10-Q 1 f10q_june2004-free.txt SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES ------ EXCHANGE ACT OF 1934 Commission File Number 0-24652 FREEDOM TAX CREDIT PLUS L.P. ---------------------------- (Exact name of registrant as specified in its charter) Delaware 13-3533987 ------------------------------- ------------------- (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 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 whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes No X ------- ------- PART I - FINANCIAL INFORMATION Item 1. Financial Statements FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS

============= ============ ~~December~~June 3130, March 31, ~~2003~~2004 ~~2003~~2004 ------------- ------------ (Unaudited) ASSETS Property and equipment - (at cost, net of accumulated depreciation of $6264,~~501~~942,~~334~~793 and $5863,~~927~~733,~~642~~516, respectively) $81 79,~~121~~472,~~704~~172 $84 80,~~274~~476,~~411~~651 Cash and cash equivalents 2,~~445~~559,~~009~~356 2,~~247~~492,~~128~~636 ~~Investment in marketable securities 0 109,498~~ Cash held in escrow 54,~~244~~971,~~438~~644 4,~~654~~743,~~612~~491 Deferred costs (net of accumulated amortization of $12,~~948~~035,~~751~~530 and $1,~~821~~988,~~322~~501, respectively) 1932,~~014,064~~357 1979,~~141,493~~385 Other assets 1987,~~459,320~~832 1,~~240~~247,~~691~~703 ------------ ------------ Total Assets $91 88,~~284~~923,~~535~~361 $93 89,~~667~~939,~~833~~866 ============ ============

2 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED BALANCE SHEETS (continued)

============= ============ ~~December~~June 3130, March 31, ~~2003~~2004 ~~2003~~2004 ------------- ------------ (Unaudited) LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) Liabilities: Mortgage notes payable $ 66,~~588~~014,~~293~~298 $67 66,~~366~~285,~~819~~158 Accounts payable and other liabilities 21,~~389~~978,~~464~~482 1,~~411~~771,~~077~~574 Due to local general partners and affiliates 3,~~692~~812,~~980~~552 43,~~025~~922,~~449~~555 Due to general partners and affiliates (Note 2) 78,~~548~~089,~~300~~328 67,~~933~~861,~~531~~874 ------------ ------------ Total Liabilities 8079,~~219~~894,~~037~~660 79,~~736~~841,~~876~~161 ------------ ------------ Minority interests 87,~~033~~990,~~051~~219 8,~~079~~001,~~257~~969 ------------ ------------ Contingencies (Note 3) Partners' Capital (Deficit): Limited partners (72,896 BACs issued and outstanding) 31,~~682~~708,~~769~~744 62,~~470~~756,~~255~~415 General partners (~~650~~670,~~322~~262) (~~622~~659,~~165~~679) ~~Accumulated other comprehensive income: Unrealized loss on marketable securities 0 3,610~~ ------------ ------------ Total Partners' Capital (Deficit) 31,~~032~~038,~~447~~482 52,~~851~~096,~~700~~736 ------------ ------------ Total Liabilities and Partners' Capital (Deficit) $91 88,~~284~~923,~~535~~361 $93 89,~~667~~939,~~833~~866 ============ ============

The accompanying notes are an integral part of these consolidated condensed financial statements. 3 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)

