10-K 1 f10k_lib2-2006.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended March 31, 2006 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-24660 LIBERTY TAX CREDIT PLUS II L.P. (Exact name of registrant as specified in its charter) Delaware 13-3458180 ------------------------------------------------ ------------------- (State or other jurisdiction of incorporation or (I.R.S. Employer organization) Identification No.) 625 Madison Avenue, New York, New York 10022 ------------------------------------------------ ------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 317-5700 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Beneficial Assignment Certificates (including underlying Limited Partnership Interests) (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] 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 (ss.229.405 of this chapter) 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 a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (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, 2005 was $(4,444,000), based on Limited Partner equity (deficit) as of such date. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Business General ------- Liberty Tax Credit Plus II L.P. (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on March 25, 1988. The general partners of the Partnership are Related Credit Properties II L.P., a Delaware limited partnership (the "Related General Partner"), Liberty Associates II L.P., a Delaware limited partnership ("Liberty Associates"), and Liberty GP II Inc. (formerly Shearson Liberty GP II Inc.), a Delaware corporation (the "Liberty General Partner" and together with the Related General Partner and Liberty Associates, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties II Inc., a Delaware corporation. The general partners of Liberty Associates are Related Credit Properties II Inc., and the Liberty General Partner. Liberty Associates is also the special limited partner of the Partnership. On November 17, 2003, CharterMac acquired CharterMac Capital LLC ("CharterMac Capital") (formerly known as Related Capital Company LLC), which is the parent of RCC Manager LLC, the sole shareholder of Related Credit Properties II Inc. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. This acquisition did not affect the Partnership or its day-to-day operations, as the majority of the General Partners' management team remained unchanged. On November 8, 2005, CharterMac announced that Stuart J. Boesky would step down as Chief Executive Officer and trustee of CharterMac. Upon his stepping down, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of Related Credit Properties II, Inc. and Executive Vice President of the Liberty General Partner. Mr. Boesky will stay on as a consultant to CharterMac for the next year in order to ensure a smooth transition. On March 14, 2006, CharterMac's Board of Trustees named Marc D. Schnitzer the Chief Executive Officer, effective immediately. Mr. Schnitzer replaced Stephen M. Ross, who had served as interim Chief Executive Officer since Stuart J. Boesky resigned in November of 2005. Mr. Schnitzer also replaced Mr. Boesky as Senior Vice President of Related Credit Properties II, Inc. and Executive Vice President of the Liberty General Partner. On July 20, 1988 the Partnership commenced a public offering (the "Offering") of Beneficial Assignment Certificates ("BACs") representing assignments of limited partnership interests in the Partnership ("Limited Partnership Interests"). As of January 9, 1989 (the date on which the Partnership held the final closing of the sale of BACs and on which the Offering was terminated), the Partnership had received $115,917,500 of gross proceeds of the Offering from 8,431 investors. The Partnership was formed to invest, as a limited partner, in other limited partnerships (referred to herein as "Local Partnerships" or "subsidiary partnerships") each of which owns one or more leveraged low-income multifamily residential complexes ("Apartment Complexes") that are eligible for the low-income housing tax credit ("Tax Credit") enacted in the Tax Reform Act of 1986, and to a lesser extent, in Local Partnerships owning properties ("Rehabilitation Projects" and together with the Apartment Complexes, the "Properties") that are eligible for the historic rehabilitation tax credit (the "Historic Rehabilitation Tax Credit"). Some of the Apartment Complexes benefit from one or more other forms of federal and state housing assistance. The Partnership's investment in each Local Partnership represents from 20% to 98% of the partnership interests in the Local Partnership. As of March 31, 2006, the Partnership had acquired interests in 27 Local Partnerships and does not anticipate making any additional investments. The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the property and the related assets and liabilities of one Local Partnership and the limited partnership interest in three Local Partnerships were sold. Through the fiscal year ended March 31, 2006, the property and the related assets and liabilities of five Local Partnerships and the limited partnership interests in four Local Partnerships were sold. In addition, as of March 31, 2006, the Partnership has entered into a contract to sell one additional Local Partnership. Subsequently, the property and the related assets and liabilities of four Local Partnerships, which were classified as assets held for sale as of March 31, 2006, were sold and the Partnership entered into a contract to sell one additional Local Partnership (see Note 14 in Item 8). See Item 2, Properties. Liberty Associates is the special limited partner in all remaining 18 Local Partnerships, as well as a general partner of the Partnership. Liberty Associates has certain rights and obligations in its role as special limited partner which permit it to execute control over the management and policies of the Local Partnerships. Investment Objectives, Tax Credits ---------------------------------- The investment objectives of the Partnership are to: 1. Entitle qualified BACs holders to Tax Credits (and to a lesser extent Historic Rehabilitation Tax Credits) over the period of the Partnership's entitlement to claim Tax Credits (for each Property, ten years from the date of investment or, if later, the date the Property is placed in service referred to herein as the "Tax Credit Period"); 2. Preserve and protect the Partnership's capital; 3. Participate in any capital appreciation in the value of the Properties and provide distributions of sale or refinancing proceeds upon the disposition of the Properties; 4. Provide cash distributions when available from the operations of Properties; and 5. Allocate passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocate passive losses to corporate BACs holders to offset active business income. One of the Partnership's objectives is to entitle qualified BACs holders to Tax Credits over the period of the Partnership's entitlement to claim Tax Credits. Each of the Local Partnerships in which the Partnership has acquired an interest has been allocated by the relevant state credit agency the authority to 2 recognize Tax Credits during the Tax Credit Period provided that the Local Partnership satisfies the rent restriction, minimum set-aside and other requirements for recognition of the Tax Credits at all times during the 15-year period (the "Compliance Period") commencing at the beginning of the Tax Credit Period. Once a Local Partnership has become eligible to recognize Tax Credits, it may lose such eligibility and suffer an event of "recapture" if (i) the Local Partnership ceases to meet qualification requirements, (ii) there is a decrease in the qualified basis of a Property, or (iii) there is a reduction in its interest in the Property at any time during the Compliance Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. The Tax Credits are attached to a Local Partnership for the Tax Credit Period and are transferable with the Property during the entirety of such ten year period. If trends in the real estate market warranted the sale of a Property, the remaining Tax Credits would transfer to the new owner, thereby adding value to the Property on the market. However, such value declines each year and is not included in the financial statement carrying amount. The Tax Credit Periods expired at various times through December 31, 2003 with respect to the Local Partnerships depending upon when the Tax Credit Period commenced. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods began to end on January 1, 2004 and will continue through December 31, 2006 with respect to the Properties depending upon when the Tax Credit Periods commenced. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time the Property investments themselves are reduced to estimated fair value (generally using the discounted cash flow valuation method). For the year ended March 31, 2006, the Partnership recorded approximately $6,075,000 as a loss on impairment of fixed assets. Through March 31, 2006, the Partnership has recorded approximately $11,482,000 as an aggregate loss on impairment of assets or reduction to estimated fair value. While the value of the remaining Tax Credits is a factor in calculating fair value, the expiration of the Tax Credit Period, in and of itself, is not the only factor in determining whether there is an impairment and generally does not have any adverse impact on the fair value of the Local Partnerships. The Partnership has met its primary objective of generating Tax Credits for qualified BACs holders. As of March 31, 2006, the Tax Credit Periods for all of the Properties have expired, although each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of a portion of the Tax Credits. The Partnership generated $14,364 in Tax Credits during the 2003 Fiscal Year. The Partnership continues to meet its objective of allocating passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocating passive losses to corporate BACs holders to offset business income. At this time, there can be no assurance that the Partnership will continue to meet this investment objective. The General Partners generally required, in connection with certain investments in Local Partnerships, that the general partners of the Local Partnership ("Local General Partners") undertake the funding of operating deficits (up to a stated maximum amount) of the Local Partnership during a limited period of time following the Partnership's investment ("Guarantee Period"). Generally the amounts funded pursuant to the operating deficit guarantee (the "Operating Deficit Guarantee") have been treated as Operating Loans, do not bear interest and will be repaid only out of 50% of available cash flow or out of available net sale or refinancing proceeds. See Item 8, Note 8 - Related Party Transactions. As of March 31, 2006, all Operating Deficit Guarantees have expired. As of March 31, 2006, the Partnership has not made any cash distributions from the operations of the Properties. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds upon the disposition of Properties. Accordingly, at this time there can be no assurance that the Partnership will achieve this investment objective. Government Regulations ---------------------- The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 44% of the Properties are located in any single state. The Partnership is the beneficiary of certain subsidy agreements pursuant to which the United States Department of Housing and Urban Development ("HUD") subsidizes the amount of rent that the Local Partnerships earn. There are substantial risks associated with owning properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Local Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. Segments -------- The Partnership operates in one segment, which is the investment in multi-family residential properties. Financial information about this segment is set forth in Item 8 hereto. Sale of Properties ------------------ The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the property and the related assets and liabilities of one Local Partnership and the limited partnership interest in three Local Partnerships were sold. Through the fiscal year ended March 31, 2006, the property and the related assets and liabilities of five Local Partnerships and the limited partnership interests in four Local Partnerships were sold. See Item 2, Properties. All gains and losses on sales are included in discontinued operations. Subsequently, on April 24, 2006, one Local Partnership entered into a purchase and sale agreement to sell its property and related assets and liabilities and on May 1, 2006 the property and related assets and liabilities of three Local Partnerships were sold and on June 5, 2006 the property and the related assets and liabilities of another Local Partnership were sold. See Note 14 in Item 8. 3 On October 20, 2005, the Partnership's limited partnership interest in Gramco Development Limited Dividend Partnership, L.P. ("Bayamon") was sold to the Local General Partner and one of its affiliates for a purchase price of $3,000,000, resulting in a Local General Partner contribution of approximately $2,768,000. The sale resulted in the liquidation of Bayamon. As of the sale date, Bayamon had property and equipment, at cost, of approximately $8,639,000, accumulated depreciation of approximately $4,855,000 and mortgage debt of approximately $3,922,000. On July 27, 2005, the property and the related assets and liabilities of Penn Alto Associates, L.P. ("Penn Alto") were sold to an unaffiliated third party purchaser for $1,625,000. During the quarter ended September 30, 2005, in accordance with Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), the Partnership deemed the building impaired and wrote it down to its fair value, which resulted in a loss on impairment of $850,000. The sale resulted in a loss of approximately $140,000. The sale resulted in the liquidation of Penn Alto. As of the sale date, Penn Alto had property and equipment, at cost, of approximately $11,110,000, accumulated depreciation of approximately $6,148,000 and mortgage debt of approximately $3,383,000. On July 15, 2005, the Partnership sold 20% of its limited partnership interest in Santa Juanita to the Local General Partner for $100,000. The sale of the 20% limited partnership interest resulted in a Local General Partner contribution of $100,000. As of December 31, 2005, Santa Juanita had property and equipment, at cost, of approximately $4,075,000, accumulated depreciation of approximately $2,232,000 and mortgage debt of approximately $1,500,000. On May 11, 2005, the Partnership's limited partnership interest in Upper Fifth Avenue Residential Associated, L.P. ("Upper Fifth") was sold to the Local General Partner for a purchase price of $10. The sale resulted in the liquidation of Upper Fifth, which had a partners' deficit of approximately $5,353,000, resulting in a Local General Partner non-cash contribution in the same amount to the Local Partnership. As of the sale date, Upper Fifth had property and equipment, at cost, of approximately $22,386,000, accumulated depreciation of approximately $8,907,000 and mortgage debt of approximately $13,624,000. On December 30, 2004, the property and the related assets and liabilities of Property Development Associates, L.P. ("Property Development") were sold to an affiliate of the Local General Partner for $7,097,000, resulting in a Local General Partner distribution of approximately $1,218,000. The sale resulted in the liquidation of Property Development. As of the sale date, Property Development had property and equipment, at cost, of approximately $12,513,000, accumulated depreciation of approximately $5,483,000 and mortgage debt of approximately $5,275,000. On September 21, 2004, the Partnership's limited partnership interest in Alexis Park Apartments ("Alexis Park") was sold to an unaffiliated third party purchaser for $1,000,000. This amount consisted of $600,000 paid in cash at the closing and $400,000 pursuant to two promissory notes of $200,000 each to the Partnership. Both notes compound interest at 5% and the principal and interest of one note is to be paid annually from 50% of cash flow, with a maturity in five years, when all unpaid principal and interest shall become payable. The principal and interest on the second note is to be paid upon refinancing or sale of the Property, but in no event later than 10 years. The sale resulted in a gain of approximately $1,007,000. As of the sale date, Alexis Park had property and equipment, at cost, of approximately $8,456,000, accumulated depreciation of approximately $4,473,000 and mortgage debt of approximately $3,839,000. Subsequently, in April 2006 both notes were fully paid. Assets Held for Sale -------------------- On January 17, 2006, the remaining 80% of the Partnership's limited partnership interest in Santa Juanita II Limited Partnership ("Santa Juanita") was sold to the Local General Partner for a purchase price of $375,000 cash plus 50% of the amount, if any, by which the aggregate sales price for the apartment units exceeds the actual conversion cost, as defined in the transfer agreement, from the conversion to condos, resulting in a Local General Partner distribution of approximately $882,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The Local General Partner's distribution will be written down to zero during the quarter ending June 30, 2006, resulting in a loss to minority interest of approximately $882,000. The sale resulted in the liquidation of Santa Juanita. As of December 31, 2005, Santa Juanita had property and equipment, at cost, of approximately $4,075,000, accumulated depreciation of approximately $2,232,000 and mortgage debt of approximately $1,500,000. On November 28, 2005, Willoughby/Wyckoff Housing Associates, L.P. ("Willoughby") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,800,000. The sales documents have been executed and the initial deposit funds are being held in escrow. Willoughby is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Willoughby had property and equipment, at cost, of approximately $6,191,000, accumulated depreciation of approximately $3,801,000 and mortgage debt of approximately $4,016,000. The closing occurred subsequently on June 5, 2006. See Note 14 in Item 8 regarding subsequent events. On September 22, 2005, 2051 Grand Concourse Housing Associates, L.P. ("Grand Concourse") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,937,500. The sales documents have been executed and the initial deposit funds were being held in escrow. Grand Concourse is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Grand Concourse had property and equipment, at cost, of approximately $5,271,000, accumulated depreciation of approximately $3,204,000 and mortgage debt of approximately $3,239,000. The closing occurred subsequently on May 1, 2006. See Note 14 in Item 8 regarding subsequent events. On September 22, 2005, Concourse Artists Housing Associates, L.P. ("Concourse Artists") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $1,797,500. The sales documents have been executed and the initial deposit funds were being held in escrow. Concourse Artists is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Concourse Artists had property and equipment, at cost, of approximately $2,285,000, accumulated depreciation of approximately $1,385,000 and mortgage debt of approximately $1,409,000. The closing occurred subsequently on May 1, 2006. See Note 14 in Item 8 regarding subsequent events. On September 22, 2005, Robin Housing Associates, L.P. ("Robin Housing") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $7,265,000. The sales documents have been executed and the initial deposit funds were being held in escrow. Robin Housing is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Robin Housing had property and equipment, at cost, of approximately $8,238,000, accumulated depreciation of 4 approximately $5,014,000 and mortgage debt of approximately $4,895,000. The closing occurred subsequently on May 1, 2006. See Note 14 in Item 8 regarding subsequent events. On September 1, 2005, the Partnership entered into an assignment and assumption agreement to sell the Partnership's limited partnership interest in Rolling Green Limited Partnership ("Rolling Green") to the Local General Partner for a purchase price of $400,000. The sales documents have been executed and a closing is expected to take place in August 2006. No assurance can be given that the sale will actually occur. Rolling Green is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Rolling Green had property and equipment, at cost, of approximately $9,135,000, accumulated depreciation of approximately $3,959,000 and mortgage debt of approximately $5,519,000. Competition ----------- The real estate business is highly competitive and substantially all of the Properties acquired by the Partnership are subject to competition from similar properties in their respective vicinities. In addition, various other limited partnerships may, in the future, be formed by the General Partners and/or their affiliates to engage in business which may compete with the Partnership. Employees --------- The Partnership does not have any direct employees. All services are performed for the Partnership by its General Partners and their affiliates. The General Partners receive compensation in connection with such activities as set forth in Items 11 and 13. In addition, the Partnership reimburses the General Partners and certain of their affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). Item 1A. Risk Factors The Partnership is subject to risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally, however no more than 44% of the Properties are located in any single state. There are also substantial risks associated with owning properties receiving government assistance; for example, the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owners' equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contract expires. Item 1B. Unresolved Staff Comments Not applicable Item 2. Properties The Partnership had originally acquired an interest as a limited partner in 27 Local Partnerships. During the fiscal year ended March 31, 2006, the property and the related assets and liabilities of one Local Partnership and the limited partnership interest in three Local Partnerships were sold. Through the fiscal year ended March 31, 2006, the property and the related assets and liabilities of five Local Partnerships and the limited partnership interest in four Local Partnerships were sold. Set forth below is a schedule of these Local Partnerships including certain information concerning the Apartment Complexes (the "Local Partnership Schedule"). Further information concerning these Local Partnerships and their Properties, including any encumbrances affecting the Properties, may be found in Item 15, Schedule III. Except for the five Local Partnerships listed below, the following is the allocation of ownership percentage as of March 31, 2006 for each of the 18 remaining Local Partnerships: Local General Partner 1% Special Limited Partner 1% Limited Partner - Liberty Tax Credit Plus II L.P. 98%

