related statements of operations,
changes in partners' equity (deficit) and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by the management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Universal Court Associates. as
of December 31, 2002 and 2001, and the results of its operations, the changes in
partners' equity (deficit) and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
February 7, 2003

53

[COLE, EVANS & PETERSON LETTERHEAD]

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

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 2003, and the related
statements of income, partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to in the first paragraph
above present fairly, in all material respects, the financial position of New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 2003 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with U.S. generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2003 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the audit procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

In accordance with Government Auditing Standards, we have also issued reports
dated February 10, 2004 on our consideration of New Zion Apartments Limited
Partnership's internal control, and on our tests on its compliance with certain
provisions of laws, regulations, contracts, and grants. Those reports are an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.

/s/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 10, 2004

54

[COLE, EVANS & PETERSON LETTERHEAD]

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

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 2002, and the related
statements of income, partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to in the first paragraph
above present fairly, in all material respects, the financial position of New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 2002 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with U.S. generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2002 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the audit procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

In accordance with Government Auditing Standards, we have also issued reports
dated February 10, 2003 on our consideration of New Zion Apartments Limited
Partnership's internal control, and on our tests on its compliance with certain
provisions of laws, regulations, contracts, and grants. Those reports are an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.

/s/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 10, 2003

55

[COLE, EVANS & PETERSON LETTERHEAD]

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

To the Partners
New Zion Apartments Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of New Zion Apartments Limited
Partnership, HUD Project No. LA48E000011, at December 31, 2001, and the related
statements of income, partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to in the first paragraph
above present fairly, in all material respects, the financial position of New
Zion Apartments Limited Partnership, HUD Project No. LA48E000011, at December
31, 2001 and the results of its operations, changes in capital, and cash flows
for the year then ended in conformity with U.S. generally accepted accounting
principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2001 taken as a whole. The
supplementary Schedules 1, 2 and 3 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the audit procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 8, 2002 on our
consideration of New Zion Apartments Limited Partnership's internal control, and
reports dated February 8, 2002, on its compliance with laws and regulations,
compliance with specific requirements applicable to Fair Housing and
Non-Discrimination, and compliance with specific requirements applicable to
major HUD-assisted programs. Those reports are an integral part of an audit
performed in accordance with Government Auditing Standards and should be read in
conjunction with this report in considering the results of our audit.

/s/ Cole, Evans & Peterson
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
Federal ID No. 72-0506596
February 8, 2002

56

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Dreitzer Limited Partnership

We have audited the accompanying balance sheets of Dreitzer Limited Partnership
as of December 31, 2002 and 2001, and the related statements of operations,
changes in partners' equity (deficit), and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Dreitzer Limited Partnership as
of December 31, 2002 and 2001, and the results of its operations, and cash flows
for the years then ended, in conformity with accounting principles generally
accepted in the United States of America.

/s/ Reznick Fedder & Silverman
Atlanta, Georgia
February 8, 2003

57

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

ASSETS

March 31,
----------------------------
2004 2003
------------ ------------

Property and equipment - at cost, less accumulated depreciation
(Notes 2 and 4) $ 66,272,924 $ 68,534,177
Cash and cash equivalents (Notes 2 and 10) 526,645 556,259
Cash held in escrow (Note 5) 5,374,346 5,693,717
Deferred costs, less accumulated amortization (Notes 2 and 6) 765,730 784,581
Other assets 670,767 654,509
------------ ------------

Total assets $ 73,610,412 $ 76,223,243
============ ============

LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Liabilities:
Mortgage notes payable (Note 7) $ 42,847,861 $ 42,714,124
Construction loan payable (Note 7) 0 600,000
Accounts payable and other liabilities 6,704,508 5,809,239
Due to local general partners and affiliates (Note 8) 1,960,552 1,931,043
Due to general partner and affiliates (Note 8) 3,986,509 3,470,568
------------ ------------

Total liabilities 55,499,430 54,524,974
------------ ------------

Minority interest (Note 2) 2,568,235 3,142,417
------------ ------------

Commitments and contingencies (Notes 7, 8 and 10)

Partners' capital (deficit):
Limited partners (43,440 BACs issued and outstanding) (Note 1) 15,773,447 18,756,421
General Partner (230,700) (200,569)
------------ ------------

Total partners' capital (deficit) 15,542,747 18,555,852
------------ ------------

Total liabilities and partners' capital (deficit) $ 73,610,412 $ 76,223,243
============ ============

See accompanying notes to consolidated financial statements.

58

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

Year Ended March 31,
--------------------------------------------
2004 2003* 2002
------------ ------------ ------------

Revenues
Rental income $ 6,373,374 $ 6,156,602 $ 5,942,415
Other income 346,437 252,269 509,599
------------ ------------ ------------

6,719,811 6,408,871 6,452,014
------------ ------------ ------------

Expenses
General and administrative 1,792,262 1,876,434 2,220,868
General and administrative-related parties
(Note 8) 800,267 788,862 830,348
Repairs and maintenance 1,393,319 1,188,564 1,322,086
Operating and other 790,045 790,629 930,104
Real estate taxes 293,958 326,075 388,868
Insurance 482,220 442,874 385,804
Financial, principally interest 1,721,883 1,714,331 1,659,965
Depreciation and amortization 2,740,100 2,758,313 2,727,165
------------ ------------ ------------

Total expenses 10,014,054 9,886,082 10,465,208
------------ ------------ ------------

Net loss before minority interest (3,294,243) (3,477,211) (4,013,194)

Minority interest in loss of subsidiary partnerships 281,138 293,278 670,493
------------ ------------ ------------

Net loss $ (3,013,105) $ (3,183,933) $ (3,342,701)
============ ============ ============

Net loss - Limited Partners $ (2,982,974) $ (3,152,094) $ (3,309,274)
============ ============ ============

Number of BACs outstanding 43,440 43,440 43,440
============ ============ ============

Net loss per BAC $ (68.67) $ (72.56) $ (76.18)
============ ============ ============

* Reclassified for comparative purposes.
See accompanying notes to consolidated financial statements.

