UNITED STATES SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549
                       ----------------------------------

                                    FORM 10-K

            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                     FOR FISCAL YEAR ENDED DECEMBER 31, 1998

                                       OR

          |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)

               For the transition period from ______ to _______ .


Commission File Number: 0-17151


                          PAINEWEBBER/CMJ PROPERTIES LP
                        --------------------------------
             (Exact name of registrant as specified in its charter)



Delaware                                                         04-2780288
--------------------------------------------------------------------------------
(State or other jurisdiction of                             (I.R.S. Employer
incorporation or organization)                              Identification No.)


265 Franklin Street, Boston, Massachusetts                         02110
--------------------------------------------------------------------------------
(Address of principal executive offices)                           (Zip Code)


Registrant's telephone number, including area code (617) 439-8118
                                                   --------------

Securities registered pursuant to Section 12(b) of the Act:



                                                  Name of each exchange on   
Title of each class                                   which registered
-------------------                               ------------------------
     None                                                     None

Securities registered pursuant to Section 12(g) of the Act:

                      UNITS OF LIMITED PARTNERSHIP INTEREST
                                (Title of class)

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. |X|

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes |X| No |_|.

State the aggregate market value of the voting stock held by  non-affiliates  of
the registrant. Not applicable.

                       DOCUMENTS INCORPORATED BY REFERENCE

Documents                                                   Form 10-K Reference
---------                                                   -------------------
Prospectus of registrant dated                                   Part IV
May 25, 1983, as supplemented

<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP
                                 1998 FORM 10-K

                                TABLE OF CONTENTS

Part   I                                                               Page

Item  1           Business                                              I-1

Item  2           Properties                                            I-3

Item  3           Legal Proceedings                                     I-3

Item  4           Submission   of  Matters  to  a  Vote  of
                  Security Holders                                      I-3

Part  II

Item  5           Market for the Partnership's Limited Partnership 
                  Interests and Related Security Holder Matters        II-1

Item  6           Selected Financial Data                              II-1

Item  7           Management's  Discussion  and Analysis of
                  Financial Condition and Results of Operations        II-2

Item  8           Financial Statements and Supplementary Data          II-8

Item  9           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                  II-8

Part III

Item 10           Directors and  Executive  Officers of the 
                  Partnership                                         III-1

Item 11           Executive Compensation                              III-2

Item 12           Security Ownership of Certain Beneficial Owners 
                  and Management                                      III-3

Item 13           Certain Relationships and Related Transactions      III-3

Part  IV

Item 14           Exhibits, Financial Statement Schedules and
                  Reports on Form 8-K                                  IV-1

Signatures                                                             IV-2

Index to Exhibits                                                      IV-3

Financial Statements and Supplementary Data                     F-1 to F-79



<PAGE>

      This Form 10-K contains  forward-looking  statements within the meaning of
Section 27A of the  Securities  Act of 1933 and  Section  21E of the  Securities
Exchange Act of 1934. The  Partnership's  actual results could differ materially
from those set forth in the  forward-looking  statements.  Certain  factors that
might cause such a difference  are  discussed in Item 7 in the section  entitled
"Certain Factors Affecting Future Operating  Results"  beginning on page II-6 of
this Form 10-K.

                           PART I

Item 1.  Business

      Paine  Webber/CMJ   Properties,   LP  (the  "Partnership")  is  a  limited
partnership formed in December 1982 under the Uniform Limited Partnership Act of
the State of Delaware  for the  purpose of  investing  in a  portfolio  of local
limited  partnerships  owning  apartment  projects which  received  governmental
assistance in the form of low interest rate  mortgages and rent  subsidies.  The
Partnership sold $8,745,000 in Limited  Partnership units (8,745 units at $1,000
per unit) from May 1983 to April  1984,  pursuant  to a  Registration  Statement
filed on Form S-11 under the Securities Act of 1933  (Registration No. 2-81003).
In addition,  the Initial  Limited  Partner  contributed  $1,000 for one unit (a
"Unit") of Limited Partnership  Interest.  Limited Partners will not be required
to make any additional capital contributions.

      As of December 31, 1998,  the  Partnership  owned,  through  local limited
partnerships,  interests  in  six  apartment  properties  as  set  forth  in the
following table:


                                                                  Percent
Name of Local                                                     Interest in
Limited Partnership                               Date of         Local Limited
Name of Property                                  Acquisition     Partnership
Location                         Size             of Interest     (1) (2) 
--------                        -----             -----------     -----------

Fawcett's  Pond
 Apartments Company
Village at Fawcett's Pond       100               6/30/83         95%
Hyannis, Massachusetts          units

Quaker Meadows
 Apartments Company
Quaker Court and The Meadows    104               6/30/83         95%
Lynn, Massachusetts             units

South Laurel Apartments
 Limited Partnership
Villages at Montpelier          520               6/30/83         85%
Laurel, Maryland                units

Marvin Gardens Associates
Marvin Gardens                  37                7/29/83         95%
Cotati, California              units

Colonial Farms Ltd.
Colonial Farms                  100               7/29/83         95%
Modesto, California             units

Holbrook Apartments Company
Ramblewood Apartments           170               8/30/83         85%
Holbrook, Massachusetts         units

(1)  The  Partnership  owns limited  partnership  interests in the local limited
     partnerships owning the apartment properties and improvements.

(2)  See Notes to the  Financial  Statements  filed with this Annual  Report for
     current  outstanding  mortgage  balances and a description of the long-term
     mortgage indebtedness  collateralized by the operating property investments
     of the  local  limited  partnerships  and for a  description  of the  local
     limited  partnership  agreements through which the Partnership has acquired
     these real estate investments.

      The Partnership's  original  investment  objectives were to invest the net
cash proceeds from the offering of limited partnership units in rental apartment
properties  receiving  various forms of federal,  state or local assistance with
the goals of providing:

(1)  tax  losses  from  deductions   generated  by   investments;   
(2)  capital preservation; 
(3)  potential capital appreciation; and
(4)  potential future cash distributions  from operations  (on a limited basis),
     or from the sale or refinancing of the projects owned by the local  limited
     partnerships,  or from   the  sale   of   interests   in the  local limited
     partnerships.
<PAGE>

      The Partnership  has generated tax losses since  inception.  However,  the
benefits of such losses to investors have been significantly  reduced by change
in federal income tax law subsequent to the organization of the Partnership. The
Partnership continues to retain an ownership interest in all six of its original
operating investment properties.  As of December 31, 1998, all of the properties
are generating  sufficient  cash flow from  operations to cover their  operating
expenses and debt service  payments,  and all of the  properties  are generating
excess cash flow, a portion of which is being  distributed to the Partnership on
an  annual  basis in  accordance  with the  respective  regulatory  and  limited
partnership  agreements.  Due to  improvements  in  cash  flow  and  the  strong
operating performances of the investment properties, management had instituted a
program of regular  quarterly  distributions  in 1994 at an annual rate of 2% on
original invested capital. During 1996 distributions to the Partnership from the
local limited partnerships declined, causing management to suspend distributions
effective for the fourth quarter of 1996. In the future,  to the extent there is
distributable  cash flow from the  properties  after the payment of  Partnership
management fees and operating expenses,  the Partnership plans to make an annual
distribution payment. Because of ongoing capital expenditure requirements at the
properties,  the Partnership did not make an annual distribution  payment to the
Limited  Partners in 1997.  Based on improved  cash flow from the  properties in
1998, the Partnership made an annual distribution payment in November 1998 at an
annual  rate of 2% on  original  invested  capital.  The  ability to make future
distributions  of operating  cash flow will continue to be assessed on an annual
basis in the fourth quarter of each year.

      The Partnership's  success in meeting its capital  appreciation  objective
will depend upon the proceeds  received from the final sales of its investments.
The  amount  of such  proceeds  will  ultimately  depend  upon the  value of the
underlying investment  properties at the time of their final disposition,  which
cannot presently be determined. Because of the government restrictions on rental
revenues and the related capital expenditure reserve  requirements and cash flow
distribution limitations,  there are a limited number of potential buyers in the
market for government subsidized,  low-income housing properties the Partnership
has invested in. Furthermore, the current uncertainty regarding potential future
reductions in the level of federal government  assistance for these programs may
further restrict the properties' marketability. Accordingly, management does not
expect the General  Partners of the local  limited  partnerships,  which receive
management  fee  revenues  from the  properties,  to  attempt to sell any of the
properties  in the near  term.  As  discussed  further  in Item 7, as a  limited
partner  in  the  local  limited  partnerships,  the  Partnership's  ability  to
influence  major  business  decisions,   including  any  decision  to  sell  the
properties, is restricted under the terms of the agreements.

      All of the properties owned by the local limited partnerships in which the
Partnership  invested  are  located  in real  estate  markets in which they face
competition  for  the  revenues  they  generate.  The  Partnership's   apartment
complexes,  all but one of which are currently  government-assisted,  low-income
housing  facilities,  compete with several projects of similar type generally on
the  basis of  price,  location  and  amenities.  The  sixth  property  had been
partially  subsidized until July 1997 when the subsidy agreement  expired.  This
property has  transitioned  to a 100% market rent facility and now competes with
other  non-subsidized  properties  in its local  sub-market.  The tenants at the
Partnership's subsidized apartment properties are not as likely to be candidates
for single-family  home ownership as tenants of non-subsidized  properties would
be.  Therefore,  competition  from  the  single  family  home  market  is  not a
significant factor.

      The  Partnership  is  engaged  solely  in  the  business  of  real  estate
investment,  therefore,  presentation of information  about industry segments is
not applicable.  The Partnership has no real estate investments  located outside
the United States.

      The  Partnership  has no  employees;  it  has,  however,  entered  into an
Advisory  Contract with  PaineWebber  Properties  Incorporated  (the "Adviser"),
which is  responsible  for the  day-to-day  operations of the  Partnership.  The
Adviser is a  wholly-owned  subsidiary  of  PaineWebber  Incorporated  (PWI),  a
wholly-owned subsidiary of PaineWebber Group, Inc. ("PaineWebber").

      The Managing  General  Partner of the Partnership is PW Shelter Fund, Inc.
(the "Managing  General  Partner"),  a wholly-owned  subsidiary of  PaineWebber.
Subject to the Managing General Partner's overall authority, the business of the
Partnership  is  managed  by the  Adviser.  The  associate  general  partner  is
Properties Associates (the "Associate General Partner"), a Massachusetts general
partnership,  certain general partners of which are also officers of the Adviser
and the Managing General Partner.

      The terms of  transactions  between the  Partnership and affiliates of the
Managing  General  Partner of the  Partnership  are set forth in Items 11 and 13
below to which  reference  is hereby  made for a  description  of such terms and
transactions.
<PAGE>
Item 2.  Properties

      The Partnership has acquired interests in six operating properties through
investments in local limited  partnerships.  The local limited  partnerships and
related properties are referred to under Item 1 above to which reference is made
for the description, name, location, and ownership interest in each property.

      Occupancy  figures for each quarter during 1998, along with an average for
the year, are presented below for each property:


                                              Percent Occupied At
                                   --------------------------------------------
                                                                       1998
                                    3/31/98  6/30/98 9/30/98 12/31/98  Average
                                    -------  ------- ------- --------  -------

Village at Fawcett's Pond
  Apartments                        100%     100%      100%     100%    100%

Quaker Court and The Meadows        100%      98%      100%     100%     99%

Villages at Montpelier Apartments    96%      94%       96%      92%     94%

Marvin Gardens Apartments           100%      97%      100%     100%     99%

Colonial Farms Apartments           100%      99%      100%      99%     99%

Ramblewood Apartments               100%      98%      100%     100%     99%

Item 3. Legal Proceedings

      None.

Item 4.   Submission  of  Matters  to a Vote of  Security  Holders

      None.


<PAGE>

                                     PART II

Item 5.  Market for the Partnership's  Limited Partnership Interests and Related
Security Holder Matters

      At  December  31,  1998  there  were 844  record  holders  of Units in the
Partnership.  There is no public market for the Units, and it is not anticipated
that a public market for Units will develop.  Upon request, the Managing General
Partner will endeavor to assist a Unitholder  desiring to transfer his Units and
may utilize the  services  of PWI in this  regard.  The price to be paid for the
Units will be subject to negotiation  by the  Unitholder.  The Managing  General
Partner will not redeem or repurchase Units.

      See Item 6 below for the amount of cash  distributions paid to the Limited
Partners during 1998.

Item 6.  Selected Financial Data

                         Paine Webber/CMJ Properties, LP
                      (In thousands, except per Unit data)


                                       Years Ended December 31,            
                         -----------------------------------------------------
                             1998        1997        1996    1995       1994
                             ----        ----        ----    ----       ----

Revenues                 $   294     $    147    $    98   $  244    $  179

Expenses                 $   365     $    288    $   280   $  288    $  268

Partnership's share
 of local limited
 partnerships' income    $   209     $    184    $   157   $  174    $  186

Net income (loss)        $   138     $     43    $   (25)  $  130    $   97

Cash distributions per
 Limited
 Partnership Unit        $ 20.00            -    $ 20.00   $20.00    $10.00

Net income (loss) per
 Limited
 Partnership Unit        $ 15.58     $   4.85    $ (2.82)  $14.75    $11.01

Total assets             $   383     $    520    $   415   $  486    $  525


     (a) The above selected  financial  data should be read in conjunction  with
         the financial  statements and related notes appearing elsewhere in this
         Annual Report.

     (b) The above per Limited  Partnership  Unit  information is based upon the
         8,746 Limited Partnership Units outstanding during each year.

Item  7.  Management's Discussion and Analysis of Financial Condition and 
          Results of Operations

Information Relating to Forward-Looking Statements
--------------------------------------------------

      The following  discussion of financial condition includes  forward-looking
statements  which  reflect  management's  current  views with  respect to future
events and  financial  performance  of the  Partnership.  These  forward-looking
statements  are  subject to certain  risks and  uncertainties,  including  those
identified below under the heading  "Certain Factors  Affecting Future Operating
Results",  which could cause actual results to differ materially from historical
results or those anticipated.  The words "believe," "expect,"  "anticipate," and
similar expressions identify forward-looking  statements.  Readers are cautioned
not to place undue reliance on these forward-looking statements, which were made
based on facts and conditions as they existed as of the date of this report. The
Partnership   undertakes  no  obligation  to  publicly   update  or  revise  any
forward-looking  statements,  whether  as a result  of new  information,  future
events or otherwise.

Liquidity and Capital Resources
-------------------------------

      The Partnership offered limited  partnership  interests to the public from
May 1983 to April 1984  pursuant  to a  Registration  Statement  filed under the
Securities Act of 1933. The  Partnership  received gross proceeds of $8,746,000,
and after  deducting  selling  expenses  and  offering  costs,  the  Partnership
invested  approximately  $6,960,000  in six local  limited  partnerships  owning
housing  projects  that  received  various  forms  of  federal,  state  or local
assistance  and that  could be  classified  as  "low-income  housing"  under the
Internal  Revenue  Code.  The  Partnership  does not have  any  commitments  for
additional  capital  expenditures or investments.  The Partnership  continues to
retain an  ownership  interest in all six of its original  operating  investment
properties.  As of December  31,  1998,  all of the  properties  are  generating
sufficient cash flow from operations to cover their operating  expenses and debt
service  payments,  and all of the properties are generating excess cash flow, a
portion of which is being  distributed to the  Partnership on an annual basis in
accordance with the respective  regulatory and limited  partnership  agreements.
Due to  improvements in cash flow and the strong  operating  performances of the
investment  properties,  management  had  instituted  a  program  in 1994  which
provided for the payment of regular quarterly distributions at an annual rate of
2% on original invested capital.  During 1996,  distributions to the Partnership
from the local  limited  partnerships  declined,  causing  management to suspend
distributions  effective for the fourth  quarter of 1996. In the future,  to the
extent there is sufficient distributable cash flow from the properties after the
payment of Partnership  management fees and operating expenses,  the Partnership
plans  to make an  annual  distribution  payment.  Because  of  ongoing  capital
expenditure  requirements  at the  properties,  the  Partnership did not make an
annual  distribution  payment to the  Limited  Partners  in 1997.  As  discussed
further  below,  based on improved cash flow from the  properties  in 1998,  the
Partnership  made an annual  distribution  payment to the Limited  Partners at a
rate of 2% on original invested capital in November 1998.

      During 1998, the Partnership  received  distributions  totalling  $460,000
from all six local limited partnership investments.  During 1997 the Partnership
received  distributions  totalling  $370,000  from five of the six local limited
partnerships.  The  amounts  received in 1997 and 1998  represent  the cash flow
available for  distribution as of December 31, 1996 and 1997,  respectively,  as
determined  by  the  general  partners  of the  local  limited  partnerships  in
accordance  with the  partnership,  financing and regulatory  agreements.  Total
distributions from the Partnership's  investments  increased in the current year
due to increases in  distributions  from three of the local limited  partnership
investments  and  the  receipt  of  $66,000  from  The  Villages  at  Montpelier
partnership  in 1998. No  distributions  were received from this  partnership in
1997. As previously  reported,  during the second quarter of 1997  management of
the Partnership  completed a detailed review of each property with the affiliate
of the operating general partners which manages the day-to-day operations of the
investment  properties.  As a result of such review,  management determined that
the Partnership  should not make an annual  distribution to the Limited Partners
for  1997.  Based on the  existing  environment  of  rising  property  operating
expenses  and  capital  improvement  costs,  as  well  as  the  restrictions  on
distributable cash flow from the properties,  there was not sufficient cash flow
to support the payment of a distribution by the  Partnership for 1997.  Based on
the  amounts  of  the  1998   distribution   payments  from  the  local  limited
partnerships,  management believed that there was sufficient cash flow to make a
distribution for the current year.  Accordingly,  the Partnership made an annual
distribution  to the Limited  Partners  on November  23, 1998 at a rate of 2% on
original invested capital. Such distribution totalled approximately $175,000, or
$20 per original $1,000 investment.  The ability to make future distributions of
operating  cash flow will  continue  to be  assessed  on an annual  basis in the
fourth quarter of each year.

      As  of  December  31,  1998,  five  of  the  Partnership's  six  operating
investment  properties were receiving  rental subsidy  payments from the federal
government  under  Section 8 of the National  Housing Act for 100% of the rental
units.  The  government  subsidy  payments  range  from 65% to 81% of the  total
revenues of the related local limited partnerships. As discussed previously, the
subsidy agreement covering The Villages at Montpelier Apartments expired in July
1997.  The  subsidy  agreements  covering  the other five  operating  investment
properties  do  not  expire  for  another  3-to-5  years.  Due  to  the  limited
availability of government  subsidized  housing,  these properties  consistently
achieve occupancy levels of 99% to 100%. Cash flow from these five properties is
restricted by the Department of Housing and Urban Development  ("HUD") and other
applicable state housing  agencies,  which set rental rates for low-income units
and require  significant  cash  reserves to be  established  for future  capital
improvements.  In addition,  a substantial  amount of the revenues  generated by
these properties comes from the rental subsidy payments made by federal or state
housing  agencies.  These features,  which are  characteristic of all subsidized
low-income housing properties,  significantly limit the pool of potential buyers
for these real estate assets.  Furthermore,  the uncertainty regarding potential
future  reductions  in the  level of  federal  government  assistance  for these
programs may further restrict the properties'  marketability.  Accordingly,  the
general partners of the local limited partnerships, which receive management fee
revenues from the properties through an affiliated  management company, were not
expected to initiate efforts to sell any of the properties in the near term.

      As a limited  partner of the local limited  partnerships,  the Partnership
does not control  property  disposition  decisions.  The partnership  agreements
state  that the  limited  partner  may cause the sale of the assets of the local
limited partnerships  subsequent to June 30, 1995, but not earlier than one year
after it has given written notice to the operating general partner of its intent
to cause such sale,  and only if,  during such  one-year  period,  the operating
general partner does not cause the sale of such assets. If the operating general
partner  has not caused the assets of the  partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered to sell such assets to the  operating  general  partner,  and either the
operating general partner does not accept such offer within 90 days of receiving
it, or the  operating  general  partner does not complete the sale in accordance
with such offer after accepting the terms. In October 1998, the Partnership gave
the written notice  described above to the operating  general partner of all six
local limited  partnerships after meeting with  representatives of the operating
general partner to discuss the Partnership's desire to liquidate its investments
in the near term. The  Partnership  must now wait for the one-year  notification
period to lapse or for the possible earlier receipt of an acceptable liquidation
proposal from the  operating  general  partner.  In light of the decision by the
Partnership  to initiate this action under the terms of the limited  partnership
agreements,   it  is  currently   contemplated   that  the  disposition  of  the
Partnership's  investments  and  a  liquidation  of  the  Partnership  could  be
completed by the end of calendar year 1999.  There are no  assurances,  however,
that  the  disposition  of  the  remaining  assets  and  a  liquidation  of  the
Partnership will be completed within this time frame.

      The average  occupancy level at The Villages at Montpelier  Apartments was
94% for the year ended December 31, 1998, compared to 92% for the prior year. As
previously  reported,  prior to July 1997, 80% of the apartments at The Villages
at  Montpelier  were  rented  at market  rates  while  20%  received  government
subsidies under the Section 8 rental assistance program.  With the expiration of
the subsidy  agreement  in July 1997,  the  property  management  team began the
process of converting the former subsidized units at the property to market rent
units during the third quarter of 1997. As expected,  the conversion resulted in
a decline in occupancy at the property as a number of subsidized tenants vacated
the property and their units were  prepared to be  re-leased.  Subsequent to the
expiration  of the  Section  8  contract,  the  average  occupancy  level at the
property  fell to 88% for the third quarter of 1997 but rebounded to 90% for the
fourth  quarter of 1997 and  stabilized by the first quarter of 1998.  Cash flow
from  operations at The Villages at  Montpelier is comparable to the  previously
subsidized  level  now  that  the  occupancy  rate  at  the  property  has  been
stabilized.  If the market for conventional  multi-family  apartment  properties
remains strong in the near term, the expiration of the rental subsidy  agreement
at  The  Villages  at  Montpelier   Apartments   could  enhance  the  property's
marketability for a potential sale by increasing the pool of interested  buyers.
However, there are no assurances that such market conditions will remain strong,
and the  ability  of the  Partnership  to cause a sale of the  property  remains
restricted by the terms of the limited  partnership  agreement discussed further
above.

      At  December  31,  1998,  the  Partnership  had  available  cash  and cash
equivalents of approximately  $341,000,  which it intends to use for its working
capital  requirements  and  distribution  to the partners.  The source of future
liquidity  and  distributions  to the  partners  is  expected  to be  from  cash
generated from the operations of the Partnership's  real estate  investments and
from the proceeds  received from the sale or refinancing of the properties owned
by the  local  limited  partnerships  or  from  the  sale  of the  Partnership's
interests in the local  limited  partnerships.  Such  sources of  liquidity  are
expected to be sufficient to meet the  Partnership's  needs on both a short-term
and long-term basis.

      As noted above,  it is possible that the  Partnership  could be liquidated
prior to the end of calendar year 1999.  Notwithstanding  this, the  Partnership
believes that it has made all necessary modifications to its existing systems to
make  them  year  2000  compliant  and does not  expect  that  additional  costs
associated  with  year  2000  compliance,  if  any,  will  be  material  to  the
Partnership's results of operations or financial position.

Results of Operations
1998 Compared to 1997
---------------------

      For the year ended December 31, 1998, the Partnership  reported net income
of $138,000, as compared to net income of $43,000 for 1997. This increase in the
Partnership's net income was mainly attributable to a $145,000 increase in other
income  from  local  limited   partnerships   and  a  $25,000  increase  in  the
Partnership's share of local limited  partnerships'  income which were partially
offset  by a  $77,000  increase  in  general  and  administrative  expenses.  As
discussed  in the notes to the  financial  statements,  in  accordance  with the
equity method of accounting the Partnership records distributions  received from
investments in limited partnerships with carrying values of zero as other income
from local limited partnerships. The increase in other income from local limited
partnerships  is largely  due to a $66,000  increase in  distributions  from The
Villages at Montpelier  investment  and an increase of $64,000 in the portion of
the  distributions  from the Holbrook  investment  being applied to other income
after that investment reached a zero carrying value in the current year.

