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, 1998

OR

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

Commission File Number 33-37724

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|

DOCUMENTS INCORPORATED BY REFERENCE

None

Index to exhibits may be found on page 83

Page 1 of 95

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.

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"). As of March 31, 1998 the Partnership has received
$58,928,000 of Gross Proceeds of the Offering from 3,473 investors ("BACs
holders"). The Offering was terminated on April 7, 1994.

The Partnership's business is primarily to invest 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, 1998 the Partnership acquired interests in
fifteen Local Partnerships and does not anticipate making any additional
investments. As of March 31, 1998, 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 $1,916,000 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 low income 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 Housing 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.

-2-

One of the Partnership's objectives is to entitle qualified BACs holders to
Housing 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 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.

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 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").

Item 2. Properties.

The Partnership holds a 98.99% limited partnership interest in fifteen Local
Partnerships as of March 31, 1998. 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 14. Schedule III.

Local Partnership Schedule

% of Units Occupied at May 1,
Name and Location ----------------------------------------
(Number of Units) Date Acquired 1998 1997 1996 1995 1994
- - ----------------- ------------- ---- ---- ---- ---- ----

Lincoln Renaissance
Reading, PA (52) April 1993 98% 100% 98% 100% 0%*(1)

United Germano-Millgate
Limited Partnership
Chicago, IL (350) October 1993 98% 98% 98% 98% 64%*(1)

-3-

Local Partnership Schedule
(continued)

% of Units Occupied at May 1
Name and Location ----------------------------------------
(Number of Units) Date Acquired 1998 1997 1996 1995 1994
- - ----------------- ------------- ---- ---- ---- ---- ----

Mansion Court Associates
Philadelphia, PA (30) November 1993 100% 93% 100% 100% 47%(1)

Derby Run Associates, L.P.
Hampton, VA (160) February 1994 71% 94% 95% 96% 0%*

Renaissance Plaza '93 Associates , L.P.
Baltimore, MD (95) February 1994 99% 99% 98% 83%(1) 0%*

Tasker Village Associates
Philadelphia, PA (28) May 1994 96% 93% 100% 0%(1) 0%*

Martha Bryant Manor, L.P.
Los Angeles, CA (77) September 1994 95% 92% 0%* 0%*

Colden Oaks
Limited Partnership
Los Angeles, CA (38) September 1994 92% 95% 97% 100%

Brynview Terrace, L.P.
Los Angeles, CA (8) September 1994 100% 100% 0%* 0%*

NLEDC, L.P.
Los Angeles, CA (43) September 1994 95% 93% 93% 0%*

Creative Choice
Homes VI, Ltd.
Miami, FL (102) September 1994 98% 98% 98% 0%*

P&P Homes for the Elderly, L.P.
Los Angeles, CA (107) September 1994 95% 68%(1) 0%* 0%*

Clear Horizons
Limited Partnership
Shreveport, LA (84) December 1994 90% 93% 95% 100%

Neptune Venture, L.P.
Neptune Township, NJ (99) April 1995 98% 100% 35%(1)

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

*Properties still in construction phase

(1) Properties are in rent-up phase.

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

-4-

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 budgets
improvements when required which are generally funded from cash flow from
operations or release of replacement reserve escrows. No improvements are
expected to require additional financing.

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.

In connection with investments in development-stage Apartment Complexes, the
General Partner generally required that the general partners of the Local
Partnerships ("Local General Partners") provide completion guarantees and/or
undertake to repurchase the Partnership's interest in the Local Partnership if
construction or rehabilitation is not completed substantially on time or on
budget ("Development Deficit Guarantees"). The Development Deficit Guarantees
generally also required the Local General Partner to provide any funds necessary
to cover net operating deficits of the Local Partnership until such time as the
Apartment Complex had achieved break-even operations. The General Partner
generally required that the Local General Partners undertake an obligation to
fund operating deficits of the Local Partnership (up to a stated maximum amount)
during a limited period of time (typically three to five years) following the
achievement of break-even operations ("Operating Deficit Guarantees"). Under the
terms of the Development and Operating Deficit Guarantees, amounts funded have
been treated as Operating Loans which will not bear interest and which will be
repaid only out of 50% of available cash flow or out of available net sale or
refinancing proceeds. In some instances, the Local General Partners are required
to undertake an obligation to comply with a Rent-Up Guaranty Agreement, whereby
the Local General Partner agrees to pay liquidating damages if predetermined
occupancy rates are not achieved. These payments are made without right of
repayment. In cases where the General Partner deems it appropriate, the
obligations of a Local General Partner under the Development Deficit (all of
which have expired as of March 31, 1998), Operating Deficit (all current
operating deficits expire within the next three years) and/or Rent-Up Guarantees
(all rent-up deficit guarantees expire within the next two years) are secured by
letters of credit and/or cash escrow deposits.

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.

-5-

Item 3. Legal Proceedings.

This information is incorporated by reference to the discussion of Clear
Horizons in the Results of Operations of Certain Local Partnerships contained in
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.

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

None.

PART II

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

As of March 31, 1998, 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 plans to impose 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 such procedures will remain in effect until such time, if ever, as
further revision of the Revenue Act of 1987 may permit the Partnership to lessen
the scope of the restrictions.

As of March 31, 1998 the Partnership has approximately 3,473 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.

The Partnership has made no distributions to the BACs holders as of March 31,
1998. The Partnership does not anticipate providing cash distributions to its
BACs holders other than from net refinancing or sales proceeds.

There has recently been an increasing number of requests for the list of BACs
holders of limited partnerships such as the Partnership. Often these requests
are made by a person who,

-6-

only a short time before making the request, acquired merely a small number of
BACs in the partnership and seeks the list for an improper purpose, a purpose
that is not in the best interest of the partnership or is harmful to the
partnership. In order to best serve and protect the interests of the Partnership
and all of its investors, the General Partner of the Partnership has adopted a
policy with respect to requests for the Partnership's list of BACs holders. This
policy is intended to protect investors from unsolicited and coercive offers to
acquire BACs holders' interests and does not limit any other rights the General
Partner may have under the Partnership Agreement or applicable law.

-7-

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 1998 1997 1996 1995 1994
- - ---------- ------------- ------------- ------------- ------------- -------------

Revenues $ 7,905,546 $ 6,663,351 $ 5,325,045 $ 2,433,861 $ 643,475

Operating expenses 13,202,649 10,687,879 8,277,953 3,634,184 911,326

Loss on impairment of assets 3,925,514 0 0 0 0
------------- ------------- ------------- ------------- ------------

Loss before minority interest (9,222,617) (4,024,528) (2,952,908) (1,200,323) (267,851)

Minority interest in loss of
subsidiaries 10,710 8,916 8,519 7,160 1,404
------------- ------------- ------------- ------------- ------------

Net loss $ (9,211,907) $ (4,015,612) $ (2,944,389) $ (1,193,217) $ (266,447)
============= ============= ============= ============= ============
Net loss per weighted average
BAC $ (154.76) $ (67.46) $ (49.47) $ (20.06) $ (7.69)
============= ============= ============= ============= ============

March 31,
-----------------------------------------------------------------------------------------
FINANCIAL POSITION 1998 1997 1996 1995 1994
- - ------------------ ------------- ------------- ------------- ------------- -------------

Total assets $ 103,971,047 $ 112,831,500 $ 116,928,522 $ 104,107,965 $ 69,285,916
============= ============= ============= ============= ============

Total liabilities $ 68,811,891 $ 68,438,976 $ 68,086,980 $ 52,049,809 $ 17,077,396
============= ============= ============= ============= ============

Minority interest $ 295,728 $ 317,189 $ 750,595 $ 1,022,820 $ 859,064
============= ============= ============= ============= ============

Total partners' capital $ 34,863,428 $ 44,075,335 $ 48,090,947 $ 51,035,336 $ 51,349,456
============= ============= ============= ============= ============

During the year ended March 31, 1998, total assets decreased primarily due to
depreciation, loss on impairment of assets and the repayments of amounts due to
local general partners and affiliates, partially offset by improvements to
property and equipment. During the year ended March 31, 1997, total assets
decreased primarily due to a decrease in cash and cash equivalents resulting
from construction in progress and acquisitions of property and equipment in
excess of net proceeds from mortgage and construction loans and also the
repayments of amounts due to local general partners and affiliates. This
decrease in cash and cash equivalents was partially offset by the increase in
construction in progress and acquisitions of property and equipment net of
depreciation. During the years ended March 31, 1996, 1995 and 1994, total assets
and liabilities increased primarily due to the continued acquisition of Local
Partnerships. Property and equipment increased approximately $37,000,000,
$22,000,000 and $22,000,000 for the years ended March 31, 1996, 1995 and 1994,
respectively. Construction in progress decreased approximately $19,000,000 and
$4,000,000 for the years ended March 31, 1997 and 1996, respectively, and
increased approximately $19,000,000 and $5,000,000 for the years ended March 31,
1995 and 1994, respectively. Construction notes increased approximately
$18,000,000 and $1,000,000 for the years ended March 31, 1995 and 1994,
respectively. Due to local general partner and affiliates increased
approximately $6,000,000 and $1,000,000 for the years ended March 31, 1995 and
1994, respectively (Note 8). For the year ended March 31, 1996, the increase in
property and equipment and construction in progress was partially funded by
capital contributions made to the Local Partnerships resulting in a decrease in
cash

-8-

and cash equivalents. For the years ended March 31, 1997 and 1996 minority
interest decreased due to distributions received by the local general partners.
Minority interest increased due to capital contributions from local general
partners for the years ended March 13, 1995 and 1994.

Cash Distributions

The Partnership has made no distributions to the BACs holders as of March 31,
1998.

-9-

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 include interest earned on proceeds
from the offering which were invested in tax-exempt money market instruments
pending final payments to Local Partnerships and a working capital reserve and
interest thereon. All these sources of funds are available to meet obligations
of the Partnership.

As of March 31, 1998, the Partnership has invested approximately $47,000,000
(not including acquisition fees of approximately $3,502,000) of net proceeds in
fifteen Local Partnerships of which approximately $1,916,000 remains to be paid
(including approximately $758,000 being held in escrow) as certain benchmarks,
such as occupancy level, must be attained prior to the release of the funds. The
Partnership does not intend to acquire additional properties. During the year
ended March 31, 1998, approximately $2,355,000 was paid (of which approximately
$520,000 was released from escrow). An additional $46,000 was placed into escrow
for purchase price payments during the year ended March 31, 1998. Although the
Partnership will not be acquiring additional properties, the Partnership may be
required to fund potential purchase price adjustments based on tax credit
adjustor clauses. Such adjustments resulted in a net increase in purchase price
of approximately $15,000 during the year ended March 31, 1998.

For the Fiscal Year ended March 31, 1998, cash and cash equivalents for the
Partnerships and its fifteen consolidated Local Partnerships decreased
approximately $1,971,000. This decrease is primarily due to cash used in
operating activities ($167,000), a net decrease in due to local general partners
and affiliates relating to investing and financing activities ($710,000),
improvements to property and equipment ($694,000), net principal payments from
mortgage notes and construction loans ($582,000), a decrease in capitalization
of consolidated subsidiaries attributable to minority interest ($11,000) and an
increase in deferred costs ($35,000) which exceeded an increase in cash held in
escrow from investing activities ($227,000). Included in the adjustments to
reconcile the net loss to cash used in operating activities is depreciation and
amortization ($3,519,000) and a loss on impairment of assets of approximately
$3,926,000.

At March 31, 1998, there is a balance of approximately $337,000 in the working
capital reserve. The General Partner believes that these reserves, plus cash
distributions received from the operations of the Local Partnerships, will be
sufficient to fund the Partnership's ongoing operations for the foreseeable
future. During the years ended March 31, 1998, 1997 and 1996, respectively,
amounts received from operations of the Local Partnerships were approximately
$52,000, $0 and $16,000. 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 $163,000 and $113,000 were accrued and unpaid as of March 31, 1998
and 1997, respectively (see Note 8). Unpaid partnership management fees for any
year will be accrued without interest and will be payable from working capital
reserves or to the extent of available funds after the Partnership has made
distributions to the limited partners of sale or refinancing proceeds equal to
their original capital contributions plus a 10% priority return thereon (to the
extent not theretofore paid out of cash flow).

-10-

The Partnership had negotiated development deficit guarantees with the Local
Partnerships in which it has invested. The Local General Partners had agreed to
fund development deficits through the breakeven dates of each of the Local
Partnerships, most of which were unlimited or in an unspecified amount. As of
March 31, 1998 and 1997, $0 and $59,035 had been funded under the Development
Deficit Guaranty Agreements. Although all development deficit guarantees have
expired as of March 31, 1998, management does not expect a material impact on
liquidity, based on prior years' fundings.

