LAUREL CREEK APARTMENTS
                       (A California Limited Partnership)
                          AUDITED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003























































<PAGE>


                             LAUREL CREEK APARTMENTS
                          AUDITED FINANCIAL STATEMENTS
                                DECEMBER 31, 2003





                                TABLE OF CONTENTS
                                -----------------
                                                                           Page
                                                                        --------
Independent Auditors' Report                                                 1

Balance Sheet                                                                2

Statement of Income, Expenses and
         Changes in Partners' Capital                                        3

Statement of Cash Flows                                                      4

Notes to Financial Statements                                                5




































<PAGE>

WALLACE ROWE & Associates                                        Accounting Firm
================================================================================
430 Verbena Court
Pleasant Hill, CA 94523


                                                                  (925) 229-1950
                                                              Fax (925) 229-1952
                                                             wroweassoc@ aol.com






                          INDEPENDENT AUDITORS' REPORT




To the Board of Directors Laurel
Creek Apartments San
Luis Obispo, California


We have audited the  accompanying  balance  sheet of Laurel Creek  Apartments (A
California  Limited  Partnership)  as of December 31, 2003 and December 31, 2002
and the  related  statements  of income,  expenses,  and  changes  in  partners'
capital, and cash flows for the years then ended. These financial statements are
the  responsibility of the Partnerships'  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 Laurel Creek Apartments as of
December 31, 2003 and December 31, 2002,  and the results of its  operations for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.



/s/Wallace Rowe & Associates

January 23, 2004












<PAGE>


                             LAUREL CREEK APARTMENTS
                                  BALANCE SHEET
                           DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>

                                                                             2003                 2002
                                                                      ------------------    ------------------

<S>                                                                   <C>                   <C>
ASSETS
CURRENT ASSETS
         Cash (Note 2)                                                $           57,316    $           47,077
         Accounts receivable                                                         215                   820
         Prepaid expenses                                                          2,652                 1,760
                                                                      ------------------    -------------------

         TOTAL CURRENT ASSETS                                                     60,183                49,657

Restricted reserves (Note 3)                                                      55,209                50,022

Land, structures and equipment, net of
         accumulated depreciation of $669,9B3
         and $601,947 (Note 4)                                                 1,495,371             1,563,407

Organizational costs, net of accumulated
         amortization of $17,329 and
         $15,661 (Note 5)                                                          9,589                11,257
                                                                      ------------------    -------------------

         TOTAL ASSETS                                                 $        1,620,352    $        1,674,343
                                                                      ==================    ===================

LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
         Accounts payable - other                                     $            8,564    $            6,836
         Accounts payable - related party (Note 7)                                 2,007                 1,666
         Security deposits payable                                                 8,592                 8,438
         Current portion of long-term debt (Note 6)                               31,336                35,701
                                                                      ------------------    -------------------

        TOTAL CURRENT LIABILITIES                                                 50,499                52,641

Long-term debt (Note 6)                                                          544,925               573,491
                                                                      ------------------    -------------------

        TOTAL LIABILITIES                                                        595,424               626,132

Partners' capital                                                              1,024,928             1,048,211
                                                                      ------------------    -------------------

        TOTAL LIABILITIES AND
            PARTNERS' CAPITAL                                         $        1,620,352    $        1,674,343
                                                                      ==================    ===================
</TABLE>



                             See accompanying notes.




                                       2
<PAGE>


                             LAUREL CREEK APARTMENTS
                        STATEMENT OF INCOME, EXPENSES AND
                          CHANGES IN PARTNERS' CAPITAL
                 FOR THE YEARS ENDED DECEMBER 31, 2003 AND 2002
<TABLE>
<CAPTION>



                                                                            2003                  2002
                                                                      ------------------    -------------------

<S>                                                                   <C>                   <C>
OPERATING INCOME
        Rental income                                                 $          205,982    $          194,199
        Tenant charges                                                             1,043                 1,769
         Other                                                                     2,034                 1,226
                                                                      ------------------    -------------------

        TOTAL OPERATING INCOME                                                   209,059               197,194
                                                                      ------------------    -------------------


OPERATING EXPENSES
         Administration                                                           20,953                20,319
         Insurance and taxes                                                       5,660                 5,307
         Maintenance                                                              28,676                54,090
         Utilities                                                                22,674                21,627
         Depreciation and amortization                                            69,704                69,304
                                                                      ------------------    -------------------

         TOTAL EXPENSES                                                          147,667               171,047
                                                                      ------------------    -------------------

