10-K 1 f10k_march2007-lib3.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, 2007 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 COMMISSION FILE NUMBER 0-24656 LIBERTY TAX CREDIT PLUS III L.P. (Exact name of registrant as specified in its charter) Delaware 13-3491408 ------------------------------------------------ ------------------- (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: Limited Partnership Interests and Beneficial Assignment Certificates (Title of Class) Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X] Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X] Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check one): Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [X] Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X] The approximate aggregate book value of the voting and non-voting common equity held by non-affiliates of the Registrant as of September 30, 2006 was $(101,548,000), based on Limited Partner equity (deficit) as of such date. DOCUMENTS INCORPORATED BY REFERENCE None PART I Item 1. Business General ------ Liberty Tax Credit Plus III L.P. (the "Partnership") is a limited partnership which was formed under the laws of the State of Delaware on November 17, 1988. The General Partners of the Partnership are Related Credit Properties III L.P., a Delaware limited partnership (the "Related General Partner"), and Liberty GP III Inc., a Delaware corporation (the "Liberty General Partner", and together with the Related General Partner, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties III Inc., a Delaware corporation. The ultimate parent of the General Partner is Centerline Holding Company ("Centerline") (which had been known as CharterMac until April 2007). On March 15, 2007, Centerline announced the retirement of Alan P. Hirmes as Chief Financial Officer of Centerline. Upon his retirement, he also resigned from his position as Director, President, Chief Executive Officer and Chief Financial Officer of the Related General Partner. Centerline has named Robert L. Levy as Chief Financial Officer and Andrew J. Weil as President and Chief Executive Officer to replace Mr. Hirmes. On May 2, 1989, the Partnership commenced a public offering (the "Offering") of Beneficial Assignment Certificates ("BACs") representing assignments of limited partnership interests in the Partnership ("Limited Partnership Interests"). As of March 30, 1990 (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 $139,101,500 of gross proceeds of the Offering from 9,082 investors. The Partnership was formed to invest, as a limited partner, in other limited partnerships (referred to herein as "Local Partnerships" or "Subsidiary Partnerships") each of which owns one or more leveraged low-income multifamily residential complexes ("Apartment Complexes" 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"). Some of the Apartment Complexes benefit from one or more other forms of federal or state housing assistance. The Partnership's investment in each Local Partnership represents from 26.46% to 98% of the partnership interests in the Local Partnership. The Partnership does not anticipate making any additional investments. As of March 31, 2007, the Partnership has disposed of twenty-seven of its 62 original Properties. See Item 2, Properties, below. Liberty Associates IV L.P. ("Liberty Associates") is the special limited partner in all of the remaining Local Partnerships. Liberty Associates has certain rights and obligations in its role as special limited partner which permit this affiliate of the Partnership to exercise control over the management and policies of the Local Partnerships. The investment objectives of the Partnership are to: 1. Entitle qualified BACs holders to substantial Tax Credits over the period of the Partnership's entitlement to claim such Tax Credits (for each Property, generally ten years from the date of investment or, if later, the date the Property is placed in service; referred to herein as the "Credit Period") with respect to each Property. 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 Properties. 4. Provide cash distributions when available from the operations of the Properties, current taxes on which are expected to be substantially deferred. 5. Allocate passive losses to individual BACs holders to offset passive income that they may realize from rental real estate investments and other passive activities, and allocate passive losses to corporate BACs holders to offset business income. Each of the Local Partnerships in which the Partnership has acquired an interest has been allocated by the relevant state credit agency the authority to 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 period commencing at the beginning of the Credit 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 (1) the Partnership ceases to meet qualification requirements, (2) there is a decrease in the qualified basis of the Property, or (3) there is a reduction in the taxpayer's interest in the Property at any time during the Compliance Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. The Tax Credits were attached to a Local Partnership for the Credit Period thereby adding value to the Property on the market. However, such value declines each year and is not included in the financial statement carrying amount. The Credit Periods expired at various times through December 31, 2003 with respect to the Local Partnerships depending upon when the Credit Period commenced. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. 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). During the year ended March 31, 2007, the Partnership recorded approximately $5,235,000 as a loss on impairment of assets or reduction to estimated fair value. Through March 31, 2007, the Partnership recorded approximately $29,172,000 as an aggregate loss on impairment of assets or reduction to estimated fair value. 2 The Partnership has fulfilled its primary objective of generating Tax Credits, all of which expired as of December 31, 2006. 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. Cash distributions received from the Local Partnerships from operations have been relatively immaterial. Management does not expect that the distributions received from the Local Partnerships from operations will be sufficient to permit cash distributions to BACs holders. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds. The Partnership does not anticipate being able to make distributions to return to BACs holders their original capital contributions. Furthermore, at this time, there can be no assurance that the Partnership will achieve this investment objective. During and through the fiscal year ended March 31, 2007, distributions from sales proceeds were made to the BACs holders of approximately $6,957,000 and to the General Partners of approximately $70,000. Certain Subsidiary Partnerships are the beneficiaries of certain subsidy agreements pursuant to which the United States Department of Housing and Urban Development ("HUD") subsidizes the amount of rent that the Subsidiary Partnership earns. Pursuant to those subsidy agreements, the Subsidiary Partnerships are subject to HUD restrictions which limit annual cash distributions to partners and restrict the Subsidiary Partnerships from selling or otherwise liquidating their assets during the period that the agreement with HUD is in existence without HUD's approval. In order for certain Subsidiary Partnerships to qualify for the section 421A program ("Section 421A Program") and the inclusionary zoning program ("Inclusionary Zoning Program"), they must comply with certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants' incomes, the obligation to operate the property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines. Also, certain Subsidiary Partnerships obtain grants from local authorities to fund construction costs of the Properties and in order to qualify must maintain the low-income nature of the Property, among other provisions. The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 17% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. Sales of Underlying Properties/Local Partnership Interests ---------------------------------------------------------- The Partnership is currently in the process of disposing of its investments. It is anticipated that this process will take a number of years. During the year ended March 31, 2007, the Partnership sold its limited partnership interest in two Local Partnerships, the property and the related assets and liabilities of six Local Partnerships and one of the properties owned by a Local Partnership. Through March 31, 2007, the Partnership has sold its limited partnership interest in sixteen Local Partnerships, the property and the related assets and liabilities of ten Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of one Local Partnership. In addition, as of March 31, 2007, the Partnership has entered into agreements for the sale of five Local Partnerships (see Note 11, Item 8). Subsequently, the property and the related assets and liabilities of one Local Partnership were sold, and the Partnership entered into a contract to sell the limited partnership interests of another Local Partnership (see Note 16, Item 8). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. On March 21, 2007, the Partnership sold its limited partnership interest in Puerto Rico Historic Zone, Limited Dividend Partnership ("San Justo") to the Local General Partner for a sales price of $874,000. The Partnership received proceeds of $874,000 from this sale The sale resulted in a gain of approximately $4,232,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $3,358,000 at the date of the sale and the $874,000 cash received from the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On February 7, 2007, the property and the related assets and liabilities of Cutler Canal III Associates, Ltd. ("Cutler Canal") were sold to an affiliate of the General Partner for a sales price of $11,600,000. The Partnership received $3,624,195 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs and distributions to minority interests of approximately $4,594,000. The sale resulted in a gain of approximately $8,463,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On February 28, 2007, the Partnership sold its remaining limited partnership interest in Michigan Rural Housing Limited Partnership ("Michigan Rural") to an affiliate of the Local General Partner. The Partnership received $10 from this sale. The sale resulted in a gain of approximately $366,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale, which will be recognized during the Partnership's quarter ended June 30, 2007. The sale resulted in the liquidation of Michigan Rural. On May 26, 2005, the Partnership had sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sale price of $100,000. The Partnership received proceeds of $100,000 from this sale, which resulted in a gain of $100,000. On January 30, 2007, the property and the related assets and liabilities of 1850 Second Avenue Associates, L.P. ("1850 Second Avenue") were sold to an unaffiliated third party purchaser for a sales price of $25,000, which was used for the payment of closing costs. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $3,126,707. The sale will result in a gain of approximately $419,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. The sale will also result in a non-cash contribution to the Partnership of approximately $3,300,000 from the General Partner as a result of the write-off of advances owed by the Local Partnership to an affiliate of the General Partner, which will be recognized during the Partnership's quarter ending June 30, 2007. On January 26, 2007, the property and the related assets and liabilities of C.V. Bronx Associates, L.P./Gerard Gardens ("CV Bronx") were sold to an unaffiliated 3 third party purchaser for a sales price of $4,770,000. The Partnership received $3,133,090 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $837,000. The Partnership will receive an additional $800,000 in guaranteed deferred payments within the next three years. The sale resulted in a gain of $87,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On October 25, 2006, the property and the related assets and liabilities of Manhattan A Associates ("Manhattan A") were sold to an unaffiliated third party purchaser for a sales price of $7,250,000. The Partnership received $3,950,202 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $3,300,000. The sale resulted in a gain of approximately $3,035,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $345,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $3,380,000. The sale resulted in the liquidation of Manhattan A. On August 22, 2006, the property and the related assets and liabilities of Broadhurst Willows Limited Partnership ("Broadhurst") were sold to an unaffiliated third party purchaser for a sales price of $5,300,000. The Partnership received $4,495,600 as a distribution from this sale after the repayment of other liabilities and closing costs of approximately $804,000. The sale resulted in a gain of approximately $2,171,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately ($142,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $2,029,000. The sale resulted in the liquidation of Broadhurst. On June 5, 2006, Weidler Associates Limited Partnership ("Weidler") sold its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price of $1,900,000. The Partnership received $541,403 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,359,000. The sale resulted in a gain of approximately $787,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately $(103,000) was recorded during the quarter ended March 31, 2007, resulting in an overall gain of approximately $684,000. The sale resulted in the liquidation of Weidler. On April 14, 2006, Michigan Rural sold the property and the related assets and liabilities of The Meadowlands Apartments ("Meadowlands") (one of the properties owned by Michigan Rural) to an unaffiliated third party purchaser for a sales price of $1,083,445. The Partnership received $115,844 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $968,000. The sale resulted in a gain of approximately $313,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $134,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $447,000. On March 28, 2006, the Local General Partner of Stop 22 Limited Partnership ("Stop 22") purchased the Partnership's remaining interest in Stop 22 for a sales price of $1,800,000. The Partnership received proceeds of $1,800,000 from this sale. The sale resulted in a gain of approximately $5,379,000 resulting from the write-off of the deficit basis in the property at the date of the sale of approximately $3,579,000 and $1,800,000 cash received from the sale. On March 1, 2006, Affordable Flatbush Associates ("Affordable Flatbush") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,700,000. The Partnership received $157,949 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,542,000. The sale resulted in a gain of approximately $231,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $33,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $264,000. The sale resulted in the liquidation of Affordable Flatbush. On March 1, 2006, Site H Development Co. ("Site H") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,200,000. The Partnership received $433,852 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $766,000. The sale resulted in a gain of approximately $554,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of $(42,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of $512,000. The sale resulted in the liquidation of Site H. On January 4, 2006, the Partnership sold its limited partnership interest in Las Camelias Limited Partnership ("Las Camelias") to the Local General Partner for $1 cash plus 30% of any upside profits from the conversion to condos, if the sale price exceeds $92,500 for any of the units. The sale resulted in a gain of approximately $2,828,000, resulting from the write-off of the deficit basis in the property at the date of the sale. On December 14, 2005, Michigan Rural sold the property and the related assets and liabilities of Prairie Glen Apartments ("Prairie Glen") (one of the properties owned by Michigan Rural) to an unaffiliated third party purchaser for a sales price of approximately $1,617,000. The Partnership received $185,961 as a distribution from this sale after the assumption of mortgages and distribution to minority interest of approximately $1,431,000. The sale resulted in a gain of approximately $822,000 resulting from the write-off of the deficit basis in the property at the time of the sale and the $185,961 cash received from the sale. On December 14, 2005, the Partnership's limited partnership interest in RBM Associates/Spring Garden ("Spring Garden") was sold to an unaffiliated third party purchaser for a sales price of $100. The sale resulted in a gain of approximately $36,000 resulting from the write-off of the deficit basis in the property at the date of the sale. On September 20, 2005, the Partnership's limited partnership interest in Franklin Elderly Housing Associates ("Franklin") was sold to the Local General Partner for a sales price of $210,000. The Partnership received proceeds of $209,990 from this sale. The sale resulted in a gain of approximately $531,000 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $321,000 and the $209,990 cash received from the sale. An additional loss of $(23,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of $508,000. On September 20, 2005, the Partnership's limited partnership interest in Philipsburg Elderly Housing Associates ("Philipsburg") was sold to the Local General Partner for a sales price of $20,000. The Partnership received proceeds of $19,990 from this sale. The sale resulted in a loss of approximately $67,000 resulting from the write-off of the basis in the property at the date of sale of approximately $87,000 and the $19,990 cash received from the sale. An additional loss of $(23,000) was recorded during the quarter ended March 31, 2006, resulting in an overall loss of $90,000. 4 On September 20, 2005, the Partnership's limited partnership interest in Wade D. Mertz Elderly Housing Associates ("Wade") was sold to the Local General Partner for a sales price of $70,000. The Partnership received proceeds of $69,990 from this sale. The sale resulted in a gain of approximately $71,000 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $1,000 and the $69,990 cash received from the sale. An adjustment to the gain of approximately $(24,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of $47,000. On July 5, 2005, the Partnership's limited partnership interest in Glenbrook Associates ("Glenbrook") was sold to the Local General Partner for a sales price of $99,990. The Partnership received $59,990 in cash and a note for $40,000 due to the Partnership upon approval from the Pennsylvania Housing Finance Agency for allocation of low-income housing tax credits, which was recorded as deferred revenue. The sale resulted in a gain of approximately $152,000 which was recorded during the quarter ended December 31, 2005 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $52,000 and the $59,990 cash received from the sale and the $40,000 note receivable recorded as deferred revenue. An additional loss of approximately ($95,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of approximately $57,000. On June 30, 2005, the Partnership's limited partnership interest in Barclay Village II, Ltd. ("Barclay") was sold to the Local General Partner for a sales price of $175,000. The Partnership received proceeds of $174,990 from this sale. The sale resulted in a gain of approximately $548,000 resulting from the write-off of the deficit basis in the property of approximately $373,000 and the $174,990 cash received from the sale. On May 26, 2005, the Partnership sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sales price of $100,000. The Partnership received proceeds of $100,000 from this sale. The sale resulted in a gain of approximately $100,000 resulting from the cash received of $100,000. The affiliate of the Local General Partner had the option to buy the remaining interest during the period starting on January 1, 2007 and ending on February 28, 2007. On February 28, 2007, the Local General Partner exercised this option and purchased the remaining limited partnership interest (see discussion above). On May 6, 2005,West Columbia Associates, L.P. ("Gentle Pines") transferred the deed to the property and the related assets and liabilities to an unaffiliated third party for the assumption of the mortgage. The transfer resulted in a gain of approximately $3,453,000 resulting from the write-off of the deficit basis in the property at the date of the transfer which was recorded during the quarter ended September 30, 2005. An adjustment to the gain of approximately $129,000 was recorded during the quarter ended March 31, 2006 resulting in overall gain of approximately $3,583,000. On May 2, 2005, the Partnership redeemed its limited partnership interest in Lancashire Towers Associates, LTD ("Lancashire") to an affiliate of the Local General Partner for a redemption price of $800,000. The Partnership received proceeds of $764,456 from this sale after closing costs of approximately $36,000. During the year ended March 31, 2006, in accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("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 $1,700,000. The sale resulted in a gain of approximately $186,000 resulting from the write-off of the deficit basis in the property at the date of the sale. On April 29, 2005, the property and the related assets and liabilities of Brandywine Court Associates, L.P. ("Brandywine") were sold to an unaffiliated third party purchaser for a sales price of $1,380,000. After the repayment of mortgages and other liabilities, the Partnership received no distribution from this sale. The sale resulted in a gain of approximately $1,354,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recorded during the quarter ended September 30, 2005. An adjustment to the gain of approximately $5,000 was recorded during the quarter ended March 31, 2006 resulting in overall gain of approximately $1,359,000. The sale resulted in the liquidation of Brandywine. On July 15, 2004, the Partnership sold its limited partnership interest in WPL Associates XXIII ("Benjamin's Corner") to an unaffiliated third party purchaser for approximately $690,000, resulting in a gain in the amount of approximately $2,124,000, resulting from the write-off of the deficit basis in the property at the date of the sale. Assets Held for Sale -------------------- On March 15, 2007, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in The Hamlet, Ltd. ("Hamlet") to an affiliate of the Local General Partner for a sales price of $4,397,500. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in September 2007. No assurance can be given that the sale will actually occur. Hamlet is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Hamlet had property and equipment, at cost, of approximately $14,737,000, accumulated depreciation of approximately $7,414,000 and mortgage debt of approximately $8,168,000. On March 9, 2007, West 132nd Development Partnership ("Manhattan J") 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 sales price of $3,500,000 less the unpaid principal balance of the mortgage. Manhattan J is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Manhattan J had property and equipment, at cost, of approximately $2,608,000, accumulated depreciation of approximately $1,055,000 and mortgage debt of approximately $1,280,000. Subsequently, on May 30, 2007, the property and the related assets and liabilities of Manhattan J were sold (see Item 8, Note 16). On February 1, 2007, Williamsburg Residential II, L.P. ("Williamsburg II") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price $1,799,654. The sales documents have been executed and the initial deposit funds are being held in escrow. No assurance can be given that the sale will actually occur. The closing is expected to occur in December of 2007. Williamsburg II is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Williamsburg II had property and equipment, at cost, of approximately $1,790,000, accumulated depreciation of approximately $828,000 and mortgage debt of approximately $1,386,000. On August 24, 2006, Conifer James Street Associates ("Schopfer") 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 sales price of $1,950,000 less the unpaid principal balance of the mortgage. The sales 5 documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to take place in the quarter ending September 30, 2007. No assurance can be given that the sale will actually occur. Schopfer is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Schopfer had property and equipment, at cost, of approximately $4,584,000, accumulated depreciation of approximately $2,587,000 and mortgage debt of approximately $1,783,000. On July 1, 2006, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in Driftwood Terrace Associates, Ltd. ("Driftwood") to an affiliate of the Local General Partner for a sales price of $1,986,418. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in the quarter ending September 30, 2007. No assurance can be given that the sale will actually occur. Driftwood is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Driftwood had property and equipment, at cost, of approximately $8,325,000, accumulated depreciation of approximately $5,501,000 and mortgage debt of approximately $6,441,000. Segments -------- The Partnership operates in one segment, which is the investment in multi-family residential properties. Financial information about this segment is set forth in Item 8 hereof. Competition ----------- The real estate business is highly competitive and substantially all of the Properties in which the Partnership has acquired an interest 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 be competitive 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 hereof. In addition, the Partnership reimburses the General Partners and certain of their affiliates for expenses incurred in connection with the performance by their employees of services for the Partnership in accordance with the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement"). Item 1A. Risk Factors The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 17% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. There also are substantial risks associated with the operation of apartment complexes receiving government assistance. These risks stem from governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the Apartment Complexes, difficulties in obtaining government approval for rent increases, limitations on the percentage of income which low and moderate-income tenants may pay as rent, the possibility that Congress may not appropriate funds to enable HUD to make the rental assistance payments it has contracted to make, and the possibility that when the rental assistance contracts expire there may not be market demand for apartments at full market rents in a Local Partnership's Apartment Complex. Item 1B. Unresolved Staff Comments None Item 2. Properties As of March 31, 2007 the Partnership held a 98% limited partnership interest in 34 Local Partnerships and a 26.46% limited partnership interest in an additional Local Partnership (the other 71.54% limited partnership interest is held by an affiliate of the Partnership with the same management). During the year ended March 31, 2007, the Partnership sold its limited partnership interest in two Local Partnerships, the property and the related assets and liabilities of six Local Partnerships and one of the properties owned by a Local Partnership. Through March 31, 2007, the Partnership has sold its limited partnership interest in sixteen Local Partnerships, the property and the related assets and liabilities of ten Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of one Local Partnership. Set forth below is a schedule of these Local Partnerships including certain information concerning their respective Apartment Complexes (the "Local Partnership Schedule"). Further information concerning these Local Partnerships and their Properties, including any encumbrances affecting the Properties, may be found in Item 15, Schedule III. 6

Local Partnership Schedule -------------------------- % of Units Occupied at May 1, Name and Location -----------------------------------------~~-----------------~~ (Number of Units) Date Acquired 2007 2006 2005 2004 2003 ~~2002~~ --------------------------------------------------- --------------- ------- ------- ------- ------ ------- C.V. Bronx Associates, L.P./ Gerard Gardens Bronx, NY (121) June 1989 (i) 97 98 98 100 98 Michigan Rural Housing Limited Partnership Michigan (192)(a) September 1989 (j) 96 97 97 95 86 Jefferson Limited Partnership Shreveport, LA (69) December 1989 81 78 94 96 100 99 Inter-Tribal Indian Village Housing Development Associates, L.P Providence, RI (36) October 1989 97 97 97 94 100 ~~100~~ RBM Associates/Spring Garden Philadelphia, PA (8) December 1989 (f) ~~100~~(f) 100 100 100 Glenbrook Associates Atglen, PA (35) November 1989 (f) (f) 100 100 94 ~~100~~ Affordable Flatbush Associates Brooklyn, NY (30) December 1989 (e) (e) 100 97 97 97 Barclay Village II, LTD. Chambersburg, PA (87) November 1989 (f) (f) 100 98 95 99 1850 Second Avenue Associates, L.P. New York, NY (48) October 1989 (i) 98 98 94 98 98 R.P.P. Limited Dividend Housing/ River Place Detroit, MI (301) November 1989 94 90 93 90 91 94 Williamsburg Residential II, L.P. Wichita, KS (50) November 1989 95 91 91 52 84 91 West 104th Street Associates L.P. New York, NY (56) December 1989 96 98 100 100 100 ~~100~~ Meredith Apartments, LTD. Salt Lake City, UT (22) August 1989 (d) (d) (d) 100 77 86 Ritz Apartments, LTD. Salt Lake City, UT (30) August 1989 (d) (d) (d) 90 79 97 Ashby Apartments, LTD. Salt Lake City, UT (27) August 1989 (d) (d) (d) 100 93 89 South Toledo Associates, LTD. Toledo, OH (18) January 1990 100 94 100 100 100 89 Dunlap School Venture Philadelphia, PA (35) January 1990 94 97 97 91 100 91 Philipsburg Elderly Housing Associates Philipsburg, PA (103) February 1990 (f) (f) 100 99 100 98 Franklin Elderly Housing Associates Franklin, PA (89) February 1990 (f) (f) 100 100 99 ~~100~~ Wade D. Mertz Elderly Housing Associates Sharpsville, PA (103) February 1990 (f) (f) 100 100 100 98 Lancashire Towers Associates Limited Partnership Cleveland, OH (240) February 1990 (f) (f) 91 91 91 ~~100~~ Northwood Associates Limited Partnership Toledo, OH (176) February 1990 (b) (b) (b) (b) (b) Brewery Renaissance Associates Middletown, NY (53) February 1990 100 97 100 100 100 ~~100~~ Brandywine Court Associates, L.P. Jacksonville, FL (52) November 1989 (e) (e) 90 92 100 96 Art Apartments Associates Philadelphia, PA (30) March 1990 100 100 97 93 93 ~~100~~ The Village at Carriage Hills, LTD. Clinton, TN (48) March 1990 ~~100~~98 100 100 100 100 Mountainview Apartments, LTD. Newport, TN (34) March 1990 100 100 100 98 100 ~~100~~ The Park Village, Limited Jackson, MS (24) March 1990 96 100 96 92 92 ~~100~~ River Oaks Apartments, LTD. Oneonta, AL (35) March 1990 100 100 97 94 94 ~~100~~ Forrest Ridge Apartments, LTD. Forrest City, AR (25) March 1990 96 96 96 96 88 ~~100~~ The Hearthside Limited Dividend Housing Association Limited Partnership Portage, MI (101) March 1990 100 100 99100 99 9899

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

~~Local Partnership Schedule -------------------------- (continued)~~ % of Units Occupied at May 1, Name and Location -----------------------------------------~~-----------------~~ (Number of Units) Date Acquired 2007 2006 2005 2004 2003 ~~2002~~ ------------------------------------------------------ --------------- ------- ------- ------- ------ ------- Redemptorist Limited Partnership New Orleans, LA (126) March 1990 (h) (h) 98 94 82 88 Manhattan A Associates New York, NY (99) April 1990 (i) 100 100 100 99 98 Broadhurst Willows, L.P. New York, NY (129) April 1990 (i) 95 99 98 98 99 Weidler Associates Limited Partnership Portland, OR (52) May 1990 (i) 88 94 83 94 98 Gentle Pines-West Columbia Associates, L.P. Columbia, SC (150) June 1990 (hg) (g) 67 74 97 95 Lake Forest Estates II, LTD. Livingston, AL (32) June 1990 97 100 100 88 100 87 Las Camelias Limited Partnership Rio Piedras, PR (166) June 1990 (f) (f) 95 97 94 ~~100~~ WPL Associates XXIII Portland, OR (48) July 1990 (d) (d) (d) 92 96 97 Broadway Townhouses L.P. Camden, NJ (175) July 1990 100 100 100 100 99100 Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR (67) August 1990 (j) 100 96 99 99 99 Citrus Meadows Apartments, LTD. Bradenton, FL (200) July 1990 86 96 86 77 86 95 Sartain School Venture Philadelphia, PA (35) August 1990 74 83 97 94 100 97 Driftwood Terrace Associates, LTD. Ft. Lauderdale, FL (176) September 1990 99 100 99 97 97 98 Holly Hill, LTD. Greenville, TN (46) October 1990 98 96 96 96 91 98 Mayfair Apartments LTD. Morristown, TN (48) October 1990 92 98 98 96 98 89 Foxcroft Apartments LTD. Troy, AL (48) October 1990 94 97 92 94 96 77 Canterbury Apartments, LTD. Indianola, MS (48) October 1990 100 100 100 96100 96 Cutler Canal III Associates, LTD. Miami, FL (262) October 1990 (j) 98 97 96 98 98 Jefferson Place L.P. Olathe, KS (352) October 1990 (c) (c) (c) (c) 89 90 Callaway Village, LTD. Clinton, TN (46) November 1990 96 98 100 89 96 89 Commerce Square Apartments Associates L.P. Smyrna, DE (80) December 1990 94 98 95 99 96 95 West 132nd Development Partnership New York, NY (40) December 1990 100 100 100 100 100 Site H Development Co. Brooklyn, NY (11) December 1990 (e) ~~100~~(e) 100 100 100 L.I.H. Chestnut Associates, L.P. Philadelphia, PA (78) December 1990 94 86 99 90 87 95 Diamond Phase II Venture Philadelphia, PA (32) December 1990 78 88 94 84 97 97 Bookbindery Associates Philadelphia, PA (41) December 1990 83 98 98 90 90 95 The Hamlet, LTD. Boynton Beach, FL (240) December 1990 94 98 97 99 92 90 Stop 22 Limited Partnership Santurce, PR (153) December 1990 (f) (f) 97 97 97 99 Knob Hill Apartments, LTD. Greenville, TN (48) December 1990 100 100 100 100 98100 Conifer James Street Associates Syracuse, NY (73) December 1990 99 97 88 94 90 94 Longfellow Heights Apartments, L.P. Kansas City, MO (104) March 1991 80 86 90 96 100 92

8 (a) Consists of four Apartment Complexes located throughout Michigan. Subsequently, on April 14, 2006 one of the four Apartment Complexes was sold. (b) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2002 (see Note 10 in Item 8). (c) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2004 (see Note 10 in Item 8). (d) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2005 (see Note 10 in Item 8). (e) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2006 (see Note 10 in Item 8). (f) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2006 (see Note 10 in Item 8). (g) The deed to the property and the related assets and liabilities was transferred during the fiscal year ended March 31, 2006 (see Note 10 in Item 8). (h) The property was affected by Hurricane Katrina during the fiscal year ended March 31, 2006. The property is currently closed (see Note 12 in Item 8). (i) The property and the related assets and liabilities were sold during the fiscal year ended March 31, 2007 (see Note 10 in Item 8). (j) The Partnership's limited partnership interest was sold during the fiscal year ended March 31, 2007 (see Note 10 in Item 8). The General Partners have generally required, in connection with the Partnership's investments in the Local Partnerships, that the Local General Partners undertake an obligation to fund operating deficits (up to a stated maximum amount) of the Local Partnership during a limited period of time following rent stabilization ("Guarantee Period"). In each case, the operating deficits have been funded by operating loans which will not bear interest and will be repaid only out of 50% of available cash flow or out of available net sale or refinancing proceeds. The gross amount of the operating deficit guarantee agreements aggregated approximately $18,700,000, of which all have expired as of March 31, 2007. In cases where the General Partners deem it appropriate, the obligations of a Local General Partner under the operating deficit and/or rent-up guarantees were secured by letters of credit and/or cash escrow deposits. The Tax Credits were available for a ten-year period which commenced when the Property is occupied by qualified tenants. However, the annual Tax Credit available in the year in which the Apartment Complex was first occupied by qualified tenants that were required to be prorated based upon the months remaining in the year after the Apartment Complex was placed in service. The amount of the annual Tax Credit not available in the first year was available in the eleventh year. In certain cases, the Partnership acquired its interest in a Local Partnership after the Local Partnership had placed its Apartment Complex in service. In these cases, the Partnership was allocated Tax Credits only beginning in the month following the month in which the Partnership acquired its interest. In addition, Tax Credits allocated in any prior period were not able to be claimed by the Partnership. The Partnership also acquired Local Partnership interests in which some of the Local Partnerships owning historic complexes qualified for the Historic Tax Credit. The amount of the Historic Tax Credit is generally 20% of qualified rehabilitation expenditures and is available in its entirety in the year the rehabilitated building is placed in service or, under certain circumstances, in the year in which the rehabilitation expenditure is made. As of March 31, 2007, the Credit Periods for all the Properties have expired; however, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. All leases are generally for periods not exceeding one to two years and no tenant occupies more than 10% of the rentable square footage in any single Apartment Complex. Rent from commercial tenants (to which average rental per square foot applies) comprises less than 5% of the rental revenues of the Partnership. Maximum rents for the residential units are determined annually by HUD and reflect increases/decreases in consumer price indexes in various geographic areas. Market conditions, however, determine the amount of rent actually charged. Management annually reviews the physical state of the Properties and suggests to the respective Local General Partner budget improvements, which improvements are generally funded from cash flow from operations or release of replacement reserve escrows to the extent available. Management annually reviews the insurance coverage of the Properties and believes such coverage is adequate. See Item 1, Business, above for the general competitive conditions to which the Properties described above are subject. Real estate taxes are calculated using rates and assessed valuations determined by the township or city in which the Property is located. Such taxes have approximated 1% of the aggregate cost of the Properties as shown in Schedule III to the financial statements. Item 3. Legal Proceedings None Item 4. Submission of Matters to a Vote of Security Holders None 9 PART II Item 5. Market for Registrant's Common Equity, Related Security Holder Matters And Issuer Purchases of Equity Securities The Partnership has issued 27,820.3 Limited Partnership Interests, each representing a $5,000 capital contribution to the Partnership, for aggregate gross proceeds of $139,101,500. All of the issued and outstanding Limited Partnership Interests have been issued to Liberty Credit Assignor III Inc. (the "Assignor Limited Partner"), which has in turn issued 139,101.5 BACs to the purchasers thereof for an aggregate purchase price of $139,101,500. Each BAC represents all of the economic and virtually all of the ownership rights attributable to one-fifth of a Limited Partnership Interest held by the Assignor Limited Partner. BACs may be converted into Limited Partnership Interests at no cost to the holder (other than the payment of transfer costs not to exceed $100), but Limited Partnership Interests so acquired are not thereafter convertible into BACs. Neither the BACs nor the Limited Partnership Interests are traded on any established trading market. The Partnership does not intend to include the BACs for quotation on NASDAQ or for listing on any national or regional stock exchange or any other established securities market. The Revenue Act of 1987 contained provisions which have an adverse impact on investors in "publicly traded partnerships." Accordingly, the General Partners have imposed limited restrictions on the transferability of the BACs and the Limited Partnership Interests in secondary market transactions. Implementation of these restrictions should prevent a public trading market from developing and may adversely affect the ability of an investor to liquidate his or her investment quickly. It is expected that such procedures will remain in effect until such time, if ever, as further revision of the Revenue Act of 1987 may permit the Partnership to lessen the scope of the restrictions. As of May 25, 2007, the Partnership has approximately 8,932 registered holders of an aggregate of 139,101.5 BACs. All of the Partnership's general partnership interests, representing an aggregate capital contribution of $2,000, are held by the two General Partners. Certain Subsidiary Partnerships are subject to HUD restrictions which limit annual cash distributions to partners and restrict the Subsidiary Partnerships from selling or otherwise liquidating their assets during the period that the agreement with HUD is in existence without HUD's approval. Pursuant to the terms of the Partnership Agreement there are no material restrictions that restrict the ability of the Partnership to make distributions. The Partnership does not anticipate providing cash distributions to BACs holders other than distributions of sale or refinancing proceeds upon the disposition of Properties. During and through the fiscal year ended March 31, 2007, distributions from sales proceeds were made to the BACs holders of approximately $6,957,000 and to the General Partners of approximately $70,000. The Partnership does not anticipate being able to make distributions sufficient to return to BACs holders their original capital contributions. 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, 2006. 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 In 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. 10 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 from the last five fiscal years. Additional financial information is set forth in the audited financial statements in Item 8 hereof.