59

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

Limited General
Total Partners Partner
------------ ------------ ------------

Partners' capital (deficit) - April 1, 2001 $ 25,082,486 $ 25,217,789 $ (135,303)

Net loss (3,342,701) (3,309,274) (33,427)
------------ ------------ ------------

Partners' capital (deficit) - March 31, 2002 21,739,785 21,908,515 (168,730)

Net loss (3,183,933) (3,152,094) (31,839)
------------ ------------ ------------

Partners' capital (deficit) - March 31, 2003 18,555,852 18,756,421 (200,569)

Net loss (3,013,105) (2,982,974) (30,131)
------------ ------------ ------------

Partners' capital (deficit) - March 31, 2004 $ 15,542,747 $ 15,773,447 $ (230,700)
============ ============ ============

See accompanying notes to consolidated financial statements.

60

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

Year Ended March 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------

Cash flows from operating activities:
Net loss $(3,013,105) $(3,183,933) $(3,342,701)
----------- ----------- -----------
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,740,100 2,758,313 2,727,165
Minority interest in loss of subsidiary
partnerships (281,138) (293,278) (670,493)
Loss on disposal of property and equipment 0 47,532 82,315
Write-off of deferred costs 0 0 13,928
(Increase) decrease in assets:
Cash held in escrow 62,085 (28,552) (774,638)
Other assets (16,258) (1,788) (18,340)
Increase (decrease) in liabilities:
Accounts payable and other liabilities 895,269 889,084 403,087
Increase in due to local general partners
and affiliates 11,445 50,629 10,224
Decrease in due to local general partners
and affiliates (5,818) (76,702) (105,347)
Due to general partners and affiliates 515,941 621,867 738,694
----------- ----------- -----------

Total adjustments 3,921,626 3,967,105 2,406,595
----------- ----------- -----------

Net cash provided by (used in)
operating activities 908,521 783,172 (936,106)
----------- ----------- -----------

Cash flows from investing activities:
Acquisition of property and equipment (422,598) (41,219) (42,332)
Proceeds from disposal of property and
equipment 0 335,552 0
Decrease (increase) in cash held in escrow 257,286 (464,599) (268,412)
Decrease in due to local general partners
and affiliates (44,967) (325,647) (1,053,521)
Increase in due to local general partners
and affiliates 0 8,056 146,487
----------- ----------- -----------

Net cash used in investing activities (210,279) (487,857) (1,217,778)
----------- ----------- -----------

61

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

Year Ended March 31,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------

Cash flows from financing activities:
Proceeds from mortgage notes 0 0 278,584
Principal payments of mortgage notes (466,263) (454,435) (388,958)
Repayments of construction loans 0 0 (689,449)
Increase in due to local general partners and affiliates 68,849 25,573 12,335
Increase in deferred costs (37,398) 0 0
(Decrease) increase in capitalization of
consolidated subsidiaries attributable to
minority interest (293,044) (20,046) 982,820
----------- ----------- -----------

Net cash (used in) provided by financing
activities (727,856) (448,908) 195,332
----------- ----------- -----------

Net decrease in cash and cash equivalents (29,614) (153,593) (1,958,552)

Cash and cash equivalents at beginning of year 556,259 709,852 2,668,404
----------- ----------- -----------

Cash and cash equivalents at end of year $ 526,645 $ 556,259 $ 709,852
=========== =========== ===========

Supplemental disclosure of cash flows information:

Cash paid during the year for interest $ 758,563 $ 807,554 $ 807,370
=========== =========== ===========

Supplemental disclosure of noncash investing
and financing activities:

Mortgage notes payable converted from
construction notes payable $ 600,000 $ 0 $ 0

See accompanying notes to consolidated financial statements.

62

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

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 general partner of the General Partner is Related Independence
Associates III Inc., a Delaware corporation ("RIAI III") and is an affiliate of
Related Capital Company ("RCC"). On November 17, 2003, CharterMac, acquired RCC,
which is the indirect parent of RCC Manager LLC, the sole shareholder of RIAI
III. Pursuant to the acquisition, CharterMac acquired controlling interests in
the General Partner. This acquisition did not affect the Partnership or its
day-to-day operations, as the majority of the General Partner's management team
remained unchanged.

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

As of March 31, 2004, the Partnership had acquired a limited partnership
interest in twenty subsidiary partnerships.

The Partnership was authorized to issue a total of 100,000 ($100,000,000)
Beneficial Assignment Certificates ("BACs") which were registered with the
Securities and Exchange Commission for sale to the public. Each BAC represents
all of the economic and virtually all of the ownership rights attributable to a
limited partnership interest in the Partnership. As of the termination of the
offering on May 9, 1995, the Partnership had received $43,440,000 of gross
proceeds of the Offering (the "Gross Proceeds") from 2,810 investors ("BACs
holders").

The terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") provide, among other things, that net
profits or losses and distributions of cash flow are, in general, allocated 99%
to the limited partners and BACs holders and 1% to the general partner.

NOTE 2 - Summary of Significant Accounting Policies

a) Basis of Accounting

For financial reporting purposes the Partnership's fiscal year ends on March 31.
All subsidiaries have fiscal years ending December 31. Accounts of the
subsidiaries have been adjusted for intercompany transactions from January 1
through March 31. The Partnership's fiscal year ends March 31 in order to allow
adequate time for the subsidiaries' financial statements to be prepared and
consolidated. The books and records of the Partnership are maintained on the
accrual basis of accounting, in accordance with U.S. generally accepted
accounting principles ("GAAP").

b) Basis of Consolidation

The consolidated financial statements include the accounts of the Partnership
and twenty subsidiary partnerships in which the Partnership is a limited partner
for the years ended March 31, 2004, 2003 and 2002, respectively, (the 2003, 2002
and 2001 Fiscal Years). Through the rights of the Partnership and/or an
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 interest in the
subsidiary partnerships. All intercompany accounts and transactions with the
subsidiary partnerships have been eliminated in consolidation.

63

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

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 $18,000, $18,000 and $20,000 for the years ended March
31, 2004, 2003 and 2002, respectively. The Partnership's investment in each
subsidiary is equal to the respective subsidiary's partners' equity less
minority interest capital, if any. In consolidation, all subsidiary partnership
losses are included in the Partnership's capital account except for losses
allocated to minority interest capital.

c) Cash and Cash Equivalents

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

d) Property and Equipment

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred in acquiring the properties. The cost of property
and equipment is depreciated over their estimated useful lives using accelerated
and straight-line methods. Expenditures for repairs and maintenance are charged
to expense as incurred; major renewals and betterments are capitalized. At the
time property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the assets and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
earnings. A loss on impairment of assets is recorded when management estimates
amounts recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time, property
investments themselves are reduced to estimated fair value (generally using
discounted cash flows).