         NET INCOME (LOSS) FROM OPERATIONS                                        61,392                26,147
                                                                      ------------------    -------------------

OTHER INCOME AND EXPENSES
         Interest income                                                           1,614                 2,072
         Interest expense                                                        (43,596)              (47,020)
                                                                      ------------------    --------------------

         NET OTHER INCOME UNDER EXPENSES                                         (41,982)              (44,948)
                                                                      ------------------    --------------------

                                                                                  19,410               (18,801)
         NET INCOME (LOSS)

BEGINNING PARTNERS' CAPITAL                                                    1,048,211             1,095,824

Partner withdrawals                                                              (42,693)              (28,812)
                                                                      ------------------    --------------------

ENDING PARTNERS' CAPITAL                                              $        1,024,928    $        1,048,211
                                                                      ==================    ===================
</TABLE>










                             See accompanying notes.









                                       3
<PAGE>


                             LAUREL CREEK APARTMENTS
                             STATEMENT OF CASH FLOWS
                      YEAR ENDED DECEMBER 31, 2003 AND 2002

<TABLE>
<CAPTION>
                                                                             2003                2002
                                                                      -------------------   --------------------
<S>                                                                   <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Rents received                                                  $          206,590    $          194,429
      Other operating revenues                                                     3,077                 1,769
      Cash payments for goods and services                                       (76,786)             (104,975)
                                                                      -------------------   --------------------
         Net cash provided (used) by operating activities                        132,881                91,223
                                                                      -------------------   --------------------

CASH FLOWS FROM NONCAPITAL
      FINANCING ACTIVITIES:
      Increases in security deposits                                                 154                   178
      Additions (uses) of replacement reserves                                    (4,800)              (17,603)
                                                                      -------------------   --------------------
                 Net cash provided (used) by noncapital
               financing activities                                               (4,646)              (17,425)
                                                                      -------------------   --------------------

CASH FLOWS FROM CAPITAL AND
      RELATED FINANCING ACTIVITIES;
      Capital withdrawals                                                        (42,693)              (28,812)
      Payment of debt                                                            (32,931)               (1,410)
                                                                      -------------------   --------------------
         Net cash provided (used) by capital and
           related financing activities                                          (75,624)              (30,222)
                                                                      -------------------   --------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
      Interest received                                                            1,224                 2,072
      Interest paid on notes                                                     (43,596)              (47,020)
                                                                      -------------------   --------------------
         Net cash provided (used) by investing activities                        (42,372)              (44,948)
                                                                      -------------------   --------------------

NET INCREASE (DECREASE) IN CASH                                                   10,239                (1,372)
CASH - BEGINNING OF YEAR                                                          47,077                48,449
                                                                      -------------------   --------------------
CASH - END OF YEAR                                                    $           57,316    $           47,007
                                                                      ===================   ====================

RECONCILIATION OF OPERATING LOS TO NET
      CASH PROVIDED BY OPERATING ACTIVITIES:
      Net income from operations                                      $           61,392    $           26,147
      Adjustments to reconcile net loss to
          Net cash provided by operating activities:
           Depreciation and amortization                                          69,704                69,704
           Decrease in accounts receivable                                           608                   230
           Increase in prepaid expenses                                             (892)                 (587)
           Increase in accounts payable - other                                    2,813                (1,447)
           Decrease in accounts payable - related parties                           (744)               (2,824)
                                                                      -------------------   --------------------
NET CASH PROVIDED BY
 OPERATING ACTIVITIES                                                 $          132,881    $           91,223
                                                                      ===================   ====================
                             See accompanying notes.

</TABLE>

                                        4
<PAGE>





                             LAUREL CREEK APARTMENTS
                             NOTES TO THE FINANCIAL
                          STATEMENTS DECEMBER 31, 2003


   Note 1 - DEFINITION OF REPORTING ENTITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
          POLICIES

          The Laurel Creek Apartments is a California Limited  Partnership which
          was formed on May 17, 1994. The  partnership  was formed to construct,
          acquire,  own, operate,  maintain,  manage,  lease, sell,  mortgage or
          otherwise  dispose of a 24 unit apartment  complex located in the City
          of San Luis Obispo,, California.

          As of the  report  date  there are two  partners  in the  partnership,
          consisting of one general and one limited partner.

