LAUREL CREEK APARTMENTS
                       (A California Limited Partnership)
                          AUDITED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002















<PAGE>


                             LAUREL CREEK APARTMENTS
                          AUDITED FINANCIAL STATEMENTS
                                DECEMBER 31, 2002




                                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>










                          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, 2002 and December 31, 2001
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, 2002 and December 31, 2001,  and the results of its  operations for
the  years  then  ended  in  conformity  with  generally   accepted   accounting
principles.




/s/ Wallace E. Rowe, CPA
February 7, 2003


<PAGE>



                             LAUREL CREEK APARTMENTS
                                  BALANCE SHEET
                           DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>


                                                                                2002                  2001
                                                                      ------------------       ---------------
<S>                                                                   <C>                      <C>
ASSETS
CURRENT ASSETS
         Cash (Note 2)                                                $           47,077       $        48,449
         Accounts receivable                                                         820                 1,050
         Prepaid expenses                                                          1,760                 1,173
                                                                      ------------------       ---------------
         TOTAL CURRENT ASSETS                                                     49,657                50,672

Restricted reserves (Note 3)                                                      50,022                32,419

Land, structures and equipment, net of
         accumulated depreciation of $601,947
         and $533,911 (Note 4)                                                 1,563,407             1,631,443

Organizational costs, net of accumulated
         amortization of $15,661 and
         $13,993 (Note 5)                                                         11,257                12,925
                                                                      ------------------       ---------------

         TOTAL ASSETS                                                 $        1,674,343       $     1,727,459
                                                                      ==================       ===============
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES
         Accounts payable - other                                     $            6,836       $         8,614
         Accounts payable - related party (Note 7)                                 1,666                 4,159
         Security deposits payable                                                 8,438                 8,260
         Current portion of long-term debt (Note 6)                               35,701                28,934
                                                                      ------------------       ---------------
         TOTAL CURRENT LIABILITIES                                                52,641                49,967

Long-term debt (Note 6)                                                          573,491               581,668
                                                                      ------------------       ---------------
         TOTAL LIABILITIES                                                       626,132               631,635

Partners' capital                                                              1,048,211             1,095,824
                                                                      ------------------       ---------------

         TOTAL LIABILITIES AND
              PARTNERS' CAPITAL                                       $        1,674,343       $     1,727,459
                                                                      ==================       ===============
</TABLE>

                             See accompanying notes.
                                       2
<PAGE>


                             LAUREL CREEK APARTMENTS
                        STATEMENT OF INCOME, EXPENSES AND
                          CHANGES IN PARTNERS' CAPITAL
                 FOR THE YEARS ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>



                                                                               2002                  2001
                                                                       ------------------    -----------------

<S>                                                                    <C>                   <C>
OPERATING INCOME
         Rental income                                                 $        194,199      $       180,345
         Tenant charges                                                           1,769                  434
         Other                                                                    1,226                  169
                                                                       ------------------    -----------------

         TOTAL OPERATING INCOME                                                 197,194              180,948
                                                                       ------------------    -----------------

OPERATING EXPENSES
         Administration                                                          20,319               18,645
         Insurance and taxes                                                      5,307                3,709
         Maintenance                                                             54,090               22,867
         Utilities                                                               21,627               20,074
         Depreciation and amortization                                           69,704               71,833
                                                                       ------------------    -----------------

         TOTAL EXPENSES                                                         171,047              137,128
                                                                       ------------------    -----------------

         NET INCOME (LOSS) FROM OPERATIONS                                       26,147               43,830
                                                                       ------------------    -----------------

OTHER INCOME AND EXPENSES
         Interest income                                                          2,072                2,612
         Interest expense                                                       (47,020)             (50,490)
                                                                       ------------------    -----------------

         NET OTHER INCOME UNDER EXPENSES                                        (44,948)             (47,878)
                                                                       ------------------    -----------------

         NET LOSS                                                               (18,801)              (4,058)

BEGINNING PARTNERS' CAPITAL                                                   1,095,824            1,108,604

Partner withdrawals                                                             (28,812)              (8,722)
                                                                       ------------------    -----------------

ENDING PARTNERS' CAPITAL                                               $      1,048,211      $     1,095,824
                                                                       ==================    =================
</TABLE>


                             See accompanying notes.
                                        3

<PAGE>


                             LAUREL CREEK APARTMENTS
                             STATEMENT OF CASH FLOWS
                      YEAR ENDED DECEMBER 31, 2002 AND 2001
<TABLE>
<CAPTION>

                                                                                2002                2001
                                                                        ----------------     ---------------