Through March 31, 2004, the Partnership has not recorded any loss on impairment
of assets or reduction to estimated fair value.

At the time management commits to a plan to dispose of assets, said assets are
adjusted to the lower of carrying amount or fair value less costs to sell. These
assets are classified as property and equipment-held for sale and are not
depreciated. Through March 31, 2004, the Partnership has not recorded or
classified any property and equipment as held for sale.

e) Income Taxes

The Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed through to the
partners and is required to be reported by them. The Partnership may be subject
to state and local taxes in jurisdictions in which it operates. For income tax
purposes, the Partnership has a fiscal year ending December 31 (Note 9).

f) Offering Costs

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

64

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

g) 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.

h) Use of Estimates

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

i) New Accounting Pronouncements

In January 2003, the Financial Accounting Standards Board issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities" ("FIN 46").
FIN 46 is applicable immediately for variable interest entities created after
January 31, 2003. For variable interest entities created before February 1,
2003, the provisions of FIN 46 are applicable no later than December 15, 2003.
The Partnership has not created any variable interest entities after January 31,
2003. In December 2003 the FASB redeliberated certain proposed modifications and
revised FIN 46 ("FIN 46 (R)"). The revised provisions are applicable no later
than the first reporting period ending after March 15, 2004. The adoption of FIN
46 and FIN 46 (R) is not anticipated to have a material impact on the
Partnership's financial reporting and disclosures.

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting for certain financial instruments that, under previous
guidance, could be classified as equity or "mezzanine" equity, by now requiring
those instruments to be classified as liabilities ( or assets in some
circumstances) in the Consolidated Balance Sheets. Further, SFAS No. 150
requires disclosure regarding the terms of those instruments and settlement
alternatives. The guidance in SFAS No. 150 generally was effective for all
financial instruments entered into or modified after May 31, 2003, and was
otherwise effective at the beginning of the first interim period beginning after
June 15, 2003.

NOTE 3 - Fair Value of Financial Instruments

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

Cash and Cash Equivalents, Investments Available-for-Sale and Cash Held in
- --------------------------------------------------------------------------------
Escrow
- ------
The carrying amount approximates fair value.

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

65

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

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

March 31, 2004 March 31, 2003
------------------------- -------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------

Mortgage notes payable for
which it is:

Practicable to estimate fair value $10,386,051 $ 9,260,654 $13,386,179 $12,812,966
Not practicable 32,461,810 * 29,327,945 *

Construction loans payable for
which it is:

Practicable to estimate fair value $ 0 $ 0 $ 0 $ 0
Not Practicable 0 * 600,000 *

*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 Local Partnerships.

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

The carrying amount of other financial instruments that require such disclosure
approximates fair value.

NOTE 4 - Property and Equipment

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

Estimated
March 31, Useful Lives
2004 2003 (Years)
------------- ------------- ------------

Land $ 1,166,783 $ 1,166,783 -
Building and improvements 83,563,525 83,170,492 20-40
Furniture and fixtures 1,244,550 1,214,985 5-12
------------ ------------
85,974,858 85,552,260

Less: Accumulated depreciation (19,701,934) (17,018,083)
------------ ------------

$ 66,272,924 $ 68,534,177
============ ============

Included in property and equipment is $2,509,717 of acquisition fees paid to the
General Partner and $1,178,468 of acquisition expenses as of March 31, 2004 and
2003, respectively. In addition, as of March 31, 2004 and 2003, building and
improvements include $1,106,837 of capitalized interest.

In connection with the rehabilitation of the properties, the subsidiary
partnerships have incurred developer's fees of $8,980,181 to the local general
partners and affiliates as of March 31, 2004 and 2003. Such fees have been
included in the cost of property and equipment.

66

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

Depreciation expense for the years ended March 31, 2004, 2003 and 2002 amounted
to $2,683,851, $2,700,555 and $2,664,316, respectively.

During the year ended March 31, 2003, $49,779 of accumulated depreciation was
written off.

NOTE 5 - Cash Held in Escrow

Cash held in escrow consists of the following:

March 31,
--------------------------
2004 2003
---------- ----------

Purchase price payments* $ 132,175 $ 297,142
Construction 0 436
Real estate taxes, insurance and other 3,506,363 3,568,448
Reserve for replacements 1,735,808 1,827,691
---------- ----------

$5,374,346 $5,693,717
========== ==========

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

NOTE 6 - Deferred Costs

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

March 31,
-----------------------------------------
2004 2003 Period
----------- ----------- -----------

Financing costs $ 1,265,159 $ 1,227,761 *
Less: Accumulated amortization (499,429) (443,180)
----------- -----------

$ 765,730 $ 784,581
=========== ===========

* Over the life of the related mortgages.

Amortization expense for the years ended March 31, 2004, 2003 and 2002 amounted
to $56,249, $57,758 and $62,849, 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
$93,000 including principal and interest at rates varying from 0% to 10% per
annum, through the year 2046. Each subsidiary partnership's mortgage note
payable is collateralized by the land and buildings of the respective subsidiary
partnership, the assignment of certain subsidiary partnership's rents and
leases, and is without further recourse.

67

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

Annual principal payment requirements, as of March 31, 2004 for each of the next
five fiscal years and thereafter, are as follows:

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

2004 $ 597,329
2005 542,784
2006 582,080
2007 631,753
2008 679,823
Thereafter 39,814,092
----------

$42,847,861
===========

The mortgage agreements require monthly deposits to replacement reserves of
approximately $17,000 and monthly deposits to escrow accounts for real estate
taxes, hazard and mortgage insurance and other (Note 5).

As of December 31, 2002, one subsidiary partnership had a construction loan
commitment totaling approximately $1,300,000 with an outstanding balance of
approximately $600,000. In March 2003, such construction loan was converted into
a permanent loan with interest at 9.5% a year. The maturity date of the loan is
January 1, 2011.