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
Local Partnerships by which the general partners of the Local Partnerships have
agreed to fund operating deficits for a specified period of time. The terms of
the Operating Deficit Guaranty Agreements vary for each Local Partnership, with
maximum dollar amounts to be funded for a specified period of time, generally
three years, commencing on the break-even date. The gross amount of the
Operating Deficit Guarantees aggregates approximately $5,670,000, none of which
have expired as of March 31, 1998. As of March 31, 1998 and 1997, 278,908 and
$193,032 has been funded under the Operating Deficit Guaranty agreements. All
current operating deficit guarantees expire within the next three years.
Management does not expect their expiration to have a material impact on
liquidity, based on prior years' fundings.

In addition, several Local Partnerships have Rent-Up Guaranty Agreements, in
which the Local General Partner agrees to pay liquidating damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements vary for each Local Partnership, with maximum dollar amounts
to be funded for a specified period of time. The gross amount of unexpired
Rent-Up Guarantees for the Local Partnerships is approximately $177,000 as of
March 31, 1998. All rent-up deficit guarantees expire within the next two years.
Management does not expect their expiration to have a material impact on
liquidity, based on prior years' fundings.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements, and
Development Deficit Guaranty Agreements are negotiated to protect the
Partnership's interest in the Local Partnerships and to provide incentive to the
Local General Partners to generate positive cash flow.

For 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 for 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 project 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

-11-

tax credits would transfer to the new owner; thereby adding significant value to
the property on the market, which are not included in the financial statement
carrying amount.

Results of Operations

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred in acquiring the properties. The cost of property
and equipment is depreciated over their estimated useful lives using accelerated
and straight-line methods. Expenditures for repairs and maintenance are charged
to expense as incurred; major renewals and betterments are capitalized. At the
time property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the assets and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
earnings. A loss on impairment of assets is recorded when management estimates
amounts recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time property investments
themselves are reduced to estimated fair value (generally using discounted cash
flows).

Through March 31, 1998, the Partnership has recorded approximately $3,926,000 as
a loss on impairment of assets.

The following is a summary of the results of operations of the Partnership for
the years ended March 31, 1998, 1997 and 1996 (the 1997, 1996 and 1995 Fiscal
Years, respectively). The net loss for the 1997 Fiscal Year includes a loss on
impairment of assets of approximately $3,926,000 (see Note 4 in Item 8.
Financial Statements and Supplementary Data).

The net loss for the 1997, 1996 and 1995 Fiscal Years totaled $9,211,907,
$4,015,612 and $2,944,389, respectively.

The Partnership and BACs holders began to recognize Housing 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 $8,454,368, $6,399,740 and $3,997,227 Housing Tax Credits and $0,
$37,112 and $619,383 Historic Tax Credits during the 1997, 1996 and 1995 tax
years, respectively.

1997 vs. 1996

The Partnership's results of operations for the 1997 and 1996 Fiscal Years
consisted primarily of (1) approximately $75,000 and $198,000 respectively of
tax-exempt interest income earned on funds not invested in Local Partnerships
and (2) the results of the Partnership's investment in fifteen consolidated
Local Partnerships.

For the year ended March 31, 1998 as compared to 1997, rental income and all
categories of expenses increased and the results of operations are not
comparable due to the rent-up of properties. In addition, interest income will
continue to decrease in future periods as proceeds are released to the Local
Partnerships. Other income decreased approximately $105,000 as compared to 1997
primarily due to a decrease in interest income as a result of the release of
proceeds to the Local Partnerships. For the years ended March 31, 1998 and 1997,
zero and five of the Partnership's fifteen consolidated properties,
respectively, completed construction and were in various stages of rent up. In
addition for the years ended March 31, 1998 and 1997, thirteen and ten of the
properties had completed construction and were rented up in a previous fiscal
year. As of March 31, 1998 and 1997, none of the Partnership's fifteen
consoli-

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ated properties were still under construction and zero and four of the
properties, respectively, had construction loans with commitments for permanent
financing.

1996 vs. 1995

The Partnership's results of operations for the 1996 and 1995 Fiscal Years
consisted primarily of (1) approximately $198,000 and $440,000, respectively, of
tax-exempt interest income earned on funds not invested in Local Partnerships
and (2) the results of the Partnership's investment in fifteen consolidated
Local Partnerships.

For the year ended March 31, 1997 as compared to 1996, rental income and all
categories of expenses except general and administrative-related parties
increased and the results of operations are not comparable due to the
construction and rent up of properties. In addition, interest income will
continue to decrease in future periods as proceeds are released to the Local
Partnerships. Other income decreased approximately $292,000 for the year ended
March 31, 1997 as compared to 1996, primarily due to a decrease in interest
income as a result of the release of proceeds to the Local Partnerships. General
and administrative-related parties decreased approximately $251,000 for the year
ended March 31, 1997 as compared to 1996, primarily due to a decrease in
partnership management fees payable to the General Partner. For the years ended
March 31, 1997 and 1996, five and seven of the Partnership's fifteen
consolidated properties, respectively, completed construction and were in
various stages of rent up. In addition, zero and two of the properties,
respectively, had completed construction in a previous fiscal year, but were in
various stages of rent up for the years ended March 31, 1997 and 1996. Also for
the years ended March 31, 1997 and 1996, ten and one of the properties had
completed construction and were rented up in a previous fiscal year. As of the
end of the years ended March 31, 1997 and 1996, zero and five of the
Partnership's fifteen consolidated properties, respectively, were still under
construction and four and five of the properties, respectively, had construction
loans with commitments for permanent financing.

Results of Operations of Certain Local Partnerships

Clear Horizons Limited Partnership

At December 31, 1997, Clear Horizons Limited Partnership ("Clear Horizons")
current liabilities exceed its current assets by over $90,000. 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, 1997 is $108,619 owed to
related parties who do not intend to pursue collection beyond Clear Horizon's
ability to pay.

2. The 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, 1997.

Clear Horizons is also named as a defendant in a lawsuit involving the wrongful
death of a person on the premises of the apartment project. Clear Horizons'
defense is being handled by its liability insurer. Legal counsel believes that
any settlement will be within insurance policy limits, $3,000,000, and there
will be no loss to Clear Horizons. The maximum loss which the Partnership would
be liable for is its net investment in Clear Horizons. The Partnership's
investment in Clear Horizons at March 31, 1998 and 1997 was approximately
$921,000 and $963,000, respectively, and the minority interest balance was $0.
Clear Horizons net loss after minority interest amounted to approximately
$52,000, $63,000 and $27,000 for the 1997, 1996 and 1995 Fiscal Years,
respectively.

-13-

Year 2000 Compliance

As the year 2000 approaches, an issue has emerged regarding how existing
application software programs and operating systems can accommodate this date
value. Failure to adequately address this issue could have potentially serious
repercussions. The General Partner is in the process of working with the
Partnership's service providers to prepare for the year 2000. Based on
information currently available, the Partnership does not expect that it will
incur significant operating expenses or be required to incur material costs to
be year 2000 compliant.

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.

The Local Partnerships are impacted by inflation in several ways. Inflation
allows for increases in rental rates generally to reflect the impact of higher
operating and replacement costs. Inflation also affects the Local Partnerships
adversely by increasing operating costs as, for example, for such items as fuel,
utilities and labor.

There has recently been an increasing number of requests for the list of BACs
holders of limited partnerships such as the Partnership. Often these requests
are made by a person who, only a short time before making the request, acquired
merely a small number of BACs in the partnership and seeks the list for an
improper purpose, a purpose that is not in the best interest of the partnership
or is harmful to the partnership. In order to best serve and protect the
interests of the Partnership and all of its investors, the General Partner of
the Partnership has adopted a policy with respect to requests for the
Partnership's list of BACs holders. This policy is intended to protect investors
from unsolicited and coercive offers to acquire BACs holders' interests and does
not limit any other rights the General Partner may have under the Partnership
Agreement or applicable law.

-14-

Item 8. Financial Statements and Supplementary Data.

Sequential
Page
----------

(a) 1. Consolidated Financial Statements

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31, 1998 and 1997 63

Consolidated Statements of Operations for the Years Ended March 31,
1998, 1997 and 1996 64

Consolidated Statements of Changes in Partners' Capital (Deficit)
for the Years Ended March 31, 1998, 1997 and 1996 65

Consolidated Statements of Cash Flows for the Years Ended March 31,
1998, 1997 and 1996 66

Notes to Consolidated Financial Statements 68

-15-

INDEPENDENT AUDITORS' REPORT

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, 1997
and 1996, the related consolidated statements of operations and changes in
partners' capital and cash flows for the years ended March 31, 1998, 1997 and
1996 (the 1997, 1996 and 1995 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 fifteen (Fiscal 1997,
1996 and 1995) subsidiary partnerships whose losses aggregated $8,886,716,
$3,792,023 and $2,533,349 for the 1997, 1996 and 1995 Fiscal Years,
respectively, and whose assets constituted 95% and 94% of the Partnership's
assets at March 31, 1998 and 1997, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based upon our audits and the reports of 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, 1998 and 1997, and the results of their
operations and their cash flows for the years ended March 31, 1998, 1997 and
1996 in conformity with generally accepted accounting principles.

/s/ Trien Rosenberg Rosenberg
Weinberg Ciullo & Fazzari L.L.P.

Trien Rosenberg Rosenberg
Weinberg Ciullo & Fazzari L.L.P.

New York, New York
June 22, 1998

-16-

[Letterhead of Ziner & Company, P.C.]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Lincoln Renaissance

We have audited the accompanying balance sheet of Lincoln Renaissance (a
Pennsylvania Limited Partnership) as of December 31, 1997, and the related
statements of operations, changes in partners' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's general partners and contracted management agent. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Lincoln Renaissance as of December 31,
1996 were audited by other auditors whose report, dated February 16, 1997,
expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with generally accepted auditing
standards. 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 the
Partnership's general partners and contracted management agent, 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 Lincoln Renaissance
at December 31, 1997, and the results of its operations, changes in partners'
equity and its cash flows for the year then ended in conformity with generally
accepted accounting principles.

/s/ Ziner & Company, P.C.

January 17, 1998
Boston, Massachusetts

[J.H. WlLLlAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners
of Lincoln Renaissance (a Limited Partnership)
Reading, Pennsylvania

We have audited the accompanying balance sheets of Lincoln Renaissance (a
Limited Partnership) as of December 31, 1996 and 1995 and the related statements
of (loss), changes in partners' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's general
partners and contracted management agent. Our responsibility is to express an
opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Lincoln Renaissance (a Limited
Partnership) at December 31, 1996 and 1995, and the results of its operations,
changes in partners' equity and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

/s/ J. H. Williams & Co., LLP
- - -----------------------------

Kingston, Pennsylvania
February 16, 1997

[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 (an Illinois limited partnership) as of December 31, 1997
and 1996, and the related statements of operations, partners' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards, 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, 1997 and 1996, and the results of its
operations, changes in partners' equity, and cash flows for the years then ended
in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, the Illinois Housing
Development Authority's Financial Reporting and Audit Guidelines for Mortgagors
of Multifamily Housing Developments, and the Consolidated Audit Guide for Audits
of HUD Programs issued by the U.S. Department of Housing and Urban Development,
we have also issued a report dated January 21, 1998, on our consideration of the
internal control of United - Germano - Millgate Limited Partnership, and reports
dated January 21, 1998 on its compliance with specific requirements applicable
to major HUD and IHDA-assisted programs and specific requirements applicable to
Fair Housing and Non-Discrimination.

/s/ Wieland & Company, Inc.

Batavia, Illinois
January 21, 1998

Engagement Partner: Paul H. Wieland
1157 South Raddant Road
Batavia, Illinois 60510
(630) 761-8199

[WIELAND & COMPANY, INC. LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
United - Germano - Millgate Limited Partnership

We have audited the accompanying balance sheet of United - Germano - Millgate
Limited Partnership (an Illinois limited partnership) as of December 31, 1995,
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 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 above present fairly, in
all material respects, the financial position of United - Germano - Millgate
Limited Partnership as of December 31, 1995, and the results of its operations,
changes in partners' equity, 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 a report dated March 15, 1996, on our
consideration of the internal control structure of United - Germano - Millgate
Limited Partnership, and reports dated March 15, 1996 on its compliance with
specific requirements applicable to major HUD programs and specific requirements
applicable to Affirmative Fair Housing.