<S>                                                                     <C>                  <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
      Rents received                                                    $       194,429      $    180,158
      Other operating revenues                                                    1,769               603
      Cash payments for goods and services                                     (122,400)          (77,477)
                                                                        ----------------     ---------------
           Net cash provided (used) by operating activities                      73,798           103,284
                                                                        ----------------     ---------------

CASH FLOWS FROM CAPITAL AND
      RELATED FINANCING ACTIVITIES:
      Capital withdrawals                                                       (28,812)           (8,722)
      Payment of debt                                                            (1,410)          (25,441)
                                                                        ----------------     ---------------
           Net cash provided (used) by capital and
              related financing activities                                      (30,222)          (34,163)
                                                                        ----------------     ---------------

CASH FLOWS FROM INVESTING ACTIVITI
      Interest income                                                             2,072             2,612
      Interest paid on notes                                                    (47,020)          (50,490)
                                                                        ----------------     ---------------
           Net cash provided (used) by investing activities                     (44,948)          (47,878)
                                                                        ----------------     ---------------

NET INCREASE (DECREASE) IN CASH                                                  (1,372)           21,243
CASH - BEGINNING OF YEAR                                                         48,449            27,206
                                                                        ----------------     ---------------
CASH - END OF YEAR                                                      $        47,077      $     48,449
                                                                        ================     ===============

RECONCILIATION OF OPERATING LOSS TO NET
      CASH PROVIDED BY OPERATING ACTIVITIES:
      Net income from operations                                        $        26,147      $     43,820
      Adjustments to reconcile net loss to
          Net cash provided by operating activities
           Depreciation and amortization                                         69,704            71,833
           (Increase) decrease in:
              Accounts receivable                                                   230              (187)
              Prepaid expenses                                                     (587)              (24)
              Restricted reserves                                               (17,603)           (4,800)
           Increase (decrease) in:
              Accounts payable - other                                           (1,447)           (1,966)
              Accounts payable - related parties                                 (2,824)           (6,166)
              Security deposits payable                                             178               774
                                                                        ----------------     ---------------

NET CASH PROVIDED BY
   OPERATING ACTIVITIES                                                 $        73,798      $    103,284
                                                                        ===============      ===============
</TABLE>

                             See accompanying notes.
                                        4

<PAGE>


                             LAUREL CREEK APARTMENTS
                        NOTES TO THE FINANCIAL STATEMENTS
                                DECEMBER 31, 2002


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, 2002

                                   (Continued)

Note 2 - CASH

          Cash consists of $46,262 deposited into savings or checking  accounts,
          and $815 is on  deposit  with the  State of  California  Local  Agency
          Investment  Fund. At December 31, 2002 the amount  deposited  into the
          savings accounts and the Local Agency  Investment Fund earned interest
          at rates from 2.25% to 2.88% respectively.

Note 3 - RESTRICTED CASH

          Restricted  cash  consists  of $32,419  maintained  in a money  market
          account  earning 2.25%.  This cash is reserved for the  replacement of
          structures and equipment.

Note 4 - LAND, STRUCTURES AND EQUIPMENT
<TABLE>
<CAPTION>

         Property and equipment and accumulated depreciation consist of the following:


                                                                                  Accumulated
                                                                   Cost           Depreciation
                                                                   ----           ------------

<S>                                                           <C>                <C>
         Land                                                 $     275,000      $           -
         Building                                                 1,868,634            580,364
         Equipment                                                   21,720             21,583
                                                              -------------      -------------

                                                              $   2,165,354      $     601,947
                                                              =============      =============
Note 5 - ORGANIZATION COSTS

         Organization costs and accumulated amortization consist of the following:


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

         Organization costs                                   $      26,918       $     15,661
                                                              =============      =============
</TABLE>


                                        6
<PAGE>

                             LAUREL CREEK APARTMENTS
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

                                   (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  10/3/2009.  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
                    -----------

                         2003                                   $         76,620
                         2004                                             76,620
                         2005                                             76,620
                         2006                                             76,620
                         2007                                             76,620
                         Thereafter                                      455,056
                                                                ----------------

                             Total                                       838,156

                         Less amounts representing
                            interest                                     228,964
                                                                ----------------

                                                                $        609,192

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, 2002 the partnership owed the Authority $1,666. During
          the year ended December 31, 2002, the  partnership  paid the Authority
          $26,377 in maintenance expenses and management fees.







                                        7
<PAGE>

                             LAUREL CREEK APARTMENTS
                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 2002

                                   (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 lease 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