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|                                                                                          | PAGE   |
|-----------------------------------------------------------------------------------------------|--------|
| INDEPENDENT AUDITOR'S REPORT                                                             | 3      |
| FINANCIAL STATEMENTS:                                                                    |   |
| BALANCE SHEET                                                                            | 4      |
| STATEMENT OF OPERATIONS                                                                  | 6      |
| STATEMENT OF CHANGES IN PARTNERS' CAPITAL                                                | 7      |
| STATEMENT OF CASH FLOWS                                                                  | 8      |
| NOTES TO FINANCIAL STATEMENTS                                                            | 9      |
| SUPPLEMENTAL INFORMATION:                                                                |   |
| INDEPENDENT AUDITOR'S REPORT ON INFORMATION ACCOMPANYING THE BASIC FINANCIAL STATEMENTS  | 16     |
| SUPPLEMENTAL INFORMATION                                                                 | 17     |

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| ASSETS                                        |   |   |      |
|-----------------------------------------------|--------|--------|-----------|
| Current Assets                                |   |   |      |
| Cash                                          |   | $      | 2,380     |   |
| Receivable - Other                            |   |   | 253       |   |
| Receivable - Tenant                           |   |   | 2,085     |   |
| Prepaid Insurance                             |   |   | 8,749     |   |
|                                          |   |   |      |   |
| Total Current Assets                          |   |   | 13,467    |   |
|                                          |   |   |      |   |
| Restricted Deposits and Funded Reserves       |   |   |      |   |
| Tax and Insurance                             |   |   | 1,388     |   |
| Replacement Reserve                           |   |   | 68,950    |   |
| Security Deposits                             |   |   | 9,759     |   |
|                                          |   |   |      |   |
| Total Restricted Deposits and Funded Reserves |   |   | 80,097    |   |
|                                          |   |   |      |   |
| Property and Equipment                        |   |   |      |   |
| Land                                          |   |   | 69,000    |   |
| Building and Improvements                     |   |   | 2,185,247 |   |
| Furniture, Fixtures and Equipment             |   |   | 99,454    |   |
|                                          |   |   | 2,353,701 |   |
| Less: Accumulated Depreciation                |   |   | (691,290  | ) |
|                                          |   |   |      |   |
| Total Property and Equipment                  |   |   | 1,662,411 |   |
|                                          |   |   |      |   |
| Other Assets                                  |   |   |      |   |
| Deposits                                      |   |   | 75        |   |
|                                          |   |   |      |   |
| Total Other Assets                            |   |   | 75        |   |
|                                          |   |   |      |   |
| TOTAL ASSETS                                  |   | $      | 1,756,050 |   |

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| LIABILITIES AND PARTNERS' CAPITAL           |   |   |      |
|---------------------------------------------|--------|--------|-----------|
| Current Liabilities                         |   |   |      |
| Accounts Payable                            |   | $      | 11,105    |   |
| Accrued Partners' Fee Payable               |   |   | 1,500     |   |
| Security Deposits Payable                   |   |   | 9,590     |   |
| Tenant Overage Payable                      |   |   | 185       |   |
| Payroll Taxes Payable                       |   |   | 587       |   |
| Accrued Interest Payable                    |   |   | 41,465    |   |
| Accrued Property Taxes Payable              |   |   | 4,573     |   |
| Current Maturities of Mortgage Payable      |   |   | 9,930     |   |
|                                        |   |   |      |   |
| Total Current Liabilities                   |   |   | 78,935    |   |
|                                        |   |   |      |   |
| Long-Term Liabilities                       |   |   |      |   |
| Mortgage Payable, net of current maturities |   |   | 1,091,879 |   |
| Obligation Under Interest Rate Swap         |   |   | 18,503    |   |
|                                        |   |   |      |   |
| Total Long-Term Liabilities                 |   |   | 1,110,382 |   |
|                                        |   |   |      |   |
| Total Liabilities                           |   |   | 1,189,317 |   |
|                                        |   |   |      |   |
| Partners' Equity                            |   |   |      |   |
| Partners' Capital                           |   |   | 585,236   |   |
| Unrealized Loss on Cash Flow Hedge          |   |   | (18,503   | ) |
|                                        |   |   |      |   |
| Total Partners' Equity                      |   |   | 566,733   |   |
|                                        |   |   |      |   |
| TOTAL LIABILITIES AND PARTNERS' EQUITY      |   | $      | 1,756,050 |   |