NOTE 8 - Related Party Transactions

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

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

A) Guarantees

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the general partners of the Local Partnerships have
agreed to fund operating deficits for a specified period of time. The terms of
the Operating Deficit Guaranty Agreements vary for each Local Partnership, with
maximum dollar amounts to be funded for a specified period of time, generally
three years, commencing on the break-even date. As of March 31, 2004, 2003 and
2002, the gross amounts of the Operating Deficit Guarantees aggregate
approximately $5,129,000, of which $3,273,000 has expired as of March 31, 2004.
Amounts funded under such agreements are treated as noninterest bearing loans,
which will be paid only out of 50% of available cash flow or out of available
net sale or refinancing proceeds. Management does not expect the expiration of
such guarantees to have a material impact on liquidity, based on prior years'
fundings.

The Operating Deficit Guaranty Agreements were negotiated to protect the
Partnership's interest in the Local Partnerships and to provide incentive to the
Local General Partners to generate positive cash flow.

In November 2002, FASB Interpretation No. 45, "Guarantor's Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others" ("FASB Interpretation No. 45"), was issued. The
accounting recognition provisions of FASB Interpretation No. 45 are effective
January 1, 2003 on a prospective basis. They require that a guarantor recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing or modifying any guarantee after December 31,

68

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

2002. Under prior accounting principles, a guarantee would not have been
recognized as a liability until a loss was probable and reasonably estimated. At
March 31, 2004, the Partnership has not issued or modified any existing
guarantees and has not determined the impact, if any, that adoption of the
accounting recognition provision of FASB Interpretation No. 45 would have on the
Partnership's future financial position or results of operations.

B) Other Related Party Expenses

The General Partner and its affiliates perform services for the Partnership. The
costs incurred to the General Partner and other related parties for the years
ended March 31, 2004, 2003 and 2002 were as follows:

Year Ended March 31,
------------------------------
2004 2003 2002
-------- -------- --------

Partnership management fees (a) $313,389 $331,132 $361,742
Expense reimbursement (b) 144,110 149,036 120,820
Local administrative fees (d) 62,750 65,500 61,500
-------- -------- --------

Total general and administrative-General Partner 520,249 545,668 544,062
-------- -------- --------

Property management fees incurred to
affiliates of the subsidiary partnerships'
general partners (c) 280,018 243,194 286,286
-------- -------- --------

Total general and administrative-related parties $800,267 $788,862 $830,348
======== ======== ========

(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 $2,205,000 and $1,892,000 were
accrued and unpaid as of March 31, 2004 and 2003, respectively. Without the
General Partner's continued accrual without payment the Partnership will not be
in a position to meet its obligations. The General Partner has continued
allowing the accrual without payment of these amounts but is under no obligation
to continue to do so.

(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.

(c) Property management fees incurred by Local Partnerships amounted to
$477,876, $438,586 and $458,450 for the years ended March 31, 2004, 2003 and
2002, respectively. Of these fees, $280,018, $243,194 and $286,286 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.

69

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

C) Due to Local General Partners and Affiliates

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

March 31,
---------------------------
2004 2003
---------- ----------

Operating advances $ 39,518 $ 39,654
Development fee payable 1,500,701 1,545,668
Other capitalized costs 16,335 16,335
Construction costs payable 154,543 154,543
General Partner loan payable 218,069 149,220
Management and other operating fees 31,386 25,623
---------- ----------

$1,960,552 $1,931,043
========== ==========

NOTE 9 - Income Taxes

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

For the Year Ended December 31,
-----------------------------------------
2003 2002 2001
----------- ----------- -----------

Financial statement net loss $(3,013,105) $(3,183,933) $(3,342,701)

Differences between depreciation and amortization
expense records for financial reporting purposes
and the accelerated costs recovery system utilized
for income tax purposes (414,282) (302,859) (451,799)

Differences resulting from parent company having
a different fiscal year for income tax and financial
reporting purposes (22,792) (27,154) 26,399

Tax exempt interest income 0 0 (23,591)

Other, including accruals for financial reporting
not deductible for tax purposes until paid
(96,387) 147,826 (690,941)
----------- ----------- -----------

Net loss as shown on the income tax return for the
calendar year ended $(3,546,566) $(3,366,120) $(4,482,633)
=========== =========== ===========

NOTE 10 - Commitments and Contingencies

a) Legal Proceedings

Lewis Street L.P.
- -----------------

In January of 1998, Lewis Street Limited Partnership ("Lewis Street") was
informed that it was a defendant in cause of action 1998-755 filed in Erie
County Supreme Court for the alleged value of work and services provided by
Phase Three Paul for interference with contractual relations and for fraud that

70

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004

was brought by the project's original developer. The complaint seeks damages for
the alleged value of work and services provided in the amount of $296,940 and
damages to reputation in the amount of at least $1,000,000 plus unspecified
punitive damages. On October 3, 2003, the Appellate Division ruled in favor of
Lewis Street. Lewis Street has been advised by the plaintiff that it does not
intend to pursue any further litigation. The Partnership's investment in Lewis
Street at March 31, 2004 and 2003 was approximately $529,000 and $590,000,
respectively, and the minority interest balance was zero at each date. Lewis
Street's net loss after minority interest amounted to approximately $74,000,
$111,000 and $101,000 for the 2003, 2002, and 2001 Fiscal Years, respectively.

b) Leases

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

2004 $ 38,358
2005 21,252
2006 21,252
2007 21,252
2008 21,252
Thereafter 807,576
---------
$ 930,942
==========

As of December 31, 2003, the subsidiary partnership was in default on the lease
agreement. For the year ended December 31, 2003, $19,481 has been paid under the
terms of the lease and $15,880 remains payable.

c) Uninsured Cash and Cash Equivalents

The Partnership maintains its cash and cash equivalents in various banks. The
accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation up to $100,000. Uninsured cash and cash equivalents approximated
$129,000 at March 31, 2004.

d) Other

The Partnership and BACs holders began to recognize Tax Credits with respect to
a Property when the Credit Period for such Property commenced. Because of the
time required for the acquisition, completion and rent-up of Properties, the
amount of Tax Credits per BAC have gradually increased over the first three
years of the Partnership. Tax Credits not recognized in the first three years
will be recognized in the 11th through 13th years. The Partnership generated
$5,683,281, $5,683,279 and $5,683,279 Tax Credits during the 2003, 2002 and 2001
tax years, respectively.