/s/ WIELAND & COMPANY, INC.

March 15, 1996

Employer Identification No.: 36-4025026

Engagement Partner: Paul H. Wieland
315 James Street
Geneva, Illinois 60134

[Letterhead of Ziner & Company, P.C.]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Mansion Court Associates

We have audited the accompanying balance sheet of Mansion Court
Associates (a Pennsylvania limited partnership) as of December 31, 1997 and the
related statements of operations, changes in partners' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
Partnership's general partners and contracted management agent. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Mansion Court Associates as of December
31, 1996 were audited by other auditors whose report, dated February 17, 1997,
expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with generally accepted auditing
standards. 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 the
Partnership's general partners and contracted management agent, 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 Mansion Court
Associates at December 31, 1997, and the results of its operations, changes in
partners' equity and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ Ziner & Company, P.C.

January 31, 1998
Boston, Massachusetts

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners of Mansion Court Associates (a Limited Partnership)
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Mansion Court Associates (a
Limited Partnership) as of December 31, 1996 and 1995, and the related
statements of (loss), changes in partners' equity and cash flow for the years
then ended. These financial statements are the responsibility of the
Partnership's general partner and contracted management agent. Our
responsibility is to express an opinion on three financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Mansion Court Associates (a
Limited Partnership) at December 31, 1996 and 1995, and its results of
operations, changes in partners' equity and cash flows for the years then ended
in conformity with generally accepted accounting principles.

/s/ J. H. Williams & Co., LLP
- - -----------------------------

Kingston, Pennsylvania
February 17, 1997

[Letterhead of Burrus Paul & Turnbull]

INDEPENDENT AUDITORS' REPORT

To the Partners Virginia Housing Development Authority
Derby Run Associates, L.P. 601 S. Belvidere Street
Virginia Beach, Virginia Richmond, Virginia 23220

We have audited the accompanying balance sheet of Derby Run Associates,
L.P., Project No. 93-0625-C, as of December 31, 1997, and the related statement
of profit and loss (HUD Form 92410), partners' equity and cash flows for the
year 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 VHDA Project No. 93-0625-C
as of December 31, 1997 and the results of its operations, changes in partner's
equity and cash flows for the year then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supporting information included in
the report (page 10), is presented for purposes of additional analysis and is
not a required part of the basic financial statements for VHDA Project No.
93-0625-C. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements
taken as a whole.

/s/ Burrus Paul & Turnbull

CERTIFIED PUBLIC ACCOUNTANTS

February 11, 1998
Norfolk, Virginia

[BURRUS PAUL & TURNBULL LETTERHEAD]

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners Virginia Housing Development Authority
Derby Run Associates, L.P. 601 S. Belvidere Street
Virginia Beach, Virginia Richmond, Virginia 23220

We have audited the accompanying balance sheet of Derby Run Associates,
L.P., Project No. 93-0625-C, as of December 31, 1996, and the related statement
of profit and loss (HUD Form 92410), partners' deficit and cash flows for the
year 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 audit.

We conducted our audit in accordance with generally accepted auditing
standards. 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 VHDA Project No. 93-0625-C
as of December 31, 1996 and the results of its operations, changes in partner's
deficit and cash flows for the year then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supporting information included in
the report (page 10), is presented for purposes of additional analysis and is
not a required part of the basic financial statements for VHDA Project No.
93-0625-C. Such information has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion, is
fairly stated in all material respects in relation to the financial statements
taken as a whole.

/s/ Burrus, Paul & Turnbull
-----------------------
CERTIFIED PUBLIC ACCOUNTANTS

Norfolk, Virginia
January 27, 1997

[WALL, EINHORN & CHERNITZER, P.C. LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners Virginia Housing Development Authority
Derby Run Associates, L.P. 601 South Belvidere Street
Virginia Beach, Virginia Richmond, Virginia 23220

We have audited the accompanying balance sheets of Derby Run Associates,
L.P., VHDA Project Number 93-0625-C, as of December 31, 1995 and 1994, 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 generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of VHDA Project Number
93-0625-C as of December 31, 1995 and 1994, and the results of its operations,
changes in partners' equity and cash flows for the years then ended in
conformity with generally accepted accounting principles.

The accompanying supplementary information (shown on pages 10 to 12) 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 financial
statements taken as a whole.

/s/ WALL, EINHORN & CHERNITZER, P.C.

Norfolk, Virginia
February 14, 1996

[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, 1997, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with 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 above present
fairly, in all material respects, the financial position of Renaissance Plaza 93
Associates, L.P. as of December 31, 1997, and the results of its operations, the
changes in partners' equity and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 23
through 34 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information, except for
that portion marked "unaudited," on which we express no opinion, has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
January 31, 1998 on our consideration of Renaissance Plaza 93 Associates, L.P.'s
internal control and on its compliance with requirements applicable to CDA
programs, fair housing and non-discrimination and laws and regulations
applicable to the financial statements.

/s/ Reznick Fedder & Silverman

Bethesda, Maryland
January 31, 1998

Audit Principal: Lester A. Kanis

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

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, 1996, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with 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 above present fairly,
in all material respects, the financial position of Renaissance Plaza 93
Associates, L.P. as of December 31, 1996, and the results of its operations, the
changes in partners' equity and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 23
through 35 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information, except for
that portion marked "unaudited," on which we express no opinion, has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

- 6 -

In accordance with Government Auditing Standards and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
January 30, 1997 on our consideration of Renaissance Plaza 93 Associates, L.P.'s
internal control structure and on its compliance with requirements applicable to
CDA programs, affirmative fair housing and laws and regulations applicable to
the financial statements.

/s/ Reznick Fedder & Silverman
------------------------------

Bethesda, Maryland
January 30, 1997

Audit Principal: Lester A. Kanis

- 7 -

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

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, 1995, and the related statements of profit
and loss (on HUD Form No. 92410), changes in partners' equity and cash flows for
the year then ended. These financial statements are the responsibility of the
partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

We conducted our audit in accordance with 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 above present fairly,
in all material respects, the financial position of Renaissance Plaza 93
Associates, L.P. as of December 31, 1995, and the results of its operations, the
changes in partners' equity and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 21
through 28 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information, except for
that portion marked "unaudited," on which we express no opinion, has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.

In accordance with Government Auditing Standards we have also issued
reports dated February 9, 1996 on our consideration of Renaissance Plaza 93
Associates, L.P.'s internal control structure and on its compliance with
requirements applicable to CDA programs, affirmative fair housing and laws and
regulations applicable to the financial statements.

/s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland
February 9, 1996

[Letterhead of Ziner & Company, P.C.]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Tasker Village Associates

We have audited the accompanying balance sheet of Tasker Village
Associates (a Pennsylvania limited partnership) as of December 31, 1997 and the
related statements of operations, changes in partners' equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's general partners and contracted management agent. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Tasker Village Associates as of December
31, 1996 were audited by other auditors whose report, dated January 28, 1997,
expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with generally accepted auditing
standards. 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 the
Partnership's general partners and contracted management agent, 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 Tasker Village
Associates at December 31, 1997, and the results of its operations, changes in
partners' equity, and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ Ziner & Company, P.C.

January 28, 1998
Boston, Massachusetts

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

To the Partners of
Tasker Village Associates
(a Limited Partnership)
Philadelphia, Pennsylvania

We have audited the accompanying balance sheets of Tasker Village Associates (a
Limited Partnership) as of December 31, 1996 and 1995, and the related
statements of (loss), changes in partners' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's general partner and contracted management agent. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 the
Partnership's general partner and contracted management agent, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Tasker Village Associates (a
Limited Partnership) at December 31, 1996 and 1995, and the results of its
operations, changes in partners' equity and its cash flows for the years then
ended in conformity with generally accepted accounting principles.

/s/ J. H. Williams & Co., LLP
- - -----------------------------

Kingston, Pennsylvania
February 1S, 1997

[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,
1997 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 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 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 Martha Bryant Manor, L.P. at
December 31, 1997 and the results of its operations and its cash flow for the
year then ended. In conformity with generally accepted accounting principles.

As more fully described in Note 6, subsequent to the issuance of the
partnership's 1997 financial statements and my report thereon dated February 2,
1998, I became aware that those financial statements did not properly disclose
deferred mortgage interest payable. In my original report I expressed an
unqualified opinion on the 1997 financial statements, and my opinion on the
revised statements, as expressed herein, remains unqualified.

/s/ Clifford R. Benn

Carson, California
February 2, 1998, except as to the last paragraph above
and Notes 5 and 6, which are as of March 13, 1998

[CLIFFORD R. BENN LETTERHEAD]

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,
1996 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 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 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 Martha Bryant Manor, L.P. at
December 31, 1996 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 13, 1997
Carson, California

[CLIFFORD R. BENN LETTERHEAD]
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,
1995 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 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 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.

I was unable to obtain sufficient evidential matter in connection with the
beginning balance of property investments.

In my opinion, except for the effects of any adjustments and additional
disclosures that might have resulted had I been able to obtain sufficient
evidence in connection with property investments, the financial statements
referred to above present fairly, in all material respects, the financial
position of Martha Bryant Manor, L.P. at December 31, 1995 and the results of
its operations and its cash flow for the year then ended. In conformity with
generally accepted accounting principles.

/s/ CLIFFORD BENN, CPA

January 24, 1996
Carson, California

[Letterhead of MARVIN D. MASON]

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

I have audited the accompanying balance sheet of Colden Oaks, a California
Limited Partnership, as of December 31, 1997, and the related statements of
operations, changes in partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

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 the 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 Colden Oaks Partnership as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.

/s/ Marvin Mason

Marvin Mason
Encino, California
February 28, 1998

[MARVIN D. MASON LETTERHEAD]

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

I have audited the accompanying balance sheet of Colden Oaks, a California
Limited Partnership, as of December 31, 1996, and the related statements of
operations, changes in partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

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 Colden Oaks, a California Limited
Partnership, at December 31, 1996, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles

/s/ Marvin Mason
- - ----------------
Marvin Mason
Certified Public Accountant
Encino, California
February 25, 1997

-1-

[ROBERT J. PACHECO - PASADENA, CALIFORNIA LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

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

I have audited the accompanying balance sheet of Colden Oaks, a California
Limited Partnership, as of December 31, 1995, and the related statements of
operations, changes in partners' capital and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

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 Colden Oaks, a California Limited
Partnership, at December 31, 1995, and the results of its operations and its
cash flows for the year then ended in conformity with generally accepted
accounting principles.

/s/ ROBERT PACHECO
Robert J. Pacheco
Certified Public Accountant

February 29, 1996

[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, 1997
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, 1997 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, C.P.A.

February 24, 1998
Carson, California

[CLIFFORD R. BENN LETTERHEAD]

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, 1996
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 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 Brynview Terrace, L.P. at December
31, 1996 and the results of its operations and its cash flow for the year then
ended. In conformity with generally accepted accounting principles.

/s/ Clifford Benn, C.P.A.
-------------------------

February 13, 1997
Carson, California

[CLIFFORD R. BENN LETTERHEAD]

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, 1995
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 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 Brynview Terrace, L.P. at December
31, 1995 and the results of its operations and its cash flow for the year then
ended. In conformity with generally accepted accounting principles.

/s/ CLIFFORD BENN, CPA
February 2, 1996
Carson, California

[Letterhead of Robert J. Pacheco, CPA]

Independent Auditor's Report

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

I have audited the accompanying balance sheet of NLEDC, L.P., a California
Limited Partnership, as of December 31, 1997, 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
and Government Auditing Standards issued by the Comptroller General of the
United States. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the 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 NLEDC, L.P., a California Limited
Partnership, at December 31, 1997, 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, I have also issued reports dated February 25, 1998, on my
consideration of the Partnership's internal control, on its compliance with
specific requirements applicable to non-major HUD programs and specific
requirements applicable to Affirmative Fair Housing.

/s/ Robert Pacheco

Robert J. Pacheco, CPA
Pasadena, California
February 25, 1998

[ROBERT J. PACHECO, CPA LETTERHEAD]

Independent Auditor's Report

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

I have audited the accompanying balance sheet of NLEDC, L.P., a California
Limited Partnership, as of December 31, 1996, 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
and Government Auditing Standards issued by the Comptroller General of the
United States. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the 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 NLEDC, L.P., a California Limited
Partnership, at December 31, 1996, and the results of its operations, changes in
partners' capital and its 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, I have also issued a report dated February 25, 1997, on my
consideration of NLEDC, L.P.'s (a California Limited Partnership) internal
control structure, and reports dated February 25, 1997 on its compliance with
specific requirements applicable to Affirmative Fair Housing and specific
requirements applicable to nonmajor HUD program transactions.