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| Revenues                                                              |   |   |    |
|-----------------------------------------------------------------------|--------|--------|---------|
| Rental                                                                |   | $      | 146,421 |   |
| Miscellaneous Charges                                                 |   |   | 3,640   |   |
|                                                                  |   |   |    |   |
| Total Revenues                                                        |   |   | 150,061 |   |
|                                                                  |   |   |    |   |
| Operating Expenses                                                    |   |   |    |   |
| Administrative                                                        |   |   | 18,865  |   |
| Bad Debt                                                              |   |   | 4,237   |   |
| Management Fees                                                       |   |   | 13,037  |   |
| Repairs and Maintenance                                               |   |   | 27,929  |   |
| Taxes and Insurance                                                   |   |   | 39,174  |   |
| Utilities                                                             |   |   | 14,264  |   |
|                                                                  |   |   |    |   |
| Total Operating Expenses                                              |   |   | 117,506 |   |
|                                                                  |   |   |    |   |
| Income from Operations                                                |   |   | 32,555  |   |
|                                                                  |   |   |    |   |
| Partnership and Financial Income (Expense)                            |   |   |    |   |
| Interest Income                                                       |   |   | 446     |   |
| Interest Expense                                                      |   |   | (20,187 | ) |
| Partnership Management Fees                                           |   |   | (250    | ) |
|                                                                  |   |   |    |   |
| Total Partnership and Financial Income (Expense)                      |   |   | (19,991 | ) |
|                                                                  |   |   |    |   |
| Income (Loss) from Operations before Depreciation                     |   |   | 12,564  |   |
|                                                                  |   |   |    |   |
| Depreciation                                                          |   |   | (65,287 | ) |
|                                                                  |   |   |    |   |
| Net loss                                                              |   |   | (52,723 | ) |
|                                                                  |   |   |    |   |
| Other Comprehensive Income (Loss)                                     |   |   |    |   |
| Unrealized Gain (Loss) on cash flow hedging arising during the period |   |   | (3,206  | ) |
|                                                                  |   |   |    |   |
| Total Other Comprehensive Income (Loss)                               |   |   | (3,206  | ) |
|                                                                  |   |   |    |   |
| Total Comprehensive Loss                                              |   | $      | (55,929 | ) |

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|                        |   | GeneralPartners |   |   | LimitedPartners |   |    | TotalPartners’Capital |   |
|-----------------------------|--------|-----------------|--------|--------|-----------------|--------|---------|-----------------------------|--------|
| Balance - January 1, 2007   |   | $               | (718   | )      |            | $      | 638,677 |                        |   | $ | 637,959 |   |
|                        |   |            |   |   |            |   |    |                        |   |   |   |   |
| Net Loss                    |   |            | (527   | )      |            |   | (52,196 | )                           |   |   | (52,723 | ) |
|                        |   |            |   |   |            |   |    |                        |   |   |   |   |
| Balance - December 31, 2007 |   | $               | (1,245 | )      |            | $      | 586,481 |                        |   | $ | 585,236 |   |

