----

|                                       | Page   |
|--------------------------------------------|--------|
|                                       |   |
| INDEPENDENT AUDITOR'S REPORT ON            |   |
| THE FINANCIAL STATEMENTS                   | 1      |
|                                       |   |
| FINANCIAL STATEMENTS                       |   |
|                                       |   |
| Balance sheets                             | 2-3    |
| Statements of income                       | 4-7    |
| Statements of changes in partners' capital | 8      |
| Statements of cash flows                   | 9-10   |
| Notes to financial statements              | 11-14  |

----

| ASSETS                                                                            |   | 2006   |      |   | 2005   |   |
|-----------------------------------------------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                                                              |   |   |      |   |   |   |
|                                                                              |   |   |      |   |   |   |
| CURRENT ASSETS                                                                    |   |   |      |   |   |   |
| Cash                                                                              |   | $      | 11,028    |   |   | $      | 8,049 |   |
| Real estate tax and insurance                                                     |   |   | 15,429    |   |   |   | 17,512 |   |
| Prepaid expense                                                                   |   |   | 12,653    |   |   |   | 12,519 |   |
| Total current assets                                                              |   | $      | 39,110    |   |   | $      | 38,080 |   |
|                                                                              |   |   |      |   |   |   |   |   |
|                                                                              |   |   |      |   |   |   |   |   |
| RESTRICTED DEPOSITS AND FUNDED RESERVES                                           |   |   |      |   |   |   |   |   |
| Tenant security deposits held in trust                                            |   | $      | 44,997    |   |   | $      | 44,020 |   |
| Replacement reserve                                                               |   |   | 149,097   |   |   |   | 148,497 |   |
|                                                                              |   | $      | 194,094   |   |   | $      | 192,517 |   |
|                                                                              |   |   |      |   |   |   |   |   |
| PROPERTY AND EQUIPMENT, AT COST                                                   |   |   |      |   |   |   |   |   |
| Land                                                                              |   | $      | 300,000   |   |   | $      | 300,000 |   |
| Buildings                                                                         |   |   | 3,689,617 |   |   |   | 3,667,343 |   |
| Equipment                                                                         |   |   | 179,217   |   |   |   | 178,017 |   |
|                                                                              |   | $      | 4,168,834 |   |   | $      | 4,145,360 |   |
| Less accumulated depreciation                                                     |   |   | 1,729,048 |   |   |   | 1,584,945 |   |
|                                                                              |   | $      | 2,439,786 |   |   | $      | 2,560,415 |   |
|                                                                              |   |   |      |   |   |   |   |   |
| OTHER ASSETS                                                                      |   |   |      |   |   |   |   |   |
| Deferred charges, less accumulated  amortization of $34,991 and $31,907 |   | $      | 30,859    |   |   | $      | 33,943 |   |
|                                                                              |   |   |      |   |   |   |   |   |
|                                                                              |   | $      | 2,703,849 |   |   | $      | 2,824,955 |   |

----

| LIABILITIES AND PARTNERS' CAPITAL         |   | 2006   |      |   | 2005   |   |
|-------------------------------------------|--------|--------|-----------|--------|--------|--------|
|                                      |   |   |      |   |   |   |
|                                      |   |   |      |   |   |   |
| CURRENT LIABILITIES                       |   |   |      |   |   |   |
| Current maturities of long-term debt      |   | $      | 45,116    |   |   | $      | 42,103 |   |
| Accounts payable                          |   |   | 9,634     |   |   |   | 4,733 |   |
| Accrued interest                          |   |   | –   |   |   |   | – |   |
| Accrued reporting and administrative fees |   |   | 4,000     |   |   |   | 4,000 |   |
| Accrued partnership management fee        |   |   | 5,600     |   |   |   | 5,600 |   |
| Total current liabilities                 |   | $      | 64,350    |   |   | $      | 56, |   |
|                                      |   |   |      |   |   |   |   |   |
|                                      |   |   |      |   |   |   |   |   |
| DEPOSIT AND PREPAYMENT LIABILITIES        |   |   |      |   |   |   |   |   |
| Tenant security deposits                  |   | $      | 37,628    |   |   | $      | 35,890 |   |
| Prepaid rents                             |   |   | –   |   |   |   | – |   |
|                                      |   | $      | 37,628    |   |   | $      | 35,890 |   |
|                                      |   |   |      |   |   |   |   |   |
| LONG-TERM DEBT                            |   |   |      |   |   |   |   |   |
| Mortgage payable, less current maturities |   | $      | 1,628,068 |   |   | $      | 1,673,185 |   |
|                                      |   |   |      |   |   |   |   |   |
| COMMITMENT                                |   |   |      |   |   |   |   |   |
|                                      |   |   |      |   |   |   |   |   |
| PARTNERS' CAPITAL                         |   | $      | 973,803   |   |   | $      | 1,059,444 |   |
|                                      |   |   |      |   |   |   |   |   |
|                                      |   | $      | 2,703,849 |   |   | $      | 2,824,955 |   |