      Under the equity method of accounting for limited  partnership  interests,
losses in excess of the investment in individual local limited  partnerships are
not recognized  currently,  but rather,  are offset against future earnings from
such  entities.   As  a  result,  the  Partnership's   share  of  local  limited
partnerships' operations for both the current and prior years represent only the
allocable  portions of the  operations  of the  Ramblewood  and  Fawcett's  Pond
partnerships. The Partnership's share of income from Fawcett's Pond increased by
$30,000 for 1998 primarily due to a reduction in mortgage  interest  expense and
property  operating  expenses.  Mortgage  interest expense  decreased due to the
reduction in the mortgage  principal balance resulting from scheduled  principal
repayments.  Property  operating  expenses  decreased at  Fawcett's  Pond due to
additional  repairs and  maintenance  expenditures  incurred  during  1997.  The
Partnership's  share of income  from  Ramblewood  decreased  by  $5,000  for the
current  year  primarily  due to an  increase  in real  estate  taxes  which was
partially  offset by a reduction in repairs and maintenance  expenses.  Overall,
the combined net operating results of the six local limited partnerships changed
from a net loss of $34,000  for 1997 to net income of  $65,000  for the  current
year.  This  favorable  change  of  $99,000  resulted  primarily  from a $76,000
increase in rental  revenues  and a $36,000  decrease in combined  interest  and
mortgage  insurance   expense.   Combined  property  rental  revenues  increased
primarily due to an increase in the rental rates and average  occupancy level at
The Villages at Montpelier Apartments.  Combined interest and mortgage insurance
expense  decreased  mainly due to the  reduction  in the  outstanding  principal
balances  of the  partnerships'  mortgage  loans  resulting  from the  scheduled
monthly principal payments.

      General  and  administrative  expenses  increased  in 1998  mainly  due to
additional professional fees incurred for an evaluation of potential disposition
strategies for the  Partnership's  investments  and an  independent  third party
valuation  of the local  limited  partnership  interests  performed  during  the
current year.

1997 Compared to 1996
---------------------

      For the year ended December 31, 1997, the Partnership  reported net income
of $43,000, as compared to a net loss of $25,000 for 1996. This favorable change
in the  Partnership's  net  operating  results  was  attributable  to a  $41,000
decrease  in the  Partnership's  operating  loss and a $27,000  increase  in the
Partnership's share of local limited  partnerships'  income. The decrease in the
Partnership's  operating  loss was  attributable  to an increase in other income
from local limited partnerships of $37,000 and an increase in interest income of
$12,000. An increase in general and administrative  expenses of $8,000 partially
offset these favorable changes in operating income.

      As discussed  further above, the Partnership  accounts for its investments
in local limited  partnerships  using the equity method.  In accordance with the
equity  method,  the  Partnership  does not  record  losses  for  those  limited
partnership  investments  whose equity method basis has been reduced to zero and
recognizes future income from these entities only when it exceeds the previously
unrecorded   losses.   Distributions   received  from   investments  in  limited
partnerships  whose basis has been  reduced to zero are recorded as other income
from the  local  limited  partnerships.  Other  income  from the  local  limited
partnerships in 1997  represents  distributions  from Quaker  Meadows,  Colonial
Farms and Marvin  Gardens while the 1996 amount  represents  distributions  from
Quaker Meadows,  Colonial Farms and Fawcett's Pond.  Overall,  other income from
local  limited  partnerships  increased by $37,000 due to a $41,000  increase in
distributions  from Quaker Meadows,  a $4,000  distribution from Marvin Gardens,
which did not make a distribution in 1996, and an $8,000 reduction  attributable
to Fawcett's Pond. Although the distribution from the Fawcett's Pond partnership
remained   unchanged  from  1996  to  1997,  other  income  from  local  limited
partnerships  decreased because the entire  distribution from Fawcett's Pond was
recorded as a reduction of the equity method carrying value of the investment in
1997. The increase in interest income resulted from an increase in invested cash
reserves due to the  suspension  of the  Partnership's  quarterly  distributions
during the fourth  quarter of 1996 and an increase in  distributions  from local
limited  partnerships  in 1997.  The  increase  in  general  and  administrative
expenses was mainly due to increases in certain required  professional  services
during 1997.

      At December 31, 1997, only two of the six local limited partnerships,  The
Holbrook  Apartments  Company  (Ramblewood  Apartments)  and the Fawcett's  Pond
Apartment Company, had positive equity method carrying values. The Partnership's
share  of  income  from the  Ramblewood  Apartments  for 1997 and 1996  totalled
$154,000 and $141,000,  respectively,  while the  Partnership's  share of income
from the  Fawcett's  Pond  Apartments  for 1997 and 1996  totalled  $30,000  and
$16,000,  respectively. The favorable change in the Partnership's share of local
limited  partnerships'  income  attributable  to the Fawcett's Pond  partnership
resulted  from a portion of the  income  from  Fawcett's  Pond  ($55,000)  being
allocated to offset  previously  unrecorded  losses in 1996.  As a result,  only
$16,000 of the $71,000  income  allocable  to the  Partnership  in that year was
recognized  by the  Partnership  in its  share  of local  limited  partnerships'
income.  In 1997, the entire  $30,000 of Fawcett's Pond income  allocable to the
Partnership was recognized in its share of local limited  partnerships'  income.
The favorable  change in the  Partnership's  share of income from the Ramblewood
partnership  resulted mainly from an increase in total revenues and decreases in
real  estate  taxes and  interest  expense  which  were  partially  offset by an
increase in incentive  management fees and property operating  expenses.  In the
aggregate,  total  revenues  increased  or remained  the same at five of the six
local limited  partnerships due to stable occupancy levels which averaged in the
99% to 100% range during 1996 and 1997.  The Villages at  Montpelier  Apartments
was the only  local  limited  partnership  to  experience  a notable  decline in
occupancy  which resulted in a 1% decline in rental  revenues for 1997.  Average
occupancy at The Villages at Montpelier  Apartments declined from 95% in 1996 to
92% for 1997 due to the expiration of the government  subsidy  agreement in July
1997, as discussed  further above.  Despite the decline in rental revenues,  the
net  operating  results of The Villages at  Montpelier  partnership  improved by
$192,000 during 1997, mainly due to a $214,000  reduction in property  operating
expenses,  which was  principally  due to lower repairs and  maintenance  costs.
Total  expenses at the other five local limited  partnerships  increased in 1997
mainly due to increases in repairs and  maintenance  expenses at Colonial Farms,
Fawcett's Pond,  Quaker Meadows and Marvin Gardens,  a reimbursement  of subsidy
payments required at Colonial Farms and an increase in incentive management fees
at Ramblewood and Quaker Meadows.
<PAGE>
1996 Compared to 1995
---------------------

      For the year ended December 31, 1996, the Partnership  reported a net loss
of $25,000,  as compared to net income of $130,000  for 1995.  This  unfavorable
change in the  Partnership's  net operating results of $155,000 was attributable
to a $138,000 increase in the Partnership's operating loss and a $17,000 decline
in the Partnership's share of local limited partnerships' income.

      As noted above,  in accordance  with the equity  method of accounting  for
limited  partnership  interests,  the  Partnership  does not record  losses from
investment  properties when losses exceed the Partnership's  equity method basis
in these  properties,  and future income is recognized  only when it exceeds the
previously  unrecorded losses.  Five of the Partnership's six investments had an
equity  method  basis of zero as of  December  31, 1996 and 1995.  The  Holbrook
Apartments  Company  (Ramblewood  Apartments) was the only remaining  investment
with a positive  equity method  carrying value as of December 31, 1996 and 1995.
The  Partnership's  share of income from the Ramblewood  Apartments for 1996 and
1995 totalled $141,000 and $174,000,  respectively.  This unfavorable  change in
the net operating results of the Ramblewood  partnership resulted mainly from an
increase in property operating  expenses.  Property operating expenses increased
as a result of sidewalk  repairs,  exterior  painting,  and the  replacement  of
playground  equipment,  which occurred in 1996.  During 1996,  cumulative income
allocations  to the  Partnership  from the Fawcett's  Pond  investment  exceeded
previously unrecorded losses. As a result, the Partnership  recognized a portion
of the 1996 income  allocation from the Fawcett's Pond partnership  ($16,000) in
its share of local limited  partnerships' income in 1996, which partially offset
the decline in income from the Ramblewood  partnership.  Distributions  from the
Fawcett's  Pond  partnership  were  recorded  as  reductions  to the  investment
carrying value to the extent of the income recognition in 1996 which reduced the
carrying value of the investment to zero as of December 31, 1996.  Overall,  the
combined net operating  results of the six local limited  partnerships  improved
from a net loss of  $6,000  in 1995 to net  income  of  $17,000  in  1996.  This
favorable  change  resulted  from an increase  in combined  revenues of $67,000,
which exceeded the increase in combined expenses of $44,000.

      The  Partnership's  operating loss increased due to a $146,000 decrease in
total revenues,  which was partially offset by an $8,000 decrease in Partnership
general and administrative  expenses. The major portion of the decrease in total
revenues  was  attributable  to a $137,000  decline in other  income  from local
limited  partnerships.   As  discussed  further  in  Note  2  to  the  financial
statements,  distributions  from the local limited  partnerships are recorded as
other income for those  investments  for which the  Partnership's  equity method
carrying value has been reduced to zero.  With the exception of Fawcett's  Pond,
distributions from which remained  unchanged,  distributions from the five local
limited partnerships with carrying values of zero declined by varying amounts in
1996  generally  due to rising  operating  expenses  and  increases  in  capital
expenditures.  In  addition,  as  discussed  further  above,  a  portion  of the
distributions received from the Fawcett's Pond partnership in 1996 were recorded
as reductions to the  investment's  carrying  value.  Also  contributing  to the
decrease in total revenues was a $9,000  decline in interest  income on invested
cash reserves.  The decline in general and administrative  expenses for 1996 was
mainly due to decreases in certain required professional services.

Certain Factors Affecting Future Operating Results
--------------------------------------------------

      The following factors could cause actual results to differ materially from
historical results or those anticipated:

      Risks  of  Government-Assisted  Housing  Complexes.  In  certain  respects
government-assisted   housing   complexes  differ  from   conventional   housing
complexes.  These  include  (a)  greater  financing  leverage  than is  usual in
conventional  complexes,  (b) review of compliance with  construction  and other
standards and (c) various contingency  reserves required in connection with such
government assistance programs.  Government-assisted  housing is also subject to
special  conditions  and  risks  including,  but not  limited  to,  (a)  general
surveillance  by the  appropriate  governmental  assistance  agency,  which  may
include  the  application  of  rental  and  other  guidelines  affecting  tenant
eligibility,  operating  costs and rental levels,  (b)  maintenance of a reserve
fund for replacements in an amount paid  concurrently  with  amortization of the
mortgage and in addition to payments of principal and interest,  restricted such
that  withdrawals  from  the fund  are  subject  to the  prior  approval  of the
appropriate  governmental  assistance  agency,  (c)  compliance  with the United
States Department of Housing and Urban Development ("HUD") regulations regarding
management of the  premises,  (d)  limitations  on  salability,  as contained in
regulatory agreements with the appropriate  governmental  assistance agency, (e)
limitations  on rent  increases,  and (f) the  uncertain  effects  of changes in
complex rules and regulations  governing such  government-assisted  programs, or
changes in the manner in which those regulations are interpreted.

      Government  assistance payments may be reduced in the event that a project
rents less than 100% of its units eligible for rental subsidies to qualified low
income tenants.  HUD generally elects to reduce subsidies only in the event that
occupancy levels for qualified tenants drop below 95% for a period of two years.
Finally,  HUD  commitments are subject to HUD's  appropriation  of federal funds
sufficient  to meet its  obligations  in any given year.  At the  present  time,
certain  legislative  initiatives and  governmental  budget  negotiations  could
result  in a  reduction  of funds  available  for the  various  HUD-administered
housing  programs and could also result in new  limitations  on subsidized  rent
levels.  This in turn could adversely  impact the net operating income generated
by the Partnership's properties.

      Real Estate  Investment  Risks.  Real property  investments are subject to
varying degrees of risk.  Revenues and property values may be adversely affected
by the  general  economic  climate,  the local  economic  climate and local real
estate conditions,  including (i) the perceptions of prospective  tenants of the
attractiveness of the property; (ii) the ability to retain qualified individuals
to provide  adequate  management  and  maintenance  of the  property;  (iii) the
inability  to  collect  rent due to  bankruptcy  or  insolvency  of  tenants  or
otherwise;  and (iv) increased  operating costs.  Real estate values may also be
adversely  affected by such  factors as  applicable  laws,  including  tax laws,
interest rate levels and the availability of financing.

      Effect  of  Uninsured   Loss.   The  local  limited   partnerships   carry
comprehensive  liability,   fire,  flood,  extended  coverage  and  rental  loss
insurance  with  respect  to their  properties  with  insured  limits and policy
specifications  that management  believes are customary for similar  properties.
There are, however,  certain types of losses (generally of a catastrophic nature
such as wars,  floods or earthquakes)  which may be either  uninsurable,  or, in
management's  judgment,  not  economically  insurable.  Should an uninsured loss
occur,  the Partnership  could lose both its invested capital in and anticipated
profits from the affected property.

      Possible Environmental Liabilities. Under various federal, state and local
environmental laws,  ordinances and regulations,  a current or previous owner or
operator of real property may become liable for the costs of the  investigation,
removal and  remediation  of  hazardous or toxic  substances  on,  under,  in or
migrating from such property. Such laws often impose liability without regard to
whether the owner or operator knew of, or was  responsible  for, the presence of
such hazardous or toxic substances.

      The  Partnership is not aware of any  notification by any private party or
governmental  authority  of any  non-compliance,  liability  or  other  claim in
connection  with  environmental  conditions  at any of its  properties  that  it
believes  will  involve  any   expenditure   which  would  be  material  to  the
Partnership,  nor is the Partnership aware of any  environmental  condition with
respect to any of its properties that it believes will involve any such material
expenditure.  However,  there  can  be no  assurance  that  any  non-compliance,
liability, claim or expenditure will not arise in the future.

      Competition.  The financial  performance of the Partnership's  real estate
investments  will be impacted by the competition  from comparable  properties in
their local market areas. Due to the limited  availability of low-income housing
programs  like the ones that  cover  five of the  Partnership's  six  investment
properties,  the competitive  pressures faced by these  properties are much less
than for  non-subsidized,  market rate  facilities.  Nonetheless,  the occupancy
levels  achievable at the properties and the rental rates at the  non-subsidized
property  are  largely a function of supply and demand in the  markets.  In many
markets  across the country,  development  of new  multi-family  properties  has
increased  significantly over the past two years.  Existing apartment properties
in such  markets  could be  expected to  experience  increased  vacancy  levels,
declines in  effective  rental  rates and, in some cases,  declines in estimated
market values as a result of the increased competition.  There are no assurances
that these competitive pressures will not adversely affect the operations and/or
market values of the Partnership's  investment  properties in the future and, in
particular, subsequent to the expiration of the existing subsidy agreements.

      Impact  of Local  Limited  Partnership  Structure.  The  ownership  of the
Partnership's  investments  through local limited  partnerships  could adversely
impact the timing of the  Partnership's  planned  dispositions  of its remaining
assets  and the  amount  of  proceeds  received  from such  dispositions.  It is
possible that the general partners of the local limited  partnerships could have
economic  or  business  interests  which  are  inconsistent  with  those  of the
Partnership.  Given the limited rights which the Partnership has under the terms
of the local limited partnership  agreements,  any conflict between the partners
could result in delays in  completing a sale of the related  operating  property
and could lead to an  impairment in the  marketability  of the property to third
parties for purposes of achieving the highest possible sale price.

      Availability of a Pool of Qualified Buyers.  The availability of a pool of
qualified  and  interested  buyers  for the  Partnership's  remaining  assets is
critical to the Partnership's  ability to realize the fair market values of such
properties  at the  time of  their  final  dispositions.  Demand  by  buyers  of
multi-family  apartment  properties is affected by many  factors,  including the
size,  quality,  age, condition and location of the subject property,  potential
environmental liability concerns, the existing debt structure,  the liquidity in
the debt and equity markets for asset acquisitions,  the general level of market
interest rates and the general and local economic climates. In addition, because
of the  government  restrictions  on rental  revenues  and the  related  capital
expenditure reserve requirements and cash flow distribution  limitations,  there
are  a  limited  number  of  potential  buyers  in  the  market  for  government
subsidized,  low-income  housing properties such as the Partnership has invested
in. Furthermore,  the current uncertainty  regarding potential future reductions
in the level of federal  government  assistance  for these  programs may further
restrict the properties' marketability.
<PAGE>
Inflation
---------

      The  Partnership  completed its fifteenth full year of operations in 1998.
To date,  the effects of  inflation  and changes in prices on the  Partnership's
operating results have not been significant.  In the future,  with regard to the
local limited  partnerships,  contract rental rates under "Section 8" agreements
may be  increased  at the  discretion  of the  Department  of Housing  and Urban
Development  in  response  to  inflationary  pressures  to  cover  increases  in
operating expenses due to inflation.


Item 8.  Financial Statements and Supplementary Data

      The financial statements and supplementary data are included under Item 14
of this Annual Report.

Item 9.  Changes in and Disagreements  with Accountants on Accounting and 
Financial Disclosure

      None


<PAGE>

                                    PART III

Item 10.   Directors and Principal  Executive  Officers of the Partnership

      The Managing  General Partner of the Partnership is PW Shelter Fund, Inc.,
a Delaware  corporation which is a wholly-owned  subsidiary of PaineWebber.  The
Associate  General  Partner  of the  Partnership  is  Properties  Associates,  a
Massachusetts  general  partnership,  certain general partners of which are also
officers of the Adviser and the Managing General  Partner.  The Managing General
Partner  has  overall  authority  and   responsibility   for  the  Partnership's
operation, however, the day-to-day business of the Partnership is managed by the
Adviser pursuant to an advisory contract.

      (a) and (b) The names and ages of the directors  and  principal  executive
officers of the Managing General Partner of the Partnership are as follows:


                                                                      Date
                                                                      Elected
      Name                   Office                   Age             to Office
      ----                   ------                   ---             ---------

Bruce J. Rubin          President and Director         39             8/22/96
Terrence E. Fancher     Director                       45             10/10/96
Walter V. Arnold        Senior Vice President
                          and Chief Financial Officer  51             10/29/85
David F. Brooks         First Vice President and
                          Assistant Treasurer          56             12/10/82 *
Thomas W. Boland        Vice President and Controller  36             12/1/91

*  The  date  of  incorporation  of  the  Managing  General Partner

      (c) There are no other significant  employees in addition to the directors
and executive officers mentioned above.

      (d) There is no family  relationship among any of the foregoing  directors
and/or  executive  officers of the Managing  General Partner of the Partnership.
All of the foregoing directors and executive officers have been elected to serve
until the annual meeting of the Managing General Partner.

      (e) All of the directors and officers of the Managing General Partner hold
similar  positions in affiliates of the Managing General Partner,  which are the
corporate general partners of other real estate limited  partnerships  sponsored
by PWI, and for which PaineWebber Properties Incorporated serves as the Adviser.
The  business  experience  of  each of the  directors  and  principal  executive
officers of the Managing General Partner is as follows:

     Bruce J. Rubin is President and Director of the Managing  General  Partner.
Mr.  Rubin was named  President  and Chief  Executive  Officer of PWPI in August
1996. Mr. Rubin joined  PaineWebber Real Estate  Investment  Banking in November
1995 as a Senior Vice  President.  Prior to joining  PaineWebber,  Mr. Rubin was
employed by Kidder, Peabody and served as President for KP Realty Advisers, Inc.
Prior to his association with Kidder,  Mr. Rubin was a Senior Vice President and
Director of Direct  Investments at Smith Barney  Shearson.  Prior  thereto,  Mr.
Rubin  was a First  Vice  President  and a real  estate  workout  specialist  at
Shearson Lehman Brothers. Prior to joining Shearson Lehman Brothers in 1989, Mr.
Rubin  practiced  law in the Real Estate Group at Willkie Farr & Gallagher.  Mr.
Rubin is a graduate of Stanford University and Stanford Law School.

     Terrence E.  Fancher  was  appointed  a Director  of the  Managing  General
Partner in October  1996.  Mr.  Fancher is the  Managing  Director  in charge of
PaineWebber's  Real Estate Investment  Banking Group. He joined PaineWebber as a
result of the firm's acquisition of Kidder,  Peabody. Mr. Fancher is responsible
for the origination  and execution of all of  PaineWebber's  REIT  transactions,
advisory  assignments  for real  estate  clients  and certain of the firm's real
estate debt and principal  activities.  He joined  Kidder,  Peabody in 1985 and,
beginning in 1989,  was one of the senior  executives  responsible  for building
Kidder,  Peabody's real estate  department.  Mr. Fancher previously worked for a
major law firm in New York City.  He has a J.D.  from  Harvard  Law  School,  an
M.B.A. from Harvard Graduate School of Business  Administration and an A.B. from
Harvard College.

      Walter V. Arnold is a Senior Vice President and Chief Financial Officer of
the  Managing  General  Partner and Senior Vice  President  and Chief  Financial
Officer of the Adviser which he joined in October 1985. Mr. Arnold joined PWI in
1983 with the  acquisition  of Rotan  Mosle,  Inc.  where he had been First Vice
President and Controller  since 1978,  and where he continued  until joining the
Adviser.  Mr. Arnold is a Certified Public  Accountant  licensed in the state of
Texas.

      David F. Brooks is a First Vice  President and Assistant  Treasurer of the
Managing  General Partner and a First Vice President and an Assistant  Treasurer
of the Adviser.  Mr. Brooks joined the Adviser in March 1980. From 1972 to 1980,
Mr. Brooks was an Assistant  Treasurer of Property  Capital  Advisors,  Inc. and
also,  from March 1974 to February 1980, the Assistant  Treasurer of Capital for
Real  Estate,  which  provided  real estate  investment,  asset  management  and
consulting services.

     Thomas W. Boland is a Vice President and Controller of the Managing General
Partner and a Vice  President  and  Controller of the Adviser which he joined in
1988.  From 1984 to 1987 Mr. Boland was associated  with Arthur Young & Company.
Mr.  Boland  is  a  Certified  Public  Accountant   licensed  in  the  state  of
Massachusetts.  He holds a B.S.  in  Accounting  from  Merrimack  College and an
M.B.A. from Boston University.

      (f) None of the directors and officers were involved in legal  proceedings
which are  material to an  evaluation  of her or his ability or  integrity  as a
director or officer.

      (g)  Compliance  With  Exchange Act Filing  Requirements:  The  Securities
Exchange Act of 1934 requires the officers and directors of the Managing General
Partner, and persons who own more than ten percent of the Partnership's  limited
partnership units, to file certain reports of ownership and changes in ownership
with the Securities and Exchange Commission. Officers, directors and ten-percent
beneficial  holders are required by SEC  regulations to furnish the  Partnership
with copies of all Section 16(a) forms they file.

      Based solely on its review of the copies of such forms received by it, the
Partnership  believes that,  during the year ended December 31, 1998, all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.

Item 11.  Executive Compensation

      The directors and officers of the  Partnership's  Managing General Partner
receive no current or proposed remuneration from the Partnership.

      The  Partnership  is required to pay certain fees to the Adviser,  and the
General  Partners  are entitled to receive a share of cash  distributions  and a
share of profits or losses. These items are described under Item 13.