71

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

None

Item 9A. Controls and Procedures

(a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Principal Executive
Officer and Principal Financial Officer of Related Independence Associates III
L.P., the general partner of the Partnership, and its general partner, Related
Independence Associates III Inc., has evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended ("Exchange Act") as of the end of the period covered by this report.
Based on such evaluation, such officer has concluded that, as of the end of such
period, the Partnership's disclosure controls and procedures are effective.

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

PART III

Item 10. Directors and Executive Officers of the Registrant.

The Partnership has no directors or executive officers. The general partner of
the Partnership is Related Independence Associates III L.P., a Delaware limited
partnership (the "General Partner"). The general partner of the General Partner
is Related Independence Associates III Inc., a Delaware corporation ("RIAI III")
and is an affiliate of Related Capital Company ("RCC"). The Partnership's
affairs are managed and controlled by the General Partner. The Partnership has
not adopted a separate code of ethics because the Partnership has no directors
or executive officers. However, the parent company of RCC, which controls our
General Partner, has adopted a code of ethics. See http://www.chartermac.com.

On November 17, 2003, CharterMac, acquired RCC, which is the indirect parent of
RCC Manager LLC, the sole shareholder of Related Independence Associates III,
Inc. ("RIAI III"), the sole general partner of the General Partner. Pursuant to
the acquisition, CharterMac acquired controlling interests in the General
Partner. This acquisition did not affect the Partnership or its day-to-day
operations, as the majority of the General Partner's management team remained
unchanged. Alan P. Hirmes replaced Stephen M. Ross as Director of RIAI III
effective April 1, 2004 as a result of this acquisition.

Certain information concerning the directors and executive officers of RIAI III
is set forth below.

Name Position
- ---- --------

Alan P. Hirmes Director and President

Stuart J. Boesky Senior Vice President

Marc D. Schnitzer Vice President

Denise L. Kiley Vice President

Glenn F. Hopps Treasurer

Teresa Wicelinski Secretary

ALAN P. HIRMES, 49, has been a Certified Public Accountant in New York since
1978. Prior to joining Related in October 1983, Mr. Hirmes was employed by
Weiner & Co., Certified Public Accountants. Mr. Hirmes is also a Vice President
of Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts
degree. Mr. Hirmes also serves on the Board of Trustees of CharterMac and
American Mortgage Acceptance Company ("AMAC").

72

STUART J. BOESKY, 48, practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein from 1984 until February 1986 when he joined
Capital. From 1983 to 1984, Mr. Boesky practiced law with the Boston law firm of
Kaye Fialkow Richard & Rothstein (which subsequently merged with Strook & Strook
& Lavan LLP) and from 1978 to 1980 was a consultant specializing in real estate
at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from
Michigan State University with a Bachelor of Arts degree and from Wayne State
School of Law with a Juris Doctor degree. He then received a Master of Laws
degree in Taxation from Boston University School of Law. Mr. Boesky also serves
on the Board of Trustees of CharterMac and AMAC.

MARC D. SCHNITZER, 43, is responsible both for financial restructuring of real
estate properties and directing Related's acquisitions of properties generating
Housing Tax Credits. Mr. Schnitzer received a Masters of Business Administration
from The Wharton School of the University of Pennsylvania in December 1987
before joining Related in January 1988. From 1983 to January 1986, he was a
financial analyst for the First Boston Corporation in New York. Mr. Schnitzer
graduated summa cum laude with a Bachelor of Science in Business Administration
from the School of Management at Boston University in May 1983. Mr. Schnitzer
serves on the Board of Trustees of CharterMac.

DENISE L. KILEY, 44, is responsible for overseeing the due diligence and asset
management of all multifamily residential properties invested in RCC sponsored
corporate, public and private equity and debt funds. Prior to joining Related in
1990, Ms. Kiley had experience acquiring, financing and asset managing
multifamily residential properties. From 1981 through 1985 she was an auditor
with Price Waterhouse. Ms. Kiley holds a Bachelor of Science in Accounting from
Boston College. Ms. Kiley serves on the Board of Trustees of CharterMac.

GLENN F. HOPPS, 41, joined Related in December 1990, and prior to that date was
employed by Marks Shron & Company and Weissbarth, Altman and Michaelson,
certified public accountants. Mr. Hopps graduated from New York State University
at Albany with a Bachelor of Science Degree in Accounting.

TERESA WICELINSKI, 38, joined Related in June 1992, and prior to that date was
employed by Friedman, Alpren & Green, certified public accountants. Ms.
Wicelinski graduated from Pace University with a Bachelor of Arts Degree in
Accounting.

Item 11. Executive Compensation.

The Partnership has no officers or directors. The Partnership does not pay or
accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partner for their services. However, under the terms of
the Partnership Agreement, the Partnership has entered into certain arrangements
with the General Partner and its affiliates, which provide for compensation to
be paid to the General Partner and its affiliates. Such arrangements include
(but are not limited to) agreements to pay nonrecurring Acquisition Fees, a
nonaccountable Acquisition Expense allowance, an accountable expense
reimbursement and Subordinated Disposition Fees to the General Partner and/or
its affiliates. In addition, the General Partner is entitled to a subordinated
interest in Cash from Sales or Financings and a 1% interest in Net Income, Net
Loss, Distributions of Adjusted Cash from Operations and Cash from Sales or
Financings. Certain directors and officers of the General Partner receive
compensation from the General Partner and its affiliates for services performed
for various affiliated entities which may include services performed for the
Partnership. The maximum annual partnership management fee paid to the General
Partner is 0.5% of invested assets. See Note 8 to the Financial Statements in
Item 8 above, which is incorporated herein by reference.

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

73

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

Name and Address of Amount and Nature of Percentage
Title of Class Beneficial Ownership Beneficial Ownership of Class
- -------------- -------------------- -------------------- ----------
General Partnership Related Independence $1,000 capital contribution 100%
Interest in the Associates III L.P. -directly owned
Partnership 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. The following table sets forth the number of BACs
beneficially owned, as of June 2, 2004, by (i) each BACs holder known to the
Partnership to be a beneficial owner of more than 5% of the BACs, (ii) each
director and executive officer of the general partner of the General Partner and
(iii) the directors and executive officers of the general partner of the General
Partner as a group. Unless otherwise noted, all BACs are owned directly with
sole voting and dispositive powers.