* Each is an affiliate of the Partnership with the same management. 5 Local Partnership Schedule --------------------------

6 (a) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2002 (see Item 7 below). (b) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2004 (see Item 7 below). (c) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2005 (see Item 7 below). (d) The limited partnership interest was sold during the fiscal year ended March 31, 2005 (see Item 7 below). (e) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2006 (see Item 7 below). (f) The limited partnership interest was sold during the fiscal year ended March 31, 2006 (see Item 7 below). All leases are generally for periods not exceeding one to two years and no tenant occupies more than 10% of the rentable square footage. Rents from 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 periodically reviews the physical state of the Properties and suggests to the respective 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 periodically reviews the insurance coverage of the Properties and subject to budget constraints recommends to the respective Local General Partners additional coverage if warranted. Management believes that coverage is presently adequate. See Item 1, Business, above for the general competitive conditions to which the Local Partnerships and 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. Item 3. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders None 7 PART II Item 5. Market for Registrant's Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities The Partnership has issued and outstanding 115,917.5 Limited Partnership Interests, each representing a $1,000 capital contribution to the Partnership, or an aggregate capital contribution of $115,917,500. All of the issued and outstanding Limited Partnership Interests have been issued to Liberty Credit Assignor Inc. (the "Assignor Limited Partner"), which has in turn issued 115,917.5 BACs to the purchasers thereof for an aggregate purchase price of $115,917,500. 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 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 public trading market. Because of the provisions of the Revenue Act of 1987, unless there are further changes in such law, the Partnership does not intend to include the BACs for quotation on NASDAQ or for listing on any national or regional stock exchange or any other established securities market. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in "publicly traded partnerships." Accordingly, the General Partners have imposed limited restrictions on the transferability of the BACs and the Limited Partnership Interests in secondary market transactions. Implementation of these restrictions should prevent a public trading market from developing and may adversely affect the ability of an investor to liquidate his or her investment quickly. It is expected that such procedures will remain in effect until such time, if ever, as further revision of the Revenue Act of 1987 may permit the Partnership to lessen the scope of the restrictions. As of May 4, 2006, the Partnership had 8,342 registered holders of an aggregate of 115,917.5 BACs. All of the Partnership's general partnership interests, representing an aggregate capital contribution of $2,000, are held by the three General Partners. There are no material provisions in the Partnership Agreement that restrict the ability of the Partnership to make distributions. However, the Partnership has not made any distributions to BACs holders as of March 31, 2006. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds upon the disposition of Properties. Tender Offer Response --------------------- The Partnership responded to an unsolicited tender offer and expressed no opinion with respect to whether or not BACs holders should tender their units, as more fully discussed in the Partnership's press release dated October 6, 2005, which is included as Exhibit 99.1 to this Report on Form 10-K. Transfer Procedures ------------------- As was previously disclosed, the Partnership has been the subject of at least two ongoing tender offers by persons not affiliated with it or its General Partners, each such tender offer seeking to purchase up to 4.9% of the outstanding units of the Partnership. See "Tender Offer Response" above. Those tender offers, as well as other transfer requests made independently of the tender offers, implicate the Partnership's policies and procedures concerning transfers generally and tender offers in particular, which were adopted by the Partnership pursuant to the terms of its Partnership Agreement, to ensure compliance with applicable law, avoid adverse tax consequences for the Partnership and its investors, and preserve the Partnership's advantageous tax status. In prior years, the Partnership relied on the 5% safe harbor established by Internal Revenue Service ("IRS") regulations to avoid being characterized as a "publicly-traded partnership" that is taxed as a corporation. The 5% safe harbor, however, expired and is no longer available as of December 31, 2005. Accordingly, the Partnership now relies on a 2% safe harbor established by another IRS regulation to avoid being characterized as a "publicly-traded partnership" that is taxed as a corporation. A brief summary of certain of the Partnership's key policies, practices and requirements with respect to transfers and tender offers is as follows: o No transfer (whether for substitution, assignment or otherwise) is effective or binding on the Partnership unless and until it is approved by the General Partners. o No transfer will be approved unless the transferor and transferee submit complete and properly executed forms of the Partnership's own transfer documentation. The Partnership does not accept forms of transfer documentation other than its own and does not accept signatures made by power of attorney in lieu of original signatures by each of the transferors and transferees. o The Partnership will not approve transfers that in the cumulative aggregate for any tax year exceed the IRS 2% safe harbor, unless a financially responsible person provides the Partnership and its partners with (i) an indemnity (in form and substance in all ways acceptable to the General Partners) for all liability (including, without limitation, any adverse tax consequences) arising from or relating to exceeding the 2% safe harbor and (ii) a legal opinion (in form and substance in all ways acceptable to the General Partners) that there will be no adverse tax consequences to the Partnership and its partners from exceeding the 2% safe harbor. o It order to avoid the undesirable situation of one or more tender offers consuming the entire safe harbor limitation early in the tax year and leaving the Partnership's remaining investors with no liquidity opportunity for the rest of that tax year, the Partnership restricts the cumulative aggregate total of transfers made pursuant to all tender offers to 1.5% of its outstanding units in each tax year, unless a financially responsible person conducting such tender offer provides the Partnership with an acceptable indemnity and legal opinion of the type described above. At the end of each tax year, the General Partners, in their discretion, may allow the cumulative total number of transfers (including those by tender offer) to reach the 2% safe harbor limit. 8 o The Partnership requires that all tender offers for its units be conducted in accordance with all applicable law including, without limitation, the federal securities laws. The foregoing is solely a summary of the Partnership's policies, requirements and practices with respect to transfers and tender offers. More complete information, including a copy of the Partnership's transfer documentation package, may be obtained from the Partnership. Item 6. Selected Financial Data The information set forth below presents selected financial data of the Partnership. Additional financial information is set forth in the audited financial statements in Item 8 hereof.

During the year ended March 31, 2002, total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment. During the years ended March 31, 2003, 2004, 2005 and 2006, total assets and liabilities decreased primarily due to the sale of Local Partnerships. 9 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- The Partnership's capital has been invested in twenty-seven Local Partnerships. During the fiscal year ended March 31, 2006, the property and the related assets and liabilities of one Local Partnership and the limited partnership interest in three Local Partnerships were sold. Through the year ended March 31, 2006, the properties and the related assets and liabilities of five Local Partnerships and the limited partnership interest in four Local Partnerships were sold. For a discussion of these sales, see Sale of Properties (Note 10 in Item 8). In addition, as of March 31, 2006, the Partnership has entered into a contract to sell one additional Local Partnership. Subsequently, the property and the related assets and liabilities of four Local Partnerships, which were classified as assets held for sale as of March 31, 2006, were sold and the Partnership entered into a contract to sell one additional Local Partnership (see Note 14 in Item 8). Short-Term ---------- During the year ended March 31, 2006, the Partnership's primary sources of funds included: (i) working capital reserves; (ii) interest earned on the working capital reserves; (iii) cash distributions from operations of the Local Partnerships; and (iv) sales proceeds and distributions. Such funds are available to meet the obligations of the Partnership but are not expected to be significant. The Partnership does not anticipate providing cash distribution to BACs holders in circumstances other than refinancing or sales. During the years ended March 31, 2006, 2005 and 2004, cash distributions received from the Local Partnerships were approximately $246,000, $4,000 and $42,000, respectively, which included distributions from sales amounting to approximately $0, $0 and $21,000, respectively. Additionally, during the years ended March 31, 2006, 2005 and 2004, approximately $3,100,000, $1,000,000 and $0, respectively, of sales proceeds were received by the Partnership from the sale of Local Partnerships. The Partnership had a working capital of approximately $214,814 on March 31, 2006. The Partnership is not expected to have access to additional sources of financing, and in particular will not have the ability to access BACs holders for additional capital contributions to provide capital if needed by the Partnership. There can be no assurance that additional funds will be available to the Partnership or any Local Partnership, nor that, if any Property is sold, the proceeds of the sale will be sufficient to pay outstanding balances due on mortgage loans or other outstanding indebtedness to which the Property is subject. The General Partners believe that cash distributions received from the operations of the Local Partnerships are sufficient to fund the Partnership's ongoing operations for the foreseeable future (assuming the General Partners continue to defer payment of their management fees). Certain fees and expense reimbursements owed to the General Partners amounting to approximately $15,022,000 and $15,253,000 were accrued and unpaid as of March 31, 2006 and 2005, respectively. In particular, partnership management fees owed to the General Partners amounting to approximately $14,970,000 and $14,088,000 were accrued and unpaid as of March 31, 2006 and 2005, respectively. Furthermore, expense reimbursements and asset monitoring fees owed to the General Partners amounting to approximately $52,000 and $1,166,000 were accrued and unpaid as of March 15, 2006 and 2005, respectively. Without the General Partners' continued accrual without payment of the partnership management fees, the Partnership will not be in the position to meet its obligations. The General Partners have allowed for the accrual without payment of the partnership management fees but are under no obligation to continue to do so. During the year ended March 31, 2006, cash and cash equivalents of the Partnership and its consolidated Local Partnerships decreased approximately $1,471,000. This decrease was due to net cash used in operating activities ($2,694,000), improvements to property and equipment ($1,140,000), an increase in deferred costs relating to financing activities ($122,000), a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($372,000) and net repayments of mortgage notes ($2,013,000) which exceeded proceeds from sales ($4,725,000), a decrease in cash held in escrow relating to investment activities ($138,000) and an increase in due to selling partners ($8,000). In the adjustments to reconcile the net income to net cash used in operating activities are loss on sale of properties of approximately ($220,000), depreciation and amortization of approximately ($5,618,000) and a loss on impairment of fixed assets of ($6,075,000). Total expenses for the years ended March 31, 2006, 2005 and 2004, excluding depreciation and amortization, interest and general and administrative - related parties, totaled $15,505,195, $9,206,218 and $10,762,640, respectively. Accounts payable and other liabilities totaled $3,212,976 and $3,180,337, as of March 31, 2006 and 2005, respectively. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, local general partner advances and in certain circumstances advances from the Partnership. Because the provisions of the secondary loans defer the payment of accrued interest of the respective Local Partnerships, the Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. Accrued interest payable as of March 31, 2006 and 2005 was $1,793,739 and $1,862,461, respectively. Accrued interest payable represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount indicated in the above table and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. In addition, each Local Partnership's mortgage notes are collateralized by the land and buildings of the respective Local Partnership, and are without further recourse to the Partnership. 10 Long-Term --------- For a discussion of contingencies affecting certain Local Partnerships, see Results of Operations of Certain Local Partnerships below. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies are not anticipated to impact future results of operations, liquidity or financial condition in a material way. However, the Partnership's loss of its investment in a Local Partnership may result in recapture of Tax Credits if the investment is lost before the expiration of the Compliance Period during which the Properties must comply with various rent and other restrictions. Except as described above, management is not aware of any trends or events, commitments or uncertainties which have not otherwise been disclosed that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the Properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining Properties in the portfolio may be experiencing upswings. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. Sale of Underlying Properties/Local Partnership Interests --------------------------------------------------------- For a discussion of the sale of Properties in which the Partnership owns direct and indirect interests, see Note 10 in Item 8. Discontinued Operations ----------------------- For a discussion of discontinued operations, see Note 13 in Item 8. Tabular Disclosure of Contractual Obligations --------------------------------------------- The following table summarizes the Partnership's commitments from operations as of March 31, 2006 to make future payments under its debt agreements and other contractual obligations.

(a) The mortgage notes are payable in aggregate monthly installments of approximately $233,000 including principal and interest at rates varying from 1% to 10.75% per annum, through 2042. Each subsidiary partnership's mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership and the assignment of certain subsidiary partnership's rents and leases and is without further recourse. The following table summarizes the Partnership's commitments from discontinued operations as of March 31, 2006 to make future payments under its debt agreements and other contractual obligations.