      The Partnership paid distributions to the Unitholders on a quarterly basis
at a rate of 2% per annum on  original  invested  capital  from June 30, 1994 to
September 30, 1996. The  Partnership's  quarterly  distributions  were suspended
effective for the quarter ended  December 31, 1996 due to an unexpected  decline
in the cash flow distributions from the local limited  partnerships in which the
Partnership  has  invested.  Subsequent  distributions,  based  on  management's
assessment of distributable cash, are expected to be made on an annual basis. No
distributions were made during 1997, and an annual  distribution at a rate of 2%
on original  invested capital was made in 1998. In addition,  the  Partnership's
Units of Limited  Partnership  Interest are not actively traded on any organized
exchange,  and no efficient  secondary market exists.  Accordingly,  no accurate
price  information is available for these Units.  Therefore,  a presentation  of
historical Unitholder total returns would not be meaningful.

Item 12.  Security  Ownership of Certain Beneficial Owners and Management

      (a) The  Partnership  is a limited  partnership  issuing  Units of limited
partnership  interest,  not voting securities.  All the outstanding stock of the
Managing  General  Partner,  PW Shelter  Fund,  Inc.,  is owned by  PaineWebber.
Properties Associates, the Associate General Partner, is a Massachusetts general
partnership,  general partners of which are also officers of the Adviser and the
Managing  General  Partner.  Properties  Associates is also the Initial  Limited
Partner of the Partnership and owns one Unit of limited partnership interest. No
limited partner is known by the Partnership to own beneficially  more than 5% of
the outstanding interests of the Partnership.

      (b) Neither officers and directors of the Managing General Partner nor the
general partners of the Associate General Partner,  individually,  own any Units
of limited  partnership  interest of the Partnership.  No officer or director of
the Managing General Partner,  nor any general partner of the Associate  General
Partner,  possesses a right to acquire beneficial  ownership of Units of limited
partnership interest of the Partnership.

      (c) There exists no arrangement,  known to the Partnership,  the operation
of  which  may at a  subsequent  date  result  in a  change  in  control  of the
Partnership.

Item 13.  Certain Relationships and Related Transactions

      The General  Partners of the  Partnership  are PW Shelter Fund,  Inc. (the
"Managing General  Partner"),  a wholly-owned  subsidiary of PaineWebber  Group,
Inc.   ("PaineWebber")   and  Properties   Associates  (the  "Associate  General
Partner"),  a Massachusetts  general  partnership,  certain general  partners of
which  are  also  officers  of the  Managing  General  Partner  and  PaineWebber
Properties  Incorporated  (the  "Adviser").  Subject  to  the  Managing  General
Partner's overall  authority,  the business of the Partnership is managed by the
Adviser  pursuant  to  an  advisory  contract.  The  Adviser  is a  wholly-owned
subsidiary of PaineWebber  Incorporated  ("PWI"),  a wholly-owned  subsidiary of
PaineWebber.  The  General  Partners,  the  Adviser  and PWI  receive  fees  and
compensation,  determined on an agreed-upon  basis, in  consideration of various
services  performed in connection with the sale of the Units,  the management of
the Partnership and the  acquisition,  management,  financing and disposition of
Partnership  investments.  In  addition,  the Managing  General  Partner and the
Adviser are reimbursed for their out-of-pocket expenses relating to the offering
of  Units,  the  administration  of the  Partnership  and  the  acquisition  and
operation of the Partnership's real property investments.

      Distributable  cash,  as  defined,  if any,  for each fiscal year shall be
distributed  annually in the ratio of 99% to the Limited  Partners and 1% to the
General  Partners.  All sale or  refinancing  proceeds  will be  distributed  in
varying  proportions  to the Limited and General  Partners,  as specified in the
Partnership Agreement.

      Pursuant to the terms of the Partnership Agreement,  taxable income or tax
loss of the Partnership  will be allocated 99% to the Limited Partners and 1% to
the  General  Partners.  Taxable  income  or tax  loss  arising  from a sale  or
refinancing of investment  properties will be allocated to the Limited  Partners
and the General  Partners in  proportion  to the amounts of sale or  refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or  refinancing.  If
there are no sale or  refinancing  proceeds,  taxable  income or tax loss from a
sale or refinancing  will be allocated 99% to the Limited Partners and 1% to the
General  Partners.  Allocations  of the  Partnership's  operations  between  the
General Partner and the Limited Partners for financial  accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.

      Under  the  advisory  contract,   the  Adviser  has  specific   management
responsibilities, to administer the day-to-day operations of the Partnership and
to report  periodically  the  performance  of the  Partnership  to the  Managing
General  Partner.  The Adviser earns a basic  management  fee of .5% of invested
assets for these services.  Invested assets is the sum of the amount invested by
the Partnership in each local limited partnership plus a proportionate  interest
in the mortgage debt initially incurred by the local limited  partnerships.  The
Adviser earned management fees of $199,000 for the year ended December 31, 1998.
Accounts  payable - affiliates at December 31, 1998 consists of management  fees
of $99,000 payable to the Adviser.

      In connection  with the sale of each  property,  the Adviser may receive a
disposition  fee in an  amount  equal to 1% based  on the  selling  price of the
property,  subordinated  to the  payment  of  certain  amounts  to  the  Limited
Partners.

      An affiliate of the Managing General Partner performs certain  accounting,
tax  preparation,  securities  law compliance  and investor  communications  and
relations  services  for the  Partnership.  The  total  costs  incurred  by this
affiliate in  providing  such  services are  allocated  among  several  entities
including the Partnership.  Included in general and administrative  expenses for
the year ended December 31, 1998 is $37,000, representing reimbursements to this
affiliate for providing such services to the Partnership.

      The  Partnership  uses the  services  of Mitchell  Hutchins  Institutional
Investors,  Inc. ("Mitchell Hutchins") for the managing of cash assets. Mitchell
Hutchins is a  subsidiary  of  Mitchell  Hutchins  Asset  Management,  Inc.,  an
independently operated subsidiary of PaineWebber.  Mitchell Hutchins earned fees
of $2,000  (included in general and  administrative  expenses)  for managing the
Partnership's  cash assets during the year ended December 31, 1998. Fees charged
by Mitchell  Hutchins are based on a percentage of invested cash reserves  which
varies  based on the total  amount of  invested  cash  which  Mitchell  Hutchins
manages on behalf of PWPI.

      See Note 3 to the accompanying financial statements of the Partnership for
a further discussion of certain relationships and related party transactions.


<PAGE>



                                     PART IV



Item 14.   Exhibits,  Financial  Statement  Schedules  and Reports on Form 8-K

   (a) The following documents are filed as part of this report:

        (1) and (2)     Financial Statements and Schedules:

                  The  response  to this  portion of Item 14 is  submitted  as a
                  separate section of this report. See Index to Financial
                  Statements at page F-1.

        (3)  Exhibits:

                  The exhibits listed on the  accompanying  index to exhibits at
                  page IV-3 are filed as part of this report.

   (b)  No reports on Form 8-K were filed during the last quarter of 1998.

   (c)  Exhibits

             See (a) (3) above.

   (d)  Financial Statement Schedules

                  The  response  to this  portion of Item 14 is  submitted  as a
                  separate section of this report. See Index to Financial
                  Statements at page F-1.
























                                  

<PAGE>


                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the  Partnership  has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

                         PAINE WEBBER/CMJ PROPERTIES, LP
                               LIMITED PARTNERSHIP


                                 By: PW Shelter  Fund,  Inc.
                                     -----------------------
                                     Managing General Partner


                                      By: /s/ Bruce J. Rubin
                                          ------------------
                                          Bruce J. Rubin
                                          President
                                          and Chief Executive Officer


                                      By: /s/ Walter V. Arnold 
                                          --------------------
                                          Walter V. Arnold
                                          Senior Vice President and
                                          Chief Financial Officer



                                      By: /s/ Thomas W. Boland 
                                          --------------------
                                          Thomas W. Boland
                                          Vice President and Controller


Dated:  March 30, 1999

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the Partnership and
in the capacities and on the dates indicated.



By:  /s/ Bruce J. Rubin                Date:  March 30, 1999
     -------------------                      --------------
     Bruce J. Rubin
     Director



By:  /s/ Terrence E. Fancher           Date:  March 30, 1999
     -----------------------                  --------------
     Terrence E. Fancher                    
     Director



<PAGE>


                           ANNUAL REPORT ON FORM 10-K
                                  Item 14(a)(3)

                         PAINE WEBBER/CMJ PROPERTIES, LP


                                INDEX TO EXHIBITS
<TABLE>
<CAPTION>

                                                              Page Number in the Report
Exhibit No.              Description of Document              Or Other Reference                                   
-----------              -----------------------              --------------------------                                   
<S>                      <C>                                  <C> 

(3) and (4)              Prospectus of the Partnership        Filed with the Commission pursuant to
                         dated May 25, 1983, as               Rule 424(c) and incorporated herein by
                         reference to the Restated            supplemented, with particular  reference.
                         Certificate and Agreement of
                         Limited Partnership.


(10)                     Material contracts previously        Filed with the Commission pursuant to
                         filed as exhibits to registration    Section13 or 15(d) of the Securities Act
                         statements and amendments thereto    of 1934 and incorporated herein by reference.
                         of the registrant together with
                         all such contracts filed as 
                         exhibits of previously filed Forms 
                         8-K and Forms 10-K are hereby
                         incorporated herein by reference.


(13)                     Annual Reports to Limited Partners.  No Annual Report for the  year ended
                                                              December 31, 1998 has been sent to
                                                              the Limited Partners. An Annual
                                                              Report will be sent to the Limited
                                                              Partners subsequent to this filing.

(22)                     List of subsidiaries.                Included  in  Item 1 of Part 1 of this
                                                              Report  Page I-1,  to which   reference
                                                              is  hereby made.

(27)                     Financial Data Schedule.             Filed as the last page of EDGAR
                                                              submission following the Financial
                                                              Statements required by Item 14.


</TABLE>







             


<PAGE>

                           ANNUAL REPORT ON FORM 10-K

                        Item 14(a) (1) and (2) and 14(d)

                         PAINE WEBBER/CMJ PROPERTIES, LP

                          INDEX TO FINANCIAL STATEMENTS

Paine Webber/CMJ Properties, LP                                    Reference
                                                                   ---------

   Independent Auditors' Report                                       F-4

   Balance sheets at December 31, 1998 and 1997                       F-5

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                          F-6

   Statements  of changes in  partners'  capital  (deficit)
     or the years ended December 31, 1998, 1997 and 1996              F-7

   Statement  of cash  flows for the years  ended  December
     31, 1998, 1997 and 1996                                          F-8

   Notes to financial statements                                      F-9

Fawcett's Pond Apartments Company

   Independent Auditors' Report                                      F-20

   Balance sheets at December 31, 1998 and 1997                      F-21

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-22

   Statements of partners' deficit for the years ended
     December 31, 1998, 1997 and 1996                                F-23

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-24

   Notes to financial statements                                     F-26

Quaker Meadows Apartments Company

   Independent Auditors' Report                                      F-30

   Balance sheets at December 31, 1998 and 1997                      F-31

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-32

   Statements  of  partners'  deficit  for the years  ended
     December 31, 1998, 1997 and 1996                                F-33

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-34

   Notes to financial statements                                     F-36

South Laurel Apartments Limited Partnership

   Independent Auditors' Report                                      F-40

   Balance sheets at December 31, 1998 and 1997                      F-41

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-42

   Statements  of  partners'  deficit  for the years  ended
     December 31, 1998, 1997 and 1996                                F-43

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-44

   Notes to financial statements                                     F-46
<PAGE>
Marvin Gardens Associates

   Independent Auditors' Report                                      F-50

   Balance sheets at December 31, 1998 and 1997                      F-51

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-52

   Statements  of  partners'  deficit  for the years  ended
     December 31, 1998, 1997 and 1996                                F-53

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-54

   Notes to financial statements                                     F-56

Colonial Farms, Ltd.

   Independent Auditors' Report                                      F-60

   Balance sheets at December 31, 1998 and 1997                      F-61

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-62

   Statements  of  partners'  deficit  for the years  ended
     December 31, 1998, 1997 and 1996                                F-63

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-64

   Notes to financial statements                                     F-66

Holbrook Apartments Company

   Independent Auditors' Report                                      F-70

   Balance sheets at December 31, 1998 and 1997                      F-71

   Statements  of operations  for the years ended  December
     31, 1998, 1997 and 1996                                         F-72

   Statements  of  partners'  deficit  for the years  ended
     December 31, 1998, 1997 and 1996                                F-73

   Statements  of cash flows for the years  ended  December
     31, 1998, 1997 and 1996                                         F-74

   Notes to financial statements                                     F-76



All  schedules  have  been  omitted  since  the  required   information  is  not
applicable,  or because the  information  required is included in the  financial
statements, including the notes thereto.



<PAGE>



                         INDEPENDENT AUDITORS' REPORT






The Partners of
Paine Webber/CMJ Properties, LP

      We have  audited  the  accompanying  balance  sheets  of Paine  Webber/CMJ
Properties, LP (a Limited Partnership) as of December 31, 1998 and 1997, and the
related statements of operations,  changes in partners' capital  (deficit),  and
cash flows for each of the three years in the period  ended  December  31, 1998.
These  financial   statements  are  the   responsibility  of  the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

      We conducted our audits 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 audits provide 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 Paine Webber/CMJ Properties,
LP at December 31, 1998 and 1997, and the results of its operations,  changes in
partners' capital  (deficit),  and its cash flows for each of the three years in
the period  ended  December  31,  1998 in  conformity  with  generally  accepted
accounting principles.






                               /s/ Reznick Fedder & Silverman
                               ------------------------------
                                   REZNICK FEDDER & SILVERMAN


Baltimore, Maryland
February 10, 1999




<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                                 BALANCE SHEETS
                           December 31, 1998 and 1997
                     (In thousands, except per Unit amounts)

                                     ASSETS


                                                          1998        1997
                                                          ----        ----

Investments in local limited 
  partnerships, at equity                               $    42     $    27
Cash and cash equivalents                                   341         493
                                                        -------     -------
                                                        $   383     $   520
                                                        =======     =======



                        LIABILITIES AND PARTNERS' CAPITAL


Accrued expenses and accounts payable                   $    18     $    16
Accounts payable - affiliates                                99         199
                                                        -------     -------
                                                            117         215

Partners' capital:
  General Partners:
   Capital contributions                                      1           1
   Cumulative net losses                                    (68)        (69)
   Cumulative distributions                                  (7)         (5)

  Limited Partners ($1,000 per Unit; 15,000 Units
    authorized; 8,746 Units issued and outstanding):
   Capital contributions, net of offering costs           7,679       7,679
   Cumulative net losses                                 (6,727)     (6,864)
   Cumulative distributions                                (612)       (437)
                                                        -------     -------
      Total partners' capital                               266         305
                                                        -------     -------
                                                        $   383     $   520
                                                        =======     =======















The accompanying notes are an integral part of these financial statements.


<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                            STATEMENTS OF OPERATIONS
              For the years ended December 31, 1998, 1997 and 1996
                     (In thousands, except per Unit amounts)

                                                   1998      1997         1996
                                                   ----      ----        -----

Revenues:
   Interest income                              $    28     $   26      $   14
   Other income from local
     limited partnerships                           266        121          84
                                                -------     ------      ------
                                                    294        147          98

Expenses:
   Management fees                                  199        199         199
   General and administrative                       166         89          81
                                                -------     ------      ------
                                                    365        288         280
                                                -------     ------      ------
Operating loss                                      (71)      (141)       (182)

Partnership's share of local limited
  partnerships' income                              209        184         157
                                                -------     ------      ------

Net income (loss)                               $   138     $   43      $  (25)
                                                =======     ======      ======


Net income (loss) per Limited 
  Partnership Unit                              $ 15.58     $ 4.85      $(2.82)
                                                =======     ======      ======

Cash distributions per Limited 
  Partnership Unit                              $ 20.00     $    -      $20.00
                                                =======     ======      ======



   The above net income (loss) and cash  distributions  per Limited  Partnership
Unit are based upon the 8,746 Limited  Partnership Units outstanding during each
year.


















The accompanying notes are an integral part of these financial statements.



<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
              For the years ended December 31, 1998, 1997 and 1996
                                 (In thousands)



                                        General       Limited
                                        Partners      Partners        Totals 
                                        --------      --------        ------ 


Balance at December 31, 1995            $   (72)      $    536        $   464

Cash distributions                           (2)          (175)          (177)

Net loss                                      -            (25)           (25)
                                        -------       --------        -------

Balance at December 31, 1996                (74)           336            262

Net income                                    1             42             43
                                        -------       --------        -------

Balance at December 31, 1997                (73)           378            305

Cash distributions                           (2)          (175)          (177)

Net income                                    1            137            138
                                        -------       --------        -------

Balance at December 31, 1998            $   (74)      $    340        $   266
                                        =======       ========        =======






















     The accompanying notes are an integral part of these financial statements.



<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                            STATEMENTS OF CASH FLOWS
              For the years ended December 31, 1998, 1997 and 1996
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)
<TABLE>
<CAPTION>
                                                            1998         1997        1996
                                                            ----         ----        ----
                                           
<S>                                                        <C>         <C>         <C>

Cash flows from operating activities:
  Net income (loss)                                       $   138      $    43     $   (25)
  Adjustments to reconcile net income (loss)
   to net cash used in operating activities:
   Other income from local limited partnerships              (266)        (121)        (84)
   Partnership's share of local limited
      partnerships' income                                   (209)        (184)       (157)
   Changes in assets and liabilities:
     Accrued expenses and accounts payable                      2           (5)         (1)
     Accounts payable - affiliates                           (100)          67         132
                                                          -------      -------     -------
        Total adjustments                                    (573)        (243)       (110)
                                                          -------      -------     -------
        Net cash used in operating activities                (435)        (200)       (135)
                                                          -------      -------     -------

Cash flows from investing activities:
   Distributions from local limited
     partnerships                                             460          370         310
                                                          -------      -------     -------
        Net cash provided by investing activities             460          370         310
                                                          -------      -------     -------

Cash flows from financing activities:
   Distributions to partners                                 (177)           -        (177)
                                                          -------      -------     -------
        Net cash used in financing activities                (177)           -        (177)
                                                          -------      -------     -------

Net (decrease) increase in cash and cash equivalents         (152)         170          (2)

Cash and cash equivalents, beginning of year                  493          323         325
                                                          -------      -------     -------

Cash and cash equivalents, end of year                    $   341      $   493     $   323
                                                          =======      =======     =======
</TABLE>

















   The accompanying notes are an integral part of these financial statements.


<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1998

1.  Organization and Nature of Operations
    -------------------------------------

      Paine  Webber/CMJ   Properties,   LP  (the  "Partnership")  is  a  limited
partnership  organized pursuant to the laws of the State of Delaware in December
1982 for the purpose of investing  in a portfolio of interests in local  limited
partnerships owning apartment projects which received governmental assistance in
the form of low rate mortgages and rent subsidies.  All of the properties  owned
by the local limited partnerships were developed by Corcoran, Mullins, Jennison,
Inc.  ("CMJ") or its affiliates.  The initial  capital was $2,000,  representing
capital  contributions of $1,000 by the General Partners and $1,000 for one unit
(a "Unit") by the  Initial  Limited  Partner.  The  Partnership  authorized  the
issuance of a maximum of 15,000 Partnership Units of which 8,745 were subscribed
and issued between May 25, 1983 and April 30, 1984.

      The  Partnership  originally  invested  the  net  proceeds  of the  public
offering,  through local limited  partnerships,  in six apartment projects which
receive  governmental  assistance in the form of low interest rate mortgages and
rent subsidies.  The Partnership's original investment objectives were to invest
the net cash proceeds from the offering of limited  partnership  units in rental
apartment  properties  receiving  various  forms  of  federal,  state  or  local
assistance with the goals of providing: (1) tax losses from deductions generated
by investments;  (2) capital  preservation;  (3) potential capital appreciation;
and (4)  potential  future  cash  distributions  from  operations  (on a limited
basis),  or from the sale or  refinancing  of the  projects  owned by the  local
limited  partnerships,  or from  the  sale of  interests  in the  local  limited
partnerships.

      The Partnership  has generated tax losses since  inception.  However,  the
benefits of such losses to investors have been significantly  reduced by changes
in federal income tax law subsequent to the organization of the Partnership. The
Partnership continues to retain an ownership interest in all six of its original
operating investment properties.  As of December 31, 1998, all of the properties
are  generating  sufficient  cash  flow from  operations  after  covering  their
operating  expenses and debt service  payments,  and all of the  properties  are
generating  excess  cash flow,  a portion of which is being  distributed  to the
Partnership on an annual basis in accordance with the respective  regulatory and
limited partnership agreements.  Due to improvements in cash flow and the strong
operating performances of the investment properties, management had instituted a
program of regular  quarterly  distributions  in 1994 at an annual rate of 2% on
original invested  capital.  Effective for the fourth quarter of 1996, due to an
unexpected  decline  in the  level of cash  flow  distributions  from the  local
limited  partnerships,  distributions  to the partners  were  suspended.  In the
future, to the extent there is distributable cash flow from the properties after
the  payment  of  Partnership   management  fees  and  operating  expenses,  the
Partnership plans to make an annual distribution payment. An annual distribution
totalling  approximately  $175,000,  or $20 per original $1,000 investment,  was
made to the Limited Partners in 1998. No distributions were paid in 1997.

      The Partnership's  success in meeting its capital  appreciation  objective
will depend upon the proceeds  received from the final sales of its investments.
The  amount  of such  proceeds  will  ultimately  depend  upon the  value of the
underlying investment  properties at the time of their final disposition,  which
cannot presently be determined. Because of the government restrictions on rental
revenues and the related capital expenditure reserve  requirements and cash flow
distribution limitations,  there are a limited number of potential buyers in the
market for government  subsidized,  low-income housing properties which includes
five of the six local limited partnerships that the Partnership has invested in.
Furthermore,  the current  uncertainty  regarding potential future reductions in
the level of  federal  government  assistance  for these  programs  may  further
restrict the properties' marketability.

      The Partnership is currently pursuing potential disposition strategies for
the six  investments  in its portfolio.  As discussed  further in Note 4, during
1998 the  Partnership  initiated  the  formal  process  prescribed  in the local
limited  partnership  agreements for liquidating the Partnership's  interests in
the local limited partnerships.  Accordingly,  it is currently contemplated that
the sales of the remaining assets and a liquidation of the Partnership  could be
accomplished  prior to the end of calendar year 1999.  There are no  assurances,
however,  that the  sale of the  remaining  assets  and the  liquidation  of the
Partnership will be completed within this time frame.

2.  Use of Estimates and Summary of Significant Accounting Policies
    ---------------------------------------------------------------

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which require  management  to make  estimates  and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  as of December 31, 1998 and 1997 and revenues and expenses for
each of the three years in the period ended  December 31, 1998.  Actual  results
could differ from the estimates and assumptions used.

      The   accompanying   financial   statements   include  the   Partnership's
investments in six local limited  partnerships  which own operating  properties.
The Partnership accounts for its investments in local limited partnerships using
the equity method.  Under the equity  method,  the investment is carried at cost
adjusted for the Partnership's share of the local limited partnerships' earnings
and losses and distributions. In accordance with the equity method of accounting
for limited  partnership  interests,  the Partnership does not record losses for
those limited partnership investments whose equity method basis has been reduced
to zero,  recognizing future income from these entities only when it exceeds the
previously unrecorded losses. Distributions received from investments in limited
partnerships  whose basis has been  reduced to zero are recorded as other income
in the  Partnership's  statement of operations.  See Note 4 for a description of
the local limited partnerships.