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

Amount and Nature of
Name of Beneficial Owner (1) Beneficial Ownership Percent of Class
- ------------------------ -------------------- ----------------

Lehigh Tax Credit Partners, Inc. 3,242.94 (2) (3) 7.5%

J. Michael Fried 3,242.94 (2) (3) 7.5%

Alan P. Hirmes 3,242.94 (2) (3) 7.5%

Stuart J. Boesky 3,242.94 (2) (3) 7.5%

Stephen M. Ross 3,242.94 (2) (3) 7.5%

Marc D. Schnitzer 3,242.94 (2) (3) 7.5%

Denise L. Kiley 3,242.94 (2) (3) 7.5%

Glenn F. Hopps - -

Teresa Wicelinski - -

All directors and executive officers 3,242.94 (2) (3) 7.5%
of the general partner of the
Related General Partner as a group
(nine persons)

(1) The address for each of the persons in the table is 625 Madison Avenue, New
York, New York 10022.

(2) As set forth in Schedule 13D filed by Lehigh Tax Credit Partners III L.L.C.
("Lehigh III") and Lehigh Tax Credit Partners, Inc., (the "Managing Member") on
January 25, 1999 with the Securities and Exchange Commission (the "Commission")
and pursuant to a letter agreement dated October 6, 1998 among the Partnership,
Lehigh III and the General Partner (the "Standstill Agreement"), Lehigh III
agreed that, prior to October 6, 2008 (the "Standstill Expiration Date"), it
will not and it will cause certain affiliates not to (i) seek to propose to
enter into, directly or indirectly, any merger, consolidation, business
combination, sale or acquisition of assets, liquidation, dissolution or other
similar transaction involving the Partnership, (ii) form, join or otherwise

74

participate in a "group" (within the meaning of Section 13 (d)(3) of the Act)
with respect to any voting securities of the Partnership, except that those
affiliates bound by the Standstill Agreement will not be deemed to have violated
it and formed a "group" solely by acting in accordance with the Standstill
Agreement, (iii) disclose in writing to any third party intention, plan or
arrangement inconsistent with the terms of the Standstill Agreement, or (iv)
loan money to, advise, assist or encourage any person in connection with any
action inconsistent with the terms of the Standstill Agreement, Lehigh III also
agreed to vote its BACs in the same manner as a majority of all voting BACs
holders; provided, however, Lehigh is entitled to vote its BACs as it determines
with regard to any proposal (i) to remove the General Partner as a general
partner of the Partnership or (ii) concerning the reduction of any fees,
profits, distributions or allocations for the benefit of the General Partner or
its affiliates. The addresses of each of the Partnership, Lehigh III and the
General Partner is 625 Madison Avenue, New York, New York 10022.

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

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 are 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.

Item 14. Principal Accountant Fees and Services.

Audit Fees
- ----------
The aggregate fees billed by Trien Rosenberg Rosenberg Weinberg Ciullo and
Fazzari LLP and their respective affiliates (collectively, "Trien") for
professional services rendered for the audit of our annual financial statements
for the years ended March 31, 2004 and 2003 and for the reviews of the financial
statements included in the Partnership's Quarterly Reports on Form 10-Q for
those years were $51,200 and $51,200, respectively.

Audit Related Fees
- ------------------
None.

Tax Fees
- --------
The aggregate fees billed by Weiser LLP (formerly, Rubin and Katz LLP) and their
respective affiliates (collectively, "Weiser") for professional services
rendered for the preparation of our annual tax returns for the years ended
December 31, 2003 and 2002 were $8,300 and $8,000, respectively.

All Other Fees
- --------------
None.

The Partnership is not required to have, and does not have, a stand alone audit
committee.

75

PART IV

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

Sequential
Page
----------

(a) 1. Financial Statements

Report of Independent Registered Public Accounting Firm 15

Consolidated Balance Sheets at March 31, 2004 and 2003 58

Consolidated Statements of Operations for the Years Ended
March 31, 2004, 2003 and 2002 59

Consolidated Statements of Changes in Partners' Capital
(Deficit) for the Years Ended March 31, 2004, 2003 and
2002 60

Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and 2002 61

Notes to Consolidated Financial Statements 63

(a) 2. Consolidated Financial Statement Schedules

Report of Independent Registered Public Accounting Firm 82

Schedule I - Condensed Financial Information of Registrant 83

Schedule III - Real Estate and Accumulated Depreciation 86

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

(a) 3. Exhibits

(3A) 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 Partne-
rship 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 Partn-
ership's acquisition of Local Partnership Interests*

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

(21) Subsidiaries of the Registrant 77

(31.1) Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a). 80

76

Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(continued)

Sequential
Page
----------

(32.1) Certification Pursuant to Rule 13a-14(b) or Rule 15d-14(b)
and Section 1350 of Title 18 of the United States Code (18
U.S.C. 1350). 81

*Incorporated herein as an exhibit by reference to exhibits
filed with Post-Effective Amendment No. 4 to the Registra-
tion 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 Registra-
tion 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.

Jurisdiction
(c) Subsidiaries of the Registrant (Exhibit 21) 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
Universal Court Associates PA
New Zion Apartments LA
Dreitzer House NY

(d) Not applicable

77

SIGNATURES
----------

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

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

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

By: RELATED INDEPENDENCE ASSOCIATES III INC.,
General Partner

Date: June 16, 2004 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
President
(principal executive and financial officer)

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

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

President and Director
(principal executive and
/s/ Alan P. Hirmes financial officer) of Related
- ------------------
Alan P. Hirmes Independence Associates III Inc. June 16, 2004

Treasurer (principal
/s/ Glenn F. Hopps accounting officer) of Related
- ------------------
Glenn F. Hopps Independence Associates III Inc. June 16, 2004

Exhibit 31.1

CERTIFICATION PURSUANT TO RULE
13a-14(a) OR RULE 15d-14(a)

