10-K 1 f10k_free-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 0-24652 FREEDOM TAX CREDIT PLUS L.P. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Delaware 13-3533987 ------------------------------------------------ ------------------- (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: Title of Class Beneficial Assignment Certificates and Limited Partnership Interests 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 $(4,113,000) based on Limited Partner equity (deficit) as of such date. Registrant's voting and non-voting common equity is not publicly traded. DOCUMENTS I6NCORPORATED BY REFERENCE None PART I Item 1. Business General ------- Freedom Tax Credit Plus L.P. (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on August 28, 1989. The General Partners of the Partnership are Related Freedom Associates L.P., a Delaware limited partnership (the "Related General Partner"), and Freedom GP Inc., a Delaware corporation (the "Freedom General Partner" and together with the Related General Partner, the "General Partners"). The general partner of the Related General Partner is Related Freedom Associates Inc., a Delaware corporation. The General Partners are both affiliates of CharterMac Capital LLC ("CharterMac Capital") (formerly known as Related Capital Company LLC). On November 25, 1997, an affiliate of the Related General Partner purchased 100% of the stock of the Freedom General Partner. On November 17, 2003, CharterMac acquired CharterMac Capital, which is the parent of RCC Manager LLC, the sole shareholder of Related Freedom Associates, Inc., the general partner of the Related General Partner. 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 resignation, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of the general partner of the Related General Partner and Executive Vice President of the Freedom 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 the general partner of the Related General Partner and Executive Vice President of the Freedom General Partner. On February 9, 1990, 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"), pursuant to a prospectus dated February 9, 1990, as supplemented by supplements thereto, dated December 7, 1990, May 10, 1991, July 10, 1991 and July 23, 1991 (as so supplemented, the "Prospectus"). The Partnership received $72,896,000 of the gross proceeds of the Offering from 4,780 investors, and the Offering was terminated on August 8, 1991. (See Item 8, "Financial Statements and Supplementary Data," Note 1 of Notes to Consolidated Financial Statements.) The Partnership was formed to invest as a limited partner in other limited partnerships ("Local Partnerships"), each of which owns one or more leveraged low-income multi-family residential complexes ("Apartment Complexes" or "Properties") that are eligible for the low-income housing tax credit ("Tax Credit") enacted in the Tax Reform Act of 1986, and some of which may also be eligible for the historic rehabilitation tax credit ("Historic Tax Credit"). The Partnership's investment in each Local Partnership represents 98% to 99% of the partnership interests in the Local Partnership. As of March 31, 2006, the Partnership has acquired interests in forty-two Local Partnerships. As of March 31, 2006, approximately $58,000,000 of the net proceeds of the Offering had been invested in such Local Partnerships, representing all of the Partnership's net proceeds available for investment. Subsequent to March 31, 2006 and as of the date of this filing, there have been no additional investments, nor are any other investments expected. See Item 2, "Properties," below. The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the Partnership's limited partnership interest in seven Local Partnerships had been sold. Through the year ended March 31, 2006 the Partnership has disposed of seven of its forty-two original investments. In addition, the Partnership has entered into agreements for the sale of eleven Local Partnerships (see below). No assurance can be given as to whether or when these sales will actually occur. All gains and losses on sales are included in discontinued operations. The investment objectives of the Partnership are described below. 1. Entitle qualified BACs holders to Tax Credits over the Credit Period (as defined below) with respect to each Apartment Complex. 2. Preserve and protect the Partnership's capital. 3. Participate in any capital appreciation in the value of the Properties and provide distributions of sale or refinancing proceeds upon the disposition of the Properties. 4. Allocate passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocate passive losses to corporate BACs holders to offset business income. 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 (for each Property, generally ten years from the date of investment or, if later, the date the Property is leased to qualified tenants; referred to herein as the "Credit Period"). Each of the Local Partnerships in which the Partnership has an interest has been allocated by the relevant state credit agency the authority to recognize Tax Credits during the Credit Period, provided that the Local Partnership satisfies the rent restriction, minimum set-aside and other requirements for recognition of the Tax Credits at all times during the 15-year compliance period (the "Compliance Period"). Once a Local Partnership has become eligible to recognize Tax Credits, it may lose such eligibility and suffer an event of "recapture" if its Property fails to remain in compliance with the Tax Credit requirements. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. Tax Credits with respect to a given Apartment Complex are available for the Credit Period. However, the annual Tax Credits available in the year in which 2 the Apartment Complex is leased to qualified tenants must be prorated based upon the months remaining in the year. The amount of the annual Tax Credits not available in the first year will be available in the eleventh year. Internal Revenue Code Section 42 regulates the use of the Apartment Complexes as to occupancy, eligibility, and unit gross rent, among other requirements. Each Apartment Complex must meet the provisions of these regulations during the Compliance Period in order to remain qualified to receive the credits. Certain Apartment Complexes have extended compliance periods of up to fifty years. 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). Through March 31, 2006, the Partnership has recorded $4,220,000 as a loss on impairment of assets or reduction to estimated fair value. While the value of the remaining Tax Credits are a factor in calculating fair value, the expiration of the 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. As of December 31, 2002, all the Local Partnerships have completed their 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 December 31, 2004 and will continue through December 31, 2007 with respect to the Properties depending upon when the Credit Period commenced. 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. As of March 31, 2006, distributions from operations received from the Local Partnerships have been immaterial. Management expects that the distributions from operations received from the Local Partnerships will increase, although not to a level sufficient to permit cash distributions to BACs holders. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancings or sales. Sale of Properties ------------------ The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the Partnership's limited partnership interest in seven Local Partnerships had been sold. Through the year ended March 31, 2006 the Partnership has disposed of seven of its forty-two original investments. In addition, the Partnership has entered into agreements for the sale of eleven Local Partnerships (see below). No assurance can be given as to whether or when these sales will actually occur. All gains and losses on sales are included in discontinued operations. Subsequently, on April 20, 2006 and May 31, 2006, two Local Partnerships entered into a purchase and sale agreement to sell their property and related assets and liabilities, on June 5, 2006 and June 20, 2006, the property and related assets and liabilities of one and two Local Partnerships, respectively, were sold. See Note 14 in Item 8. On March 31, 2006, the Partnership's limited partnership interest in Davidson Court Limited Partnership ("Davidson Court") was sold to an affiliate of the general partner of the Local Partnership (the "Local General Partner") for a purchase price of $1,100,000, resulting in a Local General Partner contribution of approximately $42,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Davidson Court. As of December 31, 2005, Davidson Court had property and equipment, at cost, of approximately $873,000 and accumulated depreciation of approximately $350,000. On March 31, 2006, the Partnership's limited partnership interest in CLM Equities Limited Partnership ("Morris Avenue") was sold to the Local General Partner and its affiliate for a purchase price of $265,000, resulting in a Local General Partner distribution of approximately $439,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Morris Avenue. As of December 31, 2005, Morris Avenue had property and equipment, at cost, of approximately $5,332,000, accumulated depreciation of approximately $2,646,000 and mortgage debt of approximately $2,079,000. On February 1, 2006, the Partnership's limited partnership interest in Ivanhoe Apartments Limited Partnership ("Ivanhoe") was sold to the Local General Partner for a purchase price of $150,000, resulting in a Local General Partner distribution of approximately $51,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Ivanhoe. As of December 31, 2005, Ivanhoe had property and equipment, at cost, of approximately $1,178,000, accumulated depreciation of approximately $587,000 and mortgage debt of approximately $323,000. On January 19, 2006, the Partnership's limited partnership interest in Nelson Anderson Affordable Housing Limited Partners ("Nelson Anderson") was sold to the Local General Partner for a purchase price of $490,000, resulting in a Local General Partner distribution of approximately $177,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Nelson Anderson. As of December 31, 2005, Nelson Anderson had property and equipment, at cost, of approximately $6,732,000, accumulated depreciation of approximately $3,411,000 and mortgage debt of approximately $3,163,000. On January 1, 2006, the Partnership's limited partnership interest in The Oaks Village Limited Partnership ("Oaks Village") was sold to the Local General Partner for a purchase price of $75,000, resulting in a Local General Partner contribution of approximately $407,000 and a net loss to the Partnership of approximately $21,000. The sale resulted in the liquidation of Oaks Village. As of the sale date, Oaks Village had property and equipment, at cost, of approximately $2,024,000, accumulated depreciation of approximately $1,083,000 and mortgage debt of approximately $1,440,000. On January 1, 2006, the Partnership's limited partnership interest in Greenfield Village Limited Partners ("Greenfield Village") was sold to the Local General Partner for a purchase price of $75,000, resulting in a Local General Partner contribution of approximately $461,000 and net loss to the Partnership of approximately $21,000. The sale resulted in the liquidation of Greenfield Village. As of the sale date, Greenfield Village had property and equipment, at cost, of approximately $2,010,000, accumulated depreciation of approximately $1,059,000 and mortgage debt of approximately $1,448,000. 3 On June 20, 2005, the Partnership's limited partnership interest in Parkside Townhomes Associates ("Parkside") was sold to the Local General Partner for a purchase price of $650,000 resulting in a Local General Partner net distribution of approximately $32,000 and a net loss to the Partnership of approximately $39,000. The purchase price consisted of approximately $161,000 paid in cash at closing and $450,000 pursuant to a promissory note payable to the Partnership. During the quarter ended June 30, 2005, in accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment of Disposal of Long-Lived Asset" ("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 $555,000. The sale resulted in the liquidation of Parkside. As of the sale date, Parkside had property and equipment, recorded at a fair value, of approximately $4,162,000, accumulated depreciation of approximately $2,386,000 and mortgage debt of approximately $1,461,000. Assets Held for Sale -------------------- On March 22, 2006, Eagle Ridge Limited Partnership ("Eagle Ridge") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,000,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to take place in the fourth calendar quarter of 2006. No assurance can be given that the sale will actually occur. Eagle Ridge is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Eagle Ridge had property and equipment, at cost, of approximately $3,100,000, accumulated depreciation of approximately $1,837,000 and mortgage debt of approximately $1,496,000. On January 30, 2006, Lauderdale Lakes Associates, Ltd. ("Lauderdale Lakes") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an affiliate of the Local General Partner for a purchase price of $5,900,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in the first calendar quarter of 2007. No assurance can be given that the sale will actually occur. Lauderdale Lakes is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Lauderdale Lakes had property and equipment, at cost, of approximately $10,634,000, accumulated depreciation of approximately $3,584,000 and mortgage debt of approximately $4,645,000. On January 26, 2006 Bethel Park Apartments, a Limited Partnership ("Bethel Park") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,500,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Bethel Park is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Bethel Park had property and equipment, at cost, of approximately $5,099,000, accumulated depreciation of approximately $3,084,000 and mortgage debt of approximately $1,758,000. Subsequently, on June 20, 2006, the property and the related assets and liabilities of Bethel Park were sold (see Note 14 in Item 8). On January 26, 2006, Northwood Apartments of Georgia ("Northwood") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $6,050,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Northwood is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Northwood had property and equipment, at cost, of approximately $7,398,000, accumulated depreciation of approximately $4,116,000 and mortgage debt of approximately $2,545,000. Subsequently, on June 5, 2006, the property and the related assets and liabilities of Northwood were sold (see Note 14 in Item 8). On January 26, 2006, Hunters Chase Apartments ("Hunters Chase") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,730,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Hunters Chase is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Hunters Chase had property and equipment, at cost, of approximately $3,913,000, accumulated depreciation of approximately $2,618,000 and mortgage debt of approximately $2,296,000. On January 26, 2006, Bennion Park Apartments ("Mulberry") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,900,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Mulberry is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Mulberry had property and equipment, at cost, of approximately $5,954,000, accumulated depreciation of approximately $3,417,000 and mortgage debt of approximately $1,994,000. On January 26, 2006, Oxford Trace Apartments ("Oxford Trace") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $725,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Oxford Trace is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Oxford Trace had property and equipment, at cost, of approximately $1,099,000, accumulated depreciation of approximately $833,000 and mortgage debt of approximately $658,000. On January 26, 2006, Tivoli Place Apartments ("Tivoli Place") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $3,050,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Tivoli Place is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Tivoli Place had property and equipment, at cost, of approximately $4,566,000, accumulated depreciation of approximately $2,590,000 and mortgage debt of approximately $1,409,000. On January 26, 2006, Twin Trees Apartments ("Twin Trees") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,300,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Twin Trees is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, 4 Twin Trees had property and equipment, at cost, of approximately $2,925,000, accumulated depreciation of approximately $1,657,000 and mortgage debt of approximately $1,047,000. On January 26, 2006, Wilshire Apartments ("Wilshire") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $1,700,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Wilshire is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Wilshire had property and equipment, at cost, of approximately $2,914,000, accumulated depreciation of approximately $1,846,000 and mortgage debt of approximately $1,574,000. On January 26, 2006, Zebulon Park Apartments ("Zebulon") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,000,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Zebulon is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Zebulon had property and equipment, at cost, of approximately $4,193,000, accumulated depreciation of approximately $2,460,000 and mortgage debt of approximately $1,478,000. Subsequently, on June 20, 2006, the property and the related assets and liabilities of Zebulon were sold (see Note 14 in Item 8). Segments -------- The Partnership operates in one segment, which is the investment in multi-family residential property. Financial information about this segment is set forth in Item 8 hereto. Competition ----------- The real estate business is highly competitive and substantially all of the properties acquired are subject to active 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 businesses 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 and Certificate 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 23% 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 U.S. Department of Housing and Urban Development ("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 5 Item 2. Properties The Partnership holds a 99%, 98.99% and 98% limited partnership interest in six, ten and nineteen Local Partnerships, respectively. 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 (a) 2; Schedule III.