      For purposes of reporting cash flows,  cash and cash  equivalents  include
all highly liquid  investments with original  maturities of 90 days or less when
acquired.  The Partnership's cash reserves are invested in financial instruments
which potentially  subject the Partnership to concentrations of credit risk. The
Partnership  currently  invests primarily in  investment-grade  rated commercial
paper  with  overnight  maturities.  Management  believes  that  no  significant
concentration of credit risk exists with respect to these cash investments as of
December 31, 1998. The carrying amount of cash and cash equivalents approximates
their fair value as of December  31, 1998 due to the  short-term  maturities  of
these instruments.

      No provision  for income taxes has been made,  as the  liability  for such
taxes is that of the  partners  rather  than  the  Partnership.  The  cumulative
difference between the book basis and tax basis of the Partnership's  investment
in local limited  partnerships is  approximately  $18,660,000 as of December 31,
1998 due to the losses on  investments  recognized on the tax basis in excess of
the book basis.

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified to conform to the 1998 presentation.

3.  The Partnership Agreement and Related Party Transactions
    --------------------------------------------------------

      The General  Partners of the  Partnership  are PW Shelter Fund,  Inc. (the
"Managing General  Partner"),  a wholly-owned  subsidiary of PaineWebber  Group,
Inc.   ("PaineWebber")   and  Properties   Associates  (the  "Associate  General
Partner"),  a Massachusetts  general  partnership,  certain general  partners of
which  are  also  officers  of the  Managing  General  Partner  and  PaineWebber
Properties  Incorporated  (the  "Adviser").  Subject  to  the  Managing  General
Partner's overall  authority,  the business of the Partnership is managed by the
Adviser  pursuant  to  an  advisory  contract.  The  Adviser  is a  wholly-owned
subsidiary of PaineWebber  Incorporated  ("PWI"),  a wholly-owned  subsidiary of
PaineWebber.  The  General  Partners,  the  Adviser  and PWI  receive  fees  and
compensation,  determined on an agreed-upon  basis, in  consideration of various
services  performed in connection with the sale of the Units,  the management of
the Partnership and the  acquisition,  management,  financing and disposition of
Partnership investments.

      Distributable  cash,  as  defined,  if any,  for each fiscal year shall be
distributed  annually in the ratio of 99% to the Limited  Partners and 1% to the
General  Partners.  All sale or  refinancing  proceeds  will be  distributed  in
varying  proportions  to the Limited and General  Partners,  as specified in the
Partnership Agreement.

      Pursuant to the terms of the Partnership Agreement,  taxable income or tax
loss of the Partnership  will be allocated 99% to the Limited Partners and 1% to
the  General  Partners.  Taxable  income  or tax  loss  arising  from a sale  or
refinancing of investment  properties will be allocated to the Limited  Partners
and the General  Partners in  proportion  to the amounts of sale or  refinancing
proceeds to which they are entitled; provided that the General Partners shall be
allocated at least 1% of taxable income arising from a sale or  refinancing.  If
there are no sale or  refinancing  proceeds,  taxable  income or tax loss from a
sale or refinancing  will be allocated 99% to the Limited Partners and 1% to the
General  Partners.  Allocations  of the  Partnership's  operations  between  the
General Partner and the Limited Partners for financial  accounting purposes have
been made in conformity with the allocations of taxable income or tax loss.

      Under  the  advisory  contract,   the  Adviser  has  specific   management
responsibilities, to administer the day-to-day operations of the Partnership and
to report  periodically  the  performance  of the  Partnership  to the  Managing
General  Partner.  The Adviser earns a basic  management  fee of .5% of invested
assets for these services.  Invested assets is the sum of the amount invested by
the Partnership in each local limited partnership plus a proportionate  interest
in the mortgage debt initially incurred by the local limited  partnerships.  The
Adviser  earned  management  fees of $199,000 for each of the three years in the
period ended  December 31, 1998.  Accounts  payable - affiliates at December 31,
1998 and 1997 consist of management fees of $99,000 and $199,000,  respectively,
payable to the Adviser.

      In connection  with the sale of each  property,  the Adviser may receive a
disposition  fee in an  amount  equal to 1% based  on the  selling  price of the
property,  subordinated  to the  payment  of  certain  amounts  to  the  Limited
Partners.

      Included  in  general  and  administrative  expenses  for the years  ended
December 31, 1998, 1997 and 1996 is $37,000, $35,000 and $32,000,  respectively,
representing  reimbursements to an affiliate of the Managing General Partner for
providing certain financial,  accounting and investor  communication services to
the Partnership.

      The  Partnership  uses the  services  of Mitchell  Hutchins  Institutional
Investors,  Inc.  ("Mitchell  Hutchins"),  an affiliate of the Managing  General
Partner,  for the managing of cash assets.  Mitchell Hutchins is a subsidiary of
Mitchell Hutchins Asset Management,  Inc., an independently  operated subsidiary
of PaineWebber.  Mitchell  Hutchins earned fees of $2,000,  (included in general
and  administrative  expenses) for managing the Partnership's cash assets during
each of the three years ended December 31, 1998.

4.  Local Limited Partnerships
    --------------------------

      The Partnership has investments in six local limited  partnerships.  These
local  limited  partnerships  are  accounted  for on the  equity  method  in the
Partnership's  financial statements.  Condensed combined financial statements of
these local limited partnerships follow:

                        Condensed Combined Balance Sheets
                           December 31, 1998 and 1997
                                 (In thousands)
                                     Assets

                                                            1998       1997
                                                            ----       ----

     Current assets                                      $  1,800    $  1,779
     Restricted deposits and funded reserves                2,127       2,001
     Operating investment property, net                    23,441      24,629
     Other assets                                             963       1,004
                                                         --------    --------
                                                         $ 28,331    $ 29,413
                                                         ========    ========
                             Liabilities and Capital

     Current liabilities and tenant security deposits    $  1,280    $  1,290
     Due to general partner                                 2,509       2,508
     Long-term mortgage debt, less current portion         31,663      32,279

     Partnership's share of combined
       partners' deficit accounts                          (3,919)     (3,511)
     Local partners' shares of combined
       partners' deficit accounts                          (3,202)     (3,153)
                                                         --------    --------
                                                         $ 28,331    $ 29,413
                                                         ========    ========

                    Condensed Combined Summary of Operations
              For the years ended December 31, 1998, 1997 and 1996
                                 (In thousands)

                                           1998          1997           1996
                                           ----          ----           ----
     Rental revenues, including
        government subsidies            $ 10,039       $  9,963      $  9,949
     Other income                            114            130           112
                                        --------       --------      --------
                                          10,153         10,093        10,061

     Property operating expenses           5,847          5,834         5,733
     Interest expense and mortgage 
       insurance                           2,868         2,904         2,964
     Depreciation and amortization         1,373          1,389         1,347
                                        --------       --------      --------
                                          10,088         10,127        10,044
                                        --------       --------      --------
     Net income (loss)                  $     65       $    (34)     $     17
                                        ========       ========      ========

     Net income (loss):
       Partnership's share of
         operations                     $     52       $    (37)     $     32
       Local partners' share of
         operations                           13              3           (15)
                                        --------       --------      --------
                                        $     65       $    (34)     $     17
                                        ========       ========      ========
<PAGE>
               Reconciliation of Partnership's Share of Operations
                                 (In thousands)

                                         1998          1997           1996
                                         ----          ----           ----

     Partnership's share of
       operations, as shown above       $     52       $    (37)     $     32
     Losses in excess of basis not
       recognized by Partnership             157            221           278
     Income offset with prior year
       unrecognized losses                     -              -          (153)
                                        --------       --------      --------
     Partnership's share of local
       limited partnerships' income     $    209       $    184      $    157
                                        ========       ========      ========

                   Reconciliation of Partnership's Investments
                                 (In thousands)

                                                       1998          1997
                                                       ----          ----

     Partnership's share of combined partners'
       deficit accounts, as shown above                $ (3,919)     $ (3,511)
     Accumulated losses in excess of basis
       not recognized by Partnership                      2,481         2,324
     Cumulative distributions in excess
       of investment basis                                1,465         1,199
     Excess basis in local limited partnerships              15            15
                                                       --------      --------
     Investments in local limited
       partnerships, at equity                         $     42      $     27
                                                       ========      ========

      "Investments   in  local   limited   partnerships,   at   equity"  is  the
Partnership's  net  investment  in the local limited  partnerships.  These local
limited  partnerships  are  subject to  regulatory  agreements  and  partnership
agreements  which determine the distribution of available funds, the disposition
of the limited  partnership's assets and the rights of the partners,  regardless
of  the  Partnership's  percentage  ownership  interest  in  the  local  limited
partnership.  As a  limited  partner  of the  local  limited  partnerships,  the
Partnership does not control  property  disposition  decisions.  The partnership
agreements  state that the  limited  partner may cause the sale of the assets of
the local limited partnerships subsequent to June 30, 1995, but not earlier than
one year after it has given written notice to the operating  general  partner of
its intent to cause such sale,  and only if,  during such one year  period,  the
operating  general  partner  does  not  cause  the sale of such  assets.  If the
operating  general  partner has not caused the assets of the  partnership  to be
sold within such one year  period the limited  partner may cause such sale,  but
only after it has offered to sell such assets to the operating  general partner,
and either the  operating  general  partner does not accept such offer within 90
days of receiving  it, or the  operating  general  partner does not complete the
sale in accordance  with such offer after  accepting the terms. In October 1998,
the Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the  operating  general  partner  to  discuss  the  Partnership's  desire  to
liquidate its  investments in the near term. The  Partnership  must now wait for
the one-year notification period to lapse or for the possible earlier receipt of
an acceptable  liquidation proposal from the operating general partner. In light
of the decision by the  Partnership  to initiate  this action under the terms of
the  limited  partnership  agreements,  it is  currently  contemplated  that the
disposition  of  the   Partnership's   investments  and  a  liquidation  of  the
Partnership  could be completed by the end of calendar  year 1999.  There are no
assurances,  however,  that  the  disposition  of  the  remaining  assets  and a
liquidation of the Partnership will be completed within this time frame

      "Investments  in local  limited  partnerships,  at equity" on the  balance
sheets is comprised of the following local limited partnership  investments,  at
the balances indicated (in thousands):

                                                    1998              1997
                                                    ----              ----

     Fawcett's Pond Apartments Company             $    42            $     6
     Quaker Meadows Apartments Company                   -                  -
     South Laurel Apartments Limited Partnership         -                  -
     Marvin Gardens Associates                           -                  -
     Colonial Farms Ltd.                                 -                  -
     Holbrook Apartments Company                         -                 21
                                                   -------            -------
       Investments  in  local  limited
        partnerships, at equity                    $    42            $    27
                                                   =======            =======

<PAGE>
      The Partnership  received cash distributions from the limited partnerships
as set forth below (in thousands):

                                             1998      1997           1996
                                             ----      ----           ----

     Fawcett's Pond Apartments Company     $    24    $    24       $    24
     Quaker Meadows Apartments Company          99         90            50
     South Laurel Apartments Limited
       Partnership                              66          -             -
     Marvin Gardens Associates                  11          4             -
     Colonial Farms Ltd.                        26         27            27
     Holbrook Apartments Company               234        225           209
                                           -------    -------       -------
                                           $   460    $   370       $   310
                                           =======    =======       =======

      The  investments  in  Quaker  Meadows  Apartments  Company,  South  Laurel
Apartments  Limited  Partnership,  Marvin Gardens  Associates and Colonial Farms
Ltd.  at  December  31,  1998 do not reflect  accumulated  losses  therefrom  of
$1,288,000,  $850,000, $188,000 and $155,000,  respectively,  because the equity
method carrying  values of such  investments  have been reduced to zero.  Future
income from these  entities will not be recorded until it exceeds the previously
unrecognized accumulated losses.

      A description of the local limited partnership properties and the terms of
the local limited partnership agreements is summarized below:

     a) Village at Fawcett's Pond - Hyannis, Massachusetts
        --------------------------------------------------

      On June 30,  1983,  the  Partnership  acquired a 95%  limited  partnership
interest in Fawcett's Pond Apartments Company, an existing Massachusetts limited
partnership  ("Fawcett's  Pond"),  that owns and  operates  a  100-unit  housing
project in Hyannis,  Massachusetts.  The Federal  Housing  Administration  (FHA)
contracted  with the  limited  partnership  under  Section  8 of Title II of the
Housing  and  Community  Development  Act of  1974 to  make  housing  assistance
payments  to the  limited  partnership  on  behalf  of  qualified  tenants.  The
agreement expires August 19, 2002. Total rent subsidies  received by the limited
partnership  during 1998,  1997 and 1996 were  $749,000,  $752,000 and $756,000,
respectively.   Such  amounts   comprised   approximately   77%,  76%  and  77%,
respectively, of the limited partnership's total revenues for such years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$879,606,  comprised  of cash and notes  payable  to the  seller  (including  an
acquisition  fee of $63,025  payable to the  Adviser  of the  Partnership).  The
Partnership's  interest is held subject to a permanent nonrecourse mortgage loan
due April 1, 2024 from the Government National Mortgage  Association (GNMA) with
an outstanding balance at December 31, 1998 of approximately $4,179,000, payable
in monthly installments of $30,746 including principal and interest at 7.5%.

      The partnership  agreement  generally  provides that the Partnership  will
receive 95% of annual  distributable  cash flow  payable  annually  and that the
local partners will be entitled to receive 5% of annual distributable cash flow.
Cash  distributions  and  incentive  management  fees are limited by  agreements
between the limited partnership and HUD to 6% of the initial equity investment.

      The agreement  also provides that taxable income and tax loss in each year
will be allocated, generally, in the same proportion as cash flow is distributed
in that year.

      Generally,  the first  $1,105,725 of proceeds from the sale or refinancing
of the investment property will be distributed to the Partnership. The remaining
proceeds will be distributed to the local general  partners and the  Partnership
in accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with an affiliate of the local general  partners.  The  management  fee is 5% of
gross receipts. An incentive management fee will also be paid on an annual basis
in the event that the  property's  cash flow  exceeds  certain  target  amounts.
Incentive  management  fees of  $6,000  were paid to an  affiliate  of the local
general  partners for each of the three years in the period  ended  December 31,
1998.

     b) Quaker Court and The Meadows - Lynn, Massachusetts
        --------------------------------------------------

      On June 30,  1983,  the  Partnership  acquired a 95%  limited  partnership
interest in Quaker Meadows Apartments Company, an existing Massachusetts limited
partnership  ("Quaker Meadows"),  that owns and operates two apartment complexes
in Lynn,  Massachusetts.  There  are a total of 104  apartment  units in the two
complexes.  FHA contracted with the limited partnership under Section 8 of Title
II of the  Housing  and  Community  Development  Act of  1974  to  make  housing
assistance  payments to the limited  partnership on behalf of qualified tenants.
The agreement expires in May 2002 and has two five-year  renewal options.  Total
rent subsidies  received by the limited  partnership  during 1998, 1997 and 1996
were $1,310,000, $1,313,000 and $1,320,000, respectively. Such amounts comprised
approximately  81%, 81% and 82% of the limited  partnership's  total revenues in
each of such years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$1,358,925  (including an acquisition fee of $104,525 paid to the Adviser of the
Partnership).  The  Partnership's  interest  is  held  subject  to  a  permanent
nonrecourse  mortgage loan payable to the  Massachusetts  Housing Finance Agency
(MHFA).  The mortgage loan is due September 1, 2013 with an outstanding  balance
at  December  31,  1998  of   approximately   $4,975,000,   payable  in  monthly
installments of $62,930 including principal and interest at 12.5%.

      The restated partnership agreement generally provides that the Partnership
will receive 95% of annual distributable cash flow payable annually and that the
local partners will be entitled to receive 5% of annual distributable cash flow.
Cash distributions are limited by agreements between the limited partnership and
MHFA to the extent funds available for distribution as defined by MHFA.

      The agreement  also provides that taxable income and tax loss in each year
will be allocated, generally, in the same proportion as cash flow is distributed
in that year.

      Generally,  the first  $1,739,424 of proceeds from the sale or refinancing
of the investment  properties will be distributed to the Partnership.  Remaining
proceeds will be distributed to the local venture  partners and the  Partnership
in accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with an affiliate of the local general  partners.  The  management  fee is 4% of
gross receipts. An incentive management fee will also be paid on an annual basis
in the event that the  property's  cash flow  exceeds  certain  target  amounts.
Incentive  management  fees of  $77,000,  $69,000  and  $29,000  were paid to an
affiliate of the local general  partners for the years ended  December 31, 1998,
1997 and 1996, respectively.

      c)  Villages at Montpelier - Laurel, Maryland
          -----------------------------------------

      On June 30,  1983,  the  Partnership  acquired an 85% limited  partnership
interest in South Laurel Apartments  Limited  Partnership,  an existing Maryland
limited partnership ("South Laurel"),  that owns and operates a 520-unit housing
project in Laurel,  Maryland.  FHA contracted with the limited partnership under
Section 8 of Title II of the Housing and  Community  Development  Act of 1974 to
make  housing  assistance  payments  to the  limited  partnership  on  behalf of
qualified  tenants for 20% of the rental units. The subsidy agreement expired on
July 31, 1997,  and  management did not apply for an extension of the agreement.
The units  previously  designated  as  low-income  units have been  re-leased at
market rates which has kept the total revenues of the local limited  partnership
relatively  unchanged from the previously  subsidized  level.  If the market for
conventional multi-family apartment properties remains strong, the expiration of
the rental  subsidy  agreement at The Villages at Montpelier  Apartments and the
conversion  of the property to 100%  market-rate  apartments  could  enhance the
property's  marketability  for a  potential  sale  by  increasing  the  pool  of
interested buyers.  However, there are no assurances that such market conditions
will remain  strong,  and the ability of the  Partnership to cause a sale of the
property  will  remain  restricted  by  the  terms  of the  limited  partnership
agreement  discussed  further  above.  If conditions  were to  deteriorate,  The
Villages  at  Montpelier   Apartments  could  experience  extended  declines  in
occupancy and revenues as a result of the  expiration of the subsidy  agreement.
Total rent subsidies  received by the limited  partnership  during 1997 and 1996
were $506,000 and $686,000,  respectively.  Such amounts comprised approximately
12% and 17%, respectively,  of the limited partnership's total revenues for each
of such years.

      The  aggregate  investment  by the  Partnership  for the 85%  interest was
$2,446,135  (including an acquisition fee of $186,725 paid to the Adviser of the
Partnership).  The  Partnership's  interest  is  held  subject  to  a  permanent
nonrecourse  mortgage loan due December 1, 2023 with an  outstanding  balance at
December  31,  1998 of  approximately  $11,691,000,  payable  to GNMA in monthly
installments of $86,395 including principal and interest at 7.5%.

      The restated partnership agreement generally provides that the Partnership
will receive 85% of annual distributable cash flow payable annually and that the
local  partners  will be entitled to receive  15% of annual  distributable  cash
flow.  Cash   distributions  are  limited  by  agreements  between  the  limited
partnership and HUD to the extent of surplus cash, as defined by HUD.

      The agreement  also provides that taxable income and tax loss in each year
will  be  allocated,   generally,  in  the  same  proportion  as  cash  flow  is
distributable in that year.

      Generally,  the first  $3,107,104 of proceeds from the sale or refinancing
of the investment  property will be distributed  to the  Partnership.  Remaining
proceeds will be distributed to the local venture  partners and the  Partnership
in accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with an affiliate of the local general partners.  The management fee is 5.25% of
gross receipts. An incentive management fee will also be paid on an annual basis
in the event that the  property's  cash flow  exceeds  certain  target  amounts.
Incentive  management  fees of  $3,000  were paid to an  affiliate  of the local
general  partners  for 1998.  No incentive  management  fees were earned for the
years ended December 31, 1997 and 1996.

      d)  Marvin Gardens Apartments, Cotati, California
          ---------------------------------------------

      On July 29,  1983,  the  Partnership  acquired a 95%  limited  partnership
interest  in  Marvin  Gardens   Associates,   an  existing   California  limited
partnership that owns a 37-unit apartment complex project in Cotati, California.
The apartment  complex operates under Section 8 of the National Housing Act and,
therefore,  receives  monthly rental  subsidies  from the Federal  Department of
Housing and Urban Development  (HUD). The agreement expires in July 2003 and has
two five-year  renewal  options.  Total rent  subsidies  received by the limited
partnership  during 1998,  1997 and 1996 were  $309,000,  $329,000 and $324,000,
respectively.   Such  amounts   comprised   approximately   74%,  77%  and  77%,
respectively, of the limited partnership's total revenues for such years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$379,581  (including  an  acquisition  fee of $27,800 paid to the Adviser of the
Partnership).  The  Partnership's  interest was acquired  subject to a permanent
nonrecourse  mortgage  loan due June 1,  2013  with an  outstanding  balance  at
December 31, 1998 of approximately $1,560,000, payable to the California Housing
Finance Agency (CHFA) in monthly  installments of $15,310,  including  principal
and interest at 8.15%.

      The restated partnership agreement generally provides that the Partnership
will receive 95% of annual distributable cash flow payable annually and that the
local partners will be entitled to receive 5% of annual distributable cash flow.
Cash distributions are limited by agreements between the limited partnership and
CHFA to $20,151  per year to the extent of surplus  cash and stated  equity,  as
defined by CHFA.  Undistributed amounts are cumulative and may be distributed in
subsequent years if future operations  provide surplus cash in excess of current
requirements.

      The agreement  also provides that taxable income and tax loss in each year
will be allocated, generally, in the same proportion as cash flow is distributed
in that year.

      Generally,  the first $462,336 of proceeds from the sale or refinancing of
the  investment  property  will be  distributed  to the  Partnership.  Remaining
proceeds will be distributed to the local venture  partners and the  Partnership
in accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with  an  affiliate  of  the  local  general  partners  who  in  turn  hired  an
unaffiliated management agent to provide management services on their behalf. An
incentive  management fee will also be paid on an annual basis in the event that
the property's cash flow exceeds certain target  amounts.  Incentive  management
fees of $1,000 were paid to an affiliate of the local  general  partners for the
year ended December 31, 1998. No incentive  management  fees were earned for the
years ended December 31, 1997 and 1996.

      e)  Colonial Farms - Modesto, California
          ------------------------------------

      On July 29,  1983,  the  Partnership  acquired a 95%  limited  partnership
interest in Colonial Farms Ltd. an existing  California limited partnership that
owns a 100-unit apartment project in Modesto,  California. The apartment complex
operates under Section 8 of the National  Housing Act and,  therefore,  receives
monthly  rental  subsidies  from the  Federal  Department  of Housing  and Urban
Development  (HUD).  The  agreement  expires in July 2002 and has two  five-year
renewal options. Total rent subsidies received by the limited partnership during
1998,  1997 and 1996 were $531,000,  $579,000 and $613,000,  respectively.  Such
amounts comprised  approximately 65%, 71% and 76%, respectively,  of the limited
partnership's total revenues for such years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$623,351  (including  an  acquisition  fee of $48,125 paid to the Adviser to the
Partnership).  The  Partnership's  interest  is  held  subject  to  a  permanent
nonrecourse  mortgage  loan due June 1,  2013  with an  outstanding  balance  at
December  31,  1998 of  approximately  $2,629,000,  payable  to CHFA in  monthly
installments of $27,411, including principal and interest at 9.15%

      The restated partnership agreement generally provides that the Partnership
will receive 95% of annual distributable cash flow payable annually and that the
local partners will be entitled to receive 5% of annual distributable cash flow.
Cash distributions are limited by agreements between the limited partnership and
CHFA to $35,299  per year to the extent of surplus  cash and stated  equity,  as
defined by CHFA.  Undistributed amounts are cumulative and may be distributed in
subsequent years if future operations  provide surplus cash in excess of current
requirements.

      The agreement  also provides that taxable income and tax loss in each year
will be allocated, generally, in the same proportion as cash flow is distributed
in that year.