Years Ended March 31, ------------------------------------------------------------------------------- OPERATIONS ~~2006~~2007 ~~2005~~2006*/** ~~2004~~2005*/** ~~2003~~2004*/** ~~2002~~2003*/** --------------------------------~~-------~~ ------------- ------------- ------------- ------------- ------------- Revenues $ 2114,~~941~~174,~~072~~616 $ 2114,~~681~~078,~~392~~557 $ 2114,~~211~~143,~~877~~931 $ 2113,~~138~~827,~~687~~545 $ 2013,~~898~~716,~~443~~012 Operating expenses (3327,~~876~~124,~~635~~386) (3324,~~439~~120,~~007~~333) (3223,~~916~~738,~~269~~390) (3323,~~659~~367,~~063~~211) (3223,~~220~~834,~~295~~112) ------------- ------------- ------------- ------------- ------------- Loss from operations before ~~minority interest and extraordinary item~~ (1112,~~935~~949,~~563~~770) (1110,~~757~~041,~~615~~776) (119,~~704~~594,~~392~~459) (129,~~520~~539,~~376~~666) (1110,~~321~~118,~~852~~100) minority interest Minority interest in loss of subsidiary partnerships from operations ~~310~~354,~~962~~847 ~~381~~305,~~135~~698 ~~242~~386,~~086~~614 ~~283~~243,~~874~~846 ~~173~~286,~~857~~899 Income (loss) from discontinued operations including gain (loss) on sale and minority interest 48,~~911~~137,~~290~~116 (13,~~562~~082,~~924)~~767 11(3,~~364~~671,~~701~~559) (59,~~381~~333,~~872)~~425 (37,~~120~~727,~~071~~173) ~~Extraordinary item~~ -~~forgiveness of indebtedness income 0 0 0 0 2,156,560~~ ------------ ------------- ------------- ------------- ------------- Net loss $ (4,457,807) $ (6,~~713~~653,311) $ (12,~~939~~879,404) $ ~~(97~~37,605) $ (17,~~618~~558,374) ~~$(12,111,506)~~ ============= ============= ============= ============= ============= Net loss - limited partners $ (64,~~646~~413,~~178~~229) $ (126,~~810~~586,~~010~~778) $ (9612,~~629~~750,610) $~~(17~~ 37,~~442,190)~~229 $ (1117,~~990~~382,~~391~~790) ============= ============= ============= ============= ============= Loss from operations per BAC $ (8289.7364) $ (8069.9729) $ (8165.5853) $ (8766.0916) $ (7969.3497) Income (loss) from discontinued operations per BAC 3457.9591 21.94 (1126.1213) 8066.8843 (3855.3000) ~~(22.21) Extraordinary item per BAC 0 0 0 0 15.35~~ ------------- ------------- ------------- ------------- ------------- Net loss per BAC $ (4731.7873) $ (9247.0935) $ (91.7066) $ ~~(125~~0.~~39)~~27 $ (86124.2097) ============= ============= ============= ============= =============

March 31, -------------------------------------------------------------------------------- FINANCIAL POSITION 2007 2006** 2005** 2004** 2003** 2002** -------------------------------- ------------- ------------- ------------- ------------- ------------- Total assets $ 117,542,156 $ 143,945,260 $ 173,313,829 $ 186,296,356 $ 200,113,780 ~~$ 212,833,322~~ ============= ============= ============= ============= ============= Total liabilities $ ~~247~~228,~~046~~172,~~190~~332 $ ~~271~~246,~~193~~116,~~203~~084 $ ~~271~~270,~~241~~323,~~053~~097 $ ~~284~~270,~~347~~430,~~987~~947 $ ~~278~~283,~~410~~597,~~068~~881 ============= ============= ============= ============= ============= Minority interest $ (420,360) $ (24,345) $ (1,476,100) $ (1,481,127) $ (867,942) ~~$ 71,145~~ ============= ============= ============= ============= ============= Total partners' deficit $(~~103~~110,~~076~~209,~~585~~816) $ (96102,~~403~~146,~~274~~479) $ (8395,~~463~~533,~~870~~168) $ (8382,~~366~~653,~~265~~764) $ (6582,~~747~~616,~~891~~159) ============= ============= ============= ============= =============

* Reclassified for comparative purposes. ** As restated (see Note 15 in Item 8). During the years ended March 31, 2007 and 2005, total assets and liabilities decreased primarily due to impairment of property and a decrease in property and equipment and mortgage notes payable resulting from the sale of the Local Partnerships. During the years ended March 31, 2006 and 2004, total assets and liabilities decreased primarily due to a decrease in property and equipment and mortgage notes payable resulting from the sale of Local Partnerships. During the year ended March 31, 2003, total assets decreased primarily due to depreciation, partially offset by net additions to property and equipment, and total liabilities increased primarily due to the accrual of principal and interest payments at one of the Local Partnerships along with the increase in obligations at the remaining Local Partnerships. 11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources ------------------------------- Through March 31, 2007, the Partnership had originally invested approximately $109,000,000 (not including acquisition fees) of the net proceeds of its Offering in 62 Local Partnerships, of which approximately $58,000 remains to be paid (all of which is held in escrow). During the year ended March 31, 2007, the Partnership sold its limited partnership interest in two Local Partnerships, the property and the related assets and liabilities of six Local Partnerships and one of the properties owned by a Local Partnership. Through the year ended March 31, 2007, the Partnership has sold the property and the related assets and liabilities of ten Local Partnerships, its limited partnership interest in sixteen Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities at one Local Partnership (see Note 10 in Item 8). In addition, as of March 31, 2007, the Partnership has entered into contracts to sell five additional Local Partnerships (see Note 11 in Item 8). Subsequently, the property and the related assets and liabilities of one Local Partnership was sold, and the Partnership entered into a contract to sell its limited partnership in another Local Partnership (see Note 16, Item 8). Short-Term ---------- During the year ended March 31, 2007, 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. Cash distributions received from the Local Partnerships, as well as the working capital reserves referred to above, will be used towards the future operating expenses of the Partnership. During the years ended March 31, 2007, 2006 and 2005, the amounts received from operations of the Local Partnerships were approximately $204,000, $902,000 and $399,000, respectively. Additionally, during the years ended March 31, 2007, 2006 and 2005, the Partnership received approximately $15,780,000, $1,623,000 and $0 of distributions from the sale of properties and approximately $1,800,000, $835,000 and $841,000 in proceeds from the sale of Local Partnerships' limited partnership interest. The Partnership does not anticipate being able to make distributions sufficient to return to BACs holders their original capital contributions. For the year ended March 31, 2007, cash and cash equivalents of the Partnership increased approximately $787,000. This increase was attributable to net proceeds from sale of properties ($20,068,000), proceeds from mortgage notes ($1,507,000) and an increase in advances from debt guarantor ($1,969,000), which exceeded cash used in operating activities ($2,612,000), a net decrease in due to Local General Partners and affiliates relating to financing and investing activities ($955,000), a decrease in capitalization of consolidated subsidiaries attributable to minority interest ($303,000), net repayments on mortgage notes ($10,468,000), an increase in deferred costs ($6,000), acquisition of property and equipment ($1,201,000), an increase in cash held in escrow relating to investing activities ($186,000) and distributions paid to BACs holders ($7,027,000). Included in the adjustments to reconcile the net loss to net cash provided by operating activities is depreciation and amortization ($6,936,000), gain on sale of properties ($12,675,000), loss on impairment of fixed assets ($5,235,000) and an increase in due to debt guarantor in the amount of ($3,561,000). Total expenses for the years ended March 31, 2007, 2006, and 2005, excluding depreciation and amortization, interest, general and administrative-related parties and loss on impairment of fixed assets, totaled $10,180,378, $9,174,919 and $9,063,495, respectively. Accounts payable as of March 31, 2007 and 2006 was $306,550 and $6,939,856, respectively. Accounts payable are short term liabilities which are expected to be paid from operating cash flows, working capital balances at the Local Partnership level, local general partner advances and in certain circumstances advances from the Partnership. The Partnership believes it (and the applicable Local Partnerships) has sufficient liquidity and ability to generate cash and to meet existing and known or reasonably likely future cash requirements over both the short and long term. Accrued interest payable as of March 31, 2007 and 2006 was $16,747,001 and $16,993,251, respectively. Accrued interest payable represents the accrued interest on all mortgage loans, which include primary and secondary loans. Certain secondary loans have provisions such that interest is accrued but not payable until a future date. The Partnership anticipates the payment of accrued interest on the secondary loans (which make up the majority of the accrued interest payable amount 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. The Partnership has an unconsolidated working capital reserve of approximately $10,351,000 at March 31, 2007. Partnership management fees owed to the General Partners amounted to approximately $7,802,788 and $11,822,000 and were accrued and unpaid at March 31, 2007 and 2006. During the year ended March 31, 2007, management deemed the unpaid partnership management fees that were related to sold properties uncollectible and, as a result, wrote them off in the amount of approximately $3,405,000, resulting in a non-cash General Partner contribution of the same amount. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. Long-Term --------- The Partnership is not expected to have access to additional sources of financing, and in particular will not have the ability to assess BACs holders for additional capital contributions to provide capital if needed by the Partnership. Accordingly, if circumstances arise that cause a Local Partnership to require capital in addition to that contributed by the Partnership and any equity of the Local General Partner, the only sources from which such capital needs will be able to be satisfied (other than the limited reserves available at the Partnership level) will be additional third party debt financing (which may not be available if, as expected, the Property owned by the Local Partnership is already substantially leveraged or, as in the case of certain Properties, the 12 incurrence of third party debt is not permitted) or additional equity contributions of the Local General Partner or other equity sources (which could adversely affect the Partnership's interest in operating cash flow and/or proceeds of sale or refinancing of the Property and result in adverse tax consequences to the BACs holders). There can be no assurance that any of such sources would be readily available in sufficient proportions to fund the capital requirements of the Local Partnerships in question, particularly if the residual value of a Property is uncertain. If such sources are not available, such Local Partnership would risk foreclosure on its Property if it was unable to renegotiate the terms of its first mortgage and any other debt with the lenders thereof. The risks associated with the need of such Local Partnership to refinance its underlying first mortgage debt are exacerbated by the probability that the term of certain favorable assistance programs from which a Local Partnership may benefit will expire prior to the end of the Compliance Period with respect to such Local Partnership's Property. For a discussion of contingencies affecting certain Local Partnerships, see Results of Operations of Certain Local Partnerships below. Since the maximum loss the Partnership would be liable for is its net investment in the respective Local Partnerships, the resolution of the existing contingencies 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 also result in recapture of Tax Credits if the investment is lost before the expiration of the 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 be experiencing upswings. However, the geographic diversifications of the portfolio may not protect against a general downturn in the national economy. In preparing the consolidated financial statements, management has made estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. Set forth below is a summary of the accounting policies that management believes are critical to the preparation of the consolidated financial statements. The summary should be read in conjunction with the more complete discussion of the Partnership's accounting policies included in Note 2 in Item 8. Critical Accounting Policies ---------------------------- Property and Equipment ---------------------- Property and equipment to be held and used are carried at cost which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2007, the Partnership has recorded approximately $5,235,000 as a loss on impairment of assets or reduction to estimated fair value. Through March 31, 2007, the Partnership has recorded approximately $29,172,000 as a loss on impairment of assets. In accordance with SFAS No. 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the consolidated statements of operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the consolidated balance sheets. 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. Property and equipment that are held for sale are included in discontinued operations. There are five assets classified as property and equipment-held for sale as of March 31, 2007 (see Note 11 in Item 8). 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. 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 miscellaneous items. 13 Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

Years Ended March 31, ------------------------------------~~------~~ 2007 2006* 2005* 2004* ---------- ---------- ---------- Interest $ ~~175~~480,~~251~~683 $ 98130,~~412~~281 $ 9766,~~501~~051 Other ~~699~~614,~~595~~578 ~~917~~505,~~709~~002 ~~589~~732,~~488~~258 ---------- ---------- ---------- Total other revenue $ ~~874~~1,~~846~~095,261 $1 635,~~016,121~~283 $ ~~686~~798,~~989~~309 ========== ========== ==========

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

Years Ended March 31, -------------------------------------- 2007 2006* 2005* 2004* ---------- ---------- ---------- Interest $ 5399,~~331~~570 $ 9998,~~950~~301 $ 94132,~~842~~311 Other ~~220~~497,~~621~~102 ~~623~~415,~~460~~214 ~~455~~808,~~977~~911 ---------- ---------- ---------- Total other revenue $~~273~~ 596,~~952~~672 $~~723~~ 513,~~410~~515 $~~550~~ 941,~~819~~222 ========== ========== ==========

* Reclassified for comparative purposes. Income Taxes ------------ The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31 (see Note 9 in Item 8). Tabular Disclosure of Contractual Obligations --------------------------------------------- The following table summarizes the Partnership's commitments from operations as of March 31, 2007 to make future payments under its debt agreements and other contractual obligations.

Less than 1 - 3 3 - 5 More than Total 1 Year Years Years 5 Years ------------ ------------ ------------ ------------ ------------ Mortgage notes payable (a) $~~115~~ 85,~~130~~828,~~084~~031 $ 84,~~265~~846,~~256~~057 $ 45,~~922~~070,~~658~~976 $ 64,~~437~~727,~~182~~890 $ 9571,~~504~~183,~~988~~108 Due to debt guarantor (b) 5863,~~413~~943,~~027~~133 5863,~~413~~943,~~027~~133 0 0 0 Land lease obligations (c) 2,~~860~~500,000 6650,000 ~~132~~100,000 ~~132~~100,000 2,~~530~~250,000 Developer loans and accrued interest (d) 1,~~344~~354,~~418~~465 1,~~344~~354,~~418~~465 0 0 0 Land note payable (e) 1635,~~565,106~~000 1635,~~565,106~~000 0 0 0 ------------ ------------ ------------ ------------ ------------ Total $~~179~~154,~~312~~260,~~635~~629 $ 6970,~~653~~828,~~807~~655 $ 5,~~054~~170,~~658~~976 $ 64,~~569~~827,~~182~~890 $ 9873,~~034~~433,~~988~~108 ============ ============ ============ ============ ============

(a) The mortgage notes from operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $422,000, including principal and interest at rates varying from 1% to 10.75% per annum, through the year 2046. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of such Subsidiary Partnership's rent and leases. (b) R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, through February 1, 2006. GRS has not granted an extension to its waiver to foreclose beyond February 1, 2006 and can exercise its right to foreclose at any time. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $63,943,133, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. (c) One Subsidiary Partnership is leasing the land on which the property is located on a noncancelable lease for a term of 50 years, expiring in 2033. At December 31, 2006, this Subsidiary Partnership was committed to minimum future annual rentals on the leases aggregating approximately $50,000 for each of the next five years, and $2,250,000 total thereafter. (d) See Note 8(C) (i) in Item 8. Financial Statements and Supplementary Data (e) See Note 8(C) (ii) in Item 8. Financial Statements and Supplementary Data 14 The following table summarizes the Partnership's commitments from discontinued operations as of March 31, 2007 to make future payments under its debt agreements and other contractual obligations.

Less than 1 - 3 3 - 5 More than Total 1 Year Years Years 5 Years ----------- ----------- ----------- ----------- ----------- Mortgage notes payable (a) $2232,~~358~~569,~~177~~200 $ 36,~~676~~446,~~596~~579 $ 1861,~~694,246~~408 $ 18,~~770~~077,~~761~~633 $1517,~~216~~183,~~574~~580 =========== =========== =========== =========== ===========