7 (a) Property undergoing renovations (b) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2006 (see Note 9 in Item 8) None of the Local Partnerships' assets or revenue balances are greater than 10% of the Partnership's total assets or revenue balances. All leases are generally for periods not greater than one to two years and no tenant occupies more than 10% of the total rentable square footage in any single Apartment Complex. Commercial tenants (to which average rental per square foot applies) comprise less than 5% of the rental revenues of the Local Partnerships. Rents for the residential units are determined annually by HUD and reflect increases, if any, in consumer price indices in various geographic areas. Management of the General Partners 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. Management of the General Partners periodically reviews the insurance coverage of the Properties and believes such coverage is adequate. See Item 1, Business, above for the general competitive conditions to which the Properties described above are subject. Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the Property is located. The General Partners generally required that the Local General Partners undertake an obligation to fund operating deficits of the Local Partnership (up to a stated maximum amount) during a limited period of time (typically three to five years) following the achievement of break-even operations ("Operating Deficit Guarantees"). Under the terms of the Operating Deficit Guarantees, amounts funded are treated as operating loans, which do not bear interest and which will be repaid only out of 50% of available cash flow or out of available net sale or refinancing proceeds. As of March 31, 2006, all Operating Deficit Guarantees have expired. Item 3. Legal Proceedings Washington Brooklyn ------------------- In or about September 2003, two putative mortgagees commenced a mortgage foreclosure action in the Supreme Court of the State of New York, Kings County (the "Court"), entitled 150 Beach 120th Street Inc. v. Washington Brooklyn Limited Partnership, Index No. 35255/2003, seeking to foreclose on an alleged $100,000 loan and mortgage against the Apartment Complex owned by Washington Brooklyn Limited Partnership ("Washington"). Apparently, the former general partner of Washington, BUFNY Houses of Brooklyn, Inc. ("BUFNY"), allegedly granted two mortgages in the amounts of $225,000 and $100,000 secured by the Apartment Complex. Each of the foregoing mortgages was granted without the knowledge of Freedom SLP, L.P. (the "Special Limited Partner") or the Partnership (collectively the "Freedom LPs") or the consent of the Special Limited Partner, as required by Washington's Amended and Restated Agreement of Limited Partnership (the "Washington Partnership Agreement"). The Freedom LPs believe that BUFNY did not use the alleged loan proceeds for the benefit of Washington or the Apartment Complex. For these and other reasons, the Freedom LPs contend that the alleged mortgages are invalid. In addition, BUFNY allegedly failed to comply with the terms of either mortgage, which resulted in the holders of the alleged $100,000 mortgage commencing the foreclosure proceedings. BUFNY did not appear in or otherwise respond to the foreclosure proceedings. The holders of the alleged $225,000 mortgage have not yet, to the knowledge of the Freedom LPs, commenced any foreclosure proceedings. Shortly after the Freedom LPs became aware of these foreclosure proceedings, their counsel contacted counsel for the plaintiffs and mortgagees in an effort to learn more about the alleged mortgages and to resolve the disputes relating to the mortgages. When those efforts failed, the Freedom LPs filed a motion to intervene in the foreclosure action and for leave to file a late answer on behalf of themselves and Washington. The Freedom LPs contend that the mortgages are invalid and that Washington is not liable for them or the underlying indebtedness. In an order dated September 7, 2004, the Court granted the Freedom LPs' motion to intervene and to file a late answer on behalf of the Partnership. On or about September 21, 2004, the Freedom LPs, on behalf of themselves and the Partnership, served an answer, counterclaims and crossclaims in defending against the action. The answer denied the material allegations of the complaint and asserted certain affirmative defenses, counterclaims and crossclaims. Among other things, the Freedom LPs, on behalf of themselves and the Partnership, added The Levites Organization, one of the two co-holders of the $225,000 mortgage for which the plaintiffs' complaint did not seek foreclosure, as an additional counterclaim defendant, and the Freedom LPs asserted that both the $100,000 and $225,000 mortgages are invalid and void ab initio. After obtaining discovery from the putative mortgagees, the Partnership and the Freedom LPs, on July 12, 2005, made a motion for summary judgment dismissing the complaint and declaring the mortgages invalid and void ab initio. The putative mortgagees cross-moved for summary judgment declaring the mortgages valid and enforceable. Subsequently, by decision dated January 3, 2006, the Court denied both motions, finding that questions of fact exist for trial as to the reasonableness of the putative mortgagees' reliance on BUFNY. On February 14, 2006, the Freedom LPs filed a notice of appeal from the January 3, 2006 decision. The appeal has not yet been fully briefed. The Freedom LPs intend to pursue their appeal, defend the action, and prosecute their counterclaims and crossclaims vigorously. The final outcome of this case, however, cannot be determined at this time. If the Court were to reject the Freedom LPs defenses and counterclaims, then it is possible that the Apartment Complex might be foreclosed upon and the Partnership might lose its title to and interests in the Apartment Complex. Even if Washington were foreclosed, it will not be subject to Tax Credit recapture because its Compliance Period expired on December 31, 2005. In addition, due to BUFNY's breach of fiduciary duties and breaches of the Washington Partnership Agreement, the Special Limited Partner exercised its rights under the Washington Partnership Agreement to remove BUFNY as Washington's general partner and to substitute itself as the new replacement general partner, effective April 26, 2004. 8 Subsequently, on April 20, 2006, the Partnership entered into a purchase and sale agreement to sell property and the related assets and liabilities of Washington Brooklyn to an unaffiliated third party purchaser. Item 4. Submission of Matters to a Vote of Security Holders None PART II Item 5. Market for the Registrant's Common Equity, Related Security Holder Matters And Issuer Purchases of Equity Securities As of March 31, 2006, the Partnership had issued and has outstanding 72,896 Limited Partnership Interests, each representing a $1,000 capital contribution to the Partnership, or an aggregate capital contribution of $72,896,000. All of the issued and outstanding Limited Partnership Interests have been issued to Freedom Assignor Inc. (the "Assignor Limited Partner"), which has in turn issued 72,896 BACs to the purchasers thereof for an aggregate purchase price of $72,896,000. Each BAC represents all of the economic and virtually all of the ownership rights attributable to a Limited Partnership Interest held by the Assignor Limited Partner. BACs may be converted into Limited Partnership Interests at no cost to the holder (other than the payment of transfer costs not to exceed $100), but Limited Partnership Interests so acquired are not thereafter convertible into BACs. As of May 4, 2006, the Partnership has 4,139 registered holders of an aggregate of 72,896 BACs. Neither the BACs nor the Limited Partnership Interests are traded on any established trading market. The Partnership does not intend to include the BACs for quotation on NASDAQ or for listing on any national or regional stock exchange or any other established securities market. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in "publicly traded partnerships." Accordingly, the General Partners have imposed restrictions limiting the transferability of the BACs and the Limited Partnership Interests in secondary market transactions. These restrictions should prevent a public trading market from developing that would 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. All of the Partnership's general partnership interests, representing an aggregate capital contribution of $2,000, are held by the two General Partners. There are no material restrictions in the Partnership Agreement on the ability of the Partnership to make distributions. The Partnership has made no distributions to the BACs holders as of March 31, 2006. The Partnership does not anticipate providing cash distributions to its BACs holders other than from net refinancing or sales proceeds. Transfer Procedures ------------------- The Partnership from time to time receives requests by unit holders and others to transfer BACs and/or Limited Partnership Interests. Such requests may occur in connection with tender offers for the Partnership's units. Such requests 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 its discretion, may allow the cumulative total number of transfers (including those by tender offer) to reach the 2% safe harbor limit. 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. 9 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 consolidated financial statements in Item 8 hereof.

* Reclassified for comparative purposes. During the years ended March 31 2002, 2003, 2004 and 2005 total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment. During the year ended March 31, 2006, total assets decreased primarily due to the sale of Local Partnerships and depreciation and total liabilities increased primarily due to deferred revenue from the sale of Local Partnership interests being accrued in other liabilities. 10 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- General ------- The Partnership's capital has been invested in 42 Local Partnerships. As of March 31, 2006, the limited partnership interest in seven Local Partnerships had been sold. In addition, as of March 31, 2006, the Partnership has entered into agreements for the sales of eleven Local Partnerships (see Note 10 in Item 8). For a discussion of these sales of the Local Partnerships, see Note 9 in Item 8. During the year ended March 31, 2006, the primary sources of liquidity included working capital, interest earned on working capital, and distributions received from the Local Partnerships. None of these sources generated substantial amounts of funds. Short-Term ---------- 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. The Partnership does not anticipate providing cash distributions to BACs holders in circumstances other than refinancing or sales. During the years ended March 31, 2006, 2005 and 2004, distributions from the Local Partnerships amounted to approximately $24,000, $138,000 and $16,000, respectively. Additionally, during the years ended March 31, 2006, 2005 and 2004, the Partnership received approximately $2,379,000, $0 and $0, respectively, of proceeds from the sale of investments. Certain fees and expense reimbursements owed to the General Partners amounting to approximately $9,051,000 and $8,138,000 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 $7,555,000 and $6,884,000 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 $1,496,000 and $1,254,000 were accrued and unpaid as of March 31, 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 and certain of its affiliates 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 forty-two Local Partnerships increased approximately $2,522,000 due to cash provided by operating activities ($3,349,000) and proceeds from sale of investments ($2,379,000) which exceeded capital improvements ($628,000), a net decrease in due to local general partners and affiliates relating to investing and finance activities ($1,535,000), repayments of mortgage loans ($905,000) and a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($138,000). Included in the adjustments to reconcile the net loss to cash provided by operating activities is depreciation and amortization ($4,903,000), loss on sale of investments ($81,000) and loss on impairment of fixed assets ($555,000). Total expenses for the years ended March 31, 2006, 2005 and 2004, excluding depreciation and amortization, interest and general and administrative - related parties, totaled $5,480,822, $4,660,101 and $4,484,984. Accounts payable and other liabilities totaled $5,291,827 and $2,455,386, which is comprised of the following amounts:

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. Included in accounts payable and other liabilities as of March 31, 2006 and 2005 are $1,888,040 and $0 of deferred revenue from sales, respectively. As indicated in the above table, accrued interest payable comprised approximately 46% and 60% of the total accounts payable and other liabilities amount, excluding deferred revenue from sales, at March 31, 2006 and 2005, respectively. Such amount 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. Security deposits payable are offset by cash held in security deposits, which are included in "Cash held in escrow" on the consolidated financial statements. 11 Working capital of approximately $2,282,000, exclusive of Local Partnerships' working capital, remains as of March 31, 2006. It is used to pay operating expenses of the Partnership, including Partnership management fees payable to the General Partners and advances to Local Partnerships if warranted. Long -Term ---------- Effective January 1, 1999 the State of California requires owners of a property benefiting from the Federal Housing Administration ("FHA") insured mortgages under Section 236 or 221(a)(3) to provide a nine month notice of contract termination or prepayment of the FHA insured loan. In addition, with respect to the Partnership's California investments, the owner must offer the Properties for sale to those entities who agree to maintain the Property as affordable housing. On October 20, 1999 President Clinton signed the Fiscal Year 2000 Department of Veteran Affairs, HUD and Independent Agencies Appropriations Act (the "Appropriations Act"). The Appropriations Act contains revisions to HUD Mark-to-Market Program and other HUD programs concerning the preservation of the HUD housing stock. On December 29, 1999 HUD issued Notice H99-36 addressing "Project Based Section 8 Contracts Expiring in Fiscal Year 2000," reflecting the changes in the Appropriations Act and superceding earlier HUD Notices 98-34, 99-08, 99-15, 99-21 and 99-32. Notice 99-36 clarifies many of the earlier uncertainties with respect to the earlier HUD Section 8 Mark-to-Market Programs and continued the Mark-to-Market Program which allows owners with Section 8 contracts to increase the rents to market levels where contract rents are currently below market. As of March 31, 2006, none of the Local Partnerships has opted to enter the Mark-to-Market Program and therefore this has no impact on the Partnership. For a discussion of contingencies affecting certain Local Partnerships, see Note 11 in Item 8. 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 is not anticipated to impact future results of operations, liquidity or financial condition in a material way. However, the Partnership's loss of its investment in a Local Partnership may result in recapture of Tax Credits if the investment is lost before the expiration of the applicable Compliance Period. Except as described above, management is not aware of any trends or events, commitments or uncertainties, which have not otherwise been disclosed, that will or are likely to impact liquidity in a material way. Management believes the only impact would be from laws that have not yet been adopted. The portfolio is diversified by the location of the Properties around the United States so that if one area of the country is experiencing downturns in the economy, the remaining Properties in the portfolio may not be affected. 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 9 in Item 8. Discontinued Operations ----------------------- The Partnership is currently in the process of disposing of its investments. The disposals meet the criteria established for recognition as a discontinued operation under SFAS No. 144. SFAS No. 144 specifically requires that such amounts must differentiate a component of a business comprised of operations and cash flows that can be clearly distinguished operationally and for financial reporting purposes, from the rest of the entity. See Note 9 in Item 8 for a discussion of the sale of properties and Note 10 in Item 8 for a discussion of assets held for sale. 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 $220,000 including principal and interest with rates varying from 0% to 13.50% per annum and have maturity dates ranging from 2007 through 2042. 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. 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 $219,000 including principal and interest with rates varying from 1% to 10.45% per annum and have maturity dates ranging from 2007 through 2040. 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. 12 Off Balance Sheet Arrangements ------------------------------ The Partnership has no off-balance sheet arrangements. Critical Accounting Estimates ----------------------------- 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 consolidated 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. Property and Equipment/Valuation of Long-Lived Assets ----------------------------------------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, and any other costs incurred in acquiring the Properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with 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. At that time property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. 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 consolidated 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. Through March 31, 2006, the Partnership has recorded $4,220,000 as a loss on impairment of assets or reductions to estimated fair value. 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 as rents become due 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. The Partnership received rental subsidies which amounted to approximately $3,430,948, $3,488,027 and $3,326,225 for the years ended March 31, 2006, 2005 and 2004, respectively. The related rental subsidy programs have expiration dates that terminate upon total disbursement of the assistance obligation. 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:

Related Parties --------------- Under the terms of the Partnership Agreement, the General Partners and their affiliates are entitled to receive compensation from the Partnership in 13 consideration of certain services rendered to the Partnership by such parties. In addition, the General Partners collectively hold a 1% interest in all profits, losses and distributions attributable to operations and a subordinated 15% interest in such items attributable to sales and refinancings. Certain directors and officers of the General Partners receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. The maximum annual partnership management fee paid to the General Partners is 0.5% of invested assets. See Note 7 in Item 8, which is incorporated herein by reference. 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 principle be applied retrospectively with all prior period financial statements presented on the new accounting principle. 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 consolidated financial statements. Results of Operations --------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the Properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the property on an undiscounted basis are below depreciated cost. At that time Property investments themselves are reduced to estimated fair value (generally using discounted estimated future cash flows) when the Property is considered to be impaired and the carrying value exceeds estimated fair value. During the years ended March 31, 2006, 2005 and 2004, the Partnership has recorded $555,000, $0 and $0, respectively, as a loss on impairment of assets. Through March 31, 2006, the Partnership has recorded an aggregate of $4,220,000 of losses on impairment of assets. The Partnership's primary source of income continues to be rental income with the corresponding expenses being divided among operations, depreciation and mortgage interest. 2006 vs. 2005 ------------- Rental income decreased less than 1% for the year ended March 31, 2006 as compared to 2005, primarily due to a reduction of rental rates to help alleviate an ongoing vacancy problem at one Local Partnership and an increase in vacancies due to damage from Hurricane Katrina at a second Local Partnership partially offset by an increase in rental rates at the remaining Local Partnerships. Other income increased approximately $189,000 for the year ended March 31, 2006 as compared to 2005, primarily due to a management fee received at the Partnership level from the sale of one Local Partnership. Total expenses, excluding repairs and maintenance, operating and other and general and administrative, remained fairly consistent with a decrease of less than 1% for the year ended March 31, 2006 as compared to 2005. Repairs and maintenance expenses increased approximately $206,000 for the year ended March 31, 2006 as compared to 2005, primarily due to property and building improvements at one Local Partnership, fire damage repairs at a second Local Partnership and increases in repair contracts and maintenance salaries at a third Local Partnership. Operating and other expenses increased approximately $182,000 for the year ended March 31, 2006 as compared to 2005, primarily due to an increase in utility expense at two Local Partnerships and an increase in water expense at a third Local Partnership. General and administrative increased approximately $475,000 for the year ended March 31, 2006 as compared to 2005, primarily due to the write-off of an amount due from the former Local General Partner at one Local Partnership and an increase in legal fees relating to the Washington Brooklyn legal proceedings and an increase in sales activity at the Partnership level (see Note 11 in Item 8). 2005 vs. 2004 ------------- Rental income increased approximately 4% for the year ended March 31, 2005 as compared to 2004, primarily due to rental rate increases at the Local Partnerships. 14 Total expenses, excluding real estate taxes and general and administrative, remained fairly consistent with an increase of less than 1% for the year ended March 31, 2005, as compared to 2004. Real estate taxes increased approximately $47,000 for the year ended March 31, 2005 as compared to 2004, primarily due to increases in property taxes at several Local Partnerships. General and administrative increased approximately $173,000 for the year ended March 31, 2005 as compared to 2004, primarily due to the write-off of an amount due from the former Local General Partner at one Local Partnership. Other ----- As of December 31, 2002, the Credit Period for all of the Properties has 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 the Tax Credits. During the years ended March 31, 2003, the Housing Tax Credits received by the Partnership for income tax purposes totaled $1,710,233. The Compliance Period began to end on December 31, 2004 and will continue through December 31, 2007 with respect to the Properties depending upon when the Credit Period commenced. The Partnership's investments as limited partners in the Local Partnerships are subject to the risks incident to the 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 operating expenses, any or all of which could threaten the financial viability of one or more of the Local Partnerships. There are also substantial risks associated with the operation of Apartment Complexes receiving government assistance. These include governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the complexes; difficulties in obtaining government approval for rent increases; limitations on the percentage of income which low and moderate income tenants may pay as rent; the possibility that Congress may not appropriate funds to enable HUD to make the rental assistance payments it has contracted to make; and that when the rental assistance contracts expire there may not be market demand for apartments at full market rents in a Local Partnership's Apartment Complex. The Local Partnerships are impacted by inflation in several ways. Inflation generally allows for increases in rental rates to reflect the impact of higher operating and replacement costs. Inflation also affects the Local Partnerships adversely by increasing operating costs as a result of higher costs of such items as fuel, utilities and labor. However, continued inflation may result in appreciated values of the Local Partnerships' Apartment Complexes over a period of time as rental revenues and replacement costs continue to increase. The Partnership does not anticipate that it will be in a position to make cash distributions at any time prior to the disposition of the Properties. If distributions of operating cash flow are made, it is expected that they will be limited. As of March 31, 2006, no such distributions have been made. Item 7a. Quantitative and Qualitative Disclosures about Market Risk The Partnership has mortgage notes that are payable in aggregate monthly installments including principal and interest at rates varying from 0% to 13.50% 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 of the Notes to Consolidated Financial Statements, the fair value of the mortgage notes payable. The Partnership does not have any other market sensitive instruments. 15