----

|                                          |   | 2006   |    |   | 2005   |   |
|-----------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                          |   |   |    |   |   |   |
| RENTAL INCOME                                 |   |   |    |   |   |   |
| Apartments                                    |   | $      | 598,428 |   |   | $      | 595,045 |   |
| Tenant assistance payments                    |   |   | – |   |   |   | – |   |
| Subsidy income                                |   |   | – |   |   |   | – |   |
| Miscellaneous                                 |   |   | – |   |   |   | – |   |
| Sub-total potential rent revenue              |   | $      | 598,428 |   |   | $      | 595,045 |   |
|                                          |   |   |    |   |   |   |   |   |
| VACANCIES                                     |   |   |    |   |   |   |   |   |
| Apartments                                    |   | $      | (34,149 | )      |   | $      | (30,191 | ) |
| Miscellaneous                                 |   |   | – |   |   |   | – |   |
| Sub-total vacancies                           |   | $      | (34,149 | )      |   | $      | (30,191 | ) |
|                                          |   |   |    |   |   |   |   |   |
| Net rental revenue                            |   | $      | 564,279 |   |   | $      | 564,854 |   |
|                                          |   |   |    |   |   |   |   |   |
|                                          |   |   |    |   |   |   |   |   |
| FINANCIAL REVENUE                             |   |   |    |   |   |   |   |   |
| Interest Income - project operations          |   | $      | 1,385   |   |   | $      | 838 |   |
| Income from investments - replacement reserve |   |   | 4,785   |   |   |   | 2,581 |   |
| Income from investments - operating reserve   |   |   | – |   |   |   | – |   |
| Income from investments - miscellaneous       |   |   | – |   |   |   | – |   |
| Sub-total financial revenue                   |   | $      | 6,170   |   |   | $      | 3,419 |   |
|                                          |   |   |    |   |   |   |   |   |
|                                          |   |   |    |   |   |   |   |   |
| OTHER REVENUE                                 |   |   |    |   |   |   |   |   |
| Laundry and vending                           |   | $      | 14,572  |   |   | $      | 10,252 |   |
| NSF and late charges                          |   |   | – |   |   |   | – |   |
| Damage and cleaning fees                      |   |   | – |   |   |   | 24 |   |
| Forfeited tenant security deposits            |   |   | 5,460   |   |   |   | 3,851 |   |
| Other revenue                                 |   |   | 11,634  |   |   |   | 12,670 |   |
| Sub-total other revenue                       |   | $      | 31,666  |   |   | $      | 26,797 |   |
|                                          |   |   |    |   |   |   |   |   |
| Total revenues                                |   | $      | 602,115 |   |   | $      | 595,070 |   |

