INDEPENDENCE TAX CREDIT PLUS L P II - 10-K Annual Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

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

For the fiscal year ended March 31, 2004

OR

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

Commission File Number 33-37704-03

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

Delaware 13-3646846
- -------------------------------- ----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)

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

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

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

None

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

Title of Class
--------------
Limited Partnership Interests and Beneficial Assignment Certificates

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

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

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

The approximate aggregate book value of the voting and non-voting common
equity held by non-affiliates of the Registrant as of September 30, 2003 was
$10,057,000, based on Limited Partner equity as of such date.

DOCUMENTS INCORPORATED BY REFERENCE
None

PART I

Item 1. Business.

General
- -------

Independence Tax Credit Plus L.P. II (the "Partnership") is a limited
partnership which was formed under the laws of the State of Delaware on February
11, 1992. The general partner of the Partnership is Related Independence
Associates L.P., a Delaware limited partnership (the "General Partner"). The
general partner of the General Partner is Related Independence Associates Inc.,
a Delaware corporation ("RIAI") and is an affiliate of Related Capital Company
("RCC").

On November 17, 2003, CharterMac acquired Related Capital Company, which is the
indirect parent of RCC Manager LLC, the sole shareholder of RIAI. Pursuant to
the acquisition, CharterMac acquired controlling interests in the General
Partner. This acquisition did not affect the Partnership or its day-to-day
operations, as the majority of the General Partner's management team remained
unchanged.

On January 19, 1993, 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 received $58,928,000 of gross proceeds
from the Offering (the "Gross Proceeds") from 3,475 investors ("BACs holders").
The Offering was terminated on April 7, 1994.

The Partnership's business is primarily to invest as a limited partner in other
partnerships ("Local Partnerships") owning apartment complexes ("Apartment
Complexes" or "Properties") that are eligible for the low-income housing tax
credit ("Housing Tax Credit") enacted in the Tax Reform Act of 1986, some of
which may also be eligible for the historic rehabilitation tax credit ("Historic
Tax Credit"; and together with Housing Tax Credits, "Tax Credits"). The
Partnership's investment in each Local Partnership represents 98.99% of the
partnership interests in the Local Partnership. As of March 31, 2004, the
Partnership had acquired interests in fifteen Local Partnerships and does not
anticipate making any additional investments. As of March 31, 2004,
approximately $47,000,000 (not including acquisition fees of approximately
$3,502,000) of net proceeds has been invested in fifteen Local Partnerships of
which approximately $282,000 remains to be paid to the Local Partnerships, as
certain benchmarks such as occupancy levels must be attained prior to the
release of such funds. The Partnership does not intend to acquire additional
properties, however, the Partnership may be required to pay for potential
purchase price adjustments based on tax credit adjustor clauses. See Item 2.
Properties, below.

Investment Objectives/Government Incentives
- -------------------------------------------

The Partnership was formed to invest in Apartment Complexes that are eligible
for the Housing Tax Credit enacted in the Tax Reform Act of 1986. Some Apartment
Complexes may also be eligible for Historic Tax Credits. The investment
objectives of the Partnership are described below.

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

2. Preserve and protect the Partnership's capital.

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

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

One of the Partnership's objectives is to entitle qualified BACs holders to Tax
Credits over the Credit Period. Each of the Local Partnerships in which the
Partnership has acquired an interest has been allocated by the relevant state
credit agencies the authority to recognize Tax Credits during the Credit Period

2

provided that the Local Partnership satisfies the rent restriction, minimum
set-aside and other requirements for recognition of the Tax Credits at all times
during such period. Once a Local Partnership has become eligible to recognize
Tax Credits, it may lose such eligibility and suffer an event of "recapture" if
its Property fails to remain in compliance with the Tax Credit requirements.
None of the Local Partnerships in which the Partnership has acquired an interest
has suffered an event of recapture.

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

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 33%
of the Properties are located in any single state. There are also substantial
risks associated with owning interests in properties, as does the Partnership,
which receive government assistance, for example the possibility that Congress
may not appropriate funds to enable HUD to make rental assistance payments. HUD
also restricts annual cash distributions to partners based on operating results
and a percentage of the 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.

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

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

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

3

Item 2. Properties.

The Partnership holds a 98.99% limited partnership interest in fifteen Local
Partnerships as of March 31, 2004. Set forth below is a schedule of the Local
Partnerships including certain information concerning their respective Apartment
Complexes (the "Local Partnership Schedule"). Further information concerning
these Local Partnerships and their properties, including any encumbrances
affecting the properties, may be found in Item 15. Schedule III.

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

Lincoln Renaissance
Reading, PA (52) April 1993 97% 100% 98% 96% 98%

United Germano-Millgate
Limited Partnership
Chicago, IL (350) October 1993 98% 99% 99% 99% 99%

Mansion Court Associates
Philadelphia, PA (30) November 1993 57% 87% 97% 90% 97%

Derby Run Associates, L.P.
Hampton, VA (160) February 1994 91% 96% 98% 98% 89%

Renaissance Plaza '93
Associates , L.P.
Baltimore, MD (95) February 1994 97% 98% 100% 100% 95%

Tasker Village Associates
Philadelphia, PA (28) May 1994 79% 100% 100% 96% 93%

Martha Bryant Manor, L.P.
Los Angeles, CA (77) September 1994 99% 100% 95% 100% 97%

Colden Oaks
Limited Partnership
Los Angeles, CA (38) September 1994 97% 100% 100% 97% 100%

Brynview Terrace, L.P.
Los Angeles, CA (8) September 1994 100% 100% 100% 100% 100%