============================ ~~============================~~ Three Months Ended ~~Nine~~June ~~Months Ended December 31~~30, ~~December 31,~~ ---------------------------- ~~----------------------------~~2004 2003 ~~2002 2003 2002~~ ---------------------------- ~~----------------------------~~ Revenues Rental income $ 3,~~680~~748,~~546~~355 $ 3,~~557~~664,~~927~~367 ~~$10,968,475 $10,630,258~~ Other ~~349~~317,~~842~~198 ~~363~~326,~~086~~921 ~~1,091,163 1,041,218 Gain on sale of marketable securities 4,966 0 4,966 0~~ ----------- ----------- ~~----------- -----------~~ Total revenues 4,~~035~~065,~~354~~553 3,~~921~~991,~~013~~288 ~~12,064,604 11,671,476~~ ----------- ----------- ~~----------- -----------~~ Expenses General and administrative ~~679~~700,~~023~~396 ~~640~~768,~~432~~148 ~~2,135,392 2,024,814~~ General and administrative- related parties (Note 2) ~~409~~442,~~783~~095 ~~396~~416,~~350~~123 ~~1,270,239 1,232,405~~ Operating and other ~~355~~404,~~945~~ 323~~,816~~ 1392,~~083,921~~394 ~~1,063,659~~ Repairs and ~~maintenance~~Maintenance ~~719~~832,~~531~~225 ~~675~~722,~~201~~880 ~~2,122,981 1,904,865~~ Real estate taxes 251,~~926~~294 251,~~520~~523 ~~750,690 742,956~~ Insurance ~~140~~176,~~547~~767 ~~111~~165,~~135~~260 ~~476,104 369,082~~ Financial 1,~~096~~070,~~321~~765 1,~~150~~103,~~932~~490 ~~3,372,305 3,458,707~~ Depreciation and amortization 1,~~228~~256,~~597~~305 1,~~261~~237,~~144~~652 ~~3,701,121 3,784,399~~ ----------- ----------- ~~----------- -----------~~ Total expenses 45,~~881~~134,~~673~~170 45,~~810~~057,~~530~~470 ~~14,912,753 14,580,887~~ ----------- ----------- ~~----------- -----------~~ Loss before minority interest (~~846~~1,~~319) (889~~068,~~517~~617) (21,~~848~~066,~~149~~182) ~~(2,909,411)~~ Minority interest in loss of ~~subsidiary~~subsidiaries ~~partnerships 7~~10,~~923~~363 911,~~468~~698 ~~28,896 29,501~~ ----------- ----------- ~~----------- -----------~~ Net loss $ (~~838~~1,~~396) $ (880~~058,~~049~~254) $(21,~~819~~054,~~253~~484) ~~$(2,879,910)~~ =========== =========== ~~=========== ===========~~ Net loss - limited partners $ (~~830~~1,~~012) $ (871~~047,~~249~~671) $(21,~~791~~043,~~060~~939) ~~$(2,851,111)~~ =========== =========== ~~=========== ===========~~ Number of BACs outstanding 72,896 72,896 ~~72,896 72,896~~ =========== =========== ~~===========~~Net ~~=========== Basic net~~ loss per BAC $ (1114.3437) $ (1114.9532) ~~$ (38.24) $ (39.11)~~ =========== =========== ~~=========== ===========~~

The accompanying notes are an integral part of these consolidated condensed financial statements. 4 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited)

~~Accumulated Other~~ Limited General ~~Comprehensive Comprehensive~~ Total Partners Partners ~~Income (loss) Loss~~ ------------ ------------ ------------ ~~------------ ------------~~ Partners' capital (deficit) April 1, ~~2003~~2004 $ 52,~~851~~096,~~700~~736 $ 62,~~470~~756,~~255~~415 $ (~~622~~659,~~165~~679) ~~$ 3,610 Comprehensive Loss:~~ Net loss ~~- Nine months ended December 31, 2003~~ (21,~~819~~058,~~253~~254) (21,~~791~~047,~~060~~671) (2810,~~193~~583) ~~$ (2,819,253) Other Comprehensive Loss: Net unrealized loss on marketable securities 0 3,574 36 ( 3,610) 3,610~~ ----------- ----------- ---------- -~~----------~~ ~~------------ Total Comprehensive Loss $ (2,815,643) ============~~ Partners' capital (deficit) ~~December~~June 3130, ~~2003~~2004 $ 31,~~032~~038,~~447~~482 $ 31,~~682~~708,~~769~~744 $ (~~650~~670,~~322~~262) ~~$ 0~~ =========== =========== ========== =~~==========~~

The accompanying notes are an integral part of these consolidated condensed financial statements. 5 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)