----

|                                  |   | 2006   |    |   | 2005   |   |
|---------------------------------------|--------|--------|---------|--------|--------|--------|
|                                  |   |   |    |   |   |   |
| OPERATING EXPENSES                    |   |   |    |   |   |   |
| Renting expenses                      |   |   |    |   |   |   |
| Advertising                           |   | $      | 247     |   |   | $      | 659 |   |
| Miscellaneous renting expenses        |   |   | 4,730   |   |   |   | 4,630 |   |
| Sub-total renting expenses            |   | $      | 4,977   |   |   | $      | 5,289 |   |
|                                  |   |   |    |   |   |   |   |   |
| Administrative expenses               |   |   |    |   |   |   |   |   |
| Office salaries                       |   | $      | – |   |   | $      | – |   |
| Office supplies                       |   |   | 3,043   |   |   |   | 1,858 |   |
| Office rent                           |   |   | – |   |   |   | – |   |
| Management fee                        |   |   | 51,744  |   |   |   | 48,384 |   |
| Manager's salary                      |   |   | 31,478  |   |   |   | 26,358 |   |
| Legal expense                         |   |   | 2,215   |   |   |   | 2,022 |   |
| Audit expense                         |   |   | 4,900   |   |   |   | 4,725 |   |
| Bookkeeping / accounting services     |   |   | – |   |   |   | – |   |
| Telephone and answering service       |   |   | 1,582   |   |   |   | 1,274 |   |
| Bad debts                             |   |   | – |   |   |   | – |   |
| Miscellaneous administrative expenses |   |   | 1,090   |   |   |   | – |   |
| Sub-total administrative expenses     |   | $      | 96,052  |   |   | $      | 84,621 |   |
|                                  |   |   |    |   |   |   |   |   |
| Utilities expense                     |   |   |    |   |   |   |   |   |
| Fuel oil / coal                       |   | $      | – |   |   | $      | – |   |
| Electricity                           |   |   | 21,349  |   |   |   | 16,371 |   |
| Water                                 |   |   | 20,921  |   |   |   | 15,949 |   |
| Gas                                   |   |   | – |   |   |   | – |   |
| Sewer                                 |   |   | – |   |   |   | – |   |
| Sub-total utilities expense           |   | $      | 42,270  |   |   | $      | 32,320 |   |

----

|                                         |   | 2006   |    |   | 2005   |   |
|----------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                         |   |   |    |   |   |   |
| Operating and maintenance expense            |   |   |    |   |   |   |
| Janitor and cleaning payroll                 |   | $      | – |   |   | $      | – |   |
| Janitor and cleaning supplies                |   |   | – |   |   |   | – |   |
| Janitor and cleaning contract                |   |   | – |   |   |   | – |   |
| Exterminating payroll / contract             |   |   | – |   |   |   | – |   |
| Exterminating supplies                       |   |   | – |   |   |   | – |   |
| Garbage and trash removal                    |   |   | 20,859  |   |   |   | 18,339 |   |
| Security payroll / contract                  |   |   | – |   |   |   | – |   |
| Grounds payroll                              |   |   | – |   |   |   | – |   |
| Grounds supplies                             |   |   | – |   |   |   | – |   |
| Grounds contract                             |   |   | 26,417  |   |   |   | 29,967 |   |
| Repairs payroll                              |   |   | 44,300  |   |   |   | 45,494 |   |
| Repairs material                             |   |   | 37,905  |   |   |   | 32,121 |   |
| Repairs contract                             |   |   | 35,224  |   |   |   | 40,896 |   |
| Heating / cooling repairs and maintenance    |   |   | – |   |   |   | – |   |
| Decorating payroll / contract                |   |   | – |   |   |   | – |   |
| Decorating supplies                          |   |   | – |   |   |   | – |   |
| Vehicle and maintenance equipment o & r  |   |   | – |   |   |   | – |   |
| Miscellaneous operating and maint. expenses  |   |   | 11,223  |   |   |   | 8,304 |   |
| Sub-total operating & maint. expense     |   | $      | 175,928 |   |   | $      | 175,121 |   |
|                                         |   |   |    |   |   |   |   |   |
| Taxes and insurance                          |   |   |    |   |   |   |   |   |
| Real estate taxes                            |   | $      | 18,254  |   |   | $      | 17,323 |   |
| Payroll taxes                                |   |   | 12,660  |   |   |   | 6,809 |   |
| Miscellaneous taxes, licenses, and permits   |   |   | 1,005   |   |   |   | 1,035 |   |
| Property and liability insurance             |   |   | 15,049  |   |   |   | 12,958 |   |
| Fidelity bond insurance                      |   |   | 99      |   |   |   | – |   |
| Workman's compensation                       |   |   | 9,789   |   |   |   | 8,292 |   |
| Health insurance and other employee benefits |   |   | 9,337   |   |   |   | 8,470 |   |
| Other insurance                              |   |   | – |   |   |   | – |   |
| Sub-total taxes & insurance              |   | $      | 66,193  |   |   | $      | 54,887 |   |
|                                         |   |   |    |   |   |   |   |   |
| Total operating expenses                     |   | $      | 385,420 |   |   | $      | 352,238 |   |

