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, 1996

                                       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

                         PAINE WEBBER/CMJ PROPERTIES LP
             (Exact name of registrant as specified in its charter)

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

  265 Franklin Street, Boston, Massachusetts                            02110
(Address of principal executive office)                              (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  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 _____

     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

     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
                                 1996 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-4

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-6

Item  9           Changes in and Disagreements with Accountants on
                  Accounting and Financial Disclosure                  II-6

Part III

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

Item 11           Executive Compensation                              III-3

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-75



<PAGE>

                                     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  receive  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, 1996,  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.

     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, 1996, all of the properties
are generating  sufficient  cash flow from  operations to cover their  operating
expenses  and debt service  payments,  and the  majority 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.  Given the  improvements  in cash flow and the
strong  operating  performances  of the  investment  properties in recent years,
management had instituted a program of regular  quarterly  distributions in 1994
at an annual rate of 2% on original  invested  capital.  As discussed further in
Item 7, during 1996  distributions  to the  Partnership  from the local  limited
partnerships declined, causing management to suspend distributions effective for
the fourth  quarter  of 1996 until  further  notice.  Distributions  paid to the
Limited and General Partners  totalled  $177,000 during 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
will  make  annual  distribution  payments  each  November.  Given  the  current
operating performance of the properties,  it is likely that if a distribution is
paid in  November  1997,  it would be made at an annual  rate of 1% on  invested
capital.

     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 is 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.  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,  which are all  government-assisted,  low-income housing  facilities,
compete with several  projects of similar type  generally on the basis of price,
location and amenities.  The tenants at the Partnership's  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.

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.
<PAGE>
      Occupancy  figures for each quarter during 1996, along with an average for
the year, are presented below for each property:

                                             Percent Occupied At
                                    -------------------------------------------
                                                                        1996
                                    3/31/96  6/30/96  9/30/96  12/31/96 Average
                                    -------  -------  -------  -------- -------

Village at Fawcett's Pond
 Apartments                         100%      99%      100%     100%    100%

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

Villages at Montpelier Apartments    94%      94%       95%      96%     95%

Marvin Gardens Apartments            98%     100%      100%     100%    100%

Colonial Farms Apartments            98%      99%       99%     100%     99%

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

Item 3.  Legal Proceedings

     In  November  1994,  a series of  purported  class  actions  (the "New York
Limited Partnership Actions") were filed in the United States District Court for
the Southern District of New York concerning PaineWebber Incorporated's sale and
sponsorship of various limited partnership investments,  including those offered
by the Partnership.  The lawsuits were brought against PaineWebber  Incorporated
and Paine Webber Group Inc. (together "PaineWebber"), among others, by allegedly
dissatisfied  partnership  investors.  In March  1995,  after the  actions  were
consolidated under the title In re PaineWebber Limited  Partnership  Litigation,
the  plaintiffs  amended their  complaint to assert claims  against a variety of
other  defendants,  including  PaineWebber  Shelter  Fund,  Inc. and  Properties
Associates  ("PA")  which  are  the  General  Partners  of the  Partnership  and
affiliates of  PaineWebber.  On May 30, 1995, the court  certified  class action
treatment of the claims asserted in the litigation.

      The amended complaint in the New York Limited  Partnership Actions alleged
that, in connection  with the sale of interests in  PaineWebber/CMJ  Properties,
LP,  PaineWebber,  Paine Webber Shelter Fund,  Inc. and PA (1) failed to provide
adequate  disclosure  of the  risks  involved;  (2) made  false  and  misleading
representations  about  the  safety  of the  investments  and the  Partnership's
anticipated performance;  and (3) marketed the Partnership to investors for whom
such investments were not suitable. The plaintiffs, who purported to be suing on
behalf of all  persons  who  invested in  PaineWebber/CMJ  Properties,  LP, also
alleged that following the sale of the partnership interests, PaineWebber, Paine
Webber Shelter Fund, Inc. and PA misrepresented  financial information about the
Partnerships   value  and  performance.   The  amended  complaint  alleged  that
PaineWebber,  Paine Webber  Shelter  Fund,  Inc.  and PA violated the  Racketeer
Influenced  and Corrupt  Organizations  Act ("RICO") and the federal  securities
laws. The plaintiffs sought unspecified damages, including reimbursement for all
sums invested by them in the  partnerships,  as well as disgorgement of all fees
and other  income  derived by  PaineWebber  from the  limited  partnerships.  In
addition, the plaintiffs also sought treble damages under RICO.

     In January 1996,  PaineWebber signed a memorandum of understanding with the
plaintiffs in the New York Limited Partnership Actions outlining the terms under
which the parties have agreed to settle the case. Pursuant to that memorandum of
understanding,  PaineWebber  irrevocably  deposited  $125 million into an escrow
fund under the  supervision of the United States District Court for the Southern
District of New York to be used to resolve the  litigation in accordance  with a
definitive  settlement  agreement  and plan of  allocation.  On July  17,  1996,
PaineWebber and the class plaintiffs submitted a definitive settlement agreement
which  provided for the  complete  resolution  of the class  action  litigation,
including releases in favor of the Partnership and the General Partners, and the
allocation of the $125 million  settlement  fund among  investors in the various
partnerships at issue in the case. As part of the settlement,  PaineWebber  also
agreed to provide class members with certain  financial  guarantees  relating to
some of the  partnerships.  The details of the  settlement  are  described  in a
notice mailed  directly to class members at the direction of the court.  A final
hearing on the fairness of the proposed  settlement  was held in December  1996,
and in March 1997 the court issued a final approval of the settlement.

     In February 1996,  approximately  150 plaintiffs  filed an action  entitled
Abbate v.  PaineWebber  Inc. in  Sacramento,  California  Superior Court against
PaineWebber   Incorporated  and  various  affiliated   entities  concerning  the
plaintiffs' purchases of various limited partnership interests,  including those
offered by the  Partnership.  The complaint  alleged,  among other things,  that
PaineWebber and its related entities committed fraud and  misrepresentation  and
breached  fiduciary  duties  allegedly  owed to the  plaintiffs  by  selling  or
promoting  limited   partnership   investments  that  were  unsuitable  for  the
plaintiffs and by overstating the benefits,  understating  the risks and failing
to state  material  facts  concerning  the  investments.  The  complaint  sought
compensatory  damages of $15 million plus punitive damages against  PaineWebber.
Mediation  with  respect to the Abbate  action was held in December  1996.  As a
<PAGE>
     result  of  such  mediation,  a  settlement  between  PaineWebber  and  the
plaintiffs  was reached  which  provides  for the  complete  resolution  of such
action.  Final releases and dismissals  with regard to this action are expected
to be received in April 1997.

     Under certain limited circumstances,  pursuant to the Partnership Agreement
and other contractual  obligations,  PaineWebber affiliates could be entitled to
indemnification  for expenses and  liabilities in connection with the litigation
described above. However, PaineWebber has agreed not to seek indemnification for
the amounts it is required to pay in connection  with the  settlement of the New
York Limited  Partnership  Actions.  At the present time,  the General  Partners
cannot  estimate  the  impact,  if any, of any other  potential  indemnification
claims on the Partnership's financial statements, taken as a whole. Accordingly,
no provision for any liability  which could result from the eventual  outcome of
these  matters has been made in the  accompanying  financial  statements  of the
Partnership.

     The Partnership and the local limited  partnerships  are not subject to any
other material pending legal proceedings.

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,  1996  there  were 901  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.  The Managing  General Partner will
not redeem or repurchase Units.

      Reference is made to Item 6 below for a  discussion  of the amount of cash
distributions made to the Limited Partners during 1996.

Item 6.  Selected Financial Data

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

                                        Years Ended December 31,
                           ---------------------------------------------------
                             1996        1995       1994    1993       1992
                             ----        ----       ----    ----       ----

Revenues                  $   98       $  244     $  179   $  293    $  208

Expenses                  $  280       $  288     $  268   $  289    $  285

Partnership's share
 of local limited
 partnerships' income     $  157       $  174     $  186   $  203    $  162

Net income (loss)         $  (25)      $  130     $   97   $  207    $   85

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

Net income (loss) per
 Limited
 Partnership Unit         $ (2.82)     $14.75     $11.01   $23.45    $ 9.63

Total assets              $  415       $  486     $  525   $  729    $  519


     (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.


<PAGE>


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

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  receive  various  forms  of  federal,  state  or  local
assistance and that may 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, 1996, all of the properties  are generating  sufficient  cash
flow  from  operations  to cover  their  operating  expenses  and  debt  service
payments,  and the majority 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.
Given the improvements in cash flow and the strong operating performances of the
investment  properties  in recent years,  in 1994  management  had  instituted a
program which provided for the payment of regular quarterly  distributions at an
annual rate of 2% on original  invested  capital.  As discussed  further  below,
during 1996 distributions to the Partnership from the local limited partnerships
declined,  causing management to suspend distributions  effective for the fourth
quarter of 1996 until  further  notice.  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  will  make  annual
distribution payments each November.  Management of the Partnership is currently
in the process of reviewing  the  properties in detail with the affiliate of the
operating  general  partners  which  manages the  day-to-day  operations  of the
investment  properties to assess each property's potential operating performance
over the next two years.  Nonetheless,  given the current  environment of rising
property operating and capital improvement costs, and the strict restrictions on
available cash flow from the properties,  it is likely that if a distribution is
paid in November 1997, it would only be made at an annual rate of 1% on invested
capital.

     The Partnership received distributions totalling $310,000 in 1996 from four
of the six local limited partnership  investments.  In 1995, the Partnership had
received  distributions  from all six investments which totalled  $435,000.  The
distributions   received  in  1996  represented  the  available  cash  flow  for
distribution  as of December 31, 1995, as determined by the general  partners of
the local limited partnerships in accordance with the partnership, financing and
regulatory agreements.  No distributions were received in 1996 from the Villages
at  Montpelier  and Marvin  Gardens  limited  partnerships.  At the  Villages at
Montpelier limited partnership,  which distributed $63,000 to the Partnership in
1995,  the local  general  partner  decided to withhold  excess cash flow to pay
clean-up costs  resulting from a leak in the property's  underground  oil tanks.
During the current year, the underground tanks were drained,  cleaned and filled
under the  supervision of the Maryland  Department of  Environmental  Protection
which was satisfied with the  remediation  work. At the Marvin  Gardens  limited
partnership,  which  distributed  $27,000 to the  Partnership in 1995, the local
general partner decided to reserve additional funds for capital  improvements in
the current year.  Distributions  from the Quaker  Meadows,  Colonial  Farms and
Holbrook  partnerships  also declined slightly in the current year primarily due
to  increased  expenditures  in 1995 for  repairs  and  maintenance  and capital
improvements.

     Average occupancy levels at all six properties in which the Partnership has
invested  remained in the  mid-to-high 90% range for the year ended December 31,
1996.  Cash flow from the  properties in which the  Partnership  has invested 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 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 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 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.

     All six of the Partnership's operating investment properties receive rental
subsidy  payments  from the federal  government  under Section 8 of the National
Housing Act. With the exception of The Villages at Montpelier Apartments,  which
has only  20% of its  units  restricted  for  low-income  housing,  the  subsidy
agreements  covering  the  operating  investment  properties  do not  expire for
another  4-to-6  years.  The subsidy  agreement  covering the 20% portion of The
Villages at  Montpelier  Apartments  is  scheduled  to expire in July 1997.  The
agreement does not provide for any renewal  options,  and the general partner of
the local limited  partnership which owns The Villages at Montpelier  Apartments
does not have any  current  plans to  apply  for an  extension  of this  subsidy
agreement.  Accordingly,  during the second half of 1997 the subsidized units at
the property are expected to be converted to market rent units.  There is likely
to be at least a temporary  decline in occupancy  as these units are  re-leased.
Based on current market conditions, management believes that the units currently
designated  as  low-income  units could be re-leased at market rates which would
keep the total revenues of the local limited  partnership  relatively  unchanged
from the current  subsidized level. In addition,  if the market for conventional
multi-family  apartment properties remains strong in 1997, 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 over this period.  If  conditions  were to  deteriorate,  The
Villages  at  Montpelier   Apartments  could  experience  extended  declines  in
occupancy and revenues upon the  expiration  of the subsidy  agreement.  For the
five  properties  which contain 100%  low-income  housing units,  the government
subsidy  payments  range from 75% to 82% of the total  revenues  of the  related
local limited partnerships. At the present time, certain legislative initiatives
and  governmental  budget  negotiations  could  result in a  reduction  in funds
available for the various  HUD-administered housing programs and new limitations
on subsidized rent levels. Such changes could adversely impact the net operating
income generated by the local limited partnerships.  In light of the uncertainty
regarding the near term prospects for government  assisted,  low-income  housing
and  the  restrictions  on the  Partnership's  ability  to  cause  a sale of the
operating  properties,  management does not have any plans, at the present time,
to initiate the sale process under the terms of the agreements  described above.
A decision as to whether to take such  actions to initiate the sale process with
respect to any or all of the operating investment  properties in the future will
be based  upon a number  of  factors  including  the  availability  of a pool of
qualified  buyers, an evaluation of the future of the relevant subsidy programs,
the availability of financing and an assessment of local market conditions.  If,
as expected,  the regulatory agreement on The Villages at Montpelier  Apartments
expires in 1997,  the  decision of whether to  initiate a sale  process for that
property  would be based  on a more  traditional  analysis  of  existing  market
conditions and future appreciation potential.

      At  December  31,  1996,  the  Partnership  had  available  cash  and cash
equivalents of approximately  $323,000,  which it intends to use for its working
capital  requirements and for  distributions  to 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.  Such sources of liquidity are expected to be
sufficient to meet the  Partnership's  needs on both a short-term  and long-term
basis.