============================ ~~Nine~~Three Months Ended ~~December~~June 3130, ---------------------------- 2004 2003 ~~2002~~ ---------------------------- Cash flows from operating activities: Net loss $ (21,~~819~~058,~~253~~254) $ (21,~~879~~054,~~910~~484) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation and amortization 31,~~701~~256,~~121~~305 31,~~784~~237,~~399~~652 Minority interest in loss of subsidiaries (2810,~~896~~363) (2911,~~501~~698) ~~Gain on sale of marketable securities (4,966) 0~~ Increase in cash held in escrow (~~589~~228,~~826~~153) (~~579~~181,~~231~~085) ~~Increase~~Decrease (increase) in other assets ~~(218~~259,~~629)~~871 (~~168~~215,~~506~~983) Increase in accounts payable and other liabilities ~~978~~206,~~387~~907 ~~965~~548,~~851~~948 Increase in due to general partners and affiliates ~~614~~227,~~769~~454 ~~691~~237,~~475~~150 Increase in due to local general partners and affiliates 133,~~126~~464 8212,~~623~~871 Decrease in due to local general partners and affiliates (~~345~~113,~~595~~467) (~~343~~14,~~342~~382) ------------ ------------ Net cash provided by operating activities 1543,~~300,238~~764 1558,~~523,858~~989 ------------ ------------ Cash flows from investing activities: Acquisition of property and equipment (~~420~~204,~~985~~797) (~~407~~146,~~734~~246) ~~Proceeds from sale of marketable securities 114,464 0~~ ------------ ------------ Net cash used in investing activities (~~306~~204,~~521~~797) (~~407~~146,~~734~~246) ------------ ------------

6 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (continued)

============================ ~~Nine~~Three Months Ended ~~December~~June 3130, ---------------------------- 2004 2003 ~~2002~~ ---------------------------- Cash flows from financing activities: ~~Proceeds from mortgage notes 0 340,600~~ Repayments of mortgage notes (~~778~~270,~~526~~860) (~~761~~275,~~898~~807) Decrease in capitalization of consolidated subsidiaries attributable to minority interest (171,~~310~~387) (1611,~~575~~723) ------------ ------------ Net cash used in financing activities (~~795~~272,~~836~~247) (~~437~~287,~~873~~530) ------------ ------------ Net increase in cash and cash equivalents ~~197~~66,~~881~~720 ~~678~~125,~~251~~213 Cash and cash equivalents at beginning of period 2,~~247~~492,~~128~~636 12,~~833~~247,~~843~~128 ------------ ------------ Cash and cash equivalents at end of period $ 2,~~445~~559,~~009~~356 $ 2,~~512~~372,~~094~~341 ============ ============ Supplemental disclosure of cash flow information: Cash paid during period for interest $ 3969,~~106,061~~564 $ 3920,~~183,335~~486 ============ ============

The accompanying notes are an integral part of these consolidated condensed financial statements. 7 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) Note 1 - General The consolidated financial statements include the accounts of Freedom Tax Credit Plus L.P. ("the Partnership") and 42 subsidiary partnerships ("subsidiaries", "subsidiary partnerships" or "Local Partnerships") in which the Partnership is a limited partner. Through the rights of the Partnership and/or an affiliate of a General Partner, which affiliate has a contractual obligation to act on behalf of the Partnership, to remove the general partner of the Local Partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the Local Partnerships. The Partnership's fiscal quarter ends June 30. All subsidiaries have fiscal quarters ending March 31 in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. Accounts of the subsidiaries have been adjusted for intercompany transactions from April 1 through June 30. All intercompany accounts and transactions have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions from and cash distributions to the minority interest partners. Losses attributable to minority interests aggregated approximately $10,000 and $12,000 for the three months ended June 30, 2004 and 2003, respectively. The Partnership's investment in each subsidiary is generally equal to the respective subsidiary's partners' equity less minority interest capital, if any. The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. In the opinion of the General Partners of the Partnership, the accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position of the Partnership as of June 30, 2004 and results of operations and its cash flows for the three months ended June 30, 8 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) 2004 and 2003. However, the operating results and cash flows for the three months ended June 30, 2004 may not be indicative of the results for the entire year. Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted or condensed. These condensed financial statements should be read in conjunction with the financial statements and notes thereto included in the Partnership's Annual Report on Form 10-K for the year ended March 31, 2004. 9 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) Note 2 - Related Party Transactions The costs incurred to related parties for the three months ended June 30, 2004 and 2003 were as follows:

~~============================ ============================~~ Three Months Ended ~~Nine~~June ~~Months Ended December 31~~30, ~~December 31,~~ ------------------------~~----~~ ~~----------------------------~~2004 2003 ~~2002 2003 2002~~ ------------------------~~----~~ ~~----------------------------~~ Partnership ~~manage-~~management ~~ment~~ fees (a) $ 169,000 $ 169,000 ~~$ 507,000 $ 507,000~~ Expense ~~reimburse-~~reimbursement ~~ment~~ (b) 2836,~~461~~446 2339,~~486~~160 ~~127,223 110,816~~ Local ~~administra-~~administrative ~~tive~~ fee (c) 13,000 13,000 ~~40,000 40,000~~ --------~~---~~ -------- Total general and administrative-- General Partners 218,446 221,160 ---------- ---------- ~~Total general and administrative- General Partners 210,461 205,486 674,223 657,816~~ Property ~~manage-~~management ~~ment~~ fees incurred to affiliates of the subsidiary partnerships' general partners (d) ~~199~~223,~~322~~649 ~~190~~194,~~864~~963 ~~596,016 574,589~~ --------~~---~~ ---------- ~~---------- ----------~~ Total general and administrative- related parties $ ~~409~~442,~~783~~095 $ ~~396~~416,~~350~~123 ~~$1,270,239 $1,232,405~~ ========~~===~~ ========~~== ========== ==========~~