NLEDC, L.P.
Los Angeles, CA (43) September 1994 98% 100% 100% 100% 100%

Creative Choice
Homes VI, Ltd.
Miami, FL (102) September 1994 99% 99% 100% 100% 100%

P&P Homes for the
Elderly, L.P.
Los Angeles, CA (107) September 1994 98% 100% 100% 100% 99%

4

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

Clear Horizons
Limited Partnership
Shreveport, LA (84) December 1994 95% 99% 95% 99% 98%

Neptune Venture, L.P.
Neptune Township, NJ (99) April 1995 100% 100% 100% 100% 97%

Affordable Green Associates L.P.
New York, NY (41) April 1995 100% 100% 100% 100% 100%

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

Rents from commercial tenants (to which average rental per square foot applies)
comprise less than 5% of the rental revenues of the Partnership. Maximum
allowable rents for the residential units are determined annually by HUD.

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

Management continuously reviews the insurance coverage of the Properties and
believes such coverage is adequate.

See Item 1, Business, above for the general competitive conditions to which the
properties described above are subject.

Real estate taxes are calculated using rates and assessed valuations determined
by the township or city in which the property is located. Such taxes have
approximated 1% of the aggregate cost of the properties as shown in Schedule III
to the financial statements included herein.

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

Item 3. Legal Proceedings.

None.

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

None.

5

PART II

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

As of March 31, 2004, the Partnership had issued and outstanding 58,928 Limited
Partnership Interests, each representing a $1,000 capital contribution to the
Partnership, or an aggregate capital contribution of $58,928,000 before volume
discounts of $2,000. All of the issued and outstanding Limited Partnership
Interests have been issued to Independence Assignor Inc. (the "Assignor Limited
Partner"), which has in turn issued 58,928 BACs to the purchasers thereof for an
aggregate purchase price of $58,928,000 reduced by volume discounts of $2,000.
Each BAC represents all of the economic and virtually all of the ownership
rights attributable to a Limited Partnership Interest held by the Assignor
Limited Partner. BACs may be converted into Limited Partnership Interests at no
cost to the holder (other than the payment of transfer costs not to exceed
$100), but Limited Partnership Interests so acquired are not thereafter
convertible into BACs.

Neither the BACs nor the Limited Partnership Interests are traded on any
established trading market. The Partnership does not intend to include the BACs
for quotation on NASDAQ or for listing on any national or regional stock
exchange or any other established securities market. The Revenue Act of 1987
contained provisions which have an adverse impact on investors in "publicly
traded partnerships." Accordingly, the General Partner has imposed limited
restrictions on the transferability of the BACs and the Limited Partnership
Interests in secondary market transactions. Implementation of the restrictions
should prevent a public trading market from developing and may adversely affect
the ability of an investor to liquidate his or her investment quickly. It is
expected that these procedures will remain in effect until such time, if ever,
as further revision of the Revenue Act of 1987 may permit the Partnership to
lessen the scope of the restrictions.

As of May 4, 2004, the Partnership has approximately 3,442 registered holders of
an aggregate of 58,928 BACs.

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

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

6

Item 6. Selected Financial Data.

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

Year Ended March 31,
----------------------------------------------------------------------------
OPERATIONS 2004 2003 2002 2001 2000
- ---------- ------------ ------------ ------------ ------------ ------------

Revenues $ 9,359,288 $ 9,140,057 $ 9,013,667 $ 8,662,312 $ 8,211,451
Operating expenses (14,653,886) (13,685,802) (13,154,549) (13,480,310) (13,137,023)
------------ ------------ ------------ ------------ ------------

Loss before minority
interest (5,294,598) (4,545,745) (4,140,882) (4,817,998) (4,925,572)
Minority interest in loss of
subsidiaries 16,161 10,959 8,204 11,423 10,908
------------ ------------ ------------ ------------ ------------
Net loss $ (5,278,437) $ (4,534,786) $ (4,132,678) $ (4,806,575) $ (4,914,664)
============ ============ ============ ============ ============

Net loss per weighted
average BAC $ (88.68) $ (76.19) $ (69.43) $ (80.75) $ (82.57)
============ ============ ============ ============ ============

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

Total assets $ 84,016,822 $ 87,502,402 $ 90,796,504 $ 93,702,404 $ 96,634,527
============ ============ ============ ============ ============

Total liabilities $ 77,992,941 $ 76,092,507 $ 74,604,701 $ 73,295,501 $ 71,338,864
============ ============ ============ ============ ============

Minority interest $ (451,294) $ (343,717) $ (96,595) $ (14,173) $ 68,012
============ ============ ============ ============ ============

Total partners' capital $ 6,475,175 $ 11,753,612 $ 16,288,398 $ 20,421,076 $ 25,227,651
============ ============ ============ ============ ============

During the years ended March 31, 2004, 2003, 2002, 2001 and 2000, respectively,
total assets decreased primarily due to depreciation partially offset by
improvements to property and equipment.