(a) The mortgage notes are payable in aggregate monthly installments of approximately $116,000 including principal and interest with rates varying from 1% to 10.25% per annum and have maturity dates through 2034. The loans are collateralized by the land and buildings of the subsidiary partnerships, the assignment of certain subsidiary partnerships' rents, leases, and replacement reserves, and are without further recourse. 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 in Item 8. Property and Equipment ---------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). A loss on impairment of assets is recorded when management estimates amounts recoverable through future 11 operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2006, the Partnership has recorded $6,075,000 as a loss on impairment of assets. Through March 31, 2006, the Partnership has recorded approximately $11,482,000 as a loss on impairment of assets. In accordance with SFAS No. 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the Consolidated Statements of Operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the Notes in Item 8. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the Consolidated Balance Sheets. See Note 13 in Item 8 regarding discontinued operations. At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. There were five assets classified as property and equipment-held for sale at March 31, 2006. See Notes 10 and 13 in Item 8 regarding assets held for sale and discontinued operations. Revenue Recognition ------------------- Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by Property due to the terms of the tenant leases. Rental income is recognized when earned and charged to tenants' accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned. Other revenues are recorded when earned and consist of the following items: interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income and other rental related items. Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

* Reclassified for comparative purposes. Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

* Reclassified for comparative purposes. 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 June 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections ("FAS 154"). FAS 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes and Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principles be applied retrospectively with all prior period financial statements presented on the new accounting principles. FAS 154 also requires that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. FAS 154 was effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of FAS 154 has not had a material impact on the Partnership's consolidated financial statements. In June 2005, the FASB issued Emerging Issues Task Force No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights ("EITF No. 04-5"). EITF No. 04-5 replaces counterpart requirements in Statement of Position 78-9, which provides guidance on accounting for investments in real estate ventures and limited partnerships. Under EITF No. 04-5, the general partner's control would be overcome if the limited partners have either (i) "kick-out rights"- the right to dissolve or liquidate the partnership or otherwise remove the general partner "without cause" or (ii) "participating rights" - the right to effectively participate in significant decisions made in the ordinary course of the Partnership's business. The 12 kick-out rights and the participating rights must be substantive in order to overcome the general partner's control. EITF No. 04-5 is now effective. Since the Partnership's financial statements are presented on a consolidated basis, the adoption of EITF No. 04-5 has not had a material effect on the Partnership's consolidated results of operations. Results of Operations --------------------- The following is a summary of the results of operations of the Partnership for the years ended March 31, 2006, 2005 and 2004 (the 2005, 2004 and 2003 Fiscal Years, respectively). The majority of the Local Partnerships' revenues continue to be in the form of rental income with the corresponding expenses divided among operations, depreciation and mortgage interest. The Partnership originally invested in 27 Local Partnerships. As of March 31, 2006, Campeche, Polynesian, Seagrape, Property Development and Penn Alto sold their properties and the related assets and liabilities, and the Partnership sold its limited partnership interests in Alexis Park, Upper Fifth and Bayamon. As of March 31, 2006, Rolling Green, Santa Juanita, Concourse Artists, Grand Concourse, Robin Housing and Willoughby are classified as assets held for sale and are included in discontinued operations (see Note 13 in Item 8). Subsequently, on May 1 the property and related assets and liabilities of three Local Partnerships were sold (see Note 14 in Item 8). The net loss for the 2005, 2004 and 2003 Fiscal Years totaled $(701,571), $(4,623,823) and $(7,470,002), respectively. The Partnership generated $14,364 in Tax Credits during the 2003 Fiscal Year. As of December 31, 2003 all the Local Partnerships have completed their Tax Credit Periods and the Partnership has met its primary objective of generating Tax Credits for qualified BACs holders. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Period began to end on January 1, 2004 and will continue through December 31, 2006 with respect to the Properties depending upon when the Tax Credit Period commenced. 2005 vs. 2004 ------------- Rental income increased approximately 3% for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to increases in rental rates at the Local Partnerships. Other income increased approximately $183,000 for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to the write-off of accrued interest at one Local Partnership and an increase in interest income due to higher cash balances available for investment at a second Local Partnership. Total expenses, excluding general and administrative, repairs and maintenance, operating and other and insurance, remained fairly consistent with a decrease of less than 1% for the 2005 Fiscal Year as compared to the 2004 Fiscal Year. For the year ended March 31, 2006, the Partnership recorded approximately $6,075,000 as a loss on impairment of fixed assets. General and administrative expenses increased approximately $300,000 for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to an increase in legal expenses as a result of sales activity at the Partnership level and an increase in payroll and employee benefits at one Local Partnership. Repairs and maintenance expenses increased approximately $679,000 for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to an increase in security contract costs due to violent crimes and an increase in repair contracts at one Local Partnership and an increase in costs related to building and apartment restoration and landscaping at a second Local Partnership. Operating and other expenses increased approximately $192,000 for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to an increase in gas and electricity costs at several Local Partnerships. Insurance expenses decreased approximately $128,000 for the 2005 Fiscal Year as compared to the 2004 Fiscal Year, primarily due to a decrease in the insurance premium due to a change in the insurance provider at two Local Partnerships and a decrease in the health insurance premium due to a change in the employment policy under new management at a third Local Partnership. 2004 vs. 2003 ------------- Rental income increased approximately 3% for the 2004 Fiscal Year as compared to the 2003 Fiscal Year, primarily due to rental rate increases at the Local Partnerships. Total expenses, excluding general and administrative, general and administrative-related parties, repairs and maintenance and real estate taxes, increased approximately 2% for the 2004 Fiscal Year as compared to the 2003 Fiscal Year. General and administrative expenses decreased approximately $1,371,000 for the 2004 Fiscal Year as compared to the 2003 Fiscal Year, primarily due to two Local Partnerships changing from using unrelated management companies to using the respective Local General Partners as management agents, as well as decreases in legal costs and bad debt expenses at a third and fourth Local Partnership. General and administrative- related parties expenses increased approximately $1,218,000 for the 2004 Fiscal Year as compared to 2003 Fiscal Year, primarily due to two Local Partnerships changing from using unrelated management companies to using the respective Local General Partners as management agents. Repairs and maintenance expenses decreased approximately $409,000 for the 2004 Fiscal Year as compared to 2003 Fiscal Year, primarily due to expenses related to fire damages in 2003 at one Local Partnership and expenses related to building improvements at a second Local Partnership. 13 Taxes increased approximately $92,000 for the 2004 Fiscal Year as compared to 2003 Fiscal Year, primarily due to an increase in personal property payments made at one Local Partnership, an increase in the assessed market value of the property at a second Local Partnership and an increase in the annual real estate taxes at several Local Partnerships. Results of Operations of Certain Local Partnerships --------------------------------------------------- (a) Subsidiary Partnerships - Going Concerns and Uncertainties Whittier Plaza Associates ------------------------- The financial statements for Whittier Plaza Associates Limited Partnership ("Whittier") have been prepared assuming that Whittier will continue as a going concern. Whittier has sustained continuous losses since commencement of operations in 1988, including losses of $28,239 and $23,889 in 2005 and 2004, respectively. Whittier has experienced higher vacancies and lower rents than those originally projected, resulting in increased difficulty in meeting both operating and debt service obligations. The Local General Partner, pursuant to a development deficit guarantee agreement, has advanced approximately $3,000 and $21,000 in the 2005 and 2004 Fiscal Years, respectively, and approximately $492,000 since 1988 to fund operating cash shortfalls. In addition, Whittier's management company, an affiliate of the Local General Partner, has deferred receipt of various fees since 1991 totaling approximately $116,000. These items raise substantial doubt about Whittier's ability to continue as a going concern. The Partnership's investment in Whittier at March 31, 2006 and 2005 was reduced to zero as a result of prior years' losses and the minority interest balance was $0 at each date. Whittier's net loss after minority interest amounted to approximately $28,000, $24,000 and $27,000 for the 2005, 2004 and 2003 Fiscal Years. Westminster ----------- The financial statements for Westminster Place II - Olive Site, L.P. ("Westminster") have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Westminster as a going concern. Westminster's rental subsidy fund agreement with the Missouri Housing Development Commission ("MHDC") was depleted in June 2004. Westminster has been approved by the MHDC for rental increases, however, these increases have not been sufficient to cover the loss of the rental subsidy payments. The loss of the rental subsidy payments and insufficient rental increases raise substantial doubt about Westminster's ability to continue as a going concern. Management is exploring a sale of Westminster and will continue to submit requests for rental increases for MHDC approval. Willoughby ---------- The financial statements of Willoughby have been prepared on the basis that it will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. There are certain conditions that raise substantial doubt about Willoughby's ability to continue as a going concern. Willoughby has had operating losses and equity deficiencies. Management plans to continue to minimize costs within their control and seek additional funding sources to supplement project operations. Continuance of Willoughby as a going concern is dependent upon Willoughby's ability to obtain additional funding to supplement project operations and enable Willoughby to meet its obligations as they become due. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Willoughby was subsequently sold on June 5, 2006 (see Note 14 in Item 8). b) Subsidiary Partnerships - Other Goodfellow Place Limited Partnership ("Goodfellow") --------------------------------------------------- In recent years, Goodfellow has experienced significant cash flow deficiencies. In addition, current liabilities exceed current assets by approximately $65,000, and there is $233,648 due to the General Partners and their affiliates. During 2005, the General Partners advanced Goodfellow $64,327 in the form of a long term interest free loan. The General Partners have informally indicated that they will continue to advance funds to Goodfellow in 2006, as needed, with an unsecured loan that will strengthen Goodfellow's overall financial position. Management believes that this action will allow Goodfellow to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the sale of the Property and subsequent liquidation of the Local Partnership. Bayamon ------- Bayamon was granted net funds of $4,867,000 by the Municipality of Bayamon (the "Municipality") and HUD. In the event of a substantial violation to the provisions of certain agreements between Bayamon and the Municipality and between the Municipality and HUD, the funds shall become immediately due and payable at the election of HUD and the Municipality. Otherwise, the principal amount of the obligation together with any interest will be forgiven. Proceeds from the loan have been deducted from fixed assets. The Partnership sold its limited partnership interest in Bayamon on October 20, 2005. Williamsburg Residential, L.P. ------------------------------ In November 1996, the Local General Partner of Williamsburg Residential, L.P. ("Williamsburg") stopped making its mortgage note payments which constituted an event of default. A Reinstatement and Modification Agreement was entered into effective March 1, 1997. The Partnership has advanced Williamsburg the necessary funds to keep the mortgage and escrows current during 2005 and is expected to continue to do so during 2006. The Partnership's investment in Williamsburg has been written down to $0 by prior years' losses and the minority interest balance was approximately $719,000 and $721,000 at March 31, 2006 and 2005, respectively. Williamsburg's net loss after minority interest amounted to approximately $241,000, $283,000 and $229,000 for the 2005, 2004, and 2003 fiscal years, respectively. As of March 31, 2006, the Partnership has advanced Williamsburg approximately $1,493,000. Other ----- The Partnership's investments, as a limited partner in the Local Partnerships, are subject to the risks incident to 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, rental payment defaults, and increased operating expenses, any or all of which could threaten the financial viability of one or more of the Local Partnerships. 14 There also are substantial risks associated with the operation of Properties 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 the possibility that when the rental assistance contracts expire, there may not be market demand for apartments at full market rents in a Local Partnership's Property. 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. Furthermore, inflation generally does not impact the fixed long-term financing with which real property investments were purchased. Inflation also affects the Local Partnerships adversely by increasing operating costs as, for example, for such items as fuel, utilities and labor. Item 7A. Quantitative and Qualitative Disclosure about Market Risk The Partnership has mortgage notes that are payable in aggregate monthly installments including principal and interest at rates varying from 1% to 15% per annum. The Partnership does not believe there is a material risk associated with the various interest rates associated with the mortgage notes as the majority of the Local Partnership mortgage notes have fixed rates. The Partnership currently discloses in Item 8, Note 3, the fair value of the mortgage notes payable. The Partnership does not have any other market risk sensitive instruments. 15 Item 8. Financial Statements and Supplementary Data