(a) The General Partners are 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 Partners in their sole discretion based upon their review of the Partnership's investments. Unpaid partnership management fees for any year will be accrued without interest and will be payable from working capital reserves or to the extent of available funds after the Partnership has made distributions to the Limited Partners and BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partners 10 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) amounting to approximately $6,377,000 and $6,208,000 were accrued and unpaid as of June 30, 2004 and March 31, 2004, respectively. Without the General Partners' continued accrual without payment, the Partnership will not be in a position to meet its obligations. The General Partners have continued allowing the accrual without payment of these amounts, but are under no obligation to continue to do so. The Partnership is dependent upon the support of the General Partners and certain of their affiliates in order to meet its obligations at the Partnership level. The General Partners and these affiliates have agreed to continue such support for the foreseeable future. (b) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership's behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships' performance. (c) Freedom SLP L.P., a special limited partner of the subsidiary partnerships, is entitled to receive an annual local administrative fee from $0 to $2,500 per year from each subsidiary partnership. (d) Property management fees incurred by subsidiary partnerships amounted to $266,383 and $260,658 for the three months ended June 30, 2004 and 2003, respectively. Of these fees, $223,649 and $194,963, respectively, were incurred to affiliates of the subsidiary partnerships' general partners for the three months ended June 30, 2004 and 2003, respectively. Note 3 - Contingencies Washington Brooklyn ------------------- On or about September 2003, two putative mortgagees commenced a mortgage foreclosure action in the Supreme Court of the State of New York, Kings County (the "Court"), entitled 150 BEACH 120th STREET INC. v. WASHINGTON BROOKLYN LIMITED PARTNERSHIP, Index No. 35255/2003, seeking to foreclose on an alleged $100,000 loan and mortgage against the real property (the "Apartment Complex") owned by Washington Brooklyn Limited Partnership ("Washington"). Apparently, the former general partner of Washington, BUFNY Houses of Brooklyn, Inc. ("BUFNY"), allegedly granted two mortgages in the amounts of $225,000 and $100,000 secured by the Apartment Complex. Each of the foregoing mortgages was granted without 11 FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS June 30, 2004 (Unaudited) the knowledge and consent of Freedom SLP, L.P. (the "Special Limited Partner") or the Partnership (collectively the "Freedom LPs"), as required by Washington's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). The Freedom LPs believe that BUFNY did not use the alleged loan proceeds for the benefit of Washington or the Apartment Complex. For these and other reasons, the Freedom LPs contend that the alleged mortgages are invalid. In addition, BUFNY allegedly failed to comply with the terms of either mortgage, which resulted in the holders of the alleged $100,000 mortgage commencing the foreclosure proceedings. BUFNY did not appear in or otherwise respond to the foreclosure proceedings. The holders of the alleged $225,000 mortgage have not yet, to the knowledge of the Freedom LPs, commenced any foreclosure proceedings. Shortly after the Freedom LPs became aware of these foreclosure proceedings, their counsel contacted counsel for the plaintiffs and mortgagees in an effort to learn more about the alleged mortgages and to resolve the disputes relating to the mortgages. When those efforts failed, the Freedom LPs filed a motion to intervene in the foreclosure action and for leave to file a late answer on behalf of themselves and Washington. The Freedom LPs contend that the mortgages are invalid and that Washington is not liable for them or the underlying indebtedness. A hearing on the Freedom LPs' motion was held on June 16, 2004 and the Court reserved ruling on that motion, which is now fully submitted and pending a decision by the Court. The Court, however, has stayed all further proceedings in the foreclosure action until it decides the Freedom LPs' motion. If the Court were to deny the Freedom LPs motion or reject their defenses on the merits to the foreclosure action, it is possible that the Apartment Complex might be foreclosed upon and the Partnership might lose its title to and interests in the Apartment Complex, as well as risk possible recapture of a portion of the tax credits generated by Washington. However, the final outcome of this case cannot be determined at this time. In addition, due to BUFNY's breach of fiduciary duties and breaches of the Partnership Agreement, the Special Limited Partner exercised its rights under the Partnership Agreement to remove BUFNY as Washington's general partner and to substitute itself as the new replacement general partner, effective April 26, 2004. 12 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- The Partnership's sources of funds during the three months ended June 30, 2004, include working capital reserves, interest earned on working capital and distributions received from the Local Partnerships. None of these sources generated substantial amounts of funds. A working capital reserve of approximately $51,000, exclusive of Local Partnerships' working capital, remains as of June 30, 2004. During the three months ended June 30, 2004 and 2003, the distributions received from the Local Partnerships approximated $26,000 and $3,000, respectively. Cash distributions from Local Partnerships are not expected to reach a level sufficient to permit cash distributions to BACs holders. These distributions as well as the working capital reserves referred to in the preceding paragraph and the continued deferral by the General Partners of fees owed to them will be used to meet the operating expenses of the Partnership. Partnership management fees owed to the General Partners amounting to approximately $6,377,000 and $6,208,000 were accrued and unpaid as of June 30, 2004 and March 31, 2004, respectively. Without the General Partners continued accrual without payments, the Partnership will not be in a position to meet its obligations. The General Partners have continued allowing the accrual without payment of these amounts, but are under no obligation to do so and to the extent cash flow becomes available, such fees will be paid. The Partnership is dependent upon the support of the General Partners and certain of their affiliates in order to meet its obligations at the Partnership level. The General