16 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- TO THE PARTNERS OF FREEDOM TAX CREDIT PLUS L.P. We have audited the accompanying consolidated balance sheets of FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES as of March 31, 2006 and 2005, and the related consolidated statements of operations, changes in partners' capital (deficit) and cash flows for each of the years in the three-year period ended March 31, 2006. These consolidated 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 consolidated financial statements of forty-two subsidiary partnerships, whose losses aggregated $2,809,693 for the year ended March 31, 2004, and whose assets constituted 99% of consolidated assets at March 31, 2004. Those statements were audited by other auditors whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely on 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 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 and the reports of the other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIRAIES as of March 31, 2006 and 2005, and the results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2006, in conformity with accounting principles generally accepted in the United States of America. /s/ Friedman LLP New York, New York June 23, 2006 17 [Letterhead of McKonly & Asbury LLP] INDEPENDENT AUDITOR'S REPORT The Partners of Parkside Townhomes Associates Pennsylvania Housing Finance Agency Lancaster, Pennsylvania Harrisburg, Pennsylvania We have audited the accompanying Balance Sheets of Parkside Townhomes Associates (a limited partnership), PHFA Project No. 0-90 as of December 31, 2003 and 2002, and the related statements of profit and loss, partners' equity, and cash flows, for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the 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 Parkside Townhomes Associates at December 31, 2003 and 2002, and its profits and loss, partners' equity, 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 Pennsylvania Housing Finance Agency's Financial Reporting Manual, we have also issued a report dated January 27, 2004 on our consideration of Parkside Townhomes Associates' internal control over financial reporting and our tests of its compliance with certain provisions of laws, PHFA regulations, contracts and grants and have rendered our reports thereon on pages 25 and 26. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing the results of our audits. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information on pages 18 through 24 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 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/ McKonly & Asbury LLP Harrisburg, Pennsylvania January 27, 2004 18 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Twin Trees Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Twin Trees Apartments, A Limited Partnership (the Partnership) as of December 31, 2003 and 2002, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Twin Trees Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 19 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Bennion Park Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Bennion Park Apartments, A Limited Partnership as of December 31, 2003 and 2002, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Bennion Park Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 20 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Hunters Chase Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Hunters Chase Apartments, A Limited Partnership as of December 31, 2003 and 2002 and the related statements of loss, 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 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 Hunters Chase Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 21 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Wilshire Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Wilshire Apartments, A Limited Partnership as of December 31, 2003 and 2002, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Wilshire Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 22 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Bethel Park Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Bethel Park Apartments, A Limited Partnership (the Partnership) as of December 31, 2003 and 2002, and the related statements of loss, 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 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 Bethel Park Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 23 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Zebulon Park Apartments, A Limited Partnership: We have audited the accompanying balance sheet of Zebulon Park Apartments, A Limited Partnership (the Partnership) as of December 31, 2003, and 2002, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Zebulon Park Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 24 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Tivoli Place Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Tivoli Place Apartments, A Limited Partnership (the Partnership) as of December 31, 2003 and 2002 and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Tivoli Place Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 25 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Northwood Apartments of Georgia, A Limited Partnership: We have audited the accompanying balance sheets of Northwood Apartments of Georgia, A Limited Partnership as of December 31, 2003 and 2002, and the related statements of loss, partners' capital, and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 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 Northwood Apartments of Georgia, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 26 [LETTERHEAD OF KPMG LLP] INDEPENDENT AUDITORS' REPORT The Partners Oxford Trace Apartments, A Limited Partnership: We have audited the accompanying balance sheets of Oxford Trace Apartments, A Limited Partnership (the Partnership) as of December 31, 2003 and 2002 and the related statements of loss, 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 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 Oxford Trace Apartments, A 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/ KPMG LLP Atlanta, Georgia February 6, 2004 27 INDEPENDENT AUDITORS' REPORT To the Partners of Ivanhoe Apartments Limited Partnership We have audited the accompanying balance sheet of Ivanhoe Apartments Limited Partnership (a Limited Partnership) as of December 31, 2003 and 2002 and the related statements of operations, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with 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 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 Ivanhoe Apartments Limited Partnership at December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah January 13, 2004 28 [Letterhead of AGBIMSON & CO., PLLC] INDEPENDENT AUDITOR'S REPORT To the Partners Washington Brooklyn Limited Partnership (A State of Delaware Limited Partnership) We have audited the accompanying balance sheet of Washington Brooklyn Limited Partnership (A State of Delaware Limited Partnership) as of December 31, 2003, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted the 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 a reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to in the first paragraph, present fairly in all material respects, the financial position of Washington Brooklyn 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 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 supplementary information in Schedule I is presented for purposes of additional analysis and is not a required part of the basic financial statement. Such information has been subjected to the 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 financial statements taken as a whole. /s/ AGBIMSON & CO., PLLC Rockville Centre, New York March 31, 2004 29 [Letterhead of Richard J. Klinkowitz] To the Partners C-H DEVELOPMENT GROUP ASSOCIATES (A LIMITED PARTNERSHIP) 625 Madison Avenue New York, New York 10022 Gentlemen: I have audited the accompanying balance sheet of C-H DEVELOPMENT GROUP ASSOCIATES (a New York Limited Partnership) as of December 31, 2003 and the related statement of operations, partners' equity 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 the audit. I conducted the audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain a 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 the audit provides 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 C-H DEVELOPMENT GROUP ASSOCIATES 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. Respectfully submitted, /s/ Richard J. Klinkowitz Far Rockaway, New York February 18, 2004 30 [Letterhead of Reznick Fedder & Silverman] INDEPENDENT AUDITORS'REPORT To the Partners Davidson Court, L.P. We have audited the accompanying balance sheets of Davidson Court, L.P. 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. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Davidson Court, L.P., as of December 31, 2003 and 2002, and the results of its operations, the changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick Fedder & Silverman Bethesda, Maryland January 23, 2004 31 [Letterhead of Haefele, Flanagan & Co., p.c.] INDEPENDENT AUDITORS' REPORT To the Partners Magnolia Mews Limited Partnership Philadelphia, Pennsylvania We have audited the accompanying balance sheet of MAGNOLIA MEWS LIMITED PARTNERSHIP (a Pennsylvania Limited Partnership) as of December 31, 2003, and the related statements of operations, partners' equity, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 MAGNOLIA MEWS LIMITED PARTNERSHIP as of December 31, 2003, 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/ Haefele, Flanagan & Co., p.c. Moorestown, New Jersey February 9, 2004 32 [Letterhead of Snipes, Gower & Associates, P.A.] To the Partners The Oaks Village Limited Partnership We have audited the accompanying balance sheets of The Oaks Village Limited Partnership, RHS Project No. 38-024-561572445 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 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 The Oaks Village Limited Partnership, RHS Project No. 38-024-561572445 as of December 31, 2003 and 2002, and the results of its operations, the 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. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on Page 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the partnership. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated January 28, 2004 on our consideration of The Oaks Village Limited Partnership's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards, and should be read in conjunction with this report in considering the results of our audit. /s/ Snipes, Gower & Assoc., P.A. Dunn, North Carolina January 28, 2004 33 [Letterhead of Snipes, Gower & Associates, P.A.] To the Partners Greenfield Village Limited Partnership We have audited the accompanying balance sheets of Greenfield Village Limited Partnership, RHS Project No.: 38-043-561614646, 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 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 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 Greenfield Village Limited Partnership, RHS Project No.: 38-043-561614646 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. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplement information on Page 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the partnership. Such information has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated January 20, 2004 on our consideration of Greenfield Village Limited Partnership's internal control over financial reporting and our tests of its compliance with certain provisions of laws, regulations, contracts and grants. This report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Snipes, Gower & Associates, P.A. Dunn, North Carolina January 20, 2004 34 [Letterhead of KOCH GROUP & CO., LLP] INDEPENDENT AUDITOR'S REPORT To the Partners CLM Equities We have audited the accompanying balance sheet of CLM Equities (A Limited Partnership) as of December 31, 2003 and the related statements of operations, changes in partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CLM Equities (A Limited Partnership) as of December 31, 2003 and the results of its operations, changes in its 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/ Koch Geringer & Co., LLP Certified Public Accountants New York, New York January 23, 2004 35 [Letterhead of NSBN LLP] INDEPENDENT AUDITORS' REPORT The Partners Victoria Manor Associates Los Angeles, California We have audited the accompanying balance sheet of Victoria Manor Associates (a California limited partnership), as of December 31, 2003, and the related statements of partners' equity, operations and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with 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 Victoria Manor Associates 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/ NSBN LLP March 19, 2004 Beverly Hills, California 36 [Letterhead of Joyce Miller & Associates, P.C.] INDEPENDENT AUDITOR'S REPORT To The Partners Ogontz Hall Investors Philadelphia, Pennsylvania We have audited the accompanying balance sheets of Ogontz Hall Investors (A Limited Partnership), PHFA changes in Project #O-116, as of December 31, 2003 and 2002, and the related statements of profit and loss, changes in partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with generally accepted auditing standards 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 Ogontz Hall Investors (A Limited Partnership) 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. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The supporting data included in the report (shown on pages 23 to 26) is presented for the purposes of additional analysis and is not a required part of the basic financial statements of Ogontz Hall Investors (A 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 respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have issued a separate report dated February 15, 2004, on our consideration of Ogontz Hall Investors' internal control over financial reporting and our test of its compliance with certain provisions of laws, regulations, contracts and grants. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Joyce Miller & Associates, P.C. Glenside, Pennsylvania February 15, 2004 37 INDEPENDENT AUDITORS' REPORT To the Partners Eagle Ridge Limited Partnership Madison, Wisconsin We have audited the accompanying balance sheets of Eagle Ridge Limited Partnership as of December 31, 2003 and 2002 and the related statements of operations, 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 Eagle Ridge Limited Partnership as of December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information provided, as identified in the table of contents, 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/ Virchow, Krause & Company, LLP Madison, Wisconsin January 21, 2004 38 [Regen, Benz, MacKenzie & Anopolsky, C.P.A.'s, P.C. Letterhead] INDEPENDENT AUDITORS' REPORT To the Partners Nelson Anderson Affordable Housing Limited Partnership We have audited the accompanying balance sheet of Nelson Anderson Affordable Housing 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. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards used 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 Nelson Anderson Affordable Housing Limited Partnership as of December 31, 2003, and the results of its operations, the changes in partners' capital and cash flows for the year then ended, in conformity with generally accepted accounting principles used in the United States of America. /s/ Regen, Benz, MacKenzie & Anopolsky, C.P.A.'s, P.C. New York, New York February 25, 2004 39 [Letterhead of Insero, Kasperski, Ciaccia & Co., P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Conifer Irondequoit Associates (A Limited Partnership) Irondequoit, New York We have audited the accompanying balance sheets of Conifer Irondequoit Associates (A Limited Partnership), as of December 31, 2003 and 2002 and the related statements of changes in partners' equity, operations 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 Conifer Irondequoit Associates (A Limited Partnership) as of December 31, 2003 and 2002, and the results of its operations and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Respectfully Submitted, /s/ Insero, Kasperski, Ciaccia & Co., P.C. Rochester, New York January 28, 2004 40 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners of Middletown Associates We have audited the accompanying balance sheets of Middletown 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 Middletown Associates as of December 31, 2003 and 2002, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards, we have also issued our report for the year ended December 31, 2003, dated January 16, 2004, on our consideration Middletown Associates' internal control over financial reporting and on our tests of it 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 the report in considering the results of our audit. Our audits was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 25 through 28 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/ REZNICK FEDDER & SILVERMAN Baltimore, Maryland January 16, 2004 41 [Letterhead of REZNICK FEDDER & SILVERMAN] INDEPENDENT AUDITORS' REPORT To the Partners Lauderdale Lakes Associates, Ltd. We have audited the accompanying balance sheets of Lauderdale Lakes Associates, Ltd., as of December 31, 2003 and 2002, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with the 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 Lauderdale Lakes Associates, Ltd. at December 31, 2003 and 2002, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Reznick Fedder & Silverman Atlanta, Georgia January 27, 2004 42 [REZNICK FEDDER & SILVERMAN LETTERHEAD] INDEPENDENT AUDITORS' REPORT To the Partners Flipper Temple Associates, L.P. We have audited the accompanying balance sheet of Flipper Temple Associates, L.P., as of December 31, 2003, and the related statements of operations, partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit 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 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 Flipper Temple Associates, L.P., as of December 31, 2003, and the results of its operations, the changes in partners' equity (deficit) 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," we have also issued reports dated January 22, 2004 on our consideration of Flipper Temple Associates, L.P.'s internal control and on its compliance with specific requirements applicable to major HUD programs and 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 conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 24 through 37 is presented for purposes of additional analysis and is not a required part of the basic financial statements of the partnership. 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/ Reznick Fedder & Silverman Taxpayer Identification Number: 52-1088612 Bethesda, Maryland January 22, 2004 Lead Auditor: James P. Martinko 43 [Letterhead of Heffler, Radetich & Saitta L.L.P] INDEPENDENT AUDITORS' REPORT To the Partners of 220 Cooper Street, L.P. We have audited the accompanying balance sheets of 220 Cooper Street, L.P., as of December 31, 2003 and 2002, and the related statements of operations, partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 220 Cooper Street, 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/ Heffler, Radetich & Saitta L.L.P. Mount Laurel, NJ January 26, 2004 44 [ARCHAMBO, MUEGGENBORG & DICK, INC. LETTERHEAD] INDEPENDENT AUDITOR'S REPORT To the Partners Pecan Creek Limited Partnership Bartlesville, Oklahoma We have audited the accompanying balance sheets of Pecan Creek Limited Partnership, HUD Project No. FHA 118-35121 (a limited partnership), as of December 31, 2003 and 2002 and the related statements of income, changes in partners' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Project's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Pecan Creek Limited Partnership as of December 31, 2003 and 2002, and the results of its operations, changes in its partners' equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with Government Auditing Standards 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 30, 2004 on our consideration of Pecan Creek Limited Partnership's internal control, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to non-major HUD program transactions, and specific requirements applicable to Fair Housing and Non-Discrimination. Those reports are an integral part of an audit performed in accordance 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 financial statements taken as a whole. The supplemental information shown on pages 15-17 and the information transmitted to the Department of Housing and Urban Development (HUD) is prepared for the purpose of additional analysis and is not a required part of the financial statements of Pecan Creek 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 presented in all material respects in relation to the basic financial statements taken as a whole. /s/ Archambo, Mueggenborg & Dick, Inc. Deborah E. Mueggenborg, Audit Partner Certified Public Accountants 73-1439902 Bartsville, Oklahoma January 30, 2004 45 [Letterhead of AGBIMSON & CO., PLLC] INDEPENDENT AUDITOR'S REPORT To the Partners 363 Grand Vendome Associates, Limited Partnership We have audited the accompanying balance sheet of 363 Grand Vendome Associates, Limited Partnership, as of December 31, 2003, and the related statements of Loss, Partners' Capital and Cash Flows for the year 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 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 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 363 Grand Vendome Associates, 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 accounting principles generally accepted in the United States of America. /s/ Agbimson & Co., PLLC Rockville Centre, New York January 30, 2004 46 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners New Augusta Associates, Ltd. New Augusta, Mississippi We have audited the accompanying balance sheets of New Augusta Associates, Ltd., a limited partnership, RHS Project No.: 28-056-640665470 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 New Augusta Associates, Ltd., RHS Project No.: 28-056-640665470 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 8, 2004 on our consideration of New Augusta Associates, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 8, 2004 47 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Pine Shadow, Ltd. Waveland, Mississippi We have audited the accompanying balance sheets of Pine Shadow, Ltd. a limited partnership, RHS Project No.: 28-023-640661063 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Pine Shadow, Ltd., RHS Project No.: 28-023-640661063 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated January 27, 2004 on our consideration of Pine Shadow, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama January 27, 2004 48 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Windsor Place, L.P. Wedowee, Alabama We have audited the accompanying balance sheets of Windsor Place, L.P. a limited partnership, RHS Project No.: 01-056-631024917 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Windsor Place, L.P., RHS Project No.: 01-056-631024917 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 11 through 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated January 26, 2004 on our consideration of Windsor Place, L.P.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama January 26, 2004 49 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Brookwood Associates, Ltd. Foley, Alabama We have audited the accompanying balance sheets of Brookwood Associates, Ltd., a limited partnership, RHS Project No.: 01-002-621394754 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Brookwood Associates, Ltd., RHS Project No.: 01-002-621394754 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 21, 2004 on our consideration of Brookwood Associates, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 21, 2004 50 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Heflin Hills Apartments, Ltd. Heflin, Alabama We have audited the accompanying balance sheets of Heflin Hills Apartments, Ltd., a limited partnership, RHS Project No.: 01-015-631039371 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Heflin Hills Apartments, Ltd., RHS Project No.: 01-015-631039371 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 8, 2004 on our consideration of Heflin Hills Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 8, 2004 51 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Shadowood Apartments, Ltd. Stevenson, Alabama We have audited the accompanying balance sheets of Shadowood Apartments, Ltd., a limited partnership, RHS Project No.: 01-036-631030182 as of December 31, 2003 and 2002, and the related statements of operations, partners' deficit and 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 the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Shadowood Apartments, Ltd., RHS Project No.: 01-036-631030182 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 13 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 20, 2004 on our consideration of Shadowood Apartments, Ltd's., internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2004 52 [Letterhead of Donald W. Causey & Associates, P.C. INDEPENDENT AUDITORS' REPORT To the Partners Brittany Associates, L.P. Dekalb, Mississippi. We have audited the accompanying balance sheets of Brittany Associates, L.P., a limited partnership, RHS Project No.: 28-035-581896085 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Brittany Associates, L.P. RHS Project No.: 28-035-581896085 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 20, 2004 on our consideration of Brittany Associates, L.P.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 20, 2004 53 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Hidden Valley Apartments, Ltd. Brewton, Alabama We have audited the accompanying balance sheets of Hidden Valley Apartments, Ltd. a limited partnership, RHS Project No.: 01-027-631025600 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Hidden Valley Apartments, Ltd. RHS Project No.: 01-027-631025600 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 11 through 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 23, 2004 on our consideration of Hidden Valley Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2004 54 [Letterhead of Matthews, Cutrer & Lindsay, P.A.] To the Partners of Westbrook Square, LP INDEPENDENT AUDITOR'S REPORT We have audited the accompanying balance sheet of Westbrook Square, LP (a Mississippi limited partnership), RHS Project No. 28-040-640770978 as of December 31, 2003, and the related statements of operations, 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 audit. The financial statements of Westbrook Square, LP, as of December 31, 2002, were audited by other auditors whose report dated February 14, 2003, expressed an unqualified opinion. 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 Westbrook Square, LP 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. Our audit was made for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental information is presented for the purposes of additional analysis and is not a required part of the basic financial statements. We have prepared the Multiple Family Housing Borrower Balance Sheet (RHS Form RD 18930-8) and the Multiple Family Housing Project Budget (RHS Form RD 1930-7). 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/ Matthews, Cutrer & Lindsay, P.A. Ridgeland, Mississippi February 27, 2004 55 [Letterhead of DONALD W. CAUSEY, CPA, P.C.] INDEPENDENT AUDITOR'S REPORT To the Partners Warsaw Elderly Housing, Ltd. Warsaw, Kentucky I have audited the accompanying balance sheets of Warsaw Elderly Housing, Ltd., a limited partnership, RHS Project No.: 20-039-621409235 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. Those standards require that I 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. I believe that the 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 Warsaw Elderly Housing, Ltd., RHS Project No.: 20-039-621409235 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 9 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also 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 my opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, I have also issued a report dated February 25, 2004 on my consideration of Warsaw Elderly Housing, Ltd., internal control over financial reporting and on my tests of its compliance with certain provisions of laws and regulations. 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. Donald W. Causey, CPA, P.C. Gadsden, Alabama February 25, 2004 56 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners West Hill Square, Ltd. Gordo, Alabama We have audited the accompanying balance sheets of West Hill Square, Ltd., a limited partnership, RHS Project No.: 01-054-631010865 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West Hill Square, Ltd., RHS Project No.: 01-054-631010865 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 11 through 14 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 12, 2004 on our consideration of West Hill Square, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 12, 2004 57 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Elmwood Associates, L.P. Picayune, Mississippi We have audited the accompanying balance sheets of Elmwood Associates, L.P., a limited partnership, RHS Project No.: 28-055-640804193 as of December 31, 2003 and 2002, and the related statements of operations, partners' capital and cash flows for the years then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted the 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, and the U.S. Department of Agriculture, Farmers Home Administration Audit Program. 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 the 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 Elmwood Associates, L.P., RHS Project No.: 28-055-640804193 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. The audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 through 12 is presented for purposes of additional analysis and is not a required part of the basic financial statements. The supplemental information presented in the Multiple Family Housing Borrower Balance Sheet (Form FmHA 1930-8) Parts I and II for the year ended December 31, 2003 and 2002, is presented for purposes of complying with the requirements of the Rural Housing Services and is also not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued a report dated February 21, 2004 on our consideration of Elmwood Associates, L.P.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. That report is an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 21, 2004 58 [Letterhead of Grant Thornton LLP] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners Harmony Associates, L.P. We have audited the accompanying balance sheet of Harmony Associates, L.P. as of December 31, 2003, and the related statements of operations, partners' equity and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Harmony 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 generally accepted accounting principles. /s/ Grant Thornton LLP Los Angeles, California January 14, 2004 59 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED BALANCE SHEETS