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| Cash flows from operating activities:                                             |   |   |    |
|-----------------------------------------------------------------------------------|--------|--------|---------|
| Net Loss                                                                          |   | $      | (52,723 | ) |
| Adjustments to reconcile net income to net cash provided by operating activities: |   |   |    |   |
| Depreciation                                                                      |   |   | 65,287  |   |
| (Increase) decrease in accounts receivable - tenant                               |   |   | 135     |   |
| (Increase) decrease in prepaid insurance                                          |   |   | (7,625  | ) |
| (Increase) decrease in other receivables                                          |   |   | (253    | ) |
| Increase (decrease) in accounts payable                                           |   |   | 4,267   |   |
| Increase (decrease) in accrued partners' fees                                     |   |   | 250     |   |
| Increase (decrease) in security deposits payable                                  |   |   | (125    | ) |
| Increase (decrease) in tenant overage payable                                     |   |   | 25      |   |
| Increase (decrease) in payroll taxes payable                                      |   |   | (83     | ) |
| Increase (decrease) in accrued interest payable                                   |   |   | 4,570   |   |
| Increase (decrease) in accrued property taxes                                     |   |   | (20     | ) |
| Total adjustments                                                                 |   |   | 66,428  |   |
| Net cash provided (used) by operating activities                                  |   |   | 13,705  |   |
|                                                                              |   |   |    |   |
| Cash flows from investing activities:                                             |   |   |    |   |
| (Deposit) withdrawal tax and insurance escrow                                     |   |   | 1,588   |   |
| (Deposit) withdrawal reserve account                                              |   |   | (8,436  | ) |
| (Deposit) withdrawal security deposit account                                     |   |   | 2,459   |   |
| Net cash provided (used) by investing activities                                  |   |   | (4,389  | ) |
|                                                                              |   |   |    |   |
| Cash flows from financing activities:                                             |   |   |    |   |
| Principal payments on Mortgage loan                                               |   |   | (9,018  | ) |
| Net cash provided (used) by financing activities                                  |   |   | (9,018  | ) |
|                                                                              |   |   |    |   |
| Net increase (decrease) in cash and equivalents                                   |   |   | 298     |   |
| Cash and equivalents, beginning of year                                           |   |   | 2,082   |   |
|                                                                              |   |   |    |   |
| Cash and equivalents, end of year                                                 |   | $      | 2,380   |   |
|                                                                              |   |   |    |   |
| Supplemental disclosures of cash flow information:                                |   |   |    |   |
| Cash paid during the year for:                                                    |   |   |    |   |
| Interest Expense                                                                  |   | $      | 15,617  |   |

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

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|                                                                                                                                                                                                                                                                                   |   | 2007   |      |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-----------|
|                                                                                                                                                                                                                                                                                   |   |   |      |
| 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 December 31, 2007 is 6.595%. |   | $      | 180,809   |   |
|                                                                                                                                                                                                                                                                                   |   |   |      |   |
| 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   |   |
|                                                                                                                                                                                                                                                                                   |   |   | 1,101,809 |   |
|                                                                                                                                                                                                                                                                                   |   |   |      |   |
| Less: principal due within one year                                                                                                                                                                                                                                                    |   |   | (9,930    | ) |
|                                                                                                                                                                                                                                                                                   |   |   |      |   |
| Total Long-Term Debt                                                                                                                                                                                                                                                                   |   | $      | 1,091,879 |   |

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| December 31, 2008 |   | $      | 9,930     |   |
|-------------------|--------|--------|-----------|--------|
| 2009              |   |   | 10,748    |   |
| 2010              |   |   | 11,682    |   |
| 2011              |   |   | 12,698    |   |
| 2012              |   |   | 13,712    |   |
| and thereafter    |   |   | 1,043,039 |   |
| Total             |   | $      | 1,101,809 |   |

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|                                 |   | 2007   |    |
|--------------------------------------|--------|--------|---------|
| Financial statement net loss         |   | $      | (52,723 | ) |
| Reconciling items:                   |   |   |    |   |
| Financial statement depreciation     |   |   | 65,287  |   |
| Tax return depreciation              |   |   | (86,362 | ) |
|                                 |   |   |    |   |
| Partnership tax return ordinary loss |   | $      | (73,798 | ) |

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