Results of Operations
--------------------

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 is 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.

     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 the current year. 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 the current year, which partially offset
the decline in income.  Distributions  from the Fawcett's Pond  partnership were
recorded as reductions  to the  investment  carrying  value to the extent of the
current  year  income  recognition  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  is  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 was mainly due
to decreases in certain required professional services.

1995 Compared to 1994
---------------------

     The Partnership recorded net income of $130,000 for the year ended December
31,  1995,  as compared to net income of $97,000 for 1994.  The  increase in net
income of $33,000  was mainly the result of an  increase  in other  income  from
local limited  partnerships of $64,000.  As noted above,  distributions from the
local  limited  partnerships  are recorded as income for those  investments  for
which the  Partnership's  equity method carrying value has been reduced to zero.
Distributions  totalling  $221,000 from five partnerships were recorded as other
income in the year ended  December  31, 1995,  as compared to $157,000  from the
same five partnerships for 1994. The favorable change in other income from local
limited  partnerships  was  partially  offset by an  increase  of $20,000 in the
Partnership's general and administrative expenses in 1995.

      In accordance with the equity method of accounting for limited partnership
interests,  the Partnership does not recognize losses from investment properties
when losses exceed the  Partnership's  equity method basis in these  properties.
Five of the  Partnership's six investments had an equity method basis of zero as
of  December  31,  1995 and 1994.  Distributions  from the  Holbrook  Apartments
Company (Ramblewood Apartments), the only remaining investment which still has a
positive  equity  method  carrying  value,  are  recorded as  reductions  of the
investment  carrying value and totalled $214,000 and $250,000 for 1995 and 1994,
respectively.  Distributions from the other five limited partnerships  increased
by $64,000 in 1995,  as reflected in the change in other  income.  This increase
resulted  primarily  from an  increase  of  $47,000  in  distributions  from The
Villages at Montpelier Apartments, which, as noted above, is the only one of the
Partnership's properties which is not 100% low-income housing. The distributions
received in 1995 reflected the available cash flow from 1994 operations.

     The Partnership's  recorded share of local limited  partnerships' income in
1995  consisted of income of $174,000  from the  Ramblewood  Apartments  limited
partnership,  as  compared to income of $186,000  from the same  partnership  in
1994.  Net income was down  slightly at  Ramblewood,  mainly due to increases in
salaries  expense  and real  estate  taxes.  Overall,  an  increase  in combined
property operating  expenses of $282,000 for the six local limited  partnerships
exceeded the increase in combined revenues of $75,000. Occupancy levels remained
high  throughout  1995  with  average  occupancy  above  95% at all  properties.
Revenues  were  up at all  properties  except  at  The  Villages  at  Montpelier
Apartments.  At  The  Villages  at  Montpelier  Apartments,  revenues  decreased
slightly during 1995 due to a temporary decline in occupancy  experienced in the
third quarter.  Occupancy at The Villages at Montpelier  Apartments averaged 95%
for 1995, but dropped to 91% in August 1995 as a result of management's  efforts
to increase rental rates for the market-rate  units.  Management  stepped up its
marketing  efforts in  conjunction  with the rate  increases.  After the initial
decline in occupancy,  the marketing efforts  generated  positive results as the
occupancy  level  recovered and the number of prospective  tenants  visiting the
property  increased.  Expenses  in general  were up at all of the local  limited
partnerships  with repairs and  maintenance  expenses  running higher in 1995 at
these  properties  due to a  combination  of their ages,  applicable  regulatory
requirements and management's  operating philosophy.  Such expenses do, however,
fluctuate from year to year.

1994 Compared to 1993
---------------------

      For the year ended December 31, 1994, the Partnership  recorded net income
of  $97,000,  as compared  to net income of  $207,000  for the prior  year.  The
decrease in net income was the result of a decrease  in other  income from local
limited  partnerships and a decrease in the Partnership's share of local limited
partnerships'  income.  These unfavorable  changes in net income were offset, in
part, by a decrease in general and administrative expenses of $21,000 for 1994.

      Five of the six  investments  had an  equity  method  basis  of zero as of
December  31,  1994 and 1993.  Other  income  from  local  limited  partnerships
reflects  cash  distributions  received  from  investments  which have an equity
method  basis  of  zero.  Distributions  from the  Holbrook  Apartments  Company
(Ramblewood  Apartments),  the only  remaining  investment  which had a positive
equity method  carrying  value,  are recorded as  reductions  of the  investment
carrying   value  and  totalled   $250,000  and  $204,000  for  1994  and  1993,
respectively. Distributions from the other five limited partnerships declined by
$123,000 in 1994,  as reflected  in the change in other  income.  This  decrease
resulted  primarily  from a decline in  distributions  from the  Fawcett's  Pond
limited  partnership of $54,000 and a drop in distributions from The Villages at
Montpelier Apartments of $76,000. The distributions received in 1994 reflect the
available  cash flow from 1993  operations.  The decline in  distributions  from
these two  properties  primarily  related to certain  extraordinary  maintenance
projects  completed in 1993. The  Partnership's  recorded share of local limited
partnerships' income in 1994 consisted of income of $186,000 from the Ramblewood
Apartments limited  partnership.  In the prior year, income of $206,000 from the
operations of the  Ramblewood  Apartments  was recorded in addition to a loss of
$3,000 from the Colonial  Farms limited  partnership.  The carrying value of the
Partnership's  investment in Colonial Farms was reduced to zero during 1993. The
decrease in income from the  Ramblewood  Apartments in 1994 is mainly the result
of higher management fees and real estate tax expenses.

     In the aggregate,  rental revenues  increased at five of the six investment
properties  during  1994.  The  combined  total  rental  revenues  increased  by
$218,000,  with the largest  increase  occurring at The  Villages at  Montpelier
Apartments.  Occupancy  levels remained stable  throughout 1994 at the Fawcett's
Pond,  Marvin Gardens,  Quaker Court and Meadows and Ramblewood  properties.  At
Colonial  Farms,  revenues  decreased  slightly  during  1994 due to a temporary
decline in occupancy experienced in the second and third quarters.  Occupancy at
Colonial  Farms  averaged 99% for 1993.  Average  occupancy for 1994 declined to
96%,  although the property  had  rebounded to 98% as of December 31, 1994.  The
increase in revenues at The  Villages at  Montpelier  Apartments  was  primarily
attributable to the increase in the average occupancy of the property,  from 89%
for 1993 to 93% for 1994. In addition,  management  was able to reduce the level
of  concessions  used to attract  tenants  throughout  1994.  In addition to the
improvement  in  revenues,  the  combined  total  expenses of the six  operating
properties decreased by $201,000 in 1994, primarily due to a decrease in repairs
and  maintenance  expenses at certain of the  properties.  Several non recurring
maintenance projects were completed at the properties during 1993.

Inflation
---------

     The  Partnership  completed its thirteenth full year of operations in 1996.
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              37      8/22/96
Terrence E. Fancher     Director                            43      10/10/96
Walter V. Arnold        Senior Vice President
                          and Chief Financial Officer       49      10/29/85
James A. Snyder         Senior Vice President               51      7/6/92
David F. Brooks         First Vice President and
                          Assistant Treasurer               54      12/10/82 *
Timothy J. Medlock      Vice President and Treasurer        35      6/1/88
Thomas W. Boland        Vice President                      34      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.

<PAGE>
     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.

      James A. Snyder is a Senior Vice President of the Managing General Partner
and a Senior Vice President of the Adviser.  Mr. Snyder re-joined the Adviser in
July 1992  having  served  previously  as an  officer  of PWPI from July 1980 to
August 1987.  From January 1991 to July 1992, Mr. Snyder was with the Resolution
Trust  Corporation where he served as the Vice President of Asset Sales prior to
re-joining  PWPI. From February 1989 to October 1990, he was President of Kan Am
Investors, Inc., a real estate investment company. During the period August 1987
to February 1989,  Mr. Snyder was Executive  Vice President and Chief  Financial
Officer  of  Southeast  Regional  Management  Inc.,  a real  estate  development
company.

     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.

     Timothy J.  Medlock  is a Vice  President  and  Treasurer  of the  Managing
General  Partner and Vice President and Treasurer of the Adviser which he joined
in 1986.  From June 1988 to August 1989, Mr. Medlock served as the Controller of
the Managing General Partner and the Adviser. From 1983 to 1986, Mr. Medlock was
associated  with Deloitte  Haskins & Sells.  Mr. Medlock  graduated from Colgate
University  in 1983  and  received  his  Masters  in  Accounting  from  New York
University in 1985.
     Thomas W. Boland is a Vice President of the Managing  General Partner and a
Vice President and Manager of Financial Reporting 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, 1996, all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.


<PAGE>


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 August 15, 1994 for
the  quarter  ended June 30, 1994 to  November  15,  1996 for the quarter  ended
September 30, 1996.  The  Partnerships  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.  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, 1996.
Accounts  payable - affiliates at December 31, 1996 consists of management  fees
of $132,000 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, 1996 is $32,000, 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, 1996. 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 1996.

   (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


Dated:  April 11, 1997

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:  April 11, 1997
     -------------------                      --------------
     Bruce J. Rubin
     Director



By:  /s/ Terrence E. Fancher           Date:  April 11, 1997
     -----------------------                  --------------
     Terrence E. Fancher
     Director


<PAGE>
<TABLE>

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

                         PAINE WEBBER/CMJ PROPERTIES, LP


                                INDEX TO EXHIBITS
<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
             supplemented, with particular                  reference.
             reference to the Restated
             Certificate and Agreement of
             Limited Partnership


(10)         Material contracts previously                  Filed with the Commission pursuant to
             filed as exhibits to registration              Section 13 or 15(d) of the Securities Act
             statements and amendments thereto              of 1934 and incorporated herein by
             of the registrant together with all            reference.
             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, 1996  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

                                                                  Reference
                                                                  ---------

Paine Webber/CMJ Properties, LP                                

   Independent Auditors' Report                                       F-4

   Balance sheets at December 31, 1996 and 1995                       F-5

   Statements of operations for the years ended December 
     31, 1996, 1995 and 1994                                          F-6

   Statements of changes in partners' capital (deficit) for the
     years ended December 31, 1996, 1995 and 1994                     F-7

   Statement of cash flows for the years ended December 31, 1996, 
     1995 and 1994                                                    F-8

   Notes to financial statements                                      F-9

Fawcett's Pond Apartments Company

   Independent Auditors' Report                                      F-21

   Balance sheets at December 31, 1996 and 1995                      F-22

   Statements of operations for the years ended December 31, 
     1996, 1995 and 1994                                             F-23

   Statements of partners' deficit for the years ended
     December 31, 1996, 1995 and 1994                                F-24

   Statements of cash flows for the years ended December 31,
     1996, 1995 and 1994                                             F-25

   Notes to financial statements                                     F-27

Quaker Meadows Apartments Company

   Independent Auditors' Report                                      F-30

   Balance sheets at December 31, 1996 and 1995                      F-31

   Statements of operations for the years ended December 31, 1996,
      1995 and 1994                                                  F-32

   Statements of partners' deficit for the years ended December
      31, 1996, 1995 and 1994                                        F-33

   Statements of cash flows for the years ended December 31, 1996,
      1995 and 1994                                                  F-34

   Notes to financial statements                                     F-36



<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                    INDEX TO FINANCIAL STATEMENTS - continued

                                                                   Reference
                                                                   ---------

South Laurel Apartments Limited Partnership

   Independent Auditors' Report                                         F-39

   Balance sheets at December 31, 1996 and 1995                         F-40

   Statements of operations for the years ended December 31, 1996,
      1995 and 1994                                                     F-41

   Statements of partners' deficit for the years ended December
      31, 1996, 1995 and 1994                                           F-42

   Statements of cash flows for the years ended December 31, 1996,
      1995 and 1994                                                     F-43

   Notes to financial statements                                        F-45

Marvin Gardens Associates

   Independent Auditors' Report                                         F-49

   Balance sheets at December 31, 1996 and 1995                         F-50

   Statements of operations for the years ended December 31, 1996,
      1995 and 1994                                                     F-51

   Statements of partners' deficit for the years ended December 31,
      1996, 1995 and 1994                                               F-52

   Statements of cash flows for the years ended December 31, 1996,
      1995 and 1994                                                     F-53

   Notes to financial statements                                        F-55

Colonial Farms, Ltd.

   Independent Auditors' Report                                         F-58

   Balance sheets at December 31, 1996 and 1995                         F-59

   Statements of operations  for the years ended December 31, 1996,
      1995 and 1994                                                     F-60

   Statements of partners' deficit for the years ended December 31,
      1996, 1995 and 1994                                               F-61

   Statements of cash flows for the years ended December 31, 1996,
      1995 and 1994                                                     F-62

   Notes to financial statements                                        F-64


<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                    INDEX TO FINANCIAL STATEMENTS - continued

                                                                  Reference
                                                                  ---------


Holbrook Apartments Company

   Independent Auditors' Report                                      F-67

   Balance sheets at December 31, 1996 and 1995                      F-68

   Statements of operations for the years ended December 31,
      1996, 1995 and 1994                                            F-69

   Statements of partners' deficit for the years ended December
      31, 1996, 1995 and 1994                                        F-70

   Statements of cash flows for the years ended December 31, 1996,
      1995 and 1994                                                  F-71

   Notes to financial statements                                     F-73



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, 1996 and 1995, 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, 1996.
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, 1996 and 1995, 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,  1996 in  conformity  with  generally  accepted
accounting principles.