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

7

Selected Quarterly Financial Data (Unaudited)

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

Revenues $ 2,304,932 $ 2,328,028 $ 2,329,337 $ 2,396,991

Operating expenses (3,474,590) (3,290,185) (3,636,652) (4,252,459)
----------- ----------- ----------- -----------

Loss before minority interest (1,169,658) (962,157) (1,307,315) (1,855,468)

Minority interest in loss of
subsidiaries 3,507 3,863 3,592 5,199
----------- ----------- ----------- -----------

Net loss $(1,166,151) $ (958,294) $(1,303,723) $(1,850,269)
=========== =========== =========== ===========

Net loss per weighted aver-
age BAC $ (19.59) $ (16.10) $ (21.90) $ (31.09)
=========== =========== =========== ===========

Quarter Ended
---------------------------------------------------------------------
OPERATIONS June 30,2002 September 30,2002 December 31,2002 March 31,2003
- ---------- ------------ ----------------- ---------------- -------------

Revenues $ 2,193,120 $ 2,235,515 $ 2,258,692 $ 2,452,730

Operating expenses (3,221,107) (2,997,917) (3,436,025) (4,030,753)
----------- ----------- ----------- -----------

Loss before minority interest (1,027,987) (762,402) (1,177,333) (1,578,023)

Minority interest in loss of
subsidiaries 3,048 2,298 1,946 3,667
----------- ----------- ----------- -----------

Net loss $(1,024,939) $ (760,104) $(1,175,387) $(1,574,356)
=========== =========== =========== ===========

Net loss per weighted aver-
age BAC $ (17.22) $ (12.77) $ (19.75) $ (26.45)
=========== =========== =========== ===========

8

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

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

General
- -------

The Partnership's primary source of funds is a working capital reserve and
interest thereon. This source of funds is available to meet obligations of the
Partnership.

Through March 31, 2004, the Partnership has invested all of the net proceeds in
fifteen Local Partnerships of which approximately $282,000 remains to be paid
(including approximately $24,000 being held in escrow).

For the year ended March 31, 2004, cash and cash equivalents of the Partnership
and its fifteen consolidated Local Partnerships decreased approximately
($276,000) due to the principal payments of mortgage notes ($494,000),
acquisition of property and equipment ($357,000), a decrease in capitalization
of consolidated subsidiaries attributable to minority interest ($91,000) and a
net decrease in due to local general partners and affiliates relating to
investing and financing activities ($130,000) which exceeded cash provided by
operating activities ($792,000) and a decrease in cash held in escrow relating
to investing activities ($3,000). Included in the adjustments to reconcile the
net loss to cash provided by operations is depreciation and amortization of
approximately $3,426,000.

At March 31, 2004, there is a balance of approximately $136,000 in the working
capital reserve. The General Partner believes that these reserves, plus cash
distributions to be received from the operations of the Local Partnerships, will
be sufficient (subject to the continued deferral of fees payable to the General
Partner) to fund the Partnership's ongoing operations for the foreseeable
future. During the years ended March 31, 2004, 2003 and 2002, amounts received
from operations of the Local Partnerships were approximately $88,000, $88,000
and $71,000, respectively. Management anticipates receiving distributions in the
future, although not to a level sufficient to permit providing cash
distributions to BACs holders.

Partnership management fees owed to the General Partner amounting to
approximately $3,339,000 and $2,793,000 were accrued and unpaid as of March 31,
2004 and 2003, respectively (see Note 8). Without the General Partners' advances
and continued accrual without payment of certain fees and expense
reimbursements, the Partnership will not be in a position to meet its
obligations. The General Partner has continued to advance and allow the accrual
without payment of these amounts but is under no obligation to continue to do
so.

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

Except as described above, management is not aware of any trends or events,
commitments or uncertainties, which have not otherwise been disclosed that will
or are likely to impact liquidity in a material way. Management believes the
only impact would be from laws that have not yet been adopted. The portfolio is
diversified by the location of the properties around the United States so that
if one area of the country is experiencing downturns in the economy, the
remaining Properties in the portfolio may be experiencing upswings. However the
geographic diversification of the portfolio may not protect against a general
downturn in the national economy. The Partnership has invested the proceeds of
its offering in 15 Local Partnerships, all of which fully have their Tax Credits
in place. The Tax Credits are attached to the Property for a period of ten
years, and are transferable with the Property during the remainder of the
ten-year period. If trends in the real estate market warranted the sale of a
Property, the remaining Tax Credits would transfer to the new owner; thereby
adding value to the Property on the market. However, such value declines each
year and is not included in the financial statement carrying amount.

9

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

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

Mortgage notes
payable (a) $57,109,969 $ 559,245 $ 1,259,165 $ 1,458,479 $53,833,080
Loans payable to
general partner
and affiliates (b) 238,634 238,634 0 0 0
----------- ----------- ----------- ----------- -----------

$57,348,603 $ 797,879 $ 1,259,165 $ 1,458,479 $53,833,080
=========== =========== =========== =========== ===========

(a) The mortgage notes are payable in aggregate monthly installments of
approximately $175,000 including principal and interest at rates ranging
from 0% to 9.65% per annum, through the year 2052. Each subsidiary
partnership's mortgage note payable is collateralized by the land and
buildings of the respective subsidiary partnership, the assignment of each
certain subsidiary partnership's rents and leases, and is without further
recourse.

(b) See Note 8 (B) in Item 8. Financial Statements and Supplementary Data.

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

The Partnership has no off-balance sheet arrangements.

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

The preparation of consolidated financial statements requires management to make
estimates and assumptions. These estimates and assumptions affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenue and expenses during the reporting period. Actual
results could differ from those estimates. The following is a summary of certain
accounting estimates considered critical by the Partnership.

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

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred in acquiring the properties. The cost of property
and equipment is depreciated over their estimated useful lives using accelerated
and straight-line methods. Expenditures for repairs and maintenance are charged
to expense as incurred; major renewals and betterments are capitalized. At the
time property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the assets and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
earnings. The Partnership complies with Statement of Financial Accounting
Standards (SFAS) No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets". A loss on impairment of assets is recorded when management
estimates amounts recoverable through future operations and sale of the property
on an undiscounted basis are below depreciated cost. At that time, property
investments themselves are reduced to estimated fair value (generally using
discounted cash flows).