/s/ Robert Pacheco
- - ------------------
Robert J. Pacheco
Certified Public Accountant
Pasadena, California
February 25, 1997

[ROBERT J. PACHECO - PASADENA, CALIFORNIA LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

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

I have audited the accompanying balance sheet of NLEDC, L.P., a California
Limited Partnership, as of December 31, 1995, and the related statements of
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 NLEDC, L.P., a California Limited
Partnership, at December 31, 1995, and its cash flows for the year then ended in
conformity with generally accepted accounting principles.

/s/ ROBERT PACHECO

Robert J. Pacheco
Certified Public Accountant

February 21, 1996

[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, 1997, 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 generally accepted auditing
standards. 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, 1997, and the results of its operations, the
changes in partners' equity and cash flows for the year then ended, in
conformity with generally accepted accounting principles.

/s/ Reznick Fedder & Silverman

Bethesda, Maryland
February 6, 1998

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

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, 1996, 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 generally accepted auditing
standards. 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. 1996, and the results of its operations, the changes in
partners' equity and cash flows for the year then ended, in conformity with
generally accepted accounting principles.

/s/ Reznick Fedder & Silverman
------------------------------

Bethesda, Maryland
February 7, 1997

[REZNICK FEDDER & SILVERMAN LETTERHEAD]

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, 1995, 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 generally accepted auditing
standards. 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, 1995, and the results of its operations, the changes in
partners' equity and cash flows for the year then ended, in conformity with
generally accepted accounting principles.

/s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland
March 22, 1996

[Letterhead of SUAREZ ACCOUNTANCY CORPORATION]

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, 1997, 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, 1997, and the results of its operations and cash flows for the year
then ended, in conformity with generally accepted accounting principles.

/s/ Suarez Accountancy Corporation

January 30, 1998
San Pedro, California

[SUAREZ ACCOUNTANCY CORPORATION LETTERHEAD]

Independent Auditor's Report
----------------------------

To the Partners
P & P Home for the Elderly, L.P.
(A Development Stage Company)
Los Angeles, California

I have audited the accompanying balance sheet of P & P Home for the Elderly,
L.P. (A Development Stage Company) as of December 31, 1996, 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. (A
Development Stage Company) at December 31, 1996, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.

/s/ Suarez Accountancy Corporation
----------------------------------

San Pedro, California
April 1, 1997

[SUAREZ ACCOUNTANCY CORPORATION - SAN PEDRO, CALIFORNIA LETTERHEAD]

INDEPENDENT AUDITOR'S REPORT

To the Partners
P & P Home for the Elderly, L.P.
(A Development Stage Company)
Los Angeles, California

I have audited the accompanying balance sheet of P & P Home for the Elderly,
L.P. (A Development Stage Company) as of December 31, l995, 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. (A
Development Stage Company) at December 31, 1995, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.

/s/ SUAREZ ACCOUNTANCY CORPORATION

January 31, 1996

[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, 1997, and the related statements of profit and
loss, 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 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, 1997 and the results of its
operations, changes in capital, and cash flows for the year then ended in
conformity with 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, 1997 taken as a whole. The
supplementary Schedules 1 through 5 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.

Clear Horizons Apartments Page 2

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U. S. Department of Housing and
Urban Development, we have also issued a report dated February 9, 1998 on our
consideration of Clear Horizons Limited Partnership's internal control, and
reports dated February 9, 1998, on its compliance with laws and regulations,
compliance with specific requirements applicable to Affirmative Fair Housing,
and compliance with specific requirements applicable to major HUD-assisted
programs.

/s/ Cole, Evans & Peterson

Cole, Evans & Peterson
Federal ID No. 72-0506596
Lead Auditor: Steven W. Hedgepeth
Shreveport, Louisiana
February 9, 1998

[COLE, EVANS & PETERSON LETTERHEAD]

February 10, 1997

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, 1996, and the related statements of profit and
loss, 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 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, 1996 and the results of its
operations, changes in capital, and cash flows for the year then ended in
conformity with 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, 1996 taken as a
whole. The supplementary Schedules 1 through 5 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.

-1-

Clear Horizons Apartments February 10, 1997
Page 2

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 10, 1997 on our
consideration of Clear Horizons Limited Partnership's internal control
structure, and reports dated February 10, 1997, on its compliance with laws and
regulations, compliance with specific requirements applicable to Affirmative
Fair Housing, and compliance with specific requirements applicable to major
HUD-assisted programs.

/s/ Cole, Evans & Peterson
- - --------------------------
Cole, Evans & Peterson

Shreveport, Louisiana
February 10, 1997

[COLE, EVANS & PETERSON - SHREVEPORT, LOUISIANA LETTERHEAD]

INDEPENDENT AUDITORS' REPORT ON THE BASIC FINANCIAL STATEMENTS

Clear Horizons Limited Partnership
Shreveport, Louisiana

We have audited the accompanying balance sheet of Clear Horizons Limited
Partnership, at December 31, 1995, and the related statements of profit and
loss, 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 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, 1995 and the results of its
operations, changes in capital, and cash flows for the year then ended in
conformity with 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, 1995 taken as a
whole. The supplementary Schedules 1 through 5 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.

Clear Horizons Apartments February 9, 1996
Page 2

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 9, 1996 on our
consideration of Clear Horizons Limited Partnership's internal control
structure, and reports dated February 9, 1996, on its compliance with laws and
regulations, compliance with specific requirements applicable to Affirmative
Fair Housing, and compliance with specific requirements applicable to major
HUD-assisted programs.

/s/ COLE, EVANS & PETERSON
Cole, Evans & Peterson
Federal ID No. 72-0506596

Lead Auditor: Steven W. Hedgepeth

[Letterhead of Ziner & Company, P.C.]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Neptune Venture, L.P.

We have audited the accompanying balance sheet of Neptune Venture, L.P.
(a New Jersey limited partnership) as of December 31, 1997, and the related
statements of operations, changes in partners' equity and cash flows for the
year then ended. These financial statements are the responsibility of the
Partnership's general partner and contracted management agent. Our
responsibility is to express an opinion on these financial statements based on
our audit. The financial statements of Neptune Venture, L.P. as of December 31,
1996 were audited by other auditors whose report, dated February 15, 1997,
expressed an unqualified opinion on those financial statements.

We conducted our audit in accordance with generally accepted auditing
standards. 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 the
Partnership's general partner and contracted management agent, 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 Neptune Venture,
L.P. at December 31, 1997, and the results of its operations, changes in
partners' equity and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ Ziner & Company, P.C.

January 26, 1998
Boston, Massachusetts

[J. H. WILLIAMS & CO., LLP LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners of
Neptune Venture , L.P.
Neptune Township, New Jersey

We have audited the accompanying balance sheets of Neptune Venture, L.P. as of
December 31, 1996 and 1995 and the related statements of income (loss), changes
in partners' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's general partner and
contracted management agent. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 the
Partnership's general partner and contracted management agent, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Neptune Venture, L.P. at
December 31, 1996 and 1995, and its results of operations, changes in partners'
equity and cash flows for the years then ended in conformity with generally
accepted accounting principles.

/s/ J. H. Williams & Co., LLP
- - -----------------------------

Kingston, Pennsylvania
February 15, 1997

[Letterhead of Lawlor, O'Brien & Chervenak, LLC]

INDEPENDENT AUDITORS' REPORT

To the Partners
Affordable Green Associates, L.P.

We have audited the accompanying balance sheet of Affordable Green Associates,
L.P. as of December 31, 1997 and the related statements of operations, changes
in partners' capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
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 Affordable Green Associates,
L.P. as of December 31, 1997 and the results of its operations, changes in
partners' capital, and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

/s/ Lawlor, O'Brien & Chervenak, LLC

West Paterson, New Jersey
March 3, 1998

[LAWLOR, O'BRIEN & CHERVENAK, LLC LETTERHEAD]

INDEPENDENT AUDITORS' REPORT
----------------------------

To the Partners
Affordable Green Associates, L.P.

We have audited the accompanying balance sheet of Affordable Green Associates,
L.P. as of December 31, 1996 and the related statements of operations, changes
in partners' capital, and cash flows for the year then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
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 Affordable Green Associates,
L.P. as of December 31, 1996 and the results of its operations, changes in
partners' capital, and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Lawlor, O'Brien & Chervenak, L.L.C.
-----------------------------------

West Paterson, New Jersey
February 12, 1997

[LAWLOR, O'BRIEN & LESKOWICZ LETTERHEAD]

INDEPENDENT AUDITORS' REPORT

To the Partners
Affordable Green Associates, L.P.

We have audited the accompanying balance sheet of Affordable Green Associates,
L.P. as of December 31, 1995, and the related statements of operations for the
period (from commencement of operations) August 15, 1995 through December 31,
1995, changes in partners' capital and cash flows for the year ended December
31, 1995. 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 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 Affordable Green Associates,
L.P. as of December 31, 1995, and the results of its operations for the period
(from commencement of operations) August 15, 1995 through December 31, 1995,
changes in partners' equity and its cash flows for the year ended December 31,
1995 in conformity with generally accepted accounting principles.

/s/ LAWLOR, O'BRIEN & LESKOWICZ
West Paterson, New Jersey
February 28, 1996

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS

ASSETS

March 31,
--------------------------------
1998 1997*
------------ ------------

Property and equipment net, less accumulated
depreciation (Notes 2, 4 and 7) $ 97,677,550 $104,314,397
Cash and cash equivalents (Notes 2, 3 and 10) 2,651,208 4,622,176
Cash held in escrow (Notes 3 and 5) 2,560,903 2,867,836
Deferred costs, less accumulated amortization (Notes 2 and 6) 520,550 599,679
Other assets 560,836 427,412
------------ ------------

$103,971,047 $112,831,500
============ ============

LIABILITIES AND PARTNERS' CAPITAL

Liabilities:
Mortgage notes payable (Note 7) $ 59,280,374 $ 39,799,356
Construction loan payable 0 20,062,725
Accounts payable and other liabilities 1,566,693 1,712,789
Accrued interest 4,925,673 3,236,325
Due to local general partners and affiliates (Note 8) 2,764,688 3,436,045
Due to general partner and affiliates (Note 8) 274,463 191,736
------------ ------------

68,811,891 68,438,976
------------ ------------

Minority interests 295,728 317,189
------------ ------------

Commitments and contingencies (Notes 7, 8 and 10)

Partners' capital:
Limited partners
(58,928 BACs issued and outstanding) 35,038,743 44,158,531
General partner (175,315) (83,196)
------------ ------------

Total partners' capital 34,863,428 44,075,335
------------ ------------

Total liabilities and partners' capital $103,971,047 $112,831,500
============ ============

*Reclassified for comparative purposes.

See accompanying notes to consolidated financial statements.

-17-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS

Year Ended March 31,
--------------------------------------------
1998 1997 1996
------------ ------------- ------------

Revenues

Rental income $ 7,576,204 $ 6,228,770 $ 4,598,213
Other income 329,342 434,581 726,832
------------ ------------ ------------
7,905,546 6,663,351 5,325,045
------------ ------------ ------------
Expenses
General and administrative 2,249,869 1,763,480 1,366,774
General and administrative-related parties
(Note 8) 454,756 422,058 672,731
Repairs and maintenance 1,574,825 1,311,272 990,315
Operating 964,586 761,402 541,524
Taxes 670,869 564,263 497,793
Insurance 523,826 459,725 366,543
Financial, principally interest 3,244,578 2,345,048 1,681,052
Depreciation and amortization 3,519,340 3,060,631 2,161,221
Loss on impairment of assets (Note 4) 3,925,514 0 0
------------ ------------ ------------
17,128,163 10,687,879 8,277,953
------------ ------------ ------------

Loss before minority interest (9,222,617) (4,024,528) (2,952,908)

Minority interest in loss of subsidiary
partnerships 10,710 8,916 8,519
------------ ------------ ------------

Net loss $ (9,211,907) $ (4,015,612) $ (2,944,389)
============ ============ ============

Net loss - limited partners $ (9,119,788) $ (3,975,456) $ (2,914,945)
============ ============ ============

Weighted average number of BACs outstanding 58,928 58,928 58,928
============ ============ ============

Net loss per BAC $ (154.76) $ (67.46) $ (49.47)
============ ============ ============

See accompanying notes to consolidated financial statements.