                               /s/ Reznick Fedder & Silverman
                               REZNICK FEDDER & SILVERMAN


Baltimore, Maryland
March 20, 1997




<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                                 BALANCE SHEETS
                           December 31, 1996 and 1995
                     (In thousands, except per Unit amounts)

                                     ASSETS

                                                            1996        1995
                                                            ----        ----

Investments in local limited partnerships, at equity     $     92     $   161
Cash and cash equivalents                                     323         325
                                                         --------     -------
                                                         $    415     $   486
                                                         ========     =======



                        LIABILITIES AND PARTNERS' CAPITAL


Accrued expenses                                         $     21     $    22
Accounts payable - affiliates                                 132           -
                                                         --------     --------
                                                              153          22

Partners' capital:
  General Partners:
   Capital contributions                                        1           1
   Cumulative net losses                                      (70)        (70)
   Cumulative distributions                                    (5)         (3)

  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                                   (6,906)     (6,881)
   Cumulative distributions                                  (437)       (262)
                                                         --------     -------
      Total partners' capital                                 262         464
                                                         --------     -------
                                                         $    415     $   486
                                                         ========     =======














   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, 1996, 1995 and 1994
                     (In thousands, except per Unit amounts)

                                                 1996      1995         1994
                                                 ----      ----         ----

Revenues:
   Interest income                             $   14      $   23     $    22
   Other income from local limited
     partnerships                                  84         221         157
                                               ------      ------     -------
                                                   98         244         179

Expenses:
   Management fees                                199         199         199
   General and administrative                      81          89          69
                                               ------      ------     -------
                                                  280         288         268
                                               ------      ------     -------
Operating loss                                   (182)        (44)        (89)

Partnership's share of local limited
  partnerships' income                            157         174         186
                                               ------      ------     -------

Net income (loss)                              $  (25)     $  130     $    97
                                               ======      ======     =======


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

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



   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, 1996, 1995 and 1994
                                 (In thousands)



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


Balance at December 31, 1993              $  (71)        $  573        $  502

Cash distributions                            (1)           (87)          (88)

Net income                                     1             96            97
                                          ------         ------        ------

Balance at December 31, 1994                 (71)           582           511

Cash distributions                            (2)          (175)         (177)

Net income                                     1            129           130
                                          ------         ------        ------

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
                                          ======         ======        ======






   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, 1996, 1995 and 1994
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)


                                                 1996        1995       1994
                                                 ----        ----       ----

Cash flows from operating activities:
  Net income (loss)                             $ (25)     $  130      $   97
  Adjustments to reconcile net income (loss)
   to net cash used in operating activities:
   Other income from local limited 
    partnerships                                  (84)       (221)       (157)
   Partnership's share of local limited
    partnerships' income                         (157)       (174)       (186)
   Changes in assets and liabilities:
     Accrued expenses                              (1)          8          (8)
     Accounts payable - affiliates                132           -        (204)
                                                 -----      -----      ------
      Total adjustments                          (110)       (387)       (555)
                                                -----       -----      ------
      Net cash used in operating activities      (135)       (257)       (458)
                                                -----       -----      ------

Cash flows from investing activities:
   Distributions from local limited
     partnerships                                 310         435         407
                                                -----       -----      ------
      Net cash provided by investing
        activities                                310         435         407
                                                -----       -----      ------

Cash flows from financing activities:
   Distributions to partners                     (177)       (177)        (88)
                                               ------       -----      ------
      Net cash used in financing activities      (177)       (177)        (88)
                                                -----       -----      ------

Net (decrease) increase in cash and
  cash equivalents                                 (2)          1        (139)

Cash and cash equivalents, beginning of year      325         324         463
                                               ------       -----      ------

Cash and cash equivalents, end of year         $  323       $ 325      $  324
                                               ======       =====      ======











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


<PAGE>


                         PAINE WEBBER/CMJ PROPERTIES, LP

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 1996


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  receive
     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,
     1996,  all of the  properties  are  generating  sufficient  cash  flow from
     operations to cover their operating expenses and debt service payments, and
     the majority 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.  Given the  improvements in cash flow and the strong  operating
     performances of the investment  properties in recent years,  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 until further notice.  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 will
     make annual distribution payments each November.

       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 is 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.  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 Note 4, 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.


<PAGE>


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, 1996 and 1995 and
     revenues  and  expenses  for each of the three  years in the  period  ended
     December 31, 1996.  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,  1996.  The
     carrying amount of cash and cash equivalents  approximates their fair value
     as of  December  31,  1996  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  $17,374,000 due
     to the losses on  investments  recognized on the tax basis in excess of the
     book basis.

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, 1996.
     Accounts  payable - affiliates  at December 31, 1996 consists of management
     fees of $132,000 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.

        Included  in general  and  administrative  expenses  for the years ended
     December  31,  1996,  1995  and  1994  is  $32,000,  $32,000  and  $38,000,
     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, $2,000
     and $1,000 (included in general and  administrative  expenses) for managing
     the Partnership's cash assets during 1996, 1995 and 1994, respectively.

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:


<PAGE>


                       Condensed Combined Balance Sheets
                          December 31, 1996 and 1995
                                 (In thousands)
                                    Assets
                                                           1996        1995
                                                           ----        ----

     Current assets                                      $  1,877     $ 1,685
     Restricted deposits and funded reserves                2,060       1,965
     Operating investment property, net                    25,621      26,565
     Other assets                                           1,046       1,088
                                                         ---------    --------
                                                         $ 30,604     $31,303
                                                         ========     =======
                            Liabilities and Capital

     Current liabilities and tenant security deposits    $  1,461     $ 1,303
     Due to general partner                                 2,508       2,509
     Long-term mortgage debt, less current portion         32,847      33,368

     Partnership's share of combined
       partners' deficit accounts                          (3,104)     (2,826)
     Local partners' shares of combined
       partners' deficit accounts                          (3,108)     (3,051)
                                                         --------     -------
                                                         $ 30,604     $31,303
                                                         ========     =======

                    Condensed Combined Summary of Operations
              For the years ended December 31, 1996, 1995 and 1994
                                 (In thousands)

                                           1996           1995          1994
                                           ----           ----          ----
     Rental revenues, including
       government subsidies             $  9,975        $ 9,891       $ 9,851
     Other income                             86            103            68
                                        --------        -------       -------
                                          10,061          9,994         9,919

     Property operating expenses           5,733          5,701         5,419
     Interest expense and mortgage
       insurance                           2,964          3,005         3,042
     Depreciation and amortization         1,347          1,294         1,246
                                        ---------       -------      --------
                                          10,044         10,000         9,707
                                        --------        -------      --------
     Net income (loss)                  $     17        $    (6)     $    212
                                        ========        =======      ========

     Net income (loss):
       Partnership's share of 
         operations                     $     32        $   (15)     $    183
       Local partners' share of 
         operations                          (15)             9            29
                                        --------        -------      --------
                                        $     17        $    (6)     $    212
                                        ========        =======      ========


<PAGE>


              Reconciliation of Partnership's share of operations
                                 (In thousands)

                                                1996         1995         1994
                                                ----         ----         ----
     Partnership's share of
       operations, as shown above             $    32       $  (15)     $   183
     Losses in excess of basis not
       recognized by Partnership                  278           234         108
     Income offset with prior year
       unrecognized losses                       (153)         (45)        (105)
                                              -------       ------      -------
     Partnership's share of local
       limited partnerships' income           $   157       $  174      $   186
                                              =======       ======      =======

                  Reconciliation of Partnership's Investments
                                 (In thousands)

                                                         1996           1995
                                                         ----           ----

     Partnership's share of combined partners'
       deficit accounts, as shown above                 $(3,104)      $(2,826)
     Accumulated losses in excess of basis
       not recognized by Partnership                      2,103         1,978
     Cumulative distributions in excess
       of investment basis                                1,078           994
     Excess basis in local limited partnerships              15            15
                                                        -------       -------
     Investments in local limited
       partnerships, at equity                          $    92       $   161
                                                        =======       =======

     "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  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.


<PAGE>


        "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):

                                                       1996              1995
                                                       ----              ----

     Fawcett's Pond Apartments Company              $    -             $    -
     Quaker Meadows Apartments Company                   -                  -
     South Laurel Apartments Limited Partnership         -                  -
     Marvin Gardens Associates                           -                  -
     Colonial Farms Ltd.                                 -                  -
     Holbrook Apartments Company                        92                161
                                                    ------             ------
       Investments in local limited 
         partnerships, at equity                    $   92             $  161
                                                    ======             ======


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

                                               1996        1995        1994
                                               ----        ----        ----

     Fawcett's Pond Apartments Company       $  24        $  24      $   24
     Quaker Meadows Apartments Company          50           66          59
     South Laurel Apartments Limited
       Partnership                               -           63          16
     Marvin Gardens Associates                   -           27          12
     Colonial Farms Ltd.                        27           40          46
     Holbrook Apartments Company               209          215         250
                                             -----        -----      ------
                                             $ 310        $ 435      $  407
                                             =====        =====      ======

        The  investments  in Quaker  Meadows  Apartments  Company,  South Laurel
     Apartments  Limited  Partnership,  Marvin  Gardens  Associates and Colonial
     Farms Ltd. at December 31, 1996 do not reflect accumulated losses therefrom
     of $1,175,000, $670,000, $157,000 and $101,000,  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 1996, 1995 and 1994
     were $756,000, $768,000 and $769,000,  respectively. Such amounts comprised
     approximately 77%, 79% and 81%, 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, 1996 of  approximately
     $4,282,000,  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  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 $1,105,725 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, 1996.

     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  1996,  1995 and 1994 were  $1,320,000,
     $1,335,000   and   $1,321,000,   respectively.   Such   amounts   comprised
     approximately  82% of the limited  partnership's  total revenues in each of
     such years.

        The  aggregate  investment by the  Partnership  for the 95% interest was
     $1,378,906 (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,  1996 of  approximately  $5,202,000,
     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,  HUD and MHFA to the extent of
     surplus cash, as defined.

        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 $29,000,  $45,000 and
     $38,000  were paid to an affiliate  of the local  general  partners for the
     years ended December 31, 1996, 1995 and 1994, 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 agreement  expires July 31, 1997, and the general partner
     of the local limited  partnership  does not have any current plans to apply
     for an  extension  of this  subsidy  agreement.  Based  on  current  market
     conditions,  management  believes  that the units  currently  designated as
     low-income  units could be  re-leased  at market rates which would keep the
     total revenues of the local limited partnership  relatively  unchanged from
     the current  subsidized level. In addition,  if the market for conventional
     multi-family apartment properties remains strong in 1997, 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 over this  period.  If  conditions  were to
     deteriorate,   The  Villages  at  Montpelier  Apartments  could  experience
     extended  declines in occupancy  and revenues  upon the  expiration  of the
     subsidy agreement. Total rent subsidies received by the limited partnership
     during  1996,   1995  and  1994  were  $686,000,   $677,000  and  $694,000,
     respectively.  Such  amounts  comprised  approximately  17% of the  limited
     partnership's total revenues for each of such years.
<PAGE>
        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,  1996 of  approximately  $11,987,000,  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 $1,000 were paid to an
     affiliate of the local general  partners for 1995. No incentive  management
     fees were earned for the year ended December 31, 1996 and 1994.

     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 1996, 1995 and 1994
     were $324,000, $337,000 and $332,000,  respectively.  Such amounts comprise
     approximately 77%, 81% and 82%, 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, 1996 of  approximately  $1,661,000,  payable to the
     California  Housing  Finance  Agency  (CHFA)  in  monthly  installments  of
     $15,138, 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 $12,000 and $2,000 were paid to an affiliate
     of the local  general  partners  for the years ended  December 31, 1995 and
     1994,  respectively.  No incentive management fees were earned for the year
     ended December 31, 1996.
<PAGE>
     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 1996, 1995 and 1994 were $613,000,  $586,000 and
     $556,000,  respectively.  Such amounts comprised approximately 76%, 74% and
     72%,  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, 1996 of approximately  $2,790,000,  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,  $16,000 and $20,000 were paid to an affiliate of the local
     general  partners for the years ended  December  31,  1996,  1995 and 1994,
     respectively.

     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  1996,  1995 and  1994  were
     $1,577,000, $1,587,000 and $1,577,000, respectively. Such amounts comprised
     approximately 75%, 75% and 76% 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, 1996 of approximately  $7,447,000,  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.
<PAGE>
        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 $134,000, $138,000 and
     $166,000  were paid to an affiliate of the local  general  partners for the
     years ended December 31, 1996, 1995 and 1994, respectively.

5.   Legal Proceedings
     -----------------

        In November  1994,  a series of purported  class  actions (the "New York
     Limited  Partnership  Actions")  were filed in the United  States  District
     Court  for  the  Southern  District  of  New  York  concerning  PaineWebber
     Incorporated's   sale  and  sponsorship  of  various  limited   partnership
     investments,  including those offered by the Partnership. The lawsuits were
     brought  against  PaineWebber  Incorporated  and Paine  Webber  Group  Inc.
     (together   "PaineWebber"),   among  others,   by  allegedly   dissatisfied
     partnership  investors.  In March 1995, after the actions were consolidated
     under the  title In re  PaineWebber  Limited  Partnership  Litigation,  the
     plaintiffs  amended their  complaint to assert claims  against a variety of
     other defendants,  including  PaineWebber Shelter Fund, Inc. and Properties
     Associates  ("PA") which are the General  Partners of the  Partnership  and
     affiliates  of  PaineWebber.  On May 30, 1995,  the court  certified  class
     action treatment of the claims asserted in the litigation.