(a) The mortgage notes from discontinued operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $211,000, including principal and interest at rates varying from 1% to 11.5% per annum, through the year 2040. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of such Subsidiary Partnership's rent and leases. Off Balance Sheet Arrangements ------------------------------ The Partnership has no off-balance sheet arrangements. Results of Operations --------------------- The following is a summary of the results of operations of the Partnership for the years ended March 31, 2007, 2006 and 2005 ("Fiscal 2006", "Fiscal 2005" and "Fiscal 2004", respectively), excluding the results of its discontinued operations which are not reflected in the following discussion (see Item 8, Note 13). The majority of the Local Partnerships' income continues to be in the form of rental income, with the corresponding expenses (excluding loss on impairment of assets) being divided among operations, depreciation and mortgage interest. The net loss from operations for the 2006 Fiscal Year totaled $4,457,807. The net loss for the 2005 and 2004 Fiscal Years, as restated, totaled $6,653,311 and $12,879,404, respectively. The financial statement, set forth in Item 8, for the years ended March 31, 2007, 2006 and 2005 have been restated to correct an overstatement of interest due to an error in the computation of annual interest expense at one of the Local Partnerships (see Item 8, Note 15). 2006 vs. 2005 ------------- Rental income decreased approximately 3% for Fiscal 2006 as compared to Fiscal 2005, primarily due to a decrease in rents received at one Local Partnership due to its closing from damage caused by Hurricane Katrina, a decrease in occupancy at a second Local Partnership partially offset by increases in rental rates at the other Local Partnerships. Other income increased approximately $460,000 for Fiscal 2006 as compared to Fiscal 2005, primarily due to an increase of interest income earned on increased cash balances from sales proceeds at the Partnership level and an increase in utility reimbursements at one Local Partnership. Total expenses, excluding general and administrative, general and administrative-related parties, operating and other, and loss on impairment of fixed assets (see Item 8, Note 4), remained fairly consistent with an increase of approximately 1% for Fiscal 2006 as compared to Fiscal 2005. General and administrative increased approximately $793,000 for the year ended March 31, 2007 as compared to 2006, primarily due to an increase in bad debt, promotional fees and professional fees at one Local Partnership and increases in audit and legal expenses relating to the sold properties at the Partnership level. General and administrative-related parties decreased approximately $504,000 for the year ended March 31, 2007 as compared to 2006, primarily due to a decrease in property management fees at one Local Partnership due to its closing from damages caused by Hurricane Katrina, a decrease in partnership management fees resulting from the sale of properties and a decrease in expense reimbursements at the Partnership level. Operating and other expenses increased approximately $335,000 for the 2006 Fiscal Year compared to the 2005 Fiscal Year, primarily due to increases in gas and electric cost and usage at two Local Partnerships and increases in utility and fuel costs at several other Local Partnerships. 2005 vs. 2004 ------------- Rental income increased approximately 1% for Fiscal 2005 as compared to Fiscal 2004, primarily due to decreased vacancies at one Local Partnership and increased rental rates at the other Local Partnerships, offset by a decrease in rents received at one Local Partnership due to its closing from damage caused by Hurricane Katrina. Other income decreased approximately $141,000 for Fiscal 2005 as compared to Fiscal 2004, primarily due to one Local Partnership modifying its primary mortgage loan during Fiscal 2004. The primary mortgage was reduced in the amount of $1,500,000 with a corresponding increase in the support loan. In addition, the note holder forgave all the delinquent interest and related fees associated with the mortgage amounting to approximately $293,000 which is included in other income during Fiscal 2004. This decrease in other income was offset by a tax rebate received at one Local Partnership, an increase in laundry and late fee income at a second Local Partnership and an increase in interest earned at the Partnership level due to a larger cash balance earning interest during Fiscal 2005. Total expenses remained fairly consistent with a decrease of approximately 2% for Fiscal 2005 as compared to Fiscal 2004. 15 Results of Operations of Certain Local Partnerships --------------------------------------------------- (a) Subsidiary Partnership - Going Concerns and Uncertainties R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") ------------------------------------------------------------------------------- River Place has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, through February 1, 2006. GRS has not granted an extension to its waiver to foreclose beyond February 1, 2006 and can exercise its right to foreclose at any time. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $63,943,133, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. Management anticipates that River Place will be unable to make all of the required debt service payments during 2007. However, there is no guarantee that GRS, or any other person, will continue to make these payments on behalf of the River Place. Additionally, because River Place has been declared in default of its obligations under the guarantor agreement, the Authority could elect to declare River Place to be in default under the loan agreements pursuant to certain provisions contained therein but have elected not to do so as a result of GRS making the required debt service payments. Accordingly, it is uncertain whether River Place will be able to continue as a going concern. The financial statements of River Place have been prepared assuming that River Place will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in River Place has been written down to zero by prior years' losses and the minority interest balance was approximately $883,000 at both March 31, 2007 and 2006. The net loss after minority interest for River Place amounted to approximately $5,122,000, $4,056,000 and $3,526,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Subsequently, on May 30, 2007, River Place's 2000 Bonds were refunded in the amount of $21,280,000. Since the bonds have been refunded, the current mortgage held on the property by MSHDA and US Bank, the Bond Trustee on the former bonds, will be discharged. As of the date of River Place's audit report, this discharge has not occurred. New Bonds in the amount of $25,000,000 have been issued in the name of GRS River Place Corporation. This entity will be the fee holder of the apartments. The transfer of the property to the new ownership entity has not occurred as of the date of River Place's audit report. Longfellow Heights Apartments, L.P. ("Longfellow") -------------------------------------------------- The financial statements of Longfellow have been prepared assuming that it will continue as a going concern. Longfellow's note with Hallmark Corporate Foundation matures September 1, 2007. The principal balance of the note at December 31, 2006 was $1,237,648 and based on historical operations of Longfellow, it is not expected to be able to pay the principal balance in 2007. Longfellow intends to rehabilitate the property and to restructure its debt during 2007. Longfellow has Tax Credits approved, but is waiting on a bond allocation. This is expected to occur prior to September 1, 2007. The Partnership's investment in Longfellow was written down to zero by prior years' losses and the minority interest was $0 at both March 31, 2007 and 2006. The net loss after minority interest for Longfellow amounted to approximately $364,034, $370,000 and $311,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Citrus Meadows Apartments, LTD. ("Citrus Meadows") -------------------------------------------------- The financial statements of Citrus Meadows have been prepared assuming that it will continue as a going concern. Citrus Meadows incurred a net loss of $398,878 during the current period and has incurred a Partner's deficit of $7,522,047 since inception. Current economic conditions have limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management has reduced expenses and increased advertising to attract new tenants. Also, nonessential capital expenditures have either been eliminated or postponed. Also, in the current year, Citrus Meadows' status as a tax credit project has expired allowing it to provide rental opportunities to a wider range of possible tenants through the use of market value rents. Citrus Meadows has the ability to rent up to 60% of the 200 units to non-income restricted tenants. Current occupancy rates are near 80%, and management has secured several new move-in tenants for the 2007 fiscal year. At this time, the Local General Partner is funding the deficit. Because it is unclear whether Citrus Meadows will be successful in accomplishing these objectives, there is uncertainty about Citrus Meadow's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should Citrus Meadows be unable to continue as a going concern. The Partnership's investment in Citrus Meadows has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2007 and 2006. The net loss after minority interest amounted to approximately $399,000, $528,000 and $777,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Puerto Rico Historic Zone Dividend Partnership ("San Justo") ------------------------------------------------------------ The financial statements of San Justo have been prepared assuming that it will continue as a going concern. San Justo has suffered recurring losses from operations. At December 31, 2006, San Justo had a partners' deficit of $2,339,601 and has not complied with the total interest payment requirement of its mortgage note with the Puerto Rico Housing Finance Authority that raise substantial doubt about San Justo's ability to continue as a going concern. In addition, at December 31, 2006, there was a claim from Caribe Rum, Inc. (a related company of the Local General Partner) for, allegedly, an outstanding liability for $1,000,000. The related promissory note, in support of the claim, issued by San Justo, was dated on September 30, 1991 and was originally payable to Puerto Rico Housing Finance Corporation (PRHFC), and subsequently endorsed to Popular Mortgage, Inc. on February 19, 2004 and to Miramar Real Estate Management, Inc. (a related party), allegedly on October 19, 2006. The promissory note due date was July 1, 1992. San Justo's management did not have knowledge of the existence of such debt until October 2006. The related debt for $1,000,000 is not presented as a liability in the accompanying balance sheet. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Partnership's minority interest balance in San Justo was approximately $0 and $124,000 at March 31, 2007 and 2006, respectively. The net loss after minority interest for San Justo was approximately $434,000, $313,000 and $234,,000 for the years ended March 31, 2007, 2006 and 2005, respectively. The Partnership's limited partnership interest in San Justo was sold on March 21, 2007 (see Item 8, Note 10). 16 Jefferson Limited Partnership ("Jefferson") ------------------------------------------- At December 31, 2006 and 2005, Jefferson's current liabilities exceeded its current assets by approximately $1,337,000 and $1,289,000, respectively and has sustained a net loss of $696,283 for the year ended December 31, 2005. The accompanying financial statements have been prepared assuming Jefferson will continue as a going concern. Jefferson has suffered recurring losses and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management is taking measures to increase occupancy and reduce operating expenses. In addition, management is looking into alternatives regarding refinancing the existing debt. If profitable operations cannot be obtained, Jefferson will be financially dependent on its partners. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in Jefferson was written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2007 and 2006. The net loss after minority interest for Jefferson amounted to approximately $696,000, $183,000 and$151,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Manhattan A ----------- The financial statements of Manhattan A have been prepared assuming it will continue as a going concern. On October 25, 2006, Manhattan A sold the building and any cash left over after satisfying loans were distributed to the partners. The subsidiary partnership was terminated as of December 31, 2006 (see Item 8, Note 10). b) Subsidiary Partnership - Other Redemptorist Limited Partnership ("Redemptorist") ------------------------------------------------- Redemptorist is located in the areas affected by Hurricane Katrina in August 2005 that sustained major damage and has remained completely vacant since then. The Local General Partner is still evaluating whether Redemptorist will be rebuilt or not. Redemptorist is close to the end of its Compliance Period and has third-party debt. Redemptorist anticipates that the insurance proceeds will be sufficient to pay off all debt. Currently, Redemptorist does not expect that there will be financial exposure related to Redemptorist. At March 31, 2007, Redemptorist's property and equipment, net of accumulated depreciation, is approximately $2,836,000. The insurance coverage is approximately $6,500,000 for property, $5,000,000 for flood and wind coverage and $860,000 for rent loss. Cutler Canal ------------ On October 24, 2005, Cutler Canal was damaged by Hurricane Wilma. The hurricane caused extensive damage which required roofing to be replaced on substantially all the buildings of Cutler Canal. In total, damages were $321,756. As of December 31, 2006, the claim was processed and repairs completed. Repairs consisted of removing existing roofing material and installing new roofing material. Cutler Canal experienced a net gain on the involuntary conversion of $96,307 (included in other revenues on the consolidated statements of discontinued operations), which is the excess of net proceeds of $155,307 less the cost of the damaged property of $32,800. On February 7, 2007, Cutler Canal sold its property and the related assets and liabilities for a sales price of $11,600,000 (see Note 10 in Item 8). Driftwood --------- On October 24, 2005, Driftwood suffered damage caused by Hurricane Wilma. Driftwood has claimed and recovered $864,651 of insurance proceeds and has made repairs of $668,094 as of December 31, 2006. Driftwood has established a deferred charges account in the amount of $422,294 which represents the unspent insurance proceeds to be used on additional repairs. Driftwood has submitted a supplemental insurance claim in the amount of $224,737. The resolution of the supplemental claim and the amount of any casualty loss suffered by Driftwood cannot be determined at this time. Other Subsidiary Partnerships ----------------------------- One Subsidiary Partnership is leasing the land on which the property is located on a noncancelable lease for a term of 50 years, expiring in 2033. At December 31, 2006, this Subsidiary Partnership was committed to minimum future annual rentals on the leases aggregating approximately $50,000 for each of the next five years, and $2,250,000 total thereafter. Other ----- The Partnership's investments in the Local Partnerships are subject to the risks incident to management and ownership of improved real estate. The Partnership's investments also could be adversely affected by poor economic conditions, 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 also are substantial risks associated with the operation of apartment complexes receiving government assistance. These risks stem from governmental regulations concerning tenant eligibility, which may make it more difficult to rent apartments in the Apartment Complexes, difficulties in obtaining government approval for rent increases, limitations on the percentage of income which low and moderate-income tenants may pay as rent, the possibility that Congress may not appropriate funds to enable HUD to make the rental assistance payments it has contracted to make, and the possibility that when the rental assistance contracts expire there may not be market demand for apartments at full market rents in a Local Partnership's Apartment Complex. The Local Partnerships are impacted by inflation in several ways. Inflation allows for increases in rental rates generally to reflect the impact of higher operating and replacement costs. Inflation also affects the Local Partnerships adversely by increasing operating costs, for example, for such items as fuel, utilities and labor. However, continued inflation should allow for appreciated values of the Local Partnerships' Apartment Complexes over a period of time as rental revenues and replacement costs continue to increase. 17 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 11.5% 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 market risk sensitive instruments. 18 Item 8. Financial Statements and Supplementary Data Sequential Page ---------- Consolidated Financial Statements Report of Independent Registered Public Accounting Firm 20 Consolidated Balance Sheets at March 31, 2007 and 2006 102 Consolidated Statements of Operations for the Years Ended March 31, 2007, 2006 and 2005 103 Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 31, 2007, 2006 and 2005 104 Consolidated Statements of Cash Flows for the Years Ended March 31, 2007, 2006 and 2005 105 Notes to Consolidated Financial Statements 107 19 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) We have audited the consolidated balance sheets of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) (the "Partnership") as of March 31, 2007 and 2006, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for the years ended March 31, 2007, 2006 and 2005 (the 2006, 2005 and 2004 Fiscal Years, respectively). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of 39 (Fiscal 2006) and 32 (Fiscal 2005 and 2004) subsidiary partnerships whose losses aggregated ($7,329,145), ($3,269,498) and ($3,736,154) for the 2006, 2005 and 2004 Fiscal Years, respectively, and whose assets constituted 80% and 46% of the Partnership's assets at March 31, 2007 and 2006, respectively, presented in the accompanying consolidated financial statements. The financial statements of 38 (Fiscal 2006), 32 (Fiscal 2005) and 32 (Fiscal 2004) subsidiary partnerships were audited by other auditors whose reports thereon have been furnished to us and our opinion expressed herein, insofar as it relates to the amounts included for these subsidiary partnerships, is based solely upon the reports of the other auditors. The financial statements of one (Fiscal 2006) subsidiary partnership was unaudited. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, based upon our audits, and the reports of the other auditors referred to above, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the financial position of Liberty Tax Credit Plus III L.P. and Subsidiaries at March 31, 2007 and 2006, and the results of their operations and their cash flows for the years ended March 31, 2007, 2006 and 2005, in conformity with U.S. generally accepted accounting principles. As discussed in Note 12(a), the consolidated financial statements include the financial statements of six subsidiary partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These subsidiary partnerships' net losses aggregated $(3,726,984) (Fiscal 2006), $(5,549,636) (Fiscal 2005) and $(5,111,773) (Fiscal 2004), and their assets aggregated $23,363,604 and $29,970,295 at March 31, 2007 and 2006, respectively. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 29, 2007 20 [Letterhead of LAYTON & RICHARDSON, P.C.] INDEPENDENT AUDITOR'S REPORT Partners of Michigan Rural Housing Limited Partnership We have audited the accompanying balance sheets of Michigan Rural Housing Limited Partnership (a Michigan partnership) as of December 31, 2006 and 2005 and the related statements of income, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements present fairly, in all material respects, the financial position of Michigan Rural Housing Limited Partnership (a Michigan Partnership), as of December 31, 2006 and 2005, and the results of its operations, changes in partners' deficit and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. /s/ Layton & Richardson, P.C. Certified Public Accountants East Lansing, Michigan January 31, 2007 21 [Letterhead of LAYTON & RICHARDSON, P.C.] INDEPENDENT AUDITOR'S REPORT Partners of Michigan Rural Housing Limited Partnership We have audited the accompanying balance sheets of Michigan Rural Housing Limited Partnership (a Michigan partnership) as of December 31, 2005 and 2004 and the related statements of income, changes in partners' deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Michigan Rural Housing Limited Partnership (a Michigan Partnership), as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles. /s/ Layton & Richardson, P.C. Certified Public Accountants East Lansing, Michigan February 2, 2006 22 [REZNICK GROUP, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Jefferson Limited Partnership We have audited the accompanying balance sheet of Jefferson Limited Partnership at December 31, 2006, 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. The Partnership's financial statements as of December 31, 2005, were audited by other auditors whose opinion dated January 31, 2006, expressed an unqualified opinion on those financial statements. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jefferson Limited Partnership as of December 31, 2006, 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. The accompanying financial statements have been prepared assuming the Partnership will continue as a going concern. As discussed in Note 15, the Partnership has suffered recurring losses and has a net capital deficiency, which raised substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of the uncertainty. Our audit was conducted for the purpose of forming an opinion on the basic financial statements take as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the 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/ Reznick Group, P.C. Atlanta, Georgia March 22, 2007 23 [Letterhead of DAMIANO & BURK CPAs, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. (A Limited Partnership) Providence, RI We have audited the accompanying balance sheet of Project No. HIP010 of Inter-Tribal Indian Village Housing Development Associates, L.P. (a limited partnership) as of December 31, 2006, and the related Statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2006 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 performed for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying additional information on pages 13-19 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. In accordance with Government Auditing Standards, we have also issued a report dated January 18, 2007, on our consideration of Inter-Tribal Indian Village Housing Development Associates, L.P.'s internal controls and reports dated January 18, 2007, on its compliance with certain provisions of laws and regulations. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be read in conjunction with this report in considering the results of our audit. /s/ Damiano & Burk CPAs, P.C. Lincoln, RI January 18, 2007 24 [Letterhead of DAMIANO & BURK] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI We have audited the accompanying balance sheet of Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2005, 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. /s/ Damiano & Burk CPAs, PC Lincoln, Rhode Island January 18, 2006 25 [Letterhead of DAMIANO & BURK] INDEPENDENT AUDITORS' REPORT To the Partners Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI We have audited the accompanying balance sheet of Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2004, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of Inter-Tribal Indian Village Housing Development Associates, L.P. as of December 31, 2004, 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. /s/ Damiano & Burk CPAs, PC Lincoln, Rhode Island January 20, 2005 26 [REZNICK GROUP, P.C. Letterhead] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners R.P.P. Limited Dividend Housing Association Limited Partnership We have audited the accompanying balance sheet of R.P.P. Limited Dividend Housing Association Limited Partnership (the Partnership) as of December 31, 2006 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of R.P.P. Limited Dividend Housing Association Limited Partnership at December 31, 2006, and the results of its operations, the 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. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note F, the Partnership has been unable to generate sufficient cash flow to meet its debt service requirements and is in default under those obligations. These conditions raise substantial doubt about the Partnership's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability of assets or the amounts of liabilities that may result from the outcome of this uncertainty. /s/ Reznick Group, P.C. Bethesda, Maryland April 30, 2007 27 [Letterhead of DICKEY, WOLF & HUMBARD, LLC] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners Williamsburg Residential II, L.P. We have audited the balance sheets of Williamsburg Residential II, L.P. (a Kansas Limited Partnership) as of December 31, 2006 and 2005, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential II, L.P. as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO February 19, 2007 28 [Letterhead of DICKEY, WOLF & HUMBARD, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Williamsburg Residential II, L.P. We have audited the balance sheets of Williamsburg Residential II, L.P. (a Kansas Limited Partnership) as of December 31, 2005 and 2004, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Williamsburg Residential II, L.P. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Dickey, Wolf & Humbard, LLC Certified Public Accountants Harrisonville, MO February 2, 2006 29 [Letterhead of FELDMAN, HOLTZMAN & LUPO, LLC] INDEPENDENT AUDITOR'S REPORT To the Partners of West 104th Street Associates, L.P. (a Delaware Limited Partnership) We have audited the accompanying balance sheets of West 104th Street Associates, L.P. (a Delaware Limited Partnership) as of December 31, 2006 and December 31, 2005, 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 the standards of the Public Company Accounting Oversight Board in the United States of America for 2006 and in accordance with auditing standards generally accepted in the United States of America for 2005. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West 104th Street Associates, L.P. at December 31, 2006 and December 31, 2005 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/ FELDMAN, HOLTZMAN & LUPO, LLC Pompton Lakes, New Jersey February 28, 2007 30 INDEPENDENT ACCOUNTANTS' REPORT To the Partners of Meredith Apartments, Ltd. We have audited the accompanying balance sheet of Meredith Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital and cash flows for the years then ended September 29, 2004 and for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Meredith Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 30, 2004 31 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ritz Apartments, Ltd. We have audited the accompanying balance sheet of Ritz Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Ritz Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 30, 2004 32 INDEPENDENT ACCOUNTANTS' REPORT ------------------------------- To the Partners of Ashby Apartments, Ltd. We have audited the accompanying balance sheet of Ashby Apartments, Ltd. (a Limited Partnership) as of September 29, 2004 and December 31, 2003 and the related statements of operations, changes in partners' capital (deficit) and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003. 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 Ashby Apartments, Ltd. at September 29, 2004 and December 31, 2003, and the results of its operations and cash flows for the period ended September 29, 2004 and for the year ended December 31, 2003, in conformity accounting principles generally accepted in the United States of America. /s/ Lake, Hill & Myers Salt Lake City, Utah November 23, 2004 33 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2006, and the related statements of profit and loss, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2006, 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/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 6, 2007 Carmel, Indiana 34 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2005, and the related statements of profit and loss, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2005, 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/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 6, 2006 Carmel, Indiana 35 [Letterhead of DAUBY O'CONNOR & ZALESKI] Independent Auditors' Report To the Partners of South Toledo Associates, Ltd. (An Ohio Limited Partnership) Toledo, Ohio We have audited the accompanying balance sheet of South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2004, and the related statements of profit and loss, changes in partners' equity (deficit), and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit 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 South Toledo Associates, Ltd. (An Ohio Limited Partnership) as of December 31, 2004, 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/ Dauby O'Connor & Zaleski, LLC Certified Public Accountants January 7, 2005 Carmel, Indiana 36 [Letterhead of Reznick Group, PC] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners Dunlap School Venture We have audited the accompanying statement of financial position of Dunlap School Venture as of December 31, 2006, and the related statements of operations, changes in partner's equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Dunlap School Venture's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Dunlap School Venture as of December 31, 2006, 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. /s/ Reznick Group Baltimore, Maryland March 29, 2007 37 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Philipsburg Elderly Housing Associates (A Maine Limited Partnership) We have audited the accompanying balance sheets of Philipsburg Elderly Housing Associates (A Maine Limited Partnership), as of September 19, 2005 and the related statements of operations, changes in partners' capital and cash flows for the period January 1, 2005 through September 19, 2005. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 Philipsburg Elderly Housing Associates (A Maine Limited Partnership) as of September 19, 2005 and the results of its operations and its cash flows for the period January 1, 2005 through September 19, 2005, in conformity with U.S. generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our 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/ Baker Newman & Noyes Limited Liability Company Portland, Maine October 21, 2005 38 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Franklin Elderly Housing Associates (A Maine Limited Partnership) We have audited the balance sheet of Franklin Elderly Housing Associates (A Maine Limited Partnership) as of September 19, 2005 and the related statements of operations, changes in partners' deficit and cash flows for the period January 1, 2005 through September 19, 2005. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the 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 Franklin Elderly Housing Associates (A Maine Limited Partnership) as of September 19, 2005 and the results of its operations and its cash flows for the period January 1, 2005 through September 19, 2005, in conformity with U.S. generally accepted accounting principles. Our audit was made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in our audit of the basic financial statements and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Baker Newman & Noyes Limited Liability Company Portland, Maine October 21, 2005 39 [Letterhead of BAKER NEWMAN & NOYES] INDEPENDENT AUDITORS' REPORT To the Partners of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) We have audited the balance sheet of Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) as of September 19, 2005, and the related statements of operations, changes in partners' capital (deficit) and cash flows for the period January 1, 2005 through September 19, 2005. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 provided 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 Wade D. Mertz Elderly Housing Associates (A Maine Limited Partnership) as of September 19, 2005, and the results of its operations and its cash flows for the period January 1, 2005 through September 19, 2005, 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 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 our 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/ Baker Newman & Noyes Limited Liability Company Portland, Maine October 20, 2005 40 [Letterhead of Saltz, Shamis & Goldfarb, Inc.] Independent Auditor's Report ---------------------------- The General and Limited Partners Lancashire Towers Associates Limited Partnership We have audited the accompanying balance sheet of Lancashire Towers Associates Limited Partnership (an Ohio Limited Partnership) as of May 3, 2005, and the related statement of income, partners' capital, and cash flows for the period commencing January 1, 2005 through May 3, 2005. 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 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 Lancashire Towers Associates Limited Partnership as of May 3, 2005, and the results of its operations and cash flows for the period commencing January 1, 2005 through May 3, 2005 in conformity with accounting principles generally accepted in the United States of America. /s/ Saltz, Shamis & Goldfarb, Inc. CERTIFIED PUBLIC ACCOUNTANTS Cleveland, Ohio August 12, 2005 41 [Letterhead of Saltz, Shamis & Goldfarb, Inc.] Independent Auditor's Report ---------------------------- The General and Limited Partners Lancashire Towers Associates Limited Partnership We have audited the accompanying balance sheets of Lancashire Towers Associates Limited Partnership (An Ohio Limited Partnership) as of December 31, 2004 and 2003, and the related statement of income, partners' capital 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 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 Lancashire Towers Associates Limited Partnership as of December 31, 2004 and 2003, 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. In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report dated January 13, 2005 on our consideration of Lancashire Towers Associates Limited Partnership's internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts, grant agreements and other matters. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and over compliance and the results of that testing, and not to provide an opinion on the internal control over financial reporting or over compliance. 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 audits. /s/ Saltz, Shamis & Goldfarb, Inc. CERTIFIED PUBLIC ACCOUNTANTS Cleveland, Ohio January 13, 2005 42 [Letterhead of FASMAN, KLEIN & FELDSTEIN] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners, Brewery Renaissance Associates, L.P. We have audited the accompanying balance sheets of Brewery Renaissance Associates, L.P. as of December 31, 2006 and 2005, and the related statements of operations, partners' equity (deficit) and cash flows for years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Brewery Renaissance Associates, L.P. as of December 31, 2006 and 2005, and the results of its operations, changes in partners' equity (deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ FASMAN, KLEIN & FELDSTEIN New City, NY February 12, 2007 43 [Letterhead of J.H. Williams & Co., LLP, CPAs] Independent Auditors' Report ---------------------------- To the Partners Art Apartments (a Limited Partnership) Philadelphia, Pennsylvania We have audited the accompanying balance sheets of Art Apartments Partners (a Limited Partnership) as of December 31, 2006 and 2005 and the related statements of statements of income, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's partners and contracted management agent. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by the Partnership's management and contracted management agent, 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 Art Apartments (a Limited Partnership) at December 31, 2006 and 2005, and its 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/ J. H. Williams & Co., LLP February 17, 2007 44 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Village at Carriage Hills, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of The Village at Carriage Hills, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Village at Carriage Hills, Ltd., as of December 31, 2006 and 2005, and the results of its operations, changes in partners' 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 made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 45 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Village at Carriage Hills, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of The Village at Carriage Hills, Ltd., a limited partnership, RHS Project No.: 48-001-630980039 as of December 31, 2005 and 2004, and the related statements of operations, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 The Village at Carriage Hills, Ltd., RHS Project No.: 48-001-630980039 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The 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, 2005 and 2004, 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, 2006 on our consideration of The Village at Carriage Hills, 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2006 46 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mountainview Apartments, Ltd. Newport, Tennessee We have audited the accompanying balance sheets of Mountainview Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Mountainview Apartments, Ltd., as of December 31, 2006 and 2005, and the results of its operations, changes in partners' deficit and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama March 7, 2007 47 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mountainview Apartments, Ltd. Newport, Tennessee We have audited the accompanying balance sheets of Mountainview Apartments, Ltd., a limited partnership, RHS Project No.: 48-015-63097225 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Mountainview Apartments, Ltd., RHS Project No.: 48-015-63097225 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The 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, 2005 and 2004, 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, 2006 on our consideration of Mountainview 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 21, 2006 48 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Park Village, Limited Jackson, Mississippi We have audited the accompanying balance sheets of The Park Village, Limited, a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 The Park Village, Limited, as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and, in our opinion, is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 49 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners The Park Village, Limited Jackson, Mississippi We have audited the accompanying balance sheets of The Park Village, Limited, a limited partnership, as of December 31, 2005 and 2004, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 The Park Village, Limited, as of December 31, 2005 and 2004, and the results of its operations, changes in partners' capital and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2006 50 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners River Oaks Apartments, Ltd. Oneonta, Alabama We have audited the accompanying balance sheets of River Oaks Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 River Oaks Apartments, Ltd., as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 51 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners River Oaks Apartments, Ltd. Oneonta, Alabama We have audited the accompanying balance sheets of River Oaks Apartments, Ltd., a limited partnership, RHS Project No.: 01-005-630988076 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 River Oaks Apartments, Ltd., RHS Project No.: 01-005-630988076 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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 28, 2006 on our consideration of River Oaks 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2006 52 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Forrest Ridge, Ltd. Forrest City, Arkansas We have audited the accompanying balance sheets of Forrest Ridge Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Forrest Ridge Apartments, Ltd., as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 53 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Forrest Ridge, Ltd. Forrest City, Arkansas We have audited the accompanying balance sheets of Forrest Ridge Apartments, Ltd., a limited partnership, RHS Project No.: 03-062-630899211 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Forrest Ridge Apartments, Ltd., RHS Project No.: 03-062-630899211 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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, 2006 on our consideration of Forrest Ridge 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2006 54 [Letterhead of SCHOONOVER BOYER AND ASSOCIATES] INDEPENDENT AUDITORS' REPORT ---------------------------- The Partners The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan Limited Partnership) Portage, Michigan We have audited the accompanying balance sheets of The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan limited partnership) (the "Partnership"), as of December 31, 2006 and 2005, 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 the financial statements based on our audits. We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financing reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hearthside Limited Dividend Housing Association Limited Partnership, as of December 31, 2006 and 2005, and the results of its operations, changes in partners' equity/(deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. /s/ Schoonover Boyer & Associates Columbus, Ohio February 13, 2007 55 [Letterhead of SCHOONOVER BOYER AND ASSOCIATES] INDEPENDENT AUDITORS' REPORT The Partners The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan Limited Partnership) Portage, Michigan We have audited the accompanying balance sheets of The Hearthside Limited Dividend Housing Association Limited Partnership (a Michigan limited partnership), as of December 31, 2005 and 2004, and the related statements of operations, partners' equity/(deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on the financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financing reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of The Hearthside Limited Dividend Housing Association Limited Partnership, as of December 31, 2005 and 2004, and the results of its operations, changes in partners' equity/(deficit) and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 17 and 18 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/ Schoonover Boyer & Associates Columbus, Ohio January 26, 2006 56 [Letterhead of PAILET, MEUNIER AND LeBLANC, L.L.P.] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners of Redemptorist Limited Partnership New Orleans, Louisiana We have audited the accompanying balance sheets of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2006 and 2005, 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 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 standards of the Public Company Accounting Oversight Board (United States) and standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2006 and 2005, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated March 6, 2007, on our consideration of Redemptorist Limited Partnership's internal control, and reports dated March 6, 2007, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. /s/ Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana March 6, 2007 57 [Letterhead of PAILET, MEUNIER AND LeBLANC, L.L.P.] INDEPENDENT AUDITOR'S REPORT To the Partners of Redemptorist Limited Partnership New Orleans, Louisiana We have audited the accompanying balance sheets of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2005 and 2004, 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 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 standards of the Public Company Accounting Oversight Board (United States) and standards applicable to financial audits contained in GOVERNMENT AUDITING STANDARDS, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Redemptorist Limited Partnership, HUD Project No. 064-35271, as of December 31, 2005 and 2004, and the results of its operations, changes in partners' equity, and cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. In accordance with GOVERNMENT AUDITING STANDARDS and the CONSOLIDATED AUDIT GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U.S. Department of Housing and Urban Development, we have also issued a report dated March 28, 2006, on our consideration of Redemptorist Limited Partnership's internal control, and reports dated March 28, 2006, on its compliance with specific requirements applicable to major HUD programs and specific requirements applicable to Affirmative Fair Housing. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of our audit. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplemental information on pages 18 to 32 is presented for purposes of additional analysis and is not a required part of the basic financial statements of Redemptorist Limited 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/ Pailet, Meunier and LeBlanc, L.L.P. Metairie, Louisiana March 28, 2006 58 [Letterhead of SATTY, LEVINE & CIACCO, CPAs, P.C.] To the Partners Manhattan A Associates (A Limited Partnership) New York, New York We have audited the accompanying balance sheet of Manhattan A Associates (a limited partnership) as of December 31, 2006 and 2005, 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 of these financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards as established by the Auditing Standards Board (United States) and in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Manhattan A Associates as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information on pages nine through eleven is presented for purposes of additional analysis and is not a required part of the basic financial statements of Manhattan A Associates. Such information, except for the portion marked "unaudited," on which we express no opinion, 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. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 8 to the financial statements, the Company sold the building on October 25, 2006 therefore the partnership was terminated as of the end of the year. /s/ Satty, Levine & Ciacco, CPAs, P.C. Jericho, New York February 6, 2007 59 [Letterhead of Merina & Company, LLP] INDEPENDENT AUDITOR'S REPORT Board of Directors Weidler Associates Limited Partnership Portland, Oregon We have audited the accompanying statements of profit and loss, changes in partners' capital, and cash flows of Weidler Associates Limited Partnership, for the period ended May 31, 2006 (date of dissolution). These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit of the financial statements provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of operations of the Weidler Associates Limited Partnership for the period ended May 31, 2006 (date of dissolution), changes in partners' capital and its cash flows for the period then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Merina & Company West Linn, Oregon September 19, 2006 60 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Lake Forest Estates II, LTD. Livingston, Alabama We have audited the accompanying balance sheets of Lake Forest Estates II, LTD., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Lake Forest Estates II, LTD., as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 61 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Lake Forest Estates II, Ltd. Livingston, Alabama We have audited the accompanying balance sheets of Lake Forest Estates II, Ltd., a limited partnership, RHS Project No.: 01-060-630996944 as of December 31, 2005 and 2004, 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, the U.S. Department of Agriculture, Farmers Home Administration Audit Program, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Lake Forest Estates II, Ltd., RHS Project No.: 01-060-630996944 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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 25 2006 on our consideration of Lake Forest Estates II, 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 25, 2006 62 [Letterhead of AMILCAR TORRES RIVERA, CPA] INDEPENDENT AUDITOR'S REPORT To the Partners Las Camelias Limited Partnership I have audited the accompanying balance sheets of Las Camelias Limited Partnership as of December 31, 2005 and 2004, and the related statements of operations, partner's deficit and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audits. I conducted my audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor I was engaged to perform, an audit of its internal control over financial reporting. My audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits provide a reasonable basis for my opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Las Camelias Limited Partnership as of December 31, 2005 and 2004, and the results of its operations, changes in partners' deficit and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Amilcar Torres Rivera, CPA San Juan, Puerto Rico Stamp #2106462 of the Puerto Rico Society of CPA's was affixed to the original. February 2, 2006 63 [Letterhead of TIMOTHY L. STEERS, CPA, LLC.] INDEPENDENT AUDITOR'S REPORT To the Partners of WPL Associates XXIII Limited Partnership We have audited the accompanying balance sheets of WPL Associates XXIII Limited Partnership, as of July 15, 2004, and the related statements of operations, changes in partnerships' capital, and cash flows for the period from December 31, 2003 through July 15, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. 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 WPL Associates XXIII Limited Partnership at July 15, 2004 and the results of its operations and its cash flows for the period from December 31, 2003 through July 15, 2004, in conformity with U.S. generally accepted accounting principles. /s/ Timothy L. Steers, CPA, LLC Portland, Oregon November 18, 2004 64 [Letterhead of Reznick Group, PC] INDEPENDENT AUDITORS' REPORT To the Partners Broadway Townhouses L.P. We have audited the accompanying balance sheet of Broadway Townhouses L.P. as of December 31, 2006, 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 the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards, issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor we were engaged to perform an audit of internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Broadway Townhouses L.P. as of December 31, 2006, and the results of its operations, changes in its 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 a report dated February 27, 2007, on our consideration of Broadway Townhouses L.P.'s internal control over financial reporting. The purpose of that report is to describe the scope of our testing of internal control over financial reporting and the results of that testing and not to provide an opinion on the internal control over financial reporting. In accordance with Government Auditing Standards, we have also issued an opinion dated February 27, 2007, on Broadway Townhouses L.P.'s compliance with certain provisions of laws, regulations, contracts, and grant agreements, and other matters that could have a direct and material effect on a major HUD-assisted program. Those reports are an integral part of an audit performed in accordance with Government Auditing Standards and should be considered in assessing 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 25 through 38 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 audit of the basic financial statements and, in our opinion, is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. /s/ Reznick Group, PC Bethesda, Maryland February 27, 2007 Taxpayer Identification Number: 52-1088612 Lead Auditor: Nelson D. Gomez 65 [Letterhead of FPV & CO., PSC] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of Puerto Rico Historic Zone Limited Dividend Partnership We have audited the accompanying balance sheet of PUERTO RICO HISTORIC ZONE LIMITED DIVIDEND PARTNERSHIP as of December 31, 2006, and the related statements of operations, changes in partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 PUERTO RICO HISTORIC ZONE LIMITED DIVIDEND PARTNERSHIP as of December 31, 2006, and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. A claim has been made against the Partnership for the payment of a promissory note in the principal sum of $1,000,000, executed on September 30, 1991, by Mr. Juan Albors, as President of Housing Development Corp., General Partner of Puerto Rico Historic Zone Limited Dividend Partnership, before Notary Carol Cabanas Rios (Affidavit No. 577 of said Notary). The amount as of February 28, 2007 is $2,296,000. The holder of the note has demanded payment. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note K to the financial statements, the Partnership has suffered recurring losses from operations, as of December 31, 2006 has a Partners' deficit of $2,339,601 and has not complied with the total interest payment requirement of its mortgage note with Puerto Rico Housing Finance Authority that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note K. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In accordance with Government Auditing Standards and the Consolidated Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development we have also issued a report dated February 1, 2007, on our consideration of PUERTO RICO HISTORIC ZONE LIMITED DIVIDEND PARTNERSHIP's internal control and reports dated February 1, 2007, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Fair Housing and Non-Discrimination, and special requirements applicable to non-major HUD program transactions. 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 made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 15 through 25 is presented for the purpose of additional analysis and is not a required part of the basic financial statement. 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/ FPV & CO. Stamp No. 2226591 was affixed to the original of this report. San Juan, Puerto Rico February 1, 2007 66 [Letterhead of FPV & CO., PSC] INDEPENDENT AUDITORS' REPORT To the Partners of Puerto Rico Historic Zone Limited Dividend Partnership We have audited the accompanying balance sheet of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2005, and the related statements of operations, partners' deficit, and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States) and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for my opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Puerto Rico Historic Zone Limited Dividend Partnership as of December 31, 2005, and the results of its operations, the changes in partners' deficit and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note L to the financial statements, the Partnership has suffered recurring losses from operations, as of December 31, 2005 has a Partners' deficit of $1,901,629 and has not complied with the total interest payment requirement of its mortgage note with Puerto Rico Housing Finance Authority that raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note L. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. In accordance with Government Auditing Standards and the Consolidated Audits of HUD Programs issued by the U.S. Department of Housing and Urban Development we have also issued a report dated January 27, 2006, on our consideration of Puerto Rico Historic Zone Limited Dividend Partnership's internal control and reports dated January 27, 2006, on its compliance with specific requirements applicable to major HUD programs, specific requirements applicable to Fair Housing and Non-Discrimination, and special requirements applicable to non-major HUD program transactions. 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 made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 15 through 25 is presented for the purpose of additional analysis and is not required as part of the basic financial statement. 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/ FPV & CO., PSC Certified Public Accountants Stamp No. 2104162 was affixed to the original of this report. San Juan, Puerto Rico January 27, 2006 67 [Letterhead of CABLISH & GENTILE, CPAs] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-94043 (a limited partnership), as of December 31, 2006, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Citrus Meadows Apartments, Ltd. at December 31, 2006 and the results of its operations and its cash flows for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 12 through 16) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated January 29, 2007 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated January 29, 2007 on major HUD programs, and the nonmajor HUD program. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership's significant operating losses and low occupancy rate raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Cablish & Gentile, CPA's, LLC Bradenton, Florida January 29, 2007 68 [Letterhead of CABLISH & GENTILE, CPA'S, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-94043 (a limited partnership) (the Partnership), as of December 31, 2005, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. 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 Citrus Meadows Apartments, Ltd. at December 31, 2005 and the results of its operations, cash flows and changes in partners' equity (deficit) for the year then ended, in conformity with generally accepted accounting principles in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 12 through 16) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated February 23, 2006 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated February 23, 2006 on major HUD programs, and the nonmajor HUD program. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership's significant operating losses and low occupancy rate raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Cablish & Gentile, CPA's, LLC Bradenton, Florida February 23, 2006 69 [Letterhead of CABLISH & GENTILE , CPA'S, LLC] INDEPENDENT AUDITORS' REPORT To the Partners Citrus Meadows Apartments, Ltd. Bradenton, Florida We have audited the accompanying balance sheet of Citrus Meadows Apartments, Ltd., FHA Project No. 067-94043 (a limited partnership) (the Partnership), as of December 31, 2004, and the related statements of profit and loss, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. 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 Citrus Meadows Apartments, Ltd. at December 31, 2004 and the results of its operations, cash flows and changes in partners' equity (deficit) for the year then ended in conformity with generally accepted accounting principles in the United States of America. Our audit was conducted for the purpose of forming an opinion on the financial statements taken as a whole. The supplemental schedules included in the financial statements (shown on pages 12 through 16) are presented for the purpose of additional analysis and are not a required part of the basic financial statements of Citrus Meadows Apartment, Ltd. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued reports dated February 7, 2005 on our consideration of Citrus Meadows Apartments, Ltd.'s internal controls and on its compliance with laws and regulations applicable to the basic financial statements. In accordance with the Consolidated Audit Guide, we have also issued reports dated February 7, 2005 on major HUD programs, and the nonmajor HUD program. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 5 to the financial statements, the Partnership's significant operating losses and low occupancy rate raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ Cablish & Gentile, CPA's, LLC Bradenton, Florida February 7, 2005 Reissued Auditor Report February 28, 2006 (for new standards of Public Company Accounting Oversight Board (United States)) 70 [REZNICK GROUP, P.C.] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners Sartain School Venture We have audited the accompanying balance sheet of Sartain School Venture as of December 31, 2006, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Sartain School Venture at December 31, 2006 and the results of its operations, the 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. /s/ Reznick Group, P.C. Baltimore, Maryland March 28, 2007 71 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Holly Hill, Ltd. Greenville, Tennessee We have audited the accompanying balance sheets of Holly Hill, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Holly Hill, Ltd., as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 27, 2007 72 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Holly Hill, Ltd. Greenville, Tennessee We have audited the accompanying balance sheets of Holly Hill, Ltd., a limited partnership, RHS Project No.: 48-030-621264791 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Holly Hill, Ltd., RHS Project No.: 48-030-621264791 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. The 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, 2005 and 2004, 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 24, 2006 on our consideration of Holly Hill, 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 24, 2006 73 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mayfair Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Mayfair Apartments, Ltd., as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Mayfair Apartments, Ltd., as of December 31, 2006 and 2005, 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. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the audit procedures applied in the audit of the basic financial statements, and, in our opinion is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 74 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Mayfair Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Mayfair Apartments, Ltd., a limited partnership, RHS Project No.: 48-032-630957575 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Mayfair Apartments, Ltd., RHS Project No.: 48-032-630957575 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with auditing standards generally accepted in the United States. 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, 2005 and 2004, 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 auditing standards generally accepted in the United States of America, we have also issued a report dated February 27, 2006 on our consideration of Mayfair Apartments, Ltd.'s internal control over financial reporting and on our tests of its compliance with certain provisions of laws and regulations. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 27, 2006 75 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Foxcroft Apartments, Ltd. Troy, Alabama We have audited the accompanying balance sheets of Foxcroft Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Foxcroft Apartments, Ltd., as of December 31, 2006 and 2005, 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. 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 and 11 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 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 76 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Foxcroft Apartments, Ltd. Troy, Alabama We have audited the accompanying balance sheets of Foxcroft Apartments, Ltd., a limited partnership, RHS Project No.: 01-055-630971151 as of December 31, 2005 and 2004, 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., and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Foxcroft Apartments, Ltd., RHS Project No.: 01-055-630971151 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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 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, 2005 and 2004, 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 25, 2006 on our consideration of Foxcroft Apartments'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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 25, 2006 77 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Canterbury Apartments, Ltd. Indianola, Mississippi We have audited the accompanying balance sheets of Canterbury Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Canterbury Apartments, Ltd., as of December 31, 2006 and 2005, 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. 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 and 11 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 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 March 8, 2007 on our consideration of Canterbury 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama March 8, 2007 78 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Canterbury Apartments, Ltd. Indianola, Mississippi We have audited the accompanying balance sheets of Canterbury Apartments, Ltd., a limited partnership, RHS Project No.: 28-067-630979083 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Canterbury Apartments, Ltd., RHS Project No.: 28-067-630979083 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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, 2006 on our consideration of Canterbury 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2006 79 [Letterhead from Reznick Group, PC] INDEPENDENT AUDITORS' REPORT To the Partners Cutler Canal III Associates, Ltd. We have audited the accompanying balance sheets of Cutler Canal III Associates, Ltd., as of December 31, 2006 and 2005, 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit also 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 Cutler Canal III Associates, Ltd., as of December 31, 2006 and 2005, 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 audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on page 19 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 aspects in relation to the basic financial statements taken as a whole. /s/ Reznick Group, PC Atlanta, Georgia April 18, 2007 80 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Callaway Village, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of Callaway Village, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Callaway Village, Ltd., as of December 31, 2006 and 2005, and the results of its operations, changes in partners' 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 made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 27, 2007 81 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Callaway Village, Ltd. Clinton, Tennessee We have audited the accompanying balance sheets of Callaway Village, Ltd., a limited partnership, RHS Project No.: 48-001-581172107 as of December 31, 2005 and 2004, 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, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that 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 Callaway Village, Ltd., RHS Project No.: 48-001-581172107 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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, 2006 on our consideration of Callaway Village, 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 23, 2006 82 [Letterhead of BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners Commerce Square Apartments Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheet of Commerce Square Apartments Associates, L.P. (the "Company") as of December 31, 2006, and the related statements of profit and loss, partners' deficiency and cash flows for the year ended December 31, 2006. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Commerce Square Apartments Associates, L.P., as of December 31, 2005, were audited by other auditors whose report dated January 26, 2006 expressed an unqualified opinion on those statements. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit 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 Commerce Square Apartments Associates, L.P., as of December 31, 2006, the results of its operations and cash flows for the year ended December 31, 2006, in conformity with U.S. generally accepted accounting principles. Our audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompany supplementary information on pages 13 through 15 is presented for the purposes of additional analysis and is not a required part of the basic financial statements of Commerce Square Apartments Associates, L.P. 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/ BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C. Certified Public Accountants Gibbsboro, New Jersey February 13, 2007 83 [Letterhead of FISHBEIN & COMPANY, P.C..] INDEPENDENT AUDITORS' REPORT To the Partners Commerce Square Apartments Associates, L.P. Wilmington, Delaware We have audited the accompanying balance sheet of COMMERCE SQUARE APARTMENTS ASSOCIATES, L.P., as of December 31, 2005 and 2004, and the related statements of profit and loss, partners' deficiency and cash flows for the years then ended. These financial statements are the responsibility of Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Commerce Square Apartments Associates, L.P., as of December 31, 2005 and 2004, 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 additional information included in this report (shown on pages 12 to 14) is presented for the purposes of additional analysis and is not a required part of the basic financial statements of Commerce Square Apartments Associates, L.P. 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/ Fishbein & Company, P.C. January 26, 2006 Horsham, Pennsylvania 84 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners West 132nd Development Partnership We have audited the accompanying balance sheet of West 132nd Development Partnership (A Limited Partnership) as of December 31, 2006 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of West 132nd Development Partnership (A Limited Partnership) as of December 31, 2006 and the results of its operations, changes in partners' equity and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP Certified Public Accountants New York, New York January 23, 2007 85 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT To the Partners West 132nd Development Partnership We have audited the accompanying balance sheet of West 132nd Development Partnership (A Limited Partnership) as of December 31, 2005 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 West 132nd Development Partnership (A Limited Partnership) as of December 31, 2005 and the results of its operations, changes in partners' equity and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP Certified Public Accountants New York, New York January 19, 2006 86 [Letterhead of KOCH GROUP & COMPANY, LLP] INDEPENDENT AUDITORS' REPORT To the Partners West 132nd Development Partnership We have audited the accompanying balance sheet of West 132nd Development Partnership (A Limited Partnership) as of December 31, 2004 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 standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 West 132nd Development Partnership (A Limited Partnership) as of December 31, 2004 and the results of its operations, changes in partners' equity and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP Certified Public Accountants New York, New York January 24, 2005 87 [Letterhead of Koch Group & Company, LLP] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners Site H Development Company We have audited the statements of operations, changes in partners' equity and cash flows of Site H Development Company (a Limited Partnership) for the three months ended March 31, 2006. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of Site H Development Company's (a Limited Partnership) operations, changes in partners' equity and cash flows for the three months ended March 31, 2006 in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP Certified Public Accountants New York, New York June 6, 2006 88 [Letterhead of Koch Group & Company, LLP] Independent Auditor's Report To the Partners Site H Development Company We have audited the accompanying balance sheets of Site H Development Company (a Limited Partnership) as of December 31, 2005 and 2004 and the related statements of operations, changes in partners' equity and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Site H Development Company (a Limited Partnership) as of December 31, 2005 and 2004 and the results of its operations, changes in partners' equity and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. /s/ Koch Group & Company, LLP New York, New York February 21, 2006 (Except for Note 6, as to which the date is March 1, 2006) 89 [Letterhead of Koch Group & Company, LLP] INDEPENDENT AUDITOR'S REPORT ---------------------------- To the Partners L.I.H. Chestnut Associates, L.P. We have audited the accompanying balance sheets of L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2006 and 2005, and the related statements of profit and loss, changes in partners' equity (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of L.I.H Chestnut Associates, L.P.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor we were engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2006 and 2005, and the results of its operations, changes in partners' equity (deficiency) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (pages 23 to 26) is presented for purposes of additional analysis and is not a required part of the of L.I.H. Chestnut Associates, L.P. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated February 9, 2007 on our consideration of L.I.H. Chestnut Associates, L.P.'s (a Pennsylvania limited partnership) internal control over financial reporting and on our tests of its compliance with certain provision 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 audits. /s/ Koch Group & Company, LLP New York, New York February 9, 2007 90 [Letterhead of Koch Group & Company, LLP] Independent Auditor's Report To the Partners L.I.H. Chestnut Associates, L.P. We have audited the accompanying balance sheets of L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2005 and 2004, and the related statements of profit and loss, changes in partners' equity (deficiency), and cash flows for the years then ended. These financial statements are the responsibility of L.I.H Chestnut Associates, L.P.'s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 L.I.H. Chestnut Associates, L.P. (a Pennsylvania limited partnership), PHFA Project No. O-0083, as of December 31, 2005 and 2004, and the results of its operations, changes in partners' equity (deficiency) and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (pages 23 to 26) is presented for purposes of additional analysis and is not a required part of the of L.I.H. Chestnut Associates, L.P. 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 financial statements taken as a whole. In accordance with Government Auditing Standards, we have also issued our report dated February 10, 2006 on our consideration of L.I.H. Chestnut Associates, L.P.'s (a Pennsylvania limited partnership) internal control over financial reporting and on our tests of its compliance with certain provision 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 audits. /s/ Koch Group & Company, LLP New York, New York February 10, 2006 91 [REZNICK GROUP, P.C.] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners Diamond Phase II Venture We have audited the accompanying balance sheet of Diamond Phase II Venture as of December 31, 2006, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Diamond Phase II Venture at December 31, 2006 and the results of its operations, the 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. /s/ Reznick Group, P.C. Baltimore, Maryland March 29, 2007 92 [Letterhead of REZNICK GROUP, P.C.] REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Partners Bookbindery Associates We have audited the accompanying balance sheet of Bookbindery Associates as of December 31, 2006, and the related statements of operations, changes in partners' equity (deficit) and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Bookbindery Associates at December 31, 2006 and the results of its operations, the 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. /s/ Reznick Group Baltimore, Maryland March 29, 2007 93 [Letterhead of BUCHBINDER TUNICK & COMPANY LLP] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of The Hamlet, Ltd. We have audited the accompanying balance sheets of The Hamlet, Ltd. (Partnership) as of December 31, 2006 and 2005 and the related statements of operations, partners' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Hamlet, Ltd. as of December 31, 2006 and 2005 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules appearing on page 12 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The information in these schedules has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ BUCHBINDER TUNICK & COMPANY LLP Rockville, Maryland February 28, 2007 94 [Letterhead of BUCHBINDER TUNICK & COMPANY LLP] REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Partners of The Hamlet, Ltd. We have audited the accompanying balance sheets of The Hamlet, Ltd. (Partnership) as of December 31, 2005 and 2004 and the related statements of operations, partners' equity (deficiency) and cash flows for the years then ended. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 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 Hamlet, Ltd. as of December 31, 2005 and 2004 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental schedules appearing on page 11 are presented for purposes of additional analysis and are not a required part of the basic financial statements. The information in these schedules has been subjected to the auditing procedures applied in the audits of the basic financial statements, and in our opinion, such information is fairly stated in all material respects in relation to the basic financial statements taken as a whole. /s/ BUCHBINDER TUNICK & COMPANY LLP Rockville, Maryland January 26, 2006 95 [Letterhead of ISRAEL ROLON, CPA] INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY -------------------------------------------------------------------------------- INFORMATION ----------- TO THE PARTNERS OF STOP 22 LIMITED PARTNERSHIP I have audited the accompanying balance sheet of Stop 22 Limited Partnership, H.U.D. Project No.: R2-46-E-006-014 and R2-46-E-00l-013, as of December 31, 2005, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor I was engaged to perform, an audit of its internal control over financial reporting. Nt audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for our opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stop 22 Limited Partnership, as of December 31, 2005, and the results of its operations, changes in partners' 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, I have also issued reports dated February 13, 2006, on my consideration of Stop 22 Limited Partnership's internal control over financial reporting, and on my test of its compliance with certain provision of laws, regulations, contracts and grant agreements, and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of my audit. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages to 21 to 29) 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 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. /s/ ISRAEL ROLON, C.P.A. SAN JUAN, PUERTO RICO February 13, 2006 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 66-0392808 STAMP NUMBER 2055589 WAS AFFIXED TO THE ORIGINAL OF THIS REPORT. 96 [Letterhead of ISRAEL ROLON, CPA] INDEPENDENT AUDITOR'S REPORT ON FINANCIAL STATEMENTS AND SUPPLEMENTARY -------------------------------------------------------------------------------- INFORMATION ----------- TO THE PARTNERS OF STOP 22 LIMITED PARTNERSHIP I have audited the accompanying balance sheet of Stop 22 Limited Partnership, H.U.D. Project No.: R2-46-E-006-014 and R2-46-E-00l-013, as of December 31, 2004, and the related statements of operations, changes in partners' deficit and cash flows for the year then ended. These financial statements are the responsibility of the Partnership's management. My responsibility is to express an opinion on these financial statements based on my audit. I conducted my audit in accordance with auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor I was engaged to perform, an audit of its internal control over financial reporting. Nt audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, I express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for our opinion. In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Stop 22 Limited Partnership, as of December 31, 2004, and the results of its operations, changes in partners' 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, I have also issued reports dated February 11, 2005, on my consideration of Stop 22 Limited Partnership's internal control over financial reporting, and on my test of its compliance with certain provision of laws, regulations, contracts and grant agreements, and other matters. The purpose of those reports is to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the internal control over financial reporting or on compliance. Those reports are an integral part of an audit performed in accordance with GOVERNMENT AUDITING STANDARDS and should be read in conjunction with this report in considering the results of my audit. My audit was conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages to 21 to 29) 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 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. /s/ ISRAEL ROLON, C.P.A. SAN JUAN, PUERTO RICO February 11, 2005 FEDERAL EMPLOYER IDENTIFICATION NUMBER: 66-0392808 STAMP NUMBER 2016960 WAS AFFIXED TO THE ORIGINAL OF THIS REPORT. 97 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Knob Hill Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Knob Hill Apartments, Ltd., a limited partnership, as of December 31, 2006 and 2005, 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 the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Knob Hill Apartments, Ltd., as of December 31, 2006 and 2005, and the results of its operations, changes in partners' 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 made for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information on pages 10 and 11 is presented for the 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/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 28, 2007 98 [Letterhead of DONALD W. CAUSEY & ASSOCIATES, P.C.] INDEPENDENT AUDITORS' REPORT To the Partners Knob Hill Apartments, Ltd. Morristown, Tennessee We have audited the accompanying balance sheets of Knob Hill Apartments, Ltd. a limited partnership, RHS Project No.: 48-032-638979224 as of December 31, 2005 and 2004, 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 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, the U.S. Department of Agriculture, Farmers Home Administration Audit Program, and the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An Audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Knob Hill Apartments, Ltd., RHS Project No 48-032-638979224 as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States. 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, 2005 and 2004, 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 26, 2006 on our consideration of Knob Hill 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. However, the partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included only the consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the partnership's internal control over financial reporting. Accordingly, we express no such opinion. /s/ Donald W. Causey & Associates, P.C. Gadsden, Alabama February 26, 2006 99 [Letterhead of SALMIN, CELONA, WEHRLE & FLAHERTY, LLP] INDEPENDENT AUDITORS' REPORT ---------------------------- To the Partners of Conifer James Street Associates We have audited the accompanying balance sheet of Conifer James Street Associates (a limited partnership) as of December 31, 2006 and 2005, and the related statements of operations and partners' capital (deficit), and cash flows for the years then ended. These statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Partnership has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. As described in Notes 2 and 8, the Partnership entered into a contract to sell the majority of its assets which sale is scheduled to close in 2007. Accordingly, the Partnership has changed its basis of accounting from the going concern basis to the liquidation basis on December 31, 2006. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Conifer James Street Associates as of December 31, 2006 and 2005, 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/ Salmin, Celona, Wehrle & Flaherty, LLP Rochester, New York March 2, 2007 100 [Letterhead of RubinBrown LLP] Report of Independent Registered Public Accounting Firm S2100-020 To The Partners Longfellow Heights Apartments, L.P. St. Louis, Missouri We have audited the accompanying balance sheet of Longfellow Heights Apartments, L.P., Project No. MHDC No. 89-583, a limited partnership, as of December 31, 2005 and 2004, 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 audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Longfellow Heights Apartments, L.P. as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America. Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The accompanying supplementary information (shown on pages 15 to 24) is presented for purposes of additional analysis and is not a required part of the basic financial statements. Such information has been subjected to the auditing procedures applied in the audit of the financial statements and, in our opinion, is fairly stated in all material respects in relation to the financial statements taken as a whole. The accompanying financial statements have been prepared assuming that the Partnership will continue as a going concern. As discussed in Note 11 to the financial statements, the Partnership's note with Hallmark Corporate Foundation matures in 2006, and the Partnership is not expected to have the operating cash flow to cover the principal payment. This uncertainty raises substantial doubt about the Partnership's ability to continue as a going concern. Management's plans regarding these matters are described in Note 11. The financial statements do not include any adjustments that might result from the outcome of this uncertainly. /s/ RubinBrown LLP St. Louis, Missouri February 1, 2006 101 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

~~Sequential~~ASSETS ~~Page~~March 31, ------------------------------ ~~Consolidated~~2007 ~~Financial~~2006* ~~Statements~~------------- ~~Report~~------------- Operating assets: Property and equipment - at cost, net of ~~Independent~~accumulated ~~Registered~~depreciation ~~Public~~(Notes ~~Accounting~~2, ~~Firm~~4 20and ~~Consolidated~~12) ~~Balance~~$ ~~Sheets~~67,679,479 at$ ~~March~~104,454,711 31Cash and cash equivalents (Notes 2, ~~2006~~3 and ~~2005~~12) ~~118~~5,256,344 ~~Consolidated~~4,707,714 ~~Statements~~Cash ofheld ~~Operations~~in ~~for~~escrow ~~the~~(Notes ~~Years~~3 ~~Ended~~and ~~March~~5) 315,191,046 ~~2006~~6,768,492 ~~2005~~Deferred costs - less accumulated amortization (Notes 2 and ~~2004~~6) 1,354,307 1,906,271 Other assets 1,374,292 1,785,741 ------------- ------------- Total operating assets 80,855,468 119,622,929 ~~Consolidated~~------------- ~~Statements~~------------- ofAssets ~~Changes~~from indiscontinued ~~Partners'~~operations ~~Deficit~~(Note 13): Property and equipment held for ~~the~~sale, ~~Years~~net ~~Ended~~of ~~March~~accumulated depreciation 31,822,485 ~~2006~~20,574,674 ~~2005~~(Note 4) Net assets held for sale 4,864,203 3,747,657 ------------- ------------- Total assets from discontinued operations 36,686,688 24,322,331 ------------- ------------- Total assets $ 117,542,156 $ 143,945,260 ============= ============= LIABILITIES AND PARTNERS' DEFICIT Operating liabilities: Mortgage notes payable (Note 7) $ 85,828,031 $ 115,130,084 Due to debt guarantor (Note 12(a)) 63,943,133 58,413,027 Accounts payable 306,550 6,939,856 Accrued interest payable 16,747,001 16,993,251 Security deposit payable 669,329 1,146,201 Due to local general partners and ~~2004~~affiliates ~~120~~(Note ~~Consolidated~~8) ~~Statements~~5,445,990 10,502,870 Due to general partners and affiliates (Note 8) 6,921,475 12,317,893 ------------- ------------- Total operating liabilities 179,861,509 221,443,182 ------------- ------------- Liabilities from discontinued operations (Note 13): Mortgage notes payable of ~~Cash~~asset ~~Flows~~held for ~~the~~sale ~~Years~~(Note ~~Ended~~7) ~~March~~32,569,200 3122,358,177 ~~2006~~Net liabilities held for sale including minority interest 15,741,623 ~~2005~~2,314,725 ~~and~~------------- ~~2004~~------------- ~~121~~Total liabilities from discontinued operations 48,310,823 24,672,902 ------------- ------------- Minority interest (Note 2) (420,360) (24,345) ------------- ------------- Commitments and contingencies (Notes to7, ~~Consolidated~~8 ~~Financial~~and ~~Statements~~12) ~~123~~Partners' deficit Limited partners (139,101.5 BACs issued and outstanding) (Note 1) (111,299,062) (99,929,158) General partners 1,089,246 (2,217,321) ------------- ------------- Total partners' deficit (110,209,816) (102,146,479) ------------- ------------- Total liabilities and partners' deficit $ 117,542,156 $ 143,945,260 ============= =============

* As restated (see Note 15) See accompanying notes to consolidated financial statements. 102 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS

~~ASSETS~~Years Ended March 31, -------------------------------------------- 2007 2006*/** 2005*/** ------------- ------------ ------------ ~~Operating assets~~Operations: ~~Property~~Revenues ~~and~~Rental ~~equipment~~income -$ ~~at cost~~13, ~~net of accumulated depreciation (Notes 2~~079,355 ~~4 and 12)~~ $ ~~104~~13,~~454~~443,~~711~~274 $ ~~145~~13,~~904~~345,~~381~~622 ~~Cash~~Other ~~and cash equivalents (Notes 2, 3 and 12) 4,707,714 2,959,570 Cash held in escrow (Notes 3 and 5) 6,768,492 12,225,370 Deferred costs - less accumulated amortization (Notes 2 and 6)~~ 1,~~906~~095,~~271~~261 2635,~~528,664~~283 ~~Other assets 1~~798,~~785,741~~309 ~~2,865,646~~ ------------- ------------- ~~Total operating assets 119,622,929 166,483,631~~ ------------- ~~-------------~~Total ~~Assets~~Revenues ~~from discontinued operations (Note 13): Property and equipment held for sale~~14, ~~net of accumulated depreciation (Note 4) 20~~174,~~574,674~~616 414,~~904~~078,~~925~~557 ~~Net assets held for sale 3~~14,~~747~~143,~~657~~931 ~~1,925,273~~ ------------- ------------- ~~Total assets from discontinued operations 24,322,331 6,830,198~~ ------------- ~~-------------~~Expenses ~~Total~~General ~~assets~~and $administrative ~~143~~4,~~945~~024,~~260~~101 $3,230,608 ~~173~~3,~~313~~153,~~829~~739 ~~=============~~General ~~=============~~and ~~LIABILITIES~~administrative-related ~~AND~~parties ~~PARTNERS' DEFICIT Operating liabilities: Mortgage notes payable~~ (Note 78) $2,084,368 ~~115~~2,~~130~~588,~~084~~106 ~~$ 159~~2,~~944~~370,~~368~~923 ~~Due~~Repairs toand ~~debt~~maintenance ~~guarantor~~2,702,227 ~~(Note 12(a)) 58~~2,~~413~~695,~~027~~455 542,~~153~~874,~~086~~825 ~~Accounts~~Operating ~~payable~~and 6other 1,~~939~~895,~~856~~999 51,~~868~~561,~~610~~212 ~~Accrued~~1,445,089 ~~interest~~Real ~~payable~~estate 17taxes 751,~~923~~955 712,~~357~~753 17788,706 Insurance 806,~~060~~096 ~~Security~~974,891 ~~deposit~~801,136 ~~payable~~Interest 17,~~146~~837,~~201~~181 17,~~455~~592,~~489~~879 ~~Due~~7,506,691 toDepreciation ~~local general partners~~ and ~~affiliates~~amortization ~~(Note~~4,913,803 ~~8) 10~~4,~~502~~764,~~870~~429 124,~~589~~797,~~346~~281 ~~Due~~Loss toon ~~general~~impairment ~~partners~~of ~~and~~property ~~affiliates (Note 8) 12~~2,~~317~~108,~~893~~656 ~~12,898,094~~0 0 ------------- ------------ ------------ Total ~~operating~~expenses ~~liabilities~~27,124,386 ~~222~~24,~~373~~120,~~288~~333 ~~264~~23,~~715~~738,~~053~~390 ------------- ------------ ------------ ~~Liabilities~~Loss from ~~discontinued~~ operations ~~(Note~~before ~~13):~~minority ~~Mortgage~~interest ~~notes payable of asset held for sale~~ (~~Note 7~~12,949,770) 22(10,~~358~~041,~~177~~776) 6(9,~~917~~594,~~348~~459) ~~Net~~Minority ~~liabilities~~interest ~~held~~in ~~for~~loss ~~sale~~of ~~including~~subsidiary ~~minority~~partnerships ~~interest~~from 2operations 354,~~314~~847 305,~~725~~698 ~~(439~~386,~~198)~~614 ------------- ------------- ~~Total liabilities from discontinued operations 24,672,902 6,478,150~~ ------------- ~~-------------~~Loss ~~Minority~~from ~~interest~~operations (~~Note~~12,594,923) 2(9,736,078) (249,~~345~~207,845) Discontinued operations (1Note 13): Income (loss) from discontinued operations (including gain (loss) on sale of properties and minority interest) 8,~~476~~137,~~100~~116 3,082,767 (3,671,559) ------------- ------------ ------------ ~~Commitments~~Net ~~and~~loss ~~contingencies~~$ (~~Notes 7~~4,457,807) 8$ ~~and~~(6,653,311) $(12,879,404) ~~Partners'~~============ ~~deficit~~============ ~~Limited~~============ ~~partners~~Loss ~~(139,101.5~~from ~~BACs~~operations ~~issued~~- ~~and~~limited ~~outstanding)~~partners $(~~Note 1~~12,468,974) $ (~~100~~9,~~849~~638,~~963~~717) $ (949,~~203~~115,~~785~~767) ~~General~~Income ~~partners~~(loss) from discontinued operations (2including gain (loss) on sale of properties and minority interest) - limited partners 8,~~226~~055,~~622)~~745 3,051,939 (23,~~199~~634,~~489~~843) ------------ ------------ ------------ Net loss - ~~Total~~limited partners' ~~deficit~~$ (~~103~~4,~~076~~413,~~585~~229) $ (966,~~403~~586,~~274~~778) $(12,750,610) ============ ============ ============ Number of BACs outstanding 139,101.5 139,101.5 139,101.5 ============ ============ ============ Loss from operations per BAC $ (89.64) $ (69.29) $ (65.53) Income (loss) from discontinued operations (including gain (loss) on sale of properties and minority interest) - per BAC 57.91 21.94 (26.13) ------------ ------------ ------------ ~~Total~~Net ~~liabilities~~loss ~~and~~per ~~partners'~~BAC ~~deficit~~$ (31.73) $ ~~143,945,260~~(47.35) $ ~~173,313,829~~(91.66) ============= ============ ============

* Reclassified for comparative purposes. ** As restated (see Note 15). See accompanying notes to consolidated financial statements. 103 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT

~~Years~~Limited ~~Ended~~General ~~March~~Total ~~31,~~Partners Partners ------------- ------------- -----------~~-------~~ ~~2006~~Partners' 2005*/**deficit 2004*/** -~~-----------~~ ~~------------~~April ~~------------~~1, ~~Operations:~~2004, ~~Revenues~~as ~~Rental~~previously ~~income~~reported $ 21(83,~~066~~463,~~226~~870) $ 20(81,~~665~~393,~~271~~775) $ 20(2,~~524~~070,~~888~~095) ~~Other~~Prior ~~874,846~~period ~~1,016,121~~adjustment ~~686,989~~(Note ~~------------~~15) ~~------------ ------------ Total Revenues 21~~810,~~941,072~~106 21802,~~681,392~~005 218,~~211,877~~101 ------------- ------------- ------------ ~~Expenses General and administrative 4~~(82,~~862~~653,~~864~~764) 4(80,~~807~~591,~~259 5,115,436 General and administrative-related parties (Note 8~~770) (2,~~876~~061,~~522~~994) ~~2,669,359~~Partners' ~~2,678,682~~deficit ~~Repairs~~- ~~and~~April ~~maintenance 4,307,635 4,474,312 3,962,168 Operating and other 2,799,675 2,554,982 2,468,385 Real estate taxes~~ 1,~~338,319~~ 12004,~~399,145~~ ~~1,316,368~~as ~~Insurance~~restated ~~1,482,490~~Net 1loss,~~366,931~~ ~~1,316,526~~year ~~Interest~~ended ~~9,481,885~~March 931,~~394,174~~ 92005,~~350,039~~ ~~Depreciation~~as ~~and~~restated ~~amortization 6~~(12,~~727~~879,~~245~~404) 6(12,~~772~~750,~~845~~610) 6(128,~~708,665~~794) ------------ -~~-----------~~ ------------ ~~Total expenses 33,876,635 33,439,007 32,916,269~~ -~~-----------~~ ------------ ~~------------~~Partners' ~~Loss~~deficit ~~from~~- ~~operations~~March ~~before~~31, ~~minority~~2005, ~~interest~~as restated (1195,~~935~~533,~~563~~168) (1193,~~757~~342,~~615~~380) (112,~~704~~190,~~392~~788) ~~Minority~~Net ~~interest in~~ loss, ofyear ~~subsidiary~~ended ~~partnerships~~March ~~from operations 310~~31,~~962~~ ~~381,135~~2006 ~~242,086 ------------ ------------ ------------ Loss from operations~~ (116,~~624~~653,~~601~~311) (116,~~376~~586,~~480~~778) (1166,~~462,306~~533) ~~Discontinued~~Contribution ~~operations~~- ~~(Note~~write-off ~~13): Income (loss) from discontinued operations (including gain (loss) on sale~~ of ~~properties~~related ~~and~~party ~~minority~~debt ~~interest) 4~~40,~~911,290~~000 ~~(1,562,924)~~0 1140,~~364,701~~000 ------------- ------------- ------------ ~~Net~~Partners' ~~loss~~deficit $- ~~(6,713,311)~~March ~~$(12~~31,~~939,404)~~ ~~$ (97~~2006,~~605)~~ ~~============~~as ~~============~~restated ~~============ Loss from operations - limited partners $~~(11102,~~508~~146,~~355~~479) $(1199,~~262~~929,~~715~~158) $(112,~~347~~217,~~683~~321) ~~Income~~Net (loss), ~~from~~year ~~discontinued~~ended ~~operations~~March ~~(including~~31, ~~gain~~2007 (~~loss) on sale of properties and minority interest) - limited partners~~ 4,~~862~~457,~~177~~807) (14,~~547~~413,~~295~~329) 11(44,~~251,054~~478) ~~------------~~Contributions -~~-----------~~ write-~~-----------~~off ~~Net~~of ~~loss~~related -party ~~limited~~debt ~~partners $ (6~~16,~~646,178)~~477 ~~$(12,810,010)~~0 ~~$ (96~~16,~~629)~~477 ~~============~~Contributions ~~============~~- ~~============~~write-off ~~Number~~ of ~~BACs~~partnership ~~outstanding~~management ~~139,101.5~~fees ~~139,101.5~~related ~~139,101.5~~to ~~============~~the ~~============~~sold ~~============~~properties ~~Loss from operations per BAC $~~ (~~82.73)~~Note ~~$ (80.97~~8) $3,404,821 ~~(81.58)~~0 ~~Income~~3,404,821 Distributions (~~loss~~7,026,828) ~~from discontinued operations~~ (~~including gain (loss~~6,956,575) ~~on sale of properties and minority interest) - per BAC 34.95~~ (~~11.12~~70,253) ~~80.88~~ ------------- ------------- ------------ ~~Net~~Partners' ~~loss~~deficit ~~per~~- ~~BAC~~March $31, 2007 $(~~47.78~~110,209,816) $ (~~92.09~~111,299,062) $ ~~(.70)~~1,089,246 ============= ============= ============

See accompanying notes to consolidated financial statements. 104 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

~~Limited~~Years ~~General~~Ended ~~Total~~March ~~Partners~~31, ~~Partners~~ ------------- ------------- ------------------ ~~Partners'~~2007 ~~deficit~~2006*/** 2005*/** ------------ ~~April~~------------ 1,------------ ~~2003,~~Cash asflows ~~previously~~from ~~reported~~operating activities: Net loss $ (824,~~246~~457,~~315~~807) $ (806,~~188~~653,~~395~~311) $(12,879,404) ------------ ------------ ------------ Adjustments to reconcile net loss to net cash (used in) provided by operating activities: Depreciation and amortization 6,936,345 9,182,178 9,840,467 Loss on impairment of property 5,235,363 0 1,700,000 Gain on sale of properties (12,674,973) (10,184,228) (2,~~057~~144,~~920~~670) ~~Prior~~Interest ~~period~~added ~~adjustment~~to mortgage note payable 0 239,889 392,860 Minority interest in (~~Note~~loss) 15income of subsidiary partnerships (620,272) 3,072,579 (312,778) (Increase) decrease in assets: Cash held in escrow 58,346 251,384 (427,625) Other assets (642,713) 59,919 (261,492) (Decrease) increase in liabilities: Due to debt guarantor 3,560,865 3,359,941 3,234,474 Accounts payable (1,~~119~~390,~~950~~596) (1,~~108~~040,~~751~~263) 154,402 Accrued interest payable 2,195,770 1,467,692 1,105,761 Security deposits payable (11195,~~199~~817) 45,653 363,246 Increase in due to local general partners and affiliates (3,378,826) 853,595 871,962 Due to general partners and affiliates 2,762,681 (481,389) 1,073,002 ------------ ------------ ------------ Total adjustments 1,846,173 6,826,950 15,589,609 ------------ ------------ ------------ ~~Partners'~~Net ~~deficit~~cash (used in) provided by operating activities (2,611,634) 173,639 2,710,205 ------------ ~~April~~------------ ------------ Cash flows from investing activities: Proceeds from sale of properties 21,107,445 3,831,998 840,642 Costs paid relating to sale of properties (1,039,921) ~~2003~~(13,906) as0 ~~restated~~Acquisition of property and equipment (831,~~366~~200,~~265~~770) (811,~~297~~082,~~146~~221) (21,~~069~~649,~~119~~756) ~~Net~~Increase ~~loss,~~in ~~year~~accounts ~~ended~~payable ~~March~~and ~~31,~~other ~~2004~~liabilities from deferred revenue on sale of limited partnership interests 0 2,731,164 as0 ~~restated~~(Increase) decrease in cash held in escrow (97185,~~605~~807) (96102,~~629~~763) 139,109 (~~976~~Decrease) increase in due to local general partners and affiliates (934,808) 68,918 68,481 ------------ ------------ ------------ Net cash provided by (used in) investing activities 17,746,139 5,433,190 (601,524) ------------ ------------ ------------ ~~Partners'~~Cash ~~deficit~~flows -from ~~March~~financing 31activities: Increase in deferred costs (6,198) ~~2004~~(60,370) as(32,979) ~~restated~~Repayments on mortgage notes (8310,~~463~~467,~~870~~983) (815,~~393~~742,~~775~~642) (23,~~070~~996,~~095~~682) ~~Net~~Proceeds ~~loss~~from mortgage notes 1,506,989 ~~year~~1,267,300 ~~ended~~1,146,464 ~~March~~Advances 31from debt guarantor 1,969,241 ~~2005~~900,000 as960,000 ~~restated~~Decrease (12increase) in due to local general partners and affiliates (20,~~939~~000) 0 5,~~404~~316 Decrease in capitalization of consolidated subsidiaries attributable to minority interest (302,626) (12136,~~810~~324) (246,~~010~~866) Distributions (~~129~~7,~~394~~026,828) 0 0 ------------- ------------- ------------- ~~Partners'~~Net ~~deficit~~cash -used ~~March~~in ~~31,~~financing ~~2005,~~activities ~~as restated~~ (9614,~~403~~347,~~274~~405) (943,~~203~~772,~~785~~036) (2,~~199~~164,~~489~~747) ------------ ------------ ------------ Net ~~loss,~~increase ~~year~~(decrease) ~~ended~~in ~~March~~cash ~~31,~~and ~~2006~~cash (6equivalents 787,~~713,311)~~100 (61,~~646~~834,~~178)~~793 (6756,~~133~~066) ~~Contribution~~Cash -and ~~write-off~~cash ofequivalents ~~related~~at ~~party~~beginning ~~debt~~of 40year 5,~~000~~435,049 03,600,256 403,~~000~~656,322 ------------- ------------- ------------- ~~Partners'~~Cash ~~deficit~~and -cash ~~March~~equivalents ~~31,~~at ~~2006~~end of year $~~(103~~ 6,~~076~~222,~~585)~~149 $~~(100~~ 5,~~849~~435,~~963)~~049 $ (23,~~226~~600,~~622)~~256 ============ ============ ============ Supplemental disclosure of cash flows information: Cash paid during the year for interest $ 5,979,610 $ 6,820,171 $ 7,796,635 ============ ============ ============

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

Years Ended March 31, -------------------------------------------- ~~2006~~2007 ~~2005~~2006*/** ~~2004~~2005*/** ------------ ------------ ------------ ~~Cash~~Summarized ~~flows~~below ~~from~~are ~~operating~~the ~~activities:~~components ~~Net~~of ~~loss~~the $gain ~~(6,713,311)~~on ~~$(12,939,404)~~sale $of ~~(97,605)~~properties: ~~------------~~Proceeds ~~------------~~from ~~------------~~sale ~~Adjustments~~of toproperties ~~reconcile~~$ ~~net loss to net cash provided by operating activities: Depreciation and amortization 9~~21,~~182~~107,~~178~~445 ~~9,840,467~~$ 103,~~179~~831,~~376~~998 ~~Loss~~$ ~~on impairment of fixed assets 0 1~~840,~~700,000~~642 0Costs ~~Gain~~paid onrelating to sale of properties (51,~~063~~039,~~727~~921) (~~2,123,053) (~~13,~~942,678~~906) ~~Interest~~0 ~~added~~Property toand ~~mortgage note payable 239~~equipment,~~889~~ ~~392,860~~net ~~362,358 Minority interest in loss~~ of ~~subsidiary~~accumulated ~~partnerships~~depreciation (214,~~047~~684,~~922~~611) (~~334~~18,~~395) (272~~085,~~964~~579) (~~Increase) decrease in assets: Cash held in escrow 251~~3,~~384 (427~~261,~~625~~665) ~~134,243~~ Other assets ~~59,919~~ (~~261~~541,~~492~~686) (~~148~~524,~~441~~766) (~~Decrease~~68,510) ~~increase~~Cash held in ~~liabilities:~~escrow ~~Due to debt guarantor 3,359,941 3,234,474 3,153,223 Accounts payable~~ (1,~~040~~769,~~263~~343) ~~154,402~~ (~~109~~4,~~242~~168,436) Accrued interest payable 1,527,692 1,165,761 961,711 Security deposits payable 45,653 363,246 7,042 Increase in due to local general partners and affiliates 853,595 871,962 673,881 Due to general partners and affiliates (~~481~~140,~~389~~680) ~~1,073,002~~Deferred ~~1,546,401~~costs ~~------------~~0 ------------ ------------ Total adjustments 6,886,950 15,649,609 2,544,910 ------------ ------------ ------------ Net cash provided by operating activities 173,639 2,710,205 2,447,305 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sale of properties 3,831,998 840,642 2,890,000 Costs paid relating to sale of properties (13176,~~906~~454) 0 (~~180~~3,~~960~~379) ~~Acquisition~~Mortgage ofnotes ~~property~~payable ~~and equipment (1~~10,~~082~~130,~~221)~~036 (125,~~649~~138,~~756)~~002 (13,~~316~~137,~~200)~~221 ~~Increase~~Accounts ~~in accounts~~ payable and other liabilities ~~from deferred revenue on sale of limited partnership interests 2,731,164 0 0~~ (~~Increase) decrease in cash held in escrow (102~~713,~~763~~133) ~~139~~969,~~109~~590 ~~(105~~1,~~383) Decrease in cash held in escrow for real estate investments 0 0 82~~362,~~332~~008 ~~Increase~~Due ~~in due~~ to local general partners and affiliates 68384,918 68,481 69,717 ------------ ------------ ------------ Net cash provided by (used in) investing activities 5,433,190 (601,524) 1,439,506 ------------ ------------ ------------ Cash flows from financing activities: Increase in deferred costs (60,370) (32,979) (4,150) Repayments on mortgage notes (5,742,642) (3,996,682) (5,675,185) Proceeds from mortgage notes 1,267,300 ~~1,146,464~~ 2,~~935~~710,~~500~~813 ~~Advances from debt guarantor 900~~12,~~000~~951 ~~960,000~~Due ~~462,000 Increase (decrease) in due~~ to ~~local~~ general partners and affiliates ~~0 5~~20,~~316~~305 (231,~~707,173~~250) ~~Decrease~~77,614 inCapitalization ~~capitalization~~ of consolidated subsidiaries attributable to minority interest (~~136~~218,~~324~~419) ~~(246~~534,~~866)~~216 ~~(340~~188,~~221)~~468 ~~------------~~Supplemental ~~------------~~disclosures ~~------------~~of ~~Net~~noncash ~~cash~~investing ~~used~~and in financing activities: ~~(3,772,036)~~Contribution ~~(2,164,747)~~from ~~(5,329,229)~~ write-~~-----------~~off ~~------------~~of ~~------------~~partnership ~~Net~~management ~~increase~~fees ~~(decrease)~~related into ~~cash~~sold ~~and~~properties ~~cash~~$ ~~equivalents 1,834,793 (56,066) (1,442,418) Cash and cash equivalents at beginning of year~~ 3,~~600~~404,~~256~~821 ~~3,656,322~~$ ~~5,098,740~~0 ~~------------~~$ ~~------------~~0 ~~------------~~Local ~~Cash~~general ~~and~~partner ~~cash~~advances ~~equivalents~~written atoff ~~end~~to ofminority ~~year~~interest $capital 5534,~~435,049~~772 $0 ~~3,600,256~~0 $Contribution ~~3,656,322~~from ~~============~~write-off ~~============ ============ Supplemental disclosure~~ of ~~cash~~related ~~flows~~party ~~information:~~debt ~~Cash paid during the year for interest $ 6~~16,~~820,171~~477 ~~$ 7~~40,~~796,635~~000 ~~$ 8,571,124 ============ ============ ============~~0

Cash and cash equivalents, end of year, includes cash and cash equivalents from discontinued operations of $965,805, $727,335 and $640,686 for the years ended March 31, 2007, 2006 and 2005, respectively. * Reclassified for comparative purposes. ** As restated (see Note 15). See accompanying notes to consolidated financial statements. 106 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 NOTE 1 - General Liberty Tax Credit Plus III L.P., a Delaware limited partnership (the "Partnership"), was organized on November 17, 1988. The Partnership had no operations until commencement of its public offering on May 2, 1989. The general partners of the Partnership are Related Credit Properties III L.P., a Delaware limited partnership (the "Related General Partner"), and Liberty GP III Inc., a Delaware corporation (the "Liberty General Partner", and together with the Related General Partner, the "General Partners"). The general partner of the Related General Partner is Related Credit Properties III Inc., a Delaware corporation. The ultimate parent of the Related General Partner is Centerline Holding Company ("Centerline") (which had been known as CharterMac until April 2007). On March 15, 2007, Centerline announced the retirement of Alan P. Hirmes as Chief Financial Officer of Centerline. Upon his retirement, he also resigned from his position as Director, President, Chief Executive Officer and Chief Financial Officer of the Related General Partner. Centerline has named Robert L. Levy as Chief Financial Officer and Andrew J. Weil as President and Chief Executive Officer to replace Mr. Hirmes. On May 2, 1989, 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"). The Partnership's business is to invest in other limited partnerships ("Local Partnerships" or "Subsidiaries" or "Subsidiary Partnerships") that own leveraged apartment 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 to a lesser extent in Local Partnerships owning properties that are eligible for the historic rehabilitation tax credit ("Historic Tax Credit"). As of March 31, 2006, the period where qualified BACs holders are entitled to claim Tax Credits, generally ten years from the date of investment, or, if later, the date the Property is placed in service (the "Credit Periods"), for all the properties have expired; however, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the 15 year period commencing at the beginning of the Credit Period (the "Compliance Period") in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. During the year ended March 31, 2007, the Partnership sold its limited partnership interest in two Local Partnerships, the property and the related assets and liabilities of six Local Partnerships and one of the properties owned by a Local Partnership. Through the year ended March 31, 2007, the Partnership sold the property and the related assets and liabilities of ten Local Partnerships, its limited partnership interest in sixteen Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities at one Local Partnership. For a discussion of these sales, see Note 10. In addition, as of March 31, 2007, the Partnership has entered into contracts to sell five additional Local Partnerships (see Note 11). Subsequently, the property and the related assets and liabilities of one Local Partnership was sold, and the Partnership entered into a contract to sell its limited partnership interests in another Local Partnership (see Note 16). The Partnership is authorized to issue a total of 150,000 Beneficial Assignment Certificates ("BACs"), which have been registered with the Securities and Exchange Commission for sale to the public. Each BAC represents all of the economic and virtually all of the ownership rights attributable to one-fifth of a limited partnership interest. As of March 31, 2007, 139,101.5 BACs have been issued, and no further issuance of BACs is anticipated. The Offering was completed on March 30, 1990. The terms of the Partnership's Amended and Restated Agreement of Limited Partnership (the "Partnership Agreement") provide, among other things, that net profits or losses and distributions of cash flow are, in general, allocated 99% to the limited partners and BACs holders and 1% to the general partners. NOTE 2 - Summary of Significant Accounting Policies a) Basis of Consolidation The consolidated financial statements include the accounts of the Partnership and 46, 56 and 60 Subsidiary Partnerships in which the Partnership is the principal limited partner for the years ended March 31, 2007, 2006, and 2005, respectively. Through the rights of the Partnership and/or an affiliate of the General Partners (which 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. For financial reporting purposes, the Partnership's fiscal year ends on March 31. All Subsidiaries have fiscal years ending December 31. Accounts of the Subsidiaries have been adjusted for intercompany transactions from January 1 through March 31. The Partnership's fiscal year ends March 31 in order to allow adequate time for the Subsidiaries' financial statements to be prepared and consolidated. The books and records of the Partnership are maintained on the accrual basis of accounting, in accordance with U.S. generally accepted accounting principles ("GAAP"). All intercompany accounts and transactions with the Subsidiary Partnerships have been eliminated in consolidation. Increases (decreases) in the capitalization of consolidated Subsidiaries attributable to minority interest arise from cash contributions and cash distributions to the minority interest partners. Losses attributable to minority interest which exceed the minority interest's investment in a Subsidiary have been charged to the Partnership. Such losses aggregated approximately $0, $0 and $180,000 for the years ended March 31, 2007, 2006 and 2005, respectively (the 2006, 2005 and 2004 fiscal years, respectively). The Partnership's investment in each Subsidiary is equal to the respective Subsidiary partners' equity less minority interest capital, if any. In consolidation, all Subsidiary Partnerships' losses are included in the Partnership's capital account except for losses allocated to minority interest capital. 107 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 b) Cash and Cash Equivalents Cash and cash equivalents include cash on hand, cash in banks and investments in short-term highly liquid instruments purchased with original maturities of three months or less. Cash held in escrow has various use restrictions and is not considered a cash equivalent. c) Property and Equipment Property and equipment to be held and used are carried at cost, which includes the purchase price, acquisition fees and expenses, construction period interest and any other costs incurred in acquiring such property and equipment. The cost of property and equipment is depreciated over their estimated useful lives using accelerated and straight-line methods. Expenditures for repairs and maintenance are charged to expense as incurred; major renewals and betterments are capitalized. At the time property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the assets and accumulated depreciation accounts and the profit or loss on such disposition is reflected in earnings. The Partnership complies with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"). A loss on impairment of assets is recorded when management estimates amounts recoverable through future operations and sale of the Property on an undiscounted basis are below depreciated cost. Property investments themselves are reduced to estimated fair value (generally using discounted cash flows) when the Property is considered to be impaired and the depreciated cost exceeds estimated fair value. During the year ended March 31, 2007, the Partnership has recorded approximately $5,235,000 as a loss on impairment of assets or reduction to estimated fair value. Through March 31, 2007, the Partnership has recorded approximately $29,172,000 as a loss on impairment of assets. In accordance with SFAS No. 144, the results of discontinued operations are reported as a separate component of income before extraordinary items on the consolidated statements of operations. Discontinued operations include the results of operations and any gain or loss recognized for Local Partnerships that have been disposed of or are held for sale. A gain or loss recognized on the disposal is disclosed in the notes to the financial statements. Adjustments to amounts previously reported in operations that are directly related to the disposal of a Local Partnership are reclassified in the current period as discontinued operations for comparability purposes. Assets and liabilities of a Local Partnership that are classified as held for sale are presented separately in the asset and liability sections, respectively, of the consolidated balance sheets. 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. Property and equipment that are held for sale are included in discontinued operations. There are five assets classified as property and equipment-held for sale as of March 31, 2007 (see Note 11). d) Revenue Recognition Rental income is earned primarily under standard residential operating leases and is typically due the first day of each month, but can vary by property due to the terms of the tenant leases. Rental income is recognized when earned and 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. 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 miscellaneous items. Other revenues from operations include the following amounts at both the Partnership and Local Partnership level:

Years Ended March 31, ------------------------------------~~--------~~ 2007 2006* 2005*/** 2004*/** ------------ ------------ ------------ ~~Summarized~~Interest ~~below are the components of the gain on sale of properties: Proceeds from sale of properties~~ $ 3480,~~831,998~~683 $ ~~840~~130,~~642~~281 $ 266,~~890,000~~051 ~~Costs paid relating to sale of properties (13,906) 0 (180,960) Property and equipment, net of accumulated depreciation (18,085,579) (3,261,665) (3,267,096)~~ Other ~~assets (524~~614,~~766)~~578 ~~(68~~505,~~510) (63,022) Cash held in escrow (4,168,436) (140,680) 0 Deferred costs (176,454) (3,379) (223,110) Mortgage notes payable 25,138,~~002 3732,~~137,221~~258 ~~10,760,000~~---------- ~~Accounts~~---------- ~~payable~~---------- ~~and~~Total other ~~liabilities~~revenue ~~969,590~~ $1,~~362~~095,~~008~~261 ~~369,349~~$ ~~Due to local general partners and affiliates 2~~635,~~710,813~~283 12,951 3,657,517 Due to general partners and affiliates (31,250) 77,614 0 Capitalization of consolidated subsidiaries attributable to minority interest (4,586,285) 166,851 0 Supplemental disclosure of noncash investing and financing activities: Contribution from write-off of related party debt $ 40798,~~000~~309 $========== 0========== ~~$ 0~~==========

* Reclassified for comparative purposes. 108 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Other revenues from discontinued operations include the following amounts at both the Partnership and Local Partnership level:

Years Ended March 31, ------------------------------------ 2007 2006* 2005* 2004* ---------- ---------- ---------- Interest $ ~~175~~99,~~251~~570 $ 98,~~412~~301 $ 97132,~~501~~311 Other ~~699~~497,~~595~~102 ~~917~~415,~~709~~214 ~~589~~808,~~488~~911 ---------- ---------- ---------- Total other revenue $ ~~874~~596,~~846~~672 $1 513,~~016,121~~515 $ ~~686~~941,~~989~~222 ========== ========== ==========

* Reclassified for comparative purposes. e) Income Taxes The Partnership is not required to provide for, or pay, any federal income taxes. Net income or loss generated by the Partnership is passed through to the partners and is required to be reported by them. The Partnership may be subject to state and local taxes in jurisdictions in which it operates. For income tax purposes, the Partnership has a fiscal year ending December 31 (see Note 9). f) Loss Contingencies The Partnership records loss contingencies as a charge to income when information becomes available which indicates that it is probable that an asset has been impaired or a liability has been incurred as of the date of the financial statements and the amount of loss can be reasonably estimated. g) Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates. NOTE 3 - Fair Value of Financial Instruments The following methods and assumptions were used to estimate the fair value of each class of financial instruments (all of which are held for non-trading purposes) for which it is practicable to estimate that value: Cash and Cash Equivalents and Cash Held in Escrow --------------------------------------------------------- The carrying amount approximates fair value. Mortgage Notes Payable ---------------------- The fair value of mortgage notes payable is estimated, where practicable, based on the borrowing rate currently available for similar loans. The estimated fair values of the Partnership's mortgage note payable from operations are as follows:

~~Years~~March ~~Ended~~31, 2007 March 31, 2006 ------------------------------ 2006 2005* 2004* -------- -------- ------------- ~~Interest~~Carrying $Fair ~~53,331~~Carrying $Fair ~~99,950~~Amount $Value ~~94,842~~Amount ~~Other~~Value ~~220,621~~------------- ~~623,460 455,977~~ ------------- ------------- ------------- ~~Total~~Mortgage ~~other~~notes ~~revenue~~payable for which it is: Practicable to estimate fair value $~~273~~ 46,~~952~~459,129 $~~723~~ 44,~~410~~027,807 $~~550~~ 34,~~819~~886,994 ~~========~~$ ~~========~~35,678,879 ~~========~~Not practicable $ 39,368,902 $ 80,243,090 (*)

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

March 31, ~~2006~~2007 March 31, ~~2005~~2006 ----------------------------- ----------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------- ------------- Mortgage notes payable for which it is: Practicable to estimate fair value $34 5,~~886~~410,~~994~~925 $ 355,~~678~~410,~~879~~925 $73 14,~~920~~508,~~908~~056 $76 16,~~481~~301,~~343~~036 Not practicable $80 27,~~243~~158,~~090~~275 ~~(*)~~ $86 7,~~023~~850,~~460~~121 (*)

(*) 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. 109 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Due to Local General Partners and Affiliates -------------------------------------------- The estimated fair value of the Partnership's due to the general partners of the Local Partnerships (the "Local General Partners") and affiliates from operations are as follows:

March 31, ~~2006~~2007 March 31, ~~2005~~2006 ----------------------------- ----------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------- ------------- ~~Mortgage~~Due ~~notes~~to ~~payable~~Local General Partners and affiliates for which it is: ~~Practicable~~Not practicable to estimate fair value $~~14,508,056~~ ~~$ 16~~5,~~301~~445,~~036~~990 ~~$ 4,535,363 $ 4,535,363 Not practicable $ 7,850,121~~ (*) $ 210,~~381~~502,~~985~~870 (*)

The estimated fair value of the Partnership's due to the Local General Partners and affiliates from discontinued operations are as follows:

March 31, ~~2006~~2007 March 31, ~~2005~~2006 ----------------------------- ----------------------------- Carrying Fair Carrying Fair Amount Value Amount Value ------------- ------------- ------------- ------------- Due to Local General Partners and affiliates for which it is: Not practicable to estimate fair value $10 111,~~502,870~~573 (*) $12 323,~~589,346~~876 (*)

(*) Management believes it is not practicable to estimate the fair value of due to Local General Partners and affiliates, because market information on such unique loans are not currently available to the Local Partnership. The carrying amount of other financial instruments that require such disclosure approximates fair value. NOTE 4 - Property and Equipment The components of property and equipment from operations are as follows:

March 31, ~~2006~~Estimated ~~March 31, 2005~~ -------------------------------- Useful Lives 2007 2006 (Years) -------------- -------------- ~~Carrying~~-------------- ~~Fair~~Land ~~Carrying~~$ ~~Fair~~3,363,082 ~~Amount~~$ ~~Value~~8,573,478 ~~Amount~~- ~~Value~~Buildings and improvements 127,984,939 186,616,092 15 to 40 years Other 4,747,013 5,477,671 5 to 10 years -------------- -------------- 136,095,034 200,667,241 Less: Accumulated depreciation (68,415,555) (96,212,530) -------------- -------------- ~~Due to Local General Partners and affiliates for which it is: Not practicable to estimate fair value~~ $ ~~323~~67,~~876~~679,479 ~~(*)~~ $ 25104,~~700~~454,711 ~~(*)~~============== ==============

The initial cost to the Partnership, as shown in Schedule III in Item 15, includes $8,346,089 of acquisition fees paid to the general partners and $2,908,694 of acquisition expenses. Depreciation expense for the years ended March 31, 2007, 2006 and 2005 amounted to $4,830,146, $4,679,093 and $4,694,828, respectively. In connection with the rehabilitation of the Properties, the Subsidiary Partnerships incurred developers' fees of $25,440,729 to the Local General Partner and affiliates. Such fees were included in the cost of property and equipment. During the 2006 and 2005 Fiscal Years, there was a decrease in accumulated depreciation in the amount of $23,144,288 and $23,067,125, respectively, and $21,702,741 and $23,065,236 of these write-offs are related to the discontinued assets. 110 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 The components of property and equipment held for sale from discontinued operations are as follows:

March 31, Estimated -------------------------------- ~~Estimated~~ Useful Lives 2007 2006 ~~2005~~ (Years) -------------- -------------- -------------- Land $ 84,~~573~~844,~~478~~817 $ 111,~~562~~712,~~462~~770 - Buildings and improvements ~~186~~55,~~616~~943,~~092~~388 ~~248~~36,~~257~~646,~~564~~001 15 to 40 years Other 51,~~477~~186,~~671~~260 7906,~~957,724~~979 5 to 10 years -------------- -------------- ~~200~~61,~~667~~974,~~241~~465 ~~267~~39,~~777~~265,750 Less: Accumulated depreciation (9630,~~212~~151,~~530~~980) (~~121~~18,~~873~~691,~~369~~076) -------------- -------------- $ ~~104~~31,~~454~~822,~~711~~485 $ ~~145~~20,~~904~~574,~~381~~674 ============== ==============

Depreciation expense for the discontinued property and equipment for the years ended March 31, 2007, 2006 and 2005 amounted to $1,978,071, $4,097,469 and $4,974,228, respectively. Impairment of Property ---------------------- During the year ended March 31, 2007, in accordance with Statement of Financial Accounting Standards No. 144 ("SFAS No. 144") "Accounting for the Impairment of Disposal of Long-Lived Assets", the Partnership deemed the building of 1850 Second Avenue Associates, L.P. ("1850 2nd Avenue") impaired and wrote down its net fixed assets to its fair value of approximately $25,000, which resulted in a loss on impairment of $3,126,707. Fair value was obtained from the value of the assets as stated in the purchase and sales agreement with respect to the sale of 1850 2nd Avenue. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building of Jefferson Limited Partnership ("Jefferson") impaired and wrote down its net fixed assets to its fair value of approximately $881,000, which resulted in a loss on impairment of $520,303. Fair value was obtained from the value of the assets as stated in the purchase and sales agreement with respect to the sale of Jefferson (see Note 12a). During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building of Diamond Phase II Venture ("Diamond Street") impaired and wrote down its net fixed assets to its fair value of approximately $931,000, which resulted in a loss on impairment of $1,588,353. Fair value was obtained from appraisal after indications that the carrying value of the assets was not recoverable evidenced by a history of net operating losses over the past few years. NOTE 5 - Cash Held in Escrow The components of cash held in escrow from operations are as follows:

March 31, ----------------------------- ~~Estimated~~2007 ~~Useful Lives~~ 2006 ~~2005 (Years)~~ ------------- ------------- ~~--------------~~Purchase ~~Land~~price payments* $ 158,~~712,770~~081 $ ~~417~~58,~~822~~081 -Real ~~Buildings~~estate taxes, insurance and ~~improvements~~other 361,~~646~~674,~~001~~063 112,~~649~~835,~~849~~989 15Reserve tofor 40replacements ~~years Other 906~~2,~~979 158~~792,~~053~~363 ~~5 to 10 years ------------- ------------- 39~~2,~~265~~873,~~750~~810 ~~12,225,724~~Tenants' ~~Less:~~security ~~Accumulated~~deposits ~~depreciation (18~~666,~~691,076)~~539 (71,~~320~~000,~~799)~~612 ------------- ------------- $ 205,~~574~~191,~~674~~046 $ 46,~~904~~768,~~925~~492 ============= =============

The discontinued assets cash held in escrow consists of the following:

March 31, ----------------------------- 2007 2006 ~~2005~~ ------------- ------------- ~~Purchase price payments* $ 58,081 $ 130,081~~ Real estate taxes, insurance, and other 2$ 1,~~835~~227,~~989~~881 5$ 1,~~355~~397,~~973~~038 Reserve for replacements 2486,~~873,810~~074 5566,~~400,499~~818 Tenants' security deposits 1542,~~000,612~~156 1356,~~338,817~~691 ------------- ------------- $ 62,~~768~~256,~~492~~111 $12 2,~~225~~320,~~370~~547 ============= =============

* Represents amounts to be paid to seller upon meeting specified rental achievement criteria. 111 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 NOTE 6 - Deferred Costs The components of deferred costs and their periods of amortization from operations are as follows:

March 31, ------------------------------ 2007 2006 ~~2005~~Period ------------- ------------- ~~Real~~------------- ~~estate~~Financing ~~taxes,~~expenses ~~insurance, and other~~ $ 12,~~397~~580,~~038~~645 $ ~~276~~3,~~558 Reserve for replacements 566~~603,~~818~~367 ~~777,133~~* ~~Tenants~~Less: ~~security~~Accumulated ~~deposits~~amortization ~~356~~(1,~~691~~226,338) ~~127~~(1,~~035~~697,096) ------------- ------------- $ 21,~~320~~354,~~547~~307 $ 1,~~180~~906,~~726~~271 ============= =============

* Over the life of the related mortgages. Amortization of deferred costs from operations for the years ended March 31, 2007, 2006 and 2005 amounted to $83,657, $85,336 and $102,453, respectively. The components of deferred costs and their periods of amortization from discontinued operations are as follows:

March 31, ------------------------------ 2007 2006 ~~2005~~ Period ------------- ------------- ------------- Financing expenses $ 31,~~603~~532,~~367~~012 $ 4503,~~769,175~~092 * Less: Accumulated amortization (1,~~697~~001,~~096~~285) (2402,~~240,511~~399) ------------- ------------- $ 1530,~~906,271~~727 $ 2100,~~528,664~~693 ============= =============

* Over the life of the related mortgages. Amortization of deferred costs from discontinued operations for the years ended March 31, 2007, 2006 and 2005 amounted to $44,471, $320,280 and $68,958, respectively. NOTE 7 - Mortgage Notes Payable The mortgage notes from operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $422,000, including principal and interest at rates varying from 0% to 10.75% per annum, through the year 2046. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of such Subsidiary Partnership's rent and leases. Annual principal payment requirements of the subsidiary partnerships for each of the next five years and thereafter are as follows: December 31, Amount ------------ ------------ 2007 $ 4,846,057 2008 2,074,684 2009 2,996,292 2010 2,296,380 2011 2,431,510 Thereafter 71,183,108 ------------ $ 85,828,031 ============ The mortgage agreements require monthly deposits to replacement reserves of approximately $56,000 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (Note 5). Accrued interest payable at March 31, 2007 and 2006 was approximately $16,747,000 and $16,993,000, 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. 112 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 L.I.H Chestnut Associates, L.P. ("Chestnut") -------------------------------------------- Chestnut's Mortgage Agreement contains various covenants pertaining to payment of monthly loan installments and maintenance of reserve funds. At December 31, 2006 and 2005, Chestnut was in violation of such covenants. As of February 9, 2007, Pennsylvania Housing Finance Agency ("PHFA") has not waived the reserve funds requirements, and accordingly, Chestnut is currently in default. Under the terms of the Mortgage Agreement, if any event of default, as defined, occurs, and is continuing, other rights may be enforced on behalf of the lenders, inclusive of possession of the Property. Accordingly, the entire balance of the mortgage note, totaling approximately $1,560,000 at December 31, 2006, has been classified as a current liability. Conifer James Street Associates ("Schopfer Court") -------------------------------------------------- Schopfer Court's mortgage payable to Bank of America (formerly of Fleet Bank, N.A.) in the original amount of $2,250,000, which had an interest rate of 9.4% per annum through March 2003 then adjusted to a rate of 5.29% until maturity, required monthly installments of $19,240. The final payment of approximately $1,470,000 was due (and made) in September 2006. The mortgage was secured by the property and equipment and was personally guaranteed by a principal of the Local General Partner. Schopfer Court financed the mortgage repayment with a promissory note payable to an affiliate of Local General Partner in the original amount of $1,506,989. The note bears interest at the prime rate (8.25% at December 31, 2006) plus 1%. No payments are due until maturity. The entire amount of the note as well as interest are payable on September 1, 2007. The note is secured by substantially all real property and equipment of the Local Partnership. The following table summarizes the Partnership's commitments from discontinued operations as of March 31, 2007 to make future payments under its debt agreements and other contractual obligations. The mortgage notes from discontinued operations, which are collateralized by land and buildings, are payable in aggregate monthly installments of approximately $211,000, including principal and interest at rates varying from 1% to 11.5% per annum, through the year 2040. Each Subsidiary Partnership's mortgage note payable is without further recourse and is collateralized by the land and buildings of the respective Subsidiary Partnership and the assignment of such Subsidiary Partnership's rent and leases. Annual principal payment requirements of the subsidiary partnerships for each of the next five years and thereafter for the discontinuing liabilities are as follows: December 31, Amount ------------ ------------ 2007 $ 6,446,579 2008 412,859 2009 448,549 2010 485,313 2011 7,592,320 Thereafter 17,183,580 ------------ $ 32,569,200 ============ The mortgage agreements require monthly deposits to replacement reserves of approximately $3,300 and monthly deposits to escrow accounts for real estate taxes, hazard and mortgage insurance and other (Note 5). Accrued interest payable for the discontinued liabilities at March 31, 2007 and 2006 was $3,208,000 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 8 - Related Party Transactions As of March 31, 2007, Liberty Associates IV L.P. ("Liberty Associates"), an affiliate of the General Partners, had a 1% and .998% interest as a special limited partner in 34 and one of the Local Partnerships, respectively. The General Partners and their affiliates and the Local General Partners and their affiliates perform services for the Partnership and the Local Partnerships, respectively. The costs incurred for the years ended March 31, 2007, 2006 and 2005 are as follows: 113 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 A) Related Party Fees The costs incurred to related parties for the years ended March 31, 2007, 2006 and 2005 were as follows: Related Party Fees - continuing operations

Years Ended March 31, --------------------------------------------- 2007 2006* 2005* ~~Period~~ ------------- ------------- ------------- ~~Financing~~Partnership ~~expenses~~management fees (i) $ ~~503~~1,~~092~~042,836 $ 01,231,750 *$ ~~Less:~~1,235,500 ~~Accumulated~~Expense ~~amortization~~reimbursement (~~402~~ii) 218,~~399~~571 506,765 327,712 Local administrative fee (iv) 044,000 46,500 41,500 ------------- ------------- ------------- Total general and administrative- General Partners 1,305,407 1,785,015 1,604,712 ------------- ------------- ------------- Property management fees incurred to affiliates of the Local General Partners (iii) 778,961 803,091 766,211 ------------- ------------- ------------- Total general and administrative-related parties $ ~~100~~2,~~693~~084,368 $ 02,588,106 $ 2,370,923 ============= ============= =============

Related Party Fees - discontinued operations

~~December~~Years Ended March 31, ~~Amount~~--------------------------------------------- 2007 2006* 2005* ------------- ------------- ------------- ~~2006~~Local administrative fee (iv) $ 823,~~265,256~~542 ~~2007~~$ 242,~~379,126~~750 ~~2008~~$ 256,~~543,532~~500 ~~2009~~------------- 3------------- ------------- Total general and administrative-General Partners 23,~~660~~542 42,~~088~~750 ~~2010~~56,500 2------------- ------------- ------------- Property management fees incurred to affiliates of the Local General Partners (iii) 518,~~777~~959 783,~~094~~517 ~~Thereafter 95~~1,~~504~~002,~~988~~758 ------------- ------------- ------------- Total general and administrative-related parties $~~115~~ 542,~~130~~501 $ 826,~~084~~267 $ 1,059,258 ============= ============= =============

* Reclassified for comparative purposes. (i) The General Partners are entitled to receive a partnership management fee after payment of all Partnership expenses, which, together with the local annual administrative fees, will not exceed a maximum of 0.5% per annum of invested assets (as defined in the Partnership's Amended and Restated Agreement of Limited Partnership ("Partnership Agreement")), for administering the affairs of the Partnership. The partnership management fee, subject to the foregoing limitation, will be determined by the General Partners in their sole discretion 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 only to the extent of available funds after the Partnership has made the distributions to the BACs holders of sale or refinancing proceeds equal to their original capital contributions plus a 10% priority return thereon (to the extent not theretofore paid out of cash flow). Partnership management fees owed to the General Partners amounting to approximately $7,803,000 and $11,822,000 were accrued and unpaid at March 31, 2007 and 2006. During the year ended March 31, 2007, management deemed the unpaid partnership management fees that were related to sold properties uncollectible and, as a result, wrote them off in the amount of approximately $3,405,000, resulting in a non-cash General Partner contribution of the same amount. Without the General Partners' continued accrual without payment of these fees and expense reimbursements, the Partnership will not be in a position to meet its obligations. (ii) 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. (iii) The Subsidiary Partnerships incurred property management fees amounting to $1,745,184, $2,158,738 and $2,333,822 for the years ended March 31, 2007, 2006 and 2005, respectively. Of these fees, $1,297,920, $1,586,608 and $1,768,969, respectively, were incurred to affiliates of the Local General Partners, which includes $518,959, $783,517 and $1,002,758 of fees relating to discontinued operations. (iv) Liberty Associates IV, LP ("Liberty Associates"), a special limited partner of the Subsidiary Partnerships, is entitled to receive a local administrative fee of up to $2,500 per year from each Subsidiary Partnership. Liberty Associates received cash distributions from the Local Partnerships of, approximately, $1,000, $12,000 and $6,000 during the years ended March 31, 2007, 2006 and 2005, respectively. 114 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Pursuant to the Partnership Agreement and the limited partnership agreements for the Local Partnerships, (the "Local Partnership Agreements"), the General Partners and Liberty Associates received their allocable pro rata share of profits, losses and tax credits from the Partnership and the Local Partnerships, respectively. As of March 31, 2007 and 2006, the Partnership was owed approximately $2,337,000 and $2,434,000, respectively, from the Local Partnerships for operating advances. These advances are non-interest bearing and have no set repayment terms. The Partnership has advanced these monies to five Local Partnerships to fund their operations. B) Due to Local General Partners and Affiliates Due to Local General Partners and affiliates at March 31, 2007 and 2006 included in the operating liabilities consists of the following:

~~December~~March 31, ~~Amount~~ ---------------------------- 2007 2006 ------------ ------------ ~~2006~~Operating deficit advances $ 3220,~~676~~144 $ 893,~~596~~366 ~~2007~~Development ~~836~~fees 269,~~475~~431 ~~2008~~385,821 ~~857~~Operating advances 2,~~771~~330,062 ~~2009~~5,830,653 ~~877~~Due to contractor 46,~~248~~289 ~~2010~~46,289 ~~893~~Developer loans and accrued interest (i) 1,~~513~~344,418 ~~Thereafter~~1,344,418 15Land note payable (ii) 635,~~216~~000 1,~~574~~565,106 Management and other operating fees 600,646 437,217 ------------ ------------ $ 225,~~358~~445,~~177~~990 $ 10,502,870 ============ ============

Due to Local General Partners and affiliates at March 31, 2007 and 2006 included in the discontinued liabilities consists of the following:

~~Years Ended~~ March 31, ----------------------------~~--------~~ 2007 2006 2005* 2004* ---------- -- -------- ----~~------~~ ~~Partnership~~Operating ~~management~~deficit ~~fees~~advances ~~(i)~~ $~~1,231,750~~ ~~$1,235,500~~0 $1 344,~~345,196~~929 ~~Expense~~Operating ~~reimbursement~~advances (ii19,676) ~~506~~74,~~765~~932 ~~327,712~~Developer ~~290,714~~loans ~~Local administrative fee~~ (iviii) 54111,~~000~~688 ~~59,000~~0 ~~54,721~~General ~~----------~~Partner ~~----------~~distributions ~~----------~~0 ~~Total~~20,000 ~~general~~Management and ~~administrative~~other -operating ~~General~~fee ~~Partners 1~~19,~~792,515~~561 1(115,~~622,212~~985) ~~1,690,631~~ ---------- --~~--------~~ ---------- ~~Property management fees incurred to affiliates of the Local General Partners (iii) 1,084,007 1,047,147 988,051~~ --~~--------~~ ~~---------- ---------- Total general and administrative - related parties~~ $~~2,876,522~~ $2111,~~669,359~~573 $2 323,~~678,682~~876 ========== == ======== ====~~======~~

(i) Developer loans consist of the following:

~~Years Ended~~ March 31, ---------------------------- 2007 2006 ------------ ~~2006~~------------ 2005*Jefferson 2004*Limited Partnership- --------- ---------- ---------- ~~Local~~This ~~administrative~~loan ~~fee~~is unsecured, bears interest at an annually adjusted rate (iv3.11% at December 31, 2006 and 1.98% at December 31, 2005) and has no predetermined due date. $ 35100,~~250~~000 $ 39100,000 $This 95note is unsecured,~~898~~ ~~----------~~bears ~~----------~~interest ~~----------~~at ~~Total~~9.25% ~~general~~per annum and ~~administrative-General~~is ~~Partners~~due 35in the event of sale or refinancing of the property. 75,~~250~~000 3975,000 95Accrued interest on developer loans 193,~~898~~681 183,634 Citrus Meadows Apartments, Ltd.- --------- ---------- ------------ ~~Property~~This ~~management~~loan ~~fees~~bears ~~incurred~~no tointerest ~~affiliates~~and ofcan only be repaid with the ~~Local~~proceeds ~~General~~from ~~Partners~~a ~~(iii)~~sale ~~502,601~~or ~~721~~refinancing. 985,~~822~~784 ~~817~~985,~~870~~784 ---------- -- -------- ----~~------~~ ~~Total general and administrative-related parties~~ $ ~~537~~1,~~851 $ 760~~354,~~822~~465 $ ~~913~~1,~~768~~344,418 ========== == ======== ====~~======~~ Interest expense incurred on developer loans amounted to $10,047, $8,918 and $8,458 for the years ended March 31, 2007, 2006 and 2005, respectively.

115 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 (ii) Land note payable consists of the following:

March 31, ---------------------------- 2007 2006 ~~2005~~------------ ------------ Citrus Meadows Apartments, Ltd.- ------------------------------- ~~Operating~~The ~~deficit~~land ~~advances~~for $this ~~893,366~~Subsidiary $Partnership 2was purchased from the Local General Partner for a $600,~~133,675~~000 ~~Development~~note ~~fees~~which ~~385~~accrued interest since inception at 10% per annum in accordance with a promissory note. It was determined that the Subsidiary Partnership's partnership agreement,~~821~~ ~~385~~that contained a provision that the loan was non-interest bearing,~~821~~ ~~Operating~~became ~~advances~~effective 5after the promissory note and,~~830,653~~ 5therefore,~~625,641~~ ~~Due~~the toterms ~~contractor~~of 46the partnership agreement took precedence. Accrued interest has been reduced by $990,~~289~~106. 46Accrued interest of $35,~~289~~000 ~~Developer~~remains ~~loans~~payable ~~and~~relating ~~accrued~~to interest earned on the note from the date of the promissory note through the date of the partnership agreement. This adjustment has been treated as a prior period adjustment (isee Note 15). 1The principal balance,~~344~~ together with the accrued interest,~~418~~ 1is payable upon the sale of the property or in August 2037,~~335,500~~ ~~Land~~whichever ~~note~~event ~~payable~~occurs ~~(ii)~~first. 1$ 635,~~565,106~~000 $ 1,~~505~~565,106 ~~Management~~============ ~~and~~============ ~~other~~(iii) ~~operating~~Developer ~~fees~~loans ~~437,217~~included 1in the discontinued liabilities consist of the following: Driftwood Terrace Associates,~~557,314~~ Ltd. ------------ ---------------------- An affiliate of the Local General Partner provides labor and materials to renovate and repair the buildings as needed. The amount incurred during 2006 was $563,252 10As of December 31,~~502~~ 2006,~~870~~ the amount included in due to local general partners and affiliates was $111,688. 12$ 111,~~589,346~~688 $ 0 ============ ============

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

~~March~~Years Ended December 31, -------------------------------------------- 2006 2005* 2004* ------------ ------------ ~~Operating~~------------ ~~deficit~~Financial ~~advances~~statement net loss $ ~~344~~(4,~~929~~457,807) $ 0(6,653,311) ~~Operating~~$(12,879,404) ~~advances~~Difference 74resulting from parent company having a different fiscal year for income tax and financial reporting purposes (162,~~932~~048) 0569,071 ~~General~~44,931 ~~Partner~~Difference ~~distributions~~between 20depreciation and amortization expense recorded for financial statement and income tax reporting purposes (1,~~000~~207,585) 20(1,~~000~~132,354) ~~Management~~(1,611,877) Difference between gain on sale of properties recorded for financial statement and ~~other~~income ~~operating~~tax ~~fee~~reporting purposes 5,433,898 (~~115~~7,~~985~~863,229) 107,656 Non-deductible loss on impairment of property for tax purposes 5,235,363 0 1,700,000 Tax-exempt interest income 0 (16,574) (4,236) Forgiveness of related party debt considered a General Partner contribution for financial purposes and income for tax purposes 3,404,821 0 0 Other 1,043,080 917,883 521,166 ------------ ------------ ------------ Taxable net loss as shown on the Partnership's income tax return $ ~~323~~9,~~876~~289,722 $(14,178,514) 25$(12,~~700~~121,764) ============ ============ ============

* As restated (see Note 15) NOTE 10 - Sale of Properties The Partnership is currently in the process of disposing of its investments. It is anticipated that this process will take a number of years. During the year ended March 31, 2007, the Partnership sold its limited partnership interest in two Local Partnerships, the property and the related assets and liabilities of 116 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 six Local Partnerships and one of the properties owned by a Local Partnership. Through March 31, 2007, the Partnership has sold its limited partnership interest in sixteen Local Partnerships, the property and the related assets and liabilities of ten Local Partnerships, two properties owned by a Local Partnership and transferred the deed to the property and the related assets and liabilities of one Local Partnership. In addition, as of March 31, 2007, the Partnership has entered into agreements for the sale of five Local Partnerships (see Note 11, Item 8). Subsequently, the property and the related assets and liabilities of one Local Partnership were sold, and the Partnership entered into a contract to sell the limited partnership interests of another Local Partnership (see Note 16, Item 8). There can be no assurance as to when the Partnership will dispose of its remaining investments or the amount of proceeds which may be received. On March 21, 2007, the Partnership sold its limited partnership interest in Puerto Rico Historic Zone, Limited Dividend Partnership ("San Justo") to the Local General Partner for a sales price of $874,000. The Partnership received proceeds of $874,000 from this sale The sale resulted in a gain of approximately $4,232,000 resulting from the write-off of the deficit basis in the Local Partnership of approximately $3,358,000 at the date of the sale and the $874,000 cash received from the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On February 7, 2007, the property and the related assets and liabilities of Cutler Canal III Associates, Ltd. ("Cutler Canal") were sold to an affiliate of the General Partner for a sales price of $11,600,000. The Partnership received $3,624,195 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs and distributions to minority interests of approximately $4,594,000. The sale resulted in a gain of approximately $8,463,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On February 28, 2007, the Partnership sold its remaining limited partnership interest in Michigan Rural Housing Limited Partnership ("Michigan Rural") to an affiliate of the Local General Partner. The Partnership received $10 from this sale. The sale resulted in a gain of approximately $366,000 resulting from the write-off of the deficit basis in the Local Partnership at the date of the sale, which will be recognized during the Partnership's quarter ended June 30, 2007. The sale resulted in the liquidation of Michigan Rural. On May 26, 2005, the Partnership had sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sale price of $100,000. The Partnership received proceeds of $100,000 from this sale, which resulted in a gain of $100,000. On January 30, 2007, the property and the related assets and liabilities of 1850 Second Avenue Associates, L.P. ("1850 Second Avenue") were sold to an unaffiliated third party purchaser for a sales price of $25,000, which was used for the payment of closing costs. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $3,126,707. The sale will result in a gain of approximately $419,000 resulting from the write-off of the remaining liabilities at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. The sale will also result in a non-cash contribution to the Partnership of approximately $3,300,000 from the General Partner as a result of the write-off of advances owed by the Local Partnership to an affiliate of the General Partner, which will be recognized during the Partnership's quarter ending June 30, 2007. On January 26, 2007, the property and the related assets and liabilities of C.V. Bronx Associates, L.P./Gerard Gardens ("CV Bronx") were sold to an unaffiliated third party purchaser for a sales price of $4,770,000. The Partnership received $3,133,090 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $837,000. The Partnership will receive an additional $800,000 in guaranteed deferred payments within the next three years. The sale resulted in a gain of $87,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized during the Partnership's quarter ending June 30, 2007. On October 25, 2006, the property and the related assets and liabilities of Manhattan A Associates ("Manhattan A") were sold to an unaffiliated third party purchaser for a sales price of $7,250,000. The Partnership received $3,950,202 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $3,300,000. The sale resulted in a gain of approximately $3,035,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $345,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $3,380,000. The sale resulted in the liquidation of Manhattan A. On August 22, 2006, the property and the related assets and liabilities of Broadhurst Willows Limited Partnership ("Broadhurst") were sold to an unaffiliated third party purchaser for a sales price of $5,300,000. The Partnership received $4,495,600 as a distribution from this sale after the repayment of other liabilities and closing costs of approximately $804,000. The sale resulted in a gain of approximately $2,171,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately $(142,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $2,029,000. The sale resulted in the liquidation of Broadhurst. On June 5, 2006, Weidler Associates Limited Partnership ("Weidler") sold its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price of $1,900,000. The Partnership received $541,403 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,359,000. The sale resulted in a gain of approximately $787,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of approximately $(103,000) was recorded during the quarter ended March 31, 2007, resulting in an overall gain of approximately $684,000. The sale resulted in the liquidation of Weidler. On April 14, 2006, Michigan Rural sold the property and the related assets and liabilities of The Meadowlands Apartments ("Meadowlands") (one of the properties owned by Michigan Rural) to an unaffiliated third party purchaser for a sales price of $1,083,445. The Partnership received $115,844 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $968,000. The sale resulted in a gain of approximately $313,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $134,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $447,000. On March 28, 2006, the Local General Partner of Stop 22 Limited Partnership ("Stop 22") purchased the Partnership's remaining interest in Stop 22 for a 117 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 sales price of $1,800,000. The Partnership received proceeds of $1,800,000 from this sale. The sale resulted in a gain of approximately $5,379,000 resulting from the write-off of the deficit basis in the property at the date of the sale of approximately $3,579,000 and $1,800,000 cash received from the sale. On March 1, 2006, Affordable Flatbush Associates ("Affordable Flatbush") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,700,000. The Partnership received $157,949 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,542,000. The sale resulted in a gain of approximately $231,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional gain of approximately $33,000 was recorded during the quarter ended March 31, 2007 resulting in an overall gain of approximately $264,000. The sale resulted in the liquidation of Affordable Flatbush. On March 1, 2006, Site H Development Co. ("Site H") sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $1,200,000. The Partnership received $433,852 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $766,000. The sale resulted in a gain of approximately $554,000 resulting from the write-off of the deficit basis in the property at the date of the sale. An additional loss of $(42,000) was recorded during the quarter ended March 31, 2007 resulting in an overall gain of $512,000. The sale resulted in the liquidation of Site H. On January 4, 2006, the Partnership sold its limited partnership interest in Las Camelias Limited Partnership ("Las Camelias") to the Local General Partner for $1 cash plus 30% of any upside profits from the conversion to condos, if the sale price exceeds $92,500 for any of the units. The sale resulted in a gain of approximately $2,828,000, resulting from the write-off of the deficit basis in the Property at the date of the sale. On December 14, 2005, Michigan Rural sold the property and the related assets and liabilities of Prairie Glen Apartments ("Prairie Glen") (one of the properties owned by Michigan Rural) to an unaffiliated third party purchaser for a sales price of approximately $1,617,000. The Partnership received $185,961 as a distribution from this sale after the assumption of mortgages and distribution to minority interest of approximately $1,431,000. The sale resulted in a gain of approximately $822,000 resulting from the write-off of the deficit basis in the property at the time of the sale and the $185,961 cash received from the sale. On December 14, 2005, the Partnership's limited partnership interest in RBM Associates/Spring Garden ("Spring Garden") was sold to an unaffiliated third party purchaser for a sales price of $100. The sale resulted in a gain of approximately $36,000 resulting from the write-off of the deficit basis in the property at the date of the sale. On September 20, 2005, the Partnership's limited partnership interest in Franklin Elderly Housing Associates ("Franklin") was sold to the Local General Partner for a sales price of $210,000. The Partnership received proceeds of $209,990 from this sale. The sale resulted in a gain of approximately $531,000 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $321,000 and the $209,990 cash received from the sale. An additional loss of $(23,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of $508,000. On September 20, 2005, the Partnership's limited partnership interest in Philipsburg Elderly Housing Associates ("Philipsburg") was sold to the Local General Partner for a sales price of $20,000. The Partnership received proceeds of $19,990 from this sale. The sale resulted in a loss of approximately $67,000 resulting from the write-off of the basis in the property at the date of sale of approximately $87,000 and the $19,990 cash received from the sale. An additional loss of $(23,000) was recorded during the quarter ended March 31, 2006, resulting in an overall loss of $90,000. On September 20, 2005, the Partnership's limited partnership interest in Wade D. Mertz Elderly Housing Associates ("Wade") was sold to the Local General Partner for a sales price of $70,000. The Partnership received proceeds of $69,990 from this sale. The sale resulted in a gain of approximately $71,000 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $1,000 and the $69,990 cash received from the sale. An adjustment to the gain of approximately $(24,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of $47,000. On July 5, 2005, the Partnership's limited partnership interest in Glenbrook Associates ("Glenbrook") was sold to the Local General Partner for a sales price of $99,990. The Partnership received $59,990 in cash and a note for $40,000 due to the Partnership upon approval from the Pennsylvania Housing Finance Agency for allocation of low-income housing tax credits, which was recorded as deferred revenue. The sale resulted in a gain of approximately $152,000 which was recorded during the quarter ended December 31, 2005 resulting from the write-off of the deficit basis in the property at the date of sale of approximately $52,000 and the $59,990 cash received from the sale and the $40,000 note receivable recorded as deferred revenue. An additional loss of approximately ($95,000) was recorded during the quarter ended March 31, 2006, resulting in an overall gain of approximately $57,000. On June 30, 2005, the Partnership's limited partnership interest in Barclay Village II, Ltd. ("Barclay") was sold to the Local General Partner for a sales price of $175,000. The Partnership received proceeds of $174,990 from this sale. The sale resulted in a gain of approximately $548,000 resulting from the write-off of the deficit basis in the property of approximately $373,000 and the $174,990 cash received from the sale. On May 26, 2005, the Partnership sold 50% of its limited partnership interest in Michigan Rural to an affiliate of the Local General Partner for a sales price of $100,000. The Partnership received proceeds of $100,000 from this sale. The sale resulted in a gain of approximately $100,000 resulting from the cash received of $100,000. The affiliate of the Local General Partner had the option to buy the remaining interest during the period starting on January 1, 2007 and ending on February 28, 2007. On February 28, 2007, the Local General Partner exercised this option and purchased the remaining limited partnership interest (see discussion above). 118 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 On May 6, 2005,West Columbia Associates, L.P. ("Gentle Pines") transferred the deed to the property and the related assets and liabilities to an unaffiliated third party for the assumption of the mortgage. The transfer resulted in a gain of approximately $3,453,000 resulting from the write-off of the deficit basis in the property at the date of the transfer which was recorded during the quarter ended September 30, 2005. An adjustment to the gain of approximately $129,000 was recorded during the quarter ended March 31, 2006 resulting in overall gain of approximately $3,583,000. On May 2, 2005, the Partnership redeemed its limited partnership interest in Lancashire Towers Associates, LTD ("Lancashire") to an affiliate of the Local General Partner for a redemption price of $800,000. The Partnership received proceeds of $764,456 from this sale after closing costs of approximately $36,000. During the year ended March 31, 2006, in accordance with Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" ("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 $1,700,000. The sale resulted in a gain of approximately $186,000 resulting from the write-off of the deficit basis in the property at the date of the sale. On April 29, 2005, the property and the related assets and liabilities of Brandywine Court Associates, L.P. ("Brandywine") were sold to an unaffiliated third party purchaser for a sales price of $1,380,000. After the repayment of mortgages and other liabilities, the Partnership received no distribution from this sale. The sale resulted in a gain of approximately $1,354,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which was recorded during the quarter ended September 30, 2005. An adjustment to the gain of approximately $5,000 was recorded during the quarter ended March 31, 2006 resulting in overall gain of approximately $1,359,000. The sale resulted in the liquidation of Brandywine. On July 15, 2004, the Partnership sold its limited partnership interest in WPL Associates XXIII ("Benjamin's Corner") to an unaffiliated third party purchaser for approximately $690,000, resulting in a gain in the amount of approximately $2,124,000, resulting from the write-off of the deficit basis in the property at the date of the sale. NOTE 11 - Assets Held for Sale On March 15, 2007, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in The Hamlet, Ltd. ("Hamlet") to an affiliate of the Local General Partner for a sales price of $4,397,500. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in September 2007. No assurance can be given that the sale will actually occur. Hamlet is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Hamlet had property and equipment, at cost, of approximately $14,737,000, accumulated depreciation of approximately $7,414,000 and mortgage debt of approximately $8,168,000. On March 9, 2007, West 132nd Development Partnership ("Manhattan J") 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 sales price of $3,500,000 less the unpaid principal balance of the mortgage. Manhattan J is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Manhattan J had property and equipment, at cost, of approximately $2,608,000, accumulated depreciation of approximately $1,055,000 and mortgage debt of approximately $1,280,000. Subsequently, on May 30, 2007, the property and the related assets and liabilities of Manhattan J were sold (see Note 16). On February 1, 2007, Williamsburg Residential II, L.P. ("Williamsburg II") entered into a purchase and sale agreement to sell its property and the related assets and liabilities to an affiliate of the Local General Partner for a sales price $1,799,654. The sales documents have been executed and the initial deposit funds are being held in escrow. No assurance can be given that the sale will actually occur. The closing is expected to occur in December of 2007. Williamsburg II is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Williamsburg II had property and equipment, at cost, of approximately $1,790,000, accumulated depreciation of approximately $828,000 and mortgage debt of approximately $1,386,000. On August 24, 2006, Conifer James Street Associates ("Schopfer") 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 sales price of $1,950,000 less the unpaid principal balance of the mortgage. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to take place in the quarter ending September 30, 2007. No assurance can be given that the sale will actually occur. Schopfer is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Schopfer had property and equipment, at cost, of approximately $4,584,000, accumulated depreciation of approximately $2,587,000 and mortgage debt of approximately $1,783,000. On July 1, 2006, the Partnership entered into a purchase and sale agreement to sell its limited partnership interest in Driftwood Terrace Associates, Ltd. ("Driftwood") to an affiliate of the Local General Partner for a sales price of $1,986,418. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to occur in the quarter ending September 30, 2007. No assurance can be given that the sale will actually occur. Driftwood is being held as an asset held for sale as of March 31, 2007. As of December 31, 2006, Driftwood had property and equipment, at cost, of approximately $8,325,000, accumulated depreciation of approximately $5,501,000 and mortgage debt of approximately $6,441,000. 119 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 NOTE 12 - Commitments and Contingencies (a) Subsidiary Partnership - Going Concerns and Uncertainties R.P.P. Limited Dividend Housing Association Limited Partnership ("River Place") ------------------------------------------------------------------------------- River Place has experienced significant losses from operations and has been unable to generate sufficient cash flow to make the required principal and interest payments under its loan agreements. River Place's debt guarantor, General Retirement System of the City of Detroit ("GRS"), entered into an agreement with the Michigan State Housing Authority (the "Authority") to purchase these loans upon the occurrence of certain events. GRS has declared River Place in default under its obligation to make the required payments. During 1996, GRS agreed to waive its right of foreclosure under the mortgages, through February 1, 2006. GRS has not granted an extension to its waiver to foreclose beyond February 1, 2006 and can exercise its right to foreclose at any time. GRS has made advances for debt service and has incurred certain fees relating to these loans totaling $63,943,133, including accrued interest on such advances at a rate of 15%. Such amount is included in the amount due to debt guarantor on the balance sheet. Management anticipates that River Place will be unable to make all of the required debt service payments during 2007. However, there is no guarantee that GRS, or any other person, will continue to make these payments on behalf of the River Place. Additionally, because River Place has been declared in default of its obligations under the guarantor agreement, the Authority could elect to declare River Place to be in default under the loan agreements pursuant to certain provisions contained therein but have elected not to do so as a result of GRS making the required debt service payments. Accordingly, it is uncertain whether River Place will be able to continue as a going concern. The financial statements of River Place have been prepared assuming that River Place will continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in River Place has been written down to zero by prior years' losses and the minority interest balance was approximately $883,000 at both March 31, 2007 and 2006. The net loss after minority interest for River Place amounted to approximately $5,122,000, $4,056,000 and $3,526,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Subsequently, on May 30, 2007, River Place's 2000 Bonds were refunded in the amount of $21,280,000. Since the bonds have been refunded, the current mortgage held on the property by MSHDA and US Bank, the Bond Trustee on the former bonds, will be discharged. As of the date of River Place's audit report, this discharge has not occurred. New Bonds in the amount of $25,000,000 have been issued in the name of GRS River Place Corporation. This entity will be the fee holder of the apartments. The transfer of the property to the new ownership entity has not occurred as of the date of River Place's audit report. Longfellow Heights Apartments, L.P. ("Longfellow") -------------------------------------------------- The financial statements of Longfellow have been prepared assuming that it will continue as a going concern. Longfellow's note with Hallmark Corporate Foundation matures September 1, 2007. The principal balance of the note at December 31, 2006 was $1,237,648 and based on historical operations of Longfellow, it is not expected to be able to pay the principal balance in 2007. Longfellow intends to rehabilitate the property and to restructure its debt during 2007. Longfellow has Tax Credits approved, but is waiting on a bond allocation. This is expected to occur prior to September 1, 2007. The Partnership's investment in Longfellow was written down to zero by prior years' losses and the minority interest was $0 at both March 31, 2007 and 2006. The net loss after minority interest for Longfellow amounted to approximately $364,034, $370,000 and $311,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Citrus Meadows Apartments, LTD. ("Citrus Meadows") -------------------------------------------------- The financial statements of Citrus Meadows have been prepared assuming that it will continue as a going concern. Citrus Meadows incurred a net loss of $398,878 during the current period and has incurred a Partner's deficit of $7,522,047 since inception. Current economic conditions have limited the ability of Citrus Meadows to increase tenant occupancy. In response to economic conditions, management has reduced expenses and increased advertising to attract new tenants. Also, nonessential capital expenditures have either been eliminated or postponed. Also, in the current year, Citrus Meadows' status as a tax credit project has expired allowing it to provide rental opportunities to a wider range of possible tenants through the use of market value rents. Citrus Meadows has the ability to rent up to 60% of the 200 units to non-income restricted tenants. Current occupancy rates are near 80%, and management has secured several new move-in tenants for the 2007 fiscal year. At this time, the Local General Partner is funding the deficit. Because it is unclear whether Citrus Meadows will be successful in accomplishing these objectives, there is uncertainty about Citrus Meadow's ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should Citrus Meadows be unable to continue as a going concern. The Partnership's investment in Citrus Meadows has been written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2007 and 2006. The net loss after minority interest amounted to approximately $399,000, $528,000 and $777,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Puerto Rico Historic Zone Dividend Partnership ("San Justo") ------------------------------------------------------------ The financial statements of San Justo have been prepared assuming that it will continue as a going concern. San Justo has suffered recurring losses from operations. At December 31, 2006, San Justo had a partners' deficit of $2,339,601 and has not complied with the total interest payment requirement of its mortgage note with the Puerto Rico Housing Finance Authority that raise substantial doubt about San Justo's ability to continue as a going concern. In addition, at December 31, 2006, there was a claim from Caribe Rum, Inc. (a related company of the Local General Partner) for, allegedly, an outstanding liability for $1,000,000. The related promissory note, in support of the claim, issued by San Justo, was dated on September 30, 1991 and was originally payable to Puerto Rico Housing Finance Corporation (PRHFC); and subsequently endorsed to Popular Mortgage, Inc. on February 19, 2004 and; to Miramar Real Estate Management, Inc. (a related party), allegedly on October 19, 2006. The promissory note due date was July 1, 1992. San Justo's management did not have knowledge of the existence of such debt until October 2006. The related debt for $1,000,000 is not presented as a liability in the accompanying balance sheet. The financial statements do not include any adjustments that might result from the outcome of these uncertainties. The Partnership's minority interest balance 120 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 in San Justo was approximately $0 and $124,000 at March 31, 2007 and 2006, respectively. The net loss after minority interest for San Justo was approximately $434,000, $313,000 and $234,000 for the years ended March 31, 2007, 2006 and 2005, respectively. The Partnership's limited partnership interest in San Justo was sold on March 21, 2007 (see Note 10). Jefferson Limited Partnership ("Jefferson") ------------------------------------------- At December 31, 2006 and 2005, Jefferson's current liabilities exceeded its current assets by approximately $1,337,000 and $1,289,000, respectively and has sustained a net loss of $696,283 for the year ended December 31, 2006. The accompanying financial statements have been prepared assuming Jefferson will continue as a going concern. Jefferson has suffered recurring losses and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management is taking measures to increase occupancy and reduce operating expenses. In addition, management is looking into alternatives regarding refinancing the existing debt. If profitable operations cannot be obtained, Jefferson will be financially dependent on its partners. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Partnership's investment in Jefferson was written down to zero by prior years' losses and the minority interest balance was $0 at both March 31, 2007 and 2006. The net loss after minority interest for Jefferson amounted to approximately $696,000, $183,000 and$151,000 for the years ended March 31, 2007, 2006 and 2005, respectively. Manhattan A ----------- The financial statements of Manhattan A have been prepared assuming it will continue as a going concern. On October 25, 2006, Manhattan A sold the building and any cash left over after satisfying loans were distributed to the partners. The subsidiary partnership was terminated as of December 31, 2006 (see Note 10). b) Subsidiary Partnership - Other Redemptorist Limited Partnership ("Redemptorist") ------------------------------------------------- Redemptorist is located in the areas affected by Hurricane Katrina in August 2005 that sustained major damage and has remained completely vacant since then. The Local General Partner is still evaluating whether Redemptorist will be rebuilt or not. Redemptorist is close to the end of its Compliance Period and has third-party debt. Redemptorist anticipates that the insurance proceeds will be sufficient to pay off all debt. Currently, Redemptorist does not expect that there will be financial exposure related to Redemptorist. At March 31, 2007, Redemptorist's property and equipment net of accumulated depreciation is approximately $2,836,000. The insurance coverage is approximately $6,500,000 for property, $5,000,000 for flood and wind coverage and $860,000 for rent loss. Cutler Canal III ---------------- On October 24, 2005, Cutler Canal was damaged by Hurricane Wilma. The hurricane caused extensive damage which required roofing to be replaced on substantially all the buildings of Cutler Canal. In total, damages were $321,756. As of December 31, 2006, the claim was processed and repairs completed. Repairs consisted of removing existing roofing material and installing new roofing material. Cutler Canal experienced a net gain on the involuntary conversion of $96,307 (included in other revenues on the consolidated statements of discontinued operations), which is the excess of net proceeds of $155,307 less the cost of the damaged property of $32,800. On February 7, 2007, Cutler Canal sold its property and the related assets and liabilities for a purchase price of $11,600,000 (see Note 10). Driftwood --------- On October 24, 2005, Driftwood suffered damage caused by Hurricane Wilma. Driftwood has claimed and recovered $864,651 of insurance proceeds and has made repairs of $668,094 as of December 31, 2006. Driftwood has established a deferred charges account in the amount of $422,294 which represents the unspent insurance proceeds to be used on additional repairs. Driftwood has submitted a supplemental insurance claim in the amount of $224,737. The resolution of the supplemental claim and the amount of any casualty loss suffered by Driftwood cannot be determined at this time. Leases ------ One Subsidiary Partnership is leasing the land on which the property is located on a noncancelable lease for a term of 50 years, expiring in 2033. At December 31, 2006, this Subsidiary Partnership was committed to minimum future annual rentals on the leases aggregating approximately $50,000 for each of the next five years, and $2,250,000 total thereafter. One Local Partnership has entered into an agreement ("Master Lease") with an affiliate that expires in 2012, wherein the Local Partnership is guaranteed annual rental revenue. The following is a schedule by year of future minimum rentals to be received under the Master Lease as of December 31, 2006: Year Ended December 31, ------------------------ 2007 $ 158,370 2008 164,863 2009 171,458 2010 178,316 2011 and thereafter 186,594 ------------ $ 859,601 ============ 121 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 c) Uninsured Cash and Cash Equivalents The Partnership maintains its cash and cash equivalents in various banks. Accounts at each bank are guaranteed by the Federal Deposit Insurance Corporation ("FDIC") up to $100,000. As of March 31, 2007, uninsured cash and cash equivalents approximated $15,300,000. d) Cash Distributions Cash distributions from the Local Partnerships to the Partnership are restricted by the provisions of the respective Local Partnership Agreements and/or HUD. Such cash distributions are typically made from surplus cash flow. e) Tax Credits A portion of Tax Credits are subject to recapture in future years if (1) the Local Partnership ceases to meet qualification requirements, (2) there is a decrease in the qualified basis of the Property, or (3) there is a reduction in the taxpayer's interest in the Property at any time during the 15-year Compliance Period that began with the first tax year of the Credit Period. None of the Local Partnerships in which the Partnership has acquired an interest has suffered an event of recapture. The Credit Periods expired at various times through December 31, 2003 with respect to the Local Partnerships depending upon when the Credit Period commenced. However, each Local Partnership must continue to comply with the Tax Credit requirements until the end of the Compliance Period in order to avoid recapture of the Tax Credits. The Compliance Periods are scheduled to expire at various times through December 31, 2008. f) Other The Partnership is subject to the risks incident to potential losses arising from the management and ownership of improved real estate. The Partnership can also be affected by poor economic conditions generally. However, no more than 17% of the Properties are located in any single state. There are also substantial risks associated with owning Properties receiving government assistance, such as the possibility that Congress may not appropriate funds to enable HUD to make rental assistance payments. HUD also restricts annual cash distributions to partners based on operating results and a percentage of the owner's equity contribution. The Partnership cannot sell or substantially liquidate its investments in Subsidiary Partnerships during the period that the subsidy agreements are in existence without HUD's approval. Furthermore, there may not be market demand for apartments at full market rents when the rental assistance contracts expire. In order for certain Subsidiaries to qualify for the Section 421A Program and the Inclusionary Zoning Program, they are subject to certain requirements by local authorities as to the level of rent that may be charged to tenants, the tenants' incomes, the obligation to operate the Property in accordance with rent stabilization guidelines, and restrictions on the rate at which housing units may be released from such guidelines. Also, certain Subsidiary Partnerships obtain grants from local authorities to fund construction costs of the Properties and in order to qualify must maintain the low-income nature of the Property, among other provisions. River Place ----------- In order to enhance the marketability of its Variable Rate Limited Obligation Multifamily Housing Revenue Refunding Bonds (the "2000 Bonds"), GRS entered into an agreement with a bank whereby the bank issued a direct-pay letter of credit on the account of River Place in favor of the Authority in the initial stated amount equal to approximately $22,000,000 and $23,000,000 as of December 31, 2006 and 2005, respectively. The letter of credit, which was due to expire May 16, 2005, was extended through May 16, 2007. NOTE 13 - Discontinued Operations The following table summarizes the financial position of the Local Partnerships that are classified as discontinued operations because the respective Local Partnerships were sold or classified as assets held for sale. As of March 31, 2007, Broadhurst, Cutler Canal, Michigan Rural, Site H, Stop 22, Weidler, Manhattan A, 1850 Second Avenue, Driftwood, CV Bronx, Schopfer Court, Hamlet, Manhattan J, San Justo and Williamsburg II were classified as discontinued operations in the consolidated financial statements. As of March 31, 2006, Affordable Flatbush, Barclay, Brandywine, Broadhurst, Cutler Canal, Franklin, Gentle Pines, Glenbrook Lancashire, Las Camelias, Michigan Rural, Site H, Stop 22, Wade, Philipsburg and Spring Garden were classified as discontinued operations in the consolidated balance sheets. 122 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Consolidated Balance Sheets:

March 31, ~~----------------------------~~March ~~2006~~31, ~~2005~~2007 2006 ------------ ------------ ~~Jefferson~~Assets ~~Limited~~Property ~~Partnership~~and -equipment -~~----------------------------~~ ~~This~~less ~~loan~~accumulated isdepreciation ~~unsecured~~of $30,151,980 ~~bears~~and ~~interest~~$18,691,076, atrespectively ~~an annually adjusted rate (1.98% at December~~ $31,822,485 ~~2005~~$20,574,674 Cash and ~~1.52%~~cash atequivalents ~~December~~965,805 31727,335 ~~2004)~~Cash ~~and~~held ~~has~~in noescrow ~~predetermined~~2,256,111 ~~due~~2,320,547 ~~date~~Deferred $costs ~~100~~530,~~000~~727 $ 100,~~000~~693 ~~This~~Other ~~note~~assets is1,111,560 ~~unsecured~~599,082 ~~bears~~----------- ~~interest~~----------- atTotal ~~9.25%~~assets ~~per~~$36,686,688 ~~annum~~$24,322,331 ~~and~~=========== is=========== ~~due~~Liabilities inMortgage ~~the~~notes ~~event~~payable of$32,569,200 ~~sale~~$22,358,177 orAccounts ~~refinancing~~payable ofand ~~the~~other ~~property~~liabilities 756,~~000~~641,137 751,~~000~~701,142 Accrued interest onpayable ~~developer loans 183~~3,~~634 174~~207,~~716~~846 ~~Citrus~~0 ~~Meadows~~Due ~~Apartments,~~to ~~Ltd.~~local -general ~~-------------------------------~~partners ~~This~~and ~~loan~~affiliates ~~bears~~111,573 no323,876 ~~interest~~Security ~~and~~deposits ~~can~~payable ~~only~~531,076 be0 ~~repaid~~Due ~~with~~to ~~the~~general ~~proceeds~~partners ~~from~~and aaffiliates ~~sale~~4,826,537 or92,562 ~~refinancing~~Minority ~~985~~interest 423,~~784~~454 ~~985~~197,~~784~~145 ------------ ------------ $Total 1liabilities $48,~~344~~310,~~418~~823 $ 124,~~335~~672,~~500~~902 ============ ===========~~= Interest expense incurred on developer loans amounted to $8,918, $8,458 and $9,718 for the years ended March 31, 2006, 2005 and 2004, respectively.~~

The following table summarizes the results of operations of the Local Partnerships that are classified as discontinued operations. For the year ended March 31, 2007, 1850 Second Avenue, CV Bronx, San Justo, Cutler Canal, Michigan Rural, Manhattan A, Broadhurst and Weidler, which were all sold during the year ended March 31, 2007, and Driftwood, Schopfer Court, Hamlet, Manhattan J and Williamsburg II, which were classified as assets held for sale, and Affordable Flatbush, Site H and Stop 22, in order to present comparable results to the year ended March 31, 2007, were all classified as discontinued operations on the consolidated financial statements. For the year ended March 31, 2006, Affordable Flatbush, Barclay, Brandywine, Franklin, Gentle Pines, Glenbrook, Lancashire, Las Camelias, Philipsburg, Site H, Spring Garden, Stop 22 and Wade, which were all sold during the year ended March 31, 2006, and Broadhurst, Cutler Canal and Michigan Rural, which were classified as assets held for sale, were all classified as discontinued operations on the consolidated financial statements. For the year ended March 31, 2005, Ashby, Benjamin's Corner, Meredith and Ritz, which were sold during the year and Affordable Flatbush, Barclay, Brandywine, Broadhurst, Cutler Canal, Franklin, Gentle Pines, Glenbrook, Lancashire, Las Camelias, Michigan Rural, Philipsburg, Site H, Spring Garden, Stop 22 and Wade in order to present comparable results to the year ended March 31, 2006 were classified as discontinued operations on the consolidated financial statements. 123 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 Consolidated Statements of Discontinued Operations:

Years Ended March 31, -------------------------------------------- 2007 2006* 2005* ------------ ------------ ~~Citrus~~------------ ~~Meadows~~Revenues ~~Apartments~~Rental income $ 10,970,070 ~~Ltd.~~$ -16,822,514 $ 19,742,391 Other 596,672 513,515 941,222 Gain on sale of properties 12,674,973 10,184,228 2,144,670 ------------ ------------ ------------ ~~The~~Total ~~land~~revenue ~~for~~24,241,715 ~~this~~27,520,257 ~~Subsidiary~~22,828,283 ~~Partnership~~------------ ~~was~~------------ ~~purchased~~------------ ~~from~~Expenses ~~the~~General ~~Local~~and administrative 2,456,315 3,232,855 3,858,514 General ~~Partner~~and ~~for~~administrative-related aparties ~~$600~~(Note 8) 542,~~000~~501 ~~note~~826,267 ~~which~~1,059,258 ~~accrues~~Repairs ~~interest~~and atmaintenance ~~10%~~2,025,535 ~~per~~3,219,813 ~~annum.~~3,545,733 ~~The~~Operating ~~principal~~1,722,163 ~~balance~~2,475,478 ~~together~~2,820,631 ~~with~~Taxes ~~the~~826,076 ~~accrued~~1,249,071 1,478,231 Insurance 993,003 1,120,853 1,360,797 Interest 2,655,181 4,517,127 5,559,656 Depreciation and amortization 2,022,542 4,417,749 5,043,186 Loss on impairment of property 3,126,707 0 1,700,000 ------------ ------------ ------------ Total expenses 16,370,023 21,059,213 26,426,006 ------------ ------------ ------------ Income (loss) before minority interest 7,871,692 is6,461,044 ~~payable~~(3,597,723) ~~upon~~Minority ~~the~~interest in income (loss) of subsidiaries from discontinued operations 265,424 (3,378,277) (73,836) ------------ ------------ ------------ Total income (loss) from discontinued operations (including gain on sale of ~~the~~properties) ~~property~~$ or8,137,116 in$ ~~August~~3,082,767 ~~2037~~$ (3,671,559) ~~whichever~~============ ~~event~~============ ~~occurs~~============ ~~first.~~Income (loss) - limited partners from discontinued operations (including gain on sale of properties) $ 18,~~565~~055,~~106~~745 $ 13,~~505~~051,~~106~~939 $ (3,634,843) ============ ============ ============ Number of BACs outstanding 139,101.5 139,101.5 139,101.50 ============ ============ ============ Income (loss) discontinued operations (including gain on sale of properties) per BAC $ 57.91 $ 21.94 $ (26.13) ============ ============ ============

* Reclassified for comparative purposes Cash flows from Discontinued Operations:

Years Ended ~~December~~March 31, -------------------------------------------- ~~2005~~2007 ~~2004~~2006* ~~2003~~2005* ------------ ------------ ------------ ~~Financial~~Net ~~statement~~cash ~~net~~provided ~~loss~~by $ (~~6,713,311)~~used ~~$(12,938,658~~in) $operating ~~(97,359)~~activities ~~Difference~~$ ~~resulting from parent company having a different fiscal year for income tax and financial reporting purposes 569~~4,~~071 44~~413,~~931~~375 ~~(95,895)~~$ ~~Difference between depreciation and amortization expense recorded for financial statement and income tax reporting purposes~~ (18,~~132~~172,~~354~~351) ~~(1,611,877)~~$ (1177,~~978,505)~~071 ~~Difference~~------------ ~~between~~------------ ~~gain~~------------ onNet ~~sale~~cash ofprovided ~~properties~~by ~~recorded~~investing ~~for~~activities ~~financial~~$ ~~statement and income tax reporting purposes (7~~22,~~863~~931,~~229)~~271 ~~107,656~~$ (65,~~013~~441,~~468)~~209 ~~Loss~~$ ~~on impairment recorded for financial statement not deducted for tax purposes 0~~ 1,~~700~~706,~~000~~430 ~~0 Tax~~-~~exempt interest income (16,574) (4,236) (1,265) Other 977,883 580,420 832,166~~ ------------ ------------ ------------ ~~Taxable~~Net ~~net~~cash ~~loss~~used asin ~~shown~~financing onactivities ~~the Partnership's income tax return~~ $(1412,~~178~~702,~~514~~191) $ (121,~~121~~982,~~764~~453) $ (73,~~354~~546,~~326~~324) ~~============~~------------ ~~============~~------------ ~~============~~------------

124 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 NOTE 14 - Selected Quarterly Financial Data (Unaudited) The following table summarizes the Partnership's quarterly results of operations for the years ended March 31, 2007 and 2006. The fluctuations between the quarters are primarily due to the sales of Local Partnerships (see Note 10).

~~Year~~Quarter Ended ---------------------------------------------------------- June 30, September 30, December 31, March 31, 2006* 2006* 2006* 2007 ------------- ------------- ~~2006~~------------- ------------- Revenues $ ~~152~~3,~~133~~497,023 ~~2007~~$ ~~158~~3,~~370~~345,972 ~~2008~~$ ~~164~~3,~~863~~627,479 ~~2009~~$ ~~171~~3,~~458~~704,142 ~~2010~~Operating ~~178~~expenses (6,~~316~~048,550) ~~2011~~(5,858,912) (6,177,225) (9,039,699) ------------- ------------- ------------- ------------- Loss from operations before minority interest (2,551,527) (2,512,940) (2,549,746) (5,335,557) Minority interest in loss of subsidiary partnerships from operations 80,423 80,345 117,538 76,541 Income (loss) from discontinued operations (including gain (loss) on sale of properties and ~~thereafter~~minority ~~186~~interest) 5,~~594~~252,250 (1,053,940) 2,088,291 1,850,515 ------------- ------------- ------------- ------------- Net income (loss) $1 2,~~011~~781,~~734~~146 $ (3,486,535) $ (343,917) $ (3,408,501) ============= ============= ============= ============= Net income (loss)-limited partnership $ 2,753,335 $ (3,451,670) $ (340,478) $ (3,374,416) ============= ============= ============= ============= Net loss per BAC from operations $ (17.59) $ (17.31) $ (17.31) $ (37.43) Net income (loss) per BAC from discontinued operations 37.38 (7.50) 14.86 13.17 ------------- ------------- ------------- ------------- Net income (loss) per BAC $ 19.79 $ (24.81) $ (2.45) $ (24.26) ============= ============= ============= =============

~~March~~Quarter Ended ---------------------------------------------------------- June 30, September 30, December 31, March 31, ~~2006~~2005*/** 2005*/** 2005*/** 2006*/** ------------- ------------- ~~Assets~~------------- ~~Property~~------------- ~~and~~Revenues ~~equipment~~$ -3,514,710 ~~less~~$ ~~accumulated~~3,513,443 ~~depreciation~~$ of3,619,472 $18 3,~~691~~430,~~076~~932 ~~and~~Operating $7expenses (6,~~320~~000,~~799~~501) (6,109,818) ~~respectively $20~~(6,~~574~~072,~~674~~817) ~~$ 4~~(5,~~904~~937,~~925~~197) ~~Cash~~------------- ~~and~~------------- ~~cash~~------------- ~~equivalents~~------------- ~~727~~Loss from operations before minority interest (2,~~335~~485,791) ~~640~~(2,~~686~~596,375) ~~Cash~~(2,453,345) ~~held~~(2,506,265) Minority interest in ~~escrow~~loss 2(income) of subsidiary partnerships from operations 68,~~320~~150 (1,~~547~~725,408) (1,~~180~~629,~~726~~642) ~~Deferred~~3,592,598 ~~costs~~(Loss) ~~100,693~~income 0from ~~Other~~discontinued ~~assets~~operations ~~599~~(including gain (loss) on sale of properties and minority interest) (932,~~082~~422) ~~103~~5,~~861~~181,589 (28,975) (1,137,425) ------------- ------------- ~~Total~~------------- ~~assets~~------------- Net (loss) income $24 (3,~~322~~350,~~331~~063) $ 6859,~~830~~806 $ (4,~~198~~111,962) $ (51,092) ============= ============= ~~Liabilities~~============= ~~Mortgage~~============= ~~notes~~Net ~~payable~~(loss) income - limited partnership $22 (3,~~358~~316,~~177~~562) $ 6851,~~917~~208 $ (4,~~348~~070,842) ~~Accounts~~$ ~~payable~~(50,582) ~~and~~============= ~~other~~============= ~~liabilities~~============= ~~1,701,142~~============= ~~285,741~~Net ~~Due~~(loss) toincome ~~local~~per ~~general~~BAC ~~partners~~from ~~and~~operations ~~affiliates~~$ ~~323,876~~(17.21) ~~25,700~~$ ~~Due~~(30.76) to$ ~~general~~(29.06) ~~partners~~$ ~~and~~7.74 ~~affiliates~~Net ~~92,562~~(loss) ~~2,500~~income ~~Minority~~per ~~interest~~BAC ~~197,145~~from discontinued operations (~~753,139~~6.63) 36.88 (0.21) (8.10) ------------- ------------- ~~Total~~------------- ~~liabilities~~------------- Net (loss) income per BAC $~~24,672,902~~ (23.84) $ 6~~,478,150~~.12 $ (29.27) $ (0.36) ============= ============= ============= =============

* Reclassified for comparative purposes. ** As restated (see Note 15). 125 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2007 NOTE 15 - Prior Period Adjustment Citrus Meadows Apartments, Ltd. ("Citrus Meadows") -------------------------------------------------- The accompanying financial statement for the years ended March 31, 2007 and 2006 have been restated to correct an overstatement of interest due to an error in the computation of annual interest expense at Citrus Meadows. Citrus Meadows has been accruing interest on a land loan since inception at 10% annually in accordance with its promissory note. It was determined that Citrus Meadows' partnership agreement that stated the loan was non-interest bearing was enacted after the promissory note and was to take precedence. Accrued interest has been reduced by $930,106. The effect of prior period accounting errors resulted in the following changes as of March 31,

~~Years~~2006 ~~Ended~~2005 ~~March 31,~~ ------------------------------~~--------------~~ 2006 2005* 2004* ------------ ------------ ------~~------~~ ~~Revenues~~As ~~Rental~~previously ~~income~~As $previously ~~9,199,562~~Reported $As ~~12,422,742~~Restated $Reported ~~13,899,882~~As ~~Other~~Restated ~~273,952 723,410 550,819 Gain on sale of properties 5,063,727 2,123,053 13,942,678~~ ------------ -~~-----------~~ ------------ ~~Total revenue 14,537,241 15,269,205 28,393,379~~ -~~-----------~~ ------------- ------------ ~~Expenses General and administrative 1,603,684 2,204,994 2,464,917 General and administrative~~-~~related~~ ~~parties~~Balance ~~(Note~~Sheet 8)including ~~537,851~~discontinued: ~~760,822~~Accrued ~~913,768~~interest ~~Repairs~~payable ~~and~~$ ~~maintenance 1~~17,~~607~~923,~~633~~357 ~~1,946,246~~$ 216,~~110~~993,~~636~~251 ~~Operating~~$ 117,~~233~~806,~~930~~060 ~~1,710,738~~$ 1,827,920 Taxes 623,505 867,792 971,974 Insurance 613,254 795,002 804,022 Interest 2,688,121 3,732,173 4,495,608 Depreciation and amortization 2,454,933 3,067,622 3,470,711 Loss on impairment of fixed assets 0 1,700,000 0 ------------ ------------ ------------ Total expenses 11,362,911 16,~~785~~935,~~389~~954 ~~17,059,556~~Deficit ~~------------ ------------ ------------ Income~~ (~~loss) before minority interest 3~~103,~~174~~076,~~330~~585) (1102,~~516~~146,~~184~~479) 11(96,~~333~~403,~~823 Minority interest in income (loss~~274) ~~of subsidiaries from discontinued operations 1,736,960~~ (4695,~~740) 30~~533,~~878 ------------ ------------ ------------ Total income (loss~~168) ~~from~~Statement ~~discontinued~~of ~~operations~~Operations (including ~~gain~~discontinued: onInterest ~~sale~~12,170,006 ~~of properties) $ 4~~12,~~911~~110,~~290~~006 ~~$ (1~~13,~~562~~126,~~924)~~347 ~~$ 11~~13,~~364~~066,~~701~~347 ~~============~~Net ~~============ ============ Income (~~loss) ~~- limited partners from discontinued operations (including gain on sale of properties) $ 4~~6,~~862~~713,~~177~~311 ~~$ (1~~6,~~547~~653,~~295)~~311 ~~$ 11~~12,~~251~~939,~~054~~404 ~~============ ============ ============ Number of BACs outstanding 139~~12,~~101.5 139~~879,~~101.5~~404 ~~139,101.5~~Net ~~============ ============ ============ Income (~~loss) ~~discontinued operations (including gain on sale of properties)~~ per BAC $ 3447.9578 $ ~~(11~~47.~~12)~~35 $ 8092.8809 ============ ============ ============ * Reclassified for comparative purposes Cash flows from Discontinued Operations: Years Ended March 31, -------------------------------------------- 2006 2005 2004 ------------ ------------ ------------ Net cash (used in) provided by operating activities $ (4,611,480) $ 846,065 $ (2,628,843) ------------ ------------ ------------ Net cash provided by investing activities $ 835,630 $ 4,906,300 $ 5,994,643 ------------ ------------ ------------ Net cash provided by (used in) financing activities $ 2,218,697 $ (105,587) $ (403,665) ------------ ------------ ------------91.66

Total partners' deficit as of April 1, 2004 has been increased by $810,106 for the effects of the restatement on prior years. NOTE 16 - Subsequent Events On May 30, 2007, Manhattan J sold its property and the related assets and liabilities to an unaffiliated third party purchaser for a sales price of $3,500,000. The Partnership received $2,027,927 as a distribution from this sale after the repayment of mortgages, other liabilities and closing costs of approximately $1,472,000. The sale resulted in a gain of approximately $1,675,000 resulting from the write-off of the deficit basis in the property at the date of the sale, which will be recognized in the Partnership's 10-Q for the quarter ending September 30, 2007. On June 6, 2007, HUD approved the purchase and sales agreement that the Partnership entered into to sell its limited partnership interest in Jefferson Limited Partnership ("Jefferson") for a sales price of approximately $680,000 plus 50% of any resale profit in excess of the then mortgage principal on or before December 31, 2009. The sales documents have been executed and the initial deposit funds are being held in escrow. The closing is expected to take place in the quarter ending September 30, 2007. During the year ended March 31, 2007, in accordance with SFAS No. 144, the Partnership deemed the building impaired and wrote it down to its fair value resulting in a loss of $520,303. No assurance can be given that the sale will actually occur. As of December 31, 2006, Jefferson had property and equipment, at cost, of approximately $2,811,000, accumulated depreciation of approximately $1,930,000 and mortgage debt of approximately $1,357,000. On June 26, 2007, pursuant to an agreement entered into on June 10, 2007, the Partnership's limited partnership interest in South Toledo Associates, Ltd. ("South Toledo") was sold to the Local General Partner for a sales price of one dollar. The sale resulted in a loss of approximately $13,000 resulting from the write-off of the basis in the property at the date of sale of approximately $13,000, which will be recognized during the Partnership's quarter ending September 30, 2007. As of December 31, 2006, South Toledo had property and equipment, at cost, of approximately $1,469,000, accumulated depreciation of approximately $605,000 and mortgage debt of approximately $856,000. 126 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None Item 9A. Controls and Procedures (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. The Chief Executive Officer and Chief Financial Officer of Related Credit Properties III Inc., the general partner of Related Credit Properties III L.P. and of Liberty GP III Inc., each of which is a general partner 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. Based on such evaluation, such officers have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) INTERNAL CONTROL OVER FINANCIAL REPORTING. There have not been any changes in Partnership's internal control over financial reporting during the fiscal year to which this report relates that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 9B. Other Information None PART III Item 10. Directors, Executive Officers and Corporate Governance The Partnership has no directors or executive officers. The general partners of the Partnership are Related Credit Properties III L.P., a Delaware limited partnership (the "Related General Partner"), and Liberty GP III Inc., a Delaware corporation (the "Liberty General Partner" and together with the Related General Partner the "General Partners"). The general partner of the Related General Partner is Related Credit Properties III Inc., a Delaware limited liability corporation. The Partnership's affairs are managed and controlled by the General Partners. The Partnership has not adopted a separate code of ethics because the Partnership has no directors or executive officers. However, the ultimate parent of the Related General Partner, Centerline Holding Company ("Centerline") (formerly known as CharterMac until April 2007), has adopted a code of ethics (see http://www.centerline.com). On March 15, 2007, Centerline announced the retirement of Alan P. Hirmes as Chief Financial Officer of Centerline. Upon his retirement, he also resigned from his position as Director, President, Chief Executive Officer and Chief Financial Officer of Related General Partner. Centerline has named Robert L. Levy as Chief Financial Officer and Andrew J. Weil as President and Chief Executive Officer to replace Mr. Hirmes. Certain information concerning the directors and executive officers of the Liberty General Partner and of Related Credit Properties III Inc., the general partner of the Related General Partner, are set forth below. Related Credit Properties III, L.P. ----------------------------------- Name Position ---- -------- Andrew J. Weil President and Chief Executive Officer Robert L. Levy Chief Financial Officer Marc D. Schnitzer Senior Vice President Glenn F. Hopps Treasurer and Assistant Vice President ANDREW J. WEIL, 36, is an Executive Managing Director of Centerline, and is the Head of the Affordable Housing Group. Mr. Weil is responsible for overseeing the day to day operations of the Affordable Housing Group, including the acquisition of properties with Low-Income Housing Tax Credits and the origination and structuring of institutional funds. Prior to joining Centerline's predecessor in January 1994, Mr. Weil was a Financial Analyst for the Heights Management Company, where he specialized in the analysis of potential investments and property management. Mr. Weil received a Bachelor of Science degree in Economics with a concentration in Finance from the Wharton School of the University of Pennsylvania. ROBERT L. LEVY, 41, is the Chief Financial Officer of Centerline. Mr. Levy is also the Chief Financial Officer of American Mortgage Acceptance Company ("AMAC"), a publicly traded real estate investment trust managed by an affiliate of Centerline. Mr. Levy is responsible for overseeing the Corporate Finance, Capital Markets, Accounting, Budgeting, Tax and Treasury departments. Mr. Levy joined Centerline's predecessor in November of 2001 as the Director of Capital Markets. From 1998 through 2001, Mr. Levy was a Vice President in the Real Estate Equity Research and Investment Banking Departments at Robertson Stephens, an investment banking firm in San Francisco. Prior to 1998, Mr. Levy was employed by Prudential Securities in the Real Estate Equity Research Group and at Prudential Realty Group, the real estate investment arm of the Prudential Insurance Company. He received his Masters in Business Administration from the Leonard N. Stern School of Business at New York University and his Bachelor of Arts from Northwestern University. MARC D. SCHNITZER, 46, is responsible both for financial restructuring of real estate properties and directing Centerline's acquisitions of properties generating Housing Tax Credits. Mr. Schnitzer received a Masters of Business 127 Administration from The Wharton School of the University of Pennsylvania in December 1987 before joining Centerline 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 Centerline. Mr. Schnitzer also serves on the Board of Trustees of Centerline and AMAC. GLENN F. HOPPS, 44, joined Centerline in December, 1990, and prior to that date was employed by Mark Shron & Company and Weissbarth, Altman and Michaelson certified public accountants. Mr. Hopps graduated from New York State University at Albany with a Bachelor of Science Degree in Accounting. Liberty GP III Inc. ----------------------------------- Name Position ---- -------- Robert L. Levy Chief Financial Officer Andrew J. Weil President and Chief Executive Officer Marc D. Schnitzer Executive Vice President Glenn F. Hopps Treasurer Biographical information with respect to Messrs. Levy, Weil, Schnitzer and Hopps is set forth above. 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 the directors or officers of the Liberty General Partner or of the general partner of the Related General Partner for their services. Certain directors and officers of the Liberty General Partner and of the general partner of the Related General Partner receive compensation from the General Partners and their affiliates for services performed for various affiliated entities which may include services performed for the Partnership. Under the terms of the Partnership Agreement, the General Partners and their affiliates are entitled to receive compensation from the Partnership in consideration of certain services rendered to the Partnership by such parties. In addition, the General Partners are entitled to 1% of all cash distributions and Tax Credit allocations and a subordinated 15% interest in net sales or refinancing proceeds. See Note 8 to the Financial Statements in Item 8 for a presentation of the types and amounts of compensation paid to the General Partners and their affiliates, which information is incorporated herein by reference thereto. Tabular information concerning salaries, bonuses and other types of compensation payable to executive officers have 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

~~Quarter~~Name ~~Ended~~and ~~--------------------------------------------------------~~Address ~~June~~of ~~30,~~Amount ~~September~~and ~~30,~~Nature ~~December~~of ~~31,~~Percentage ~~March~~Title ~~31,~~of ~~2005~~Class ~~2005~~Beneficial ~~2005~~Ownership ~~2006~~Beneficial ~~-----------~~Ownership ~~-----------~~of ~~-----------~~Class ----------- ~~Revenues $ 5,425,171 $ 5,462,774 $ 5,555,444 $ 5,497,683 Operating expenses (8,351,825) (8,670,155) (8,347,775) (8,506,880)~~ ----------- ------~~-----~~ ----------- ----------- Loss from operations before minority interest (2,926,654) (3,207,381) (2,792,331) (3,009,197) Minority interest in loss (income) of subsidiary partnerships from operations 67,276 (1,727,443) (1,630,554) 3,601,683 (Loss) income from discontinued operations (including gain (loss)of properties and minority interest) (490,685) 5,794,630 310,923 (703,578) ----------- -~~----------~~ ----------- ----------- ~~Net (loss) income $(3,350,063) $ 859,806 $(4,111,962) $ (111,092) =========== =========== =========== =========== Net (loss) income~~ - limited partnership $(3,316,562) $ 851,208 $(4,070,842) $ (109,981) =========== =========== =========== =========== Net (loss) income per BAC from operations $ (20.35) $ (35.12) $ (31.48) $ 28.94 Net (loss) income per BAC from discontinued operations (3.49) 41.24 2.21 (29.73) ------~~-----~~ ----------- ---~~--------~~ ~~-----------~~Related ~~Net~~Credit ~~(loss)~~Properties ~~income~~III ~~per BAC $ (23~~L.~~84) $ 6~~P.12 $General ~~(29.27)~~Partnership $Interest ~~(0.79)~~625 ~~===========~~Madison ~~===========~~Avenue =========== =========== Quarter Ended -------------------------------------------------------- June 30, September 30, December 31, March 31, 2004*/** 2004*/** 2004*/** 2005*/** ----------- ----------- ----------- ----------- Revenues $ 51,~~289,836~~000 $capital ~~5,366,388~~contribution ~~$ 5,390,059 $ 5,635,109 Operating expenses (7,913,320) (8,519,217) (8,351,261) (8,655,209)~~ -~~----------~~ ~~----------- ----------- ----------- Loss from operations before minority interest (2,623,484) (3,152,829) (2,961,202) (3,020,100) Minority interest~~ in ~~loss~~the ofPartnership ~~subsidiary~~New ~~partnerships from operations 63~~York,~~014~~ ~~64,672~~NY ~~66,028~~10022 ~~187,421~~directly ~~(Loss)~~owned ~~income~~50% ~~from~~Liberty ~~discontinued~~GP ~~operations~~III ~~(including~~Inc. ~~gain~~General ~~(loss)of~~Partnership ~~properties~~Interest ~~and~~625 ~~minority~~Madison ~~interest)~~Avenue ~~(613,741) (219,591) 1,751,369 (2,480,961) ----------- ----------- ----------- ----------- Net loss~~ $~~(3,174,211) $(3,307,748) $(~~1,~~143,805)~~000 ~~$(5,313,640)~~capital ~~===========~~contribution ~~=========== =========== =========== Net loss~~ - ~~limited~~in ~~partnership~~the ~~$(3,142,469)~~Partnership ~~$(3,274,671)~~New ~~$(1~~York,~~132,367)~~ ~~$(5,260,504)~~NY ~~===========~~10022 ~~===========~~directly ~~===========~~owned =========== Net loss per BAC from operations $ (18.22) $ (21.98) $ (20.61) $ (20.16) Net (loss) income per BAC from discontinued operations (4.37) (1.56) 12.47 (17.66) ----------- ----------- ----------- ----------- Net loss per BAC $ (22.59) $ (23.54) $ (8.14) $ (37.82) =========== =========== =========== ===========50%