----

|                            |   | 2006   |    |   | 2005   |   |
|---------------------------------|--------|--------|---------|--------|--------|--------|
|                            |   |   |    |   |   |   |
| OTHER EXPENSES                  |   |   |    |   |   |   |
| Interest expense - mortgage     |   | $      | 117,549 |   |   | $      | 136,413 |   |
| Interest expense - notes        |   |   | – |   |   |   | – |   |
| Miscellaneous financial expense |   |   | – |   |   |   | – |   |
| Depreciation and amortization   |   |   | 147,187 |   |   |   | 144,947 |   |
| Reporting fee                   |   |   | 2,000   |   |   |   | 2,000 |   |
| Admistrative fee                |   |   | 2,000   |   |   |   | 2,000 |   |
| Partnership management fee      |   |   | 5,600   |   |   |   | 11,200 |   |
| Sub-total other expenses        |   | $      | 274,336 |   |   | $      | 296,560 |   |
|                            |   |   |    |   |   |   |   |   |
| Total expenses                  |   | $      | 659,756 |   |   | $      | 648,798 |   |
|                            |   |   |    |   |   |   |   |   |
| Net income (loss)               |   | $      | (57,641 | )      |   | $      | (53,728 | ) |

----

|              |   |   |      |   |     |   |     |    |   |
|-------------------|--------|--------|-----------|--------|----------|--------|----------|---------|--------|
|              |   |   |      |   | General  |   |     | Limited |   |
|              |   | Total  |      |   | Partners |   |     | Partner |   |
|              |   |   |      |   |     |   |     |    |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |
| December 31, 2004 |   | $      | 1,183,172 |   |     | $      | (489,270 | )       |   | $ | 1,672,442 |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| contributions     |   |   | –   |   |     |   | –  |    |   |   | – |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| distributions     |   |   | (70,000   | )      |     |   | (70,000  | )       |   |   | – |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Net income (loss) |   |   | (53,728   | )      |     |   | (537     | )       |   |   | (53,191 | ) |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| December 31, 2005 |   | $      | 1,059,444 |   |     | $      | (559,807 | )       |   | $ | 1,619,251 |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| contributions     |   |   | –   |   |     |   | –  |    |   |   | – |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| distributions     |   |   | (28,000   | )      |     |   | (28,000  | )       |   |   | – |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Net income (loss) |   |   | (57,641   | )      |     |   | (576     | )       |   |   | (57,065 | ) |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Partners' capital |   |   |      |   |     |   |     |    |   |   |   |   |
| December 31, 2006 |   | $      | 973,803   |   |     | $      | (588,383 | )       |   | $ | 1,562,186 |   |
|              |   |   |      |   |     |   |     |    |   |   |   |   |
| Percentage at     |   |   |      |   |     |   |     |    |   |   |   |   |
| December 31, 2006 |   |   | 100       | %      |     |   | 1        | %       |   |   | 99 | % |