See accompanying notes to consolidated financial statements. 60 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF OPERATIONS

* Reclassified for comparative purposes. See accompanying notes to consolidated financial statements. 61 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) YEARS ENDED MARCH 31, 2006, 2005 and 2004

See accompanying notes to consolidated financial statements. 62 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED MARCH 31, 2006, 2005 and 2004

See accompanying notes to consolidated financial statements. 63 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 NOTE 1 - General Freedom Tax Credit Plus L.P., a Delaware limited partnership (the "Partnership"), was organized on August 28, 1989 and commenced its public offering on February 9, 1990 (the "Offering"). The general partners of the Partnership are Related Freedom Associates L.P. (the "Related General Partner"), a Delaware limited partnership, and its affiliate, Freedom GP Inc. (the "Freedom General Partner"), a Delaware corporation (and together with the Related General Partner, the "General Partners"). 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 Freedom Associates, Inc., the general partner of the Related General Partner. 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. The Partnership will terminate on December 31, 2030, unless terminated sooner under the provisions of the limited partnership agreement of the Partnership (the "Partnership Agreement"). On November 8, 2005, CharterMac announced that Stuart J. Boesky would step down as Chief Executive Officer and trustee of CharterMac. Upon his resignation, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of the general partner of the Related General Partner and Executive Vice President of the Freedom 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 the general partner of the Related General Partner and Executive Vice President of the Freedom General Partner. The Partnership's business is to invest in other partnerships ("Local Partnerships," "subsidiaries" or "subsidiary partnerships") owning leveraged apartment complexes that are eligible for the low-income housing tax credit ("Tax Credit") enacted in the Tax Reform Act of 1986 and to entitle qualified BACs holders to Tax Credits over the period of the Partnership's entitlement to claim Tax Credits (for each property, generally ten years from the date of investment or, if later, the date the property is leased to qualified tenants; referred to herein as the "Credit Period"). Each of the Local Partnerships in which the Partnership has an interest has been allocated by the relevant state credit agency the authority to recognize Tax Credits during the Credit Period, provided that the Local Partnership satisfies the rent restriction, minimum set-aside and other requirements for recognition of the Tax Credits at all times during the 15-year compliance period (the "Compliance Period"). As of December 31, 2002, the Credit Periods for all of the apartment complexes 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 the Tax Credits. The Compliance Period began to end between December 31, 2004 and will continue through December 31, 2007 with respect to the Properties depending upon when the Credit Period commenced. The Partnership was authorized to issue a total of 200,000 Beneficial Assignment Certificates ("BACs"), which had been registered with the Securities and Exchange Commission for sale to the public. As of August 8, 1991 (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 $72,896,000 of gross proceeds of the Offering from 4,780 investors. The terms of 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 Accounting and Presentation The Partnership's fiscal year ends on March 31. All subsidiaries have calendar year ends. Accounts of the subsidiaries have been adjusted for intercompany transactions from January 1 through March 31. The Partnership's fiscal year ends March 31 in order to allow adequate time for the subsidiaries' financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States. b) Basis of Consolidation The consolidated financial statements include the accounts of the Partnership and 42 subsidiary partnerships, in which the Partnership is a limited partner, with an ownership interest ranging from approximately 98% to 99%. All intercompany accounts and transactions with the subsidiary partnerships have been eliminated in consolidation. Through the rights of the Partnership and/or an affiliate of the General Partners, which affiliate has a contractual obligation to act on behalf of the Partnership, to remove the general partner of the subsidiary partnerships and to approve certain major operating and financial decisions, the Partnership has a controlling financial interest in the subsidiary partnerships. 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 is equal to the respective subsidiary's partners' equity less minority interest capital, if any. 64 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 c) Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash on hand, cash in banks, and investments in short-term money market accounts (which were purchased with original maturities of three months or less). d) Investment in Marketable Securities Available-for-sale securities were carried at fair value with net unrealized gain (loss) reported as a separate component of other comprehensive income until realized. A decline in the market value of any available-for-sale security below cost, that is deemed other than temporary, was charged to earnings resulting in the establishment of a new cost basis for the security. In 2004, the Partnership sold its marketable securities. e) Cash Held in Escrow Cash held in escrow includes cash held in escrow, replacement reserves and tenant security deposits. f) Property and Equipment Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring the properties. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. 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. At that time property investments themselves are reduced to estimated fair value (generally using estimated future discounted net cash flows) when the property is considered to be impaired and the depreciated cost exceeds estimated fair value. Through March 31, 2006, the Partnership has recorded $4,220,000 as a loss on impairment of assets or reductions to estimated fair value. 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 Partnership 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 consolidated 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. 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 eleven assets classified as property and equipment-held for sale at March 31, 2006. See Notes 10 and 12 regarding assets held for sale and discontinued operations. g) Revenue Recognition Rental income is earned 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. The Partnership received rental subsidies which amounted to approximately $3,430,948, $3,488,027 and $3,326,225 for the years ended March 31, 2006, 2005 and 2004, respectively. The related rental subsidy programs have expiration dates that terminate upon total disbursement of the assistance obligation. 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 65 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

h) 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 (see Note 8). i) Use of Estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions relating to reporting of assets, liabilities, revenues and expenses disclosed in the consolidated financial statements. Accordingly, actual results could differ from those estimates. j) Net Loss per BAC Net loss per BAC is computed based on the net loss for the period attributed to BACs holders, divided by the number of BACs outstanding for the period. k) 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 principle be applied retrospectively with all prior period financial statements presented on the new accounting principle. 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. The adoption of EITF No. 04-5 has not had a material effect on the consolidated financial statements. NOTE 3 - Fair Value of Financial Instruments In accordance with SFAS No. 107 "Disclosures about Fair Value of Financial Instruments," the following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and Cash Equivalents, Cash Held in Escrow, Accounts Payable and Other -------------------------------------------------------------------------------- Liabilities, Due to Local General Partners and Affiliates, and Due to General -------------------------------------------------------------------------------- Partners and Affiliates ----------------------- The carrying amount of cash and cash equivalents, cash held in escrow, accounts payable and other liabilities approximates fair value. The fair values of Due to Local General Partners and Affiliates and Due to General Partners and Affiliates are not readily determinable because no market exists for these instruments. Mortgage Notes Payable ---------------------- The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans. 66 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 The estimated fair values of the Partnership's mortgage notes payable from operations are as follows:

The estimated fair values of the Partnership's mortgage notes payable from discontinued operations 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. NOTE 4 - Property and Equipment The components of property and equipment from operating assets are as follows:

Depreciation expense for the years ended March 31, 2006, 2005 and 2004 amounted to $2,313,025, $2,299,458 and $2,287,484, respectively. During the years ended March 31, 2006 and 2005, there were write-offs of accumulated depreciation in the amounts of $4,617,863 and $706, respectively, and $4,614,956 and $0 of these write-offs were related to discontinued assets. The components of property and equipment held for sale are as follows:

67 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 Depreciation expense for the discontinued assets for the years ended March 31, 2006, 2005 and 2004 amounted to $2,410,317, $2,528,405 and $2,523,903, respectively. NOTE 5 - Deferred Costs The components of deferred costs and their periods of amortization from operating assets are as follows:

Amortization of deferred costs for the years ended March 31, 2006, 2005 and 2004 amounted to $15,442, $98,641 and $19,986, respectively. In addition, $136,385 of accumulated amortization has been written-off due to the mortgage refinancing of Abraham Lincoln (as defined herein) in the year ended March 31, 2005. The components of deferred costs and their periods of amortization from discontinued assets are as follows:

Amortization expense from discontinued operations for the years ended March 31, 2006, 2005 and 2004 amounted to $163,921, $147,904 and $147,193, respectively. Financing expenses are being amortized over the life of the related mortgages, ranging from 15 to 50 years, using a method approximating the interest method. NOTE 6 - Mortgage Notes Payable The mortgage notes are payable in aggregate monthly installments of approximately $220,000 including principal and interest with rates varying from 0% to 13.50% per annum and have maturity dates ranging from 2007 through 2042. 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. Annual principal payments on the permanent debt requirements for mortgage notes payable for each of the next five fiscal years and thereafter for the operating liabilities are as follows:

On June 17, 2004, the Abraham Lincoln property modified its original mortgage to reduce the principal balance to $1,945,000. The new mortgage payable to New York State Housing Finance Agency in monthly installments of $15,382, with an interest rate of 6.64% per annum, will mature in June 2022. 68 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 Accrued interest payable as of March 31, 2006 and 2005 was approximately $1,555,000 and $1,484,000, 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 for discontinued operations are payable in aggregate monthly installments of approximately $219,000 including principal and interest with rates varying from 1% to 10.45% per annum and have maturity dates ranging from 2007 through 2040. 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. Annual principal payments on the permanent debt requirements for mortgage notes payable for each of the next five fiscal years and thereafter for the discontinued liabilities are as follows:

Accrued interest payable for the discontinued liabilities at March 31, 2006 and 2005 was approximately $338,000 and $0, 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. NOTE 7 - Related Party Transactions and Transactions with General Partners and Affiliates Freedom SLP L.P., an affiliate of the General Partners, has either a .01% or 1% interest, as a special limited partner, in each of the Local Partnerships. The General Partners and their affiliates and the general partners of the Local Partnerships ("Local General Partners") and their affiliates perform services for the Partnership and the Local Partnerships, respectively. The costs incurred are as follows: a) Due to Local General Partners and Affiliates Due to Local General Partners and affiliates at March 31, 2006 and 2005 consists of the following:

(i) Development fees were incurred in connection with the development of the property and have been included in the basis of the property. 69 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 (ii) Operating deficit loans consist of the following:

These loans to fund operating deficits are unsecured, non-interest bearing and are subordinate to the second mortgage and are payable out of available surplus cash of the respective subsidiary partnership, or at the time of sale or refinancing.

This loan to fund operating deficits is unsecured, non-interest bearing and is payable out of available surplus cash of the respective subsidiary partnership, or at the time of sale or refinancing. Wilshire Apartments ("Wilshire") is currently classified as a discontinued operation (see below). Due to Local General Partners and affiliates at March 31, 2006 and 2005 included in the discontinued liabilities consists of the following:

(i) Operating deficit loan consists of the following:

This loan to fund operating deficits is unsecured, non-interest bearing and is payable out of available surplus cash of the respective subsidiary partnership, or at the time of sale or refinancing. b) Other Expenses The costs from operations incurred to related parties for the years ended March 31, 2006, 2005 and 2004 were as follows:

* Reclassified for comparative purposes. 70 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 The costs from discontinued operations incurred to related parties for the years ended March 31, 2006, 2005 and 2004 were as follows:

(a) The General Partners are entitled to receive a partnership management fee, after payment of all Partnership expenses, which together with the annual local administrative fees will not exceed a maximum of 0.5% per annum of Invested Assets (as defined in the Partnership Agreement), for administering the affairs of the Partnership. Subject to the foregoing limitation, the partnership management fee will be determined by the General Partners in their sole discretion based upon their review of the Partnership's investments. Unpaid partnership management fees for any year will be accrued without interest and will be payable from working capital reserves or to the extent of available funds after the Partnership has made distributions to the limited partners and BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to General Partners amounting to approximately $7,555,000 and $6,884,000 were accrued and unpaid as of March 31, 2006 and 2005, respectively. Without the General Partners' continued accrual without payment, the Partnership will not be in a position to meet its obligations. The General Partners have continued allowing the accrual without payment of these amounts, but are under no obligation to continue to do so. (b) The Partnership reimburses the General Partners and their affiliates for actual Partnership operating expenses incurred by the General Partners and their affiliates on the Partnership's behalf. The amount of reimbursement from the Partnership is limited by the provisions of the Partnership Agreement. Another affiliate of the General Partners performs asset monitoring for the Partnership. These services include site visits and evaluations of the subsidiary partnerships' performance. (c) Property management fees incurred by subsidiary partnerships amounted to $1,063,422, $1,076,574 and $1,108,295 for the years ended March 31, 2006, 2005 and 2004, respectively. Of these fees, $854,479, $897,082 and $909,343 were incurred to affiliates of the subsidiary partnerships, which include $374,338, $409,593 and $412,504, respectively, of fees relating to discontinued operations. (d) Freedom SLP L.P., a special limited partner of the subsidiary partnerships, is entitled to receive an annual local administrative fee of up to $2,500 from each Local Partnership. NOTE 8 - Income Taxes A reconciliation of the financial statement net loss to the income tax loss for the Partnership and its consolidated subsidiaries follows:

71 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 NOTE 9 - Sale of Properties The Partnership is currently in the process of disposing of its investments. During the fiscal year ended March 31, 2006, the Partnership's limited partnership interest in seven Local Partnerships had been sold. Through the year ended March 31, 2006 the Partnership has disposed of seven of its forty-two original investments. In addition, the Partnership has entered into agreements for the sale of eleven Local Partnerships (see below). No assurance can be given as to whether or when these sales will actually occur. All gains and losses on sales are included in discontinued operations. Subsequently, on April 20, 2006 and May 31, 2006, two Local Partnerships entered into a purchase and sale agreement to sell their property and related assets and liabilities, on June 5, 2006 and June 20, 2006, the property and related assets and liabilities of one and two Local Partnerships, respectively, were sold. See Note 14. On March 31, 2006, the Partnership's limited partnership interest in Davidson Court Limited Partnership ("Davidson Court") was sold to an affiliate of the general partner of the Local Partnership (the "Local General Partner") for a purchase price of $1,100,000, resulting in a Local General Partner contribution of approximately $42,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Davidson Court. As of December 31, 2005, Davidson Court had property and equipment, at cost, of approximately $873,000 and accumulated depreciation of approximately $350,000. On March 31, 2006, the Partnership's limited partnership interest in CLM Equities Limited Partnership ("Morris Avenue") was sold to the Local General Partner and its affiliate for a purchase price of $265,000, resulting in a Local General Partner distribution of approximately $439,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Morris Avenue. As of December 31, 2005, Morris Avenue had property and equipment, at cost, of approximately $5,332,000, accumulated depreciation of approximately $2,646,000 and mortgage debt of approximately $2,079,000. On February 1, 2006, the Partnership's limited partnership interest in Ivanhoe Apartments Limited Partnership ("Ivanhoe") was sold to the Local General Partner for a purchase price of $150,000, resulting in a Local General Partner distribution of approximately $51,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Ivanhoe. As of December 31, 2005, Ivanhoe had property and equipment, at cost, of approximately $1,178,000, accumulated depreciation of approximately $587,000 and mortgage debt of approximately $323,000. On January 19, 2006, the Partnership's limited partnership interest in Nelson Anderson Affordable Housing Limited Partners ("Nelson Anderson") was sold to the Local General Partner for a purchase price of $490,000, resulting in a Local General Partner distribution of approximately $177,000 and a net loss to the Partnership of approximately $21,000, which will be recognized in the Partnership's Form 10-Q dated June 30, 2006. The sale resulted in the liquidation of Nelson Anderson. As of December 31, 2005, Nelson Anderson had property and equipment, at cost, of approximately $6,732,000, accumulated depreciation of approximately $3,411,000 and mortgage debt of approximately $3,163,000. On January 1, 2006, the Partnership's limited partnership interest in The Oaks Village Limited Partnership ("Oaks Village") was sold to the Local General Partner for a purchase price of $75,000, resulting in a Local General Partner contribution of approximately $407,000 and a net loss to the Partnership of approximately $21,000. The sale resulted in the liquidation of Oaks Village. As of the sale date, Oaks Village had property and equipment, at cost, of approximately $2,024,000, accumulated depreciation of approximately $1,083,000 and mortgage debt of approximately $1,440,000. On January 1, 2006, the Partnership's limited partnership interest in Greenfield Village Limited Partners ("Greenfield Village") was sold to the Local General Partner for a purchase price of $75,000, resulting in a Local General Partner contribution of approximately $461,000 and net loss to the Partnership of approximately $21,000. The sale resulted in the liquidation of Greenfield Village. As of the sale date, Greenfield Village had property and equipment, at cost, of approximately $2,010,000, accumulated depreciation of approximately $1,059,000 and mortgage debt of approximately $1,448,000. On June 20, 2005, the Partnership's limited partnership interest in Parkside Townhomes Associates ("Parkside") was sold to the Local General Partner for a purchase price of $650,000 resulting in a Local General Partner net distribution of approximately $32,000 and a net loss to the Partnership of approximately $39,000. The purchase price consisted of approximately $161,000 paid in cash at closing and $450,000 pursuant to a promissory note payable to the Partnership. During the quarter ended June 30, 2005, in accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment of Disposal of Long-Lived Asset" ("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 $555,000. The sale resulted in the liquidation of Parkside. As of the sale date, Parkside had property and equipment, recorded at a fair value, of approximately $4,162,000, accumulated depreciation of approximately $2,386,000 and mortgage debt of approximately $1,461,000. NOTE 10 - Assets Held for Sale On March 22, 2006, Eagle Ridge Limited Partnership ("Eagle Ridge") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,000,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to take place in the fourth calendar quarter of 2006. No assurance can be given that the sale will actually occur. Eagle Ridge is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Eagle Ridge had property and equipment, at cost, of approximately $3,100,000, accumulated depreciation of approximately $1,837,000 and mortgage debt of approximately $1,496,000. 72 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 On January 30, 2006, Lauderdale Lakes Associates, Ltd. ("Lauderdale Lakes") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an affiliate of the Local General Partner for a purchase price of $5,900,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in the first calendar quarter of 2007. No assurance can be given that the sale will actually occur. Lauderdale Lakes is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Lauderdale Lakes had property and equipment, at cost, of approximately $10,634,000, accumulated depreciation of approximately $3,584,000 and mortgage debt of approximately $4,645,000. On January 26, 2006 Bethel Park Apartments, a Limited Partnership ("Bethel Park") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,500,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Bethel Park is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Bethel Park had property and equipment, at cost, of approximately $5,099,000, accumulated depreciation of approximately $3,084,000 and mortgage debt of approximately $1,758,000. Subsequently, on June 20, 2006, the property and the related assets and liabilities of Bethel Park were sold (see Note 14). On January 26, 2006, Northwood Apartments of Georgia ("Northwood") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $6,050,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Northwood is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Northwood had property and equipment, at cost, of approximately $7,398,000, accumulated depreciation of approximately $4,116,000 and mortgage debt of approximately $2,545,000. Subsequently, on June 5, 2006, the property and the related assets and liabilities of Northwood were sold (see Note 14). On January 26, 2006, Hunters Chase Apartments ("Hunters Chase") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,730,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Hunters Chase is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Hunters Chase had property and equipment, at cost, of approximately $3,913,000, accumulated depreciation of approximately $2,618,000 and mortgage debt of approximately $2,296,000. On January 26, 2006, Bennion Park Apartments ("Mulberry") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $4,900,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Mulberry is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Mulberry had property and equipment, at cost, of approximately $5,954,000, accumulated depreciation of approximately $3,417,000 and mortgage debt of approximately $1,994,000. On January 26, 2006, Oxford Trace Apartments ("Oxford Trace") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $725,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Oxford Trace is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Oxford Trace had property and equipment, at cost, of approximately $1,099,000, accumulated depreciation of approximately $833,000 and mortgage debt of approximately $658,000. On January 26, 2006, Tivoli Place Apartments ("Tivoli Place") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $3,050,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Tivoli Place is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Tivoli Place had property and equipment, at cost, of approximately $4,566,000, accumulated depreciation of approximately $2,590,000 and mortgage debt of approximately $1,409,000. On January 26, 2006, Twin Trees Apartments ("Twin Trees") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,300,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. Twin Trees is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Twin Trees had property and equipment, at cost, of approximately $2,925,000, accumulated depreciation of approximately $1,657,000 and mortgage debt of approximately $1,047,000. On January 26, 2006, Wilshire Apartments ("Wilshire") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $1,700,000. The sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Wilshire is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Wilshire had property and equipment, at cost, of approximately $2,914,000, accumulated depreciation of approximately $1,846,000 and mortgage debt of approximately $1,574,000. On January 26, 2006, Zebulon Park Apartments ("Zebulon") entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $2,000,000. The 73 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 sales documents have been executed and the initial deposit funds are being held in escrow. A closing is expected to occur in June 2006. No assurance can be given that the sale will actually occur. Zebulon is being held as an asset held for sale as of March 31, 2006. As of December 31, 2005, Zebulon had property and equipment, at cost, of approximately $4,193,000, accumulated depreciation of approximately $2,460,000 and mortgage debt of approximately $1,478,000. Subsequently, on June 20, 2006, the property and the related assets and liabilities of Zebulon were sold (see Note 14). NOTE 11 - Commitments and Contingencies Washington Brooklyn ------------------- In or about September 2003, two putative mortgagees commenced a mortgage foreclosure action in the Supreme Court of the State of New York, Kings County (the "Court"), entitled 150 Beach 120th Street Inc. v. Washington Brooklyn Limited Partnership, Index No. 35255/2003, seeking to foreclose on an alleged $100,000 loan and mortgage against the real property (the "Apartment Complex") owned by Washington Brooklyn Limited Partnership ("Washington"). Apparently, the former general partner of Washington, BUFNY Houses of Brooklyn, Inc. ("BUFNY"), allegedly granted two mortgages in the amounts of $225,000 and $100,000 secured by the Apartment Complex. Each of the foregoing mortgages was granted without the knowledge of Freedom SLP, L.P. (the "Special Limited Partner") or the Partnership (collectively the "Freedom LPs") or the consent of the Special Limited Partner, as required by Washington's Amended and Restated Agreement of Limited Partnership (the "Washington Partnership Agreement"). The Freedom LPs believe that BUFNY did not use the alleged loan proceeds for the benefit of Washington or the Apartment Complex. For these and other reasons, the Freedom LPs contend that the alleged mortgages are invalid. In addition, BUFNY allegedly failed to comply with the terms of either mortgage, which resulted in the holders of the alleged $100,000 mortgage commencing the foreclosure proceedings. BUFNY did not appear in or otherwise respond to the foreclosure proceedings. The holders of the alleged $225,000 mortgage have not yet, to the knowledge of the Freedom LPs, commenced any foreclosure proceedings. Shortly after the Freedom LPs became aware of these foreclosure proceedings, their counsel contacted counsel for the plaintiffs and mortgagees in an effort to learn more about the alleged mortgages and to resolve the disputes relating to the mortgages. When those efforts failed, the Freedom LPs filed a motion to intervene in the foreclosure action and for leave to file a late answer on behalf of themselves and Washington. The Freedom LPs contend that the mortgages are invalid and that Washington is not liable for them or the underlying indebtedness. In an order dated September 7, 2004, the Court granted the Freedom LPs' motion to intervene and to file a late answer on behalf of the Partnership. On or about September 21, 2004, the Freedom LPs, on behalf of themselves and the Partnership, served an answer, counterclaims and crossclaims in defending against the action. The answer denied the material allegations of the complaint and asserted certain affirmative defenses, counterclaims and crossclaims. Among other things, the Freedom LPs, on behalf of themselves and the Partnership, added The Levites Organization, one of the two co-holders of the $225,000 mortgage for which the plaintiffs' complaint did not seek foreclosure, as an additional counterclaim defendant, and the Freedom LPs assert that both the $100,000 and $225,000 mortgages are invalid and void ab initio. After obtaining discovery from the putative mortgagees, the Partnership and the Freedom LPs, on July 12, 2005, made a motion for summary judgment dismissing the complaint and declaring the mortgages invalid and void ab initio. The putative mortgagees cross-moved for summary judgment declaring the mortgages valid and enforceable. Subsequently, by decision dated January 3, 2006, the Court denied both motions, finding that questions of fact exist for trial as to the reasonableness of the putative mortgagees' reliance on BUFNY. On February 14, 2006, the Freedom LPs filed a notice of appeal from the January 3, 2006 decision. The appeal has not yet been fully briefed. The Freedom LPs intend to pursue their appeal, defend the action, and prosecute their counterclaims and crossclaims vigorously. The final outcome of this case, however, cannot be determined at this time. If the Court were to reject the Freedom LPs defenses and counterclaims, then it is possible that the Apartment Complex might be foreclosed upon and the Partnership might lose its title to and interests in the Apartment Complex. Even if Washington were foreclosed, it will not be subject to Tax Credit recapture, because its Compliance Period expired on December 31, 2005. In addition, due to BUFNY's breach of fiduciary duties and breaches of the Partnership Agreement, the Special Limited Partner exercised its rights under the Washington Partnership Agreement to remove BUFNY as Washington's general partner and to substitute itself as the new replacement general partner, effective April 26, 2004. Subsequently, on April 20, 2006, the Partnership entered into a purchase and sale agreement to sell the property and the related assets and liabilities of Washington Brooklyn to an unaffiliated third party purchaser. Conifer Irondequoit Associates ("Abraham Lincoln") -------------------------------------------------- Abraham Lincoln had not made its November and December New York State Housing Finance Agency loan payments at the end of 2005. This technically represents an event of default under the various loan agreements, which could result in both of the lenders demanding immediate full payment of the respective loans. The Partnership has not solicited a "covenant waiver" letter from either of the lenders; however, based on history, management does not believe any of the loans will be called. Accordingly, the loans are classified as non-current in the balance sheet. In the event that any or all of the mortgages are called, there is no assurance that a refinancing on comparable terms could be accomplished. The Partnership's investment in Abraham Lincoln at March 31, 2006 was reduced to zero as a result of prior years' losses and, on that date, the minority interest had a deficit of $49,000. Abraham Lincoln's net loss after minority interest amounted to approximately $210,000, $232,000 and $194,000 for the years ended March 31, 2006, 2005 and 2004, respectively. Pine Shadow, Ltd. ("Pine Shadow") --------------------------------- During 2005, Pine Shadow suffered damages from flooding due to Hurricane Katrina. However, in 2006, Pine Shadow will be entering into an agreement with 74 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 Rural Housing Services ("RHS") in which Pine Shadow is to receive funding to replace all damages to the property. The funds to be received will be a Second Soft Loan in the amount of $4,384,000 with an annual interest rate of 1%. Payments on the loan will be deferred for a 20 year period. In accordance with SFAS No. 144, the Partnership has determined that there is no impairment and the carrying amounts of the assets are recoverable, therefore, no adjustments are required. Other ----- 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 23% 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 U.S. Department of Housing and Urban Development ("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. 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 not be affected. However, the geographic diversification of the portfolio may not protect against a general downturn in the national economy. NOTE 12 - 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, Parkside, Oaks Village, Greenfield Village, Nelson Anderson, Ivanhoe, Davidson Court, Morris Avenue, Bethel Park, Northwood, Hunters Chase, Mulberry Park, Oxford Trace, Tivoli Place, Twin Trees, Wilshire, Zebulon, Lauderdale Lakes and Eagle Ridge were classified as discontinued operations in the consolidated financial statements. 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, Bethel Park, Northwood, Hunters Chase, Mulberry Park, Oxford Trace, Tivoli Place, Twin Trees, Wilshire, Zebulon, Lauderdale Lakes and Eagle Ridge which were classified as assets held for sale, and Parkside, Oaks Village, Greenfield Village, Nelson Anderson, Ivanhoe, Davidson Court and Morris Avenue, which were sold during the year, were all classified as discontinued operations on the consolidated financial statements. For the years ended March 31, 2005 and 2004, Parkside, Oaks Village, Greenfield Village, Nelson Anderson, Ivanhoe, Davidson Court, Morris Avenue, Bethel Park, Northwood, Hunters Chase, Mulberry Park, Oxford Trace, Tivoli Place, Twin Trees, Wilshire, Zebulon, Lauderdale Lakes and Eagle Ridge, in order to present comparable results to the year ended March 31, 2006, were all classified as discontinued operations on the consolidated financial statements. 75 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 Consolidated Statements of Discontinued Operations:

76 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 NOTE 13 - 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 and classification as discontinued operations of Local Partnerships (see Notes 9 and 10).