Through March 31, 2004, the Partnership has recorded approximately $3,926,000 as
an aggregate loss on impairment of assets.

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.

10

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

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

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

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

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

The net loss for the 2003, 2002 and 2001 Fiscal Years totaled $5,278,437,
$4,534,786 and $4,132,678, respectively.

The Partnership and BACs holders began to recognize Tax Credits with respect to
a Property when the Credit Period for such Property commenced. Because of the
time required for the acquisition, completion and rent-up of Properties, the
amount of Tax Credits per BAC gradually increased over the first three years of
the Partnership. Housing Tax Credits not recognized in the first three years
will be recognized in the 11th through 13th years. The Partnership generated
$8,746,267 of Housing Tax Credits during each of the 2003, 2002 and 2001 tax
years, respectively.

2003 vs. 2002
- -------------
The Partnership's results of operations for the 2003 and 2002 Fiscal Years
consisted primarily of the results of the Partnership's investment in fifteen
consolidated Local Partnerships. The majority of Local Partnership income
continues to be in the form of rental income with the corresponding expenses
being divided among operations, depreciation and mortgage interest.

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

Other income decreased approximately $122,000 for the 2003 Fiscal Year as
compared to the 2002 Fiscal Year primarily due to a decrease in interest earned
on a capital installment at one Local Partnership, a utility refund in the prior
year at a second Local Partnership and insurance claim proceeds in the prior
year at a third Local Partnership.

Total expenses, excluding general and administrative, repairs and maintenance
and insurance, remained fairly consistent with an increase of approximately 2%
for the 2003 Fiscal Year as compared to the 2002 Fiscal Year.

General and administrative increased approximately $422,000 for the 2003 Fiscal
Year as compared to the 2002 Fiscal Year primarily due to an increase in
incentive management fees at one Local Partnership and increased office supplies
and tenant programs at a second Local Partnership.

11

Repairs and maintenance increased approximately $259,000 for the 2003 Fiscal
Year as compared to the 2002 Fiscal Year primarily due to increased repairs and
maintenance payroll at one Local Partnership and upgrades in appliances,
painting and carpeting at a second Local Partnership.

Insurance increased approximately $81,000 for the 2003 Fiscal Year as compared
to the 2002 Fiscal Year primarily due to increased insurance premiums at the
Local Partnerships.

2002 vs. 2001
- -------------
The Partnership's results of operations for the 2002 and 2001 Fiscal Years
consisted primarily of the results of the Partnership's investment in fifteen
consolidated Local Partnerships. The majority of Local Partnership income
continues to be in the form of rental income with the corresponding expenses
being divided among operations, depreciation and mortgage interest.

Rental income increased approximately 4% for the 2002 Fiscal Year as compared to
the 2001 Fiscal Year primarily due to rental rate increases.

Other income decreased $196,000 for the 2002 Fiscal Year as compared to the 2001
Fiscal Year due to one Local Partnership receiving a property tax refund in the
2001 Fiscal Year and another Local Partnership receiving a HUD energy rebate in
the 2001 Fiscal Year.

Total expenses, excluding insurance, remained fairly consistent with an increase
of approximately 3% for the 2002 Fiscal Year as compared to the 2001 Fiscal
Year.

Insurance increased approximately $152,000 for the 2002 Fiscal year as compared
to the 2001 Fiscal Year primarily due to increased insurance premiums at the
Local Partnerships.

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

Clear Horizons Limited Partnership
- ----------------------------------
At December 31, 2003, Clear Horizons Limited Partnership ("Clear Horizons")
current liabilities exceeded its current assets by $195,919. Although this
condition could raise substantial doubt about Clear Horizons' ability to
continue as a going concern, such doubt is alleviated as follows:

1. Included in current liabilities at December 31, 2003, is $215,190 owed to
related parties who have advised Clear Horizons that they do not intend to
pursue collection beyond Clear Horizons' ability to pay.

2. The Local General Partner of Clear Horizons has agreed to fund operating
deficits up to $250,000.

Accordingly, management believes that Clear Horizons has the ability to continue
as a going concern for at least one year from December 31, 2003.

Other
- -----

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

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

12

The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of higher
operating and replacement costs. Furthermore, inflation generally does not
impact the fixed long-term financing under which real property investments were
purchased. Inflation also affects the Local Partnerships adversely by increasing
operating costs as, for example, for such items as fuel, utilities and labor.

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

The Partnership does not have any market risk sensitive instruments.

13

Item 8. Financial Statements and Supplementary Data.

Sequential
Page
----------
(a) 1. Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm 15

Consolidated Balance Sheets at March 31, 2004 and 2003 52

Consolidated Statements of Operations for the Years Ended
March 31, 2004, 2003 and 2002 53

Consolidated Statements of Changes in Partners' Capital
(Deficit) for the Years Ended March 31, 2004, 2003 and
2002 54

Consolidated Statements of Cash Flows for the Years Ended
March 31, 2004, 2003 and 2002 55

Notes to Consolidated Financial Statements 57

14

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

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

We have audited the consolidated balance sheets of Independence Tax Credit Plus
L.P. II and Subsidiaries (A Delaware Limited Partnership) as of March 31, 2004
and 2003, and the related consolidated statements of operations, changes in
partners' capital (deficit), and cash flows for the years ended March 31, 2004,
2003 and 2002 (the 2003, 2002 and 2001 Fiscal Years, respectively). The
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the financial statements for thirteen (Fiscal 2003)
and twelve (Fiscal 2002 and 2001) subsidiary partnerships whose losses
aggregated $3,685,633, $2,808,360 and $2,471,026 for the 2003, 2002 and 2001
Fiscal Years, respectively, and whose assets constituted 68% of the
Partnership's assets at March 31, 2004 and 2003, respectively, presented in the
accompanying consolidated financial statements. The financial statements of
these subsidiary partnerships were audited by other auditors whose reports
thereon have been furnished to us and our opinion expressed herein, insofar as
it relates to the amounts included for these subsidiary partnerships, is based
solely upon the reports of the other auditors.