I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer
of Related Independence Associates III Inc. ("RIAI"), the general partner of
Related Independence Associates III L.P. (the "General Partner"), which is the
general partner of Independence Tax Credit Plus L.P. III (the "Partnership"),
hereby certify that:

1. I have reviewed this annual report on Form 10-K for the year ended
March 31, 2004 of the Partnership;

2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the Partnership as of, and for, the periods presented in
this annual report;

4. I am responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-14 and 15-d-14)
for the Partnership and I have:

a) designed such disclosure controls and procedures to ensure that
material information relating to the Partnership, including its
consolidated subsidiaries, is made known to me, by others within those
entities, particularly during the period in which this annual report
is being prepared;

b) evaluated the effectiveness of the Partnership's disclosure
controls and procedures as of March 31, 2004 (the "Evaluation Date");
and

c) presented in this annual report my conclusions about the
effectiveness of the disclosure controls and procedures based on my
evaluation as of the Evaluation Date;

5. I have disclosed, based on my most recent evaluation, to the
Partnership's auditors and to the board of directors of RIAI:

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Partnership's ability to
record, process, summarize and report financial data and have
identified for the Partnership's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the Partnership's
internal controls; and

6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that
could significantly affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

By: /s/ Alan P. Hirmes
Alan P. Hirmes
Principal Executive Officer and
Principal Financial Officer
June 16, 2004

Exhibit 32.1

CERTIFICATION PURSUANT
TO RULE 13a-14(b) OR RULE 15d-14(b)
AND SECTION 1350 OF TITLE 18
OF THE UNITED STATES CODE (18 U.S.C. 1350)

In connection with the Annual Report of Independence Tax Credit Plus L.P. III
(the "Partnership") on Form 10-K for the year ended March 31, 2004 as filed with
the Securities and Exchange Commission ("SEC") on the date hereof (the
"Report"), I, Alan P. Hirmes, Principal Executive Officer and Principal
Financial Officer of Related Independence Associates III Inc. a general partner
of Related Independence Associates III L.P., the general partner of the
Partnership, certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to ss.
906 of the Sarbanes-Oxley Act of 2002, that:

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

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

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

By: /s/ Alan P. Hirmes
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
June 16, 2004

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
-------------------------------------------------------

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

In connection with our audits of the consolidated financial statements of
Independence Tax Credit Plus L.P. III and Subsidiaries (A Delaware Limited
Partnership) included in the Form 10-K as presented in our opinion dated June
14, 2004 on page 15, and based on the reports of other auditors, we have also
audited supporting Schedule I for the 2003, 2002 and 2001 Fiscal Years and
Schedule III as of March 31, 2004. 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 14, 2004

82

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,
-------------------------
2004 2003
----------- -----------

Cash and cash equivalents $ 33,301 $ 35,268
Investment in subsidiary partnerships 19,933,240 21,998,761
Cash held in escrow 132,175 297,142
----------- -----------

Total assets $20,098,716 $22,331,171
=========== ===========

LIABILITIES AND PARTNERS' CAPITAL

Due to general partner and affiliates $ 3,313,127 $ 2,820,240
Other liabilities 14,278 9,556
----------- -----------

Total liabilities 3,327,405 2,829,796

Partners' capital 16,771,311 19,501,375
----------- -----------

Total liabilities and partners' capital $20,098,716 $22,331,171
=========== ===========

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

83

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,
-----------------------------------------
2004 2003 2002
----------- ----------- -----------

Revenues

Interest income $ 0 $ 0 $ 13,583
Other 550 350 4,873
----------- ----------- -----------

Total revenues 550 350 18,456
----------- ----------- -----------

Expenses

Administrative and management 84,466 119,553 202,027
Administrative and management-
related parties 457,499 480,168 482,562
----------- ----------- -----------

Total expenses 541,965 599,721 684,589
----------- ----------- -----------

Loss from operations (541,415) (599,371) (666,133)

Equity in loss of subsidiary partnerships (2,188,649) (2,307,951) (2,674,427)
----------- ----------- -----------

Net loss $(2,730,064) $(2,907,322) $(3,340,560)
=========== =========== ===========

84

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,
------------------------------------------
2004 2003 2002
----------- ----------- ------------

Cash flows from operating activities:

Net loss $(2,730,064) $(2,907,322) $(3,340,560)
----------- ----------- -----------

Adjustments to reconcile net loss to net cash
used in operating activities:

Equity in loss of subsidiary partnerships 2,188,649 2,307,951 2,674,427
Increase (decrease) in liabilities:
Due to general partners and affiliates 492,887 573,577 595,684
Other liabilities 4,722 4,781 (833)
----------- ----------- -----------

Total adjustments 2,686,258 2,886,309 3,269,278
----------- ----------- -----------

Net cash used in operating
activities (43,806) (21,013) (71,282)
----------- ----------- -----------

Cash flows from investing activities:

Investment in subsidiary partnerships (170,020) 0 (1,466,822)
Distributions from subsidiary partnerships 46,892 27,986 27,710
Decrease in cash held in escrow 164,967 0 100,000
----------- ----------- -----------

Net cash provided by (used in) investing
activities 41,839 27,986 (1,339,112)
----------- ----------- -----------

Net (decrease) increase in cash and
cash equivalents (1,967) 6,973 (1,410,394)

Cash and cash equivalents, beginning of year 35,268 28,295 1,438,689
----------- ----------- -----------

Cash and cash equivalents, end of year $ 33,301 $ 35,268 $ 28,295
=========== =========== ===========