16 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus II L.P. and Subsidiaries (A Delaware Limited Partnership) We have audited the consolidated balance sheets of Liberty Tax Credit Plus II L.P. and Subsidiaries (A Delaware Limited Partnership) as of March 31, 2006 and 2005, and the related consolidated statements of operations, changes in partners' (deficit) capital, and cash flows for the years ended March 31, 2006, 2005 and 2004 (the 2005, 2004 and 2003 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 thirteen (2005 Fiscal Year), eleven (2004 Fiscal Year), and twenty-six (2003 Fiscal Year) subsidiary partnerships whose losses aggregated $7,418,882, $1,984,913 and $6,756,365 for the 2005, 2004 and 2003 Fiscal Years, respectively, and whose assets constituted 42% and 32% of the Partnership's assets at March 31, 2006 and 2005, respectively, presented in the accompanying consolidated financial statements. The financial statements of these subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. We conducted our 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 accompanying consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Liberty Tax Credit Plus II L.P. and Subsidiaries at March 31, 2006 and 2005, and the results of their operations and their cash flows for the years ended March 31, 2006, 2005 and 2004, in conformity with U.S. generally accepted accounting principles. As discussed in Note 12(a), the consolidated financial statements include the financial statements of three limited partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that each will continue as a going concern. The three subsidiary partnerships' net losses aggregated $486,815 (Fiscal 2005), $313,659 (Fiscal 2004) and $142,603 (Fiscal 2003) and their assets aggregated $8,273,212 and $8,915,703 at March 31, 2006 and 2005, respectively. These matters raise substantial doubt about these subsidiary partnerships' abilities to continue as going concerns. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 16, 2006 17 [Letterhead of FRIEDMAN ALPREN & GREEN LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Polynesian Apartments Associates, Ltd. We have audited the accompanying statements of operations, changes in partners` capital and cash flows of POLYNESIAN APARTMENTS ASSOCIATES, LTD. (a limited partnership), FHA Project No. FL29-K005-015-152, for the period January 1, 2003 to December 18, 2003 (date of dissolution). 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 Untied 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 results of the operations and cash flows of POLYNESIAN APARTMENTS ASSOCIATES, LTD. for the period January 1, 2003 to December 18, 2003 (date of dissolution), in conformity with accounting principles generally accepted in the United States of America. /s/ Friedman Alpren & Green LLP New York, New York December 18, 2003 18 [Letterhead of FRIEDMAN ALPREN & GREEN LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Seagrape Village Associates, Ltd. We have audited the accompanying statements of operations, changes in partners' capital deficiency and cash flows of SEAGRAPE VILLAGE ASSOCIATES, LTD. (a limited partnership), FHA Project No. FL29-K005-015-151, for the period January 1, 2003 to December 18, 2003 (date of dissolution). 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 results of the operations and the cash flows of SEAGRAPE VILLAGE ASSOCIATES, LTD. for the period January 1, 2003 to December 18, 2003 (date of dissolution), in conformity with accounting principles generally accepted in the United States of America. /s/ Friedman Alpren & Green LLP New York, New York December 18, 2003 19 [Letterhead of JOSE E. ROSARIO & CO.] INDEPENDENT AUDITOR'S REPORT To the Partners Metropolitan Towers Associates, L.P. I have audited the accompanying balance sheets of Metropolitan Towers Associates, LP as of December 31, 2005 and 2004, and the related statements of loss, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor I was engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Towers Associates, LP as of December 31, 2005 and 2004 and the results of its operations, changes in partners' capital and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United State of America. /s/ Jose E. Rosario & Co. License No. 961 Expires December 1, 2007 San Juan, Puerto Rico January 31, 2006 Stamp No. 2114029 of the Puerto Rico College of CPA was affixed to the original. 20 [Letterhead of JOSE E. ROSARIO & CO.] INDEPENDENT AUDITOR'S REPORT To the Partners Puerto Rico Housing Finance Corporation Metropolitan Towers Associates, LP San Juan, Puerto Rico Rio Piedras, Puerto Rico I have audited the accompanying balance sheets of Metropolitan Towers Associates, LP, HUD Project No. RQ-46K-051-005, as of December 31, 2003 and 2002, and the related statements of loss, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audits in accordance with auditing standards generally accepted in the United States of America and Puerto Rico and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Metropolitan Towers Associates, L.P., as of December 31, 2003 and 2002 and the results of its operations, changes in partners' capital, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United State of America and Puerto Rico. In accordance with GOVERNMENT AUDITING STANDARDS, I have also issued a report dated January 30, 2004, on my consideration of Metropolitan Towers Associates, L.P.'s internal control and on my tests of its compliance with certain provisions of laws, regulations, contracts, and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of my audits. My audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on pages 13 to 19 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Metropolitan Towers Associates, L.P.. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Jose E. Rosario & Co. License No. 961 Expires December 1, 2004 San Juan, Puerto Rico January 30, 2004 Stamp No. 1931869 of the Puerto Rico College of CPA was affixed to the original. 21 [Letterhead of RubinBrown] S2100-020 Report of Independent Registered Public Accounting Firm To The Partners Westminster Place II - Olive Site, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Westminster Place II - Olive Site, L.P., a limited partnership, as of December 31, 2005 and 2004 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (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 Westminster Place II - Olive Site, L.P. as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 7 to the financial statements, the Partnership's rental subsidy was depleted during 2004 and the rent increases have not been sufficient to cover the loss of the subsidy payments. This situation raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans regarding theses matters are described in Note 7. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ RubinBrown LLP St. Louis, Missouri February 8, 2006 22 [Letterhead of RBG & Co.] S2100-020 Independent Auditors' Report To The Partners Westminster Place II - Olive Site, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Westminster Place II - Olive Site, L.P., Project No. 085-35415-PM, a limited partnership, as of December 31, 2003 and 2002, and the related statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and 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 Westminster Place II - Olive Site, 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. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated February 2, 2004 on our consideration of Westminster Place II - Olive Site, L.P.'s internal controls and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audits. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 13 to 22) 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. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 6 to the financial statements, the Partnership's rental subsidy will be depleted during 2004 which will raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are described in Note 6. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Rubin, Brown, Gornstein & Co. LLP February 2, 2004 St. Louis, Missouri 23 [Letterhead of RBG & Co.] Independent Auditors' Report Partners Property Development Associates, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Property Development Associates, L.P., a limited partnership, as of December 31, 2003 and 2002, and the related statements of income, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 Property Development Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Rubin, Brown, Gornstein & Co. LLP St. Louis, Missouri February 5, 2004 24 [Letterhead of RubinBrown] S2100-020 Report of Independent Registered Public Accounting Firm To The Partners Whittier Plaza Associates Limited Partnership St. Louis, Missouri We have audited the accompanying balance sheet of Whittier Plaza Associates Limited Partnership, a limited partnership (the Partnership), as of December 31, 2005 and 2004, 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (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 Whittier Plaza Associates Limited Partnership as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership has sustained recurring losses from operations, lower than anticipated rental income, and has continually required a general partner to fund deficits. These items raise substantial doubt about the Partnership's ability to continue as a going concern. Management's plans regarding theses matters are described in Note 5. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ RubinBrown LLP St. Louis, Missouri January 31, 2006 25 [Letterhead of RBG & Co.] S2100-020 Independent Auditors' Report To The Partners Whittier Plaza Associates Limited Partnership St. Louis, Missouri We have audited the accompanying balance sheet of Whittier Plaza Associates Limited Partnership, Project No. 085-35412-PM-SR, a limited partnership, as of December 31, 2003 and 2002, and the related statements of income, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America 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 Whittier Plaza Associates Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our reports dated January 30, 2004 on our consideration of Whittier Plaza Associates Limited Partnership's internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 15 to 24) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership has sustained recurring losses from operations, excessive vacancies, and has continually required a general partner to fund deficits. These items raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Rubin, Brown, Gornstein & Co. LLP St. Louis, Missouri January 30, 2004 26 [Letterhead of Habif, Arogeti & Wynne, LLP] INDEPENDENT AUDITORS' REPORT To the Partners United - Glenarden I Limited Partnership We have audited the accompanying balance sheet of United - Glenarden I Limited Partnership 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 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 United - Glenarden I Limited Partnership as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America. /s/ Habif, Arogeti & Wynne, P.C. Atlanta, Georgia January 28, 2004 27 [Letterhead of Habif, Arogeti & Wynne, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners of United - Glenarden II Limited Partnership We have audited the accompanying balance of UNITED - GLENARDEN II LIMITED PARTNERSHIP as of December 31, 2003, and the related statements of operations, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our 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 UNITED - GLENARDEN II LIMITED PARTNERSHIP as of December 31, 2003, and the results of its operations and its cash flows for the year then ended in conformity with generally accepted accounting principles in the United States of America. /s/ Habif, Arogeti & Wynne, P.C. Atlanta, Georgia January 28, 2004 28 [Letterhead of SOLOMON & ASSOCIATES LLC] INDEPENDENT AUDITOR'S REPORT To the Partners ROLLING GREEN LIMITED PARTNERSHIP D/B/A Prairie View Apartments Libertyville, IL We have audited the accompanying balance sheets of Rolling Green Limited Partnership (FHA Project No. 071-11078-LDT) as of December 31, 2005 and 2004, and the related statements of income, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB) 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. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting, under the PCAOB standards. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes 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 Rolling Green Limited Partnership as of December 31, 2005 and 2004, and the results of its operations, changes in partners' equity (deficit) and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards and the Consolidated Audit Guide for Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development, we have also issued reports dated January 31, 2006, on our consideration of the Project's internal control, on our tests of its compliance with certain provisions of laws, regulations, contracts, and grant agreements, and on specific requirements applicable to Fair Housing and Non-Discrimination. Those reports consider matters that could have a direct and material effect on a major HUD-assisted program. In addition, those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information shown on pages 16 through 25 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Rolling Green Limited Partnership. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated, in all material aspects, in relation to the basic financial statements taken as a whole. /s/ Solomon & Associates LLC Chicago, IL January 31, 2006 29 [Letterhead of SOLOMON & ASSOCIATES LLC] INDEPENDENT AUDITOR'S REPORT To the Partners ROLLING GREEN LIMITED PARTNERSHIP D/B/A Prairie View Apartments Libertyville, IL We have audited the accompanying balance sheets of ROLLING GREEN LIMITED PARTNERSHIP as of December 31, 2003 and 2002, and the related statements of income, changes in partners' equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's 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 ROLLING GREEN LIMITED PARTNERSHIP as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Solomon & Associates LLC Chicago, IL January 23, 2004 30 [Letterhead of ZAYAS, MORAZZANI & CO.] Independent Auditors' Report To the Partners Santa Juanita II Limited Partnership: We have audited the accompanying balance sheet of Santa Juanita II Limited Partnership, as of December 31, 2005, 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 the standards of the Public Company Accounting Oversight Board (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. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Santa Juanita II Limited Partnership as of December 31, 2005, and the results of its operations, changes in partners' equity and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Zayas, Morazzani & Co. February 16, 2006 San Juan, Puerto Rico Stamp No. 2107202 of the Puerto Rico Society of Certified Public Accountants was affixed to original. Federal Employer Identification Number: 66-0365844 31 [Letterhead of ZAYAS, MORAZZANI & CO.] Independent Auditors' Report To the Partners Santa Juanita II Limited Partnership: We have audited the accompanying balance sheet of Santa Juanita II 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 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 Santa Juanita II Limited Partnership as of December 31, 2003, and the results of its operations, changes in partners' equity, and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and THE CONSOLIDATED AUDIT GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated February 6, 2004, on our consideration of Santa Juanita II Limited Partnership's internal control, a report dated February 6, 2004, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to major HUD programs, and a report dated February 6, 2004 on its compliance with specific requirements applicable to Affirmative Fair Housing and Non-Discrimination. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audit was performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 24 through 33 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/ Zayas, Morazzani & Co. February 6, 2004 San Juan, Puerto Rico Stamp No. 2073265 of the Puerto Rico Society of Certified Public Accountants was affixed to original. Federal Employer Identification Number: 66-0365844 32 [Letterhead of Berdon, LLP] INDEPENDENT AUDITORS' REPORT To the Partners of Spring Creek Associates, L.P. New York, New York We have audited the accompanying balance sheets of Spring Creek Associates, L.P. (a Delaware Limited Partnership) as of December 31, 2003 and 2002, and the related statements of operations changes in partners' capital (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our 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 Spring Creek Associates, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Berdon, LLP Certified Public Accountants New York, N.Y. January 21, 2004 33 [Letterhead of Sunil J. Shah] INDEPENDENT AUDITORS' REPORT To the Partners of East Two Thirty-Five Associates, L.P. I have audited the accompanying consolidated balance sheet of East Two Thirty-Five Associates, L.P. and subsidiary as (Delaware limited partnerships) as of December 31, 2003, and the related consolidated statements of operations, changes in partners' capital (deficit), and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. The consolidated financial statements of East Two Thirty-Five Associates, L.P. and subsidiary as of December 31, 2002 were audited by other auditors whose report dated February 10, 2003 expressed an unqualified opinion on those statements. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the December 31, 2003 consolidated financial statements referred to above present fairly, in all material respects, the financial position of East Two Thirty-Five Associates, L.P. and subsidiary as of December 31, 2003, and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Sunil J. Shah CPA, PC New York, N.Y. February 10, 2004 34 [Letterhead of Sunil J. Shah] INDEPENDENT AUDITORS' REPORT To the Partners of Upper Fifth Avenue Residential Associates, L.P. New York, New York I have audited the accompanying balance sheet of Upper Fifth Avenue Residential Associates, L.P. (a Delaware limited partnership) as of December 31, 2003, and the related statement 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. My responsibility is to express an opinion on these financial statements based on our audit. The Financial statements of Upper Fifth Avenue Residential Associates, L.P. as of December 31, 2002, we audited by other auditors whose report dated January 28, 2003 expressed an unqualified opinion on those statements. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provide a reasonable basis for my opinion. In my opinion, the 2003 financial statements referred to above present fairly, in all material respects, the financial position of Upper Fifth Avenue Residential Associates, L.P. as of December 31, 2003 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Sunil J. Shah CPA, P.C. Certified Public Accountants Iselin, New Jersey February 6, 2004 35 [Letterhead of Sunil J. Shah] INDEPENDENT AUDITORS' REPORT To the Partners of West 107th Street Associates, L.P. I have audited the accompanying balance sheet of West 107th Street Associates, L.P. (a Delaware Limited Partnership) as of December 31, 2003, 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. My responsibility is to express an opinion on these financial statements based on my audit. The financial statements of West 107th Street Associates, L.P. as of December 31, 2002 were audited by other auditors whose report dated January 9, 2003 expressed an unqualified opinion on those statements. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the December 31, 2003 financial statements referred to above present fairly, in all material respects, the financial position of West 107th Street Associates, 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. /s/ Sunil J. Shah CPA, PC Certified Public Accountants New York, N.Y. January 19, 2004 36 [Letterhead of Sunil J. Shah] INDEPENDENT AUDITORS' REPORT To the Partners of General Atlantic Second Avenue Associates, L.P. I have audited the accompanying consolidated balance sheet of General Atlantic Second Avenue Associates, L.P. and subsidiary (a Delaware Limited Partnership) as of December 31, 2003, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these consolidated financial statements based on my audit. The consolidated financial statements of General Atlantic Second Avenue Associates, L.P. and subsidiary as of December 31, 2002 were audited by other auditors whose report dated January 31, 2003 expressed an unqualified opinion on those statements. I conducted my audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. I believe that my audit provides a reasonable basis for my opinion. In my opinion, the December 31, 2003 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of General Atlantic Second Avenue Associates, L.P. and subsidiary as of December 31, 2003 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Sunil J. Shah CPA, PC Certified Public Accountants New York, N.Y. February 3, 2004 37 [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS' REPORT To the Partners Church Lane Associates We have audited the accompanying balance sheets of Church Lane Associates as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the 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 Church Lane 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. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued our report for the year ended December 31, 2003, dated January 23, 2004, on our consideration of Church Lane Associates' internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 27 through 30 is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Reznick Fedder & Silverman Baltimore, Maryland January 23, 2004 38 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Robin Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Robin Housing Associates (a limited partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 Robin Housing Associates as of December 31, 2005 and 2004, 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 take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 27, 2006 39 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Robin Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Robin Housing Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' capital (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Robin Housing Associates as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 23, 2004 40 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Concourse Artists Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Concourse Artists Housing Associates (a limited partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 Concourse Artists Housing Associates as of December 31, 2005 and 2004, 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 take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 27, 2006 41 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Concourse Artists Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Concourse Artists Housing Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' capital (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Concourse Artists Housing Associates as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 23, 2004 42 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners 2051 Grand Concourse Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of 2051 Grand Concourse Housing Associates (a limited partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 2051 Grand Concourse Housing Associates as of December 31, 2005 and 2004, 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 take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 27, 2006 43 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners 2051 Grand Concourse Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of 2051 Grand Concourse Housing Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' capital (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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 2051 Grand Concourse Housing Associates as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 23, 2004 44 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Willoughby-Wyckoff Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Willoughby-Wyckoff Housing Associates (a limited partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' deficiency, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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 Willoughby-Wyckoff Housing Associates as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1B to the financial statements, the Partnership has had operating losses and equity deficiencies. These conditions raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our audits were made for the purpose of forming an opinion on the basic financial statements take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 27, 2006 45 [Letterhead of MARDEN, HARRISON & KREUTER] INDEPENDENT AUDITORS' REPORT To the Partners Willoughby-Wyckoff Housing Associates 3743-A White Plains Road Bronx, New York 10467 We have audited the accompanying balance sheets of Willoughby-Wyckoff Housing Associates (a limited partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' capital (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the 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 Willoughby-Wyckoff Housing Associates as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with 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 take as a whole. The accompanying 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. /s/ Marden, Harrison & Kreuter Certified Public Accountants, P.C. White Plains, New York January 23, 2004 46 [Letterhead of WOLFE NILGES NAHORSKI] INDEPENDENT AUDITORS' REPORT To the Partners Goodfellow Place Limited Partnership St. Louis, Missouri We have audited the accompanying balance sheets of Goodfellow Place Limited Partnership as of December 31, 2005 and 2004, and the related statements of income (loss), 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 the standards of the Public Company Accounting Oversight Board (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. The Partnership has determined that it is not required to have nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Goodfellow Place Limited Partnership as of December 31, 2005 and 2004, 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 report on our audits of Goodfellow Place Limited Partnership for 2005 and 2004 were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule of operating expenses is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information for 2005 and 2004 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 basis financial statements taken as a whole. /s/ Wolfe Nilges Nahorski A Professional Corporation January 19, 2006 St. Louis, Missouri 47 [Letterhead of WOLFE NILGES NAHORSKI] INDEPENDENT AUDITORS' REPORT To the Partners Goodfellow Place Limited Partnership St. Louis, Missouri We have audited the accompanying balance sheets of Goodfellow Place Limited Partnership as of December 31, 2003 and 2002, and the related statements of Income (loss), 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 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 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 Goodfellow Place Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Wolfe Nilges Nahorski A Professional Corporation January 22, 2004 St. Louis, Missouri 48 [Letterhead of HAMILTON & MUSSER, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of Penn Alto Associates, Limited Partnership Altoona, Pennsylvania 16601 We have audited the accompanying balance sheets of Penn Alto Associates, Limited Partnership as of December 31, 2005 (FINAL) and 2004, and the related statements of operations, partners' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Penn Alto Associates, Limited Partnership as of December 31, 2005 (FINAL) and 2004, 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. The partnership ceased operations in September 2005 and more fully explained in Note 1. /s/ Hamilton & Musser Certified Public Accountants Mechanicsburg, Pennsylvania January 27, 2006 49 [Letterhead of HAMILTON & MUSSER, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners of Penn Alto Associates, Limited Partnership Altoona, Pennsylvania 16601 We have audited the accompanying balance sheets of Penn Alto Associates, Limited Partnership as of December 31, 2003 and 2002 and the related statements of income, changes in partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our 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 audit provides a reasonable basis for the opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Penn Alto Associates, Limited Partnership, as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on pages 9 and 10 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the 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/ Hamilton & Musser Certified Public Accountants Mechanicsburg, Pennsylvania February 19, 2004 50 [Letterhead of Torres Llompart, Sanchez Ruiz & Co.] INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS Partners Gramco Development Limited Dividend Partnership, L.P. San Juan, Puerto Rico We have audited the accompanying balance sheets of Gramco Development Limited Dividend Partnership, L.P., HUD Project No. 056-35140-LD (HODAG), as of December 31, 2003 and 2002, and the related statements of profit and loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 statements 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 Gramco Development Limited Dividend Partnership, L.P., HUD Project No. 056-35140-LD (HODAG), as of December 31, 2003 and 2002, and the results of its operations, changes in partners' capital and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and the Consolidated Audit Guide for audits of HUD Programs, issued by the US Department of Housing and Urban Development, we have also issued a report dated January 21, 2004, on our consideration of the Partnership's internal control and on our tests on its compliance with specific requirements applicable to major HUD programs; and compliance with specific requirements applicable to Fair Housing and Non-Discrimination. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of the audits. Our audits were conducted for the purpose of forming an opinion on the basic financial statements, taken as a whole. The accompanying supplementary information included in the report on pages 24 to 27 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Gramco Development Limited Dividend Partnership, L.P., HUD Project No. 056-35140-LD (HODAG). Such information has been subjected to the auditing procedures applied in the audit of the basic financial statements for the year ended December 31, 2003, and in our opinion, is fairly stated in all material respects in relation to the basic financial statements for the year ended December 31, 2003, taken as a whole. /s/ Torres Llompart, Sanchez Ruiz & Co. January 21, 2004 License No. 169 San Juan, Puerto Rico Stamp number 1943068 was affixed to the original of this report. 51 [Letterhead of COLE, EVANS & PETERSON] INDEPENDENT AUDITORS' REPORT To the Partners Alexis Park Apartments, A Louisiana Partnership In Commendam Bossier City, Louisiana We have audited the accompanying balance sheets of Alexis Park Apartments, A Louisiana Partnership In Commendam at December 31, 2003 and December 31, 2002 and the related statements of income, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with U.S. generally accepted standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph above present fairly, in all material respects, the financial position of Alexis Park Apartments, A Louisiana Partnership In Commendam at December 31, 2003 and December 31, 2002, and the results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed at Note 11 to the financial statements, there are uncertainties that affect the Partnership concerning the existence of hazardous waste and negative performance indicators that raise substantial doubt about the Partnership's ability to continue as a going concern. Management's position in regard to these matters is also discussed at Note 11. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Our audit was made primarily for the purpose of forming an opinion on the basic financial statements for the years ended December 31, 2003 and December 31, 2002 taken as a whole. The supplementary Schedule 1 is presented for the purpose of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Cole, Evans & Peterson Shreveport, Louisiana February 2, 2004 52 [Letterhead of Dickey, Wolf & Humbard, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners Williamsburg Residential, L.P. We have audited the balance sheets of Williamsburg Residential, L.P. (a Kansas Limited Partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' equity/(deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (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. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential, L.P. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO February 2, 2006 53 [Letterhead of Dickey, Wolf & Humbard, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners Williamsburg Residential, L.P. We have audited the balance sheets of Williamsburg Residential, L.P. (a Kansas Limited Partnership) as of December 31, 2003 and 2002, and the related statements of operations, partners' equity/(deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential, L.P. as of December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO January 9, 2004 54 [Letterhead of MAYER HOFFMAN MCCANN P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners Victory Apartments We have audited the balance sheets of Victory Apartments - F.H.A. Project No. 071-35701 as of December 31, 2005, and the related statements of income, 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 the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Victory Apartments, F.H.A. Project No. 071-35701 as of December 31, 2005, and the results of its operations and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a reports dated January 25, 2006, on our consideration of the Partnership's internal control over financial reporting. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued an opinion dated January 25, 2006, on the Partnership's compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Mayer Hoffman McCann P.C. Chicago, Illinois January 25, 2006 55 [Letterhead of MAYER HOFFMAN MCCANN P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners Victory Apartments We have audited the balance sheet of Victory Apartments - F.H.A. Project No. 071-35701 as of December 31, 2003, and the related statements of income, 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 audits. The financial statements as of December 31, 2002, were audited by other auditors whose report dated January 21, 2003, expressed an unqualified opinion on those statements. We conducted our audits 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 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 Victory Apartments, F.H.A. Project No. 071-35701 as of December 31, 2003, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. In accordance with Government Auditing Standards, we have also issued a report dated January 29, 2004, on our consideration of the Partnership's internal control and on our tests of its compliance with certain provisions of laws, regulations, contracts and grants. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audits. /s/ Mayer Hoffman McCann P.C. Chicago, Illinois January 29, 2004 56 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements. 57 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

* Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 58 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

See accompanying notes to consolidated financial statements. 59 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

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

* Reclassified for comparative purposes ** Cash and cash equivalents at end of period includes cash and cash equivalents from discontinued operations of $266,521, $111,730 and $0, respectively. 61 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 NOTE 1 - General Liberty Tax Credit Plus II L.P., a Delaware limited partnership (the "Partnership"), was organized on March 25, 1988, but had no activity until July 1, 1988 (which date is considered to be inception for financial accounting purposes). The Partnership had no operations until commencement of the public offering on July 20, 1988. The general partners of the Partnership are Related Credit Properties II L.P., a Delaware limited partnership (the "Related General Partner"), Liberty Associates II L.P., a Delaware limited partnership ("Liberty Associates"), and Liberty GP II Inc. (formerly Shearson Liberty GP II Inc.), a Delaware corporation (the "Liberty General Partner" and together with the Related General Partner and Liberty Associates, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties II Inc., a Delaware corporation. The general partners of Liberty Associates are Related Credit Properties II Inc., and the Liberty General Partner. Liberty Associates is also the special limited partner of the Partnership. On November 17, 2003, CharterMac acquired CharterMac Capital LLC ("CharterMac Capital") (formerly known as Related Capital Company LLC), which is the parent of RCC Manager LLC, the sole shareholder of Related Credit Properties II Inc. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. This acquisition did not affect the Partnership or its day-to-day operations, as the majority of the General Partners' management team remained unchanged. On November 8, 2005, CharterMac announced that Stuart J. Boesky would step down as Chief Executive Officer and trustee of CharterMac. Upon his stepping down, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of Related Credit Properties II, Inc. and Executive Vice President of the Liberty General Partner. Mr. Boesky will stay on as a consultant to CharterMac for the next year in order to ensure a smooth transition. On March 14, 2006, CharterMac's Board of Trustees named Marc D. Schnitzer the Chief Executive Officer, effective immediately. Mr. Schnitzer replaced Stephen M. Ross, who had served as interim Chief Executive Officer since Stuart J. Boesky resigned in November of 2005. Mr. Schnitzer also replaced Mr. Boesky as Senior Vice President of Related Credit Properties II, Inc and Executive Vice President of the Liberty General Partner. The Partnership's business is to invest in other limited partnerships ("Local Partnerships", "subsidiaries" or "subsidiary partnerships") owning leveraged low-income multifamily residential complexes ("Apartment Complexes") that are eligible for the low-income housing tax credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, and to a lesser extent in Local Partnerships owning properties ("Rehabilitation Projects" and together with the Apartment Complexes, the "Properties") that are eligible for the historic rehabilitation tax credit. The Partnership's investment in each Local Partnership represents a 20% to 98% interest in that Local Partnership. The Partnership originally invested in 27 Local Partnerships. During the year ended March 31, 2006, the Partnership sold the property and the related assets and liabilities of one Local Partnership and the limited Partnership interest of three Local Partnerships. Through the year ended March 31, 2006, the Partnership has sold the properties and the related assets and liabilities of five Local Partnerships and the limited partnership interest in four Local Partnerships (see Note 10). The Partnership was authorized to issue a total of 200,000 Beneficial Assignment Certificates ("BACs"), of which 120,000 have been registered with the Securities and Exchange Commission for sale to the public. The public offering was completed on January 9, 1989 with a total of 115,917.5 BACs sold and $115,917,500 of proceeds received by the Partnership. The terms of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") provide, among other things, that net profits or losses and distributions of cash flow are, in general, allocated 99% to the limited partners and BACs holders and 1% to the general partners. NOTE 2 - Summary of Significant Accounting Policies a) Basis of Consolidation The consolidated financial statements include the accounts of the Partnership and 22, 24 and 26 subsidiary partnerships in which the Partnership is a limited partner for the years ended March 31, 2006, 2005 and 2004 (the 2005, 2004 and 2003 "Fiscal Years"), respectively. Through the rights of the Partnership and/or a General Partner (which has a contractual obligation to act on behalf of the Partnership) to remove the general partner of the subsidiary local partnerships (the "Local General Partner") and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary local partnerships. For financial reporting purposes, the Partnership's fiscal year ends on March 31, in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with U.S. generally accepted accounting principles ("GAAP"). All subsidiaries have fiscal years ending December 31. Accounts of the subsidiaries have been adjusted for intercompany transactions from January 1 through March 31. All intercompany accounts and transactions with the subsidiary partnerships have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners. The Partnership's investment in each subsidiary partnership is equal to the respective subsidiary partners' equity less minority interest capital, if any. Losses attributable to minority interests which exceed the minority interest's investment in a subsidiary partnership have been charged to the Partnership. Such losses aggregated approximately $0, $398,000 and $0 for the years ended March 31, 2006, 2005 and 2004, respectively. In consolidation, all subsidiary partnership losses are included in the Partnership's capital account except for losses allocated to minority interest capital. 62 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks, and investments in short-term highly liquid instruments purchased with original maturities of three months or less. c) Property and Equipment Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using 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 No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2006, the Partnership has recorded $6,075,000 as a loss on impairment of assets. Through March 31, 2006, the Partnership has recorded approximately $11,482,000 as a loss on impairment of assets. In accordance with SFAS No. 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the consolidated statements of operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the consolidated balance sheets. See Note 13 regarding discontinued operations. At the time management commits to a plan to dispose of assets, said assets are adjusted to the lower of carrying amount or fair value less costs to sell. Such assets would be classified as property and equipment-held for sale and are not depreciated. There were five assets classified as property and equipment-held for sale at March 31, 2006. See Notes 10 and 13 regarding assets held for sale and discontinued operations. d) Revenue Recognition Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by Property due to the terms of the tenant leases. Rental income is recognized when earned and charged to tenants' accounts receivable if not received by the due date. Rental payments received in advance of the due date are deferred until earned. Rental subsidies are recognized as rental income during the month in which it is earned. Other revenues are recorded when earned and consist of the following items: Interest income earned on cash and cash equivalent balances and cash held in escrow balances, income from forfeited security deposits, late charges, laundry and vending income and other rental related items. Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

* Reclassified for comparative purposes. Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

* Reclassified for comparative purposes. 63 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 e) 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. f) Income Taxes The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31 (Note 9). g) 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. In addition, the Partnership evaluates a potential environmental liability independently from any potential claim for recovery. h) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. i) New Accounting Pronouncements In June 2005, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 154, Accounting Changes and Error Corrections ("FAS 154"). FAS 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes and Statement of Financial Accounting Standards No. 3, Reporting Accounting Changes in Interim Financial Statements. FAS 154 requires that a voluntary change in accounting principles be applied retrospectively with all prior period financial statements presented on the new accounting principles. FAS 154 also requires that a change in method of depreciating or amortizing a long-lived nonfinancial asset be accounted for prospectively as a change in estimate, and correction of errors in previously issued financial statements should be termed a restatement. FAS 154 was effective for accounting changes and correction of errors made in fiscal years beginning after December 15, 2005. The adoption of FAS 154 has not had a material impact on the Partnership's consolidated financial statements. In June 2005, the FASB issued Emerging Issues Task Force No. 04-5, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights ("EITF No. 04-5"). EITF No. 04-5 replaces counterpart requirements in Statement of Position 78-9, which provides guidance on accounting for investments in real estate ventures and limited partnerships. Under EITF No. 04-5, the general partner's control would be overcome if the limited partners have either (i) "kick-out rights"- the right to dissolve or liquidate the partnership or otherwise remove the general partner "without cause" or (ii) "participating rights" - the right to effectively participate in significant decisions made in the ordinary course of the Partnership's business. The kick-out rights and the participating rights must be substantive in order to overcome the general partner's control. EITF No. 04-5 is now effective. Since the Partnership`s financial statements are presented on a consolidated basis, the adoption of EITF No. 04-5 has not had a material effect on the Partnership's consolidated results of operations. 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, and Cash Held in Escrow -------------------------------------------------- The carrying amount approximates fair value. 64 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 Mortgage Notes Payable ---------------------- The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans. The estimated fair values of the Partnership's mortgage notes payable from operating liabilities are as follows:

The estimated fair values of the Partnership's mortgage notes payable from discontinued liabilities are as follows:

* Management believes it is not practicable to estimate the fair value of the mortgage notes payable because mortgage programs with similar characteristics are not currently available to the Local Partnerships. 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 from operating assets are as follows:

The initial cost to the Partnership, as shown on Schedule III in Item 15, includes $6,955,050 of acquisition fees paid or accrued to the General Partners, $1,606,014 of acquisition expenses and $7,015,991 of capitalized interest. In connection with the rehabilitation of the Properties, the subsidiary partnerships have incurred developer's fees of $20,563,695 to the local general partners and affiliates. Such fees have been included in the cost of property and equipment. Depreciation expense for the years ended March 31, 2006, 2005 and 2004 amounted to $4,131,095, $4,017,852 and $3,978,141, respectively. During the 2005 and 2004 Fiscal Years, there were write-offs of accumulated depreciation in the amounts of $20,054,077 and $9,969,353, respectively, and $20,029,595 and $9,885,825 of these write-offs were related to the discontinued assets. 65 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 The components of property and equipment held for sale and their estimated useful lives from discontinued assets are as follows:

Depreciation expense from discontinued operations for the years ended March 31, 2006, 2005 and 2004 amounted to $1,375,207, $3,053,938 and $3,455,547, respectively. NOTE 5 - Cash Held in Escrow Cash held in escrow from operating assets is restricted and consists of the following:

Cash held in escrow from discontinued assets is restricted and consists of the following:

NOTE 6 - Deferred Costs The components of deferred costs and their periods of amortization from operating assets are as follows:

* Over the life of the respective related mortgages Amortization expense for the years ended March 31, 2006, 2005 and 2004 amounted to $54,673, $56,584, and $57,508, respectively. 66 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 During the years ended March 31, 2006 and 2005, there were decreases in deferred costs of $1,320,498 and $215,598 and decreases in accumulated amortization of $1,187,943 and $156,271, respectively, due to the write-offs and reclasses into discontinued operations. The components of deferred costs and their periods of amortization from discontinued assets are as follows:

* Over the life of the respective related mortgages Amortization expense from discontinued operations for the years ended March 31, 2006, 2005 and 2004 amounted to $56,566, $83,068 and $276,618, respectively. NOTE 7 - Mortgage Notes Payable The mortgage notes are payable in aggregate monthly installments of approximately $233,000 including principal and interest at rates varying from 1% to 15% per annum, through 2042. Each subsidiary partnership's mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership and the assignment of certain subsidiary partnerships' rents and leases and is without further recourse. Annual principal payment requirements of the subsidiary partnerships for each of the next five years and thereafter are as follows:

Accrued interest payable at March 31, 2006 and 2005 was approximately $1,794,000 and $1,862,000, respectively. Interest accrues on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. The mortgage notes from discontinued operations are payable in aggregate monthly installments of approximately $117,000 including principal and interest at rates varying from 1% to 10.25% per annum, through 2034. Each subsidiary partnership's mortgage note payable is collateralized by the land and buildings of the respective subsidiary partnership and the assignment of certain subsidiary partnerships' rents and leases and is without further recourse. Annual principal payment requirements of the subsidiary partnerships for each of the next five years and thereafter are as follows:

67 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 Accrued interest payable for the discontinued liabilities at March 31, 2006 and 2005 was approximately $37,000 and $47,000, respectively. Interest accrues on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount and which have been accumulating since the Partnership's investment in the respective Local Partnership) will be made from future refinancings or sales proceeds of the respective Local Partnerships. Santa Juanita II Limited Partnership ("Santa Juanita") - Refinance ------------------------------------------------------------------ In July 2005, Santa Juanita entered into a refinancing agreement with Popular Mortgage for $1,500,000. The proceeds will be used to pay off the balance due on the former mortgage payable of approximately $727,000, to finance the purchase of 20% of the Partnership's limited partnership interest in Santa Juanita, and obtain funds for major building improvements. The loan is to be repaid in sixty installments and matures July 1, 2020. Santa Juanita will pay the interest which will accrue over the advances made, from August 1, 2005, without making principal payments. The term of the loan is until July 1, 2020. The principal will be payable when the full amount of funds are used by Santa Juanita. On January 17, 2006, the Partnership sold its remaining limited partnership interest in Santa Juanita. NOTE 8 - Related Party Transactions Related Party Fees ------------------ One of the General Partners has a 1% interest as a special limited partner in each of the Local Partnerships. An affiliate of the General Partners also has a minority interest in certain Local Partnerships. The General Partners and their affiliates perform services for the Partnership. The costs incurred from operations for the years ended March 31, 2006, 2005 and 2004 are as follows:

The costs incurred from discontinued operations for the years ended March 31, 2006, 2005 and 2004 are as follows:

* Reclassified for comparative purposes. (a) The General Partners are entitled to receive a partnership management fee, after payment of all Partnership expenses, which together with the local annual administrative fees will not exceed a maximum of 0.5% per annum of invested assets (as defined in the Partnership Agreement), for administering the affairs of the Partnership. The partnership management fee, subject to the foregoing limitation, will be determined by the General Partners in their sole discretion 68 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 based upon their review of the Partnership's investments. Partnership management fees owed to the General Partners amounting to approximately $14,970,000 and $14,088,000 were accrued and unpaid as of March 31, 2006 and March 31, 2005. Without the General Partner's continued accrual without payment, the Partnership will not be in a position to meet its obligations. The General Partners have allowed for the accrual without payment of these amounts but are under no obligation to do so. (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. Expense reimbursements and asset monitoring fees owed to affiliates of the General Partners amounting to approximately $52,000 and $1,166,000 were accrued and unpaid as of March 31, 2006 and 2005, respectively. (c) Property management fees incurred by subsidiary partnerships in operations amounted to $1,399,709, $1,600,039 and $1,552,819 for the 2005, 2004 and 2003 Fiscal Years, respectively. Of these fees $1,153,746, $1,248,610 and $895,169 were incurred to affiliates of the Local General Partners. Included in amounts incurred to affiliates of the Local General Partners are $425,268, $434,890 and $370,181, respectively, which were also incurred to affiliates of the General Partners. Also included in these fees are $244,039, $327,141 and $329,694, respectively, which were incurred to affiliates of the Local General Partners of Properties classified as discontinued operations. (d) Liberty Associates, a special limited partner of the subsidiary partnerships, is entitled to receive a local administrative fee of up to $2,500 per year from each subsidiary partnership. Liberty Associates has a 1% interest as the special limited partner in each of the subsidiary partnerships. Liberty Associates received cash distributions of approximately $5,000, $50 and $1,000 during the 2005, 2004 and 2003 Fiscal Years, respectively. Pursuant to the Partnership Agreement and the partnership agreements of the Local Partnerships (the "Local Partnership Agreements"), the General Partners and Liberty Associates received their allocable share of profits, losses and tax credits allocated by the Partnership and the Local Partnerships, respectively. Due to Local General Partners and affiliates at March 31, 2006 and 2005 consists of the following:

Due to Local General Partners and affiliates from discontinued liabilities at March 31, 2006 and 2005 consists of the following:

Tenant Leases ------------- Upper Fifth Avenue Residential Associates, L.P. has entered into a 40-year lease agreement with Upper Fifth Avenue Residential Leasing L.P., an affiliate of the Local General Partner, covering approximately 30,000 square feet of commercial space, two garages and laundry facilities. The lease agreement provides for a fixed rental of $40,000 per year. On May 11, 2005, the limited partnership interest in Upper Fifth was sold. Advances to Local Partnerships ------------------------------ During the fiscal years ended March 31, 2006 and 2005, net advances to certain Local Partnerships by the General Partners amounted to $166,813 and $176,762, respectively. As of March 31, 2006 and 2005, the amounts due to the General Partners from Local Partnerships totaled $1,725,914 and $1,559,101, respectively, and are recorded in due to general partners and affiliates on the consolidated balance sheets. 69 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 Due to General Partners and affiliates from the Local Partnerships consists of the following:

NOTE 9 - Taxable Net Loss A reconciliation of the financial statement net loss to the taxable net loss for the Partnership and its consolidated subsidiaries is as follows:

NOTE 10 - Sale of Properties The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the property and the related assets and liabilities of one Local Partnership and the limited partnership interest in three Local Partnerships were sold. Through the fiscal year ended March 31, 2006, the property and the related assets and liabilities of five Local Partnerships and the limited partnership interests in four Local Partnerships were sold. See Item 2, Properties. All gains and losses on sales are included in discontinued operations. On October 20, 2005, the Partnership's limited partnership interest in Gramco Development Limited Dividend Partnership, L.P. ("Bayamon") was sold to the Local General Partner and one of its affiliates for a purchase price of $3,000,000, resulting in a Local General Partner contribution of approximately $2,768,000. The sale resulted in the liquidation of Bayamon. As of the sale date, Bayamon had property and equipment, at cost, of approximately $8,639,000, accumulated depreciation of approximately $4,855,000 and mortgage debt of approximately $3,922,000. On July 27, 2005, the property and the related assets and liabilities of Penn Alto Associates, L.P. ("Penn Alto") were sold to an unaffiliated third party purchaser for $1,625,000. During the quarter ended September 30, 2005, in accordance with Statement of Financial Accounting Standards No. 144 ("SFAS No. 144"), the Partnership deemed the building impaired and wrote it down to its fair value, which resulted in a loss on impairment of $850,000. The sale resulted in a loss of approximately $140,000. The sale resulted in the liquidation of Penn Alto. As of the sale date, Penn Alto had property and equipment, at cost, of approximately $11,110,000, accumulated depreciation of approximately $6,148,000 and mortgage debt of approximately $3,383,000. On July 15, 2005, the Partnership sold 20% of its limited partnership interest in Santa Juanita to the Local General Partner for $100,000. The sale of the 20% 70 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 limited partnership interest resulted in a Local General Partner contribution of $100,000. As of December 31, 2005, Santa Juanita had property and equipment, at cost, of approximately $4,075,000, accumulated depreciation of approximately $2,232,000 and mortgage debt of approximately $1,500,000. On May 11, 2005, the Partnership's limited partnership interest in Upper Fifth Avenue Residential Associated, L.P. ("Upper Fifth") was sold to the Local General Partner for a purchase price of $10. The sale resulted in the liquidation of Upper Fifth, which had a partners' deficit of approximately $5,353,000, resulting in a Local General Partner non-cash contribution in the same amount to the Local Partnership. As of the sale date, Upper Fifth had property and equipment, at cost, of approximately $22,386,000, accumulated depreciation of approximately $8,907,000 and mortgage debt of approximately $13,624,000. On December 30, 2004, the property and the related assets and liabilities of Property Development Associates, L.P. ("Property Development") were sold to an affiliate of the Local General Partner for $7,097,000, resulting in a Local General Partner distribution of approximately $1,218,000. The sale resulted in the liquidation of Property Development. As of the sale date, Property Development had property and equipment, at cost, of approximately $12,513,000, accumulated depreciation of approximately $5,483,000 and mortgage debt of approximately $5,275,000. On September 21, 2004, the Partnership's limited partnership interest in Alexis Park Apartments ("Alexis Park") was sold to an unaffiliated third party purchaser for $1,000,000. This amount consisted of $600,000 paid in cash at the closing and $400,000 pursuant to two promissory notes of $200,000 each to the Partnership. Both notes compound interest at 5% and the principal and interest of one note is to be paid annually from 50% of cash flow, with a maturity in five years, when all unpaid principal and interest shall become payable. The principal and interest on the second note is to be paid upon refinancing or sale of the Property, but in no event later than 10 years. Subsequently, in April 2006 both notes were fully paid. The sale resulted in a gain of approximately $1,007,000. As of the sale date, Alexis Park had property and equipment, at cost, of approximately $8,456,000, accumulated depreciation of approximately $4,473,000 and mortgage debt of approximately $3,839,000. Assets Held for Sale -------------------- On January 17, 2006, the remaining 80% of the Partnership's limited partnership interest in Santa Juanita II Limited Partnership ("Santa Juanita") was sold to the Local General Partner for a purchase price of $375,000, cash plus 50% of the amount, if any, by which the aggregate sales price for the apartment units exceeds the actual conversion cost, as defined in the transfer agreement, from the conversion to condos, resulting in a Local General Partner distribution of approximately $882,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The Local General Partner's distribution will be written down to zero during the quarter ending June 30, 2006, resulting in a loss to minority interest of approximately $882,000. The sale resulted in the liquidation of Santa Juanita. As of December 31, 2005, Santa Juanita had property and equipment, at cost, of approximately $4,075,000, accumulated depreciation of approximately $2,232,000 and mortgage debt of approximately $1,500,000. On November 28, 2005, Willoughby/Wyckoff Housing Associates, L.P. ("Willoughby") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,800,000. The sales documents have been executed and the initial deposit funds are being held in escrow. Willoughby is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Willoughby had property and equipment, at cost, of approximately $6,191,000, accumulated depreciation of approximately $3,801,000 and mortgage debt of approximately $4,016,000. The closing occurred subsequently on June 5, 2006. See Note 14 regarding subsequent events. On September 22, 2005, 2051 Grand Concourse Housing Associates, L.P. ("Grand Concourse") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,937,500. The sales documents have been executed and the initial deposit funds were being held in escrow. Grand Concourse is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Grand Concourse had property and equipment, at cost, of approximately $5,271,000, accumulated depreciation of approximately $3,204,000 and mortgage debt of approximately $3,239,000. The closing occurred subsequently on May 1, 2006. See Note 14 regarding subsequent events. On September 22, 2005, Concourse Artists Housing Associates, L.P. ("Concourse Artists") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $1,797,500. The sales documents have been executed and the initial deposit funds were being held in escrow. Concourse Artists is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Concourse Artists had property and equipment, at cost, of approximately $2,285,000, accumulated depreciation of approximately $1,385,000 and mortgage debt of approximately $1,409,000. The closing occurred subsequently on May 1, 2006. See Note 14 regarding subsequent events. On September 22, 2005, Robin Housing Associates, L.P. ("Robin Housing") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $7,265,000. The sales documents have been executed and the initial deposit funds were being held in escrow. Robin Housing is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Robin Housing had property and equipment, at cost, of approximately $8,238,000, accumulated depreciation of approximately $5,014,000 and mortgage debt of approximately $4,895,000. The closing occurred subsequently on May 1, 2006. See Note 14 regarding subsequent events. On September 1, 2005, the Partnership entered into an assignment and assumption agreement to sell the Partnership's limited partnership interest in Rolling Green Limited Partnership ("Rolling Green") to the Local General Partner for a purchase price of $400,000. The sales documents have been executed and a closing is expected to take place in August 2006. No assurance can be given that the sale will actually occur. Rolling Green is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Rolling Green had property and 71 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 equipment, at cost, of approximately $9,135,000, accumulated depreciation of approximately $3,959,000 and mortgage debt of approximately $5,519,000. NOTE 11 - Selected Quarterly Financial Data (Unaudited) The following table summarizes the Partnership's quarterly results of operations for the years ended March 31, 2006 and 2005. The fluctuations between the quarters are primarily due to the sales of Local Partnerships (see Note 10).

