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|                                              | Page   |
|---------------------------------------------------|--------|
| Independent Auditors' Report                      | 1      |
|                                              |   |
| Financial Statements                              |   |
|                                              |   |
| Balance Sheets                                    | 2      |
|                                              |   |
| Statements of Operations and Comprehensive Income | 4      |
|                                              |   |
| Statements of Partners' Capital (Deficit)         | 5      |
|                                              |   |
| Statements of Cash Flows                          | 6      |
|                                              |   |
| Notes to Financial Statements                     | 7      |
|                                              |   |
| Supplemental Information                          | 11     |

| Michelle M. Granberry, CPA | P.O. Box 3196         |
|----------------------------|-----------------------|
| Kellie B. Blackmon, CPA    | Auburn, AL 36831-3196 |
| MEMBER                     | Phone: (334) 741-1050 |
| American Institute of CPAs | Fax. (334) 741-1059   |
| Alabama Society of CPAs    | www.granberrycpa.com  |

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|                                          |   | 2006   |      |   | 2005   |   |
|-----------------------------------------------|--------|--------|-----------|--------|--------|--------|
| ASSETS                                        |   |   |      |   |   |   |
|                                          |   |   |      |   |   |   |
| Current Assets                                |   |   |      |   |   |   |
| Cash                                          |   | $      | 2,082     |   |   | $      | 2,350 |   |
| Accounts Receivable - Tenant                  |   |   | 2,220     |   |   |   | 1,073 |   |
| Prepaid Insurance                             |   |   | 1,124     |   |   |   | 963 |   |
|                                          |   |   |      |   |   |   |   |   |
| Total Current Assets                          |   |   | 5,426     |   |   |   | 4,386 |   |
|                                          |   |   |      |   |   |   |   |   |
| Restricted Deposits and Funded Reserves       |   |   |      |   |   |   |   |   |
| Taxes and Insurance                           |   |   | 2,975     |   |   |   | 3,271 |   |
| Replacement Reserve                           |   |   | 60,515    |   |   |   | 50,237 |   |
| Security Deposits                             |   |   | 12,218    |   |   |   | 9,654 |   |
|                                          |   |   |      |   |   |   |   |   |
| Total Restricted Deposits and Funded Reserves |   |   | 75,708    |   |   |   | 63,162 |   |
|                                          |   |   |      |   |   |   |   |   |
| Property and Equipment                        |   |   |      |   |   |   |   |   |
| Land                                          |   |   | 69,000    |   |   |   | 69,000 |   |
| Buildings and Improvements                    |   |   | 2,185,247 |   |   |   | 2,185,247 |   |
| Furniture, Fixtures and Equipment             |   |   | 99,454    |   |   |   | 99,454 |   |
|                                          |   |   | 2,353,701 |   |   |   | 2,353,701 |   |
| Less Accumulated Depreciation                 |   |   | (626,003  | )      |   |   | (559,908 | ) |
| Total Property and Equipment                  |   |   | 1,727,698 |   |   |   | 1,793,793 |   |
|                                          |   |   |      |   |   |   |   |   |
| Other Assets                                  |   |   |      |   |   |   |   |   |
| Deposits                                      |   |   | 75        |   |   |   | 75 |   |
| TOTAL ASSETS                                  |   | $      | 1,808,907 |   |   | $      | 1,861,416 |   |