         The  amended  complaint  in the New York  Limited  Partnership  Actions
      alleged that, in connection with the sale of interests in  PaineWebber/CMJ
      Properties,  LP,  PaineWebber,  Paine Webber Shelter Fund, Inc. and PA (1)
      failed to provide  adequate  disclosure  of the risks  involved;  (2) made
      false and misleading  representations  about the safety of the investments
      and  the  Partnership's  anticipated  performance;  and (3)  marketed  the
      Partnership to investors for whom such investments were not suitable.  The
      plaintiffs,  who  purported  to be  suing on  behalf  of all  persons  who
      invested in  PaineWebber/CMJ  Properties,  LP, also alleged that following
      the sale of the partnership interests,  PaineWebber,  Paine Webber Shelter
      Fund,  Inc.  and  PA  misrepresented   financial   information  about  the
      Partnerships  value and performance.  The amended  complaint  alleged that
      PaineWebber, Paine Webber Shelter Fund, Inc. and PA violated the Racketeer
      Influenced  and  Corrupt   Organizations  Act  ("RICO")  and  the  federal
      securities  laws. The plaintiffs  sought  unspecified  damages,  including
      reimbursement for all sums invested by them in the  partnerships,  as well
      as disgorgement  of all fees and other income derived by PaineWebber  from
      the limited partnerships.  In addition,  the plaintiffs also sought treble
      damages under RICO.

        In January 1996,  PaineWebber  signed a memorandum of understanding with
     the plaintiffs in the New York Limited  Partnership  Actions  outlining the
     terms under which the parties  have agreed to settle the case.  Pursuant to
     that memorandum of understanding,  PaineWebber  irrevocably  deposited $125
     million  into an escrow  fund under the  supervision  of the United  States
     District Court for the Southern  District of New York to be used to resolve
     the  litigation in accordance  with a definitive  settlement  agreement and
     plan of allocation.  On July 17, 1996, PaineWebber and the class plaintiffs
     submitted a definitive settlement agreement which provided for the complete
     resolution of the class action  litigation,  including releases in favor of
     the  Partnership and the General  Partners,  and the allocation of the $125
     million  settlement  fund among  investors in the various  partnerships  at
     issue in the case. As part of the  settlement,  PaineWebber  also agreed to
     provide class members with certain financial guarantees relating to some of
     the  partnerships.  The details of the settlement are described in a notice
     mailed  directly to class  members at the  direction of the court.  A final
     hearing on the  fairness of the  proposed  settlement  was held in December
     1996,  and  in  March  1997  the  court  issued  a  final  approval  of the
     settlement.

        In February 1996,  approximately 150 plaintiffs filed an action entitled
     Abbate v. PaineWebber Inc. in Sacramento, California Superior Court against
     PaineWebber  Incorporated and various  affiliated  entities  concerning the
     plaintiffs' purchases of various limited partnership  interests,  including
     those  offered by the  Partnership.  The  complaint  alleged,  among  other
     things,  that  PaineWebber  and its related  entities  committed  fraud and
     misrepresentation  and  breached  fiduciary  duties  allegedly  owed to the
     plaintiffs by selling or promoting  limited  partnership  investments  that
     were  unsuitable  for  the  plaintiffs  and by  overstating  the  benefits,
     understating  the risks and failing to state material facts  concerning the
     investments.  The complaint sought compensatory damages of $15 million plus
     punitive damages against PaineWebber.  Mediation with respect to the Abbate
     <PAGE>
     action  was  held in  December  1996.   As a result of such  mediation,  a
     settlement  between  PaineWebber  and  the  plaintiffs  was  reached  which
     provides for the complete  resolution  of such action.  Final  releases and
     dismissals  with regard to this action are expected to be received in April
     1997.

        Under  certain  limited  circumstances,   pursuant  to  the  Partnership
     Agreement and other contractual  obligations,  PaineWebber affiliates could
     be entitled to  indemnification  for expenses and liabilities in connection
     with the litigation described above. However, PaineWebber has agreed not to
     seek  indemnification  for the amounts it is required to pay in  connection
     with the  settlement of the New York Limited  Partnership  Actions.  At the
     present time, the General  Partners cannot estimate the impact,  if any, of
     any other potential  indemnification claims on the Partnership's  financial
     statements,  taken as a whole. Accordingly,  no provision for any liability
     which could result from the eventual outcome of these matters has been made
     in the accompanying financial statements.
<PAGE>


                         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, 1996 and 1995, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1996.  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 Fawcett's Pond Apartments
Company as of  December  31, 1996 and 1995,  and the results of its  operations,
changes in  partners'  deficit and its cash flows for each of the three years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.


                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN




Baltimore, Maryland
January 24, 1997


<PAGE>


                       Fawcett's Pond Apartments Company

                                BALANCE SHEETS

                          December 31, 1996 and 1995

                                     ASSETS

                                                       1996            1995
                                                       ----            ----
CURRENT ASSETS
Cash and cash equivalents                        $   323,202      $   239,549
Accounts receivable                                    1,617            1,218
Prepaid expenses                                      13,556           14,016
                                                 -----------      -----------

         Total current assets                        338,375          254,783

RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants' security deposits                            25,439           24,400
Mortgage escrow deposits                              35,682           34,824
Reserve for replacements                             251,321          222,853
                                                 -----------      -----------

                                                     312,442          282,077

PROPERTY AND EQUIPMENT, less accumulated
depreciation of $2,037,707 and $1,892,521          3,454,822        3,556,441

DEFERRED FINANCING COSTS, net of accumulated
amortization of $113,948 and $105,784                222,807          230,969
                                                 -----------      -----------

         Total assets                            $ 4,328,446      $ 4,324,270
                                                 ===========      ===========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
Current maturities of mortgage payable           $    49,479      $    45,914
Accounts payable and accrued expenses                 22,673           22,046
Accrued interest payable                              26,762           27,049
Rent deferred credits                                    807              583
                                                 -----------      -----------

         Total current liabilities                    99,721           95,592

LONG-TERM LIABILITIES
Mortgage payable, less current maturities          4,232,494        4,281,973
Due to general partner                               277,400          277,400
Tenants' security deposits                            20,680           21,170
                                                 -----------      -----------

         Total liabilities                         4,630,295        4,676,135

PARTNERS' DEFICIT                                   (301,849)        (351,865)
                                                 -----------      -----------

         Total liabilities and 
          partners' deficit                      $ 4,328,446      $ 4,324,270
                                                 ===========      ===========

                        See notes to financial statements

<PAGE>


                          Fawcett's Pond Apartments Company

                              STATEMENTS OF OPERATIONS

                    Years ended December 31, 1996, 1995 and 1994


                                                1996       1995        1994
                                                ----       ----        ----

Revenue
   Rental income                             $942,059    $940,355    $935,002
   Vacancies                                        -           -      (1,128)
   Financial revenue                           19,420      16,052       6,579
   Other income                                16,066      16,371      15,236
                                             --------    --------    --------

      Total revenue                           977,545     972,778     955,689

Expenses
   Operating expenses
     Marketing                                  1,090         804         801
     Administration                            55,198      53,043      52,130
     Utilities                                 33,018      35,578      27,940
     Management fee                            47,114      46,933      46,686
     Maintenance and repairs                   79,914     129,259      90,131
     Salaries                                  85,196      73,337      72,087
     Payroll taxes                              7,252           -           -
     Insurance                                 22,073      21,667      21,674
     Real estate taxes                         66,913      65,567      61,375
                                             --------  ----------    --------

       Total operating expenses               397,768     426,188     372,824

   Nonoperating expenses
     Interest                                 322,748     326,076     329,165
     Mortgage insurance premium                21,515      21,737      21,943
     Depreciation and amortization            153,348     144,403     142,344
     Incentive management fee                   6,303       6,303       6,303
     Miscellaneous financial expenses             633         632         615
                                             --------  ----------    --------

      Total nonoperating expenses             504,547     499,151     500,370
                                             --------  ----------    --------

      Total expenses                          902,315     925,339     873,194
                                             --------  ----------    --------


      EXCESS OF REVENUE OVER EXPENSES        $ 75,230  $   47,439    $ 82,495
                                             ========  ==========    ========









                        See notes to financial statements


<PAGE>


                       Fawcett's Pond Apartments Company

                        STATEMENTS OF PARTNERS' DEFICIT

                 Years ended December 31, 1996, 1995 and 1994

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


Partners' deficit, December 31, 1993         $(78,428)  $(352,943)  $(431,371)

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

Excess of revenue over expenses                 4,125      78,370      82,495
                                             --------   ---------   ---------

Partners' deficit, December 31, 1994          (75,564)   (298,526)   (374,090)

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

Excess of revenue over expenses                 2,372      45,067      47,439
                                             --------   ---------   ---------

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)
                                             ========   =========   =========

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, 1996, 1995 and 1994

                                               1996        1995       1994
                                               ----        ----       ----

Cash flows from operating activities
   Rental income received                   $ 942,011   $ 938,666   $ 933,799
   Interest received                           12,900       9,468       2,599
   Other income received                       15,939      15,625      15,089
   Administrative expenses paid               (88,517)    (83,865)    (46,686)
   Management fees paid                       (47,114)    (46,933)    (83,189)
   Utilities paid                             (32,268)    (35,266)    (27,959)
   Maintenance and repairs expenses paid     (133,004)   (160,520)   (123,364)
   Real estate taxes paid                     (66,913)    (65,567)    (61,375)
   Payroll taxes paid                          (7,252)     (7,107)     (7,812)
   Property insurance paid                     (9,614)    (10,191)     (9,909)
   Other taxes and insurance paid             (12,074)    (11,664)    (11,161)
   Interest paid on mortgage                 (323,035)   (326,342)   (329,413)
   Mortgage insurance paid                    (21,440)    (21,667)    (21,877)
   Miscellaneous financial expenses paid         (633)       (632)       (615)
   Increase (decrease) in mortgage escrow
     deposits                                    (858)        378      (3,704)
   Mortgagor entity expenses paid              (6,303)     (6,303)     (6,303)
   Net security deposits paid                  (1,529)       (138)       (899)
                                            ---------   ---------   ---------

      Net cash provided by operating 
        activities                            220,296     187,942     217,221

Cash flows from investing activities
   Additions to property and equipment        (43,567)    (41,945)   (101,603)
   Deposits to reserve for replacements       (21,948)    (21,948)    (22,440)
                                            ---------   ---------   ---------

      Net cash used in investing activities   (65,515)    (63,893)   (124,043)

Cash flows from financing activities
   Repayment of mortgage payable              (45,914)    (42,607)    (39,538)
   Distributions                              (25,214)    (25,214)    (25,214)
                                            ---------   ---------   ---------

      Net cash used in financing activities   (71,128)    (67,821)    (64,752)
                                            ---------   ---------   ---------

      NET INCREASE IN CASH AND
         CASH EQUIVALENTS                      83,653      56,228      28,426

Cash and cash equivalents, beginning          239,549     183,321     154,895
                                            ---------   ---------   ---------

Cash and cash equivalents, ending           $ 323,202   $ 239,549   $ 183,321
                                            =========   =========   =========








                        See notes to financial statements


<PAGE>


                        Fawcett's Pond Apartments Company

                      STATEMENTS OF CASH FLOWS - CONTINUED

                  Years ended December 31, 1996, 1995 and 1994


                                                   1996       1995       1994
                                                   ----       ----       ----

Reconciliation of excess of revenue
 over expenses to net cash provided
 by operating activities
   Excess of revenue over expenses                $75,230    $47,439   $ 82,495
   Adjustments to reconcile excess of 
    revenue over expenses to net cash 
    provided by operating activities
     Depreciation                                 145,186    136,241    134,182
     Amortization                                   8,162      8,162      8,162
     Interest earned on reserve for 
      replacements                                 (6,520)    (6,584)    (3,980)
     Changes in assets and liabilities
       Increase in accounts receivable               (399)      (746)       (76)
       (Increase) decrease in mortgage escrow
         deposits                                    (858)       378     (3,704)
       Increase in tenants' security 
        deposits - net                             (1,529)      (138)      (899)
       Decrease (increase) in prepaid expenses        460       (118)       670
       Increase in accounts payable and accrued
        expenses                                      627      5,263        758
       Decrease in accrued interest payable          (287)      (266)      (248)
       Decrease (increase) in rent-deferred 
        credits                                       224     (1,689)      (139)
                                                 --------    -------   --------

         Net cash provided by operating 
           activities                            $220,296   $187,942  $ 217,221
                                                 ========   ========  =========


















                        See notes to financial statements


<PAGE>


                        Fawcett's Pond Apartments Company
                          NOTES TO FINANCIAL STATEMENTS
                           DECEMBER 31, 1996 AND 1995


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   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.

   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 market.

   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 by use of the  straight-line  method for
   financial reporting purposes. For income tax purposes,  accelerated lives and
   methods are used.

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

   Deferred  financing  costs are amortized  over the term of the mortgage using
   the straight-line 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.

NOTE B - CASH HELD IN ESCROW FOR TENANT SECURITY DEPOSITS

   At December 31, 1996 and 1995, the  Partnership  maintained  tenant  security
   deposits of $7,822 and $4,843,  respectively,  in an interest-bearing  escrow
   bank account. At December 31, 1996, tenant security deposits included $17,617
   in a U.S. Treasury Bill at a 5.275% interest rate which matures May 31, 1997.
   At December 31, 1995,  tenant security  deposits  included  $19,557 in a U.S.
   Treasury Bill at a 5.483%  interest  rate which matured on June 1, 1995.  The
   investment in a U.S. Treasury Bill is held to maturity and is carried at cost
   which approximates market.

NOTE C - 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  totalling  $30,746 and bears
   interest at a rate of 7.5%.  Interest incurred during December 31, 1996, 1995
   and 1994 amounted to $322,748, $326,076 and $329,165, respectively.