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

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

Trien Rosenberg Rosenberg
Weinberg Ciullo & Fazzari LLP

New York, New York
June 17, 2004

15

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Lincoln Renaissance

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2003, dated January 30, 2004, on our
consideration of Lincoln Renaissance's internal control over financial reporting
and on our test of its compliance with certain provisions of laws, regulations,
contracts and grants. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 27
through 30 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

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

16

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Lincoln Renaissance

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2002, dated January 31, 2003, on our
consideration of Lincoln Renaissance's internal control over financial reporting
and on our test of its compliance with certain provisions of laws, regulations,
contracts and grants. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 27
through 30 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 31, 2003

17

[Letterhead of WIELAND & COMPANY, INC.]

INDEPENDENT AUDITOR'S REPORT

To the Partners
United - Germano - Millgate Limited Partnership

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

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America, and the standards applicable to financial
audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller
General of the United States, and the Illinois Housing Development Authority's
FINANCIAL REPORTING AND AUDITS GUIDELINES FOR MORTGAGORS OF MULTIFAMILY HOUSING
DEVELOPMENTS. 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 United - Germano - Millgate
Limited Partnership as of December 31, 2003 and 2002, and the results of its
operations, changes in partners' equity, and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States
of America.

In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report
dated February 9, 2004, on our consideration of the internal control of United -
Germano - Millgate Limited Partnership, and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grants. Those reports
are an integral part of an audit performed in accordance with GOVERNMENT
AUDITING STANDARDS and should be read in conjunction with this report in
considering the results of our audit.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information on pages 11 - 12 is presented for purposes of additional analysis
and is not a required part of the basic financial statements of United - Germano
- - Millgate Limited Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

/s/ Wieland & Company, Inc.
Batavia, Illinois
February 9, 2004

18

[Letterhead of WIELAND & COMPANY, INC.]

INDEPENDENT AUDITOR'S REPORT

To the Partners
United - Germano - Millgate Limited Partnership

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

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America, and the standards applicable to financial
audits contained in GOVERNMENT AUDITING STANDARDS issued by the Comptroller
General of the United States, and the Illinois Housing Development Authority's
FINANCIAL REPORTING AND AUDITS GUIDELINES FOR MORTGAGORS OF MULTIFAMILY HOUSING
DEVELOPMENTS. 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 United - Germano - Millgate
Limited Partnership as of December 31, 2002 and 2001, and the results of its
operations, changes in partners' equity, and cash flows for the years then ended
in conformity with accounting principles generally accepted in the United States
of America.

In accordance with GOVERNMENT AUDITING STANDARDS, we have also issued a report
dated January 29, 2003, on our consideration of the internal control of United -
Germano - Millgate Limited Partnership, and on our tests of its compliance with
certain provisions of laws, regulations, contracts, and grants. Those reports
are an integral part of an audit performed in accordance with GOVERNMENT
AUDITING STANDARDS and should be read in conjunction with this report in
considering the results of our audit.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying supplementary
information on pages 11 - 12 is presented for purposes of additional analysis
and is not a required part of the basic financial statements of United - Germano
- - Millgate Limited Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

/s/ Wieland & Company, Inc.
Batavia, Illinois
January 29, 2003

EIN 36-4025026
Engagement Partner: Paul H. Wieland

19

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Mansion Court Associates

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2003, dated February 6, 2004, on our
consideration of Mansion Court Associates 's internal control over financial
reporting and on our test of its compliance with certain provisions of laws,
regulations, contracts and grants. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be read in
conjunction with this report in considering the results of our audit.

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 24
through 27 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

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

20

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Mansion Court Associates

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2002, dated February 7, 2003, on our
consideration of Mansion Court Associates 's internal control over financial
reporting and on our test of its compliance with certain provisions of laws,
regulations, contracts and grants. That report is an integral part of an audit
performed in accordance with Government Auditing Standards and should be read in
conjunction with this report in considering the results of our audit.

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 24
through 27 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

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

21

[Letterhead of WALL, EINHORN & CHERNITZER, P.C.]

INDEPENDENT AUDITOR'S REPORT

To the Partners Virginia Housing Development Authority
DERBY RUN ASSOCIATES, L.P. 601 South Belvidere Street
(A Virginia Limited Partnership) Richmond, Virginia 23320
Virginia Beach, Virginia

We have audited the accompanying balance sheets of DERBY RUN ASSOCIATES, L.P. (A
Virginia Limited Partnership) as of December 31, 2003 and 2002, and the related
statements of operations, partners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the 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. 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 DERBY RUN ASSOCIATES, L.P. as
of December 31, 2003 and 2002, and the results of its operations, changes in
partners' equity and its cash flows for the years then ended in conformity and
accounting principles generally accepted in the United States and America.

The accompanying supplementary information shown on pages 14 - 20, 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.