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|                                        |   | 2006   |      |   | 2005   |   |
|---------------------------------------------|--------|--------|-----------|--------|--------|--------|
| LIABILITIES AND PARTNERS' EQUITY            |   |   |      |   |   |   |
|                                        |   |   |      |   |   |   |
| Current Liabilities                         |   |   |      |   |   |   |
| Accounts Payable                            |   | $      | 6,838     |   |   | $      | 7,336 |   |
| Accrued Partners' Fee Payable               |   |   | 1,250     |   |   |   | 1,000 |   |
| Security Deposits Payable                   |   |   | 9,715     |   |   |   | 9,105 |   |
| Tenant Overage Payable                      |   |   | 160       |   |   |   | 686 |   |
| Payroll Taxes Payable                       |   |   | 670       |   |   |   | 534 |   |
| Accrued Interest Payable                    |   |   | 36,895    |   |   |   | 32,185 |   |
| Accrued Property Taxes Payable              |   |   | 4,593     |   |   |   | 4,232 |   |
| Current Maturities of Mortgage Payable      |   |   | 9,018     |   |   |   | 8,373 |   |
| Total Current Liabilities                   |   |   | 69,139    |   |   |   | 63,451 |   |
|                                        |   |   |      |   |   |   |   |   |
| Long-Term Liabilities                       |   |   |      |   |   |   |   |   |
| Mortgage Payable, net of current maturities |   |   | 1,101,809 |   |   |   | 1,110,827 |   |
| Obligation Under Interest Rate Swap         |   |   | 15,297    |   |   |   | 18,866 |   |
| Total Long-Term Liabilities                 |   |   | 1,117,106 |   |   |   | 1,129,693 |   |
|                                        |   |   |      |   |   |   |   |   |
| Total Liabilities                           |   |   | 1,186,245 |   |   |   | 1,193,144 |   |
|                                        |   |   |      |   |   |   |   |   |
| Partners' Equity                            |   |   |      |   |   |   |   |   |
| Partners' Capital                           |   |   | 637,959   |   |   |   | 687,138 |   |
| Unrealized Loss on Cash Flow Hedge          |   |   | (15,297   | )      |   |   | (18,866 | ) |
| Total Partners' Equity                      |   |   | 622,662   |   |   |   | 668,272 |   |
| TOTAL LIABILITIES AND PARTNERS' EQUITY      |   | $      | 1,808,907 |   |   | $      | 1,861,416 |   |

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|                                                                |   | 2006   |    |   | 2005   |   |
|---------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                |   |   |    |   |   |   |
| Revenues                                                            |   |   |    |   |   |   |
| Rental                                                              |   | $      | 138,115 |   |   | $      | 133,352 |   |
| Miscellaneous Charges                                               |   |   | 3,507   |   |   |   | 2,417 |   |
| Total Revenues                                                      |   |   | 141,622 |   |   |   | 135,769 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Operating Expenses                                                  |   |   |    |   |   |   |   |   |
| Administrative                                                      |   |   | 17,210  |   |   |   | 18,105 |   |
| Advertising                                                         |   |   | 134     |   |   |   | 103 |   |
| Bad Debt                                                            |   |   | 4,610   |   |   |   | 8,708 |   |
| Management Fees                                                     |   |   | 11,993  |   |   |   | 11,237 |   |
| Repair and Maintenance                                              |   |   | 25,194  |   |   |   | 24,528 |   |
| Taxes and Insurance                                                 |   |   | 35,669  |   |   |   | 35,835 |   |
| Utilities                                                           |   |   | 8,860   |   |   |   | 5,320 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Total Operating Expenses                                            |   |   | 103,670 |   |   |   | 103,836 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Income from Operations                                              |   |   | 37,952  |   |   |   | 31,933 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Partnership and Financial Income (Expense)                          |   |   |    |   |   |   |   |   |
| Interest Income                                                     |   |   | 374     |   |   |   | 266 |   |
| Interest Expense                                                    |   |   | (21,160 | )      |   |   | (20,932 | ) |
| Partnership Management Fees                                         |   |   | (250    | )      |   |   | (250 | ) |
|                                                                |   |   |    |   |   |   |   |   |
| Total Partnership and Financial Income (Expense)                    |   |   | (21,036 | )      |   |   | (20,916 | ) |
|                                                                |   |   |    |   |   |   |   |   |
| Income (Loss) from Operations before Depreciation                   |   |   | 16,916  |   |   |   | 11,017 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Depreciation                                                        |   |   | (66,095 | )      |   |   | (67,561 | ) |
|                                                                |   |   |    |   |   |   |   |   |
| Net Loss                                                            |   |   | (49,179 | )      |   |   | (56,544 | ) |
|                                                                |   |   |    |   |   |   |   |   |
| Other Comprehensive Income (Loss)                                   |   |   |    |   |   |   |   |   |
| Unrealized Gain (Loss) on cash flow hedge arising during the period |   |   | 3,569   |   |   |   | 5,100 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Total Other Comprehensive Income (Loss)                             |   |   | 3,569   |   |   |   | 5,100 |   |
|                                                                |   |   |    |   |   |   |   |   |
| Total Comprehensive Loss                                            |   | $      | (45,610 | )      |   | $      | (51,444 | ) |
|                                                                |   |   |    |   |   |   |   |   |