   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, 1996 are as follows:

                                   December 31
                                   -----------

                                  1997  $49,479
                                  1998  $53,320
                                  1999  $57,459
                                  2000  $61,920
                                  2001  $66,727

NOTE D - 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 all units. The
   agreement expires August 19, 2002. Total housing assistance payments received
   during  1996,   1995  and  1994  were  $755,658,   $768,409    and  $769,446,
   respectively.

NOTE E - RELATED PARTY TRANSACTIONS

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

   At December  31, 1996 and 1995,  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 $47,114,  $46,933   and $46,686 for the years ended  December 31,
   1996,  1995 and 1994,  respectively.  In  addition,  CMJ  Management  Company
   received  incentive  management  fees of $6,303  for each of the years  ended
   December 31, 1996, 1995 and 1994.

   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 F - TAX BASIS INCOME

   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:

                                                1996        1995        1994
                                                ----        ----        ----
      Excess of revenue over expenses per
        statements of operations              $75,230     $ 47,439     $82,495
      Additional depreciation and 
        amortization on tax basis             (65,916)     (75,550)    (63,352)
      Increase (decrease) in deferred 
        rental income                             224       (1,689)       (139)
                                              -------     --------     -------

      Income (loss) for Federal income 
        tax purposes                          $ 9,538     $(29,800)    $19,004
                                              =======     ========     =======

NOTE G - CONCENTRATION OF CREDIT RISK

   The Partnership maintains its cash balances in one bank, which consists of an
   operating  account and security deposits held in trust. The operating account
   is  comprised  of an  overnight  repurchase  agreement  backed by  government
   securities and a checking  account.  The security  deposits held in trust are
   comprised of a United  States  Treasury Bill and a savings  account.  Account
   balances  are  insured by the Federal  Deposit  Insurance  Corporation  up to
   $100,000 by the bank. The Partnership also has a reserve for replacements and
   escrow funds totalling  $287,003 at December 31, 1996, on deposit with Reilly
   Mortgage Group, Inc.
<PAGE>





                         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, 1996 and 1995, and the related statements
of operations,  partners' deficit, and cash flows for each of the three years in
the  period  ended  December  31,  1996.  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, 1996 and 1995,  and the results of its  operations,
changes in  partners'  deficit and its cash flows for each of the three years in
the period ended  December 31,  1996,  in  conformity  with  generally  accepted
accounting principles.



                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN




Baltimore, Maryland
January 24, 1997


<PAGE>


                       Quaker Meadows Apartments Company

                                BALANCE SHEETS

                          December 31, 1996 and 1995

                                                      1996             1995
                                                      ----             ----
                                     ASSETS

CURRENT ASSETS
Cash and cash equivalents                        $   263,637      $   154,566
Accounts receivable                                    2,572            2,772
Other receivables                                     15,092           16,114
Prepaid expenses                                       9,785           10,394
                                                 -----------      -----------

Total current assets                                 291,086          183,846
           
RESTRICTED DEPOSITS AND FUNDED RESERVES
Mortgage escrow deposits                              12,774           16,938
Reserve for replacements                             297,906          265,353
Tenants' security deposits                            18,787           20,009
                                                 -----------      -----------

                                                     329,467          302,300

PROPERTY AND EQUIPMENT, less accumulated
depreciation of $3,787,391 and $3,526,272          3,979,215        4,208,046

DEFERRED FINANCING COSTS, net of accumulated
amortization of $58,461 and $54,396                   71,690           75,755
                                                 -----------      -----------

     Total assets                                $ 4,671,458      $ 4,769,947
                                                 ===========      ===========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
Current maturities of mortgage payable           $   106,768      $    94,935
Accounts payable and accrued expenses                 55,280           42,822
Accrued interest payable                              60,082           60,082
Rent deferred credits                                  3,787            2,519
                                                 -----------      -----------

     Total current liabilities                       225,917          200,358

LONG-TERM LIABILITIES
Mortgage payable, less current maturities          5,094,845        5,201,613
Due to general partner                             1,072,952        1,072,952
Tenants' security deposits                            16,617           15,892
                                                 -----------      -----------

     Total liabilities                             6,410,331        6,490,815

PARTNERS' DEFICIT                                 (1,738,873)      (1,720,868)
                                                 -----------      -----------

     Total liabilities and partners' deficit     $ 4,671,458      $ 4,769,947
                                                 ===========      ===========

                        See notes to financial statements


<PAGE>


                             Quaker Meadows Apartments Company

                                 STATEMENTS OF OPERATIONS

                       Years ended December 31, 1996, 1995 and 1994


                                               1996        1995        1994
                                               ----        ----        ----
Revenue
   Rental income                          $1,592,837    $1,596,066   $1,589,728
   Vacancies                                  (6,464)       (5,331)        (350)
   Other income                               26,537        27,834       13,819
                                         -----------    ----------   ----------

      Total revenue                        1,612,910     1,618,569    1,603,197

Expenses
   Operating expenses
     Administration                          106,695       122,910      128,528
     Management fees to affiliate             63,511        63,546       63,567
     Utilities                               125,632       125,584      122,063
     Maintenance and repairs                 252,230       310,136      282,689
     Insurance                                15,286        15,416       16,208
     Real estate taxes                        43,376        65,161       65,218
                                         -----------    ----------   ----------

      Total operating expenses               606,730       702,753      678,273
       
   Nonoperating expenses
     Interest                                660,698       671,237      680,607
     Depreciation and amortization           265,184       261,148      258,164
     Incentive management fee to 
       affiliate                              29,375        45,390       38,239
     Social services expenses                 16,387        23,062       20,081

      Total nonoperating expenses            971,644     1,000,837      997,091
                                         -----------    ----------   ----------

      Total expenses                       1,578,374     1,703,590    1,675,364
                                         -----------    ----------   ----------
    
  EXCESS (DEFICIENCY) OF
        REVENUE OVER EXPENSES            $    34,536    $  (85,021)  $  (72,167)
                                         ===========    ==========   ==========





                        See notes to financial statements



<PAGE>


                             Quaker Meadows Apartments Company

                              STATEMENTS OF PARTNERS' DEFICIT

                       Years ended December 31, 1996, 1995 and 1994


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


Partners' deficit, December 31, 1993     $(317,147)  $(1,114,500)  $(1,431,647)

Distributions                               (3,107)      (59,036)      (62,143)

Excess of expenses over revenue             (3,608)      (68,559)      (72,167)
                                         ---------   -----------   -----------

Partners' deficit, December 31, 1994      (323,862)   (1,242,095)   (1,565,957)

Distributions                               (3,494)      (66,396)      (69,890)

Excess of expenses over revenue             (4,251)      (80,770)      (85,021)
                                         ---------   -----------   -----------

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)
                                         =========   ===========   ===========


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, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----

Cash flows from operating activities
   Rental income received                  $1,591,659  $1,572,590  $1,588,714
   Interest received                           27,672      22,043      13,212
   Other income received                            -      10,547       2,233
   Administrative expenses paid              (123,082)   (122,910)   (137,263)
   Management fees paid                       (68,922)    (63,546)    (63,567)
   Utilities paid                            (123,121)   (119,506)   (122,063)
   Maintenance and repair expenses paid      (240,803)   (315,873)   (312,077)
   Real estate taxes paid                     (43,376)    (65,161)    (65,218)
   Property insurance paid                    (14,677)    (16,081)    (15,834)
   Interest paid on mortgage                 (660,698)   (670,747)   (680,102)
   Incentive fees paid                        (29,375)    (68,452)    (58,320)
   Decrease in mortgage escrow deposits         4,164        (547)     (5,463)
   Net security deposits received (paid)        1,947      (1,148)       (863)
                                           ----------  ----------  ----------

      Net cash provided by operating 
        activities                            321,388     161,209     143,389

Cash flows from investing activities
   Acquisition of land, building and 
     equipment                                (32,288)    (23,969)    (13,751)
   Increase in reserve for replacements       (32,553)    (26,193)    (26,565)
                                           ----------  ----------  ----------

      Net cash used in investing activities   (64,841)    (50,162)    (40,316)

Cash flows from financing activities
   Repayment of mortgage payable              (94,935)    (84,413)    (75,058)
   Distributions                              (52,541)    (69,890)    (62,143)
                                           ----------  ----------  ----------

      Net cash used in financing 
        activities                           (147,476)   (154,303)   (137,201)
                                           ----------  ----------  ----------

      NET INCREASE (DECREASE) IN
           CASH AND CASH EQUIVALENTS          109,071     (43,256)    (34,128)

Cash and cash equivalents, beginning          154,566     197,822      231,950
                                           ----------  ----------  -----------

Cash and cash equivalents, ending          $  263,637  $  154,566  $   197,822
                                           ==========  ==========  ===========









                        See notes to financial statements



<PAGE>


                       Quaker Meadows Apartments Company

                     STATEMENTS OF CASH FLOWS - CONTINUED

                 Years ended December 31, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----

Reconciliation of excess (deficiency) of
 revenue over expenses to net cash 
 provided by operating activities
  Excess (deficiency) of revenue over
   expenses                                   $ 34,536   $(85,021)   $(72,167)
  Adjustments to reconcile excess (deficiency)
   of revenue over expenses to net cash 
   provided by operating activities
     Depreciation and amortization             265,184     261,148     258,164
     Changes in assets and liabilities
       (Decrease) increase in accounts 
        receivable                               1,222     (10,806)      1,073
       Decrease (increase) in mortgage
        escrow deposits                          4,164        (547)     (5,463)
       Decrease (increase) in tenants' 
        security deposits - net                  1,947      (1,148)       (864)
       Decrease (increase) in prepaid expenses     609        (175)        879
       Increase (decrease) in accounts payable
        and accrued expenses                    12,458         341     (38,122)
       Increase (decrease) in rent 
        deferred credits                         1,268      (2,583)       (111)
                                              --------   ---------   ---------

         Net cash provided by operating
           activities                         $321,388    $161,209    $143,389
                                              ========    ========    ========











                        See notes to financial statements



<PAGE>


                        QUAKER MEADOWS APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994

                                                   
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING  POLICIES

   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 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.

   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 all highly liquid debt instruments 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.  The  Partnership  provides for
   depreciation by use of the  straight-line  method over estimated useful lives
   of the assets as follows: buildings, 30 years, and equipment, 3-8 years.

   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.

NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS

   At December 31, 1996 and 1995, the Partnership  maintained  tenants' security
   deposits of $18,787 and $20,009,  respectively, in an interest-bearing escrow
   bank account and U.S.  Treasury bills,  with a maturity of six months or less
   when acquired, stated at cost, which approximates market.

NOTE C - 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.
<PAGE>
   Aggregate  maturities  of the mortgage  payable for the five years  following
   December 31, 1996 are as follows:

                                   December 31,
                                   ------------
                                  1997  $106,768
                                  1998  $119,880
                                  1999  $135,044
                                  2000  $151,877
                                  2001  $170,808

NOTE D - 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 1996, 1995
   and 1994 were $1,319,893, $1,335,437 and $1,321,357, respectively.

NOTE E - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAX BASIS INCOME
         (LOSS)

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

                                                  1996        1995      1994
                                                  ----        ----      ----

        Net income (loss) per statement of 
          operations                             $34,536   $(85,021)  $(72,167)
        Decrease (increase) in depreciation       22,002      8,071    (18,503)
        Increase (decrease) in deferred 
          rental income                            1,268     (2,583)      (111)
                                                 -------   --------   --------

        Income (loss) for Federal income tax
          purposes                               $57,806   $(79,533)  $(90,781)
                                                 =======   ========   ========

NOTE F - RELATED PARTY TRANSACTIONS

   At  December  31,  1996 and 1995,  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  $63,511,  $63,546   and  $63,567 for the years ended
   December 31, 1996, 1995 and 1994,  respectively.  In addition, CMJ Management
   Company,  Inc.,  received incentive  management fees of $29,375,  $45,390 and
   $38,239 for the years ended December 31, 1996, 1995 and 1994 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.

NOTE G - CONCENTRATION OF CREDIT RISK

   The Partnership  maintains its cash balances with one bank, which consists of
   an overnight  repurchase  agreement  backed by government  securities  and an
   operating  checking  account.  Account  balances  are  insured by the Federal
   Deposit  Insurance  Corporation up to $100,000 by the bank.  The  Partnership
   also has a reserve for  replacements  and escrow funds  totaling  $310,680 on
   deposit with the Massachusetts Housing Finance Agency.



<PAGE>

                         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, 1996 and 1995, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1996.  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, 1996 and 1995,  and the results of its
operations,  changes  in  partners'  deficit  and its cash flows for each of the
three years in the period ended December 31, 1996, in conformity  with generally
accepted accounting principles.