* Reclassified for comparative purposes. 72 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 NOTE 12 - Commitments and Contingencies a) Subsidiary Partnerships - Going Concerns and Uncertainties The auditors for three subsidiary partnerships, Whittier Plaza Associates Limited Partnership ("Whittier"), Westminster Place II - Olive Site, L.P. ("Westminster") and Willoughby modified their reports on the 2005 Fiscal Year financial statements due to the uncertainty of each subsidiary partnership's ability to continue as a going concern. The financial statements do not include any adjustments that would be necessary in the event the subsidiary partnerships are unable to continue as going concerns. Whittier Plaza Associates ------------------------- The financial statements for Whittier have been prepared assuming that Whittier will continue as a going concern. Whittier has sustained continuous losses since commencement of operations in 1988, including losses of $28,239 and $23,889 in 2005 and 2004, respectively. Whittier has experienced higher vacancies and lower rents than those originally projected, resulting in increased difficulty in meeting both operating and debt service obligations. The Local General Partner, pursuant to a development deficit guarantee agreement, has advanced approximately $3,000 and $21,000 in the 2005 and 2004 Fiscal Years, respectively, and approximately $492,000 since 1988 to fund operating cash shortfalls. In addition, Whittier's management company, an affiliate of the Local General Partner, has deferred receipt of various fees since 1991 totaling approximately $116,000. These items raise substantial doubt about Whittier's ability to continue as a going concern. The Partnership's investment in Whittier at March 31, 2006 and 2005 was reduced to zero as a result of prior years' losses and the minority interest balance was $0 at each date. Whittier's net loss after minority interest amounted to approximately $28,000, $24,000 and $27,000 for the 2005, 2004 and 2003 Fiscal Years. Westminster ----------- The financial statements for Westminster have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of Westminster as a going concern. Westminster's rental subsidy fund agreement with the Missouri Housing Development Commission ("MHDC") was depleted in June 2004. Westminster has been approved by the MHDC for rental increases, however, these increases have not been sufficient to cover the loss of the rental subsidy payments. The loss of the rental subsidy payments and insufficient rental increases raise substantial doubt about Westminster's ability to continue as a going concern. Management is exploring a sale of Westminster and will continue to submit requests for rental increases for MHDC approval. Willoughby ---------- The financial statements of Willoughby have been prepared on the basis that it will continue as a going concern, which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. There are certain conditions that raise substantial doubt about Willoughby's ability to continue as a going concern. Willoughby has had operating losses and equity deficiencies. Management plans to continue to minimize costs within their control and seek additional funding sources to supplement project operations. Continuance of Willoughby as a going concern is dependent upon Willoughby's ability to obtain additional funding to supplement project operations and enable Willoughby to meet its obligations as they become due. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. Willoughby was subsequently sold on June 5, 2006 (see Note 14). b) Subsidiary Partnerships - Other Goodfellow Place Limited Partnership ("Goodfellow") --------------------------------------------------- In recent years, Goodfellow has experienced significant cash flow deficiencies. In addition, current liabilities exceed current assets by approximately $65,000, and there is $233,648 due to the General Partners and their affiliates. During 2005, the General Partners advanced Goodfellow $64,327 in the form of a long term interest free loan. The General Partners have informally indicated that they will continue to advance funds to Goodfellow in 2006, as needed, with an unsecured loan that will strengthen Goodfellow's overall financial position. Management believes that this action will allow Goodfellow to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the sale of the Property and subsequent liquidation of the Local Partnership. Bayamon ------- Bayamon was granted net funds of $4,867,000 by the Municipality of Bayamon (the "Municipality") and HUD. In the event of a substantial violation to the provisions of certain agreements between Bayamon and the Municipality and between the Municipality and HUD, the funds shall become immediately due and payable at the election of HUD and the Municipality. Otherwise, the principal amount of the obligation together with any interest will be forgiven. Proceeds from the loan have been deducted from fixed assets. The Partnership sold its limited partnership interest in Bayamon on October 20, 2005. Williamsburg Residential, L.P. ------------------------------ In November 1996, the Local General Partner of Williamsburg Residential, L.P. ("Williamsburg") stopped making its mortgage note payments which constituted an event of default. A Reinstatement and Modification Agreement was entered into effective March 1, 1997. The Partnership has advanced Williamsburg the necessary funds to keep the mortgage and escrows current during 2005 and is expected to continue to do so during 2006. The Partnership's investment in Williamsburg has been written down to $0 by prior years' losses and the minority interest balance was approximately $719,000 and $721,000 at March 31, 2006 and 2005, respectively. Williamsburg's net loss after minority interest amounted to approximately $241,000, $283,000 and $229,000 for the 2005, 2004, and 2003 fiscal years, respectively. As of March 31, 2006, the Partnership has advanced Williamsburg approximately $1,493,000. 73 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 c) Uninsured Cash and Cash Equivalents The Partnership maintains its cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $100,000. As of March 31, 2006, uninsured cash and cash equivalents approximated $1,099,000. d) Cash Distributions Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective Local Partnership Agreements and/or HUD. Such cash distributions are typically made from surplus cash flow. e) Tax Credits As of December 31, 2003, the Tax Credit Period for each Local Partnership has expired. A portion of the Housing Tax Credits are subject still to recapture in future years if (i) a Local Partnership ceases to meet qualification requirements, or (ii) there is a decrease in the qualified basis of the Local Partnership's Property, or (iii) there is a reduction in the Local Partnership interest in the Property at any time during the 15-year Compliance Period that began with the first tax year of the Tax Credit Period. f) Other The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 44% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in subsidiary partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at market rents when the rental assistance contracts expire. NOTE 13 - Discontinued Operations The following table summarizes the financial position of the Local Partnerships that are classified as discontinued operations because the respective Local Partnerships were classified as assets held for sale. As of March 31, 2006, Santa Juanita, Rolling Green, Concourse Artists, Grand Concourse, Robin Housing and Willoughby were classified as discontinued operations in the consolidated balance sheets. As of March 31, 2005, Property Development, Alexis Park, Rolling Green and Upper Fifth were classified as discontinued operations in the consolidated balance sheets. Consolidated Balance Sheets: ---------------------------

The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the year ended March 31, 2006, Upper Fifth, Penn Alto and Bayamon, which were sold during the year, and Santa Juanita, Rolling Green, Concourse Artists, Grand Concourse, Robin Housing and Willoughby, which were classified as assets held for sale, were all classified as discontinued operations in the consolidated statements of operations. For the year ended March 31, 2005, Property Development and Alexis Park, which were sold during the year, and Upper Fifth, Penn Alto, Bayamon, Santa Juanita, Rolling Green, Concourse Artists, Grand Concourse, Robin Housing and Willoughby, in order to present comparable results to the year ended March 74 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 31, 2006, were classified as discontinued operations on the consolidated statements of operations. For the year ended March 31, 2004, Polynesian and Seagrape, which were sold during the year, and Property Development, Alexis Park, Upper Fifth, Penn Alto, Bayamon, Santa Juanita, Rolling Green, Concourse Artists, Grand Concourse, Robin Housing, Willoughby, in order to present comparable results to the year ended March 31, 2006, were classified as discontinued operations on the consolidated statements of operations. Consolidated Statements of Discontinued Operations: --------------------------------------------------

* Reclassified for comparative purposes

NOTE 14 - Subsequent Events On June 5, 2006, the property and the related assets and liabilities of Willoughby were sold to an unaffiliated third party purchaser for $4,800,000, resulting in a gain of approximately $2,153,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Willoughby. Willoughby is classified as an asset held for sale as of March 31, 2006 (see Note 10). On May 1, 2006, the property and related assets and liabilities of Grand Concourse were sold to an unaffiliated third party purchaser for $4,937,500, 75 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 resulting in a gain of approximately $810,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Grand Concourse. Grand Concourse is classified as an asset held for sale as of March 31, 2006 (see Note 10). On May 1, 2006, the property and the related assets and liabilities of Concourse Artists were sold to an unaffiliated third party purchaser for $1,797,500, resulting in a gain of approximately $417,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Concourse Artists. Concourse Artists is classified as an asset held for sale as of March 31, 2006 (see Note 10). On May 1, 2006, the property and the related assets and liabilities of Robin Housing were sold to an unaffiliated third party purchaser for $7,265,000, resulting in a gain of approximately $1,416,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Robin Housing. Robin Housing is classified as an asset held for sale as of March 31, 2006 (see Note 10). On April 24, 2006, Spring Creek Associates II, L.P. ("Spring Creek") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $16,950,000. During the quarter ended March 31, 2006, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value, which resulted in a loss on impairment of $5,225,000. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur during the fourth quarter of 2006. No assurance can be given that the sale will actually occur. As of December 31, 2005, Spring Creek had property and equipment, at cost, of approximately $41,316,000 and accumulated depreciation of approximately $21,016,000. 76 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer and Chief Financial Officer of Related Credit Properties II, Inc., the general partner of the Related General Partner, 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 the 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. Item 9B. Other Information None 77 PART III Item 10. Directors and Executive Officers of the Registrant The Partnership has no directors or executive officers. The general partners of the Partnership are Related Credit Properties II L.P., a Delaware limited partnership (the "Related General Partner"), Liberty Associates II L.P., a Delaware limited partnership ("Liberty Associates"), and Liberty GP II Inc. (formerly Shearson Liberty GP II Inc.), a Delaware corporation (the "Liberty General Partner" and together with the Related General Partner and Liberty Associates, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties II Inc., a Delaware corporation. The general partners of Liberty Associates are Related Credit Properties II Inc., and the Liberty General Partner. Liberty Associates is also the special limited partner of the Partnership. The Partnership's affairs are managed and controlled by the General Partners. The Partnership has not adopted a separate code of ethics because the Partnership has no directors or executive officers. However, the parent company of CharterMac Capital LLC ("CharterMac Capital"), which controls the General Partners, has adopted a code of ethics (see http://www.chartermac.com). On November 17, 2003, CharterMac acquired CharterMac Capital LLC ("CharterMac Capital") (formerly known as Related Capital Company LLC), which is the parent of RCC Manager LLC, the sole shareholder of Related Credit Properties II Inc. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. Alan P. Hirmes replaced Stephen M. Ross as Director of Related Credit Properties II Inc. effective April 1, 2004 as a result of this acquisition. This acquisition did not affect the Partnership or its day-to-day operations, as the majority of the General Partners' management team remained unchanged. On November 8, 2005, CharterMac announced that Stuart J. Boesky would step down as Chief Executive Officer and trustee of CharterMac. Upon his stepping down, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of Related Credit Properties II, Inc. and Executive Vice President of the Liberty General Partner. Mr. Boesky will stay on as a consultant to CharterMac for the next year in order to ensure a smooth transition. On March 14, 2006, CharterMac's Board of Trustees named Marc D. Schnitzer the Chief Executive Officer, effective immediately. Mr. Schnitzer replaced Stephen M. Ross, who had served as interim Chief Executive Officer since Stuart J. Boesky resigned in November of 2005. Mr. Schnitzer also replaced Mr. Boesky as Senior Vice President of Related Credit Properties II, Inc. and Executive Vice President of the Liberty General Partner. Certain information concerning the directors and executive officers of the Liberty General Partner and of Related Credit Properties II, Inc., is set forth below. Related Credit Properties II, Inc. --------------------------------- Name Position ---- -------- Alan P. Hirmes Director and President Marc D. Schnitzer Senior Vice President Glenn F. Hopps Treasurer ALAN P. HIRMES, 51, has been a Certified Public Accountant in New York since 1978. Prior to joining CharterMac Capital in October 1983, Mr. Hirmes was employed by Weiner & Co., certified public accountants. Mr. Hirmes is also a Vice President of CharterMac Capital. Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree. Mr. Hirmes also serves on the Board of Trustees of CharterMac Capital and American Mortgage Acceptance Company. MARC D. SCHNITZER, 45, is responsible both for financial restructurings of real estate properties and directing CharterMac Capital'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 CharterMac Capital 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. In March of 2006, Mr. Schnitzer was appointed Chief Executive Officer of CharterMac Capital. Mr. Schnitzer also serves on the Board of Trustees of CharterMac Capital. GLENN F. HOPPS, 43, joined CharterMac Capital in December 1990, and prior to that date, was employed by Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science degree in Accounting. Liberty GP II Inc. ------------------ Name Position ---- -------- Alan P. Hirmes Director and President Marc D. Schnitzer Executive Vice President Glenn F. Hopps Treasurer Biographical information with respect to Messrs. Hirmes, Schnitzer and Hopps is set forth above. 78 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 Liberty General Partner or the general partner of the Related General Partner for their services. Certain directors and executive officers of the Liberty General Partner and the general partner of the Related General Partner receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. Under the terms of the Partnership Agreement, the General Partners and their affiliates are entitled to receive compensation from the Partnership in consideration of certain services rendered to the Partnership by such parties. Such arrangements include, but are not limited to, the payment of an accountable operating expense reimbursement, an annual partnership management fee not to exceed 0.5% of invested assets and subordinated disposition fees. In addition, the General Partners are entitled to 1% of all cash distributions and Housing Tax Credit allocations and a subordinated 15% interest in net sales or refinancing proceeds. Also see Note 8 in Item 8 for a presentation of the types and amounts of compensation paid to the General Partners and their affiliates, which is incorporated by reference thereto. 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 level of compensation payable to the General Partners and/or their affiliates is limited by the terms of the Partnership Agreement and may not be increased therefrom on a discretionary basis. Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters The general partnership interests and BACs in the Partnership are owned in the manner indicated on the chart below. Liberty Associates II L.P. holds a 1% limited partnership interest in each Local Partnership. Except as set forth in the table below, no person is known by the Partnership to be the beneficial owner of more than 5% percent of the Limited Partnership Interests and/or the BACs, and none of the General Partners nor any director or executive officer of the Liberty General Partner or of the general partner of the Related General Partner owns any Limited Partnership Interests or BACs, except as noted in the chart below.