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|                                           |   | General  |   |   | Limited  |   |    |   |   |
|------------------------------------------------|--------|----------|--------|--------|----------|--------|---------|--------|--------|
|                                           |   | Partners |   |   | Partners |   |    | Total  |   |
|                                           |   |     |   |   |     |   |    |   |   |
| Partners' Capital, December 31, 2004           |   | $        | 339    |   |     | $      | 743,343 |   |   | $ | 743,682 |   |
|                                           |   |     |   |   |     |   |    |   |   |   |   |   |
| Net Loss                                       |   |     | (565   | )      |     |   | (55,979 | )      |   |   | (56,544 | ) |
|                                           |   |     |   |   |     |   |    |   |   |   |   |   |
| Partners' Capital (Deficit), December 31, 2005 |   |     | (226   | )      |     |   | 687,364 |   |   |   | 687,138 |   |
|                                           |   |     |   |   |     |   |    |   |   |   |   |   |
| Net Loss                                       |   |     | (492   | )      |     |   | (48,687 | )      |   |   | (49,179 | ) |
| Partners' Capital (Deficit), December 31, 2006 |   | $        | (718   | )      |     | $      | 638,677 |   |   | $ | 637,959 |   |

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|                                                                                           |   | 2006   |    |   | 2005   |   |
|------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
| Cash flows from operating activities                                                           |   |   |    |   |   |   |
| Net Loss                                                                                       |   | $      | (49,179 | )      |   | $      | (56,544 | ) |
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities |   |   |    |   |   |   |   |   |
| Depreciation                                                                                   |   |   | 66,095  |   |   |   | 67,561 |   |
| (Increase) Decrease in Accounts Receivable - Tenant                                            |   |   | (1,147  | )      |   |   | 148 |   |
| (Increase) Decrease in Prepaid Insurance                                                       |   |   | (161    | )      |   |   | 359 |   |
| (Increase) Decrease in Security Deposit Cash                                                   |   |   | (2,564  | )      |   |   | 1,928 |   |
| (Increase) Decrease in Other Receivables                                                       |   |   | --      |   |   |   | 56,950 |   |
| Increase (Decrease) in Accounts Payable                                                        |   |   | (498    | )      |   |   | (845 | ) |
| Increase (Decrease) in Accrued Partners' Fees                                                  |   |   | 250     |   |   |   | 250 |   |
| Increase (Decrease) in Security Deposits Payable                                               |   |   | 610     |   |   |   | (965 | ) |
| Increase (Decrease) in Tenant Overage Payable                                                  |   |   | (526    | )      |   |   | 527 |   |
| Increase (Decrease) in Payroll Taxes Payable                                                   |   |   | 136     |   |   |   | (14 | ) |
| Increase (Decrease) in Accrued Interest Payable                                                |   |   | 4,710   |   |   |   | 4,882 |   |
| Increase (Decrease) in Accrued Property Taxes                                                  |   |   | 361     |   |   |   | (13 | ) |
| Increase (Decrease) in Deferred Revenue                                                        |   |   | --      |   |   |   | (65,350 | ) |
| Total Adjustments                                                                              |   |   | 67,266  |   |   |   | 65,418 |   |
| Net cash provided (used) by operating activities                                               |   |   | 18,087  |   |   |   | 8,874 |   |
|                                                                                           |   |   |    |   |   |   |   |   |
| Cash flows from investing activities:                                                          |   |   |    |   |   |   |   |   |
| Deposits to Taxes and Insurance Escrow                                                         |   |   | (34,328 | )      |   |   | (36,026 | ) |
| Deposits to Reserve Account                                                                    |   |   | (10,278 | )      |   |   | (10,206 | ) |
| Transfers from Taxes and Insurance                                                             |   |   | 34,624  |   |   |   | 33,514 |   |
| Transfers from Reserve for Replacement                                                         |   |   | --      |   |   |   | 4,498 |   |
| Net cash provided (used) by investing activities                                               |   |   | (9,982  | )      |   |   | (8,220 | ) |
|                                                                                           |   |   |    |   |   |   |   |   |
| Cash flows from financing activities:                                                          |   |   |    |   |   |   |   |   |
| Principal Payments on Mortgage Loan                                                            |   |   | (8,373  | )      |   |   | (7,703 | ) |
| Net cash provided (used) by financing activities                                               |   |   | (8,373  | )      |   |   | (7,703 | ) |
|                                                                                           |   |   |    |   |   |   |   |   |
| Net increase (decrease) in cash and cash equivalents                                           |   |   | (268    | )      |   |   | (7,049 | ) |
| Cash and cash equivalents, beginning of year                                                   |   |   | 2,350   |   |   |   | 9,399 |   |
| Cash and cash equivalents, end of year                                                         |   | $      | 2,082   |   |   | $      | 2,350 |   |
|                                                                                           |   |   |    |   |   |   |   |   |
| Supplemental disclosures of cash flow information                                              |   |   |    |   |   |   |   |   |
| Interest Paid                                                                                  |   | $      | 16,295  |   |   | $      | 15,986 |   |