      Generally,  the first $800,928 of proceeds from the sale or refinancing of
the  investment  property  will be  distributed  to the  Partnership.  Remaining
proceeds will be distributed to the local venture  partners and the  Partnership
in accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with  an  affiliate  of  the  local  general  partners  who  in  turn  hired  an
unaffiliated management agent to provide management services on their behalf. An
incentive management fee will also be paid to the affiliate of the local general
partners on an annual basis in the event that the  property's  cash flow exceeds
certain  target  amounts.  Incentive  management  fees of $7,000 were paid to an
affiliate  of the local  general  partners  for each of the  three  years in the
period ended December 31, 1998.

      f)  Ramblewood Apartments - Holbrook, Massachusetts
          -----------------------------------------------

      On August 30, 1983, the  Partnership  acquired an 85% limited  partnership
interest in Holbrook  Apartments  Company,  an  existing  Massachusetts  limited
partnership  that owns and  operates a  170-unit  housing  project in  Holbrook,
Massachusetts.  FHA contracted with the limited  partnership  under Section 8 of
Title II of the Housing and  Community  Development  Act of 1974 to make housing
assistance  payments to the limited  partnership on behalf of qualified tenants.
The agreement expires July 1, 2001. Total rent subsidies received by the limited
partnership  during  1998,  1997  and  1996  were  $1,574,000,   $1,565,000  and
$1,577,000,  respectively. Such amounts comprised approximately 75%, 74% and 75%
respectively, of the limited partnership's total revenues for such years.

      The  aggregate  investment  by the  Partnership  for the 85%  interest was
$1,250,583,  (including an acquisition fee of $94,500 paid to the Adviser of the
Partnership).  The Partnership's  interest was acquired subject to a nonrecourse
first mortgage loan due February 1, 2023 with an outstanding balance at December
31, 1998 of approximately $7,249,000, payable to GNMA in monthly installments of
$54,207 including principal and interest at 7.5%.

      The restated partnership agreement generally provides that the Partnership
will receive 85% of annual distributable cash flow payable annually and that the
local  partners  will be entitled to receive  15% of annual  distributable  cash
flow.  Cash   distributions  are  limited  by  agreements  between  the  limited
partnership and HUD to the extent of surplus cash, as defined by HUD.

      The agreement  also provides that taxable income and tax loss in each year
will be allocated, generally, in the same proportion as cash flow is distributed
in that year.

      Generally,  the first  $1,571,956 of proceeds from the sale or refinancing
of the investment  property will be distributed  to the  Partnership.  Remaining
proceeds  will be  distributed  to the local  partners  and the  Partnership  in
accordance with the local limited partnership agreement.

      The local limited  partnership entered into a property management contract
with an affiliate of the local general partners.  The management fee is 4.75% of
gross receipts. An incentive management fee will also be paid on an annual basis
in the event that the  property's  cash flow  exceeds  certain  target  amounts.
Incentive  management  fees of $153,000,  $146,000 and $134,000  were paid to an
affiliate of the local general  partners for the years ended  December 31, 1998,
1997 and 1996, respectively.

5.  Year 2000 Issue
    ---------------

      The Managing  General Partner has assessed the  Partnership's  exposure to
date sensitive  computer software programs that may not be operative  subsequent
to 1999 and has  implemented a requisite  course of action to minimize year 2000
risk and ensure that neither significant costs nor disruption of normal business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations  will be 2000  compliant,  the  Partnership  remains  susceptible  to
consequences of the Year 2000 Issue.





<PAGE>




                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Fawcett's Pond Apartments Company

      We  have  audited  the  accompanying  balance  sheets  of  Fawcett's  Pond
Apartments  Company as of December 31, 1998 and 1997, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards. Those standards requires 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 audits provide 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 Fawcett's Pond Apartments
Company as of December 31, 1998 and 1997, and the results of its operations, the
changes in  partners'  deficit and its cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.



                              /s/ REZNICK FEDDER & SILVERMAN
                              ------------------------------
                                  REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
February 4, 1999



<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                     ASSETS
                                                      1998       1997
                                                      ----       ----

CURRENT ASSETS
   Cash and cash equivalents                     $   378,141  $   353,884
   Accounts receivable                                 2,647        2,011
   Prepaid expenses                                   12,464       12,581
                                                 -----------  -----------

      Total current assets                           393,252      368,476
                                                 -----------  -----------

RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenants' security deposits                         20,583       21,461
   Mortgage escrow deposits                           53,570       67,627
   Reserve for replacements                          286,880      265,204
                                                 -----------  -----------

                                                     361,033      354,292
                                                 -----------  -----------
PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $2,344,695 and $2,192,094       3,298,592    3,378,778

DEFERRED FINANCING COSTS, net of accumulated
   amortization of $130,269 and $122,110             206,486      214,645
                                                 -----------  -----------

      Total assets                               $ 4,259,363  $ 4,316,191
                                                 ===========  ===========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
   Current maturities of mortgage payable        $    57,459  $    53,320
   Accounts payable and accrued expenses              11,851       54,347
   Accrued interest payable                           26,120       26,453
   Rent deferred credits                               2,966          488
                                                 -----------  -----------

      Total current liabilities                       98,396      134,608
                                                 -----------  -----------

LONG-TERM LIABILITIES
   Mortgage payable, less current maturities       4,121,716    4,179,174
   Due to general partner                            277,400      277,400
   Tenants' security deposits                         19,850       20,447
                                                 -----------  -----------

      Total liabilities                            4,517,362    4,611,629

PARTNERS' DEFICIT                                   (257,999)    (295,438)
                                                 -----------  -----------
      Total liabilities and partners' deficit    $ 4,259,363  $ 4,316,191
                                                 ===========  ===========




                        See notes to financial statements


<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996

                                          1998        1997        1996
                                          ----        ----        ----
Revenue
   Rental income, net                 $  940,839  $  941,478  $  942,059
   Financial revenue                      17,448      25,534      19,420
   Other income                           16,596      16,701      16,066
                                      ----------  ----------  ----------
      Total revenue                      974,883     983,713     977,545
                                      ----------  ----------  ----------

Expenses
  Operating expenses
   Marketing                                 751       1,756       1,090
   Administration                         48,067      59,354      55,198
   Utilities                              27,464      30,591      33,018
   Management fee                         47,131      47,098      47,114
   Maintenance and repairs               114,064     126,573      79,914
   Salaries                               92,736      76,232      85,196
   Payroll taxes                           8,111       7,648       7,252
   Insurance                              23,832      25,206      22,073
   Real estate taxes                      46,352      67,717      66,913
                                      ----------  ----------  ----------

      Total operating expenses           408,508     442,175     397,768
                                      ----------  ----------  ----------

  Nonoperating expenses
   Interest                              315,296     319,161     322,748
   Mortgage insurance premium             21,018      21,275      21,515
   Depreciation and amortization         160,760     162,549     153,348
   Incentive management fee                6,303       6,303       6,303
   Miscellaneous financial expenses          345         625         633
                                      ----------  ----------  ----------

      Total nonoperating expenses        503,722     509,913     504,547
                                      ----------  ----------  ----------

      Total expenses                     912,230     952,088     902,315
                                      ----------  ----------  ----------


      EXCESS OF REVENUE OVER EXPENSES $   62,653  $   31,625  $   75,230
                                      ==========  ==========  ==========














                        See notes to financial statements


<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1998, 1997 and 1996


                                       General    Limited
                                       Partner    Partner       Total
                                       -------    -------       -----

Partners' deficit, December 31, 1995   $ (74,453) $ (277,412) $ (351,865)

Distributions                             (1,261)    (23,953)    (25,214)

Excess of revenue over expenses            3,762      71,468      75,230
                                       ---------  ----------  ----------

Partners' deficit, December 31, 1996     (71,952)   (229,897)   (301,849)

Distributions                             (1,261)    (23,953)    (25,214)

Excess of revenue over expenses            1,581      30,044      31,625
                                       ---------  ----------  ----------

Partners' deficit, December 31, 1997     (71,632)   (223,806)   (295,438)

Distributions                             (1,261)    (23,953)    (25,214)

Excess of revenue over expenses            3,133      59,520      62,653
                                       ---------  ----------  ----------

Partners' deficit, December 31, 1998   $ (69,760) $ (188,239) $ (257,999)
                                       =========  ==========  ==========


Profit and loss sharing percentage             5%         95%        100%
                                               =          ==         ===























                        See notes to financial statements


<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Cash flows from operating activities
   Rental income received                  $  942,681  $  941,319  $  942,011
   Interest received                           17,448      15,978      12,900
   Other income received                       16,596      16,600      15,939
   Administrative expenses paid               (96,205)    (97,068)    (88,517)
   Management fees paid                       (47,131)    (47,098)    (47,114)
   Utilities paid                             (30,782)    (28,522)    (32,268)
   Maintenance and repairs expenses paid     (164,733)   (171,100)   (133,004)
   Real estate taxes paid                     (80,210)    (33,859)    (66,913)
   Payroll taxes paid                          (8,111)     (7,648)     (7,252)
   Property insurance paid                     (8,233)     (8,275)     (9,614)
   Other taxes and insurance paid             (15,571)    (16,038)    (12,074)
   Interest paid on mortgage                 (315,629)   (319,470)   (323,035)
   Mortgage insurance paid                    (20,929)    (21,193)    (21,440)
   Miscellaneous financial expenses paid         (345)       (625)       (633)
   Mortgagor entity expenses paid              (6,303)     (6,303)     (6,303)
   (Increase) decrease in mortgage escrow
      deposits                                 14,057     (31,945)       (858)
   Net security deposits received (paid)          281       3,745      (1,529)
                                           ----------  ----------  ----------

      Net cash provided by operating 
        activities                            196,881     188,498     220,296
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment        (72,415)    (78,343)    (43,567)
   Deposits to reserve for replacements       (22,092)    (22,092)    (21,948)
   Withdrawals from reserve for 
     replacements                                 416      17,312           -
                                           ----------  ----------  ----------

      Net cash used in investing 
        activities                            (94,091)    (83,123)    (65,515)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Repayment of mortgage payable              (53,319)    (49,479)    (45,914)
   Distributions                              (25,214)    (25,214)    (25,214)
                                           ----------  ----------  ----------

      Net cash used in financing 
        activities                            (78,533)    (74,693)    (71,128)
                                           ----------  ----------  ----------

      NET INCREASE IN CASH AND
        CASH EQUIVALENTS                       24,257      30,682      83,653

 Cash and cash equivalents, beginning         353,884     323,202     239,549
                                           ----------  ----------  ----------
 Cash and cash equivalents, ending         $  378,141  $  353,884  $  323,202
                                           ==========  ==========  ==========






                        See notes to financial statements


<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1998, 1997 and 1996


                                               1998       1997        1996
                                               ----       ----        ----


 Reconciliation of excess of revenue
  over expenses to net cash provided 
  by operating activities
   Excess of revenue over expenses         $   62,653  $  31,625   $  75,230
   Adjustments to reconcile excess of 
     revenue over expenses to net cash
     provided by operating activities
       Depreciation                           152,601     154,387    145,186
       Amortization                             8,159       8,162      8,162
       Interest earned on reserve for
        replacements                                -      (9,103)    (6,520)
       Changes in assets and liabilities
         Increase in accounts receivable         (636)       (394)      (399)
         Decrease in prepaid expenses             117         975        460
         (Decrease) increase in mortgage 
           escrow deposits                     14,057     (31,945)      (858)
         Increase (decrease) in tenants'
           security deposits - net                281       3,745     (1,529)
        (Decrease) increase in accounts 
           payable and accrued expenses       (42,496)     31,674        627
        Decrease in accrued interest
           payable                               (333)       (309)      (287)
        Increase (decrease) in rent-deferred
           credits                              2,478        (319)       224
                                           ----------  ----------  ---------

           Net cash provided by 
             operating activities          $  196,881  $  188,498  $ 220,296
                                           ==========  ==========  =========



























                        See notes to financial statements


<PAGE>


                        FAWCETT'S POND APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

      Fawcett's  Pond  Apartments  Company  (the  Partnership)  was  formed as a
limited  partnership  under the laws of the State of  Massachusetts  on June 30,
1983, for the purpose of  constructing  and operating a rental  housing  project
under Section 221(d)(4) of the National Housing Act. The project consists of 100
units located in Hyannis,  Massachusetts,  and is currently  operating under the
name of Fawcett's Pond  Apartments.  All leases between the  Partnership and the
tenants of the property are operating leases.

      Annual cash  distributions  and incentive  management  fees are limited by
agreements  between  the  Partnership  and the  Department  of Housing and Urban
Development  (HUD)  to  $31,517,  which  represents  6% of  the  initial  equity
investment, to the extent of surplus cash as defined by HUD.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

      Cash and cash equivalents  consist of cash and repurchase  agreements with
maturities  of  three  months  or less  when  acquired,  stated  at  cost  which
approximate fair value.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over their estimated service lives using the straight-line method.

      As of December  31, 1998,  management  does not believe that these are any
current  facts or  circumstances  that would  indicate  impairment of the rental
property in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121.

Deferred Financing Costs
------------------------

      Deferred financing costs are amortized over the term of the mortgage using
the straight-line method which approximates the effective interest method.

Rental Income
-------------

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified to conform to the 1998 presentations.


NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

      At December 31, 1998 and 1997, the Partnership  maintained tenant security
deposits of $20,583 and $21,461 in  interest-bearing  escrow bank  accounts  and
U.S.  Treasury Bills. The investment in a U.S. Treasury Bill is held to maturity
and is carried at cost which approximates fair value.

      The Partnership  also has a reserve for  replacements  and mortgage escrow
deposits  totaling  $340,450  and  $332,831  at  December  31,  1998  and  1997,
respectively,  on deposit with Reilly Mortgage Group,  Inc. These funds are held
in interest-bearing  bank accounts and U.S. Treasury Bills, which are carried at
cost and approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1998 and 1997:

                                                  1998             1997
                                                  ----             ----

         Land                                 $   440,000       $   440,000
         Buildings and improvements             4,436,077         4,310,760
         Furniture and equipment                  767,210           160,152
                                              -----------       -----------
                                                5,643,287         5,570,872
         Less accumulated depreciation          2,344,695         2,192,094
                                              -----------       -----------
                                              $ 3,298,592       $ 3,378,778
                                              ===========       ===========
NOTE D - MORTGAGE PAYABLE
-------------------------

      The mortgage payable  represents a permanent  mortgage from the Government
National  Mortgage  Association  (GNMA) which is insured by the Federal  Housing
Administration  (FHA)  and is  collateralized  by a deed of trust on the  rental
property. The mortgage,  which is due April 1, 2024, is payable in equal monthly
installments of principal and interest  totaling $30,746 and bears interest at a
rate of 7.5%.

      Under  agreements  with the mortgage  lender and FHA, the  Partnership  is
required to make monthly escrow deposits for taxes, insurance and replacement of
project assets, and is subject to restrictions as to operating policies,  rental
charges, operating expenditures and distributions to partners.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

     Aggregate  maturities of the mortgage  payable for the five years following
December 31, 1998, are as follows:

               December 31,
               ------------
                  1999       $   57,459
                  2000       $   61,920
                  2001       $   66,727
                  2002       $   71,907
                  2003       $   71,489

      Management  believes  that the  carrying  amount of the  mortgage  payable
approximates  fair  value at  December  31,  1998,  as  there is no  significant
difference in the market rate of interest for similar debt between that date and
the date of the mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT
---------------------------------------------

      The FHA contracted with the Partnership under Section 8 of Title II of the
Housing  and  Community  Development  Act of 1974,  to make  housing  assistance
payments to the  Partnership on behalf of qualified  tenants for all units.  The
agreement  expires August 19, 2002. Total housing  assistance  payments received
during 1998, 1997 and 1996 were $749,294, $751,930, and $755,658, respectively.

NOTE F - RELATED PARTY TRANSACTIONS
-----------------------------------

Due to General Partners
-----------------------

      At December 31, 1998 and 1997, due to general partner  consisted of unpaid
developer  advances of $277,400.  These  advances are  non-interest  bearing and
payable from  proceeds  upon sale or  refinancing  of the project  after certain
priority payments, as defined in the Partnership agreement.

Management Fees
---------------

      Management  fees  of 5% of  gross  receipts  are  paid  to CMJ  Management
Company, Inc., an affiliate of the general partner, for its services as managing
agent to the project  pursuant to a management  agreement  approved by HUD. Such
fees amounted to $47,131,  $47,098 and $47,114 for the years ended  December 31,
1998, 1997 and 1996, respectively.  In addition, CMJ Management Company received
incentive  management fees of $6,303 for the years ended December 31, 1998, 1997
and 1996.

Reimbursed Costs
----------------

      CMJ Management Company,  Inc., an affiliate of the general partner,  makes
monthly  expenditures  (primarily payroll,  central office accounting  services,
direct marketing and insurance  costs) on behalf of the  Partnership,  which are
reimbursed the following month.

NOTE G - TAX BASIS INCOME (LOSS)
--------------------------------

      The  reconciliation of the excess of revenue over expenses reported in the
accompanying  statements  of operations  with the income (loss)  reported on the
Federal income tax basis follows:

                                                1998       1997        1996
                                                ----       ----        ----

      Excess of revenue over expenses
         per statement of operations        $  62,653    $ 31,625    $ 75,230
      GAAP to tax depreciation adjustment    (137,101)    (56,395)    (65,916)
      Deferred rental income adjustment         2,248         328         224
                                            ---------    --------    --------

      Income (loss) for Federal income
         tax purposes                       $(72,200)    $(25,098)   $  9,538
                                            ========     ========    ========

NOTE H - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains operating cash balances,  including  repurchase
agreements and security deposits held in trust with major financial institutions
and its funded  reserves  with the  mortgage  lender.  The  Partnership  has not
experienced  any losses with  respect to bank  balances in excess of  government
provided  insurance.  Management  believes that no significant  concentration to
credit risks exists with respect to these cash balances as of December 31, 1998.

NOTE I - YEAR 2000 ISSUE
------------------------

      The  general  partner  has  assessed  the  Partnership's  exposure to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations  will be 2000  compliant,  the  Partnership  remains  susceptible  to
consequences of the Year 2000 Issue.

NOTE J - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.




<PAGE>




                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]

                          INDEPENDENT AUDITORS' REPORT



To the Partners
Quaker Meadows Apartments Company

      We  have  audited  the  accompanying  balance  sheets  of  Quaker  Meadows
Apartments  Company as of December 31, 1998 and 1997, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits 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 audits provide 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 Quaker Meadows Apartments
Company as of December 31, 1998 and 1997, and the results of its operations, the
changes in  partners'  deficit and its cash flows for each of the three years in
the period ended  December 31,  1998,  in  conformity  with  generally  accepted
accounting principles.


                              /s/ REZNICK FEDDER & SILVERMAN
                              ------------------------------
                                  REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
February 4, 1999


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                     ASSETS

                                                    1998        1997
                                                    ----        ----

 CURRENT ASSETS
   Cash and cash equivalents                     $  189,109   $  215,117
   Accounts receivable                               49,264       43,303
   Other receivables                                    381       48,428
   Prepaid expenses                                   1,068        8,483
                                                 ----------   ----------

      Total current assets                          239,822      315,331
                                                 ----------   ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenant security deposits                          18,685       18,113
   Mortgage escrow deposits                          12,742       13,369
   Reserve for replacements                         254,514      210,559
                                                 ----------   ----------

                                                    285,941      242,041
                                                 ----------   ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $4,324,098 and $4,057,912      3,520,803    3,768,007

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $66,591 and $62,526               63,560       67,625
                                                 ----------   ----------

      Total assets                               $4,110,126   $4,393,004
                                                 ==========   ===========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable        $  135,044   $  119,880
   Accounts payable and accrued expenses             46,245       40,379
   Accrued interest payable                          52,125       60,082
   Rent deferred credits                              3,658        4,013
                                                 ----------   ----------

      Total current liabilities                     237,072      224,354
                                                 ----------   ----------
 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities      4,839,950    4,974,964
   Due to general partner                         1,072,952    1,072,952
   Tenants' security deposits                        16,594       16,472
                                                 ----------   ----------

      Total liabilities                           6,166,568    6,288,742

 PARTNERS' DEFICIT                               (2,056,442)  (1,895,738)
                                                 ----------   ----------

      Total liabilities and partners' deficit    $4,110,126   $4,393,004
                                                 ==========   ==========


                        See notes to financial statements


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                             STATEMENT OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996

                                          1998       1997        1996
                                          ----       ----        ----

 Revenue
   Rental income                      $1,594,319  $1,600,492  $1,592,837
   Vacancies                                   -      (1,774)     (6,464)
   Financial revenue                      19,081      24,836      26,166
   Other income                              530       1,718         371
                                      ----------  ----------  ----------

      Total revenue                    1,613,930   1,625,272   1,612,910
                                      ----------  ----------  -----------

 Expenses
  Operating expenses
   Administration                         89,376      58,502      38,287
   Management fees to affiliate           63,652      63,958      63,511
   Utilities                             130,386     136,254     125,632
   Maintenance and repairs               167,879     220,781     162,266
   Insurance                              12,753      14,026      15,286
   Real estate taxes                      59,519      50,624      43,376
   Salaries                              130,272     125,272     158,372
                                      ----------  ----------  ----------

      Total operating expenses           653,837     669,417     606,730
                                      ----------  ----------  ----------

  Nonoperating expenses
   Interest                              634,112     641,632     660,698
   Depreciation and amortization         270,251     274,586     265,184
   Incentive management fee to
      affiliate                           76,627      68,655      29,375
   Social services expenses               36,080      32,757      16,387
                                      ----------  ----------  ----------

      Total nonoperating expenses      1,017,070   1,017,630     971,644
                                      ----------  ----------  ----------

      Total expenses                   1,670,907   1,687,047   1,578,374
                                      ----------  ----------  ----------

      EXCESS (DEFICIENCY) OF
         REVENUE OVER EXPENSES        $  (56,977) $  (61,775) $   34,536
                                      ==========  ==========  ==========















                        See notes to financial statements


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1998, 1997 and 1996

                                       General      Limited    
                                       Partner      Partner       Total
                                       -------      -------       -----

 Partners' deficit, December 31, 1995  $(331,607)   $(1,389,261) $(1,720,868)

 Distributions                            (2,627)       (49,914)     (52,541)

 Excess of revenue over expenses           1,727         32,809       34,536
                                       ---------    -----------  -----------

 Partners' deficit, December 31, 1996   (332,507)    (1,406,366)  (1,738,873)

 Distributions                            (4,753)       (90,337)     (95,090)

 Excess of expenses over revenue          (3,089)       (58,686)     (61,775)
                                       ---------    -----------  -----------

 Partners' deficit, December 31, 1997   (340,349)    (1,555,389)  (1,895,738)

 Distributions                            (5,186)       (98,541)    (103,727)

 Excess of expenses over revenue          (2,849)       (54,128)     (56,977)
                                       ---------    -----------  -----------

 Partners' deficit, December 31, 1998  $(348,384)   $(1,708,058) $(2,056,442)
                                       =========    ===========  ===========


 Profit and loss sharing percentage            5%           95%         100%
                                               =            ==          ===
























                        See notes to financial statements


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1997 and 1996

                                                1998       1997       1996
                                                ----       ----       ----
 Cash flows from operating activities
   Rental income received                  $1,588,003  $1,558,213  $1,591,659
   Interest received                            6,586       6,268       9,327
   Other income received                          530      16,194           -
   Administrative expenses paid               (89,376)    (91,259)    (54,674)
   Management fees paid                       (63,652)    (63,958)    (68,922)
   Utilities paid                            (130,386)   (137,125)   (123,121)
   Maintenance and repair expenses paid      (113,966)   (202,054)   (134,452)
   Real estate taxes paid                     (59,519)    (50,624)    (43,376)
   Property insurance paid                     (5,338)    (12,724)    (14,677)
   Interest paid on mortgage                 (642,069)   (641,632)   (660,698)
   Incentive fees paid                        (76,627)    (68,655)    (29,375)
   (Increase) decrease in mortgage
      escrow deposits                             627        (595)      4,164
   Net security deposits received (paid)         (450)        529       1,947
   Salaries and wages paid                   (130,272)   (125,272)   (158,372)
   Social Services expenses paid              (36,080)    (32,757)    (16,387)
                                           ----------  ----------  ----------

      Net cash provided by operating
        activities                            248,011     154,549     303,043
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Acquisition of land, building and 
     equipment                                (18,982)    (59,313)    (32,288)
   Decrease (increase) in reserve for
     replacements                             (31,460)     58,103     (14,208)
                                           ----------  ----------  ----------

      Net cash used in investing 
        activities                            (50,442)     (1,210)    (46,496)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Repayment of mortgage payable             (119,850)   (106,769)    (94,935)
   Distributions                             (103,727)    (95,090)    (52,541)
                                           ----------  ----------  ----------

      Net cash used in financing
        activities                           (223,577)   (201,859)   (147,476)
                                           ----------  ----------  ----------

      NET (DECREASE) INCREASE IN
            CASH AND CASH EQUIVALENTS         (26,008)    (48,520)    109,071

 Cash and cash equivalents, beginning         215,117     263,637     154,566
                                           ----------  ----------  ----------

 Cash and cash equivalents, ending         $  189,109  $  215,117  $  263,637
                                           ==========  ==========  ==========











                        See notes to financial statements


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1998, 1997 and 1996

                                                1998      1997        1996
                                                ----      ----        ----

 Reconciliation of excess (deficiency)
   of revenue over expenses to net 
   cash provided by operating activities
     Excess (deficiency) of revenue over
      expenses                             $  (56,977) $ (61,775)  $  34,536
     Adjustments to reconcile excess 
      (deficiency) of revenue over
      expenses to net cash provided by 
      operating activities:
        Depreciation and amortization         270,251    274,586     265,184
        Interest earned on reserve for 
          replacement                         (12,495)   (18,568)    (18,345)
        Changes in assets and liabilities
          Decrease (increase) in accounts
            receivable                         42,086    (26,255)      1,222
          Decrease (increase) in mortgage
            escrow deposits                       627       (595)      4,164
          Decrease  (increase) in tenants'  
            security deposits - net              (450)       529       1,947
          Decrease in prepaid expenses          7,415      1,302         609
          (Decrease) increase in accounts
             payable and accrued expenses      (2,091)   (14,901)     12,458
          (Decrease) increase in rent
             deferred credits                    (355)       226       1,268
                                           ----------  ---------   ---------

                Net cash provided by 
                  operating activities     $  248,011  $ 154,549   $ 303,043
                                           ==========  =========   =========





























                        See notes to financial statements


<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE  A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
---------------------------------------------------------------------

      Quaker  Meadows  Apartments  Company  (the  Partnership)  was  formed as a
limited  partnership under the laws of the State of Massachusetts on February 1,
1982, for the purpose of  constructing  and operating a rental  housing  project
under Massachusetts Housing Finance Agency's (MHFA) housing program. The project
consists of 104 rental units  located in Lynn,  Massachusetts,  and is currently
operating  under the name of Quaker Meadows  Apartments.  All leases between the
Partnership and tenants of the property are operating leases.