-18-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)

Limited General
Total Partners Partners
----------- ----------- ---------

Partners' capital (deficit)-April 1, 1995 $51,035,336 $51,048,932 $ (13,596)

Net loss (2,944,389) (2,914,945) (29,444)
----------- ----------- ---------

Partners' capital (deficit)-March 31, 1996 48,090,947 48,133,987 (43,040)

Net loss (4,015,612) (3,975,456) (40,156)
----------- ----------- ---------

Partners' capital (deficit)-March 31, 1997 44,075,335 44,158,531 (83,196)

Net Loss (9,211,907) (9,119,788) (92,119)
----------- ----------- ---------

Partners' capital (deficit)-March 31, 1998 $34,863,428 $35,038,743 $(175,315)
=========== =========== =========

See accompanying notes to consolidated financial statements.

-19-

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

Year Ended March 31,
---------------------------------------------------
1998 1997* 1996*
------------- ------------- -------------

Cash flows from operating activities:
Net loss $ (9,211,907) $ (4,015,612) $ (2,944,389)
------------- ------------- -------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 3,519,340 3,060,631 2,161,221
Loss on impairment of assets 3,925,514 0 0
Minority interest in loss of subsidiary partnerships (10,710) (8,916) (8,519)
(Increase) decrease in assets
Cash held in escrow 79,478 (227,751) 1,702,798
Other assets (133,424) 7,382 (123,399)
Increase (decrease) in liabilities
Accounts payable and other liabilities (146,096) (1,795,533) (191,460)
Accrued interest 1,689,348 1,174,918 1,357,560
Increase in due to local general partners
and affiliates 59,825 57,374 181,392
Decrease in due to local general partners
and affiliates (21,489) (152,491) 0
Due to general partner and affiliates 82,727 142,981 46,123
------------- ------------- -------------
Total adjustments 9,044,513 2,258,595 5,125,716
------------- ------------- -------------

Net cash (used in) provided by
operating activities (167,394) (1,757,017) 2,181,327
------------- ------------- -------------

Cash flows from investing activities:
Improvements to property and equipment (693,694) (87,591) (10,422,237)
Increase in construction in progress 0 (7,547,901) (22,579,370)
Increase in cash held in escrow 227,455 13,834 1,606,866
Increase in deferred costs 0 (83,617) (118,849)
Decrease in accounts payable
and other liabilities 0 0 (1,111,438)
Increase in due to local general partners
and affiliates 278,606 581,206 662,982
Decrease in due to local general partners
and affiliates (1,126,883) (2,662,155) (1,943,924)
------------- ------------- -------------

Net cash used in investing activities (1,314,516) (9,786,224) (33,905,970)
------------- ------------- -------------

*Reclassified for comparative purposes.

See accompanying notes to consolidated financial statements.

-20-

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

Year Ended March 31,
--------------------------------------------
1998 1997 1996
------------ ------------ ------------

Cash flows from financing activities:
Proceeds from mortgage notes 4,220,575 302,275 95,990
Principal payments of mortgage notes (488,360) (427,742) (273,461)
Proceeds from construction loans 306,635 7,994,639 16,909,776
Principal payments of construction loans (4,620,557) (3,909,635) (606,000)
Increase in due to local general partners
and affiliates 326,443 215,006 506,250
Decrease in due to local general partners
and affiliates (187,859) (1,168,847) 0
Increase in deferred costs (35,184) (62,535) (42,608)
Decrease in capitalization of consolidated
subsidiaries attributable to minority interest (10,751) (424,490) (263,706)
------------ ------------ ------------

Net cash (used in) provided by financing activities (489,058) 2,518,671 16,326,241
------------ ------------ ------------

Net decrease in cash and cash equivalents (1,970,968) (9,024,570) (15,398,402)

Cash and cash equivalents at beginning of year 4,622,176 13,646,746 29,045,148
------------ ------------ ------------

Cash and cash equivalents at end of year $ 2,651,208 $ 4,622,176 $ 13,646,746
============ ============ ============

Supplemental disclosure of cash flows information:
Cash paid during the year for interest $ 1,088,536 $ 1,124,869 $ 640,805

Supplemental disclosure of noncash investing and financing activities:
Capitalization of deferred acquisition costs $ 0 $ 0 $ 817,767
Property and equipment reclassified from
construction in progress $ 0 $ 26,669,724 $ 26,916,748
Development fees to local general partners
and affiliates, accounts payable and other
liabilities capitalized to construction in
progress and property and equipment $ 0 $ 0 $ 403,381

Conversion of construction notes payable
to mortgage notes payable $ 15,748,803 $ 2,237,128 $ 16,661,523

See accompanying notes to consolidated financial statements.

-21-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

NOTE 1 - General

Independence Tax Credit Plus L.P. II (a Delaware limited partnership) (the
"Partnership") was organized on February 11, 1992 and commenced the public
offering on January 19, 1993. The general partner of the Partnership is Related
Independence Associates L.P., a Delaware limited partnership (the "General
Partner").

The Partnership's business is to invest in other partnerships ("Local
Partnerships," "subsidiaries" or "subsidiary partnerships") owning leveraged
apartment complexes that are eligible for the low-income housing tax credit
("Tax Credit") enacted in the Tax Reform Act of 1986, some of which complexes
may also be eligible for the historic rehabilitation tax credit.

The Partnership has interests in fifteen subsidiary partnerships as of March 31,
1998.

The Partnership was authorized to issue a total of 100,000 ($100,000,000)
Beneficial Assignment Certificates ("BACs") which have been registered with the
Securities and Exchange Commission for sale to the public. Each BAC represents
all of the economic and virtually all of the ownership rights attributable to a
limited partnership interest. As of March 31, 1998, the Partnership has raised a
total of $58,928,000 representing 58,928 BACs. The offering was terminated on
April 7, 1994.

The terms of the Partnership's Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement") provide, among other things, that net
profits or losses and distributions of cash flow are, in general, allocated 99%
to the limited partners and BACs holders and 1% to the general partner.

NOTE 2 - Summary of Significant Accounting Policies

a) Basis of Consolidation

The consolidated financial statements include the accounts of the Partnership
and fifteen subsidiary partnerships in which the Partnership is the principal
limited partner, with an ownership interest of 98.99%. Through the rights of the
Partnership and/or an affiliate of the General Partner, which affiliate has a
contractual obligation to act on behalf of the Partnership, to remove the
general partner of the subsidiary local partnerships and to approve certain
major operating and financial decisions, the Partnership has a controlling
financial interest in the subsidiary local partnerships. All intercompany
accounts and transactions with the subsidiary partnerships have been eliminated
in consolidation.

For financial reporting purposes, the Partnership's fiscal year ends on March
31. The Partnership's fiscal year ends March 31, in order to allow adequate time
for the subsidiaries financial statements to be prepared and consolidated. The
books and records of the Partnership are maintained on the accrual basis of
accounting, in accordance with generally accepted accounting principles. All
subsidiaries have fiscal years ending December 31. Accounts of the subsidiaries
have been adjusted for intercompany transactions from January 1 through March
31.

-22-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arises from cash contributions and cash
distributions to the minority interest partners.

The Partnership's investment in each subsidiary is equal to the respective
subsidiary's partners' equity less minority interest capital, if any. Losses
attributable to minority interest which exceed the minority interests'
investment in a subsidiary partnership have been charged to the Partnership.
Such losses aggregated approximately $80,000, $30,000 and $17,000 for the years
ended March 31, 1998, 1997 and 1996 (the 1997, 1996 and 1995 Fiscal Years),
respectively. In consolidation, all subsidiary partnership losses are included
in the Partnership's capital account except for losses allocated to minority
interest capital.

b) Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, cash in banks, and investments
in short-term highly liquid instruments purchased with original maturities of
three months or less. Cash held in escrow has various use restrictions and is
not considered a cash equivalent.

c) Property and Equipment

Property and equipment to be held and used are carried at cost which includes
the purchase price, acquisition fees and expenses, construction period interest
and any other costs incurred in acquiring the properties. The cost of property
and equipment is depreciated over their estimated useful lives using accelerated
and straight-line methods. Expenditures for repairs and maintenance are charged
to expense as incurred; major renewals and betterments are capitalized. At the
time property and equipment are retired or otherwise disposed of, the cost and
accumulated depreciation are eliminated from the assets and accumulated
depreciation accounts and the profit or loss on such disposition is reflected in
earnings. A loss on impairment of assets is recorded when management estimates
amounts recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. At that time, property
investments themselves are reduced to estimated fair value (generally using
discounted cash flows).

Through March 31, 1998, the Partnership has recorded a loss on impairment of
assets of approximately $3,926,000.

d) Income Taxes

The Partnership is not required to provide for, or pay, any federal income
taxes. Net income or loss generated by the Partnership is passed through to the
partners and is required to be reported by them. The Partnership may be subject
to state and local taxes in jurisdictions in which it operates. For income tax
purposes, the Partnership has a fiscal year ending December 31 (Note 9).

e) Organization and Offering Costs

Costs incurred to organize the Partnership, including but not limited to legal,
accounting and registration fees, are considered deferred organization expenses.
These costs are capitalized and are being amortized over a 60-month period.
Costs incurred to sell BACs, including bro-

-23-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

kerage and the nonaccountable expense allowance, are considered selling and
offering expenses. These costs are charged directly to limited partners' capital
(Note 8).

f) Loss Contingencies

The Partnership records loss contingencies as a charge to income when
information becomes available which indicates that it is probable that an asset
has been impaired or a liability has been incurred as of the date of the
financial statements and the amount of loss can be reasonably estimated.

g) Use of Estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect certain reported amounts and disclosures. Accordingly, actual results
could differ from those estimates.

NOTE 3 - Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value of
each class of financial instruments (all of which are held for nontrading
purposes) for which it is practicable to estimate that value:

Cash and Cash Equivalents and Cash Held in Escrow

The carrying amount approximates fair value.

Mortgage Notes Payable

The fair value of mortgage notes payable is estimated, where practicable, based
on the borrowing rate currently available for similar loans.

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

March 31, 1998 March 31, 1997
---------------------------- -----------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
----------- ------------ ----------- -----------

Mortgage Notes Payable for which it is:
Practicable to estimate fair value $ 1,235,000 $ 1,235,000 $ 1,290,000 $1,290,000
Not Practicable $58,045,374 * $38,509,356 *

*Management believes it is not practical to estimate the fair value of the
mortgage notes payable because mortgage programs with similar characteristics
are not currently available to the partnerships.

The carrying amount of other financial instruments that require such disclosure
approximates fair value.

-24-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

NOTE 4 - Property and Equipment

The components of property and equipment and their estimated useful lives are as
follows:

March 31, Estimated
------------------------------ Useful Lives
1998 1997 (Years)
------------- ------------- ------------

Land $ 6,228,836 $ 6,146,420 --
Building and improvements 99,769,605 103,162,144 10-40
Furniture and fixtures 1,013,826 935,523 5-10
------------- ------------
107,012,267 110,244,087
Less: Accumulated depreciation (9,334,717) (5,929,690)
------------- ------------

$ 97,677,550 $104,314,397
============= ============

Included in property and equipment is $3,501,977 of acquisition fees paid to the
General Partner and $867,942 of acquisition expenses as of March 31, 1998 and
1997.

In connection with the rehabilitation of the properties, the subsidiary
partnerships have incurred developer's fees of $9,282,042 to the local general
partners and affiliates as of March 31, 1998 and 1997, respectively. Such fees
have been included in the cost of property and equipment.

Depreciation expense for the years ended March 31, 1998, 1997 and 1996 amounted
to $3,405,027, $2,969,828 and $2,101,923, respectively.

On December 31, 1997, the building owned by Colden Oaks Limited Partnership was
deemed to be impaired and written down to estimated fair value. The impairment
loss was determined to be $3,925,514 and has been charged to operations in the
1997 Fiscal Year. Management has determined that, due to the need to continue to
provide low income rents to comply with Internal Revenue Service requirements to
receive federal low income housing tax credits and the accumulation of
significant construction costs, the value of the Colden Oaks apartment building
is determined to be impaired. The amount of the asset write-down was measured as
the amount by which the carrying amount of the apartment building exceeded its
fair market value.

-25-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

NOTE 5 - Cash Held in Escrow

Cash held in escrow consists of the following:

March 31,
--------------------------
1998 1997
---------- ----------

Purchase price payments* $ 757,620 $1,231,525
Construction 0 24,836
Real estate taxes, insurance and other 1,169,815 1,249,293
Reserve for replacements (Note 7) 633,468 362,182
---------- ----------

$2,560,903 $2,867,836
========== ==========

*Represents amounts to be paid to seller upon completion of properties under
construction and upon meeting specified rental achievement criteria.