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|   | Buildings                          | 40 years, straight-line      |
|--------|------------------------------------|------------------------------|
|   | Furniture, fixtures, and equipment | 5-7 years, declining balance |

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|                                                                                                                                                                                                                                                                  |   | 2006   |      |   | 2005   |   |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
| Mortgage note payable in monthly installments (including principal and interest at a variable rate of 1.75% per annum over LIBOR) to Compass Bank, secured by land, building, cash, receivables and income, maturing May 2019 The interest rate at 12/31/06 is 7.10 % |   | $      | 189,827   |   |   | $      | 198,200 |   |
|                                                                                                                                                                                                                                                                  |   |   |      |   |   |   |   |   |
| Mortgage note payable to Alabama's HOME Investment Partnership Program. No payment due until maturity in May 2019. Interest accrues annually at 1/2 of 1% until maturity                                                                                              |   |   | 921,000   |   |   |   | 921,000 |   |
|                                                                                                                                                                                                                                                                  |   |   | 1,110,827 |   |   |   | 1,119,200 |   |
|                                                                                                                                                                                                                                                                  |   |   |      |   |   |   |   |   |
| Less principal due within one year                                                                                                                                                                                                                                    |   |   | (9,018    | )      |   |   | (8,373 | ) |
|                                                                                                                                                                                                                                                                  |   |   |      |   |   |   |   |   |
| Total long-term debt                                                                                                                                                                                                                                                  |   | $      | 1,101,809 |   |   | $      | 1,110,827 |   |

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| 2007       |   | $      | 9,018     |   |
|------------|--------|--------|-----------|--------|
| 2008       |   |   | 9,930     |   |
| 2009       |   |   | 10,748    |   |
| 2010       |   |   | 11,682    |   |
| 2011       |   |   | 12,698    |   |
| Thereafter |   |   | 1,056,751 |   |
|       |   |   |      |   |
| Total      |   | $      | 1,110,827 |   |

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|                                 |   | 2006   |    |   | 2005   |   |
|--------------------------------------|--------|--------|---------|--------|--------|--------|
| Financial statement net loss         |   | $      | (49,179 | )      |   | $      | (56,544 | ) |
| Reconciling items:                   |   |   |    |   |   |   |   |   |
| Financial statement depreciation     |   |   | 66,095  |   |   |   | 67,561 |   |
| Tax return depreciation              |   |   | (86,840 | )      |   |   | (87,660 | ) |
| Partnership tax return ordinary loss |   | $      | (69,924 | )      |   | $      | (76,643 | ) |

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