      Under a  regulatory  agreement  with MHFA,  the project is regulated as to
cash distributions.  Cash distributions,  incentive management fees and resident
council fees are limited to funds available for distribution as defined by MHFA.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

      Cash and cash equivalents  consist of cash and repurchase  agreements with
maturities  of  three  months  or less  when  acquired,  stated  at  cost  which
approximates fair value.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over their estimated service lives using the straight-line method.

      As of December  31, 1998,  management  does not believe that there are any
current facts or circumstances that would indicate impairment of rental property
in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121.

Deferred Financing Costs
------------------------

      Deferred financing costs, which consist  principally of financing fees are
amortized by the straight-line method over the life of the related debt.

Rental Income
-------------

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified  in  order to be  consistent  with  the  1998  financial  statement
presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

      At December 31, 1998 and 1997, the Partnership  maintained tenant security
deposits of $18,685 and $18,113,  respectively,  in interest bearing escrow bank
accounts and U.S. Treasury Bills. The investment in a U.S. Treasury Bill is held
to maturity and is carried at cost which approximates fair value.
<PAGE>
      The  Partnership  also has a reserve  for  replacements  and escrow  funds
totaling $267,256 and $223,928 at December 31, 1998 and 1997,  respectively,  on
deposit with MHFA.  These funds are held in interest bearing bank accounts which
are carried at cost which approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1998 and 1997:

                                                  1998              1997
                                                  ----              ----

         Land                                 $    46,363       $    46,363
         Buildings and improvements             7,051,645         7,051,645
         Furniture and equipment                  746,893           727,911
                                              -----------       -----------
                                                7,844,901         7,825,919
         Less accumulated depreciation          4,324,098         4,057,912
                                              -----------       -----------
                                              $ 3,520,803       $ 3,768,007
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE
-------------------------

      The   mortgage   payable   represents  a  permanent   mortgage   from  the
Massachusetts  Housing Finance Agency (MHFA), due September 1, 2013, and payable
in equal monthly installments of $62,930 (principal and interest) at an interest
rate of 12.5%.  The terms of the permanent  mortgage also require monthly escrow
deposits for real estate taxes and a replacement reserve.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

      Aggregate  maturities of the mortgage payable for the five years following
December 31, 1998, are as follows:

               December 31,
               ------------
                  1999       $  135,044
                  2000       $  151,877
                  2001       $  170,808
                  2002       $  192,098
                  2003       $  216,043

      Management  believes it is not practical to estimate the fair value of the
mortgage payable to MHFA because programs with similar  characteristics  are not
currently available to the partnership.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT
---------------------------------------------

      The  Federal  Housing   Administration   (FHA)  has  contracted  with  the
Partnership under Section 8 of Title II of the Housing and Community Development
Act of 1974, to make housing assistance payments to the Partnership on behalf of
qualified tenants. The agreement expires May 2002, and has two five-year renewal
options.  Total housing assistance  payments received during 1998, 1997 and 1996
were $1,310,382, $1,312,610 and $1,319,893, respectively.

NOTE F - RELATED PARTY TRANSACTIONS
-----------------------------------

      At December  31, 1998 and 1997,  due to the  general  partner  consists of
development  advances  totaling  $1,072,952.  These  advances  are  non-interest
bearing and payable from proceeds upon the sale or refinancing of the project as
defined in the Partnership agreement.

      Management  fees  of 4% of  gross  receipts  are  paid  to CMJ  Management
Company,  Inc.,  an  affiliate  of the  general  partner,  for its  services  as
management agent to the project,  pursuant to a management agreement approved by
MHFA.  Such fees  amounted to  $63,652,  $63,958 and $63,511 for the years ended
December 31, 1998,  1997 and 1996,  respectively.  In addition,  CMJ  Management
Company,  Inc.,  received  incentive  management  fees of  $76,627,  $68,655 and
$29,375 for the years ended December 31, 1998, 1997 and 1996 respectively.

      CMJ Management Company,  Inc., an affiliate of the general partner,  makes
monthly  expenditures  (primarily  payroll,  central office  accounting,  direct
marketing and insurance costs) on behalf of the Partnership which are reimbursed
the following month.
<PAGE>
NOTE G - TAX BASIS (LOSS) INCOME
--------------------------------

      The  reconciliation  of the excess  (deficiency)  of revenue over expenses
reported in the  accompanying  statement of  operations  with the (loss)  income
reported on the Federal income tax basis follows:

                                                1998        1997        1996
                                                ----        ----        ----

      Excess (deficiency) of revenue
         over expenses per statement
         of operations                      $  (56,977)  $ (61,775)  $  34,536
      GAAP to tax depreciation adjustment     (143,496)     26,048      22,002
      Deferred rental income adjustment          3,659         226       1,268
                                            ----------   ---------   ---------

      (Loss) income for Federal income
         tax purposes                       $ (196,814)  $ (35,501)  $  57,806
                                            ==========   =========   =========

NOTE H - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains operating cash balances,  including  repurchase
agreements and security deposits held in trust with major financial institutions
and its funded  reserves  with the  mortgage  lender.  The  Partnership  has not
experienced  any losses with  respect to bank  balances in excess of  government
provided  insurance.  Management  believes that no significant  concentration to
credit risk exists with respect to these cash balances as of December 31, 1998.

NOTE I - YEAR 2000 ISSUE
------------------------

      The general  partner  has  assessed  the  Partnership's  exposure  to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations  will be 2000  compliant,  the  Partnership  remains  susceptible  to
consequences of the Year 2000 Issue.

NOTE J - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.

                                     <PAGE>


                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]

                          INDEPENDENT AUDITORS' REPORT


To the Partners
South Laurel Apartments
  Limited Partnership

      We have audited the accompanying balance sheets of South Laurel Apartments
Limited Partnership as of December 31, 1998 and 1997, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1998.  These  financial  statements  are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits 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 audits provide 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 South Laurel  Apartments
Limited  Partnership  as of December  31, 1998 and 1997,  and the results of its
operations,  the changes in partners' deficit and its cash flows for each of the
three years in the period ended December 31, 1998, in conformity  with generally
accepted accounting principles.


                              /s/ REZNICK FEDDER & SILVERMAN
                              ------------------------------
                                  REZNICK FEDDER & SILVERMAN
Baltimore, Maryland
February 4, 1999


<PAGE>


                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                     ASSETS

                                                    1998         1997
                                                    ----         ----

CURRENT ASSETS
   Cash and cash equivalents                     $  322,501   $  234,973
   Accounts receivable                               24,580       33,057
   Other receivables                                      -       11,258
   Prepaid expenses                                 151,963      152,302
                                                 ----------   ----------

      Total current assets                          499,044      431,590
                                                 ----------   ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenants' security deposits                       119,274      111,904
   Mortgage escrow deposits                         168,666      160,348
   Reserve for replacement                          143,468      115,619
                                                 ----------   ----------

                                                    431,408      387,871
                                                 ----------   ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $7,331,024 and $6,871,824      8,129,744    8,546,454

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $197,758 and $185,596            312,968      325,130
                                                 ----------   ----------

      Total assets                               $9,373,164   $9,691,045
                                                 ==========   ==========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable        $  165,533   $  153,608
   Accounts payable and accrued expenses             70,941       81,431
   Accrued interest payable                          73,068       74,028
   Rent deferred credits                              5,170       11,392
   Deferred income - laundry                         30,000       35,000
   Due to affiliates                                  2,181            -
                                                 ----------   ----------

      Total current liabilities                     346,893      355,459
                                                 ----------   ----------

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities     11,525,378   11,690,911
   Due to general partner                           645,989      645,989
   Tenants' security deposits                       122,670      111,904
                                                 ----------   ----------

      Total liabilities                          12,640,930   12,804,263

 PARTNERS' DEFICIT                               (3,267,766)  (3,113,218)
                                                 ----------   ----------

      Total liabilities and partners' deficit    $9,373,164   $9,691,045
                                                 ==========   ==========

                        See notes to financial statements


<PAGE>


                   South Laurel Apartments Limited Partnership

                             STATEMENT OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996

                                          1998        1997       1996
                                          ----        ----       ----
Revenue
   Rental income                      $4,337,446  $4,298,989  $4,246,199
   Vacancies                            (249,244)   (306,701)   (223,408)
   Financial revenue                      22,548      18,629      16,422
   Other income                          119,662     109,369      98,411
                                      ----------  ----------  ----------

      Total revenue                    4,230,412   4,120,286   4,137,624
                                      ----------  ----------  ----------

 Expenses
  Operating expenses
   Administration                        420,403     483,602     448,578
   Management fee                        218,093     214,497     213,145
   Utilities                             510,907     485,153     505,851
   Maintenance and repairs               920,248     810,622   1,031,681
   Salaries                              529,704     519,252     524,535
   Insurance                              39,108      44,875      47,056
   Real estate taxes                     252,279     260,632     259,349
                                      ----------  ----------  ----------

      Total operating expenses         2,890,742   2,818,633   3,030,195
                                      ----------  ----------  ----------
  Nonoperating expenses
   Interest                              882,171     893,305     903,638
   Mortgage insurance premium             58,812      59,553      60,243
   Depreciation and amortization         471,362     479,869     467,072
   Incentive management fee                2,985           -           -
   Miscellaneous financial expenses        1,424       3,750       3,710
                                      ----------  ----------  ----------

      Total nonoperating expenses      1,416,754   1,436,477   1,434,663
                                      ----------  ----------  ----------

      Total expenses                   4,307,496   4,255,109   4,464,858
                                      ----------  ----------  ----------

 EXCESS OF EXPENSES OVER REVENUE      $  (77,084) $ (134,824) $ (327,234)
                                      ==========  ==========  ===========













                        See notes to financial statements


<PAGE>
<TABLE>


                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1998, 1997 and 1996

<CAPTION>

                                             Special        Class A        Class B
                              General        Limited        Limited        Limited
                              Partners       Partners       Partner        Partners        Total
                              --------       --------       -------        --------        -----
 <S>                          <C>            <C>             <C>           <C>            <C>


Partners' deficit,
   December 31, 1995          $(103,509)     $(1,265,170)    $  (776,520)  $  (505,961)   $(2,651,160)

Excess of expenses
   over revenue                  (3,272)         (13,089)       (278,150)      (32,723)      (327,234)
                              ---------      -----------     -----------   -----------    -----------

Partners' deficit,
   December 31, 1996           (106,781)      (1,278,259)     (1,054,670)     (538,684)    (2,978,394)

Excess of expenses 
   over revenue                  (1,348)         (5,394)        (114,600)      (13,482)      (134,824)
                              ---------      -----------     -----------   -----------    -----------
Partners' deficit,
   December 31, 1997           (108,129)     (1,283,653)      (1,169,270)     (552,166)    (3,113,218)

Distributions                      (775)         (3,099)         (65,844)       (7,746)       (77,464)

Excess of expenses 
   over revenue                    (771)         (3,083)         (65,522)       (7,708)       (77,084)
                              ---------     -----------      -----------   -----------    -----------
Partners' deficit,
   December 31, 1998          $(109,675)    $(1,289,835)     $(1,300,636)  $  (567,620)   $(3,267,766)
                              =========     ===========      ===========   ===========    ===========

Profit and loss 
  sharing percentage                 1%              4%              85%           10%           100%
                                     =               =               ==            ==            === 
</TABLE>
                                     

















                        See notes to financial statements


<PAGE>


                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Cash flows from operating activities
   Rental income received                  $4,090,458  $4,011,723  $4,023,207
   Interest received                           19,878      15,309      13,441
   Other income received                      124,158     102,435      94,716
   Administrative expenses paid              (427,196)   (483,602)   (441,876)
   Utilities paid                            (514,815)   (492,180)   (516,504)
   Management fees paid                      (218,093)   (214,497)   (213,145)
   Maintenance and repairs expenses paid     (916,171)   (861,868) (1,032,327)
   Salaries paid                             (487,275)   (474,215)   (479,525)
   Real estate taxes paid                    (251,887)   (260,467)   (252,822)
   Payroll taxes paid                         (42,429)    (39,245)    (45,010)
   Property insurance paid                    (39,085)    (44,875)    (47,772)
   Mortgage insurance paid                    (58,812)    (59,158)    (60,243)
   Interest paid on mortgage                 (883,131)   (894,196)   (904,465)
   Miscellaneous financial expenses paid       (1,424)     (3,750)     (3,710)
   Incentive management fees                   (2,985)          -           -
   Net security deposits received               3,396       3,088       1,129
   Decrease (increase) in mortgage 
     escrow deposits                           (8,318)     22,891     (24,153)
                                           ----------  ----------  ----------

      Net cash provided by operating
        activities                            386,269     327,393     110,941
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment        (42,490)   (137,952)   (141,563)
   Deposits to reserve for replacements       (52,520)    (52,520)    (52,520)
   Withdrawals from reserve for 
     replacements                              27,341      85,111      88,357
                                           ----------  ----------  ----------

      Net cash used in investing 
        activities                            (67,669)   (105,361)   (105,726)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Mortgage principal payments               (153,608)   (142,542)   (132,273)
   Distributions to partners                  (77,464)          -           -
                                           ----------  ----------  ----------

      Net cash used in financing
        activities                           (231,072)   (142,542)   (132,273)
                                           ----------  ----------  ----------

      NET INCREASE (DECREASE) IN
             CASH AND CASH EQUIVALENTS         87,528      79,490    (127,058)

 Cash and cash equivalents, beginning         234,973     155,483     282,541
                                           ----------  ----------  ----------

 Cash and cash equivalents, ending         $  322,501  $  234,973  $  155,483
                                           ==========  ==========  ==========






                        See notes to financial statements


<PAGE>


                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1998, 1997 and 1996

      
                                               1998       1997        1996
                                               ----       ----        ----

  Reconciliation of excess of expenses
    over revenue to net cash provided 
    by operating activities
  Excess of expenses over revenue             $ (77,084)  $(134,824)  $(327,234)
  Adjustments to reconcile excess 
   of expenses over revenue to net cash 
   provided by operating activities
     Depreciation                               459,200     467,707     454,910
     Amortization                                12,162      12,162      12,162
     Interest earned on reserve for 
       replacements                              (2,670)     (3,320)     (2,981)
     Changes in assets and liabilities
       Decrease (increase) in tenant 
        accounts receivable                       8,477      31,282      33,847
      Decrease (increase) in accounts
        receivable - other                       11,258      (1,934)      1,305
      Decrease in prepaid expenses                  339       6,351      12,513
      Decrease (increase) in mortgage 
        escrow deposits                          (8,318)     22,891     (24,153)
      (Decrease) increase in accounts
         payable and accrued expenses           (10,490)    (58,273)    (11,299)
      Decrease in accrued interest payable         (960)       (891)       (827)
      (Decrease) increase in rent - deferred
         credits                                 (6,222)    (11,845)    (33,431)
      Decrease in deferred laundry income        (5,000)     (5,000)     (5,000)
      Increase in due to/from affiliates -
         net                                      2,181           -           -
      Tenants' security deposits received -
         net                                      3,396       3,087       1,129
                                              ---------   ---------   ---------
        Net cash provided by operating
          activities                          $ 386,269   $ 327,393   $ 110,941
                                              =========   =========   =========
























                        See notes to financial statements




<PAGE>

                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

      South Laurel Apartments  Limited  Partnership (the Partnership) was formed
as a limited  partnership  under the laws of the State of  Maryland  on June 30,
1983, for the purpose of  constructing  and operating a rental  housing  project
under Section 221(d)(4) of the National Housing Act. The project consists of 520
units located in Laurel,  Maryland, and is currently operating under the name of
Villages at Montpelier.  All leases between the  Partnership  and the tenants of
the property are operating leases.

      Cash  distributions are limited by agreements  between the Partnership and
HUD to the extent of surplus cash as defined by HUD.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

      Cash and cash equivalents  consist of cash and repurchase  agreements with
maturities  of  three  months  or less  when  acquired,  stated  at  cost  which
approximates fair value.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over their estimated service lives using the straight-line method.

      As of December  31, 1998,  management  does not believe that there are any
current facts or circumstances that would indicate impairment of rental property
in accordance with Statement of Financial Accounting
Standards (SFAS) No. 121.

Deferred Financing Costs
------------------------

      Deferred financing costs are amortized over the term of the mortgage using
the straight-line method, which approximates the effective interest method.

Rental Income
-------------

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified to conform to the 1998 presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

      At December 31, 1998 and 1997, the Partnership  maintained tenant security
deposits of $119,274 and $111,904 in interest-bearing escrow bank accounts which
are carried at cost and approximate fair value.

      The  Partnership  also has a reserve  for  replacements  and escrow  funds
totaling $312,134 and $275,967 at December 31, 1998 and 1997,  respectively,  on
deposit   with   Reilly   Mortgage   Group,   Inc.   These  funds  are  held  in
interest-bearing  bank accounts and a money market  account which are carried at
cost and approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1998 and 1997:

                                                  1998              1997
                                                  ----              ----

         Land                                 $   140,756       $   140,756
         Buildings and improvements            15,149,544        15,107,054
         Furniture and equipment                  170,468           170,468
                                              -----------       -----------
                                               15,460,768        15,418,278
         Less accumulated depreciation          7,331,024         6,871,824
                                              -----------       -----------
                                              $ 8,129,744       $ 8,546,454
                                              ============      ============

NOTE D - MORTGAGE PAYABLE
-------------------------

      The mortgage is insured by the Federal  Housing  Administration  (FHA) and
collateralized by a deed of trust on the rental property. The mortgage, which is
due December 1, 2023, is payable in equal monthly  installments of principal and
interest totaling $86,395 and bears interest at a rate of 7.5%.

      Under  agreements  with the mortgage  lender and FHA, the  Partnership  is
required to make monthly escrow deposits for taxes, insurance and replacement of
partnership  assets,  and is subject to restrictions  as to operating  policies,
rental charges, operating expenditures and distributions to partners.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

      Aggregate  maturities of the mortgage payable for the five years following
December 31, 1998, are as follows:

               December 31,
               ------------
                  1999       $ 165,533
                  2000       $ 178,384
                  2001       $ 192,232
                  2002       $ 207,155
                  2003       $ 223,237

      Management believes that the carrying amounts of the Partnerships mortgage
approximates  fair  value at  December  31,  1998,  as  there is no  significant
difference in the market rate of interest  between that date and the date of the
mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT
---------------------------------------------

      FHA  contracted  with the  Partnership  under Section 8 of Title II of the
Housing  and  Community  Development  Act of 1974,  to make  housing  assistance
payments to the Partnership on behalf of qualified tenants for 20% of the rental
units.  The agreement  expired July 31, 1997, and management has not applied for
an extension of the agreement. Total housing assistance payments received during
1997 and 1996 were $506,366 and $686,293, respectively.

NOTE F - RELATED PARTY TRANSACTIONS
-----------------------------------

Due to General Partner
----------------------

      At December 31, 1998 and 1997, due to general  partner  consists of unpaid
development  advances of $645,989.  These advances are non-interest  bearing and
payable from  proceeds  upon sale or  refinancing  of the project  after certain
priority payments as defined in the Partnership agreement.

Management Fees
---------------

      The project is managed by CMJ  Management  Company,  Inc., an affiliate of
the general  partner,  under an agreement  approved by HUD which  provides for a
management fee of 5.25% of monthly rental collections.  Further,  CMJ Management
Company,  Inc. is paid  accounting and  bookkeeping  fees. Such fees amounted to
$218,093 and $45,492,  respectively.  In addition,  CMJ Management Company, Inc.
received an incentive  management  fee of $2,985 for the year ended December 31,
1998.
<PAGE>
Reimbursed Costs
----------------

      CMJ Management Company,  Inc., an affiliate of the general partner,  makes
monthly  expenditures  (primarily  payroll,  central office  accounting,  direct
marketing and insurance costs) on behalf of the Partnership which are reimbursed
the following month.

NOTE G - TAX BASIS LOSS
-----------------------

      The  reconciliation of the excess of expenses over revenue reported in the
accompanying  statement of operations with the loss reported on a Federal income
tax basis follows:

                                                1998       1997        1996
                                                ----       ----        ----

      Excess of revenue over expenses
         per statement of operations        $ (77,084)   $(134,824)  $(327,234)
      Deferred rental income and laundry
            income adjustment                 (11,213)     (16,844)    (38,431)
      GAAP to tax depreciation adjustment    (136,923)    (166,665)   (186,827)
                                            ---------    ---------   ---------

      Loss for Federal income tax purposes  $(225,220)   $(318,333)  $(552,492)
                                            =========    =========   =========

NOTE H - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains operating cash balances,  including  repurchase
agreements and security deposits held in trust with major financial institutions
and its funded  reserves  with the  mortgage  lender.  The  Partnership  has not
experienced  any losses with  respect to bank  balances in excess of  government
provided  insurance.  Management  believes that no significant  concentration of
credit risk exists with respect to these cash balances as of December 31, 1998.