NOTE 6 - Deferred Costs

The components of deferred costs and their periods of amortization are as
follows:

March 31,
-----------------------
1998 1997 Period
--------- --------- -----------

Financing costs $ 376,394 $ 341,210 *
Organization costs 400,475 400,475 60 months
Other 33,703 33,703 various
--------- ---------
810,572 775,388
Less: accumulated amortization (290,022) (175,709)
--------- ---------

$ 520,550 $ 599,679
========= =========

*Over the life of the related mortgages.

Amortization expense for the years ended March 31, 1998, 1997 and 1996 amounted
to $114,313, $90,803 and $59,298, respectively.

NOTE 7 - Mortgage Notes Payable

The mortgage notes are payable in aggregate monthly installments of
approximately $146,000 including principal and interest at rates ranging from 0%
to 9.65% per annum, from the year 2003 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.

One mortgage note with a balance of $5,344,868 and $5,505,886 at December 31,
1997 and 1996, respectively, which bears interest at 7% per annum was eligible
for an interest rate subsidy. Accordingly, the subsidiary partnership paid only
that portion of the monthly payments

-26-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

that would be required if the interest rate was 1%. The balance was subsidized
under Section 236 of the National Housing Act.

Annual principal payment requirements for mortgage notes payable for each of the
next five fiscal years and thereafter are as follows:

Fiscal Year Ending Amount
- - ------------------ -----------

1998 $ 335,813
1999 362,573
2000 402,966
2001 451,031
2002 478,607
Thereafter 57,249,384
-----------
$59,280,374
===========

The mortgage agreements require monthly deposits to replacement reserves of
approximately $23,000 and monthly deposits to escrow accounts for real estate
taxes, hazard insurance and mortgage insurance and other (Note 5).

NOTE 8 - Related Party Transactions

An affiliate of the General Partner has a .01% interest as a special limited
partner in each of the subsidiary partnerships. An affiliate of the General
Partner also has a minority interest in certain local limited partnerships.

The General Partner and its affiliates perform services for the Partnership. The
costs incurred for the years ended March 31, 1998, 1997 and 1996 are as follows:

A) Acquisition Fees and Expenses

The General Partner was paid an acquisition fee equal to 6% of the gross
proceeds of the offering paid upon investor closing, for its services in
connection with the selection and evaluation of Local Partnerships. Such fees
have been capitalized as a cost of the investments upon closing of subsidiary
partnerships' acquisitions. As of March 31, 1998, 1997 and 1996, $3,535,680, of
such costs have been incurred, respectively.

B) Guarantees

The Partnership had negotiated development deficit guarantees with the
subsidiary partnerships in which it has invested. The Local General Partners had
agreed to fund development deficits through the break-even dates of each of the
subsidiary partnerships, most of which were unlimited or in an unspecified
amount. Amounts received under development deficit guarantees from the
developers of the properties purchased by the Partnership have been treated as a
reduction of the asset. Although all development deficit guarantees have expired
as of March 31, 1998, management does not expect their expiration to have a
material impact on liquidity, based on prior years' fundings.

-27-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

The Partnership has negotiated Operating Deficit Guaranty Agreements with all
subsidiary partnerships by which the Local General Partners have agreed to fund
operating deficits for a specified period of time. The terms of the Operating
Deficit Guaranty Agreements vary for each subsidiary partnership, with maximum
dollar amounts to be funded for a specified period of time, generally three
years, commencing on the break-even date. The gross amount of the Operating
Deficit Guarantees aggregates approximately $5,670,000, none of which have
expired as of March 31, 1998. As of March 31, 1998 and 1997, $278,908 and
$193,032 has been funded under the Operating Deficit Guaranty agreements.
Amounts funded under such agreements are treated as noninterest bearing loans,
which will be repaid only out of 50% of available cash flow or out of available
net sale or refinancing proceeds.

In addition, several subsidiary partnerships have Rent-Up Guaranty Agreements,
in which the Local General Partner agrees to pay liquidating damages if
predetermined occupancy rates are not achieved. The terms of the Rent-Up
Guaranty Agreements vary for each subsidiary partnership, with maximum dollar
amounts to be funded for a specified period of time. The gross amount of
unexpired Rent-Up Guarantees for the subsidiary partnerships is approximately
$177,000 as of March 31, 1998. There have not been any fundings under these
guaranty agreements. Amounts received under rental guarantees from the sellers
of the properties purchased by the Partnership are treated as a reduction of the
asset.

The Operating Deficit Guaranty Agreements, Rent-Up Guaranty Agreements and
Development Deficit Guaranty Agreements were negotiated to protect the
Partnership's interest in the subsidiary partnerships and to provide incentive
to the Local General Partners to generate positive cash flow.

C) Other Related Party Expenses

The costs incurred to related parties for the years ended March 31, 1998, 1997
and 1996 were as follows:

Year Ended March 31,
------------------------------------
1998 1997 1996
-------- -------- --------

Partnership management fees (a) $ 50,000 $ 87,500 $434,550
Expense reimbursement (b) 112,759 101,581 91,757
Property management fees (c) 259,497 212,977 133,924
Local administrative fees (d) 32,500 20,000 12,500
-------- -------- --------

$454,756 $422,058 $672,731
======== ======== ========

(a) The General Partner is entitled to receive a partnership management fee,
after payment of all Partnership expenses, which together with the annual local
administrative fees will not exceed a maximum of 0.5% per annum of invested
assets (as defined in the Partnership Agreement), for administering the affairs
of the Partnership. Subject to the foregoing limitation, the partnership
management fee will be determined by the General Partner in its sole discretion
based upon its review of the Partnership's investments. Unpaid partnership
management fees for any year will be accrued without interest and will be
payable from working capital reserves or to the extent of available funds after
the Partnership has made distributions to the limited partners of sale or
refinancing proceeds equal to their original capital contribu-

-28-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

tions plus a 10% priority return thereon (to the extent not theretofore paid out
of cash flow). Partnership management fees owed to the General Partner amounting
to approximately $164,000 and $115,000 were accrued and unpaid as of March 31,
1998 and March 31, 1997, respectively.

(b) The Partnership reimburses the General Partner and its affiliates for actual
Partnership operating expenses incurred by the General Partner and its
affiliates on the Partnership's behalf. The amount of reimbursement from the
Partnership is limited by the provisions of the Partnership Agreement. Another
affiliate of the General Partner performs asset monitoring for the Partnership.
These services include site visits and evaluations of the subsidiary
partnerships' performance.

(c) Property management fees incurred by subsidiary partnerships amounted to
$547,120, $439,375 and $301,751 for the years ended March 31, 1998, 1997 and
1996, respectively. Of these fees $259,497, $212,977 and $133,924 were earned by
affiliates of the subsidiary partnerships' general partners.

(d) Independence SLP L.P., a special limited partner of the subsidiary
partnerships, is entitled to receive a local administrative fee of up to $5,000
per year from each subsidiary partnership.

D) Due to local general partners and affiliates

Due to local general partners and affiliates at March 31, 1998 and 1997 consists
of the following:

March 31,
-------------------------
1998 1997
---------- ----------

Operating advances $ 184,304 $ 495,527
Development fee payable 1,905,517 2,069,531
Construction costs payable 317,000 736,527
Management and other operating advances (*) 357,867 134,460
---------- ----------

$2,764,688 $3,436,045
========== ==========

(*) Includes loans from Local General Partners and affiliates totaling $185,071,
bearing interest rates from 8% to 11% and due on demand at March 31, 1998.

-29-

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998

NOTE 9 - Income Taxes

A reconciliation of the financial statement net loss to the income tax loss for
the Partnership and its consolidated subsidiaries is as follows:

Year Ended December 31,
-----------------------------------------
1997 1996 1995
----------- ----------- -----------

Financial statement net loss $(9,211,907) $(4,015,612) $(2,944,389)

Differences between depreciation and amorti-
zation expense records for financial reporting
purposes and the accelerated costs recovery
system utilized for income tax purposes (326,811) (442,130) (254,256)

Tax exempt interest income (90,171) (246,119) (569,018)

Differences resulting from parent company
having a different fiscal year for income tax and
financial reporting purposes 3,719 (17,634) 12,102

Loss on impairment of assets recorded for
financial reporting purposes 3,925,514 0 0

Excess losses allocated to minority interest for
income tax purposes 266,506 251,793 262,879

Other, including accruals for financial reporting
not deductible for tax purposes until paid 636,727 823,547 (255,530)
----------- ----------- -----------

Net loss as shown on the income tax return for
the calendar year ended $(4,796,423) $(3,646,155) $(3,748,212)
=========== =========== ===========

NOTE 10 - Commitments and Contingencies

a) Subsidiary Partnerships-Litigation

Clear Horizons Limited Partnership

Clear Horizons Limited Partnership ("Clear Horizons")is named as a defendant in
a lawsuit involving the wrongful death of a person on the premises of the
apartment project. Clear Horizons' defense is being handled by its liability
insurer. Legal counsel believes that any settlement will be within insurance
policy limits, $3,000,000, and there will be no loss to Clear Horizons. The
maximum loss which the Partnership would be liable for is its net investment in
Clear Horizons. The Partnership's investment in Clear Horizons at March 31, 1998
and 1997 was approximately $921,000 and $963,000, respectively, and the minority
interest balance was $0. Clear Horizons' net loss after minority interest
amounted to approximately $52,000, $63,000 and $27,000 for the 1997, 1996 and
1995 Fiscal Years, respectively.

-30-

b) Subsidiary Partnerships-Other

Clear Horizons Limited Partnership
At December 31, 1997, Clear Horizons Limited Partnership ("Clear Horizons")
current liabilities exceed its current assets by over $90,000. 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, 1997 is $108,619 owed to
related parties who do not intend to pursue collection beyond Clear Horizon's
ability to pay.

2. The 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, 1997.

c) Uninsured Cash and Cash Equivalents

The Partnership maintains its cash and cash equivalents in various banks. The
accounts at each bank are guaranteed by the Federal Deposit Insurance
Corporation up to $100,000. At March 31, 1998, uninsured cash and cash
equivalents approximated $1,686,000.

d) Letters of Credit

As of December 31, 1997, the subsidiary partnerships were contingently liable on
open letters of credit as follows:

Description Amount
- - ----------- ------

Development contingency $ 22,400
Rent reduction escrow 100,000
-------

$122,400
========

e) Other

The Partnership and BACs holders began to recognize Housing 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 has 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. For the
1997, 1996 and 1995 tax years, Housing Tax Credits of $8,454,368, $6,399,740 and
$3,997,227 were generated and $0, $37,112 and $619,383 of Historic Tax Credits
were generated, respectively.

31

Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.

None

PART III

Item 10. Directors and Executive Officers of the Registrant.

The Partnership has no directors or executive officers. The Partnership's
affairs are managed and controlled by Related Independence Associates L.P., the
General Partner. Certain information concerning the directors and executive
officers of Related Independence Associates Inc. ("RIAI"), the sole general
partner of the General Partner, is set forth below.

Name Position
- - ---- --------

Stephen M. Ross Director

J. Michael Fried President, Chief Executive
Officer and Director

Alan P. Hirmes Senior Vice President

Stuart J. Boesky Vice President

Marc D. Schnitzer Vice President

Glenn F. Hopps Treasurer

Lynn A. McMahon Secretary

STEPHEN M. ROSS, 58, is also President, Director and shareholder of The Related
Realty Group, Inc., the general partner of The Related Companies, L.P. He
graduated from the University of Michigan School of Business Administration with
a Bachelor of Science degree and from Wayne State University School of Law with
a Juris Doctor degree. Mr. Ross then received a Master of Laws degree in
taxation from New York University School of Law. He joined the accounting firm
of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York,
where he worked for two large Wall Street investment banking firms in their real
estate and corporate finance departments. Mr. Ross formed the predecessor of The
Related Companies, L.P. in 1972 to develop, manage, finance and acquire
subsidized and conventional apartment developments.

J. MICHAEL FRIED, 54, is the sole shareholder of one of the general partners of
Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the General Partner. In that capacity, he is responsible for all of
Capital's syndication, finance, acquisition and investor reporting activities.
Mr. Fried practiced corporate law in New York City with the law firm of
Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979. Mr.
Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna cum
laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.

ALAN P. HIRMES, 43, has been a Certified Public Accountant in New York since
1978. Prior to joining Related in October 1983, Mr. Hirmes was employed by
Weiner & Co., Certified

32

Public Accountants. Mr. Hirmes is also a Vice President of Capital. Mr. Hirmes
graduated from Hofstra University with a Bachelor of Arts degree.