(1) All such BACs represent BACs owned directly by Lehigh Tax Credit Partners L.L.C. ("Lehigh I") and Lehigh Tax Credit Partners II L.L.C. ("Lehigh II") for which Lehigh Tax Credit Partners, Inc. (the "Managing Member") serves as managing member. As of May 8, 2006, Lehigh I held 1,080.5 BACs and Lehigh II held 1,161.5 BACs. (2) Each such party serves as a director and executive officer of the Managing Member, and owns an equity interest therein. Item 13. Certain Relationships and Related Transactions The Partnership has and will continue to have certain relationships with the General Partners and their 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, on the one hand, and the directors or executive officers of the Liberty General Partner or the general partner of the Related General Partner, on the other. Item 14. Principal Accounting Fees and Services Audit Fees ---------- The aggregate fees billed by Trien Rosenberg Rosenberg Weinberg Ciullo and Fazzari LLP and its affiliates for professional services rendered for the audit of the Partnership's annual financial statements for the years ended March 31, 2006 and 2005 and for the reviews of the financial statements included in the Partnership's Quarterly Reports on Form 10-Q were $54,800 for both years. Audit Related Fees ------------------ None Tax Fees -------- The aggregate fees billed by Weiser LLP and its affiliates for professional services rendered for the preparation of the Partnership's annual tax returns were $10,200 for both years ended December 31, 2005 and 2004. All Other Fees -------------- None The Partnership is not required to have, and does not have, a stand-alone audit committee. 80 PART IV Item 15. Exhibits and Financial Statements Schedules

81 Item 15. Exhibits and Financial Statements Schedules (continued)

82 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTY TAX CREDIT PLUS II L.P. ------------------------------- (Registrant) By: RELATED CREDIT PROPERTIES II L.P., a General Partner By: Related Credit Properties II Inc., its general partner Date: June 26, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes President and Chief Executive Officer (Principal Executive Officer) and By: LIBERTY GP II, INC., a General Partner Date: June 26, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes President and By: LIBERTY ASSOCIATES II, L.P., a General Partner By: Related Credit Properties II, Inc., a General Partner Date: June 26, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes President By: Liberty GP II, Inc., a General Partner By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes President 83 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:

84 Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of Related Credit Properties II, Inc. (the general partner of each of Related Credit Properties II, L.P. and Liberty Associates, II, L.P., General Partners of Liberty Tax Credit Plus II, L.P. (the "Partnership")) and Liberty GP II, Inc. (general partner of Liberty Associates, II L.P. and the Partnership), hereby certify that: 1. I have reviewed this annual report on Form 10-K for the period ending March 31, 2006 of the Partnership; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Partnership as of, and for, the periods presented in this report; 4. I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Partnership and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Partnership, including its consolidated subsidiaries, is made known to me by others within those entities, particularly during the period in which this report is being prepared; b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; c) evaluated the effectiveness of the Partnership's disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d) disclosed in this report any change in the Partnership's internal control over financial reporting that occurred during the Partnership's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Partnership's internal control over financial reporting; and 5. I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Partnership's auditors and to the controlling entities of the General Partners: a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Partnership's ability to record, process, summarize and report financial information; and b) any fraud, whether or not material, that involves management or other employees who have a significant role in the Partnership's internal control over financial reporting. Date: June 26, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Chief Executive Officer and Chief Financial Officer 85 Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Annual Report of Liberty Tax Credit Plus II L.P. (the "Partnership") on Form 10-K for the year ending March 31, 2006 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, Alan P. Hirmes, Chief Executive Officer and Chief Financial Officer of Related Credit Properties II, Inc. (the general partner of each of Related Credit Properties II, L.P. and Liberty Associates, II, L.P., General Partners of Liberty Tax Credit Plus II, L.P. (the "Partnership")) and Liberty GP II, Inc. (general partner of Liberty Associates, II L.P. and the Partnership), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the SEC or its staff upon request. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Chief Executive Officer and Chief Financial Officer June 26, 2006 86 Exhibit 99.1 LIBERTY TAX CREDIT PLUS II L.P. RESPONDS TO UNSOLICITED TENDER OFFER ------------------------------------ New York, New York, October 6, 2005 -- Liberty Tax Credit Plus II L.P. ("Liberty II") responded today as follows to an unsolicited tender offer (the "Offer") by MacKenzie Patterson Fuller, Inc. ("MacKenzie"), SCM Special Fund, LLC and Sutter Opportunity Fund 3, LLC (collectively, the "Offerors") to purchase up to 5,680 units, or approximately 4.9% of the outstanding limited partnership units, of Liberty II at a price of $50 per unit, less certain reductions to that purchase price as described in the Offerors' written tender offer materials dated September 15, 2005 (the "Offering Materials"). The Offerors are not affiliated with Liberty II or its general partner. The Offerors did not provide Liberty II with a copy of the Offering Materials at or prior to the time they commenced the Offer. Liberty II learned of the Offer only after certain unit holders contacted Liberty II to inquire about the Offer and Liberty II thereafter obtained a copy of the Offering Materials. Liberty II expresses no opinion and is neutral with respect to whether or not unit holders should tender their units in response to the Offer. As Liberty II has previously disclosed to its unit holders, Liberty II is in the process of liquidating its portfolio of investments in other limited partnerships. It is uncertain at this time how much money, if any, will be realized by Liberty II and its unit holders from the liquidation of Liberty II's investments. Liberty II has not prepared itself or received from any third party any valuations of its investments. Accordingly, Liberty II takes no position on whether or not the Offer and its purchase price are attractive or unattractive to unit holders from an economic point of view. Nevertheless, the Offer contains certain misstatements of material fact and there are other facts that unit holders may wish to consider in deciding whether or not to tender their units in response to the Offer. Liberty II urges its unit holders to consider the following: First, the Offering Materials incorrectly state: "The general partner has given no indication when the partnership will be liquidating. Therefore, if the general partner's past actions are any indication of the future, investors may not see liquidity for some time." Those statements are untrue. In its July 2005 letter to all unit holders, which accompanied Liberty II's Annual Report for the fiscal year ended March 31, 2005, Liberty II informed unit holders of recent sales of Liberty II's investments, and further stated: "The General Partner continues to actively work with the local general partners to pursue other potential purchases for the remaining properties. It is anticipated to take at least three years for the Partnership to liquidate its entire portfolio." Second, the Offer raises certain questions about its potential impact on Liberty II's tax status for federal income tax purposes. Liberty II is currently treated, and has since its inception been treated, as a partnership and a pass-through entity for federal income tax purposes -- a tax status that is desirable and beneficial to Liberty II and its investors. That beneficial tax status might be lost, and Liberty II might be taxed as a corporation, if it were deemed to be a "publicly traded partnership" within the meaning of the Internal Revenue Code and certain regulations promulgated by the Internal Revenue Service. It is uncertain whether or not the Offer, if consummated, might cause Liberty II to be deemed a "publicly traded partnership." Accordingly, Liberty II will not permit any units to be transferred pursuant to the Offer unless and until the Offerors provide Liberty II with (i) an opinion of counsel that the Offer will not result in Liberty II being deemed to be a "publicly traded partnership" for federal income tax purposes and (ii) an agreement to indemnify Liberty II, its general partner and its unit holders for any loss or liability relating to any adverse tax consequences arising from the Offer. This legal opinion and indemnity must be in a form and content satisfactory to Liberty II and its counsel. Third, the Assignment Form and proposed transfer documentation included with the Offering Materials are inconsistent with Liberty II's long-established practices, procedures and documentation necessary for unit holders to transfer their units Accordingly, the Offerors' Assignment Form and proposed transfer documentation will not be accepted by Liberty II and units will not be transferred based on the Offerors' proposed documentation. The Offerors and any unit holder wishing to sell his, her or its units must each complete Liberty II's standard transfer and subscription documentation in accordance with Liberty II's standard practices and procedures. Among other things, each selling unit holder must individually sign each of Liberty II's required transfer documents. Pursuant to Liberty II's well-established practices and procedures, Liberty II does not accept and, and will not accept in connection with the Offer, signatures by persons other than the selling unit holder who purport to act based on a power of attorney executed by the unit holder. Persons who wish to sell their units to the Offerors should contact Liberty II and request its standard transfer documentation. Fourth, the Offer does not afford tendering unit holders withdrawal or proration rights and states that units "will be purchased on a first-come, first-buy basis." Liberty II believes that such terms are highly coercive and unfair to unit holders and may be in violation of the federal securities laws. Fifth, the Offer in its entirety may be in violation of the federal securities laws. Persons making a tender offer who, after the consummation of the offer, will directly or indirectly own more than 5% of a class of securities are required under federal law to provide significantly more information and disclosures to unit holders than the Offering Materials provide and to provide tendering unit holders with full withdrawal and proration rights during the entire time the tender offer remains open, which, as noted above, the Offer does not provide. While the Offer by its terms seeks approximately 4.9% of Liberty II's outstanding units, Liberty II is unable at this time to determine whether the Offerors and their affiliates will own more than 5% of Liberty II's units after consummation of the Offer. In particular, there are certain facts and circumstances that suggest that the Offerors may be acting as part of an undisclosed group, within the meaning of the federal securities laws, with an individual who is currently a unit holder of Liberty II (the "Current Unit Holder"). If the Offerors and the Current Unit Holder are acting as a group, then collectively the existing holdings of the Current Unit Holder combined with the units sought by the Offerors would exceed the 5% threshold. Under such circumstances, the Offer would be in violation of 87 the federal securities laws and the Offerors should have provided unit holders with additional information about themselves and the Offer and the Offer should have included full withdrawal and proration rights. Liberty II does not currently have sufficient information to know whether or not the Offerors and the Current Unit Holder are acting as a group within the meaning of the federal securities laws. Among other things that suggest that they may be acting as a group are: (1) the Current Unit Holder obtained from the Internal Revenue Service a copy of Liberty II's federal income tax return, which includes the names and addresses of Liberty II's unit holders, and gave that information to the Offerors to help them mail the Offering Materials to unit holders; (2) the Current Unit Holder made a request to inspect Liberty II's books and records shortly before the commencement of the Offer and designated MacKenzie, one of the Offerors, as his representative for inspecting the books and records; (3) the general counsel of MacKenzie has described the Current Unit Holder as "a competitor/joint venturer" with MacKenzie; and (4) there appear to be other relationships and dealings between the Offerors or their affiliates and the Current Unit Holder. The Current Unit Holder is also subject to a consent decree enjoining him from violating the federal securities laws and engaging in certain mini-tender offers that resolved a prior action brought by the Securities and Exchange Commission against him which alleged that the Current Unit Holder had made "fraudulent mini-tender offers." Liberty II, through its counsel, has asked both the Offerors and the Current Unit Holder to disclose the precise nature of their relationship and to inform Liberty II of any agreements between the Offerors and the Current Unit Holder respecting Liberty II and its securities, but neither the Offerors nor the Current Unit Holder has yet provided this requested information. If Liberty II hereafter obtains additional information such that its counsel is of the opinion that the Offer does violate any applicable federal or state securities laws, then Liberty II, in accordance with the terms of its Partnership Agreement, will not permit the transfer of any units pursuant to the Offer. * * * Each unit holder should consult with his, her or its own investment, tax and legal advisors in deciding whether or not to tender units in response to the Offer. As a precaution to make sure that any tendering unit holder is aware of the disclosures contained in this press release, Liberty II will require, as a condition to processing transfer requests, each tendering unit holder to sign a written statement acknowledging that they are aware of and understand the disclosures contained in this press release and that they wish to proceed with the sale of their units to the Offerors anyway. Certain statements in this press release may constitute forward-looking statements within the meaning of the "safe harbor" provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and beliefs and are subject to a number of factors and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements. These risks and uncertainties are detailed in Liberty Tax Credit Plus II L.P.'s Annual Report on Form 10-K for the period ended March 31, 2005, and in its other filings with the Securities and Exchange Commission. Such forward-looking statements speak only as of the date of this press release. Liberty Tax Credit Plus II L.P. expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in Liberty Tax Credit Plus II L.P.'s expectations with regard thereto or change in events, conditions, or circumstances on which any such statement is based. # # # 88 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus II L.P. and Subsidiaries (A Delaware Limited Partnership) In connection with our audits of the consolidated financial statements of Liberty Tax Credit Plus II L.P. and Subsidiaries (A Delaware Limited Partnership) included in this Form 10-K as presented in our opinion dated June 16, 2006 on page 17, and based on the reports of other auditors, we have also audited supporting Schedule I for the 2005, 2004 and 2003 Fiscal Years and Schedule III at March 31, 2006. In our opinion, and based on the reports of the other auditors, these consolidated schedules present fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. As discussed in Note 12(a), the consolidated financial statements include the financial statements of three limited partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that each will continue as a going concern. The three subsidiary partnerships' net losses aggregated $486,815 (Fiscal 2005), $313,659 (Fiscal 2004) and $142,603 (Fiscal 2003) and their assets aggregated $8,273,212 and $8,915,703 at March 31, 2006 and 2005, respectively. These matters raise substantial doubt about these subsidiary partnerships' abilities to continue as going concerns. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 16, 2006 89 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT Summarized condensed financial information of registrant (not including consolidated subsidiary partnerships) CONDENSED BALANCE SHEETS

Investments in subsidiary partnerships are recorded in accordance with the equity method of accounting, wherein the investments are not reduced below zero. Accordingly, partners' equity on the consolidated balance sheet will differ from partners' equity shown above. 90 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS

(*) Includes suspended prior year losses in excess of investment in accordance with the equity method of accounting amounting to $(355,152), $(2,487) and $(162,783) for the years ended March 31, 2006, 2005, and 2004, respectively. 91 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

92 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2006

93 LIBERTY TAX CREDIT PLUS II L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2006

(a) Since all properties were acquired as operating properties, depreciation is computed using primarily the straight-line method over the estimated useful lives determined by the partnership date of acquisition. (b) Furniture and fixtures, included in building improvements, are depreciated primarily by the straight-line method over the estimated useful lives ranging from 5 to 15 years. (c) The property and the related assets and liabilities of this Local Partnership were sold during the fiscal year ended March 31, 2002 and included in discontinued operations. (d) The property and the related assets and liabilities of these Local Partnerships were sold during the fiscal year ended March 31, 2004. (e) The property and the related assets and liabilities of this Local Partnership were sold during the fiscal year ended March 31, 2005. (f) The limited partnership interest of this Local Partnership was sold during the fiscal year ended March 31, 2005. (g) These properties are included in discontinued operations for the fiscal year ended March 31, 2004. (h) These properties are included in discontinued operations for the fiscal year ended March 31, 2005. (i) The property and the related assets and liabilities of this Local Partnership were sold during the fiscal year ended March 31, 2006. (j) The limited partnership interest of this Local Partnership was sold during the fiscal year ended March 31, 2006. (k) These properties are included in discontinued operations for the fiscal year ended March 31, 2006.

At the time the local partnerships were acquired by Liberty Tax Credit Plus II Limited Partnership, the entire purchase price paid by Liberty Tax Credit Plus II 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. 94

LIBERTY TAX CREDIT PLUS II L P 10-K