NOTE I - YEAR 2000 ISSUE
------------------------

      The  general  partner  has  assessed  the  Partnership's  exposure to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations  will be 2000  compliant,  the  Partnership  remains  susceptible  to
consequences of the Year 2000 Issue.

NOTE J - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.



<PAGE>




                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]

                          INDEPENDENT AUDITORS' REPORT




To the Partners
Marvin Gardens Associates

      We  have  audited  the  accompanying  balance  sheets  of  Marvin  Gardens
Associates  as of December  31, 1998 and 1997,  and the  related  statements  of
operations,  partners' deficit and cash flows for each of the three years in the
period  ended   December  31,  1998.   These   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits 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 audits provide 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 Marvin Gardens Associates as
of December 31, 1998 and 1997, and the results of its operations, the changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.


                             /s/ REZNICK FEDDER & SILVERMAN
                              ------------------------------
                                 REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
February 4, 1999


<PAGE>


                            MARVIN GARDENS ASSOCIATES

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                    ASSETS
                                                      1998       1997
                                                      ----       ----

CURRENT ASSETS
   Cash                                          $   37,207   $   30,259
   Accounts receivable                                1,694        3,024
   Accounts receivable - tenant subsidy               2,723        1,441
   Prepaid expenses                                   3,741        4,022
                                                 ----------   ----------

      Total current assets                           45,365       38,746
                                                 ----------   ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenant security deposits                          10,677        9,989
   Real estate tax impound fund                       5,822        7,190
   Replacement reserve fund                         121,104      118,306
   Insurance impound fund                             4,146       10,794
   Interest income receivable - impounds              1,480        1,665
                                                 ----------   ----------

                                                    143,229      147,944
                                                 ----------   ----------


 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $1,187,715 and $1,112,978      1,233,596    1,308,333

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $22,318 and $20,945               24,051       25,424
                                                 ----------   ----------

      Total assets                               $1,446,241   $1,520,447
                                                 ==========   ==========

             LIABILITIES AND PARTNERS' DEFICIT

 LIABILITIES
   Current maturities of mortgage payable        $    59,171  $   54,555
   Accounts payable and accrued expenses              20,236      20,136
   Deferred rental income                                156         366
                                                 -----------  ----------

      Total current liabilities                       79,563      75,057
                                                 -----------  ----------

 Mortgage payable, less current maturities         1,500,449   1,556,072
 Due to general partner                              194,019     194,019
 Tenants' security deposits                            7,869       7,217
                                                 -----------  ----------

      Total liabilities                            1,781,900   1,832,365

 PARTNERS' DEFICIT                                  (335,659)   (311,918)
                                                 -----------  ----------

      Total liabilities and partners' deficit    $ 1,446,241  $1,520,447
                                                 ===========  ==========

                        See notes to financial statements


<PAGE>


                            MARVIN GARDENS ASSOCIATES

                             STATEMENT OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996


                                        1998        1997       1996
                                        ----        ----       ----
Revenue
   Rental income                      $406,235    $ 410,401   $410,364
   Vacancies                            (3,603)      (1,496)    (1,639)
   Financial revenue                     6,798        7,742      6,815
   Other income                          4,887        8,405      4,321
                                      --------    ---------   --------

      Total revenue                    414,317      425,052    419,861
                                      --------    ---------   --------

 Expenses
  Operating expenses
   Administration                       18,488       25,512     17,356
   Utilities                            27,546       29,201     23,833
   Management fee                       17,782       17,738     17,533
   Maintenance and repairs              66,813       75,504     51,999
   Salaries                             58,611       56,766     59,441
   Insurance                             7,906        8,102      8,378
   Real estate taxes                    23,015       22,556     22,271
                                      --------    ---------   --------

      Total operating expenses         220,161      235,379    200,811
                                      --------    ---------   --------

 Nonoperating expenses
   Interest                            129,258      133,514    137,438
   Depreciation and amortization        76,110       76,109     75,338
   Incentive management fee                918            -          -
                                      --------    ---------   --------

      Total nonoperating expenses      206,349      209,623    212,776
                                      --------    ---------   --------

      Total expenses                   426,510      445,002    413,587
                                      --------    ---------   --------


      EXCESS (DEFICIENCY) OF
          REVENUE OVER EXPENSES       $(12,193)   $ (19,950)  $  6,274
                                      ========    =========   ========










                        See notes to financial statements


<PAGE>


                            MARVIN GARDENS ASSOCIATES

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>

                                                    Special
                                        General     Limited     Limited
                                        Partners    Partners    Partner     Total
                                        --------    --------    -------     -----
 <S>                                    <C>         <C>         <C>         <C>  

 Balance, December 31, 1995             $ (8,867)   $(69,591)   $(215,751)  $(294,209)

 Excess of revenue over expenses              63         251        5,960       6,274
                                       ---------    --------    ---------   ---------

 Balance, December 31, 1996               (8,804)    (69,340)    (209,791)   (287,935)

 Distributions                               (40)       (161)      (3,832)     (4,033)

 Excess of expenses over revenue            (199)       (798)     (18,953)    (19,950)
                                       ---------    --------    ---------   ---------


 Balance, December 31, 1997               (9,043)    (70,299)    (232,576)   (311,918)

 Distributions                              (116)       (462)     (10,970)    (11,548)

 Excess of expenses over revenue            (122)       (488)     (11,583)    (12,193)
                                       ---------    --------    ---------   ---------

 Balance, December 31, 1998            $  (9,281)   $(71,249)   $(255,129)  $(335,659)
                                       =========    ========    =========   =========

 Profit and loss sharing percentage           1%          4%          95%        100%
                                              =           =           ==         ===

</TABLE>























                        See notes to financial statements


<PAGE>


                            MARVIN GARDENS ASSOCIATES

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Cash flows from operating activities
   Rental income received                  $402,470    $405,562    $409,972
   Interest received                            203       1,256       1,011
   Other income received                      4,887       8,405       4,321
   Administrative expenses paid             (26,330)    (25,512)    (17,356)
   Management fees paid                     (17,782)    (17,738)    (17,533)
   Utilities paid                           (27,546)    (28,085)    (23,833)
   Salaries and wages paid                  (45,857)    (52,567)    (46,384)
   Maintenance and repairs expenses paid    (66,713)    (75,937)    (51,326)
   Real estate taxes paid                   (23,015)    (22,556)    (22,271)
   Payroll taxes paid                        (4,912)     (4,199)    (13,057)
   Property and other insurance paid         (7,625)     (5,592)     (8,267)
   Interest paid on mortgage               (129,258)   (133,514)   (137,438)
   Incentive management fee paid               (981)          -           -
   Decrease (increase) in insurance 
     impound fund                             6,648      (5,023)     (1,581)
   Decrease (increase) in real estate 
     tax impound fund                         1,368        (900)       (162)
   Net security deposits paid                   (36)       (195)       (296)
                                           --------    --------    --------

      Net cash provided by operating
        activities                           65,521      43,405      75,800
                                           --------    --------    --------

 Cash flows from investing activities
   Additions to property and equipment            -      (6,170)     (7,425)
   Deposits to reserve for replacements     (13,440)    (16,128)    (16,128)
   Withdrawals from reserve for 
     replacements                            17,422      42,312           -
                                           --------    --------    --------

      Net cash provided by (used in)
        investing activities                  3,982      20,014     (23,553)
                                           --------    --------    --------
   

 Cash flows from financing activities
   Repayment of mortgage payable            (51,007)    (50,300)    (46,375)
   Distributions                            (11,548)     (4,033)          -
                                           --------    --------    --------

      Net cash used in financing
        activities                          (62,555)    (54,333)    (46,375)
                                           --------    --------    --------

   NET INCREASE (DECREASE) IN CASH            6,948       9,086       5,872

 Cash and cash equivalents, beginning        30,259      21,173      15,301
                                           --------    --------    --------

 Cash and cash equivalents,  ending        $ 37,207    $ 30,259    $ 21,173
                                           ========    ========    ========


             See notes to financial statements


<PAGE>


                            MARVIN GARDENS ASSOCIATES

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                   Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Reconciliation of excess (deficiency)
   of revenue over expenses to net 
   cash provided by operating activities
     Excess (deficiency) of revenue 
       over expenses                       $  (12,193)   $ (19,950)  $  6,274
     Adjustments to reconcile excess 
       (deficiency) of revenue over 
       expenses to net cash provided 
       by operating activities
    Depreciation                               74,737       74,736     73,965
    Amortization of deferred financing
      costs                                     1,373        1,373      1,373
    Interest earned on reserve for
      replacements                             (6,780)      (6,027)    (5,796)
    Changes in assets and liabilities:
      (Increase) decrease in accounts 
        receivable - tenant subsidy            (1,282)      (1,441)     3,221
      Decrease (increase) in accounts
        receivable                              1,515       (2,004)      (183)
      Increase in interest income
        receivable - impounds                       -         (459)        (8)
      Decrease in prepaid expenses                281        2,510        111
      Decrease (increase) in real estate
        tax impound fund                        1,368         (900)      (162)
      Decrease (increase) in insurance 
        impound fund                            6,648       (5,023)    (1,581)
      Increase in accounts payable and
        accrued expenses                          100          683        673
      (Increase) decrease in deferred 
        rent credits                             (210)         102     (1,791)
      Net security deposits paid                  (36)        (195)      (296)
                                           ----------    ---------   --------

         Net cash provided by operating
           activities                      $   65,521    $  43,405   $ 75,800
                                           ==========    =========   ========


















                        See notes to financial statements



<PAGE>


                            MARVIN GARDENS ASSOCIATES

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

      Marvin  Gardens  Associates  (the  Partnership)  is a  California  limited
partnership  which commenced  operations in February 1983. The Partnership  owns
and operates a 37-unit rental housing project (the Project)  located in Modesto,
California.  The Project  operates  under Section 8 of the National  Housing Act
and,  therefore,  receives monthly rental subsidies from the U.S.  Department of
Housing and Urban Development (HUD). The agreement expires in July 2003, and has
two five-year  renewal options.  For the years ended December 31, 1998, 1997 and
1996, rental subsidies for the Project totaled $308,541,  $328,830 and $324,129,
respectively. All leases between the Partnership and the tenants of the property
are operating leases.

      Cash  distributions are limited by agreements  between the Partnership and
the California  Housing  Finance Agency (CHFA) to $20,151 per year to the extent
of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are
cumulative  and may be  distributed  in  subsequent  years if future  operations
provide surplus cash in excess of current requirements.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over their estimated service lives using the straight-line method.

      As of December  31, 1998,  management  does not believe that there are any
current facts or circumstances that would indicate impairment of rental property
in accordance with Statement of Financial Accounting
Standards ("SFAS") No.  121.

Deferred Financing Costs
------------------------

      Deferred financing costs are amortized over the term of the mortgage using
the straight-line method which approximates the effective interest method.

Rental Income
-------------

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain amounts  in the 1997  and  1996  financial  statements  have  been
reclassified to conform to the 1998 presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

      At December 31, 1998 and 1997, the Partnership  maintained tenant security
deposits of $10,677 and $9,989, respectively, in an interest bearing escrow bank
account and a certificate  of deposit which are carried at cost and  approximate
fair value.

      The  Partnership  also has a reserve  for  replacements  and escrow  funds
totalling $132,552 and $137,955 at December 31, 1998 and 1997, respectively,  on
deposit with CHFA. These funds are held in interest bearing bank accounts, which
are carried at cost and approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

     Investment in property and equipment consisted of the following at December
31, 1998 and 1997:

                                                  1998             1997
                                                  ----             ----

         Land                                 $   294,320       $   294,320
         Buildings and improvements             2,126,991         2,126,991
                                              -----------       -----------
                                                2,421,311         2,421,311
         Less accumulated depreciation          1,187,715         1,112,978
                                              -----------       -----------
                                              $ 1,233,596       $ 1,308,333
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE
-------------------------

      The mortgage  payable  represents a mortgage from the CHFA which is due on
June 1, 2013, and is  collateralized  by a deed of trust on the rental  property
and the CHFA has been  granted a  security  interest  in rental  subsidies.  The
mortgage is payable in monthly  installments  of  principal  and interest at the
rate of 8.15%,  totalling $15,310.  Terms of the mortgage agreement also require
monthly  escrow  deposits to be made to fund real estate tax,  insurance,  and a
replacement reserve account.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

      Aggregate  maturities of the mortgage payable for the five years following
December 31, 1998, are as follows:

               December 31,
               ------------
                  1999       $  59,171
                  2000       $  64,178
                  2001       $  69,908
                  2002       $  75,498
                  2003       $  81,887

      Management  believes  that the  carrying  amount of the  mortgage  payable
approximates  fair  value at  December  31,  1998,  as  there is no  significant
difference in the market rate of interest for similar debt between that rate and
the rate of the mortgage.

NOTE E - RELATED PARTY TRANSACTIONS
-----------------------------------

      At December 31, 1998 and 1997, due to developer/general  partner consisted
of development advances of $194,019. These advances are non-interest bearing and
payable from  proceeds  upon sale or  refinancing  of the Project  after certain
priority payments as defined in the Partnership agreement.

      The Partnership has a contractual management agreement with CMJ Management
Company,  Inc.,  an  affiliate  of the  general  partner,  to  provide  property
management services for the Project.  CMJ Management Company,  Inc. has hired an
unaffiliated  management  agent to provide those  services on its behalf.  Total
management  fees paid for each of the years ended  December 31,  1998,  1997 and
1996 were $17,782, $17,738 and $17,533, respectively.  Effective September 1994,
CMJ  Management  Company,  Inc.  receives  30% of the monthly fee which  totaled
$5,335,  $5,321 and $5,112 for the years ended December 31, 1998, 1997 and 1996,
respectively.  For the year ended  December 31, 1998,  incentive  management fee
charged for the project totalled $981.

NOTE F - TAX BASIS LOSS
-----------------------

      The  reconciliation  of the excess  (deficiency)  of revenue over expenses
reported in the  accompanying  statements of operations with the loss reportable
on a Federal  income tax basis for the years ended  December 31, 1998,  1997 and
1996, are as follows:

                                                 1998       1997        1996
                                                 ----       ----        ----
      Excess (deficiency) of revenue 
        over expenses per statements 
        of operations                       $  (12,193)  $ (19,950)  $   6,274
      GAAP to tax depreciation adjustment      (30,842)    (11,448)    (13,924)
      Deferred rental income adjustments          (202)        102      (1,790)
                                            ----------   ---------   ---------

      Loss for Federal income tax purposes  $  (43,237) $  (31,296)  $  (9,440)
                                            ==========  ==========   =========
<PAGE>

NOTE G - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains  operating cash balances and security  deposits
held in trust with major financial institutions and its funded reserves with the
mortgage lender.  The Partnership has not experienced any losses with respect to
bank balances in excess of government  provided  insurance.  Management believes
that no  significant  concentration  to credit risk exists with respect to these
cash balances as of December 31, 1998.

NOTE H - YEAR 2000 ISSUE
------------------------

      The  general  partner  has  assessed  the  Partnership's  exposure to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations will be year 2000 compliant,  the Partnership  remains susceptible to
consequences of the Year 2000 Issue.

NOTE I - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.


<PAGE>




                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]

                          INDEPENDENT AUDITORS' REPORT



To the Partners
Colonial Farms, Ltd.

      We have audited the accompanying balance sheets of Colonial Farms, Ltd. as
of  December  31,  1998 and 1997,  and the  related  statements  of  operations,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1998.  These  financial  statements are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits 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 audits provide 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 Colonial Farms, Ltd. as of
December 31, 1998 and 1997,  and the results of its  operations,  the changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.



                               /s/ REZNICK FEDDER & SILVERMAN
                               ------------------------------
                                   REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
February 4, 1999


<PAGE>


                               COLONIAL FARMS LTD.

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                     ASSETS
                                                      1998       1997
                                                      ----       ----

 CURRENT ASSETS
   Cash and cash equivalents                     $   69,430   $   72,579
   Rents receivable                                   1,100       12,634
   Deposits                                             675            -
   Prepaid expenses                                   4,808        3,021
                                                 ----------   ----------

      Total current assets                           76,013       88,234
                                                 ----------   ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Real estate tax impound fund                      14,141       13,228
   Replacement reserve fund                         236,465      235,940
   Insurance impound fund                             8,961       16,164
   Reserve fund for operations                       43,101       41,172
   Tenants' security deposits                        25,281       23,520
   Interest income receivable - impounds              3,370        3,631
                                                 ----------   ----------

                                                    331,319      333,655
                                                 ----------   ----------
 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $2,064,714 and $1,938,862      2,038,935    2,164,787

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $38,140 and $35,863               37,627       39,904
                                                 ----------   ----------
      Total assets                               $2,483,894   $2,626,580
                                                 ==========   ==========

                       LIABILITIES AND PARTNERS' DEFICITS

 LIABILITIES
   Current maturities of mortgage payable        $   92,191   $   84,159
   Accounts payable                                  22,286       21,127
   Accrued expenses                                  20,046       27,789
   Deferred rental income                             2,868          464
                                                 ----------   ----------

      Total current liabilities                     137,391      133,539
                                                 ----------   ----------

 Mortgage payable, less current maturities        2,536,750    2,628,942
 Due to general partner                             318,115      318,115
 Tenants' security deposits                          19,455       18,166
                                                 ----------   ----------

      Total liabilities                           3,011,711    3,098,762

 PARTNERS' DEFICIT                                 (527,817)    (472,182)
                                                 ----------   ----------

      Total liabilities and partners' deficit    $2,483,894   $2,626,580
                                                 ==========   ==========


             See notes to financial statements

<PAGE>


                               COLONIAL FARMS LTD.

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1998, 1997 and 1996

                                         1998        1997        1996
                                         ----        ----        ----
Revenue
   Rental income                      $ 786,081   $ 785,784   $ 786,180
   Vacancies                            (23,294)     (7,410)     (9,462)
   Financial revenue                     16,527      17,490      15,910
   Other income                          32,685      23,694      19,315
                                      ---------   ---------   ---------

      Total revenue                     811,999     819,558     811,943
                                      ---------   ---------   ---------
 Operating expenses
   Administrative                        68,108      34,428      29,578
   Management fee                        43,440      42,640      38,060
   Utilities                             31,434      34,619      32,942
   Maintenance and repairs              167,816     155,984     129,475
   Salaries                              81,180      79,871      73,791
   Insurance                             13,372      12,135      12,794
   Property taxes                        42,663      41,368      40,322
                                      ---------   ---------   ---------
      Total operating expenses          448,013     401,045     356,962
                                      ---------   ---------   ---------
  Nonoperating expenses
   Interest                             244,135     244,011     258,803
   Depreciation and amortization        128,129     128,173     124,258
   Incentive management fee               7,060       7,060       7,060
   Earned surplus reimbursement          12,058      69,666       2,610
                                      ---------   ---------   ---------
      Total nonoperating expenses       391,382     448,910     392,731
                                      ---------   ---------   ---------
      Total expenses                    839,395     849,955     749,693
                                      ---------   ---------   ---------

      EXCESS (DEFICIENCY) OF
          REVENUE OVER EXPENSES       $ (27,396)  $ (30,397)  $  62,250
                                      =========   =========   =========














                        See notes to financial statements


<PAGE>


                               COLONIAL FARMS LTD.

                         STATEMENTS OF PARTNERS' DEFICIT
<TABLE>
<CAPTION>

                                                    Special
                                        General     Limited     Limited
                                        Partners    Partners    Partner     Total
                                        --------    --------    -------     -----
 <S>                                    <C>         <C>         <C>         <C>  

 Balance, December 31, 1995             $(23,713)   $(95,195)   $(328,651)  $(447,559)

 Distributions                              (565)       (846)     (26,827)    (28,238)

 Excess of revenue over expenses           1,245       1,868       59,137      62,250
                                       ---------    --------    ---------   ---------

 Balance, December 31, 1996              (23,033)    (94,173)    (296,341)   (413,547)

 Distributions                              (565)       (847)     (26,826)    (28,238)

 Excess of expenses over revenue            (608)       (912)     (28,877)    (30,397)
                                       ---------    --------    ---------   ---------
 Balance, December 31, 1997              (24,206)    (95,932)    (352,044)   (472,182)

 Distributions                              (565)       (847)    (26,827)    (28,238)

 Excess of expenses over revenue            (548)       (822)     (26,026)    (27,396)
                                       ---------    --------    ---------   ---------
 Balance, December 31, 1998            $(25,319)    $(97,601)   $(404,897)  $(527,817)
                                       ========     ========    =========   =========

 Profit and loss sharing percentage          2%           3%          95%        100%
                                             =            =           ==         ===


</TABLE>





















                        See notes to financial statements


<PAGE>


                              COLONIAL FARMS, LTD.

                            STATEMENTS OF CASH FLOWS

                   Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Cash flows from operating activities
   Rental income received                    $776,725    $770,456    $778,056
   Interest received                            6,303       5,597       5,311
   Other income received                       32,685      23,694      19,315
   Administrative expenses paid               (68,108)    (34,427)    (29,578)
   Management fees paid                       (43,440)    (42,640)    (38,060)
   Utilities paid                             (31,434)    (40,324)    (32,942)
   Salaries and wages paid                    (67,973)    (67,643)    (64,278)
   Maintenance and repairs expenses paid     (173,759)   (166,198)   (119,663)
   Real estate taxes paid                     (42,663)    (41,368)    (40,322)
   Payroll taxes paid                         (13,207)    (12,228)     (9,513)
   Property and other insurance paid          (15,834)     (5,710)    (13,451)
   Interest paid on mortgage                 (244,776)   (244,305)   (259,330)
   Incentive management fee paid               (7,060)     (7,060)     (7,060)
   Earned surplus reimbursement               (12,058)    (69,666)     (2,610)
   Increase in reserve fund for operations     (1,929)        (33)       (358)
   (Increase) decrease in real estate
      tax impound fund                           (913)       (793)      2,083
   (Decrease) increase in insurance 
      impound fund                              7,203      (6,654)     (2,487)
   Net security deposits (paid) received         (472)       (399)        241
                                             --------    --------    --------

      Net cash provided by operating
        activities                             99,290      60,299     185,354
                                             --------    --------    --------

 Cash flows from investing activities
   Purchases of equipment                           -     (21,366)    (25,928)
   Deposits to reserve for replacements       (22,404)    (22,404)    (22,404)
   Withdrawals from reserve for
     replacements                              32,364      24,391      37,933
                                             --------    --------    --------

      Net cash provided by (used in) 
        investing activities                    9,960     (19,379)    (10,399)
                                             --------    --------    --------

 Cash flows from financing activities
   Repayment of mortgage payable              (84,160)    (76,827)    (70,134)
   Distributions                              (28,239)    (28,238)    (28,238)
                                             --------    --------    --------

      Net cash used in financing activities  (112,399)   (105,065)    (98,372)
                                             --------    --------    --------
      NET (DECREASE) INCREASE IN CASH AND
            CASH EQUIVALENTS                   (3,149)    (64,145)     76,583

 Cash and cash equivalents, beginning          72,579     136,724      60,141
                                             --------    --------    --------

 Cash and cash equivalents, ending           $ 69,430    $ 72,579    $136,724
                                             ========    ========    ========





             See notes to financial statements


<PAGE>


                               COLONIAL FARMS LTD.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                 Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

Reconciliation of excess (deficiency) 
  of revenue over expenses to net 
  cash provided by operating activities
    Excess (deficiency) of revenue over 
      expenses                                $ (27,396) $(30,397)  $ 62,250
    Adjustments to reconcile excess 
     (deficiency) of revenue over 
     expenses to net cash provided by
     operating activities
        Depreciation                            125,852   125,896    121,981
        Amortization of deferred 
          financial costs                         2,277     2,277      2,277
        Interest earned on reserve for 
          replacements                          (10,485)  (10,611)   (10,681)
        Changes in assets and liabilities
           Decrease (increase) in tenant 
             accounts receivable                 11,534    (8,010)     1,337
           (Increase) decrease in prepaid
             expenses                           (2,462)     6,425       (657)
           Decrease (increase) in interest 
             income receivable - impounds          261     (1,282)        82
           Net tenants' security deposits
             (paid) received                      (472)      (399)       241
           (Increase) decrease in real estate
             tax impound fund                     (913)      (793)     2,083
           Decrease (increase) in insurance
             impound fund                         7,203    (6,654)    (2,487)
           Increase in reserve fund for 
             operations                          (1,929)      (33)      (358)
           (Decrease) increase in accounts
             payable and accrued expenses        (5,943)  (10,507)     9,525
           Decrease in accrued interest 
             payable                               (641)   (5,705)      (242)
           Increase in rent deferred credits      2,404        92          3
                                              ---------  --------   --------
              Net cash provided by
                 operating activities         $  99,290  $ 60,299   $185,354
                                              =========  ========   ========
























                        See notes to financial statements


<PAGE>


                              COLONIAL FARMS, LTD.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

      Colonial Farms, Ltd. (the Partnership) is a California limited partnership
which commenced operations in February 1983. The Partnership owns and operates a
100-unit residential project (the Project) located in Modesto,  California.  The
Project  operates  under  Section 8 of the National  Housing Act and  therefore,
receives monthly rental subsidies from the U.S.  Department of Housing and Urban
Development  (HUD).  The  agreement  expires  June 2002,  and has two  five-year
renewal  options.  For the years ended December 31, 1998, 1997 and 1996,  rental
subsidies   for  the  Project   totaled   $531,063,   $579,485,   and  $613,093,
respectively. All leases between the Partnership and the tenants of the property
are operating leases.