                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN


Baltimore, Maryland
January 24, 1997


<PAGE>


                  South Laurel Apartments Limited Partnership

                                BALANCE SHEETS

                          December 31, 1996 and 1995

                                                           1996        1995
                                                           ----        ----

                                     ASSETS
CURRENT ASSETS
   Cash and cash equivalents                           $  155,483   $  282,541
   Accounts receivable                                     64,339       98,186
   Other receivables                                        9,324       63,452
   Prepaid expenses                                       158,653      171,166
                                                       ----------   ----------

     Total current assets                                 387,799      615,345

RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenants' security deposits                             107,903      110,774
   Mortgage escrow deposits                               183,239      159,086
   Reserve for replacement                                144,890      124,923
                                                       ----------   ----------

                                                          436,032      394,783

PROPERTY AND EQUIPMENT, less accumulated
   depreciation of $6,404,117 and $5,949,207            8,876,209    9,189,556

DEFERRED FINANCING COSTS, net of accumulated
   amortization of $173,434 and $161,272                  337,292      349,454
                                                       ----------  -----------

     Total assets                                     $10,037,332  $10,549,138
                                                      ===========  ===========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
   Current maturities of mortgage payable             $   142,542  $   132,273
   Accounts payable and accrued expenses                  139,704      151,002
   Accrued interest payable                                74,919       75,746
   Rent deferred credits                                   23,237       56,668
   Deferred income - laundry                               40,000       45,000
                                                      -----------   ----------
     Total current liabilities                            420,402      460,689


LONG-TERM LIABILITIES
   Mortgage payable, less current maturities           11,844,519   11,987,062
   Due to general partner                                 645,989      645,989
   Tenants' security deposits                             104,816      106,558
                                                      -----------   ----------
     Total liabilities                                 13,015,726   13,200,298


PARTNERS' DEFICIT                                      (2,978,394)  (2,651,160)
                                                      -----------   ----------

     Total liabilities and partners' deficit          $10,037,332  $10,549,138
                                                      ===========  ===========



                        See notes to financial statements


<PAGE>


                   South Laurel Apartments Limited Partnership

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----
Revenue
   Rental income                             $4,246,199  $4,188,172  $4,230,214
   Vacancies                                   (223,408)   (210,793)   (233,900)
   Financial revenue                             16,422      27,955      15,885
   Other income                                  98,411      87,625      81,660
                                             ----------  ----------  ----------

     Total revenue                            4,137,624   4,092,959   4,093,859

Expenses
  Operating expenses
   Marketing                                     73,482     118,426      99,484
   Administration                               433,194     368,243     434,060
   Utilities                                    505,851     556,935     553,622
   Management fee                               213,145     215,298     211,572
   Maintenance and repairs                      764,198     647,209     588,592
   Salaries                                     691,124     545,833     498,319
   Insurance                                     89,852      68,236      85,604
   Real estate taxes                            259,349     264,590     257,736
                                             ----------  ----------  ----------

     Total operating expenses                 3,030,195   2,784,770   2,728,989

  Nonoperating expenses
   Interest                                     903,638     913,226     922,124
   Mortgage insurance premium                    60,243      60,882      61,475
   Depreciation and amortization                467,072     445,511     413,901
   Incentive management fee                           -         806           -
   Miscellaneous financial expenses               3,710       4,142       3,801
                                             ----------  ----------  ----------

     Total nonoperating expenses              1,434,663   1,424,567   1,401,301
                                             ----------  ----------  ----------

     Total expenses                           4,464,858   4,209,337   4,130,290
                                             ----------  ----------  ----------

     EXCESS OF EXPENSES OVER REVENUE         $ (327,234) $ (116,378) $  (36,431)
                                             ==========  ==========  ==========















                        See notes to financial statements



<PAGE>
<TABLE>

                   South Laurel Apartments Limited Partnership

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1996, 1995 and 1994
<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, 1993       $(101,051)   $(1,255,340)    $ (567,607)   $  (481,383)    $ (2,405,381)

Distributions                (188)           (751)       (15,960)        (1,877)         (18,776)

Excess of expenses 
 over revenue                (364)         (1,457)       (30,967)        (3,643)         (36,431)
                         --------     -----------     ----------   ------------     ------------

Partners' deficit, 
 December 31, 1994       (101,603)     (1,257,548)      (614,534)      (486,903)      (2,460,588)

Distributions                (742)         (2,967)       (63,065)        (7,420)         (74,194)

Excess of expenses 
 over revenue              (1,164)         (4,655)       (98,921)       (11,638)        (116,378)
                         ---------    -----------    -----------   ------------    -------------

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)
                         =========    ===========   ============   =============  ==============


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, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----

Cash flows from operating activities
   Rental income received                  $4,023,207  $3,970,997  $3,985,744
   Interest received                           13,441      21,737      15,694
   Other income received                       94,716      82,130      82,103
   Administrative expenses paid              (624,524)   (616,037)   (642,875)
   Management fees paid                      (213,145)   (215,298)   (224,966)
   Utilities paid                            (516,504)   (543,544)   (583,140)
   Maintenance and repairs expenses paid   (1,286,408) (1,026,412)   (893,727)
   Real estate taxes paid                    (252,822)   (265,876)   (253,363)
   Payroll taxes paid                         (45,010)    (45,663)    (50,570)
   Property insurance paid                    (47,772)    (46,696)    (24,158)
   Other taxes and insurance paid             (42,796)    (36,565)    (55,401)
   Mortgage insurance paid                    (60,243)     (1,465)    (60,682)
   Interest paid on mortgage                 (904,465)   (913,993)   (922,836)
   Miscellaneous financial expenses paid       (3,710)     (4,142)     (3,801)
   Decrease (increase) in mortgage escrow
     deposits                                 (24,153)     11,980     (59,029)
   Mortgagor entity expenses paid                   -        (806)          -
   Net security deposits received               1,129      10,659      52,083
                                           ----------  ----------  ----------

      Net cash provided by operating 
        activities                            110,941     381,006     361,076

Cash flows from investing activities
   Additions to property and equipment       (141,563)   (270,501)   (155,382)
   Deposits to reserve for replacements       (52,520)    (52,520)   (120,744)
   Withdrawals from reserve for 
     replacements                              88,357      91,859     153,186
                                           ----------  ----------  ----------

      Net cash used in investing activities  (105,726)   (231,162)   (122,940)

Cash flows from financing activities
   Mortgage principal payments               (132,273)   (122,744)   (113,902)
   Distributions to partners                        -     (74,194)    (18,776)
                                           ----------  ----------  ----------

      Net cash used in financing activities  (132,273)   (196,938)   (132,678)
                                           ----------  ----------  ----------

   NET (DECREASE) INCREASE IN
      CASH AND CASH EQUIVALENTS              (127,058)    (47,094)    105,458

Cash and cash equivalents, beginning          282,541     329,635     224,177
                                           ----------  ----------  ----------

Cash and cash equivalents, ending          $  155,483  $  282,541  $  329,635
                                           ==========  ==========  ==========





                        See notes to financial statements



<PAGE>


                   South Laurel Apartments Limited Partnership

                      STATEMENTS OF CASH FLOWS - CONTINUED

                  Years ended December 31, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----

Reconciliation of excess of expenses 
 over revenue to net cash provided by 
 operating activities
  Excess of expenses over revenue             $(327,234)  $(116,378)  $(36,431)
  Adjustments to reconcile excess of 
   expenses over revenue to net cash 
   provided by operating activities
     Depreciation                               454,910     433,349    401,739
     Amortization                                12,162      12,162     12,162
     Interest earned on reserve for 
      replacements                              (2,981)      (6,218)     (191)
     Changes in assets and liabilities
       Decrease (increase) in tenant 
         accounts receivable                     33,847     (30,976)   17,829
       Decrease (increase) in accounts 
         receivable - other                       1,305        (495)    5,443
       Decrease in prepaid expenses              12,513      43,106     7,129
       (Increase) decrease in mortgage escrow 
         deposits                               (24,153)     10,659   (59,029)
       (Decrease) increase in accounts payable
         and accrued expenses                   (11,299)      4,990    (5,547)
       Decrease in accrued interest payable        (827)       (767)     (712)
       Tenants' security deposits received
         (paid) - net                             1,129      11,980    52,083
       (Decrease) increase in rent - 
         deferred credits                       (33,431)     24,594   (28,399)
       Decrease in deferred laundry income       (5,000)     (5,000)   (5,000)
                                              ---------   ---------   --------

          Net cash provided by operating 
            activities                        $ 110,941   $ 381,006   $361,076
                                              =========   =========   ========





                        See notes to financial statements



<PAGE>



                   South Laurel Apartments Limited Partnership


                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   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 a
   bank with  maturities of three months or less when acquired,  stated at cost,
   which approximates market.

   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 by use of the  straight-line  method for
   financial reporting purposes. For income tax purposes,  accelerated lives and
   methods are used.

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

   Deferred  financing  costs are amortized  over the term of the mortgage using
   the straight-line 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.

NOTE B - CASH HELD IN ESCROW FOR TENANTS' SECURITY DEPOSITS

   At December 31, 1996 and 1995, the  Partnership  maintained  tenant  security
   deposits of $8,901 and $11,906,  respectively,  in an interest-bearing escrow
   bank account. At December 31, 1996, tenant security deposits included $99,002
   in a U.S.  Treasury  Bill at a 4.605%  interest  rate which matures March 21,
   1996. At December 31, 1995,  tenant security  deposits  included $98,868 in a
   U.S.  Treasury  Bill at a 5.5% interest rate which matured on March 21, 1996.
   The  investments in U.S.  Treasury Bills are held to maturity and are carried
   at cost which approximates market.

NOTE C - 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  totalling  $86,395 and bears  interest at a rate of
   7.5%.  Interest  incurred  during 1996,  1995 and 1994  amounted to $903,638,
   $913,226 and $922,124, respectively.

   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, 1996 are as follows:

                                    December 31,
                                   ------------
                                  1997  $142,542
                                  1998  $153,608
                                  1999  $165,533
                                  2000  $178,384
                                  2001  $192,232

NOTE D - 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  expires July 31, 1997. Total housing  assistance
   payments  received  during 1996, 1995 and 1994 were $686,293,  $677,108  and
   $694,002, respectively.

NOTE E - RELATED PARTY TRANSACTIONS

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

   At December  31,  1996 and 1995,  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
   ---------------

   Management  fees of  5.25%  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 $213,145,  $215,298, and $211,572 for the years
   ended  December  31, 1996,  1995 and 1994,  respectively.  In  addition,  CMJ
   Management Company,  Inc., received  incentive  management fees of $-0-, $808
   and  $ -  0 -  for  the  years  ended  December  31,  1996,  1995  and  1994,
   respectively.

   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.
<PAGE>
NOTE F - 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:

                                              1996         1995        1994
                                              ----         ----        ----

            Excess of expenses over 
              revenue per statements 
              of operations               $  (327,234)  $ (116,378) $  (36,431)
            (Decrease) increase in 
              deferred rental income 
              and laundry income             (138,431)      19,593     (33,399)
            Additional depreciation 
              and amortization               (186,827)    (181,224)   (172,836)
                                          -----------   ----------  ----------

            Loss for Federal income 
              tax purposes                $  (652,492)  $ (278,009) $(242,666)
                                          ===========   ==========  =========

NOTE G - CONCENTRATION OF CREDIT RISK

   The  Partnership  maintains  its cash  balances in two banks.  The  operating
   account  consists of an overnight  repurchase  agreement backed by government
   securities and a checking  account.  The tenant security deposit accounts are
   held in trust and consist of a checking  account and a United States Treasury
   Bill. The balances are insured up to $100,000 by each bank.  The  Partnership
   also has  $328,129 of money  market  funds held in escrow by Reilly  Mortgage
   Group, Inc., carried at cost, which approximates fair value.


<PAGE>







                         INDEPENDENT AUDITORS' REPORT



To the Partners
Marvin Gardens Associates

      We  have  audited  the  accompanying  balance  sheets  of  Marvin  Gardens
Associates  as of December  31, 1996 and 1995,  and the  related  statements  of
operations, partners' deficit, and cash flows for each of the three years in the
period  ended   December  31,  1996.   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, 1996 and 1995,  and the results of its  operations,  changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.


                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN



Baltimore, Maryland
January 24, 1997


<PAGE>


                           Marvin Gardens Associates

                                BALANCE SHEETS

                          December 31, 1996 and 1995

                                                            1996        1995
                                                            ----        ----
                                     ASSETS
CURRENT ASSETS
Cash                                                  $    21,173  $   15,301
Accounts receivable                                         1,020         837
Accounts receivable - tenant subsidy                            -       3,221
Prepaid expenses                                            6,532       6,643
                                                      -----------  ----------
      Total current assets                                 28,725      26,002

RESTRICTED FUNDS
Tenants' security deposits                                  9,682       9,241
Real estate tax impound fund                                6,290       6,128
Replacement reserve fund                                  138,463     116,539
Insurance impound fund                                      5,771       4,190
Interest income receivable - impounds                       1,206       1,198
                                                      -----------  ----------

                                                          161,412     137,296

PROPERTY AND EQUIPMENT, less accumulated
depreciation of $1,038,242 and $964,277                 1,376,899   1,443,439

DEFERRED FINANCING COSTS, net of accumulated
amortization of $19,572 and $18,199                        26,797      28,170
                                                      -----------  ----------

      Total assets                                    $ 1,593,833  $1,634,907
                                                      ===========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT
LIABILITIES
Current maturities of mortgage payable                $    50,299  $   46,375
Accounts payable                                           15,506      14,539
Accrued expenses                                            3,947       4,241
Deferred rental income                                        264       2,055
                                                      -----------  ----------

      Total current liabilities                            70,016      67,210

Mortgage payable, less current maturities               1,610,628   1,660,927
Due to general partner                                    194,019     194,019
Tenants' security deposits                                  7,105       6,960
                                                      -----------  ----------

      Total liabilities                                 1,881,768   1,929,116

PARTNERS' DEFICIT                                        (287,935)   (294,209)
                                                      -----------  -----------

       Total liabilities and partners' deficit        $ 1,593,833  $1,634,907
                                                      ===========  ==========

                        See notes to financial statements


<PAGE>


                            Marvin Gardens Associates

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1995 and 1994

                                            1996         1995        1994
                                            ----         ----        ----

Revenue
   Rental income                          $410,364    $409,395    $399,915
   Vacancies                                (1,639)     (1,533)     (2,258)
   Financial revenue                         6,815       7,817       5,989
   Other income                              4,321       3,174       3,430
                                          --------    --------    --------