Our audits were made for the purpose of forming an opinion on the basic
financial statements referred to above. The Partnership's management has elected
to disclose certain information relating to the low-income housing tax credits
allocated to the Partnership as described in Note 7 to the financial statements
which are not required to be disclosed in accordance with auditing standards
generally accepted in the United States of America. Such disclosures have not
been subjected to the auditing procedures applied in the audits of the financial
statements, and accordingly, we express no opinion on them.

/s/ Wall, Einhorn & Chernitzer, P.C.
Norfolk, Virginia
January 23, 2004

22

[Letterhead of WALL, EINHORN & CHERNITZER, P.C.]

INDEPENDENT AUDITOR'S REPORT

To the Partners Virginia Housing Development Authority
DERBY RUN ASSOCIATES, L.P. 601 South Belvidere Street
(A Virginia Limited Partnership) Richmond, Virginia 23320
Virginia Beach, Virginia

We have audited the accompanying balance sheets of DERBY RUN ASSOCIATES, L.P. (A
Virginia Limited Partnership) as of December 31, 2002 and 2001, and the related
statements of operations, partners' equity, and cash flows for the years then
ended. These financial statements are the responsibility of the 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. 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 DERBY RUN ASSOCIATES, L.P. as
of December 31, 2002 and 2001, and the results of its operations, changes in
partners' equity and its cash flows for the years then ended in conformity and
accounting principles generally accepted in the United States and America.

The accompanying supplementary information shown on pages 14 - 20, 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.

Our audits were made for the purpose of forming an opinion on the basic
financial statements referred to above. The Partnership's management has elected
to disclose certain information relating to the low-income housing tax credits
allocated to the Partnership as described in Note 7 to the financial statements
which are not required to be disclosed in accordance with auditing standards
generally accepted in the United States of America. Such disclosures have not
been subjected to the auditing procedures applied in the audits of the financial
statements, and accordingly, we express no opinion on them.

/s/ Wall, Einhorn & Chernitzer, P.C.
Norfolk, Virginia
January 20, 2003

23

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Renaissance Plaza 93 Associates, L.P.

We have audited the accompanying balance sheet of Renaissance Plaza 93
Associates, L.P. as of December 31, 2002, and the related statements of
operations, partners' equity (deficit) and cash flows for the year then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Renaissance Plaza 93
Associates, L.P. as of December 31, 2002, and the results of its operations, the
changes in partners' equity (deficit) and cash flows for the year then ended, in
conformity with accounting principles generally accepted in the United States of
America.

In accordance with Government Auditing Standards and the "Consolidated Audit
Guide for Audits of HUD Programs," we have also issued reports dated January 15,
2003 on our consideration of Renaissance Plaza 93 Associates, L.P.'s internal
control and on its compliance with requirements applicable to DHCD-assisted
programs and compliance over financial reporting. 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 25 through 34
is presented for purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.

/s/ Reznick Fedder & Silverman
Lead Auditor: James P. Martinko
Bethesda, Maryland
Federal Employer Identification Number: 52-1088612

January 15, 2003

24

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Renaissance Plaza 93 Associates, L.P.

We have audited the accompanying balance sheet of Renaissance Plaza 93
Associates, L.P. as of December 31, 2001, and the related statements of
operations, partners' equity (deficit) and cash flows for the year then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted
in the United States of America and 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 Renaissance Plaza 93
Associates, L.P. as of December 31, 2001, 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.

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 25 through 34
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 and the "Consolidated Audit
Guide for Audits of HUD Programs," we have also issued reports dated January 31,
2002 on our consideration of Renaissance Plaza 93 Associates, L.P.'s internal
control and on its compliance with requirements applicable to DHCD-assisted
programs, and laws and regulations applicable to the financial statements.

/s/ Reznick Fedder & Silverman
Audit Principal: Robert J. Denmark
Bethesda, Maryland
Federal Employer Identification Number: 52-1088612
January 31, 2002

25

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Tasker Village Associates

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2003, dated January 16, 2004, on our
consideration of Tasker Village's internal control over financial reporting and
on our test of its compliance with certain provisions of laws, regulations,
contracts and grants. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

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 25
through 29 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

/s/ Reznick Fedder & Silverman
Baltimore, Maryland
January 16, 2004

26

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Tasker Village Associates

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

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

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

In accordance with Government Auditing Standards, we have also issued our report
for the year ended December 31, 2002, dated January 17, 2003, on our
consideration of Tasker Village's internal control over financial reporting and
on our test of its compliance with certain provisions of laws, regulations,
contracts and grants. That report is an integral part of an audit performed in
accordance with Government Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

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 25
through 280 is presented for purposes of additional analysis and is not a
required part of the basis financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basis financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

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

27

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Martha Bryant Manor, L.P.
Los Angeles, California

I have audited the balance sheet of Martha Bryant Manor, L.P. at December 31,
2003 and the related statements of loss, changes in partners' capital, and cash
flow for the year then ended. These financial statements are the responsibility
of Martha Bryant Manor, L.P.'s management. My responsibility is to express an
opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Martha Bryant Manor, L.P. at
December 31, 2003 and the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles used
in the United States of America.

/s/ Clifford R. Benn
February 11, 2004
Carson, California

28

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Martha Bryant Manor, L.P.
Los Angeles, California

I have audited the balance sheet of Martha Bryant Manor, L.P. at December 31,
2002 and the related statements of loss, changes in partners' capital, and cash
flow for the year then ended. These financial statements are the responsibility
of Martha Bryant Manor, L.P.'s management. My responsibility is to express an
opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Martha Bryant Manor, L.P. at
December 31, 2002 and the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles used
in the United States of America.