As of March 31, 2007, Liberty Associates IV L.P. holds a 1% and .998% limited partnership interest in 34 and 1 Local Partnerships, respectively. Except as set forth in the table below, no person is known by the Partnership to be the beneficial owner of more than 5% of the Limited Partnership Interests or BACs, neither the Liberty General Partner nor any director or executive officer of the Liberty General Partner owns any Limited Partnership Interests or BACs, and neither the Related General Partner nor any director or executive officer of the general partner of the Related General Partner owns any Limited Partnership Interests or BACs. The following table sets forth the number of BACs beneficially owned, as of June 2, 2007, by (i) each BACs holder known to the Partnership to be a beneficial owner of more than 5% of the BACs, (ii) each director and executive officer of the general partner of the Related General Partner and Liberty General Partner and (iii) the directors and executive officers of the general partner of the Related General Partner and Liberty General Partner as a group. Unless otherwise noted, all BACs are owned directly with sole voting and dispositive powers. 128 Amount and Nature of Percent Name of Beneficial Owner (1) Beneficial Ownership of Class ----------------------------------------- --------------------- ---------- Lehigh Tax Credit Partners, Inc. 13,127.66 (2) (3) 9.4% J. Michael Fried 13,127.66 (2) (3) (4) 9.4% Alan P. Hirmes 13,127.66 (2) (3) (4) 9.4% Stuart J. Boesky 13,127.66 (2) (3) (4) 9.4% Robert L. Levy - - Andrew J. Weil - - Marc D. Schnitzer - - Glenn F. Hopps - - All directors and executive officers of the general partner of the Related General Partner as a group (four persons) 13,127.66 (2) (3) (4) 9.4% (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 the Schedule 13D filed by Lehigh Tax Credit Partners L.L.C. ("Lehigh I") and Lehigh Tax Credit Partners, Inc., (the "Managing Member") on June 10, 1997 with the Securities and Exchange Commission (the "Commission") and pursuant to a letter agreement dated April 4, 1997 among the Partnership, Lehigh I and the General Partners (the "Standstill Agreement"), Lehigh I agreed that, prior to April 4, 2007 (the "Standstill Expiration Date"), it will not and it will cause certain affiliates (including Lehigh Tax Credit Partners II L.L.C. ("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 Securities and Exchange Act of 1934, as amended) with respect to any voting securities of the Partnership, except 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 I 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, that Lehigh I 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 I also agreed to vote its BACs in the same manner as a majority of all voting BACs holders; provided, however, that Lehigh I is entitled to vote its BACs as it determines with regard to any proposal (i) to remove the General Partners as a general partner of the Partnership or (ii) concerning the reduction of any fees, profits, distributions or allocations for the benefit of the General Partners or their affiliates. The address of each of the Partnership, Lehigh I and the General Partners is 625 Madison Avenue, New York, New York 10022. (3) All of such BACs represent BACs owned directly by Lehigh I and Lehigh II for which the Managing Member serves as managing member. As of June 2, 2007, Lehigh I held 6,458.33 BACs and Lehigh II held 6,520.33 BACs. (4) Mr. Schnitzer serves as an executive officer of the Managing Member and owns an equity interest therein, all other parties only own 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 its affiliates, as discussed in Item 11 and in Note 8 to the Financial Statements in Item 8, which are incorporated herein by reference thereto. However, there have been no direct financial transactions between the Partnership and the directors and executive officers of the Liberty General Partner or the directors and executive officers of the general partner of the Related General Partner. Item 14. Principal Accountant Fees and Services Audit Fees ---------- The aggregate fees billed by Trien Rosenberg Rosenberg Weinberg Ciullo and Fazzari LLP and its affiliates for professional services rendered for the audit of the Partnership's annual financial statements and for the reviews of the financial statements included in the Partnership's Quarterly Reports on Form 10-Q were $57,200 and $105,200 for the years ended March 31, 2007 and 2006, respectively. Audit Related Fees ------------------ None 129 Tax Fees -------- The aggregate fees billed by Weiser LLP and its affiliates for professional services rendered for the preparation of the Partnership's annual tax returns for the years ended December 31, 2006 and 2005 were $12,200 and $12,000, respectively. All Other Fees -------------- None The Partnership is not required to have, and does not have, a stand alone audit committee. 130 PART IV Item 15. Exhibits, Financial Statement Schedules Sequential Page ---------- (a) 1. Financial Statements -------------------- Report of Independent Registered Public Accounting Firm 20 Consolidated Balance Sheets at March 31, 2007 and 2006 102 Consolidated Statements of Operations for the Years Ended March 31, 2007, 2006 and 2005 103 Consolidated Statements of Changes in Partners' Deficit for the Years Ended March 31, 2007, 2006 and 2005 104 Consolidated Statements of Cash Flows for the Years Ended March 31, 2007, 2006 and 2005 105 Notes to Consolidated Financial Statements 107 (a) 2. Financial Statement Schedules ----------------------------- Report of Independent Registered Public Accounting Firm 138 Schedule I - Condensed Financial Information of Registrant 139 Schedule III - Real Estate and Accumulated Depreciation 142 All other schedules have been omitted because they are not required or because the required information is contained in the financial statements or notes thereto. (a) 3. Exhibits -------- (3A) Form of Amended and Restated Agreement of Limited Partnership of Liberty Tax Credit Plus III L.P. (attached to Prospectus as Exhibit A)** (3B) Certificate of Limited Partnership of Liberty Tax Credit Plus III L.P., together with amendments filed on November 17, 1988** (4) Form of Subscription Agreement (attached to Prospectus as Exhibit B) (10A) Escrow Agreement between Registrant and Bankers Trust Company** (10B) Forms of Purchase Agreements for purchase of Local Partnership Interests** (21) Subsidiaries of the Registrant 132 (31.1) Certification Pursuant to Rule13a-14(a) or Rule 15d-14(a) 135 (31.2) Certification Pursuant to Rule13a-14(a) or Rule 15d-14(a) 136 (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) 137 ** Incorporated herein by reference to exhibits filed with Pre-Effective Amendment No. 1 to Liberty Tax Credit Plus III L.P.'s Registration Statement on Form S-11 (Registration No. 33-25732) 131 Item 15. Exhibits, Financial Statement Schedules (continued) Jurisdiction of Organization ------------ Subsidiaries of the Registrant (Exhibit 21) ------------------------------ C.V. Bronx Associates, L.P. NY Michigan Rural Housing Limited Partnership MI Jefferson Limited Partnership LA Inter-Tribal Indian Village Housing Development Associates, L.P. RI 1850 Second Avenue Associates, L.P. NY R.P.P. Limited Dividend Housing MI Williamsburg Residential II, L.P. KS West 104th Street Associates L.P. NY South Toledo Associates, LTD. OH Dunlap School Venture PA Brewery Renaissance Associates NY Art Apartments Associates PA The Village at Carriage Hills, LTD. TN Mountainview Apartments, LTD. TN The Park Village, Limited MS River Oaks Apartments, LTD. AL Forrest Ridge Apartments, LTD. AR The Hearthside Limited Dividend Housing Association Limited Partnership MI Redemptorist Limited Partnership LA Lake Forest Estates II, LTD. AL Broadway Townhouses L.P. NJ Puerto Rico Historic Zone Limited Dividend Partnership PR Citrus Meadows Apartments, LTD. FL Sartain School Venture PA Driftwood Terrace Associates, LTD. FL Holly Hill, LTD. TN Mayfair Apartments LTD. TN Foxcroft Apartments LTD. AL Canterbury Apartments, LTD. MS Cutler Canal III Associates, LTD. FL Callaway Village, LTD. TN Commerce Square Apartments Associates L.P. DE West 132nd Development Partnership NY L.I.H. Chestnut Associates, L.P. PA Diamond Phase II Venture PA Bookbindery Associates PA The Hamlet, LTD. FL Knob Hill Apartments, LTD. TN Conifer James Street Associates NY Longfellow Heights Apartments, L.P. MO (d) Not applicable 132 SIGNATURES ---------- Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTY TAX CREDIT PLUS III L.P. -------------------------------- (Registrant) By: RELATED CREDIT PROPERTIES III L.P., a General Partner By: Related Credit Properties III Inc., its general partner Date: June 29, 2007 ------------- By: /s/ Robert L. Levy ------------------ Robert L. Levy Chief Financial Officer Date: June 29, 2007 ------------- By: /s/ Andrew J. Weil ------------------ Andrew J. Weil President and Chief Executive Officer By: LIBERTY GP III INC., a General Partner Date: June 29, 2007 ------------- By: /s/ Robert L. Levy ------------------ Robert L. Levy Chief Financial Officer Date: June 29, 2007 ------------- By: /s/ Andrew J. Weil ------------------ Andrew J. Weil President and Chief Executive Officer 133 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:

~~2005~~Signature ~~2004~~Title Date ------------------ ----------- ------------------------------- ~~As previously As previously Reported As Restated Reported As Restated~~ -------------------- ------------- Chief Financial Officer of Related Credit Properties III Inc., /s/ Robert L. Levy (a general partner of Related Credit Properties III L.P.) (a ------------------ General Partner of Registrant)) and Liberty GP III, Inc. (a June 29, 2007 Robert L. Levy General Partner of Registrant) ------------- ~~Balance~~President ~~Sheet~~and ~~including~~Chief ~~discontinued:~~Executive ~~Accrued~~Officer ~~interest~~of ~~payable~~Related $Credit ~~17,012,106~~/s/ $Andrew ~~17,806,060~~J. $Weil ~~15,895,951~~Properties $III 16Inc.,~~649,654~~ ~~Accounts~~(a ~~payable~~general ~~5,679,086~~partner ~~6,154,351~~of ~~6,547,074~~Related ~~6,987,953~~Credit ~~Deficit~~------------------ ~~(95,134,055~~Properties III L.P.) (~~96,403,274~~a General Partner of Registrant)) ~~(82~~and June 29,~~269~~ 2007 Andrew J. Weil Liberty GP III,~~284)~~ Inc. (~~83,463,870~~a General Partner of Registrant) ~~Statement~~------------- Treasurer of ~~Operations~~Related ~~including~~Credit ~~discontinued:~~Properties ~~Interest~~III 13Inc.,~~086,097~~ ~~13,126,347~~(a ~~13,805,397~~general ~~13,845,647~~/s/ ~~Real~~Glenn ~~estate~~F. ~~tax~~Hopps ~~2,232,554~~partner ~~2,266,937~~of ~~2,253,959~~Related ~~2,288,342~~Credit ~~Net~~Properties ~~loss~~III ~~12,864,771~~L.P.) ~~12,939,404~~(a ~~22,742~~General ~~97,605~~------------------ ~~Net~~Partner ~~loss~~of ~~per~~Registrant)) ~~BAC~~and $Liberty ~~91.56~~GP $III, 92Inc.09 $(a ~~.16~~General $June 29, 2007 Glenn F.70 Hopps Partner of Registrant) -------------

134 Exhibit 31.1 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Robert L. Levy, Chief Financial Officer, hereby certify that: 1. I have reviewed this annual report on Form 10-K for the year ended March 31, 2007 of Liberty Tax Credit III L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are 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 registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us 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 our 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 registrant's disclosure controls and procedures and presented in this report our conclusion 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 registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of the registrant's board of directors (or persons performing the equivalent functions). 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 registrant'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 registrant's internal control over financial reporting. Date: June 29, 2007 ------------- By: /s/ Robert L. Levy ------------------ Robert L. Levy Chief Financial Officer 135 Exhibit 31.2 CERTIFICATION PURSUANT TO RULE 13a-14(a) OR RULE 15d-14(a) I, Andrew J. Weil, President and Chief Executive Officer, hereby certify that: 1. I have reviewed this annual report on Form 10-K for the year ended March 31, 2007 of Liberty Tax Credit III L.P.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are 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 registrant and have: a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant including its consolidated subsidiaries, is made known to us 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 our 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 registrant's disclosure controls and procedures and presented in this report our conclusion 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 registrant's internal control over financial reporting that occurred during the registrant's fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and to the audit committee of the registrant's board of directors (or persons performing the equivalent functions). 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 registrant'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 registrant's internal control over financial reporting. Date: June 29, 2007 ------------- By: /s/ Andrew J. Weil ------------------ Andrew J. Weil Chief Executive Officer 136 Exhibit 32.1 CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b) AND SECTION 1350 OF TITLE 18 OF THE UNITED STATES CODE (18 U.S.C. 1350) In connection with the Annual Report of Liberty Tax Credit Plus III L.P. on Form 10-K for the year ended March 31, 2007 as filed with the Securities and Exchange Commission ("SEC") on the date hereof (the "Report"), I, Robert L. Levy, and I, Andrew J. Weil, 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 registrant. A signed original of this written statement required by Section 906 has been provided to the registrant and will be retained by the registrant and furnished to the SEC or its staff upon request. By: /s/ Robert L. Levy By: /s/ Andrew J. Weil ------------------ ------------------ Robert L. Levy Andrew J. Weil Chief Financial Officer Chief Executive Officer June 29, 2007 June 29, 2007 137 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ------------------------------------------------------- To the Partners of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) In connection with our audits of the consolidated financial statements of Liberty Tax Credit Plus III L.P. and Subsidiaries (A Delaware Limited Partnership) included in the Form 10-K as presented in our opinion dated June 29, 2007 on page 20, and based on the reports of other auditors, we have also audited supporting Schedule I for the 2006, 2005 and 2004 Fiscal Years and Schedule III at March 31, 2007. In our opinion, and based on the reports of the other auditors, these consolidated schedules present fairly, when read in conjunction with the related consolidated financial statements, the financial data required to be set forth therein. As discussed in Note 12(a), the consolidated financial statements include the financial statements of six subsidiary partnerships with significant contingencies and uncertainties. The financial statements of these subsidiary partnerships were prepared assuming that they will continue as going concerns. These subsidiary partnerships' net losses aggregated $(3,726,984) (Fiscal 2006), $(5,549,636) (Fiscal 2005) and $(5,111,773) (Fiscal 2004), and their assets aggregated $23,363,604 and $29,970,295 at March 31, 2007 and 2006, respectively. Management's plans in regard to these matters are also described in Note 12(a). The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. /s/ TRIEN ROSENBERG ROSENBERG WEINBERG CIULLO & FAZZARI LLP New York, New York June 29 2007 138 LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT Summarized condensed financial information of registrant (not including consolidated subsidiary partnerships) CONDENSED BALANCE SHEETS

~~Name~~ASSETS ~~and~~March ~~Address~~31, ~~of Amount and Nature of Percentage Title of Class Beneficial Ownership Beneficial Ownership of Class~~ ------------- ------------ 2007 2006 ----------- ----------- Cash and cash equivalents $10,351,395 $ 2,442,687 Cash held in escrow 58,081 58,081 Investment and advances in subsidiary partnerships 3,825,766 13,462,551 Other assets 312,641 289,971 --------- -- ----------- ~~General~~Total ~~Partnership~~assets ~~Related~~$14,547,883 ~~Credit Properties~~ $116,~~000~~253,290 ~~capital~~=========== ~~contribution~~=========== -LIABILITIES ~~50%~~AND ~~Interest~~PARTNERS' inEQUITY ~~the~~Due ~~III~~to ~~L.P.~~general ~~directly~~partner ~~owned~~and ~~Partnership~~affiliates ~~625~~$ ~~Madison~~7,994,517 ~~Avenue New York~~$12,027,691 NYOther ~~10022~~liabilities ~~General~~801,474 ~~Partnership~~1,784,449 ~~Liberty~~----------- GP----------- ~~III~~Total ~~Inc.~~liabilities $18,~~000~~795,991 ~~capital~~13,812,140 ~~contribution~~Partners' -equity ~~50%~~5,751,892 ~~Interest~~2,441,150 in----------- ~~the~~----------- ~~625~~Total ~~Madison~~liabilities ~~Avenue~~and ~~directly~~partners' ~~owned~~equity ~~Partnership~~$14,547,883 ~~New York~~$16,253,290 NY=========== ~~10022~~===========

Investments in subsidiary partnerships are recorded in accordance with the equity method of accounting, under which investments are not reduced below zero. Accordingly, partners' equity on the consolidated balance sheet will differ from partners' equity shown above. 139 LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF OPERATIONS

~~Amount~~Years ~~and~~Ended ~~Nature~~March of31, ~~Name~~----------------------------------------- of2007 ~~Beneficial~~2006 ~~Owner~~2005 ~~(1) Beneficial Ownership Percent of Class~~ ----------- ----------- -- --------- Revenues Other income $ 355,022 $ 29,796 $ 5,382 ----------- ----------- ----------- ~~Lehigh~~Expenses ~~Tax~~General ~~Credit~~and ~~Partners~~administrative 469,421 ~~Inc.~~335,904 13190,~~127.66~~898 ~~(2)~~General ~~(3)~~and ~~9.4%~~administrative-related J.parties ~~Michael~~1,261,407 ~~Fried~~1,738,515 131,~~127.66~~563,212 ~~(2)~~----------- ~~(3)~~----------- ~~(4)~~----------- ~~9.4%~~Total ~~Alan~~expenses ~~P. Hirmes 13~~1,~~127.66~~730,828 (2),074,419 ~~(3)~~1,754,110 ~~(4)~~----------- ~~9.4%~~----------- ~~Stuart~~----------- J.Loss ~~Boesky~~from ~~13,127.66~~operations (21,375,806) (32,044,623) (41,748,728) ~~9.4%~~Distribution ~~Marc~~income D.of ~~Schnitzer~~subsidiary -partnerships -in ~~Glenn~~excess F.of ~~Hopps~~investments -1,961,405 -1,558,256 ~~Teresa~~76,021 ~~Wicelinski~~Gain -(loss) -on ~~All~~sale ~~directors~~of ~~and~~investment ~~executive~~in ~~officers~~subsidiary 13partnership 5,~~127.66~~451,388 (21,397,058) ~~(3)~~2,124,097 Equity in gain (4loss) ~~9.4%~~ of ~~the~~subsidiary ~~general~~partnerships* ~~partner~~895,762 of(905,851) ~~the~~(5,394,351) ~~Related~~----------- ~~General~~----------- ~~Partner~~----------- asNet aincome ~~group~~(loss) $ 6,932,749 $(~~six~~2,789,276) ~~persons~~$(4,942,961) =========== =========== ===========

* Includes suspended prior year losses in excess of investment in accordance with the equity method of accounting amounting to $(5,646,908), $(4,623,090) and $(2,214,646) for 2007, 2006, and 2005, respectively. 140 LIBERTY TAX CREDIT PLUS III L.P. SCHEDULE I CONDENSED FINANCIAL INFORMATION OF REGISTRANT CONDENSED STATEMENTS OF CASH FLOWS

~~Item~~Years ~~15.~~Ended ~~Exhibits~~March 31, ~~Financial~~-------------------------------------------- ~~Statement~~2007 ~~Schedules~~2006 ~~Sequential~~2005 ~~Page~~ ------------ ~~(a) 1. Financial Statements~~ ------------ ------------ ~~Report~~Cash offlows ~~Independent~~from ~~Registered~~operating ~~Public~~activities: ~~Accounting~~Net ~~Firm~~income 20(loss) ~~Consolidated~~$ ~~Balance~~6,932,749 ~~Sheets~~$ at(2,789,276) ~~March~~$ 31(4,942,961) ~~2006~~------------ ~~and~~------------ ~~2005~~------------ ~~118~~Adjustments ~~Consolidated~~to ~~Statements~~reconcile ofnet ~~Operations~~income ~~for~~(loss) ~~the~~to ~~Years~~net ~~Ended~~cash ~~March~~used ~~31,~~in ~~2006,~~operating ~~2005~~activities: ~~and~~(Gain) ~~2004~~loss ~~119~~on ~~Consolidated~~sale ~~Statements~~ of ~~Changes~~investment in ~~Partners'~~subsidiary ~~Deficit~~partnership ~~for~~(5,451,388) ~~the~~1,397,058 ~~Years~~(2,124,097) ~~Ended~~Distribution ~~March~~income ~~31,~~from ~~2006,~~subsidiary ~~2005~~partnerships ~~and~~in ~~2004~~excess ~~120~~of ~~Consolidated~~investments ~~Statements~~(1,961,405) of(1,558,256) ~~Cash~~(76,021) ~~Flows~~(Increase) ~~for~~decrease ~~the~~in ~~Years~~assets: ~~Ended~~Other ~~March~~assets 31(22,670) ~~2006~~70,519 ~~2005~~159,410 ~~and~~Increase ~~2004~~(decrease) ~~121~~in ~~Notes~~liabilities: Due to ~~Consolidated~~general ~~Financial~~partners ~~Statements~~and ~~123~~affiliates (a628,353) 2.(473,490) ~~Financial~~1,036,561 ~~Statement~~Other ~~Schedules~~liabilities (918,094) 1,729,553 (8,606) ------------ ------------ ------------ ~~Report~~Total ofadjustments ~~Independent~~(8,981,910) ~~Registered~~1,165,384 ~~Public~~(1,012,753) ~~Accounting~~------------ ~~Firm 153 Schedule I~~ ------------ ~~Condensed Financial Information of Registrant 154 Schedule III~~ ------------ ~~Real~~Net ~~Estate~~cash ~~and~~used ~~Accumulated Depreciation 157 All other schedules have been omitted because they are not required or because the required information is contained~~ in ~~the~~operating ~~financial~~activities ~~statements~~(2,049,161) or(1,623,892) ~~notes thereto.~~ (a5,955,714)3. ~~Exhibits~~------------ ------------ ~~(3A)~~------------ ~~Form~~Cash offlows ~~Amended~~from ~~and~~investing ~~Restated~~activities: ~~Agreement~~Proceeds from sale of ~~Limited~~investment ~~Partnership~~in ofsubsidiary ~~Liberty~~partnership ~~Tax~~1,800,000 ~~Credit~~834,950 ~~Plus~~690,645 ~~III~~Equity ~~L.P.~~in (~~attached~~gain) toloss ~~Prospectus~~of assubsidiary ~~Exhibit~~partnerships A)** (3B895,762) ~~Certificate~~905,851 of5,394,351 ~~Limited~~Distributions ~~Partnership~~from ofsubsidiary ~~Liberty~~partnerships ~~Tax~~15,983,381 ~~Credit~~2,524,511 ~~Plus III L.P.~~399,328 ~~together~~Investments ~~with~~and ~~amendments~~advances ~~filed~~in onsubsidiary ~~November~~partnerships 1797,078 1988** (4624,136) ~~Form of Subscription Agreement~~ (~~attached~~634,014) Distributions to ~~Prospectus~~partners ~~as Exhibit B)~~ (~~10A~~7,026,828) ~~Escrow~~0 ~~Agreement~~0 ~~between~~Decrease ~~Registrant~~in ~~and~~cash ~~Bankers~~held ~~Trust~~in Company**escrow- ~~(10B)~~purchase ~~Forms~~price ofpayments ~~Purchase~~0 ~~Agreements~~72,000 ~~for~~29,516 ~~purchase~~------------ of------------ ~~Local~~------------ ~~Partnership~~Net Interests**cash ~~(21)~~provided ~~Subsidiaries~~by ofinvesting ~~the~~activities ~~Registrant~~9,957,869 ~~148~~3,713,176 ~~(31.1)~~5,879,826 ~~Certification~~------------ ~~Pursuant to Rule13a~~-~~14(a)~~----------- ~~or Rule 15d~~-~~14(a)~~----------- ~~151~~Net ~~(32.1)~~increase ~~Certification Pursuant to Rule 13a-14~~(bdecrease) orin ~~rule~~cash ~~15d-14(b)~~ and ~~Section~~cash ~~1350~~equivalents of7,908,708 ~~Title~~2,089,284 ~~18 of the United States Code~~ (~~18 U.S.C. 1350~~75,888) ~~152~~Cash **and ~~Incorporated~~cash ~~herein~~equivalents, bybeginning ~~reference~~of toyear ~~exhibits~~2,442,687 ~~filed~~353,403 ~~with~~429,291 ~~Pre~~-~~Effective~~----------- ~~Amendment~~------------ ~~No.~~------------ 1Cash toand ~~Liberty~~cash ~~Tax~~equivalents, ~~Credit~~end ~~Plus~~of ~~III~~year ~~L.P.'s~~$ ~~Registration~~10,351,395 ~~Statement~~$ on2,442,687 ~~Form~~$ ~~S-11~~353,403 ~~(Registration~~============ ~~No.~~============ ~~33-25732)~~============

141 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2007

~~Item~~Initial ~~15.~~Cost ~~Exhibits,~~to ~~Financial~~Partnership ~~Statement~~----------------------------- ~~Schedules~~Cost ~~(continued)~~Capitalized ~~Jurisdiction~~Subsequent ofto ~~Organization~~Buildings and Acquisition: Description Encumbrances Land Improvements Improvements ------------------------------------------- ~~Subsidiaries~~------------ of------------ ~~the~~------------- ~~Registrant~~---------------- ~~(Exhibit 21)~~ C.V. Bronx Associates, L.P. Bronx, NY (j) $ 0 $ 1,705,800 $ 0 $ 4,208,696 Michigan Rural Housing Limited Partnership MIMichigan (f)(j)(k) 2,335,852 141,930 4,013,207 (767,467) Jefferson Limited Partnership Shreveport, LA 1,357,022 65,000 3,289,429 (472,178) Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI 1,625,678 36,643 3,290,524 459,217 RBM Associates Philadelphia, PA (h)(j) 0 0 1,590,733 (1,590,733) Glenbrook Associates Atglen, PA (h)(j) 0 137,000 2,833,081 (2,970,081) Affordable Flatbush Associates Brooklyn, NY (g)(j)(k) 0 0 2,551,365 (2,551,365) Barclay Village II, LTD Chambersburg, PA (h)(j)(k) 0 204,825 3,249,918 (3,454,743) 1850 Second Avenue Associates, L.P. New York, NY (j) 0 920,472 6,262,968 (7,158,440) R.P.P. Limited Dividend Housing Detroit, MI 21,280,000 0 29,051,380 (9,469,271) Williamsburg Residential II, L.P. Wichita, KS (l) 1,385,925 358,305 2,713,872 (1,211,361) West 104th Street Associates, L.P. New York, NY 0 0 0 3,267,800 Meredith Apartments, LTD Salt Lake City, UT (e) (f) 0 40,000 1,500,117 (1,540,117) Ritz Apartments, LTD Salt Lake City, UT (e) (f) 0 59,760 592,704 (652,464) Ashby Apartments, LTD Salt Lake City, UT (e) (f) 0 50,850 549,611 (600,461) South Toledo Associates, LTD. Toledo, OH 855,821 47,571 1,411,386 54,391 Dunlap School Venture Philadelphia, PA ~~Brewery~~2,418,010 ~~Renaissance~~5,352 4,522,721 182,220 Philipsburg Elderly Housing Associates NYPhilipsburg, ~~Art~~PA ~~Apartments~~(h)(j) 0 45,000 4,092,500 (4,137,500) Franklin Elderly Housing Associates Franklin, PA ~~The~~(h)(j) ~~Village~~0 at165,000 ~~Carriage~~2,594,447 ~~Hills~~(2,759,447) ~~LTD~~Wade D. TNMertz ~~Mountainview~~Elderly ~~Apartments~~Housing Associates Sharpsville, ~~LTD~~PA (h)(j) 0 65,000 4,234,049 (4,299,049) Lancashire Towers Associates L.P. TNCleveland, ~~The~~OH ~~Park~~(f)(h)(j) ~~Village~~0 265,000 6,871,575 (7,136,575) Northwood Associates Limited MSPartnership ~~River~~Toledo, ~~Oaks~~OH ~~Apartments~~(c) 0 200,000 ~~LTD~~4,065,856 (4,265,856) Brewery Renaissance Associates Middletown, NY 3,375,000 77,220 102,780 6,447,745 Brandywine Court Associates, L.P. ALJacksonville, ~~Forrest~~FL ~~Ridge~~(g)(j) 0 78,000 1,960,262 (2,038,262) Art Apartments Associates Philadelphia, ~~LTD~~PA 986,097 13,695 2,713,615 117,366 Gross Amount at which Carried at close of Period ------------------------------------------------ Buildings and Accumulated Description Land Improvements Total Depreciation ------------------------------------------- ------------- -------------- ------------- ------------ C.V. ARBronx ~~The~~Associates, ~~Hearthside~~L.P. ~~Limited~~Bronx, ~~Dividend~~NY ~~Housing~~(j) ~~Association~~$ 1,432,718 $ 4,481,778 $ 5,914,496 $ 2,541,218 Michigan Rural Housing Limited Partnership MIMichigan ~~Redemptorist~~(f)(j)(k) 94,540 3,293,130 3,387,670 1,737,895 Jefferson Limited Partnership Shreveport, LA ~~Manhattan~~71,786 A2,810,465 2,882,251 1,954,739 Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI 43,429 3,742,955 3,786,384 2,131,069 RBM Associates Philadelphia, PA (h)(j) 0 0 0 0 Glenbrook Associates Atglen, PA (h)(j) 0 0 0 0 Affordable Flatbush Associates Brooklyn, NY ~~Broadhurst~~(g)(j)(k) ~~Willows~~0 0 0 0 Barclay Village II, LTD Chambersburg, PA (h)(j)(k) 0 0 0 0 1850 Second Avenue Associates, L.P. New York, NY ~~Weidler~~(j) ~~Associates~~0 25,000 25,000 0 R.P.P. Limited ~~Partnership~~Dividend ORHousing ~~Lake~~Detroit, ~~Forest~~MI ~~Estates~~6,786 19,575,323 19,582,109 11,536,046 Williamsburg Residential II, ~~LTD~~L.P. ALWichita, ~~Broadway~~KS ~~Townhouses~~(l) 362,484 1,498,332 1,860,816 851,706 West 104th Street Associates, L.P. NJNew ~~Puerto~~York, ~~Rico~~NY ~~Historic~~6,787 ~~Zone~~3,261,013 ~~Limited~~3,267,800 ~~Dividend~~1,697,203 ~~Partnership~~Meredith PRApartments, ~~Citrus~~LTD ~~Meadows~~Salt Lake City, UT (e) (f) 0 0 0 0 Ritz Apartments, LTD. FLSalt ~~Sartain~~Lake City, UT (e) (f) 0 0 0 0 Ashby Apartments, LTD Salt Lake City, UT (e) (f) 0 0 0 0 South Toledo Associates, LTD Toledo, OH 51,677 1,461,671 1,513,348 628,720 Dunlap School Venture Philadelphia, PA ~~Driftwood~~9,458 ~~Terrace~~4,700,835 4,710,293 1,958,032 Philipsburg Elderly Housing Associates Philipsburg, ~~LTD~~PA (h)(j) 0 0 0 0 Franklin Elderly Housing Associates Franklin, PA (h)(j) 0 0 0 0 Wade D. FLMertz ~~Holly~~Elderly ~~Hill~~Housing Associates Sharpsville, ~~LTD~~PA (h)(j) 0 0 0 0 Lancashire Towers Associates L.P. TNCleveland, ~~Mayfair~~OH ~~Apartments~~(f)(h)(j) ~~LTD~~0 0 0 0 Northwood Associates Limited Partnership Toledo, OH (c) 0 0 0 0 Brewery Renaissance Associates Middletown, NY 81,326 6,546,419 6,627,745 3,651,231 Brandywine Court Associates, L.P. TNJacksonville, ~~Foxcroft~~FL (g)(j) 0 0 0 0 Art Apartments ~~LTD~~Associates Philadelphia, PA 17,801 2,826,875 2,844,676 1,728,027 Life on which Depreciation in Year of Latest Income Construction/ Date Statement is Description Renovation Acquired Computed(a)(b) ------------------------------------------- ------------ ------------ ---------------- C.V. ALBronx ~~Canterbury~~Associates, ~~Apartments~~L.P. Bronx, ~~LTD~~NY (j) 1990 June 1989 15-27.5 MSyears ~~Cutler~~Michigan ~~Canal~~Rural ~~III~~Housing Limited Partnership Michigan (f)(j)(k) 1989 Sept. 1989 27.5 years Jefferson Limited Partnership Shreveport, LA 1990 Dec. 1989 27.5 years Inter-Tribal Indian Village Housing Development Associates, ~~LTD~~L.P. FLProvidence, ~~Callaway~~RI 1989 Oct. 1989 27.5 years RBM Associates Philadelphia, PA (h)(j) 1989 Dec. 1989 40 years Glenbrook Associates Atglen, PA (h)(j) 1989 Nov. 1989 3-27.5 years Affordable Flatbush Associates Brooklyn, NY (g)(j)(k) 1989 Dec. 1989 27.5 years Barclay Village II, LTD Chambersburg, PA (h)(j)(k) 1989 Nov. TN1989 ~~Commerce~~5-27.5 ~~Square~~years ~~Apartments~~1850 Second Avenue Associates, L.P. DENew ~~West~~York, ~~132nd~~NY ~~Development~~(j) ~~Partnership~~1989 NYNov. 1989 27.5 years R.P.P. Limited Dividend Housing Detroit, MI 1989 Nov. 1989 27-31.5 years Williamsburg Residential II, L.IP.H Wichita, KS (l) 1989 Nov. ~~Chestnut~~1989 40 years West 104th Street Associates, L.P. PANew ~~Diamond~~York, ~~Phase~~NY II1990 Dec. 1989 27.5 years Meredith Apartments, LTD Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years Ritz Apartments, LTD Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years Ashby Apartments, LTD Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years South Toledo Associates, LTD Toledo, OH 1988 Jan. 1990 40 years Dunlap School Venture Philadelphia, PA ~~Bookbindery~~1989 Jan. 1990 40 years Philipsburg Elderly Housing Associates Philipsburg, PA ~~The~~(h)(j) ~~Hamlet~~1990 Feb. 1990 15-27.5 years Franklin Elderly Housing Associates Franklin, ~~LTD~~PA (h)(j) 1989 Feb. FL1990 ~~Knob~~7-24 ~~Hill~~years ~~Apartments~~Wade D. Mertz Elderly Housing Associates Sharpsville, ~~LTD~~PA (h)(j) 1989 Feb. TN1990 ~~Conifer~~27.5 ~~James~~years ~~Street~~Lancashire Towers Associates L.P. Cleveland, OH (f)(h)(j) 1989 Feb. 1990 27.5 years Northwood Associates Limited Partnership Toledo, OH (c) 1989 Feb. 1990 27.5 years Brewery Renaissance Associates Middletown, NY ~~Longfellow~~1990 ~~Heights~~Feb. ~~Apartments~~1990 27.5 years Brandywine Court Associates, L.P. MOJacksonville, FL (dg)(j) ~~Not~~1988 ~~applicable~~Nov. 1989 7-27.5 years Art Apartments Associates Philadelphia, PA 1990 Mar. 1990 27.5 years

142 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2007 (continued)