      Total revenue                        419,861     418,853     407,076

Expenses
   Operating expenses
     Administration                         17,356      15,866      17,876
     Utilities                              23,833      27,992      22,262
     Management fee                         17,533      17,052      15,852
     Maintenance and repairs                51,999      73,953      58,546
     Salaries                               59,441      57,141      55,854
     Insurance                               8,378       7,839       7,361
     Real estate taxes                      22,271      21,824      21,152
                                          --------    --------    --------

      Total operating expenses             200,811     221,667     198,903

   Nonoperating expenses
     Interest                              137,438     141,056     144,392
     Depreciation and amortization          75,338      74,377      70,272
     Incentive management fee                    -      12,090       1,970
                                          --------    --------    --------

      Total nonoperating expenses          212,776     227,523     216,634
                                          --------    --------    --------

      Total expenses                       413,587     449,190     415,537
                                          --------    --------    --------

      EXCESS (DEFICIENCY) OF REVENUE
        OVER EXPENSES                     $  6,274    $(30,337)   $ (8,461)
                                          ========    ========    ========













                        See notes to financial statements


<PAGE>

<TABLE>
                            Marvin Gardens Associates

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1996, 1995 and 1994

<CAPTION>
                                                    Special
                                        General     Limited      Limited
                                        Partner     Partner      Partner         Total
                                        -------     -------      -------         -----

<S>                                     <C>          <C>         <C>            <C>

Balance, December 31, 1993              $(8,067)   $(66,389)      $(139,712)    $(214,168)

Distributions                              (130)       (521)        (12,379)      (13,030)

Excess of expenses over revenue             (85)       (338)         (8,038)       (8,461)
                                       --------    --------       ---------     ---------

Balance, December 31, 1994               (8,282)    (67,248)       (160,129)     (235,659)

Distributions                              (282)     (1,129)        (26,802)      (28,213)

Excess of expenses over revenue            (303)     (1,214)        (28,820)      (30,337)
                                      ---------    --------       ---------     ---------

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)
                                      ========     =========      =========     =========


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, 1996, 1995 and 1994


                                                1996        1995        1994
                                                ----        ----        ----

Cash flows from operating activities
   Rental income received                    $409,972    $409,707    $393,918
   Interest received                            1,011       1,797       1,884
   Other income received                        4,321       3,074       3,430
   Administrative expenses paid               (17,356)    (15,866)    (17,876)
   Management fees paid                       (17,533)    (16,952)    (15,852)
   Utilities paid                             (23,833)    (26,892)    (22,262)
   Salaries and wages paid                    (46,384)    (43,690)    (42,383)
   Maintenance and repairs expenses paid      (51,326)    (74,165)    (71,309)
   Real estate taxes paid                     (22,271)    (21,824)    (21,152)
   Payroll taxes paid                         (13,057)    (13,281)    (13,471)
   Property and other insurance paid           (8,267)     (8,436)     (7,433)
   Interest paid on mortgage                 (137,438)   (141,056)   (144,392)
   (Increase) decrease in real estate tax
    impound fund                                 (162)        191         (35)
   Incentive management fee paid                    -     (12,090)     (1,970)
   Increase in insurance impound fund          (1,581)       (288)       (196)
   Net security deposits paid                    (296)       (189)         (1)
                                             --------    --------    --------

      Net cash provided by operating 
        activities                             75,800      40,040      40,900
   
Cash flows from investing activities
   Additions to property and equipment         (7,425)    (32,836)     (9,776)
   Deposits to reserve for replacements       (16,128)    (16,064)    (15,700)
   Withdrawals from reserve for 
     replacements                                   -      29,398      37,473
                                            ---------    --------    --------
      Net cash (used in) provided by 
        investing activities                  (23,553)    (19,502)      11,997
 
Cash flows from financing activities
   Repayment of mortgage payable              (46,375)    (42,757)    (39,422)
   Distributions                                    -     (28,213)    (13,030)
                                           ----------   ---------    --------

      Net cash used in financing 
        activities                            (46,375)    (70,970)    (52,452)
                                           ----------   ---------    --------

      NET INCREASE (DECREASE) IN CASH           5,872     (50,432)        445

Cash and cash equivalents, beginning           15,301      65,733      65,288
                                           ----------   ----------   --------

Cash and cash equivalents, ending          $   21,173   $  15,301    $ 65,733
                                           ==========   =========    ========



                        See notes to financial statements



<PAGE>


                            Marvin Gardens Associates

                      STATEMENTS OF CASH FLOWS - CONTINUED

                  Years ended December 31, 1996, 1995 and 1994

                                            1996            1995        1994
                                            ----            ----        ----

Reconciliation of excess (deficiency
 of revenue over expenses to net cash 
 provided by operating activities
Excess (deficiency) of revenue over 
 expenses                                  $ 6,274     $(30,337)    $ (8,461)
Adjustments to reconcile excess 
 (deficiency) of revenue over expenses 
  to net cash provided by operating 
  activities
   Depreciation                             73,965       73,037       68,932
   Amortization of deferred financing
     costs                                   1,373        1,340        1,340
   Interest earned on reserve for 
     replacements                           (5,796)      (6,020)      (5,457)
   Changes in assets and liabilities
     Decrease (increase) in accounts
      receivable - tenant subsidy            3,221         (185)      (3,036)
     Increase in accounts receivable          (183)         (25)        (676)
     (Increase) decrease in interest
      income receivable -impounds               (8)        (100)       1,352
     Decrease (increase) in prepaid
      expenses                                  111        (597)         (72)
     (Increase) decrease in real estate tax
      impound fund                             (162)        191          (35)
     Increase in insurance impound fund      (1,581)       (288)        (196)
     Increase (decrease) in accounts 
      payable - trade                           967         803      (12,793)
     (Decrease) increase in accrued
      expenses                                 (294)        355           30
     (Increase) decrease in deferred
      rent credits                           (1,791)      2,055          (27)
     Net security deposits paid                (296)       (189)          (1)
                                           --------    --------     --------
         Net cash provided by operating
           activities                      $ 75,800    $ 40,040     $ 40,900
                                            =======    ========     ========











                        See notes to financial statements



<PAGE>


                            Marvin Gardens Associates

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994



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).  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, 1996, 1995 and 1994, rental
   subsidies  for  the  Project  totaled  $324,129,   $337,072    and  $332,339,
   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.  The  Partnership  provides for
   depreciation by use of the  straight-line  method over estimated useful lives
   as follows: buildings, 30 years and equipment, 3-8 years.

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

   Deferred  financing costs 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.

NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND

   At December 31, 1996 and 1995, the Partnership  maintained  tenants' security
   deposit  fund  balances  of $9,682 and $9,241,  respectively,  in an interest
   bearing bank account and a certificate of deposit.



<PAGE>


NOTE C - 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 terms
   of the mortgage  require monthly  principal and interest  payments of $15,138
   and bear interest at the rate of 8.15%. Interest charged to operations during
   1996,   1995  and  1994   amounted  to  $137,438,   $141,056   and  $144,392,
   respectively.  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, 1996 are as follows:

                                  December 31,
                                  ------------
                                  1997  $50,299
                                  1998  $54,555
                                  1999  $59,171
                                  2000  $64,178
                                  2001  $69,908

NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME TO TAX BASIS INCOME

   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,
   1996, 1995 and 1994 follows:

                                               1996         1995        1994
                                               ----         ----        ----

            Excess (deficiency) of 
              revenue over expenses per
              statements of operations      $   6,274   $ (30,337)  $  (8,461)
            Additional depreciation 
              for tax purposes                (13,924)    (12,556)    (12,630)
            Deferred rental income 
              adjustments                      (1,790)      2,055         (27)
                                            ---------   ---------   ---------

            Loss for Federal income tax
              purposes                      $ (9,440)   $ (40,838)  $ (21,118)
                                            ========    =========   ========= 

NOTE E - RELATED PARTY TRANSACTIONS

   At December 31, 1996 and 1995, 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, 1996,
   1995 and 1994  were $17,533,  $17,052  and $15,852,  respectively.  Effective
   September 1994, CMJ Management Company,  Inc. receives 30% of the monthly fee
   which totaled $5,112 for the year ended  December 31, 1996. In addition,  for
   the year ended  December  31,  1995,  incentive  fees paid to CMJ  Management
   Company,  Inc.  totalled  $12,090,  based on the prior years surplus cash, as
   defined. During 1996, no incentive fees were paid.

NOTE F - CONCENTRATION OF CREDIT RISK

   The Partnership's real estate tax impound fund, replacement reserve fund, and
   insurance  impound  fund  totalling  $150,524 as of December  31, 1996 are on
   deposit with CHFA.




<PAGE>







                         INDEPENDENT AUDITORS' REPORT



To the Partners
Colonial Farms, Ltd.

      We have audited the accompanying balance sheets of Colonial Farms, Ltd. as
of  December  31,  1996 and 1995,  and the  related  statements  of  operations,
partners'  deficit,  and cash  flows for each of the three  years in the  period
ended December 31, 1996. 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,  1996 and 1995,  and the  results  of its  operations,  changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.


                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN



Baltimore, Maryland
January 24, 1997


<PAGE>


                             Colonial Farms, Ltd.

                                BALANCE SHEETS

                          December 31, 1996 and 1995

                                                            1996        1995
                                                            ----        ----
                                     ASSETS

CURRENT ASSETS
   Cash and cash equivalents                           $  136,724   $  60,141
   Rents receivable                                         4,624       5,961
   Prepaid expenses                                         9,446       8,789
                                                       ----------   ---------

      Total current assets                                150,794      74,891

RESTRICTED FUNDS
   Tenants' security deposits                              22,193      22,533
   Real estate tax impound fund                            12,435      14,518
   Replacement reserve fund                               227,316     232,164
   Insurance impound fund                                   9,510       7,023
   Reserve fund for operations                             41,139      40,781
   Interest income receivable - impounds                    2,349       2,431
                                                       ----------   ---------

                                                          314,942     319,450

PROPERTY AND EQUIPMENT, less accumulated
   depreciation of $1,812,966 and $1,690,985            2,269,317   2,365,370

DEFERRED FINANCING COSTS, net of accumulated
   amortization of $33,586 and $31,309                     42,181      44,458
                                                       ----------   ---------

      Total assets                                     $2,777,234  $2,804,169
                                                       ==========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT

LIABILITIES
   Current maturities of mortgage payable              $   76,827  $   70,134
   Accounts payable                                        31,634      22,109
   Accrued expenses                                        33,494      33,736
   Deferred rental income                                     372         369
                                                       ----------  ----------

      Total current liabilities                           142,327     126,348

   Mortgage payable, less current maturities            2,713,101   2,789,928
   Due to general partner                                 318,115     318,115
   Tenants' security deposits                              17,238      17,337
                                                       ----------   ---------

      Total liabilities                                 3,190,781   3,251,728

PARTNERS' DEFICIT                                        (413,547)   (447,559)
                                                       ----------   ---------

      Total liabilities and partners' deficit          $2,777,234  $2,804,169
                                                       ==========  ==========

                        See notes to financial statements


<PAGE>


                              Colonial Farms, Ltd.

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1995 and 1994

                                               1996         1995        1994
                                               ----         ----        ----

Revenue
   Rental income                             $ 786,180   $ 785,378   $ 776,784
   Vacancies                                    (9,462)    (24,535)    (26,649)
   Financial revenue                            15,910      16,256      12,817
   Other income                                 19,315      10,237       7,132
                                             ---------   ---------   ---------

      Total revenue                            811,943     787,336     770,084

Expenses
  Operating expenses
   Administration                               29,578      22,779      19,504
   Utilities                                    32,942      31,659      30,713
   Management fee                               38,060      39,600      38,435
   Maintenance and repairs                     129,475     144,185     139,278
   Salaries                                     73,791      65,249      55,219
   Insurance                                    12,794      12,074      12,067
   Real estate taxes                            40,322      39,762      39,272
                                             ---------   ---------   ---------

      Total operating expenses                 356,962     355,308     334,488

  Nonoperating expenses
   Interest                                    258,803     264,913     270,491
   Depreciation and amortization               124,258     119,893     117,523
   Incentive management fee                      7,060      16,435      20,109
   Earned surplus reimbursement                  2,610      63,571           -
                                             ---------   ---------   ---------

      Total nonoperating expenses              392,731     464,812     408,123

      Total expenses                           749,693     820,120     742,611
                                             ---------   ---------   ---------

      EXCESS (DEFICIENCY) OF REVENUE 
       OVER (EXPENSES) OVER EXPENSES         $  62,250   $(32,784)  $   27,473
                                             =========   ========   ==========










                        See notes to financial statements


<PAGE>


                              Colonial Farms, Ltd.