/s/ Clifford R. Benn
February 21, 2003
Carson, California

29

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Martha Bryant Manor, L.P.
Los Angeles, California

I have audited the balance sheet of Martha Bryant Manor, L.P. at December 31,
2001 and the related statements of loss, changes in partners' capital, and cash
flow for the year then ended. These financial statements are the responsibility
of Martha Bryant Manor, L.P.'s management. My responsibility is to express an
opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Marth Bryant Manor, L.P. at
December 31, 2001 and the results of its operations and its cash flow for the
year then ended in conformity with generally accepted accounting principles.

/s/ Clifford R. Benn
February 26, 2002
Carson, California

30

[Letterhead of MARVIN D. MASON]

To the Partners of
Colden Oaks, A California Limited Partnership
Los Angeles, California

I have audited the accompanying balance sheets of Colden Oaks, a California
Limited Partnership, as of December 31, 2003 and 2002, 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 general partners. My responsibility is to express an opinion on
these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in the
material respects, the financial position of Colden Oaks, a California Limited
Partnership, at December 31, 2003 and 2002, and the results of its operations,
changes in partners' equity and its cash flows for the year then ended in
conformity with general accepted accounting principles.

/s/ Marvin Mason
Certified Public Accountant
Tarzana, California
February 28, 2004

31

[Letterhead of MARVIN D. MASON]

To the Partners of
Colden Oaks, A California Limited Partnership
Los Angeles, California

I have audited the accompanying balance sheets of Colden Oaks, a California
Limited Partnership, as of December 31, 2002 and 2001, 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 general partners. My responsibility is to express an opinion on
these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in the
material respects, the financial position of Colden Oaks, a California Limited
Partnership, at December 31, 2002 and 2001, and the results of its operations,
changes in partners' equity and its cash flows for the year then ended in
conformity with general accepted accounting principles.

/s/ Marvin Mason
Certified Public Accountant
Tarzana, California
February 28, 2003

32

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Brynview Terrace, L.P.
Los Angeles, California

I have audited the balance sheet of Brynview Terrace, L.P. at December 31, 2003
and the related statements of loss, changes in partners' capital, and cash flow
for the year then ended. These financial statements are the responsibility of
Brynview Terrace, L.P.'s management. My responsibility is to express an opinion
on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Brynview Terrace, L.P. at December
31, 2003 and the results of its operations and its cash flow for the year then
ended in conformity with generally accepted accounting principles used in the
United States of America.

/s/ Clifford R. Benn
February 20, 2004
Carson, California

33

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Brynview Terrace, L.P.
Los Angeles, California

I have audited the balance sheet of Brynview Terrace, L.P. at December 31, 2002
and the related statements of income, changes in partners' capital, and cash
flow for the year then ended. These financial statements are the responsibility
of Brynview Terrace, L.P.'s management. My responsibility is to express an
opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Brynview Terrace, L.P. at December
31, 2002 and the results of its operations and its cash flow for the year then
ended in conformity with generally accepted accounting principles used in the
United States of America.

/s/ Clifford R. Benn
February 21, 2003
Carson, California

34

[Letterhead of CLIFFORD R. BENN]

INDEPENDENT AUDITOR'S REPORT

General Partner
Brynview Terrace, L.P.
Los Angeles, California

I have audited the balance sheet of Brynview Terrace, L.P. at December 31, 2001
and the related statements of income, changes in partners' capital, and cash
flow for the year then ended. These financial statements are the responsibility
of Brynview Terrace, L.P.'s management. My responsibility is to express an
opinion on these financial statements based on my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Brynview Terrace, L.P. at December
31, 2001 and the results of its operations and its cash flow for the year then
ended in conformity with generally accepted accounting principles.

/s/ Clifford R. Benn
February 22, 2002
Carson, California

35

[Letterhead of ROBERT J. PACHECO, CPA]

Independent Auditor's Report

To the Partners of NLEDC, L.P., A California Limited Partnership:

We have audited the accompanying balance sheet of NLEDC, L.P., a California
Limited Partnership, as of December 31, 2003, and the related statements of
income, changes in partners' capital, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the 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 NLEDC, L.P., a California
Limited Partnership, at December 31, 2003, and the results of its operations,
changes in partners' capital and cash flows for the year then ended in
conformity with generally accepted accounting principles.

In accordance with GOVERNMENT AUDITING STANDARDS AND THE CONSOLIDATED AUDIT
GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U. S. Department of Housing and
Urban Development, we have also issued reports dated February 7, 2004, on our
consideration of the Partnership's internal control, on its compliance with
specific requirements applicable to nonmajor HUD programs and specific
requirements applicable to Fair Housing and Non-Discrimination.

/s/ Robert J. Pacheco, CPA
Pasadena, California
February 7, 2004

36

[Letterhead of ROBERT J. PACHECO, CPA]

Independent Auditor's Report

To the Partners of NLEDC, L.P., A California Limited Partnership:

We have audited the accompanying balance sheet of NLEDC, L.P., a California
Limited Partnership, as of December 31, 2002, and the related statements of
income, changes in partners' capital, and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards
and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the 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 NLEDC, L.P., a California
Limited Partnership, at December 31, 2002, and the results of its operations,
changes in partners' capital and cash flows for the year then ended in
conformity with generally accepted accounting principles.

In accordance with GOVERNMENT AUDITING STANDARDS AND THE CONSOLIDATED AUDIT
GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U. S. Department of Housing and
Urban Development, we have also issued reports dated February 20, 2003, on our
consideration of the Partnership's internal control, on its compliance with
specific requirements applicable to nonmajor HUD programs and specific
requirements applicable to Fair Housing and Non-Discrimination.