* Reclassified for comparative purposes. 77 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2006, 2005 and 2004 NOTE 14 - Subsequent Event On June 20, 2006, the property and the related assets and liabilities of Bethel Park were sold to an unaffiliated third party purchaser for $2,500,000, resulting in a gain of approximately $479,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Bethel Park. Bethel Park is classified as an asset held for sale as of March 31, 2006 (see Note 10). On June 20, 2006, the property and the related assets and liabilities of Zebulon were sold to an unaffiliated third party purchaser for $2,000,000, resulting in a gain of approximately $296,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Zebulon. Zebulon is classified as an asset held for sale as of March 31, 2006 (see Note 10). On June 5, 2006, the property and the related assets and liabilities of Northwood were sold to an unaffiliated third party purchaser for $6,050,000, resulting in a gain of approximately $2,590,000, which will be recognized on the Partnership's Form 10-Q dated September 30, 2006. The sale resulted in the liquidation of Northwood. Northwood is classified as an asset held for sale as of March 31, 2006 (see Note 10). On May 31, 2006, C-H Development Group Associates ("Manhattan B") 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 $2,100,000. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in August 2006. No assurance can be given that the sale will actually occur. As of December 31, 2005, Manhattan B had property and equipment, at cost, of approximately $3,096,000, accumulated depreciation of approximately $1,891,000 and mortgage debt of approximately $1,259,000. On April 20, 2006, Washington entered into a purchase and sale agreement to sell the property and the related assets and liabilities to an unaffiliated third party purchaser for a purchase price of $60,000. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur by the end of 2006. No assurance can be given that the sale will actually occur. As of December 31, 2005, Washington had property and equipment, at cost, of approximately $2,926,000, accumulated depreciation of approximately $1,418,000 and mortgage debt of approximately $325,000. 78 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 Freedom Associates L.P. and Freedom G.P. Inc., the general partners of the Partnership, have 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. In designing and evaluating our disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and our management necessarily applied its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer of Freedom Associates L.P. and Freedom G.P. Inc., the general partners of the Partnership, concluded that, as of the period covered by this report, our disclosure controls and procedures were (1) designed to ensure that material information relating to us, including our consolidated subsidiaries, is made known to the Chief Executive Officer and Chief Financial Officer of Freedom Associates L.P. and Freedom G.P. Inc., the general partners of the Partnership, by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. (b) CHANGES IN INTERNAL CONTROLS 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. 79 PART III Item 10. Directors and Executive Officers of the Registrant The Partnership has no directors or executive officers. The Partnership's affairs are managed and controlled by the General Partners. On November 25, 1997, an affiliate of the Related General Partner purchased 100% of the stock of the Freedom General Partner. Prior to such purchase the Freedom General Partner was an affiliate of Lehman Brothers. 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") (formerly known as Related Capital Company, LLC), which controls the General Partners, has adopted a code of ethics (see http://www.chartermac.com). On November 17, 2003, CharterMac acquired CharterMac Capital, which is the parent of RCC Manager LLC, the sole shareholder of the general partner of the Related General Partner. RCC Manager LLC is also the Managing Member of the Freedom General Partner. Pursuant to the acquisition, CharterMac acquired controlling interests in the General Partners. Alan P. Hirmes replaced Stephen M. Ross as Director of the Related General Partner and also replaced Michael Brenner as Director of the Freedom General Partner, each 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 resignation, which was effective on November 15, 2005, he also resigned from his position as Senior Vice President of the general partner of the Related General Partner and Executive Vice President of the Freedom 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 the general partner of the Related General Partner and Executive Vice President of the Freedom General Partner. Certain information concerning the directors and executive officers of each of the General Partners is set forth below. The Related General Partner --------------------------- Related Freedom Associates Inc., ("RFAI") is the sole general partner of Related Freedom Associates L.P. Name Position ----------------- ---------------------- Alan P. Hirmes Director and President Marc D. Schnitzer Senior Vice President Glenn F. Hopps Treasurer ALAN P. HIRMES, 51, is the Director and President of the Related General Partner. Mr. Hirmes 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 the Managing Director 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 and American Mortgage Acceptance Company ("AMAC"). MARC D. SCHNITZER, 45, is responsible both for financial restructurings of real estate properties and directing CharterMac Capital's acquisition of properties generating 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, LLC 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 2006, Mr. Schnitzer was appointed Chief Executive Officer of CharterMac. Mr. Schnitzer also serves on the Board of Trustees of CharterMac. 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. The Freedom General Partner --------------------------- The officers and directors of the Freedom General Partner are as follows: 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. 80 Item 11. Executive Compensation The Partnership has no officers or directors. The Partnership does not pay or accrue any fees, salaries or other forms of compensation to directors or officers of the General Partners for their services. However, 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. In addition, the General Partners collectively hold a 1% interest in all profits, losses and distributions attributable to operations and a subordinated 15% interest in such items attributable to sales and refinancings. Certain directors and officers of the General Partners receive compensation from the General Partner and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. The maximum annual partnership management fee paid to the General Partner is 0.5% of invested assets. See Note 7 to the Financial Statements in Item 8 above, which is incorporated herein by reference. Tabular information concerning salaries, bonuses and other types of compensation payable to executive officers has not been included in this annual report. As noted above, the Partnership has no executive officers. The levels of compensation payable to the General 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

Freedom SLP L.P., a limited partnership whose general partners are the General Partners of the Partnership and which acts as the special limited partner of each Local Partnership, has either a .01% or 1% interest in each Local Partnership. Except as set forth below, no person (other than the Assignor Limited Partner) was known by the Partnership to be the beneficial owner of more than five percent of the limited partnership interests in the Partnership and/or BACs and neither the General Partners nor any director or officer of the General Partners owns any Limited Partnership Interests or BACs.

(1) The address for each of the persons in the table is 625 Madison Avenue, New York, New York 10022. (2) As set forth in schedule 13D filed by the Partnership, Lehigh Tax Credit L.L.C. ("Lehigh") and Lehigh Tax Credit Partners, Inc. (the "Managing Member") on October 24, 1997 with the Securities and Exchange Commission (the "Commission") and pursuant to a letter agreement dated August 26, 1997 among the Partnership, Lehigh and Related Freedom Associates L.P. ("RFA") (the "Standstill Agreement"), Lehigh agreed that, prior to August 26, 2007 (the "Standstill Expiration Date"), it will not and it will cause certain affiliates (including Lehigh Tax Credit Partners II, LLC ("Lehigh II")) not to (i) acquire, attempt to acquire or make a proposal to acquire, directly or indirectly, more than 45% (including BACs acquired through all other means) of the outstanding BACs, (ii) seek to propose to enter into, directly or indirectly, any merger, consolidation, business combination, sale or acquisition of assets, liquidation, dissolution or other similar transaction involving the Partnership, (iii) make, or in any way participate, directly or indirectly, in any "solicitation" of "proxies" or "consents" (as such terms are used in the proxy rules of the Commission) to vote any voting securities of the Partnership, (iv) form, join or otherwise participate in a "group" (within the meaning of Section 13(d)(3) of the Exchange Act) with respect to any voting securities of the Partnership, except that those affiliates bound by the Standstill Agreement will not be deemed to have violated it and formed a "group" solely by acting in accordance with the Standstill Agreement, (v) disclose in writing to any third party any intention, plan or arrangement inconsistent with the terms of the Standstill Agreement, or (vi) loan money to, advise, assist or encourage any person in connection with any action inconsistent with the terms of the Standstill Agreement. In addition, Lehigh agreed that until the Standstill Expiration Date it will not sell any BACs acquired by it unless the buyer of such BACs agrees to be bound by the Standstill Agreement; provided, however, Lehigh may make transfers in the secondary market to any purchaser which represents that following such sale it will not own three percent (3%) or more of the BACs outstanding. By the terms of the Standstill Agreement, Lehigh also agreed to vote its BACs in the same manner as a majority of all voting BACs holders; provided, however, Lehigh is entitled to vote its BACs as it determines with regard to any proposal (i) to remove RFA as a general partner of the Partnership or (ii) concerning the reduction of any fees, profits, distributions or allocations for the benefit of RFA or its affiliates. (3) As of May 8, 2006, Lehigh held 4,192.83 BACs and Lehigh II held 4,182.83 BACs which constitutes approximately 11.5% of the outstanding BACs owned. 81 (4) Each such party serves as a director and executive officer of the Managing Member and owns an equity interest therein, except J. Michael Fried and Stuart J. Boesky, who own only an economic interest. 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 which is incorporated herein by reference thereto. However, there have been no direct financial transactions between the Partnership and the directors and officers of the General Partners. Item 14. Principal Accountant Fees and Services Audit Fees ---------- The aggregate fees by Friedman 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 for those years were $67,000 and $59,500, respectively. Audit Related Fees ------------------ None Tax Fees -------- The aggregate fees by Weiser LLP and its affiliates for professional services rendered for the preparation of the Partnership's annual tax returns were $8,700 for each of the 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. 82 PART IV Item 15. Exhibits and Financial Statement Schedules

83 Item 15. Exhibits and Financial Statement Schedules (continued) Jurisdiction of Organization --------------- (c) Subsidiaries of the Registrant (Exhibit 21) ------------------------------------------- Twin Trees Apartments UT Bennion Park Apartments (Mulberry) UT Hunters Chase Apartments AL Wilshire Park Apartments AL Bethel Park Apartments OH Zebulon Park Apartments OH Tivoli Place Apartments TN Northwood Apartments FL Oxford Trace Apartments SC Ivanhoe Apartments Limited Partnership UT Washington Brooklyn Limited Partnership NY C.H. Development Group Associates (Manhattan B) NY Davidson Court Limited Partnership NY Magnolia Mews Limited Partnership PA CLM Equities Limited Partnership (Morris Avenue) NY Victoria Manor Associates CA Ogontz Hall Investors PA Eagle Ridge Limited Partnership WI Nelson Anderson Affordable Housing Limited Partnership NY Conifer Irondequoit Associates (Abraham Lincoln) NY Middletown Associates (Wilson Street) PA Lauderdale Lakes Associates, Ltd. FL Flipper Temple Associates Limited Partnership GA 220 Cooper Street Associates Limited Partnership NJ Pecan Creek OK 363 Grand Vendome Associates Limited Partnership NY New Augusta Ltd. (Rainer Villas) AL Pine Shadow Apartments MS Windsor Place Apartments AL Brookwood Apartments, Ltd. AL Heflin Hills Apartments, Ltd. AL Shadowood Apts., Ltd. AL Brittany Associates, Ltd. MS Hidden Valley Apartments AL Westbrook Square Limited Partnership MS Warsaw Elderly Housing Ltd. (Royal Pines Apts.) KY West Hill Square Apts., Ltd. AL Elmwood Associates MS Harmony Gate Associates CA 84 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. FREEDOM TAX CREDIT PLUS L.P. By: RELATED FREEDOM ASSOCIATES L.P. a general partner By: RELATED FREEDOM ASSOCIATES INC., a general partner Date: June 27, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes, Director and President By: FREEDOM GP INC. a general partner Date: June 27, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Director and President Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf by the registrant and in the capacities and on the dates indicated:

Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of Related Freedom Associates L.P. and Freedom GP Inc. (collectively, the "General Partners"), each of which is a general partner of Freedom Tax Credit Plus L.P. (the "Partnership"), hereby certify that: 1. I have reviewed this annual report on Form 10-K for the period ended 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 annual report; 3. Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly present in all material respects the consolidated 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 27, 2006 ------------- By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Annual Report of Freedom Tax Credit Plus L.P. (the "Partnership") on Form 10-K for the period ending March 31, 2006 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, Alan P. Hirmes, Principal Executive Officer and Principal Financial Officer of Related Freedom Associates L.P. and Freedom GP Inc., each of which is the general partner of the Partnership, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Partnership. A signed original of this written statement required by Section 906 has been provided to the Partnership and will be retained by the Partnership and furnished to the SEC or its staff upon request. By: /s/ Alan P. Hirmes ------------------ Alan P. Hirmes Principal Executive Officer and Principal Financial Officer June 27, 2006 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- ON FINANCIAL STATEMENT SCHEDULES -------------------------------- TO THE PARTNERS OF FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES In connection with our audits of the consolidated financial statements of FREEDOM TAX CREDIT PLUS L.P. AND SUBSIDIARIES included in the Form 10-K as presented in our opinion dated June 23, 2006, we have also audited supporting Schedule I as of March 31, 2006 and 2005 and for the years ended March 31, 2006, 2005 and 2004, and Schedule III as of March 31, 2006 and for the years ended March 31, 2006, 2005 and 2004. In our opinion, based on our audits, these schedules present fairly, when read in conjunction with the related financial statements, the financial data required to be set forth therein. /s/ Friedman LLP New York, New York June 23, 2006 89 FREEDOM TAX CREDIT PLUS L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT Summarized condensed financial information of registrant (not including consolidated subsidiary partnerships) CONDENSED BALANCE SHEETS

90 FREEDOM TAX CREDIT PLUS L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS

91 FREEDOM TAX CREDIT PLUS L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS

92 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION MARCH 31, 2006

93 FREEDOM TAX CREDIT PLUS L.P. AND CONSOLIDATED PARTNERSHIPS SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION MARCH 31, 2006 (continued)

(A) Aggregate cost for federal income tax purposes, $146,576,191. (B) Rental guarantees and development deficit guarantees for GAAP purposes are treated as a reduction of the asset. (C) Furniture and fixtures, included with buildings and improvements, are depreciated primarily by the straight line method over the estimated useful lives ranging from 5 to 7 years. (D) 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 from date of acquisition. (E) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2006. (F) These properties are included in discontinued operations for the year ended March 31, 2006. See Note 12 in Item 8, Financial Statements and Supplementary Data. (G) Reconciliation of Real Estate owned:

At the time the local partnerships were acquired by Freedom Tax Credit Plus L.P., the entire purchase price paid by Freedom Tax Credit Plus L.P. 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

FREEDOM TAX CREDIT PLUS LP 10-K