Partners and these affiliates have agreed to continue such support for the foreseeable future. During the three months ended June 30, 2004, cash and cash equivalents of the Partnership and its forty-two consolidated Local Partnerships increased approximately $67,000 due to cash provided by operating activities ($544,000) which exceeded acquisitions of property and equipment ($205,000), a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($1,000) and repayments of mortgage notes ($271,000). Included in the adjustments to reconcile the net loss to cash provided by operating activities is depreciation and amortization of approximately $1,256,000. Management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining properties in the portfolio may not be experiencing downswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. The Partnership has fully invested the proceeds of its 13 offering in 42 local partnerships, all of which 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 such ten year period. As of December 31, 2002 all the Local Partnerships have completed their tax credit periods and the Partnership has met its primary objective of generating Housing Tax Credits ("Tax Credits") for qualified BACs holders. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the 15 year Compliance Period ("Compliance Period") in order to avoid recapture of the Tax Credits. The Compliance Period will end between December 31, 2004 and December 31, 2007 with respect to the Properties depending upon when the Compliance Period commenced. 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 Company's accounting policies included in Note 2 to the consolidated financial statements in the annual report on Form 10-K. (a) 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 14 undiscounted basis are below depreciated cost. At that time property investments themselves are reduced to estimated fair value (generally using discounted cash flows). (b) 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. Results of Operations --------------------- The results of operations for the three months ended June 30, 2004 continued to be in the form of rental income with corresponding expenses divided among operations, depreciation and mortgage interest. Rental income remained fairly consistent with an increase of approximately 2% for the three months ended June 30, 2004 as compared to the corresponding period in 2003, primarily due to rental rate increases. Total expenses, excluding repairs and maintenance, remained fairly consistent with a decrease of approximately 1% for the three months ended June 30, 2004 as compared to the corresponding period in 2003. Repairs and maintenance expense increased by approximately $109,000 for the three months ended June 30, 2004 as compared to the corresponding period in 2003, primarily due to painting and exterior renovations at one Local Partnership. Item 3. Quantitative and Qualitative Disclosures about Market Risk. The Partnership is not exposed to market risk since its mortgage indebtedness bears fixed rates of interest. Item 4. Controls and Procedures (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Principal Executive Officer and Principal Financial Officer of Related Freedom Associates L.P. and Freedom G.P. Inc., the general partners of the Partnership, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act") as of the end of the period covered by this report. Based on such evaluation, such officer has concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. 15 (b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in Partnership's internal control over financial reporting during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings - See Item I. Financial Statements - Note 3. Item 2. Changes in Securities and Use of Proceeds - None Item 3. Defaults Upon Senior Securities - None Item 4. Submission of Matters to a Vote of Security Holders - None Item 5. Other Information - None Item 6. Exhibits and Reports on Form 8-K (a) Exhibits (31.1) Certification Pursuant to Rule 13a-14(a) or Rule 15d-14(a). (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). (b) Reports on Form 8-K - None 17 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. FREEDOM TAX CREDIT PLUS L.P. (Registrant) By: RELATED FREEDOM ASSOCIATES L.P., a General Partner By: RELATED FREEDOM ASSOCIATES INC., General Partner Date: August 10, 2004 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes, Director and President (Principal Executive Officer and Principal Financial Officer) Date: August 10, 2004 By: /s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer (Principal Accounting Officer) and By: FREEDOM GP INC., a General Partner Date: August 10, 2004 By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes, Director and President (Principal Executive Officer and Principal Financial Officer) Date: August 10, 2004 By: /s/ Glenn F. Hopps ------------------ Glenn F. Hopps, Treasurer (Principal Accounting Officer) 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 Freedom Associates L.P. and Freedom GP Inc. (the "General Partners"), each of which is a general partner of Freedom Tax Credit Plus L.P. (the "Partnership"), hereby certify that: 1. I have reviewed this quarterly report on Form 10-Q for the period ending June 30, 2004 of the Partnership; 2. Based on my knowledge, this quarterly 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 quarterly report; 3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f)) 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 quarterly report was being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; and c) evaluated the effectiveness of the Partnership's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this quarterly report based on such evaluation; and d) disclosed in this quarterly report any change in the Partnership's internal control over financial reporting that occurred during the period ending June 30, 2004 that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting; and 5. I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Partnership's auditors and to the boards of directors of the General Partners: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Partnership's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal controls over financial reporting. Date: August 10, 2004 --------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Quarterly Report of Freedom Tax Credit Plus L.P. (the "Partnership") on Form 10-Q for the period ended June 30, 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 Freedom Associates L.P. and Freedom GP Inc., each of which is the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the SEC or its staff upon request. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer August 10, 2004

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