STUART J. BOESKY, 42, practiced real estate and tax law in New York City with
the law firm of Shipley & Rothstein (which subsequently merged with Strook &
Strook & Lavan) from 1984 until February 1986 when he joined Capital. From 1983
to 1984 Mr. Boesky practiced law with the Boston law firm of Kaye Fialkow
Richard & Rothstein and from 1978 to 1980 was a consultant specializing in real
estate at the accounting firm of Laventhol & Horwath. Mr. Boesky graduated from
Michigan State University with a Bachelor of Arts degree and from Wayne State
School of Law with a Juris Doctor degree. He then received a Master of Laws
degree in Taxation from Boston University School of Law.

MARC D. SCHNITZER, 37, is responsible both for financial restructurings of real
estate properties and directing Related's acquisitions of properties generating
Housing Tax Credits. Mr. Schnitzer received a Masters of Business Administration
from The Wharton School of the University of Pennsylvania in December 1987
before joining Related in January 1988. From 1983 to January 1986, he was a
financial analyst for the First Boston Corporation in New York. Mr. Schnitzer
graduated summa cum laude with a Bachelor of Science in Business Administration
from the School of Management at Boston University in May 1983.

GLENN F. HOPPS, 35, was employed prior to joining Related in December, 1990 by
Marks Shron & Company and Weissbarth, Altman and Michaelson, certified public
accountants. Mr. Hopps graduated from New York State University at Albany with a
Bachelor of Science Degree in Accounting.

LYNN A. McMAHON, 42 has since 1983, she has served as Assistant to the President
of Capital. From 1978 to 1983 she was employed at Sony Corporation of America in
the Government Relations Department.

Item 11. Executive Compensation.

The Partnership has no officers or directors. The Partnership does not pay or
accrue any fees, salaries or other forms of compensation to directors or
officers of the General Partner for their services. However, under the terms of
the Partnership Agreement, the Partnership has entered into certain arrangements
with the General Partner and its affiliates, which provide for compensation to
be paid to the General Partner and its affiliates. Such arrangements include
(but are not limited to) agreements to pay nonrecurring Acquisition Fees, a
nonaccountable Acquisition Expense allowance and an accountable expense
reimbursement. In addition, the General Partner is entitled to a subordinated
interest in Cash from Sales or Financings and a 1% interest in Net Income, Net
Loss, Distributions of Adjusted Cash from Operations and Cash from Sales or
Financings. Certain directors and officers of the General Partner receive
compensation from the General Partner and its affiliates for services performed
for various affiliated entities which may include services performed for the
Partnership. The maximum annual partnership management fee paid to the General
Partner is 0.5% of invested assets. See Note 8 to the Financial Statements in
Item 8 above, which is incorporated herein by reference.

Tabular information concerning salaries, bonuses and other types of compensation
payable to executive officers has not been included in this annual report. As
noted above, the Partnership has no executive officers. The levels of
compensation payable to the General Partner and/or its affiliates is limited by
the terms of the Partnership Agreement and may not be increased therefrom on a
discretionary basis.

33

Item 12. Security Ownership of Certain Beneficial Owners and Management.

Name and Address of Amount and Nature of Percentage
Title of Class Beneficial Ownership Beneficial Ownership of Class
- - -------------- -------------------- -------------------- --------

General Partnership Related Independence $1,000 capital contribution 100%
Interest in the Associates L.P. -directly owned
Partnership 625 Madison Avenue
New York, NY 10022

Independence SLP L.P., a limited partnership whose general partner is the
general partner of the General Partner of the Partnership and which acts as the
special limited partner of each Local Partnership, holds a .01% limited
partnership interest in each Local Partnership. See Note 8 to the Financial
Statements in Item 8 above, which information is incorporated herein by
reference thereto.

No person is known by the Partnership to be the beneficial owner of more than
5% of the Limited Partnership Interests and neither the Related General Partner
nor any director or executive officer of the Related General Partner owns any
Limited Partnership Interests. The following table sets forth the number of BACs
beneficially owned, as of June 23, 1998, by (i) each BACs holder known to the
Partnership to be a beneficial owner of more than 5% of the BACs, (ii) each
director and executive officer of the general partner of the Related General
Partner and (iii) the directors and executive officers of the general partner of
the Related General Partner as a group. Unless otherwise noted, all BACs are
owned directly with sole voting and dispositive powers.

34

Amount and Nature of
Name of Beneficial Owner (1) Beneficial Ownerahip Percent of Class
- - ---------------------------- -------------------- ----------------

Lehigh Tax Credit Partners, Inc. 4,453.20 (2) (3) 7.6%

J. Michael Fried 4,453.20 (2) (3) (4) 7.6%

Alan P. Hinnes 4,453.20 (2) (3) (4) 7.6%

Stuart J. Boesky 4,453.20 (2) (3) (4) 7.6%

Stephen M. Ross -- --

Marc D. Schnitzer -- --

Glenn F. Hopps -- --

Lynn A. McMahon -- --

All directors and executive officers 4,453.20 (2) (3) (4) 7.6%
of the general partner of the
Related General Partner as a group
(seven persons)

(1) The address for each of the persons in the table is 625 Madison Avenue, New
York, New York 10022.

(2) As set forth in Schedule 13D filed by Lehigh Tax Credit Partners L.L.C.
("Lehigh I") and Lehigh Tax Credit Partners, Inc., (the "Managing Member") on
June 10, 1997 with the Securities and Exchange Commission (the "Commission") and
pursuant to a letter agreement dated November 7, 1997 among the Partnership,
Lehigh I and the Related General Partner (the "Standstill Agreement"), Lehigh I
agreed that, prior to November 7, 2007 (the "Standstill Expiration Date"), it
will not and it will cause certain affiliates not to (i) acquire, attempt to
acquire or make a proposal to acquire, directly or indirectly, more than 45%
(including BACs acquired through all other means) of the outstanding BACs, (ii)
seek to propose to enter into, directly or indirectly, any merger,
consolidation, business combination, sale or acquisition of assets, liquidation,
dissolution or other similar transaction involving the Partnership, (iii) make,
or in any way participate, directly or indirectly, in any "solicitation" of
"proxies" or "consents" (as such terms are used in the proxy rules of the
Commission) to vote any voting securities of the Partnership, (iv) form, join or
otherwise participate in a "group" (within the meaning of Section 13(d)(3) of
the Securities and Exchange Act of 1934) with respect to any voting securities
of the Partnership, except those affiliates bound by the Standstill Agreement
will not be deemed to have violated it and formed a "group" solely by acting in
accordance with the Standstill Agreement, (v) disclose in writing to any third
party any intention, plan or arrangement inconsistent with the terms of the
Standstill Agreement, or (vi) loan money to, advise, assist or encourage any
person in connection with any action inconsistent with the terms of the
Standstill Agreement. In addition, Lehigh I agreed that until the Standstill
Expiration Date it will not sell any BACs acquired by it unless the buyer of
such BACs agrees to be bound by the Standstill Agreement; provided, however,
Lehigh I may make transfers in the secondary market to any purchaser which
represents that following such sale it will not own three (3%) percent or more
of the BACs outstanding. By the terms of the Standstill Agreement, Lehigh I also
agreed to vote its BACs in the same manner as a majority of all voting BACs
holders; provided, however, Lehigh I is entitled to vote its BACs as it
determines with regard to any proposal (i) to remove the Related General Partner
as a general partner of the Partnership or (ii) concerning the reduction of any
fees, profits, distributions or allocations for the benefit of the Related
General Partner or its affiliates. The addresses of each of the Partnership,
Lehigh I and the Related General Partner is 625 Madison Avenue, New York, New
York 10022.

(3) All of such BACs represent BACs owned directly by Lehigh I and Lehigh Tax
Credit Partners II, L.L.C. ("Lehigh II"), for which the Managing Member serves
as managing member. As of June 23, 1998, Lehigh I held 2,213.60 BACs and Lehigh
II held 2,239.60 BACs.

(4) Each such party serves as a director and executive officer of the Managing
Member and owns Member and owns an equity interest therein.

35

Item 13. Certain Relationships and Related Transactions.

The Partnership has and will continue to have certain relationships with the
General Partner and its affiliates, as discussed in Item 11 and also Note 8 to
the Financial Statements in Item 8 above, which is incorporated herein by
reference thereto. However, there have been no direct financial transactions
between the Partnership and the directors and officers of the General Partner.

36

PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

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

Independent Auditors' Report 16

Consolidated Balance Sheets at March 31,
1998 and 1997 63

Consolidated Statements of Operations for
the Years Ended March 31, 1998, 1997 and
1996 64

Consolidated Statements of Changes in
Partners' Capital (Deficit) for the Years
Ended March 31, 1998, 1997 and 1996 65

Consolidated Statements of Cash Flows for
the Years Ended March 31, 1998, 1997 and
1996 66

Notes to Consolidated Financial Statements 68

(a) 2. Consolidated Financial Statement Schedules

Independent Auditors' Report 89

Schedule I - Condensed Financial
Information of Registrant 90

Schedule III - Real Estate and Accumulated
Depreciation 93

All other schedules have been omitted
because they are not required or because
the required information is contained in
the financial statements or notes thereto.

(a) 3. Exhibits

(3A) Agreement of Limited Partnership of
Independence Tax Credit Plus L.P. II as
adopted on February 11, 1992*

(3B) Form of Amended and Restated Agreement of
Limited Partnership of Independence Tax
Credit Plus L.P. II, attached to the
Prospectus as Exhibit A**

(3C) Certificate of Limited Partnership of
Independence Tax Credit Plus L.P. II as
filed on February 11, 1992*

(10A) Form of Subscription Agreement attached to
the Prospectus as Exhibit B**

(10B) Escrow Agreement between Independence Tax
Credit Plus L.P. II and Bankers Trust
Company*

37

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)
Sequential
Page
----------

(10C) Form of Purchase and Sales Agreement
pertaining to the Partnership's acquisition
of Local Partnership Interests*

(10D) Form of Amended and Restated Agreement of
Limited Partnership of Local Partnerships*

(21) Subsidiaries of the Registrant 85

(27) Financial Data Schedule (filed herewith) 95

*Incorporated herein as an exhibit by
reference to exhibits filed with
Post-Effective Amendment No. 4 to the
Registration Statement on Form S-11
(Registration No. 33-37704)

**Incorporated herein as an exhibit by
reference to exhibits filed with
Post-Effective Amendment No. 8 to the
Registration Statement on Form S-11
(Registration No. 33-37704)

(b) Reports on Form 8-K

No reports on Form 8-K were filed during
the quarter.

38

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(continued)

Jurisdiction
(c) Subsidiaries of the Registrant (Exhibit 21) of Organization
------------------------------ ---------------

Lincoln Renaissance PA
United Germano - Millgate Limited Partnership IL
Mansion Court Associates PA
Derby Run Associates, L.P. VA
Renaissance Plaza '93 Associates, L.P. MD
Tasker Village Associates PA
Martha Bryant Manor, L.P. CA
Colden Oaks Limited Partnership CA
Brynview Terrace, L.P. CA
NLEDC, L.P. CA
Creative Choice Homes VI, Ltd. FL
P & P Homes for the Elderly, L.P. CA
Clear Horizons Limited Partnership LA
Neptune Venture, L.P. NJ
Affordable Green Associates L.P. NY

(d) Not applicable

39

Supplemental Information to be furnished with Reports Filed Pursuant to Section
15(d) of the Act by Registrants which have Not Registered Securities Pursuant to
Section 12 of the Act.

No annual report to security holders covering the Registrant's last fiscal year
nor any proxy statement, form of proxy or other proxy soliciting material with
respect to any annual or other meeting of security holders has been sent to
security holders.