/s/ Robert J. Pacheco, CPA
Pasadena, California
February 20, 2003

37

[Letterhead of ROBERT J. PACHECO, CPA]

Independent Auditor's Report

To the Partners of NLEDC, L.P., A California Limited Partnership:

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

We conducted our audit in accordance with generally accepted auditing standards
and GOVERNMENT AUDITING STANDARDS issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the 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 NLEDC, L.P., a California
Limited Partnership, at December 31, 2000, and the results of its operations,
changes in partners' capital and cash flows for the year then ended in
conformity with generally accepted accounting principles.

In accordance with GOVERNMENT AUDITING STANDARDS AND THE CONSOLIDATED AUDIT
GUIDE FOR AUDITS OF HUD PROGRAMS issued by the U. S. Department of Housing and
Urban Development, we have also issued reports dated March 11, 2002, on our
consideration of the Partnership's internal control, on its compliance with
specific requirements applicable to nonmajor HUD programs and specific
requirements applicable to Fair Housing and Non-Discrimination.

/s/ Robert J. Pacheco, CPA
Pasadena, California
March 11, 2002

38

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Creative Choice Homes VI, Ltd.

We have audited the accompanying balance sheet of Creative Choice Homes VI, Ltd.
as of December 31, 2003, and the related statements of operations, partners'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Creative Choice Homes VI, Ltd.
as of December 31, 2003, and the results of its operations, the 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/ Reznick Fedder & Silverman
Bethesda, Maryland
May 18, 2004

39

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Creative Choice Homes VI, Ltd.

We have audited the accompanying balance sheet of Creative Choice Homes VI, Ltd.
as of December 31, 2002, and the related statements of operations, partners'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Creative Choice Homes VI, Ltd.
as of December 31, 2002, and the results of its operations, the 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/ Reznick Fedder & Silverman
Bethesda, Maryland
February 4, 2003

40

[Letterhead of REZNICK FEDDER & SILVERMAN]

INDEPENDENT AUDITORS' REPORT

To the Partners
Creative Choice Homes VI, Ltd.

We have audited the accompanying balance sheet of Creative Choice Homes VI, Ltd.
as of December 31, 2001, and the related statements of operations, partners'
equity and cash flows for the year then ended. These financial statements are
the responsibility of the partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Creative Choice Homes VI, Ltd.
as of December 31, 2001, and the results of its operations, the 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/ Reznick Fedder & Silverman
Bethesda, Maryland
February 4, 2002

41

[Letterhead of BERT D. SAMUELS CPA]

Independent Auditor's Report

To the Partners
P & P Home for the Elderly, L.P.
Los Angeles, California

I have audited the accompanying balance sheet of P & P Home for the Elderly,
L.P. as of December 31, 2003, and the related statements of income, changes in
partners' equity and cash flows for the year then ended. The 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 generally accepted in
the United States of America. Those standards require that I plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. I believe that my audit provides a reasonable basis for
my opinion.

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

/s/ Bert D. Samuels CPA
Encino, California
February 28, 2004

42

[Letterhead of SHENOUDA & ASSOCIATES, LLP]

Independent Auditor's Report

To the Partners
P & P Home for the Elderly, L.P.
Los Angeles, California

We have audited the accompanying balance sheet of P & P Home for the Elderly,
L.P. (A Limited Partnership) as of December 31, 2002, 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 P & P Home for
the Elderly, L.P. management. Our responsibility is to express an opinion on
these financial statements based on our audit.

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

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

/s/ Shenouda & Associates, LLP
Huntington Beach, California
February 18, 2003

43

[Letterhead of CHARLES P. BENEDICT, CPA]

Independent Auditor's Report

To the Partners
P & P Home for the Elderly, L.P.
Los Angeles, California

I have audited the accompanying balance sheet of P & P Home for the Elderly,
L.P. as of December 31, 2001, and the related statements of income, changes in
partners' capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. My
responsibility is to express an opinion on these financial statements based on
my audit.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of P & P Home for the Elderly, L.P. at
December 31, 2001, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.

/s/ Charles P. Benedict, CPA
Monrovia, California
February 28, 2002

44

[Letterhead of COLE, EVANS & PETERSON]

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

Clear Horizons Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of Clear Horizons Limited
Partnership, at December 31, 2003, and the related statements of income, capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to in the first paragraph
above present fairly, in all material respects, the financial position of Clear
Horizons Limited Partnership, at December 31, 2003 and the results of its
operations, changes in capital, and cash flows for the year then ended in
conformity with U.S. generally accepted accounting principles.

Our audit was made primarily for the purpose of forming an opinion on the basic
financial statements for the year ended December 31, 2003 taken as a whole. The
supplementary Schedules 1 through 6 are presented for purposes of additional
analysis and are not a required part of the basic financial statements. Such
information has been subjected to the audit procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material respects in relation to the basic financial statements taken as a
whole.

In accordance with Government Auditing Standards, we have also issued a report
dated February 9, 2004 on our consideration of Clear Horizons Limited
Partnership's internal control and on our tests of its compliance with certain
provisions of laws, regulations, contracts, and grants. Those reports are an
integral part of an audit performed in accordance with Government Auditing
Standards and should be read in conjunction with this report in considering the
results of our audit.

/s/ Cole, Evans & Peterson
Shreveport, Louisiana
Federal ID No. 72-0506596
Lead Auditor: Steven W. Hedgepeth
February 9, 2004

45

[Letterhead of COLE, EVANS & PETERSON]

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

Clear Horizons Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of Clear Horizons Limited
Partnership, at December 31, 2002, and the related statements of income, capital
and cash flows for the year then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financi