----

|                                                                                               |   | 2006   |    |   | 2005   |   |
|----------------------------------------------------------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                                                                               |   |   |    |   |   |   |
| CASH FLOWS FROM OPERATING ACTIVITIES                                                               |   |   |    |   |   |   |
| Net income (loss)                                                                                  |   | $      | (57,641 | )      |   | $      | (53,728 | ) |
| Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |   |   |    |   |   |   |   |   |
| Depreciation and amortization                                                                      |   |   | 147,187 |   |   |   | 144,947 |   |
| Change in assets and liabilities:                                                                  |   |   |    |   |   |   |   |   |
| Decrease (increase) in:                                                                            |   |   |    |   |   |   |   |   |
| Rents receivable                                                                                   |   |   | – |   |   |   | – |   |
| Prepaid expenses                                                                                   |   |   | (134    | )      |   |   | (2,064 | ) |
| Tenants' security deposits                                                                         |   |   | (977    | )      |   |   | (455 | ) |
| Tax and insurance impounds                                                                         |   |   | 2,083   |   |   |   | (13,953 | ) |
| Increase (decrease) in:                                                                            |   |   |    |   |   |   |   |   |
| Accounts payable                                                                                   |   |   | 4,901   |   |   |   | (6,347 | ) |
| Accrued reporting and administrative fee                                                           |   |   | – |   |   |   | – |   |
| Accrued partnership management fee                                                                 |   |   | – |   |   |   | 5,600 |   |
| Accrued interest                                                                                   |   |   | – |   |   |   | – |   |
| Prepaid rents                                                                                      |   |   | – |   |   |   | – |   |
| Tenants' security deposits                                                                         |   |   | 1,738   |   |   |   | 1,715 |   |
| Net cash provided by (used in) operating activities                                                |   | $      | 97,157  |   |   | $      | 75,715 |   |
|                                                                                               |   |   |    |   |   |   |   |   |
| CASH FLOWS FROM INVESTING ACTIVITIES                                                               |   |   |    |   |   |   |   |   |
| Funding of replacement reserve                                                                     |   | $      | (32,982 | )      |   | $      | (29,874 | ) |
| Withdrawals from replacement reserve                                                               |   |   | 32,382  |   |   |   | 40,446 |   |
| Acquisition of property and equipment                                                              |   |   | (23,474 | )      |   |   | (4,912 | ) |
| Net cash provided by (used in) investing activities                                                |   | $      | (24,074 | )      |   | $      | 5,660 |   |
|                                                                                               |   |   |    |   |   |   |   |   |
| CASH FLOWS FROM FINANCING ACTIVITIES                                                               |   |   |    |   |   |   |   |   |
| Partner contributions                                                                              |   | $      | – |   |   | $      | – |   |
| Partner distributions                                                                              |   |   | (28,000 | )      |   |   | (70,000 | ) |
| Principal payments on long-term debt                                                               |   |   | (42,104 | )      |   |   | (35,033 | ) |
| Net cash provided by (used in) financing activities                                                |   | $      | (70,104 | )      |   | $      | (105,033 | ) |
|                                                                                               |   |   |    |   |   |   |   |   |
| See Notes to Financial Statements.                                                                 |   |   |    |   |   |   |   |   |

----

|                                             |   | 2006   |    |   | 2005   |   |
|--------------------------------------------------|--------|--------|---------|--------|--------|--------|
|                                             |   |   |    |   |   |   |
|                                             |   |   |    |   |   |   |
| Increase (decrease) in cash and cash equivalents |   | $      | 2,979   |   |   | $      | (23,658 | ) |
|                                             |   |   |    |   |   |   |   |   |
| Cash and cash equivalents                        |   |   |    |   |   |   |   |   |
| Beginning                                        |   |   | 8,049   |   |   |   | 31,707 |   |
|                                             |   |   |    |   |   |   |   |   |
| Ending                                           |   | $      | 11,028  |   |   | $      | 8,049 |   |
|                                             |   |   |    |   |   |   |   |   |
|                                             |   |   |    |   |   |   |   |   |
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION |   |   |    |   |   |   |   |   |
| Cash paid during the year for interest           |   | $      | 117,549 |   |   | $      | 136,413 |   |
|                                             |   |   |    |   |   |   |   |   |

----

|      | Years  |
|-----------|--------|
|      |   |
| Buildings | 27.5   |
| Equipment | 7      |

|                      | Years  |
|---------------------------|--------|
|                      |   |
| Deferred debt expense     | 30     |
| Tax credit monitoring fee | 15     |

----

----

|                          |   | 2006   |   |   | 2005   |   |
|-------------------------------|--------|--------|--------|--------|--------|--------|
| Deferred debt expense         |   | $      | 39,200 |   |   | $      | 39,200 |   |
| Tax credit monitoring fee     |   |   | 26,650 |   |   |   | 26,650 |   |
|                          |   |   |   |   |   |   |   |   |
|                          |   | $      | 65,850 |   |   | $      | 65,850 |   |
| Less accumulated amortization |   |   | 34,991 |   |   |   | 31,907 |   |
|                          |   |   |   |   |   |   |   |   |
|                          |   | $      | 30,859 |   |   | $      | 33,943 |   |
|                          |   |   |   |   |   |   |   |   |

| December 31, 2007     |   | $      | 45,116    |   |
|-------------------------------------------|--------|--------|-----------|--------|
| 2008                  |   |   | 48,343    |   |
| 2009                  |   |   | 51,802    |   |
| 2010                  |   |   | 55,508    |   |
| 2011                  |   |   | 59,479    |   |
| Thereafter                                |   |   | 1,412,936 |   |
|                                      |   |   |      |   |
| TOTAL                                     |   | $      | 1,673,184 |   |
|                                      |   |   |      |   |

----

----