40

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

INDEPENDENCE TAX CREDIT PLUS L.P. II
------------------------------------
(Registrant)

By: RELATED INDEPENDENCE ASSOCIATES L.P.,
General Partner

By: RELATED INDEPENDENCE ASSOCIATES INC.,
General Partner

Date: June 23, 1998 By: /s/ J. Michael Fried
--------------------
J. Michael Fried
President, Chief Executive Officer and Director
(Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated:

Signature Title Date
--------- ------------------------------------- ---------------

President and Chief Executive Officer
(principal executive officer) and
/s/ J. Michael Fried Director of Related Independence
- - -------------------- Associates Inc. June 23, 1998
J. Michael Fried

Senior Vice President (principal
/s/ Alan P. Hirmes financial officer) of Related
- - ------------------ Independence Associates Inc. June 23, 1998
Alan P. Hirmes

Treasurer (principal accounting
/s/ Glenn F. Hopps officer) of Related Independence
- - ------------------ Associates Inc. June 23, 1998
Glenn F. Hopps

/s/ Stephen M. Ross Director of Related Independence
- - ------------------- Associates Inc. June 23, 1998
Stephen M. Ross

INDEPENDENT AUDITORS' REPORT

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

In connection with our audits of the consolidated financial statements of
Independence Tax Credit Plus L.P. II and Subsidiaries included in the Form 10-K
as presented in our opinion dated June 22, 1998 on page 16, and based on the
reports of other auditors, we have also audited supporting Schedule I for the
1997, 1996 and 1995 Fiscal Years and Schedule III at March 31, 1998. In our
opinion, and based upon the reports of the other auditors, these consolidated
schedules present fairly, when read in conjunction with the related consolidated
financial statements, the financial data required to be set forth therein.

/s/ Trien Rosenberg Rosenberg,
Weinberg Ciullo & Fazzari L.L.P.

Trien Rosenberg Rosenberg,
Weinberg Ciullo & Fazzari L.L.P.

June 22, 1998
New York, New York

INDEPENDENCE TAX CREDIT PLUS L.P. II
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(NOT INCLUDING CONSOLIDATED SUBSIDIARY PARTNERSHIPS)

CONDENSED BALANCE SHEETS

ASSETS

March 31,
---------------------------------
1998 1997
------------- -------------

Cash and cash equivalents $ 1,494,854 $ 3,528,297
Cash held in escrow 757,620 1,231,525
Investment in subsidiary partnerships 36,246,721 39,414,134
Other assets 78,108 55,615
----------- ----------

Total assets $38,577,303 $44,229,571
========== ==========

LIABILITIES AND PARTNERS' CAPITAL

Due to general partner and affiliates $ 211,962 $ 154,236
----------- ----------

Total liabilities 211,962 154,236

Partners' capital 38,365,341 44,075,335
----------- ----------

Total liabilities and partners' capital $38,577,303 $44,229,571
========== ==========

Investments in subsidiary partnerships are recorded in accordance with the
equity method of accounting, wherein the investments are not reduced below zero.
Accordingly, partners' capital on the consolidated balance sheet will differ
from partners' capital shown above.

INDEPENDENCE TAX CREDIT PLUS L.P. II
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(NOT INCLUDING CONSOLIDATED SUBSIDIARY PARTNERSHIPS)

CONDENSED STATEMENTS OF OPERATIONS

Year Ended March 31,
------------------------------------------------
1998 1997 1996
---------- ----------- ----------

Revenues
Other income $ 63,283 $ 204,731 $ 491,496
---------- ----------- ----------

Total revenues $ 63,283 $ 204,731 $ 491,496
========== =========== ==========

Expenses

Financial (principally interest) $ 0 $ 0 $ 16,024
Administrative and management 130,442 208,172 330,886
Administrative and management-related parties 162,759 189,081 526,307
Amortization 10,000 10,000 10,000
---------- ----------- ----------

Total expenses 303,201 407,253 883,217
---------- ----------- ----------

Loss from operations (239,918) (202,522) (391,721)

Equity in loss of subsidiary partnerships (5,470,076) (3,813,090) (2,552,668)
---------- ----------- ----------

Net loss $(5,709,994) $(4,015,612) $(2,944,389)
========== ========== ==========

INDEPENDENCE TAX CREDIT PLUS L.P. II
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
DECREASE IN CASH AND CASH EQUIVALENTS
(NOT INCLUDING CONSOLIDATED SUBSIDIARY PARTNERSHIPS)

CONDENSED STATEMENTS OF CASH FLOWS

Year Ended March 31,
------------------------------------------------
1998 1997 1996
---------- ----------- ----------

Cash flows from operating activities:
Net loss $(5,709,994) $(4,015,612) $(2,944,389)
---------- ---------- ----------
Adjustments to reconcile net loss to net cash
used in operating activities:

Amortization 10,000 10,000 10,000
Equity in loss of subsidiary partnerships 5,470,076 3,813,090 2,552,668

Increase (decrease) in liabilities

Due to general partners and affiliates 57,726 125,481 28,755
Other liabilities 0 (1,548) 0
---------- ---------- ----------

Total adjustments 5,537,802 3,947,023 2,591,423
---------- ---------- ----------

Net cash used in operating activities (172,192) (68,589) (352,966)
---------- ---------- ----------

Cash flows from investing activities:

Investment in subsidiary partnerships (2,355,026) (5,372,852) (17,678,489)
(Increase) decrease in other assets (32,493) (5,962) 876,882
Decrease in cash held in escrow-
purchase price payments 473,905 11,695 1,269,700
Increase in accounts payable and other liabilities 0 0 277
---------- ---------- ----------

Net cash used in investing activities (1,913,614) (5,367,119) (15,531,630)
---------- ---------- ----------

Net cash provided by financing activities:

Distributions from subsidiary partnerships 52,363 0 15,680
---------- ---------- ----------

Net decrease in cash and cash equivalents (2,033,443) (5,435,708) (15,868,916)

Cash and cash equivalents, beginning of year 3,528,297 8,964,005 24,832,921
---------- ---------- ----------

Cash and cash equivalents, end of year $ 1,494,854 $ 3,528,297 $ 8,964,005
=========== =========== ===========

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 1998

Initial Cost to Partnership Cost Capitalized
--------------------------- Subsequent to
Buildings and Acquisition:
Description Encumbrances Land Improvements Improvements
----------- ------------ ---- ------------ ------------

Apartment Complexes

Lincoln Renaissance
Reading, PA $2,590,000 $ 0 $ 5,240,173 $ 219,400
United Germano Millgate Limited Partnership
Chicago, IL 10,457,980 580,000 6,070,477 10,294,805
Mansion Court Associates
Philadelphia, PA 1,431,244 19,072 3,224,984 188,066
Derby Run Associates L.P.
Hampton, VA 4,593,333 407,410 3,069,628 4,557,603
Renaissance Plaza Assoc.
Baltimore, MD 6,655,312 684,255 9,840,170 4,137,905
Tasker Village
Philadelphia, PA 1,784,881 18,235 0 3,931,259
Martha Bryant Manor, L.P.
Los Angeles, CA 7,752,098 966,577 0 10,237,821
Colden Oaks Limited Partnership
Los Angeles, CA 5,373,100 922,790 0 1,947,485
Brynview Terrace Limited Partnership
Los Angeles, CA 1,016,215 175,943 0 1,436,836
NLEDC, L.P.
Los Angeles, CA 4,327,260 624,000 0 5,881,927
Creative Choice Homes VI Ltd.
Miami, FL 3,534,854 650,072 13,134 5,332,621
P&P Homes for the Elderly, L.P.
Los Angeles, CA 6,297,625 0 0 9,913,489
Clear Horizons Limited Partnership
Shreveport, LA 1,235,000 15,304 2,058,729 59,931
Neptune Venture L.P.
Neptune Township, NJ 0 460,631 10,151,873 120,788
Affordable Green Associates L.P.
New York, NY 2,231,472 20,500 3,506,961 31,413
---------- --------- ----------- -----------

$59,280,374 $5,544,789 $43,176,129 $58,291,349
=========== ========== =========== ===========

Gross Amount at which Carried At Close of Period
------------------------------------------------
Buildings and Accumulated
Description Land Improvements Total Depreciation
----------- ---- ------------ ----- ------------

Apartment Complexes

Lincoln Renaissance
Reading, PA $ 5,373 $ 5,454,200 $ 5,459,573 $ 549,540
United Germano Millgate Limited Partnership
Chicago, IL 585,374 16,359,908 16,945,282 2,846,067
Mansion Court Associates
Philadelphia, PA 25,095 3,407,027 3,432,122 346,736
Derby Run Associates L.P.
Hampton, VA 409,771 7,624,870 8,034,641 741,973
Renaissance Plaza Assoc.
Baltimore, MD 686,616 13,975,714 14,662,330 1,078,079
Tasker Village
Philadelphia, PA 20,596 3,928,898 3,949,494 262,608
Martha Bryant Manor, L.P.
Los Angeles, CA 968,938 10,235,460 11,204,398 502,483
Colden Oaks Limited Partnership
Los Angeles, CA 925,151 1,945,124 2,870,275 499,855
Brynview Terrace Limited Partnership
Los Angeles, CA 178,304 1,434,475 1,612,779 76,562
NLEDC, L.P.
Los Angeles, CA 626,361 5,879,566 6,505,927 378,330
Creative Choice Homes VI Ltd.
Miami, FL 652,433 5,343,394 5,995,827 512,995
P&P Homes for the Elderly, L.P.
Los Angeles, CA 642,360 9,271,129 9,913,489 439,879
Clear Horizons Limited Partnership
Shreveport, LA 17,665 2,116,299 2,133,964 253,498
Neptune Venture L.P.
Neptune Township, NJ 462,465 10,270,827 10,733,292 537,430
Affordable Green Associates L.P.
New York, NY 22,334 3,536,540 3,558,874 308,682
---------- ------------ ------------ -----------

$6,228,836 $100,783,431 $107,012,267 $9,334,717
========= =========== =========== =========

Life on which
Depreciation in
Year of Latest Income
Construction/ Date Statements is
Description Renovation Acquired Computed(a)(b)
----------- ---------- -------- --------------

Apartment Complexes

Lincoln Renaissance
Reading, PA 1993-94 Apr. 1993 20-40
United Germano Millgate Limited Partnership
Chicago, IL 1993-94 Oct. 1993 10-25
Mansion Court Associates
Philadelphia, PA 1993-94 Nov. 1993 20-40
Derby Run Associates L.P.
Hampton, VA 1994-95 Feb. 1994 40
Renaissance Plaza Assoc.
Baltimore, MD 1994-95 Feb. 1994 27.5
Tasker Village
Philadelphia, PA 1994-95 May 1994 40
Martha Bryant Manor, L.P.
Los Angeles, CA 1994-95 Sept. 1994 27.5
Colden Oaks Limited Partnership
Los Angeles, CA 1994-95 Sept. 1994 31
Brynview Terrace Limited Partnership
Los Angeles, CA 1994-95 Sept. 1994 27.5
NLEDC, L.P.
Los Angeles, CA 1994-95 Sept. 1994 27.5
Creative Choice Homes VI Ltd.
Miami, FL 1994-95 Sept. 1994 40
P&P Homes for the Elderly, L.P.
Los Angeles, CA 1994-95 Sept. 1994 30
Clear Horizons Limited Partnership
Shreveport, LA 1994-95 Dec. 1994 27.5
Neptune Venture L.P.
Neptune Township, NJ 1995-96 Apr. 1995 40
Affordable Green Associates L.P.
New York, NY 1995-96 May 1995 27

(a) Depreciation is computed using primarily the straight-line method over the
estimated useful lives determined by the Partnership date of acquisition.
(b) Personal property is depreciated primarily by the straight-line method over
the estimated useful lives ranging from 5 to 10 years.

INDEPENDENCE TAX CREDIT PLUS L.P. II
AND SUBSIDIARIES
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Partnership Property Pledged as Collateral
MARCH 31, 1998

Cost of Property and Equipment Accumulated Depreciation
------------------------------------------ ------------------------------------------
Year Ended March 31,
----------------------------------------------------------------------------------------------
1998 1997 1996 1998 1997 1996
------------ ------------ ----------- ---------- ---------- ----------

Balance at beginning of period $110,244,087 $ 83,486,772 $44,926,639 $5,929,690 $2,959,862 $ 857,939
Additions during period:
Improvements 693,694 26,757,315 38,560,133
Depreciation expense 3,405,027 2,969,828 2,101,923
Deductions during period:
Dispositions 0 0 0 0 0 0
Loss on impairment 3,925,514 0 0 0 0 0
------------ ------------ ----------- ---------- ---------- ----------

Balance at close of period $107,012,267 $110,244,087 $83,486,772 $9,334,717 $5,929,690 $2,959,862
============ ============ =========== ========== ========== ==========

At the time the Local Partnerships were acquired by Independence Tax Credit Plus
II Limited Partnership, the entire purchase price paid by Independence Tax
Credit Plus II Limited Partnership was pushed down to the Local Partnerships as
property and equipment with an offsetting credit to capital. Since the projects
were in the construction phase at the time of acquisition, the capital accounts
were insignificant at the time of purchase.
Therefore, there are no material differences between the original cost basis for
tax and GAAP.