          Summary of Significant Accounting Policies

               a.   Basis of accounting

                    The  partnership  is accounted  for on the accrual  basis of
                    accounting.  Under this method  revenues are recognized when
                    they are earned and  expenses are  recognized  when they are
                    incurred.

               b.   Fixed assets and depreciation

                    Fixed assets are carried at cost. Expenditures for the fixed
                    assets are capitalized.  Maintenance and repairs are charged
                    to  operations.   Depreciation   is  calculated   using  the
                    straight-line basis over the estimated useful lives.

               c.   Income taxes

                    Taxable  income or expenses  and related tax credits are not
                    reflected as expenses or credits of the  partnership.  These
                    items are the responsibilities of the individual partners.




                                        5
<PAGE>


                             LAUREL CREEK APARTMENTS
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

                                   (Continued)


Note 2- CASH


     Cash consists of $56,486 deposited into savings or checking  accounts,  and
     $830 is on deposit with the State of  California  Local  Agency  Investment
     Fund. At December 31, 2003 the amount  deposited into the savings  accounts
     and the Local Agency  Investment  Fund earned  interest at rates from.5% to
     1.56% respectively.

Note 3- RESTRICTED CASH

Restricted cash consists of $55,209 maintained in a money market account earning
2.02%.  Reserves for replacement of structures and equipment  totals $44,019 and
$11,190 is reserved for repayment of tenant security deposits.

Note 4- LAND, STRUCTURES AND EQUIPMENT

     Property  and  equipment  and  accumulated   depreciation  consist  of  the
     following:

                                                                    Accumulated
                                                          Cost      Depreciation
                                                     -----------    ------------
     Land                                            $   275,000    $          -
     Building                                          1,868,634         648,308
     Equipment                                            21,720          21,675
                                                     -----------    ------------

                                                     $ 2,165,354    $    669,983
                                                     ===========    ============

Note 5- ORGANIZATION COSTS

     Organization costs and accumulated amortization consist of the following:

                                                                    Accumulated
                                                          Cost      Amortization
                                                     -----------    ------------

Organization costs                                   $    26,918    $     17,329
                                                     ===========    ============



                                       6
<PAGE>



                             LAUREL CREEK APARTMENTS
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

                                   (Continued)

 Note 6 - NOTE PAYABLE

     The  Agency  has a  mortgage  note  payable  to the First  Bank of San Luis
     Obispo.  The note requires  principal and interest payments totaling $6,385
     each month until 5/18/2009. The note bears interest at 7.25% per annum. The
     following is a schedule of the debt payment requirements to maturity:

                    Year ending
                    December 31

                         2004                                   $         76,620
                         2005                                             76,620
                         2006                                             76,620
                         2007                                             76,620
                         2008                                             76,620
                         Thereafter                                      378,436
                                                               -----------------

                            Total                                        761,536

                         Less amounts representing
                            interest                                     185,275
                                                               -----------------

                                                                $        576,261
                                                               =================

Note 7 - RELATED PARTIES

     The  accounting  and  administrative   functions  of  the  partnership  are
     performed  by  employees  of the Housing  Authority of the City of San Luis
     Obispo (the  Authority).  Two members of the  general  partner's  (San Luis
     Obispo Nonprofit Housing  Corporation)  board of directors are also members
     of the board of  commissioner's of the Housing Authority of the City of San
     Luis Obispo.

     At December 31, 2003 the partnership owed the Authority $2,007.  During the
     year ended December 31, 2003, the partnership paid the Authority $24,302 in
     maintenance expenses and management fees.








                                       7

<PAGE>

                             LAUREL CREEK APARTMENTS
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2003

                                   (Continued)

Note 8 -  LAND DONATION AND LEASE


          The land  upon  which  the  Laurel  Creek  Apartments  were  built was
          originally  leased  from the City of San Luis Obispo (the City) by the
          Housing Authority of the City of San Luis Obispo (the Authority). This
          lease  agreement was later assigned from the Authority to the San Luis
          Obispo Nonprofit Housing Corporation (the Corporation).  The lease was
          later assigned to the Laurel Creek Apartments Partnership. Each of the
          above  mentioned  agencies  have common board members or in some other
          manner have oversight  responsibilities  over the other organizations;
          which would qualify them as related parties.

          The lease expires on April 29, 2046,  The  provisions for extending or
          renewing the lease term are not specified and are contingent  upon the
          continuation of the project being used to provide  affordable  housing
          to lower income  families.  The annual lease payments are $1 per year.
          The  land was  recorded  on the  Agency's  books  of  accounts  at the
          appraised value on the date the land was assigned to the Agency.  This
          appraised value was $275,000.  The value of the land was also recorded
          as a capital contribution from the general partner on that date.





                                       8