      Cash  distributions are limited by agreements  between the Partnership and
the California  Housing  Finance Agency (CHFA) to $35,299 per year to the extent
of surplus cash and stated equity, as defined by CHFA. Undistributed amounts are
cumulative  and may be  distributed  in  subsequent  years if future  operations
provide surplus cash in excess of current requirements.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

      Cash and cash  equivalents  include cash,  money market  accounts and U.S.
Treasury bills, with a maturity of three months or less when acquired, stated at
cost which approximate fair value.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over  their  estimated  service  lives  using the  straight-line  method.  As of
December 31, 1998,  management does not believe that there are any current facts
or circumstanced that would indicate impairment of rental property in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 121.

Deferred Financing Costs
------------------------

      Deferred  financing costs are amortized by the  straight-line  method over
the life of the related debt, which approximates the effective interest method.

Rental Income
-------------

      Rental  income is  recognized  as  rentals  become  due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified to conform to the 1998 presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

      At December 31, 1998 and 1997, the Partnership  maintained tenant security
deposits of $25,281 and $23,520 in an interest bearing escrow bank account and a
certificate of deposit which are carried at cost and approximate fair value.

      The  Partnership  also has a reserve  for  replacements  and escrow  funds
totalling $306,281 and $23,520 at December 31, 1998 and 1997,  respectively,  on
deposit with CHFA.  These funds are held in interest bearing bank accounts which
are carried at cost and approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1998 and 1997:

                                          
                                                  1998             1997
                                                  ----             ----

         Land                                 $   450,000       $   450,000
         Buildings and improvements             3,238,575         3,238,575
         Furniture and equipment                  415,074           415,074
                                              -----------       -----------
                                                4,103,649         4,103,649
         Less accumulated depreciation          2,064,714         1,938,862
                                              -----------       -----------
                                              $ 2,038,935       $ 2,164,787
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE
-------------------------

      The mortgage payable  represents a permanent  mortgage from the CHFA which
is due on June 1, 2013, and is  collateralized  by a deed of trust on the rental
property and the CHFA has been granted a security  interest in rental subsidies.
The  terms of the  mortgage  require  annual  interest  at the note of 9.15% and
monthly principal and interest payments of $27,411.  Terms of the loan agreement
require that monthly escrow deposits be made to fund real estate tax,  insurance
and replacement reserve escrow accounts.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

      Aggregate  maturities of the mortgage payable for the five years following
December 31, 1998, are as follows:

               December 31,
               -----------
                  1999       $  92,191
                  2000       $ 110,990
                  2001       $ 110,637
                  2002       $ 121,186
                  2003       $ 132,751


      Management  believes  that the  carrying  amount of the  mortgage  payable
approximates  fair  value at  December  31,  1998,  as  there is no  significant
difference in the market rate of interest for similar debt between that date and
the date of the mortgage.

NOTE E - RELATED PARTY TRANSACTIONS
-----------------------------------

      At December 31, 1998 and 1997, due to developer/general  partner consisted
of development advances of $318,115. These advances are non-interest bearing and
payable from  proceeds  upon sale or  refinancing  of the Project  after certain
priority payments as defined in the Partnership agreement.

      The Partnership has a contractual management agreement with CMJ Management
Company,  Inc.,  an  affiliate  of the  general  partner,  to  provide  property
management services for the Project.  CMJ Management Company,  Inc. has hired an
unaffiliated  management  agent to provide these  services on its behalf.  Total
management  fees for the years ended  December  31,  1998,  1997,  and 1996 were
$43,440, $42,640, and $38,060,  respectively.  CMJ Management Company, Inc. also
is entitled to receive an incentive  management fee. For each of the years ended
December 31, 1998, 1997 and 1996, incentive fees charged for the project totaled
$7,060, in accordance with the terms of the supplemental management agreement.
<PAGE>
NOTE F - TAX BASIS (LOSS) INCOME
--------------------------------

      The  reconciliation  of the excess  (deficiency)  of revenue over expenses
reported in the statements of operations  with the (loss) income reported on the
Federal income tax return for the years ended December 31, 1998,  1997, and 1996
follows:
                                               1998        1997       1996
                                               ----        ----       ----

      Excess (deficiency) of revenue
        over expenses                       $ (27,396)   $ (30,397)  $ 62,250
      GAAP to tax depreciation adjustment     (53,713)     (19,460)   (20,336)
      Deferred rental income adjustments          731           90          3
                                            ---------    ---------   --------

      (Loss) income for Federal income
        tax purposes                        $ (80,378)   $ (49,767)  $ 41,917
                                            =========    =========   ========

NOTE G - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains  operating cash balances and security  deposits
held in trust with major financial institutions and its funded reserves with the
mortgage lender.  The Partnership has not experienced any losses with respect to
bank balances in excess of government  provided  insurance.  Management believes
that no  significant  concentration  of credit risk exists with respect to these
cash balances as of December 31, 1998.

NOTE H - YEAR 2000 ISSUE
------------------------

      The  general  partner  has  assessed  the  Partnership's  exposure to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations will be year 2000 compliant,  the Partnership  remains susceptible to
consequences of the Year 2000 Issue.

NOTE I - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.


<PAGE>




                          [REZNICK FEDDER & SILVERMAN]
                                  [letterhead]

                          INDEPENDENT AUDITORS' REPORT



To the Partners
Holbrook Apartments Company


      We have audited the  accompanying  balance  sheets of Holbrook  Apartments
Company  as of  December  31,  1998 and  1997,  and the  related  statements  of
operations,  partners' deficit and cash flows for each of the three years in the
period  ended   December  31,  1998.   These   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.

      We conducted our audits 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 audits provide 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 Holbrook Apartments Company
as of December 31, 1998 and 1997, and the results of its operations, the changes
in  partners'  deficit  and its cash  flows for each of the  three  years in the
period ended December 31, 1998, in conformity with generally accepted accounting
principles.


                              /s/ REZNICK FEDDER & SILVERMAN
                              ------------------------------
                                  REZNICK FEDDER & SILVERMAN

Baltimore, Maryland
February 6, 1999




<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1998 and 1997

                                    ASSETS
                                                     1998       1997
                                                     ----       ----

CURRENT ASSETS
   Cash and cash equivalents                     $  514,632   $  507,878
   Accounts receivable                                1,998        3,296
   Other receivables                                 14,182        9,640
   Prepaid expenses                                  15,871       16,022
                                                 ----------   ----------

      Total current assets                          546,683      536,836
                                                 ----------   ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Mortgage escrow deposits                          77,606      76,359
   Reserve for replacements                         496,439     458,768
                                                 ----------   ----------
                                                    574,045      535,127
                                                 ----------   ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $4,412,465 and $4,160,211      5,219,391    5,462,169

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $235,877 and $222,158            318,074      331,793
                                                 ----------   ----------

      Total assets                               $6,658,193   $6,865,925
                                                 ==========   ==========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable        $  110,538   $  102,574
   Accounts payable and accrued expenses             38,017       33,168
   Accrued interest payable                          45,308       45,949
   Rent deferred credits                              1,054       11,559
   Due to affiliates                                  1,067            -
                                                 ----------   ----------

      Total current liabilities                     195,984      193,250

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities      7,138,669    7,249,207
                                                 ----------   ----------

      Total liabilities                           7,334,653    7,442,457

 PARTNERS' DEFICIT                                 (676,460)    (576,532)
                                                 ----------   ----------

      Total liabilities and partners' deficit    $6,658,193   $6,865,925
                                                 ==========   ==========





                        See notes to financial statements


<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                            STATEMENTS OF OPERATIONS

                   Years ended December 31, 1998, 1997 and 1996

                                         1998        1997        1996
                                         ----        ----        ----
Revenue
   Rental income                      $2,074,864  $2,079,319  $2,068,855
   Vacancies                              (7,275)     (4,727)     (1,985)
   Financial revenue                      31,766      35,842      27,267
   Other income                            8,345       8,608       7,176
                                      ----------  ----------  ----------

      Total revenue                    2,107,700   2,119,042   2,101,313
                                      ----------  ----------  ----------

 Expenses
  Operating expenses
   Administration                        123,690     134,493     126,635
   Utilities                              81,913     112,614      85,403
   Management fee                         98,128      98,776      99,025
   Maintenance and repairs               201,428     173,586     200,197
   Salaries                              195,890     214,500     219,486
   Insurance                              14,776      16,350      27,698
   Real estate taxes                     213,250     181,311     182,616
                                      ----------  ----------  ----------

      Total operating expenses           929,075     931,630     941,060
                                      ----------  ----------  ----------

  Nonoperating expenses
   Interest                              547,260     554,700     561,600
   Mortgage insurance premium             36,480      36,979      37,438
   Depreciation and amortization         265,973     268,185     261,682
   Incentive management fee              153,231     146,297     133,795
                                      ----------  ----------  ----------


      Total nonoperating expenses      1,002,944   1,006,161     994,515
                                      ----------  ----------  ----------


      Total expenses                   1,932,019   1,937,791   1,935,575
                                      ----------  ----------  ----------

      EXCESS OF REVENUE OVER
           EXPENSES                   $  175,681  $  181,251  $  165,738
                                      ==========  ==========  ==========













                        See notes to financial statements


<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1998, 1997 and 1996


                                       General    Limited
                                       Partner    Partner       Total
                                       -------    -------       -----

Partners' deficit, December 31, 1995   $(573,077) $ 161,219     $ (411,858)

 Distributions                           (36,968)  (209,487)      (246,455)

 Excess of revenue over expenses          24,861    140,877        165,738
                                       ---------  ---------     ----------

 Partners' deficit, December 31, 1996   (585,184)    92,609       (492,575)

 Distributions                           (39,781)  (225,427)      (265,208)

 Excess of revenue over expenses          27,188    154,063        181,251
                                       ---------  ---------     ----------
 Partners' deficit, December 31, 1997   (597,777)    21,245       (576,532)

 Distributions                           (41,341)  (234,268)      (275,609)

 Excess of revenue over expenses          26,352    149,329        175,681
                                       ---------  ---------     ----------
 Partners' deficit, December 31, 1998  $(612,766) $ (63,694)    $ (676,460)
                                       =========  =========     ==========

 Profit and loss sharing percentage          15%        85%           100%
                                             ==         ==            ===





















                        See notes to financial statements


<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1998, 1997 and 1996

                                               1998       1997        1996
                                               ----       ----        ----

 Cash flows from operating activities
   Rental income received                  $2,061,424  $2,069,734  $2,083,642
   Interest received                           19,587      15,185      13,786
   Other income received                        3,803      28,030           -
   Administrative expenses paid              (123,690)   (135,301)   (125,604)
   Management fees paid                       (98,128)    (98,776)    (99,025)
   Utilities paid                             (81,913)   (119,299)    (88,920)
   Maintenance and repairs expenses paid     (199,621)   (312,749)    (63,637)
   Real estate taxes paid                    (213,250)   (181,311)   (182,616)
   Salaries paid                             (160,249)   (181,164)   (182,293)
   Payroll taxes paid                         (15,194)    (14,705)    (15,854)
   Property insurance paid                    (14,625)    (14,811)    (26,982)
   Other taxes and insurance paid             (20,447)    (18,631)    (21,339)
   Interest paid on mortgage                 (547,901)   (555,294)   (562,152)
   Mortgage insurance paid                    (36,480)    (36,899)    (37,367)
   Increase in mortgage escrow deposits        (1,247)    (15,290)    (18,174)
   Mortgagor entity expenses paid            (153,231)   (146,297)   (133,795)
   Due to affiliates - net                      1,067           -           -
                                           ----------  ----------  ----------

      Net cash provided by operating
        activities                            419,905     282,422     539,670
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment         (9,476)    (52,029)   (111,023)
   Deposits to reserve for replacements       (40,920)    (40,920)    (40,720)
   Withdrawals from reserve for 
     replacements                              15,428      47,190      91,862
                                           ----------  ----------  ----------

      Net cash used in investing 
        activities                            (34,968)    (45,759)    (59,881)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Repayment of mortgage payable             (102,574)    (95,185)    (88,328)
   Distributions paid to partners            (275,609)   (265,208)   (246,455)
                                           ----------  ----------  ----------

   Net cash used in financing activities     (378,183)   (360,393)   (334,783)
                                           ----------  ----------  ----------

      NET INCREASE (DECREASE) IN
            CASH AND CASH EQUIVALENTS           6,754    (123,730)    145,006

 Cash and cash equivalents, beginning         507,878     631,608     486,602
                                           ----------  ----------  ----------

 Cash and cash equivalents, ending         $  514,632  $  507,878  $  631,608
                                           ==========  ==========  ==========







                        See notes to financial statements


<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                   Years ended December 31, 1998, 1997 and 1996


                                               1998       1997        1996
                                               ----       ----        ----

 Reconciliation of excess of revenue over
   expenses to net cash provided by 
   operating activities
     Excess of revenue over expenses       $ 175,681   $ 181,251   $ 165,738
     Adjustments to reconcile excess 
       of revenue over expenses to net 
       cash provided by operating
       activities
         Depreciation                        252,254     254,644     248,141
         Amortization of deferred 
           financing costs                    13,719      13,541      13,541
         Interest earned on replacement
           reserves                          (12,179)    (20,618)     (8,912)
         Changes in assets and liabilities
            Decrease (increase) in accounts
              receivable - tenants             1,298      (1,143)      6,087
            Decrease (increase) in accounts
              receivable - other              (4,542)     18,908     (11,745)
            Decrease in prepaid expenses         151       1,619         786
            Increase in mortgage escrow 
              deposits                        (1,247)    (15,290)    (18,174)
            Decrease in other assets               -         475           -
            Increase (decrease) in accounts
              payable and accrued expenses     4,849    (146,656)    134,075
            Decrease in accrued interest 
              payable                           (641)       (594)       (552)
            (Decrease) increase in rent -
              deferred credits               (10,505)     (3,715)     10,685
            Increase in due to affiliates -
              net                              1,067           -           -
                                           ---------   ---------   ---------

                Net cash provided by
                  operating activities     $ 419,905   $ 282,422   $ 539,670
                                           =========   ==========  =========

























                        See notes to financial statements



<PAGE>


                           HOLBROOK APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1998, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
--------------------------------------------------------------------

      Holbrook  Apartments  Company  (the  Partnership)  was formed as a limited
partnership  under the laws of the State of  Massachusetts in July 1981, for the
purpose of constructing and operating a rental housing project under Section 221
(d)(4) of the National Housing Act. The project consists of 170 units located in
Holbrook,  Massachusetts,  and is currently operating under the name of Holbrook
Apartments.  All leases between the  Partnership and the tenants of the property
are operating leases.

      Cash  distributions are limited by agreements  between the Partnership and
HUD to the extent of surplus cash as defined by HUD.

Use of Estimates
----------------

      The  preparation  of financial  statements  in conformity  with  generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.

Cash and Cash Equivalents
-------------------------

      Cash and cash equivalents  consist of cash and repurchase  agreements with
maturities  of three  months  or less  when  acquired,  stated  at  cost,  which
approximates fair value.

Property and Equipment
----------------------

      Property and equipment are carried at cost.  Depreciation  is provided for
in amounts  sufficient  to relate the cost of  depreciable  assets to operations
over their estimated service lives using the straight-line method.

      As of December  31, 1998,  management  does not believe that there are any
current  facts or  circumstances  that would  indicate  impairment of the rental
property in accordance with Statement of Financial Accounting
Standards ("SFAS") No. 121.

Deferred Financing Costs
------------------------

      Deferred financing costs are amortized over the term of the mortgage using
the straight-line method which approximates the effective interest method.

Rental Income
-------------

      Rental  income is  recognized  as a rentals  become due.  Rental  payments
received in advance are deferred until earned.

Income Taxes
------------

      No  provision  or benefit  for  income  taxes has been  included  in these
financial  statements  since  taxable  income or loss passes  through to, and is
reportable by, the partners individually.

Reclassifications
-----------------

      Certain  amounts  in the 1997  and 1996  financial  statements  have  been
reclassified to conform to the 1998 presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES
------------------------------------------------

     The Partnership has a reserve for replacements and mortgage escrow deposits
totaling $574,045 and $535,127 at December 31, 1998 and 1997,  respectively,  on
deposit with  WMF/Huntoon,  Paige  Associates  Limited.  These funds are held in
interest-bearing   money  market  accounts  and  are  carried  at  cost,   which
approximates fair value.
<PAGE>
NOTE C - PROPERTY AND EQUIPMENT
-------------------------------

     Investment in property and equipment consisted of the following at December
31, 1998 and 1997:

                                                  1998              1997
                                                  ----              ----

         Land                                 $   390,000       $   390,000
         Buildings and improvements             9,006,073         8,998,646
         Furniture and equipment                  235,783           233,734
                                              -----------       -----------
                                                9,631,856         9,622,380
         Less accumulated depreciation          4,412,465         4,160,211
                                              -----------       -----------
                                              $ 5,219,391       $ 5,462,169
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE
-------------------------

      The mortgage is insured by the Federal  Housing  Administration  (FHA) and
collateralized by a deed of trust on the rental property. The mortgage, which is
due February 1, 2023, is payable in equal monthly  installments of principal and
interest totaling $54,207 and bears interest at a rate of 7.5%.

      Under  agreements  with the mortgage  lender and FHA, the  Partnership  is
required to make monthly escrow deposits for taxes, insurance and replacement of
project assets, and is subject to restrictions as to operating policies,  rental
charges, operating expenditures and distributions to partners.

      The  liability  of the  Partnership  under the  mortgage is limited to the
underlying  value of the real  estate,  plus other  amounts  deposited  with the
lender.

      Aggregate  annual  maturities  of the mortgage  payable for the five years
following December 31, 1998, are as follows:

               December 31,
               -----------
                  1999       $ 110,538
                  2000       $ 119,119
                  2001       $ 128,366
                  2002       $ 138,331
                  2003       $ 149,070

      Management  believes  that the  carrying  amount of the  mortgage  payable
approximates  fair  value at  December  31,  1998,  as  there is no  significant
difference in the market rate of interest for similar debt between that date and
the date of the mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT
---------------------------------------------

      FHA  contracted  with the  Partnership  under Section 8 of Title II of the
Housing  and  Community  Development  Act of 1974,  to make  housing  assistance
payments  to the  Partnership  on behalf of  qualified  tenants.  The  agreement
expires July 1, 2001. Total housing  assistance  payments  received during 1998,
1997 and 1996 were $1,573,691, $1,565,374 and $1,577,392, respectively.

NOTE F - RELATED PARTY TRANSACTIONS
-----------------------------------

      Management  fees of  4.75% of gross  receipts  are paid to CMJ  Management
Company,  Inc.,  an  affiliate  of the  general  partner,  for its  services  as
management agent to the Project pursuant to a management  agreement  approved by
HUD. Such fees amounted to $98,128, $98,776 and $99,025 for the years 1998, 1997
and 1996,  respectively.  In addition,  CMJ Management  Company,  Inc., received
incentive management fees of $153,231, $146,297 and $133,795 for the years ended
December 31, 1998, 1997 and 1996, respectively.

      CMJ Management Company,  Inc., an affiliate of the general partner,  makes
monthly  expenditures  (primarily  payroll,  central office  accounting,  direct
marketing and insurance costs) on behalf of the Partnership which are reimbursed
the following month.
<PAGE>

NOTE G - TAX BASIS INCOME
-------------------------

      The  reconciliation  of  the  excess  of  revenue  over  expenses  in  the
accompanying  statements  of  operations  with the income  reported on a Federal
income tax basis as follows:

                                               1998        1997        1996
                                               ----        ----        ----

      Excess of revenue over expenses
        per statement of operations         $  175,681   $ 181,251   $ 165,738
      Additional amortization of 
        deferred costs                           8,571       8,393       8,393
      GAAP to tax depreciation adjustment     (52,693)     140,373     (32,751)
      Deferred rental income adjustment       (10,504)      (3,715)     10,688
                                            ---------    ---------   ---------

      Income for Federal income tax
        purposes                            $ 121,055    $ 326,302   $ 152,068
                                            =========    =========   =========

NOTE H - CONCENTRATION OF CREDIT RISK
-------------------------------------

      The Partnership  maintains operating cash balances,  including  repurchase
agreements,  with major financial  institutions and its funded reserves with the
mortgage lender.  The Partnership has not experienced any losses with respect to
bank balances in excess of government  provided  insurance.  Management believes
that no  significant  concentration  to credit risk exists with respect to these
cash balances as of December 31, 1998.

NOTE I - YEAR 2000 ISSUE
------------------------

      The  general  partner  has  assessed  the  Partnership's  exposure to date
sensitive  computer  software  programs that may not be operative  subsequent to
1999 and has implemented a requisite course of action to minimize year 2000 risk
and ensure that neither  significant  costs nor  disruption  of normal  business
operations  are  encountered.  However,  because there is no guarantee  that all
systems  of  outside  vendors  or other  entities  affecting  the  Partnership's
operations will be year 2000 compliant,  the Partnership  remains susceptible to
consequences of the Year 2000 Issue.

NOTE J - CONTINUATION OF THE PARTNERSHIP
----------------------------------------

      The Partnership  agreement allows the limited partner to cause the sale of
the assets of the Partnership  subsequent to June 30, 1995, but not earlier than
one year after it has given  written  notice of its desire to cause such sale to
the general  partner,  and only if,  during such  one-year  period,  the general
partner  does not cause the sale of the  Partnership's  assets.  If the  general
partner  has not caused the assets of the  Partnership  to be sold  within  such
one-year period,  the limited partner may cause such sale, but only after it has
offered  to sell the assets to the  general  partner,  and  either  the  general
partner  does not  accept  such  offer  within 90 days of  receiving  it, or the
general  partner does not complete the sale in accordance  with such offer after
accepting the terms.  During October 1998, the limited  partner gave the written
notice  described above to the general partner of the  Partnership.  In light of
the decision by the limited  partner to initiate  this action under the terms of
the Partnership agreement,  it is currently contemplated that the disposition of
the  Partnership's  assets and liquidation of the Partnership could be completed
by the end of calendar year 1999.  There are no  assurances,  however,  that the
disposition of the Partnership's  assets and liquidation of the Partnership will
be completed within this time frame.