85

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2004

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

Edward Hotel Limited Partnership $ 2,399,459 $ 275,000 $ 591,240 $ 2,580,054
Los Angeles, CA
Pacific East, L.P. 2,056,638 1,950 3,125,584 183,697
Brooklyn, NY
Overtown Development Group, Ltd. 1,197,552 52,284 2,627,099 162,091
Miami, FL
Sumpter Commons Associates, L.P. 1,213,870 500 1,862,916 50,963
Park Housing Limited Partnership 833,536 5,000 2,343,351 64,880
Livingston Manor Urban Renewal 3,080,000 119,988 7,047,532 632,130
Associates, L.P.
Jefferis Square Housing 1,900,000 55,158 0 4,612,613
Partnership, L.P.
2301 First Avenue Limited Partnership 5,109,664 64,350 5,818,269 159,285
Lewis Street Limited Partnership 1,600,000 7,000 0 2,773,181
Savannah Park Housing Limited 779,530 0 2,049,888 2,068,576
Partnership
Brannon Group, L.C 4,477,471 380,000 2,598,402 5,476,348
Independence Tax Credit Fund L.P. 2,510,527 1,732 339,661 6,275,119
(Mansion Court Phase II Venture and
Aspen Olive Associates Consolidated)
Primm Place Partners, L.P. 3,860,000 168,258 0 6,721,429
BK-9-A Partners L.P. 934,495 0 1,517,313 56,847
BK-10K Partners L.P. 1,087,163 11,000 1,637,762 50,286
Westmill Creek Associates III L.P. 2,887,146 37,031 6,922,563 29,651
Universal Court Associates 1,650,000 31,024 279,220 4,663,433
New Zion Apartments 995,810 20,000 2,688,770 12,362
Dreitzer House 4,275,000 5 0 6,722,063
----------- ----------- ----------- -----------

$42,847,861 $ 1,230,280 $41,449,570 $43,295,008
=========== =========== =========== ===========

Gross Amount at which Carried at Close of Period
------------------------------------------------
Buildings and
Description Land Improvements Total
- ----------- ----------- ------------- -----------

Edward Hotel Limited Partnership $ 281,123 $ 3,165,171 $ 3,446,294
Los Angeles, CA
Pacific East, L.P. 8,075 3,303,156 3,311,231
Brooklyn, NY
Overtown Development Group, Ltd. 58,408 2,783,066 2,841,474
Miami, FL
Sumpter Commons Associates, L.P. 3,673 1,910,706 1,914,379
Park Housing Limited Partnership 8,173 2,405,058 2,413,231
Livingston Manor Urban Renewal 123,161 7,676,489 7,799,650
Associates, L.P.
Jefferis Square Housing 39,347 4,628,424 4,667,771
Partnership, L.P.
2301 First Avenue Limited Partnership 67,523 5,974,381 6,041,904
Lewis Street Limited Partnership 10,173 2,770,008 2,780,181
Savannah Park Housing Limited 3,173 4,115,291 4,118,464
Partnership
Brannon Group, L.C 383,173 8,071,577 8,454,750
Independence Tax Credit Fund L.P. 5,123 6,611,389 6,616,512
(Mansion Court Phase II Venture and
Aspen Olive Associates Consolidated)
Primm Place Partners, L.P. 67,777 6,821,910 6,889,687
BK-9-A Partners L.P. 3,173 1,570,987 1,574,160
BK-10K Partners L.P. 14,176 1,684,872 1,699,048
Westmill Creek Associates III L.P. 37,649 6,951,596 6,989,245
Universal Court Associates 31,642 4,942,035 4,973,677
New Zion Apartments 20,618 2,700,514 2,721,132
Dreitzer House 623 6,721,445 6,722,068
----------- ----------- -----------

$ 1,166,783 $84,808,075 $85,974,858
=========== =========== ===========

Life on which
Depreciation in
Year of Latest Income
Accumulated Construction/ Date Statements are
Description Depreciation Renovation Acquired Computed (a)(b)
- ----------- ------------ ------------ ---------- ---------------

Edward Hotel Limited Partnership $ 933,350 1994-95 Nov. 1994 27.5 years
Los Angeles, CA
Pacific East, L.P. 1,188,234 1994-95 Dec. 1994 27.5 years
Brooklyn, NY
Overtown Development Group, Ltd. 678,068 1994-95 Dec. 1994 40 years
Miami, FL
Sumpter Commons Associates, L.P. 578,799 1995-96 Apr. 1995 27.5 years
Park Housing Limited Partnership 685,004 1995-96 May 1995 27.5 years
Livingston Manor Urban Renewal 1,586,845 1995-96 June 1995 15-40 years
Associates, L.P.
Jefferis Square Housing 942,804 1995-96 June 1995 20 - 40 years
Partnership, L.P.
2301 First Avenue Limited Partnership 2,013,456 1995-96 Aug. 1995 27.5 years
Lewis Street Limited Partnership 828,633 1995-96 Oct. 1995 27.5 years
Savannah Park Housing Limited 959,824 1995-96 Oct. 1995 27.5 years
Partnership
Brannon Group, L.C 1,312,944 1995-96 Dec. 1995 40 years
Independence Tax Credit Fund L.P. 1,198,371 1995-96 Dec. 1995 20 - 40 years
(Mansion Court Phase II Venture and
Aspen Olive Associates Consolidated)
Primm Place Partners, L.P. 1,237,670 1995-96 Dec. 1995 10 - 40 years
BK-9-A Partners L.P. 344,290 1995-96 Dec. 1995 40 years
BK-10K Partners L.P. 377,544 1995-96 Dec. 1995 40 years
Westmill Creek Associates III L.P. 2,185,424 1997-98 Dec. 1996 27.5 years
Universal Court Associates 703,688 1997-98 Apr. 1997 20-40 years
New Zion Apartments 708,707 1997-98 Nov. 1997 15 - 27.5 years
Dreitzer House 1,238,279 1997-99 Dec. 1997 27.5 years
----------- ----------- ----------- ---------------

$19,701,934
===========

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

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

86

INDEPENDENCE TAX CREDIT PLUS L.P. III
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 2004
(continued)

Cost of Property and Equipment Accumulated Depreciation
------------------------------------------- -------------------------------------------
Year Ended March 31,
------------------------------------------------------------------------------------------
2004 2003 2002 2004 2003 2002
------------ ------------ ------------ ------------ ------------ ------------

Balance at beginning of period $ 85,552,260 $ 85,943,904 $ 85,983,887 $ 17,018,083 $ 14,367,307 $ 11,702,991
Additions during period:
Improvements 422,598 41,219 42,332
Depreciation expense 2,683,851 2,700,555 2,664,316
Reductions during period:
Dispositions 0 (432,863) (82,315) 0 (49,779) 0
------------ ------------ ------------ ------------ ------------ ------------

Balance at close of period $ 85,974,858 $ 85,552,260 $ 85,943,904 $ 19,701,934 $ 17,018,083 $ 14,367,307
============ ============ ============ ============ ============ ============

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.

87