~~Signature~~Initial ~~Title~~Cost ~~Date~~to Partnership ----------------------------- Cost Capitalized Subsequent to Buildings and Acquisition: Description Encumbrances Land Improvements Improvements ------------------------------------------- ------------ ------------ ------------- ---------------- ~~Director~~The Village at Carriage Hills, ~~President~~LTD ~~and~~Clinton, ~~Chief~~TN ~~Executive~~1,427,471 ~~Officer~~86,663 ~~and~~1,753,799 ~~Chief~~163,542 ~~Financial~~Mountainview ~~Officer~~Apartments, ofLTD, ~~Related~~Newport, ~~Credit~~TN ~~Properties~~1,015,273 ~~III~~49,918 ~~Inc~~1,254,182 138,383 The Park Village, Limited Jackson, MS 301,305 44,102 749,940 95,493 River Oaks Apartments, LTD Oneonta, AL 1,038,169 80,340 1,221,336 99,400 Forrest Ridge Apartments, LTD Forrest City, AR 1,043,996 36,000 1,016,647 342,022 The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 2,654,521 242,550 4,667,594 126,755 Redemptorist L.P. New Orleans, LA 2,591,385 0 6,497,259 279,736 Manhattan A Associates New York, NY (aj) 0 1,092,959 5,991,888 (7,084,847) Broadhurst Willows, L.P. New York, NY (j) 0 102,324 5,151,039 (5,253,363) Weidler Associates Limited Partnership Portland, OR (j) 0 225,000 0 (225,000) Gentle Pines/s/West ~~Alan~~Columbia Associates, L.P. ~~Hirmes~~Columbia, ~~general~~SC ~~partner~~(i)(j) of0 ~~Related~~327,650 ~~Credit~~4,276,739 ~~Properties~~(4,604,389) Lake Forest Estates II, LTD Livingston, AL 939,616 21,623 1,182,480 92,065 Las Camelias L.P. Rio Piedras, PR (h)(j) 0 249,000 6,400 (255,400) WPL Associates XIIII Portland, OR (e)(f) 0 0 3,721,763 (3,721,763) Broadway Townhouses L.P. Camden, NJ 10,319,320 163,000 5,120,066 14,430,086 Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR (k) 4,025,000 0 0 6,506,747 Citrus Meadows Apartments, LTD Bradenton, FL 7,250,601 610,073 0 9,618,964 Sartain School Venture Philadelphia, PA 1,872,623 3,883 3,486,875 33,284 Driftwood Terrace Associates, LTD Ft. Lauderdale, FL (l) 6,420,816 270,000 7,753,765 345,795 Holly Hill, LTD Greenville, TN 1,351,213 50,000 1,631,820 188,326 Mayfair Apartments LTD Morristown, TN 1,336,067 50,000 1,614,861 166,611 Foxcroft Apartments LTD Troy, AL 1,204,641 75,000 1,382,973 161,632 Canterbury Apartments, LTD Indianola, MS 1,384,857 33,000 1,738,871 147,372 Cutler Canal III Associates, LTD Miami, FL (k) 7,171,761 1,269,265 0 12,579,285 Jefferson Place L.P. Olathe, KS (d) 0 531,063 13,477,553 (a14,008,616) Gross Amount at which Carried at close of Period ------------------------------------------------ ~~General~~Buildings ~~Partner~~and ofAccumulated ~~Registrant~~Description Land Improvements Total Depreciation ------------------------------------------- ------------- -------------- ------------- ------------ The Village at Carriage Hills, LTD Clinton, TN 90,769 1,913,235 2,004,004 1,160,176 Mountainview Apartments, LTD, Newport, TN 54,024 1,388,459 1,442,483 863,098 The Park Village, Limited Jackson, MS 48,208 841,327 889,535 533,887 River Oaks Apartments, LTD Oneonta, AL 84,446 1,316,630 1,401,076 598,993 Forrest Ridge Apartments, LTD Forrest City, AR 40,106 1,354,563 1,394,669 517,138 The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 246,656 4,790,243 5,036,899 3,289,179 Redemptorist L.P. New Orleans, LA 4,106 6,772,889 6,776,995 3,920,231 Manhattan A Associates New York, NY (j)) ~~and~~0 ~~Liberty~~0 GP0 ~~III~~0 Broadhurst Willows, ~~Inc~~L.P. New York, NY (aj) ~~June~~0 290 0 0 Weidler Associates Limited Partnership Portland, ~~2006~~OR ~~Alan~~(j) 0 0 0 0 Gentle Pines/West Columbia Associates, L.P. ~~Hirmes~~Columbia, ~~General~~SC ~~Partner~~(i)(j) of0 ~~Registrant~~0 0 0 Lake Forest Estates II, LTD Livingston, AL 25,729 1,270,439 1,296,168 553,860 Las Camelias L.P. Rio Piedras, PR (h)(j) ~~-------------~~0 ~~Treasurer~~0 0 0 WPL Associates XIIII Portland, OR (~~principal~~e)(f) ~~accounting~~0 ~~officer~~0 0 0 Broadway Townhouses L.P. Camden, NJ 167,106 19,546,046 19,713,152 9,515,861 Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR (k) of152,736 ~~Related~~6,354,011 ~~Credit~~6,506,747 ~~/s/~~3,532,565 ~~Glenn~~Citrus FMeadows Apartments, LTD Bradenton, FL 812,609 9,416,428 10,229,037 5,566,905 Sartain School Venture Philadelphia, PA 7,989 3,516,053 3,524,042 1,532,119 Driftwood Terrace Associates, LTD Ft. ~~Hopps~~Lauderdale, ~~Properties~~FL (l) 274,106 8,095,454 8,369,560 5,523,609 Holly Hill, LTD Greenville, TN 54,106 1,816,040 1,870,146 1,063,756 Mayfair Apartments LTD Morristown, TN 54,106 1,777,366 1,831,472 788,149 Foxcroft Apartments LTD Troy, AL 79,106 1,540,499 1,619,605 692,562 Canterbury Apartments, LTD Indianola, MS 37,106 1,882,137 1,919,243 823,644 Cutler Canal III ~~Inc~~Associates, LTD Miami, FL (k) 1,269,401 12,579,149 13,848,550 4,838,931 Jefferson Place L.P. Olathe, KS (ad) ~~general~~0 ~~partner~~0 0 0 Life on which Depreciation in Year of ~~Related~~Latest ~~Credit~~Income Construction/ Date Statement is Description Renovation Acquired Computed(a)(b) ------------------------------------------- ~~Properties~~------------ ~~III~~------------ ---------------- The Village at Carriage Hills, LTD Clinton, TN 1990 Mar. 1990 25-40 years Mountainview Apartments, LTD, Newport, TN 1990 Mar. 1990 25-40 years The Park Village, Limited Jackson, MS 1990 Mar. 1990 25-40 years River Oaks Apartments, LTD Oneonta, AL 1990 Mar. 1990 25-40 years Forrest Ridge Apartments, LTD Forrest City, AR 1990 Mar. 1990 25-40 years The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 1990 Mar. 1990 15-27.5 years Redemptorist L.P. New Orleans, LA 1990 Mar. 1990 27.5 years Manhattan A Associates New York, NY (j) 1990 Apr. 1990 27.5 years Broadhurst Willows, L.P. New York, NY (aj) ~~General~~1990 ~~Partner~~Apr. of1990 ~~Registrant~~10-25 years Weidler Associates Limited Partnership Portland, OR (j) 1990 May 1990 15-27.5 years Gentle Pines/West Columbia Associates, L.P. Columbia, SC (i)(j) ~~and~~1990 June 291990 27.5 years Lake Forest Estates II, ~~2006~~LTD ~~Glenn~~Livingston, FAL 1990 June 1990 25-40 years Las Camelias L.P. ~~Hopps~~Rio ~~Liberty~~Piedras, GPPR ~~III~~(h)(j) 1990 June 1990 27.5 years WPL Associates XIIII Portland, ~~Inc~~OR (e)(f) 1990 July 1990 27.5 years Broadway Townhouses L.P. Camden, NJ 1990 July 1990 27.5 years Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR (ak) ~~General~~1990 ~~Partner~~Aug. of1990 ~~Registrant~~27.5 years Citrus Meadows Apartments, LTD Bradenton, FL 1990 July 1990 27.5 years Sartain School Venture Philadelphia, PA 1990 Aug. 1990 15-40 years Driftwood Terrace Associates, LTD Ft. Lauderdale, FL (l) 1989 Sept. 1990 27.5 years Holly Hill, LTD Greenville, TN 1990 Oct. 1990 25-40 years Mayfair Apartments LTD Morristown, TN 1990 Oct. 1990 25-40 years Foxcroft Apartments LTD Troy, AL 1990 Oct. 1990 25-40 years Canterbury Apartments, LTD Indianola, MS 1990 Oct. 1990 25-~~---------~~40 years Cutler Canal III Associates, LTD Miami, FL (k) 1990 Oct. 1990 40 years Jefferson Place L.P. Olathe, KS (d) 1990 Oct. 1990 19 years

143 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2007 (continued)

~~ASSETS~~Initial ~~March~~Cost ~~31,~~to Partnership ----------------------------- ~~2006~~Cost ~~2005~~Capitalized Subsequent to Buildings and Acquisition: Description Encumbrances Land Improvements Improvements ------------------------------------------- ------------ ~~Cash~~------------ ~~and~~------------- ~~cash~~---------------- ~~equivalents~~Callaway $Village, LTD Clinton, TN 1,357,688 66,000 1,613,920 145,143 Commerce Square Apartments Associates L.P. Smyrna, DE 2,~~442~~805,~~687~~163 $303,837 ~~353~~0 4,~~403~~854,444 ~~Cash~~West ~~held~~132nd inDevelopment ~~escrow~~Partnership 58New York,~~081~~ ~~130~~NY (l) 1,~~081~~279,575 ~~Investment~~0 ~~and~~0 ~~advances~~2,652,002 inSite ~~subsidiary~~H ~~partnerships~~Development Co. Brooklyn, NY (g)(j)(k) 0 0 1,346,000 (1,346,000) L.I.H. Chestnut Associates, L.P. Philadelphia, PA 5,591,055 752,000 693,995 6,612,632 Diamond Phase II Venture Philadelphia, PA 1,730,945 0 0 1,084,764 Bookbindery Associates Philadelphia, PA 1,479,471 0 0 3,867,983 The Hamlet, LTD Boynton, FL (l) 8,167,538 1,180,482 0 13,~~462~~600,~~551~~666 17Stop 22 Limited Partnership Santurce,~~057~~ PR (h)(j)(k) 0 0 4,~~554~~025,481 ~~Other~~(4,025,481) ~~assets~~Knob ~~289~~Hill Apartments,~~971~~ ~~245~~LTD Greenville,~~465~~ TN 1,441,658 75,085 0 1,861,443 Conifer James Street Associates Syracuse, NY (l) 1,782,733 57,034 0 4,571,442 Longfellow Heights Apartments, L.P. Kansas City, MO 3,793,365 0 7,739,692 260,964 Less: Discontinued operations and dispositions (32,569,200) (9,210,656) (81,949,340) 29,185,531 ------------ ------------ ~~Total~~------------- ~~assets~~---------------- $16 85,~~253~~828,~~290~~031 $17 3,~~786~~519,~~503~~618 $ 101,225,698 $ 31,349,718 ============ ============ ~~LIABILITIES~~============= ~~AND~~============= ~~PARTNERS'~~Gross ~~EQUITY~~Amount ~~Due~~at towhich ~~general~~Carried ~~partner~~at close of Period ------------------------------------------------ Buildings and ~~affiliates~~Accumulated ~~$12,027,691~~Description ~~$12,501,181~~Land ~~Other~~Improvements ~~liabilities~~Total ~~1,784,449~~Depreciation ~~54,896~~------------------------------------------- ------------- -------------- ~~Total~~------------- ~~liabilities~~------------ Callaway Village, LTD Clinton, TN 70,106 1,754,957 1,825,063 786,681 Commerce Square Apartments Associates L.P. Smyrna, DE 307,943 4,850,338 5,158,281 1,849,828 West 132nd Development Partnership New York, NY (l) 13,~~812~~106 2,~~140~~638,896 122,~~556~~652,~~077~~002 ~~Partners'~~1,078,205 ~~equity~~Site H Development Co. Brooklyn, NY (g)(j)(k) 0 0 0 0 L.I.H. Chestnut Associates, L.P. Philadelphia, PA 759,229 7,299,398 8,058,627 3,323,818 Diamond Phase II Venture Philadelphia, PA 22,081 1,062,683 1,084,764 132,328 Bookbindery Associates Philadelphia, PA 29,105 3,838,878 3,867,983 1,495,044 The Hamlet, LTD Boynton, FL (l) 1,184,587 13,596,561 14,781,148 7,437,784 Stop 22 Limited Partnership Santurce, PR (h)(j)(k) 0 0 0 0 Knob Hill Apartments, LTD Greenville, TN 79,190 1,857,338 1,936,528 787,277 Conifer James Street Associates Syracuse, NY (l) 61,139 4,567,337 4,628,476 2,~~441~~610,~~150~~067 5Longfellow Heights Apartments,~~230~~ L.P. Kansas City,~~426~~ MO 206 8,000,450 8,000,656 3,335,961 Less: Discontinued operations and dispositions (4,844,817) (57,129,648) (61,974,465) (30,151,987) ------------- -------------- ~~Total~~------------- ~~liabilities~~------------ ~~and~~$ ~~partners'~~3,363,082 ~~equity~~$132,731,952 $16 136,~~253~~095,~~290~~034 $17 68,~~786~~415,~~503~~555 ============= ============= ============= ============ Life on which Depreciation in Year of Latest Income Construction/ Date Statement is Description Renovation Acquired Computed(a)(b) ------------------------------------------- ----------- ------------ ---------------- Callaway Village, LTD Clinton, TN 1990 Nov. 1990 25-40 years Commerce Square Apartments Associates L.P. Smyrna, DE 1990 Dec. 1990 40 years West 132nd Development Partnership New York, NY (l) 1990 Dec. 1990 40 years Site H Development Co. Brooklyn, NY (g)(j)(k) 1990 Dec. 1990 27.5 years L.I.H. Chestnut Associates, L.P. Philadelphia, PA 1990 Dec. 1990 35 years Diamond Phase II Venture Philadelphia, PA 1990 Dec. 1990 40 years Bookbindery Associates Philadelphia, PA 1990 Dec. 1990 40 years The Hamlet, LTD Boynton, FL (l) 1990 Dec. 1990 27.5 years Stop 22 Limited Partnership Santurce, PR (h)(j)(k) 1990 Dec. 1990 27.5-31.5 years Knob Hill Apartments, LTD Greenville, TN 1990 Dec. 1990 25-40 years Conifer James Street Associates Syracuse, NY (l) 1990 Dec. 1990 15-27.5 years Longfellow Heights Apartments, L.P. Kansas City, MO 1991 Mar. 1991 15-40 years

(a) Personal property is depreciated primarily by the straight-line method over the estimated useful life ranging from 5 to 10 years. (b) Since all properties were acquired as operating properties, depreciation is computed using primarily the straight-line method over the estimated useful life determined by the Partnership date of acquisition. (c) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2002. (d) The Property and the related assets and liabilities were sold during the fiscal year ended March 31, 2004. (e) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2005. (f) These properties are included in discontinued operations for the year ended March 31, 2005. (g) The Property and the related assets and liabilities were sold during the fiscal year ended March 31, 2006. (h) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2006. (i) The deed to the property and the related assets and liabilities was transferred in lieu of foreclosure during the fiscal year ended March 31, 2006. (j) The Property and the related assets and liabilities were sold during the fiscal year ended March 31, 2007. (k) The Partnership's Limited Partnership Interest was sold during the fiscal year ended March 31, 2007. (l) These properties are included in discontinued operations for the year ended March 31, 2007. 144 LIBERTY TAX CREDIT PLUS III L.P. AND SUBSIDIARIES SCHEDULE III REAL ESTATE AND ACCUMULATED DEPRECIATION Partnership Property Pledged as Collateral MARCH 31, 2007 (continued)

~~Years~~Cost ~~Ended~~of ~~March~~Property ~~31,~~and Equipment Accumulated Depreciation ------------------------------------------ ~~2006 2005 2004~~ ----------- ----------- -------------------- ~~Revenues~~Years ~~Other~~Ended ~~income~~March ~~$ 29~~31,~~796~~ ~~$ 5,382 $ 2,199~~ ----------- ----------- ---------------------------------------------------------------- ~~Expenses~~2007 ~~General~~2006 ~~and~~2005 ~~administrative~~2007 ~~335,904~~2006 ~~190,898~~2005 ~~367,141 General and administrative~~-~~related parties 1,738,515 1,563,212 1,635,910~~ ----------- ------------ ------------ ~~Total expenses 2,074,419 1,754,110 2,003,051~~ ------------ ------------ ------------ ~~Loss~~Balance ~~from~~at ~~operations~~beginning (2of period $200,~~044~~667,~~623)~~241 (1$267,~~748~~777,~~728)~~750 (2$287,~~000~~154,~~852)~~294 ~~Distribution~~$ ~~income~~96,212,530 of$121,873,369 ~~subsidiary~~$123,219,520 ~~partnerships~~Additions induring ~~excess~~period: ofImprovements ~~investments~~1,008,288 1,~~558~~088,~~256~~615 761,~~021~~649,756 28Depreciation expense 6,~~305~~808,217 ~~(Loss)~~8,776,562 ~~gain~~9,669,056 onDeductions ~~sale~~during ofperiod: ~~investment~~Discontinued inoperations, ~~subsidiary~~dispositions, ~~partnership~~and impairments (165,~~397~~580,~~058~~495) 2(68,199,124) (21,~~097~~026,300) 0 Equity in loss of subsidiary partnerships* (~~905~~34,~~851~~605,192) (534,~~394~~437,~~351~~401) (211,~~831~~015,~~376~~207) ------------ ------------ ------------ ~~Net~~------------ ~~loss~~------------ ------------ Balance at close of period $(2136,~~789~~095,~~276)~~034 $(4200,~~942~~667,~~961)~~241 $(4267,~~803~~777,~~923)~~750 $ 68,415,555 $ 96,212,530 $121,873,369 ============ ============ ============ ============ ============ ============

At the time the local partnerships were acquired by Liberty Tax Credit Plus III L.P., the entire purchase price paid by Liberty Tax Credit Plus III 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. 145

Years Ended March 31, ----------------------------------------- 2006 2005 2004 ----------- ----------- ----------- Cash flows from operating activities: Net loss $(2,789,276) $(4,942,961) $(4,803,923) ----------- ----------- ----------- Adjustments to reconcile net loss to net cash used in operating activities: Loss (gain) on sale of investment in subsidiary partnership 1,397,058 (2,124,097) 0 Distribution income from subsidiary partnerships in excess of investments (1,558,256) (76,021) (28,305) (Increase) decrease in assets: Other assets 70,519 159,410 152,674 Increase (decrease) in liabilities: Due to general partners and affiliates (473,490) 1,036,561 1,603,815 Other liabilities 1,729,553 (8,606) 9,732 ----------- ----------- ----------- Total adjustments 1,165,384 (1,012,753) 1,737,916 ----------- ----------- ----------- Net cash used in operating activities (1,623,892) (5,955,714) (3,066,007) ----------- ----------- ----------- Cash flows from investing activities: Proceeds from sale of investment in subsidiary partnership 834,950 690,645 0 Equity in loss of subsidiary partnerships 905,851 5,394,351 2,831,376 Distributions from subsidiary partnerships 2,524,511 399,328 330,098 Investments and advances in subsidiary partnerships (624,136) (634,014) (233,885) Decrease in cash held in escrow- purchase price payments 72,000 29,516 82,332 ----------- ----------- ----------- Net cash provided by investing activities 3,713,176 5,879,826 3,009,921 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents 2,089,284 (75,888) (56,086) Cash and cash equivalents, beginning of year 353,403 429,291 485,377 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 2,442,687 $ 353,403 $ 429,291 =========== =========== ===========

Initial Cost to Partnership --------------------------- Buildings and Subsidiary Partnerships' Residential Property Encumbrances Land Improvements --------------------------------------------- ------------ ----------- ------------- C.V. Bronx Associates, L.P. Bronx, NY $ 0 $ 1,705,800 $ 0 Michigan Rural Housing Limited Partnership Michigan (f)(j) 3,187,757 141,930 4,013,207 Jefferson Limited Partnership Shreveport, LA 1,362,379 65,000 3,289,429 Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI 1,637,174 36,643 3,290,524 RBM Associates Philadelphia, PA (h)(j) 0 0 1,590,733 Glenbrook Associates Atglen, PA (h)(j) 0 137,000 2,833,081 Affordable Flatbush Associates Brooklyn, NY (g)(j) 1,211,159 0 2,551,365 Barclay Village II, LTD. Chambersburg, PA (h)(j) 0 204,825 3,249,918 1850 Second Avenue Associates, L.P. New York, NY 0 920,472 6,262,968 R.P.P. Limited Dividend Housing Detroit, MI 22,620,000 0 29,051,380 Williamsburg Residential II, L.P. Wichita, KS 1,410,419 358,305 2,713,872 West 104th Street Associates, L.P. New York, NY 0 0 0 Meredith Apartments, LTD. Salt Lake City, UT (e) (f) 0 40,000 1,500,117 Ritz Apartments, LTD. Salt Lake City, UT (e) (f) 0 59,760 592,704 Ashby Apartments, LTD. Salt Lake City, UT (e) (f) 0 50,850 549,611 South Toledo Associates, LTD. Toledo, OH 861,549 47,571 1,411,386 Dunlap School Venture Philadelphia, PA 2,425,752 5,352 4,522,721 Philipsburg Elderly Housing Associates Philipsburg, PA (h)(j) 0 45,000 4,092,500 Franklin Elderly Housing Associates Franklin, PA (h)(j) 0 165,000 2,594,447 Wade D. Mertz Elderly Housing Associates Sharpsville, PA (h)(j) 0 65,000 4,234,049 Lancashire Towers Associates L.P. Cleveland, OH (f)(h)(j) 0 265,000 6,871,575 Northwood Associates Limited Partnership Toledo, OH (c) 0 200,000 4,065,856 Brewery Renaissance Associates Middletown, NY 3,375,000 77,220 102,780 Brandywine Court Associates, L.P. Jacksonville, FL (g)(j) 0 78,000 1,960,262 Art Apartments Associates Philadelphia, PA 1,010,839 13,695 2,713,615 Gross Amount at which Carried at Close of Period ------------------------------------------------ Buildings and Accumulated Subsidiary Partnerships' Residential Property Land Improvements Total Depreciation --------------------------------------------- ----------- ------------- ------------ ------------ C.V. Bronx Associates, L.P. Bronx, NY $ 1,439,504 $ 4,546,211 $ 5,985,715 $ 2,451,908 Michigan Rural Housing Limited Partnership Michigan (f)(j) 120,016 4,657,076 4,777,092 2,514,529 Jefferson Limited Partnership Shreveport, LA 71,786 3,330,768 3,402,554 1,835,409 Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI 43,429 3,560,108 3,603,537 1,999,747 RBM Associates Philadelphia, PA (h)(j) 0 0 0 0 Glenbrook Associates Atglen, PA (h)(j) 0 0 0 0 Affordable Flatbush Associates Brooklyn, NY (g)(j) 3 2,823,761 2,823,764 1,651,938 Barclay Village II, LTD. Chambersburg, PA (h)(j) 0 0 0 0 1850 Second Avenue Associates, L.P. New York, NY 392,457 6,792,148 7,184,605 3,871,307 R.P.P. Limited Dividend Housing Detroit, MI 6,786 19,141,774 19,148,560 10,106,033 Williamsburg Residential II, L.P. Wichita, KS 362,484 1,498,332 1,860,816 810,369 West 104th Street Associates, L.P. New York, NY 6,787 3,233,656 3,240,443 1,583,155 Meredith Apartments, LTD. Salt Lake City, UT (e) (f) 0 0 0 0 Ritz Apartments, LTD. Salt Lake City, UT (e) (f) 0 0 0 0 Ashby Apartments, LTD. Salt Lake City, UT (e) (f) 0 0 0 0 South Toledo Associates, LTD. Toledo, OH 51,677 1,461,671 1,513,348 590,239 Dunlap School Venture Philadelphia, PA 9,458 4,687,568 4,697,026 1,840,535 Philipsburg Elderly Housing Associates Philipsburg, PA (h)(j) 0 0 0 0 Franklin Elderly Housing Associates Franklin, PA (h)(j) 0 0 0 0 Wade D. Mertz Elderly Housing Associates Sharpsville, PA (h)(j) 0 0 0 0 Lancashire Towers Associates L.P. Cleveland, OH (f)(h)(j) 0 0 0 0 Northwood Associates Limited Partnership Toledo, OH (c) 0 0 0 0 Brewery Renaissance Associates Middletown, NY 81,326 6,539,331 6,620,657 3,472,481 Brandywine Court Associates, L.P. Jacksonville, FL (g)(j) 0 0 0 0 Art Apartments Associates Philadelphia, PA 17,801 2,826,875 2,844,676 1,629,740 Life on which Depreciation in Year of Latest Income Construction/ Date Statements is Subsidiary Partnerships' Residential Property Renovation Acquired Computed(a)(b) --------------------------------------------- ------------- ------------ ---------------- C.V. Bronx Associates, L.P. Bronx, NY 1990 June 1989 15-27.5 years Michigan Rural Housing Limited Partnership Michigan (f)(j) 1989 Sept. 1989 27.5 years Jefferson Limited Partnership Shreveport, LA 1990 Dec. 1989 27.5 years Inter-Tribal Indian Village Housing Development Associates, L.P. Providence, RI 1989 Oct. 1989 27.5 years RBM Associates Philadelphia, PA (h)(j) 1989 Dec. 1989 40 years Glenbrook Associates Atglen, PA (h)(j) 1989 Nov. 1989 3-27.5 years Affordable Flatbush Associates Brooklyn, NY (g)(j) 1989 Dec. 1989 27.5 years Barclay Village II, LTD. Chambersburg, PA (h)(j) 1989 Nov. 1989 5-27.5 years 1850 Second Avenue Associates, L.P. New York, NY 1989 Nov. 1989 27.5 years R.P.P. Limited Dividend Housing Detroit, MI 1989 Nov. 1989 27-31.5 years Williamsburg Residential II, L.P. Wichita, KS 1989 Nov. 1989 40 years West 104th Street Associates, L.P. New York, NY 1990 Dec. 1989 27.5 years Meredith Apartments, LTD. Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years Ritz Apartments, LTD. Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years Ashby Apartments, LTD. Salt Lake City, UT (e) (f) 1989 Aug. 1989 27.5 years South Toledo Associates, LTD. Toledo, OH 1988 Jan. 1990 40 years Dunlap School Venture Philadelphia, PA 1989 Jan. 1990 40 years Philipsburg Elderly Housing Associates Philipsburg, PA (h)(j) 1990 Feb. 1990 15-27.5 years Franklin Elderly Housing Associates Franklin, PA (h)(j) 1989 Feb. 1990 7-24 years Wade D. Mertz Elderly Housing Associates Sharpsville, PA (h)(j) 1989 Feb. 1990 27.5 years Lancashire Towers Associates L.P. Cleveland, OH (f)(h)(j) 1989 Feb. 1990 27.5 years Northwood Associates Limited Partnership Toledo, OH (c) 1989 Feb. 1990 27.5 years Brewery Renaissance Associates Middletown, NY 1990 Feb. 1990 27.5 years Brandywine Court Associates, L.P. Jacksonville, FL (g)(j) 1988 Nov. 1989 7-27.5 years Art Apartments Associates Philadelphia, PA 1990 Mar. 1990 27.5 years

Initial Cost to Partnership --------------------------- Cost Capitalized Subsequent to Buildings and Acquisition: Subsidiary Partnerships' Residential Property Encumbrances Land Improvements Improvements --------------------------------------------- ------------ ----------- ------------- ---------------- The Village at Carriage Hills, LTD. Clinton, TN 1,434,005 86,663 1,753,799 153,199 Mountainview Apartments, LTD, Newport, TN 1,019,582 49,918 1,254,182 135,129 The Park Village, Limited Jackson, MS 311,510 44,102 749,940 93,183 River Oaks Apartments, LTD. Oneonta, AL 1,043,261 80,340 1,221,336 95,894 Forrest Ridge Apartments, LTD. Forrest City, AR 1,048,944 36,000 1,016,647 337,101 The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 2,699,789 242,550 4,667,594 126,755 Redemptorist L.P. New Orleans, LA 2,686,075 0 6,497,259 279,736 Manhattan A Associates New York, NY 2,833,618 1,092,959 5,991,888 427,468 Broadhurst Willows, L.P. New York, NY (j) 0 102,324 5,151,039 275,804 Weidler Associates Limited Partnership Portland, OR 1,213,061 225,000 0 2,176,661 Gentle Pines/West Columbia Associates, L.P. Columbia, SC (i)(j) 0 327,650 4,276,739 (4,604,387) Lake Forest Estates II, LTD. Livingston, AL 943,950 21,623 1,182,480 80,487 Las Camelias L.P. Rio Piedras, PR (h)(j) 0 249,000 6,400 (255,400) WPL Associates XIIII Portland, OR (e)(f) 0 0 3,721,763 (3,721,763) Broadway Townhouses L.P. Camden, NJ 10,382,873 163,000 5,120,066 14,430,086 Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR 4,025,000 0 0 6,543,313 Citrus Meadows Apartments, LTD. Bradenton, FL 7,298,190 610,073 0 9,580,421 Sartain School Venture Philadelphia, PA 1,883,555 3,883 3,486,875 146,954 Driftwood Terrace Associates, LTD. Ft. Lauderdale, FL 6,504,657 270,000 7,753,765 345,795 Holly Hill, LTD. Greenville, TN 1,357,471 50,000 1,631,820 171,726 Mayfair Apartments LTD. Morristown, TN 1,342,255 50,000 1,614,861 163,809 Foxcroft Apartments LTD. Troy, AL 1,211,210 75,000 1,382,973 157,712 Canterbury Apartments, LTD. Indianola, MS 1,391,808 33,000 1,738,871 114,538 Gross Amount at which Carried at Close of Period ------------------------------------------------ Buildings and Accumulated Subsidiary Partnerships' Residential Property Land Improvements Total Depreciation --------------------------------------------- ----------- ------------- ------------ ------------ The Village at Carriage Hills, LTD. Clinton, TN 90,769 1,902,892 1,993,661 1,086,935 Mountainview Apartments, LTD, Newport, TN 54,024 1,385,205 1,439,229 813,375 The Park Village, Limited Jackson, MS 48,208 839,017 887,225 503,529 River Oaks Apartments, LTD. Oneonta, AL 84,446 1,313,124 1,397,570 565,803 Forrest Ridge Apartments, LTD. Forrest City, AR 40,106 1,349,642 1,389,748 483,662 The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 246,656 4,790,243 5,036,899 3,124,567 Redemptorist L.P. New Orleans, LA 4,106 6,772,889 6,776,995 3,671,632 Manhattan A Associates New York, NY 1,097,065 6,415,250 7,512,315 3,718,067 Broadhurst Willows, L.P. New York, NY (j) 106,430 5,422,737 5,529,167 3,471,471 Weidler Associates Limited Partnership Portland, OR 229,106 2,172,555 2,401,661 1,203,130 Gentle Pines/West Columbia Associates, L.P. Columbia, SC (i)(j) 0 0 0 0 Lake Forest Estates II, LTD. Livingston, AL 25,729 1,258,861 1,284,590 523,096 Las Camelias L.P. Rio Piedras, PR (h)(j) 0 0 0 0 WPL Associates XIIII Portland, OR (e)(f) 0 0 0 0 Broadway Townhouses L.P. Camden, NJ 167,106 19,546,046 19,713,152 9,032,776 Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR 156,842 6,386,471 6,543,313 3,326,849 Citrus Meadows Apartments, LTD. Bradenton, FL 812,609 9,377,885 10,190,494 5,234,426 Sartain School Venture Philadelphia, PA 7,989 3,629,723 3,637,712 1,444,529 Driftwood Terrace Associates, LTD. Ft. Lauderdale, FL 274,106 8,095,454 8,369,560 5,338,256 Holly Hill, LTD. Greenville, TN 54,106 1,799,440 1,853,546 1,000,561 Mayfair Apartments LTD. Morristown, TN 54,106 1,774,564 1,828,670 746,185 Foxcroft Apartments LTD. Troy, AL 79,106 1,536,579 1,615,685 659,640 Canterbury Apartments, LTD. Indianola, MS 37,106 1,849,303 1,886,409 777,194 Life on which Depreciation in Year of Latest Income Construction/ Date Statements is Subsidiary Partnerships' Residential Property Renovation Acquired Computed(a)(b) --------------------------------------------- ------------- ------------ ---------------- The Village at Carriage Hills, LTD. Clinton, TN 1990 Mar. 1990 25-40 years Mountainview Apartments, LTD, Newport, TN 1990 Mar. 1990 25-40 years The Park Village, Limited Jackson, MS 1990 Mar. 1990 25-40 years River Oaks Apartments, LTD. Oneonta, AL 1990 Mar. 1990 25-40 years Forrest Ridge Apartments, LTD. Forrest City, AR 1990 Mar. 1990 25-40 years The Hearthside Limited Dividend Housing Associates Limited Partnership Portage, MI 1990 Mar. 1990 15-27.5 years Redemptorist L.P. New Orleans, LA 1990 Mar. 1990 27.5 years Manhattan A Associates New York, NY 1990 Apr. 1990 27.5 years Broadhurst Willows, L.P. New York, NY (j) 1990 Apr. 1990 10-25 years Weidler Associates Limited Partnership Portland, OR 1990 May 1990 15-27.5 years Gentle Pines/West Columbia Associates, L.P. Columbia, SC (i)(j) 1990 June 1990 27.5 years Lake Forest Estates II, LTD. Livingston, AL 1990 June 1990 25-40 years Las Camelias L.P. Rio Piedras, PR (h)(j) 1990 June 1990 27.5 years WPL Associates XIIII Portland, OR (e)(f) 1990 July 1990 27.5 years Broadway Townhouses L.P. Camden, NJ 1990 July 1990 27.5 years Puerto Rico Historic Zone Limited Dividend Partnership San Juan, PR 1990 Aug. 1990 27.5 years Citrus Meadows Apartments, LTD. Bradenton, FL 1990 July 1990 27.5 years Sartain School Venture Philadelphia, PA 1990 Aug. 1990 15-40 years Driftwood Terrace Associates, LTD. Ft. Lauderdale, FL 1989 Sept. 1990 27.5 years Holly Hill, LTD. Greenville, TN 1990 Oct. 1990 25-40 years Mayfair Apartments LTD. Morristown, TN 1990 Oct. 1990 25-40 years Foxcroft Apartments LTD. Troy, AL 1990 Oct. 1990 25-40 years Canterbury Apartments, LTD. Indianola, MS 1990 Oct. 1990 25-40 years

Initial Cost to Partnership --------------------------- Cost Capitalized Subsequent to Buildings and Acquisition: Subsidiary Partnerships' Residential Property Encumbrances Land Improvements Improvements --------------------------------------------- ------------ ----------- ------------- ---------------- Cutler Canal III Associates, LTD. Miami, FL (j) 7,278,020 1,269,265 0 12,392,962 Jefferson Place L.P. Olathe, KS (d) 0 531,063 13,477,553 (14,008,616) Callaway Village, LTD. Clinton, TN 1,364,918 66,000 1,613,920 137,771 Commerce Square Apartments Associates L.P. Smyrna, DE 2,823,031 303,837 0 4,849,478 West 132nd Development Partnership New York, NY 1,340,264 0 0 2,652,002 Site H Development Co. Brooklyn, NY (g)(j) 551,205 0 1,346,000 0 L.I.H. Chestnut Associates, L.P. Philadelphia, PA 5,642,951 752,000 693,995 6,509,790 Diamond Phase II Venture Philadelphia, PA 1,753,228 0 0 4,025,541 Bookbindery Associates Philadelphia, PA 1,485,381 0 0 3,865,263 The Hamlet, LTD. Boynton, FL 8,245,055 1,180,482 0 13,598,961 Stop 22 Limited Partnership Santurce, PR (h)(j) 10,130,036 0 4,025,481 7,102,019 Knob Hill Apartments, LTD. Greenville, TN 1,447,350 75,085 0 1,854,697 Conifer James Street Associates Syracuse, NY 1,860,880 57,034 0 4,570,358 Longfellow Heights Apartments, L.P. Kansas City, MO 3,833,100 0 7,739,692 260,964 Less: Discontinued operations and dispositions (22,358,177) (3,931,667) (72,704,400) 37,370,315 ------------ ----------- ------------ ----------- $115,130,084 $ 8,798,607 $110,470,638 $81,397,996 ============ =========== ============ =========== Gross Amount at which Carried at Close of Period ------------------------------------------------ Buildings and Accumulated Subsidiary Partnerships' Residential Property Land Improvements Total Depreciation --------------------------------------------- ----------- ------------- ------------ ------------ Cutler Canal III Associates, LTD. Miami, FL (j) 1,273,507 12,388,720 13,662,227 4,566,562 Jefferson Place L.P. Olathe, KS (d) 0 0 0 0 Callaway Village, LTD. Clinton, TN 70,106 1,747,585 1,817,691 743,398 Commerce Square Apartments Associates L.P. Smyrna, DE 307,943 4,845,372 5,153,315 1,723,028 West 132nd Development Partnership New York, NY 13,106 2,638,896 2,652,002 1,011,407 Site H Development Co. Brooklyn, NY (g)(j) 1 1,345,999 1,346,000 779,259 L.I.H. Chestnut Associates, L.P. Philadelphia, PA 759,229 7,196,556 7,955,785 3,113,472 Diamond Phase II Venture Philadelphia, PA 22,081 4,003,460 4,025,541 1,452,727 Bookbindery Associates Philadelphia, PA 29,105 3,836,158 3,865,263 1,398,623 The Hamlet, LTD. Boynton, FL 1,184,587 13,594,856 14,779,443 6,949,349 Stop 22 Limited Partnership Santurce, PR (h)(j) 212,813 10,914,687 11,127,500 5,707,316 Knob Hill Apartments, LTD. Greenville, TN 79,190 1,850,592 1,929,782 744,407 Conifer James Street Associates Syracuse, NY 61,139 4,566,253 4,627,392 2,504,934 Longfellow Heights Apartments, L.P. Kansas City, MO 206 8,000,450 8,000,656 3,126,058 Less: Discontinued operations and dispositions (1,712,770) (37,552,980) (39,265,750) (18,691,083) ----------- ------------- ------------ ------------ $ 8,573,478 $ 192,093,763 $200,667,241 $ 96,212,530 =========== ============= ============ ============ Life on which Depreciation in Year of Latest Income Construction/ Date Statements is Subsidiary Partnerships' Residential Property Renovation Acquired Computed(a)(b) --------------------------------------------- ------------- ------------ ---------------- Cutler Canal III Associates, LTD. Miami, FL (j) 1990 Oct. 1990 40 years Jefferson Place L.P. Olathe, KS (d) 1990 Oct. 1990 19 years Callaway Village, LTD. Clinton, TN 1990 Nov. 1990 25-40 years Commerce Square Apartments Associates L.P. Smyrna, DE 1990 Dec. 1990 40 years West 132nd Development Partnership New York, NY 1990 Dec. 1990 40 years Site H Development Co. Brooklyn, NY (g)(j) 1990 Dec. 1990 27.5 years L.I.H. Chestnut Associates, L.P. Philadelphia, PA 1990 Dec. 1990 35 years Diamond Phase II Venture Philadelphia, PA 1990 Dec. 1990 40 years Bookbindery Associates Philadelphia, PA 1990 Dec. 1990 40 years The Hamlet, LTD. Boynton, FL 1990 Dec. 1990 27.5 years Stop 22 Limited Partnership Santurce, PR (h)(j) 1990 Dec. 1990 27.5-31.years Knob Hill Apartments, LTD. Greenville, TN 1990 Dec. 1990 25-40 years Conifer James Street Associates Syracuse, NY 1990 Dec. 1990 15-27.5 years Longfellow Heights Apartments, L.P. Kansas City, MO 1991 Mar. 1991 15-40 years Less: Discontinued operations and dispositions

Cost of Property and Equipment Accumulated Depreciation ----------------------------------------------- ----------------------------------------------- Years Ended March 31, -------------------------------------------------------------------------------------------------- 2006 2005 2004 2006 2005 2004 ------------- ------------- ------------- ------------- ------------- ------------- Balance at beginning of period $ 267,777,750 $ 287,154,294 $ 300,043,519 $ 121,873,369 $ 123,219,520 $ 124,137,316 Additions during period: Improvements 1,088,615 1,649,756 1,316,200 Depreciation expense 8,776,562 9,669,056 10,020,532 Deductions during period: Discontinued operations and dispositions (68,199,124) (21,026,300) (14,205,425) (34,437,401) (11,015,207) (10,938,328) ------------- ------------- ------------- ------------- ------------- ------------- Balance at close of period $ 200,667,241 $ 267,777,750 $ 287,154,294 $ 96,212,530 $ 121,873,369 $ 123,219,520 ============= ============= ============= ============= ============= =============

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