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1996, 1995 and 1994

<TABLE>
       
<CAPTION>
                                                    Special
                                         General    Limited     Limited
                                         Partner    Partner     Partner      Total
                                         -------    -------     -------      -----

<S>                                     <C>         <C>         <C>         <C>
Balance, December 31, 1993              $ (21,805)  $ (92,332)  $(237,997)  $(352,134)

Distributions                                (956)     (1,435)    (45,422)    (47,813)

Excess of revenue over expenses               550         824      26,099      27,473
                                        ---------   ---------   ---------   ---------

Balance, December 31, 1994                (22,211)    (92,943)   (257,320)   (372,474)

Distributions                                (846)     (1,269)    (40,186)    (42,301)

Excess of expenses over revenue              (656)       (983)    (31,145)    (32,784)
                                        ---------   ---------   ---------   ---------

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)
                                        =========   =========   =========   =========

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, 1996, 1995 and 1994

                                                1996        1995        1994
                                                ----        ----        ----

Cash flows from operating activities
   Rental income received                    $778,056    $751,795    $750,466
   Interest received                            5,311       5,901       5,528
   Other income received                       19,315      10,237       7,132
   Residual receipts reimbursement paid        (2,610)    (63,571)          -
   Administrative expenses paid               (29,578)    (22,779)    (19,504)
   Management fees paid                       (38,060)    (39,500)    (38,435)
   Utilities paid                             (32,942)    (33,372)    (30,713)
   Salaries and wages paid                    (64,278)    (56,258)    (47,327)
   Maintenance and repairs expenses paid     (120,190)   (141,608)   (155,907)
   Real estate taxes paid                     (40,322)    (39,762)    (39,272)
   Payroll taxes paid                          (9,513)     (8,116)     (7,892)
   Property and other insurance paid          (13,451)    (12,658)    (11,971)
   Interest paid on mortgage                 (258,803)   (264,913)   (270,491)
   Incentive management fee paid               (7,060)    (16,435)    (20,109)
   (Increase) decrease in reserve fund 
     for operations                              (358)      2,697      (1,816)
   (Decrease) increase in real estate tax
     impound fund                                2,083     (1,007)     (1,289)
   (Increase) in insurance impound fund        (2,487)     (1,852)        (26)
   Net security deposits received (paid)          241        (407)        107
                                             --------    --------    --------

      Net cash provided by operating
        activities                            185,354      68,392     118,481

Cash flows from investing activities
   Purchases of equipment                     (25,928)    (37,922)          -
   Deposits to reserve for replacements       (22,404)    (22,384)    (22,139)
   Withdrawals from reserve for 
     replacements                              37,933      13,139      46,506
                                            ---------   ---------    --------

      Net cash (used in) provided by 
        investing activities                  (10,399)    (47,167)     24,367

Cash flows from financing activities
   Repayment of mortgage payable              (70,134)    (64,024)    (58,446)
   Distributions                              (28,238)    (42,301)    (47,813)
                                            ---------   ---------    --------

      Net cash used in financing
        activities                            (98,372)   (106,325)   (106,259)
                                            ---------   ---------    --------

      NET INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS                         76,583     (85,100)     36,589

Cash and cash equivalents, beginning           60,141     145,241     108,652
                                           ----------   ---------   ---------

Cash and cash equivalents, ending          $  136,724  $   60,141   $ 145,241
                                           ==========  ==========   =========



                        See notes to financial statements



<PAGE>


                              Colonial Farms, Ltd.

                      STATEMENTS OF CASH FLOWS - CONTINUED

                  Years ended December 31, 1996, 1995 and 1994

                                                1996         1995        1994
                                                ----         ----        ----

Reconciliation of excess (deficiency)
 of revenue over expenses to net cash 
 provided by operating activities
  Excess (deficiency) of revenue over
   expenses                                   $62,250     $(32,784)    $27,473
  Adjustments to reconcile  excess  
   (deficiency) of revenue over 
   expenses to net cash provided by 
   operating activities
     Depreciation                             121,981      117,616     115,246
     Amortization of deferred financial
      costs                                     2,277        2,277       2,277
     Interest earned on reserve for
      replacements                            (10,681)     (10,189)     (9,847)
     Changes in assets and liabilities
       Decrease (increase) in tenant 
        accounts receivable                     1,337       (2,275)        504
       (Increase) decrease in prepaid
        expenses                                 (657)        (584)         96
       Decrease (increase) in interest income
        receivable - impounds                      82         (166)      2,558
       Net tenants' security deposits 
        received (paid)                           241         (407)        107
       Increase in real estate tax impound
        fund                                    2,083       (1,007)     (1,289)
       (Increase) in insurance impound fund    (2,487)      (1,852)        (26)
       (Decrease) increase in reserve fund
        for operations                           (358)       2,697      (1,816)
       Increase in accounts payable             9,525       (5,615)    (16,712)
       (Decrease) increase in accrued 
        expenses                                 (242)        406           83
       Increase (decrease) in rent deferred
        credits                                     3         275         (173)
                                              -------     -------      -------

           Net cash provided by operating
             activities                      $185,354    $  68,392    $118,481
                                             ========    =========    ========





















                        See notes to financial statements



<PAGE>


                              Colonial Farms, Ltd.

                          NOTES TO FINANCIAL STATEMENTS

                  Years ended December 31, 1996, 1995 and 1994


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, 1996, 1995
   and 1994,  rental subsidies for the project totaled $613,093,  $586,267   and
   $555,597, 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 approximates market.

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

   Property and  equipment  are carried at cost.  The  Partnership  provides for
   depreciation by using the straight-line method over estimated useful lives as
   follows: buildings, 30 years and equipment, 8 years.

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

   Deferred  financing costs 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.


<PAGE>


NOTE B - CASH HELD IN TENANTS' SECURITY DEPOSIT FUND

   At December 31, 1996 and 1995, the Partnership  maintained  tenants' security
   deposit fund  balances of $22,193 and $22,533,  respectively,  in an interest
   bearing bank account and a certificate of deposit.

NOTE C - 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 of 9.15% and
   monthly  principal  and  interest  payments of $27,411.  Interest  charged to
   operations  during 1996, 1995  and 1994 amounted to $258,803,  $264,913   and
   $270,491,  respectively.  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, 1996 are as follows:

                                   December 31,
                                   ------------
                                  1997  $  76,827
                                  1998  $  84,159
                                  1999  $  92,191
                                  2000  $ 110,990
                                  2001  $ 110,637

NOTE D - RECONCILIATION OF FINANCIAL STATEMENT INCOME (LOSS) TO TAX BASIS INCOME
        (LOSS)

   The  reconciliation  of the  excess  (deficiency)  of revenue  over  expenses
   reported in the statements of operations with the income (loss) reported on a
   Federal  income tax return for the years ended  December 31, 1996,  1995, and
   1994 follows:

                                                1996         1995       1994
                                                ----         ----       ----

          Excess (deficiency) of revenue
            over expenses                    $  62,250  $  (32,784)  $  27,473
          Additional depreciation for 
            tax purposes                       (20,336)    (17,603)    (18,120)
          Deferred rental income 
            adjustments                              3         275       (173)
                                             ---------  ----------   --------

          Income (loss) for Federal 
          income tax purposes                $  41,917  $ (50,112)   $   9,180
                                             =========  =========    =========

NOTE E - RELATED PARTY TRANSACTIONS

   At December 31, 1996 and 1995, 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, 1996,  1995 and 1994
   were $38,060,  $39,600,  and $38,435,  respectively.  CMJ Management Company,
   Inc. also is entitled to receive an incentive  management  fee. For the years
   ended  December  31, 1996,  1995   and 1994,  incentive  fees charged for the
   project totaled $7,060,  $16,435   and $20,109,  respectively,  in accordance
   with the terms of the supplemental management agreement.

NOTE F - CONCENTRATION OF CREDIT RISK

   The  Partnership's  real estate tax impound fund,  replacement  reserve fund,
   insurance impound fund, and reserve fund for operations totalling $290,400 as
   of December 31, 1996 are on deposit with CHFA.
<PAGE>
   The  Partnership  maintains  its cash  balances in two banks.  The  operating
   account consists of one checking account and two money repurchase  agreements
   backed by government  securities.  The security  deposit accounts are held in
   trust and consist of a checking  account and a  certificate  of deposit.  The
   accounts  are  insured by the Federal  Deposit  Insurance  Corporation  up to
   $100,000.  As of December 31, 1996,  the  uninsured  portion of the operating
   security deposit accounts amounted to $76,901.


<PAGE>




                         INDEPENDENT AUDITORS' REPORT


To the Partners
Holbrook Apartments Company

      We have audited the  accompanying  balance  sheets of Holbrook  Apartments
Company  as of  December  31,  1996 and  1995,  and the  related  statements  of
operations,  partners' deficit and cash flows for each of the three years in the
period  ended   December  31,  1996.   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 Holbrook Apartments Company
as of December 31, 1996 and 1995, and the results of its operations,  changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1996,  in  conformity  with  generally  accepted  accounting
principles.




                              /S/ REZNICK, FEDDER & SILVERMAN
                              -------------------------------
                                  REZNICK, FEDDER & SILVERMAN


Baltimore, Maryland
January 24, 1997


<PAGE>


                           Holbrook Apartments Company

                                 BALANCE SHEETS

                           December 31, 1996 and 1995

                                                 1996             1995
                                                 ----             ----
                                     ASSETS

CURRENT ASSETS
   Cash and cash equivalents                  $   631,608       $   486,602
   Accounts receivable                              2,153             8,240
   Other receivables                               28,548            16,803
   Prepaid expenses                                17,641            18,427
   Other current assets                               475               475
                                              -----------       -----------

      Total current assets                        680,425            30,547

RESTRICTED DEPOSITS AND FUNDED RESERVES
Mortgage escrow deposits                           61,069            42,895
Reserve for replacements                          444,420           486,650
                                              -----------       -----------

                                                  505,489           529,545
PROPERTY AND EQUIPMENT, less accumulated
depreciation of $3,905,567 and $3,657,426       5,664,784         5,801,902

DEFERRED FINANCING COSTS, net of accumulated
amortization of $208,617 and $195,076             345,334           358,875
                                              -----------       -----------

      Total assets                            $ 7,196,032       $ 7,220,869
                                              ===========       ===========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
   Current maturities of mortgage payable     $    95,185       $    88,328
   Accounts payable and accrued expenses          179,824            45,749
   Accrued interest payable                        46,543            47,095
   Rent deferred credits                           15,274             4,589
                                              -----------       -----------

      Total current liabilities                   336,826           185,761

LONG-TERM LIABILITIES
   Mortgage payable, less current maturities    7,351,781         7,446,966
                                              -----------       -----------

      Total liabilities                         7,688,607         7,632,727

PARTNERS' DEFICIT                                (492,575)         (411,858)
                                              -----------       -----------

      Total liabilities and 
      partners' deficit                       $ 7,196,032       $ 7,220,869
                                              ===========       ===========

                        See notes to financial statements


<PAGE>


                           Holbrook Apartments Company

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1996, 1995 and 1994

                                              1996        1995        1994
                                              ----        ----        ----

Revenue
   Rental income                          $2,068,855   $2,062,798  $2,060,656
   Vacancies                                  (1,985)        (486)     (3,458)
   Financial revenue                          27,267       34,734      26,487
   Other income                                7,176        6,381       5,588
                                          ----------   ----------  ----------

      Total revenue                        2,101,313    2,103,427   2,089,273

Expenses
 Operating expenses
   Marketing                                     366          208         329
   Administration                            126,269      120,673     123,390
   Utilities                                  85,403       77,662     111,338
   Management fee                             99,025       98,221      97,710
   Maintenance and repairs                   200,197      195,276     192,998
   Salaries                                  182,294      170,174     142,105
   Insurance                                  49,036       40,196      41,951
   Real estate taxes                         198,470      197,441     139,335
                                          ----------   ----------  ----------

      Total operating expenses               941,060      899,851     849,156

 Nonoperating expenses
   Interest                                  561,600      568,003     573,944
   Mortgage insurance premium                 37,438       37,865      38,261
   Depreciation and amortization             261,682      248,580     243,525
   Incentive management fee                  133,795      137,695     165,684
                                          ----------   ----------  ----------

      Total nonoperating expenses            994,515      992,143   1,021,414
                                          ----------   ----------  ----------

      Total expenses                       1,935,575    1,891,994   1,870,570
                                          ----------   ----------  ----------

      EXCESS OF REVENUE OVER EXPENSES     $  165,738   $  211,433  $  218,703
                                          ==========   ==========  ==========


                        See notes to financial statements


<PAGE>


                           Holbrook Apartments Company

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1996, 1995 and 1994


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

Partners' deficit, December 31, 1993        $(555,612)    $260,182    $(295,430)

Distributions                                 (44,139)    (250,120)    (294,259)

Excess of revenue over expenses                32,805      185,898      218,703
                                            ---------     --------    ---------

Partners' deficit, December 31, 1994         (566,946)     195,960     (370,986)

Distributions                                 (37,846)    (214,459)    (252,305)

Excess of revenue over expenses                31,715      179,718      211,433
                                            ---------     --------    ---------

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

Distributions                                 (36,818)    (209,637)    (246,455)

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

Partners' deficit, December 31, 199         $(585,034)   $  92,459    $(492,575)
                                            =========    =========    =========

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, 1996, 1995 and 1994

                                                1996        1995         1994
                                                ----        ----         ----

Cash flows from operating activities
  Rental income received                   $2,083,642  $2,059,803  $2,051,763
  Interest received                            13,786      14,645      13,418
  Other income received                             -       9,418       6,046
  Administrative expenses paid               (173,537)   (166,891)   (164,640)
  Management fees paid                        (99,025)    (98,221)    (97,710)
  Utilities paid                              (88,920)    (88,787)   (118,133)
  Maintenance and repairs expenses paid      (197,997)   (303,582)   (275,034)
  Real estate taxes paid                     (182,616)   (197,441)   (139,335)
  Payroll taxes paid                          (15,854)    (16,316)    (16,269)
  Property insurance paid                     (26,982)    (18,192)    (17,799)
  Other taxes and insurance paid              (21,339)    (22,335)    (23,077)
  Interest paid on mortgage                  (562,152)   (568,516)   (574,419)
  Mortgage insurance paid                     (37,367)    (37,797)    (38,199)
  Decrease (increase) in mortgage 
    escrow deposits                           (18,174)      10,330      12,966
  Mortgagor entity expenses paid             (133,795)    (137,695)   (165,684)
                                           ----------  -----------  ----------

      Net cash provided by 
        operating activities                  539,670      438,423     453,894
                                           ----------  -----------  ----------

Cash flows from investing activities
  Additions to property and equipment        (111,023)    (86,045)    (97,229)
  Deposits to reserve for replacements        (40,720)    (40,680)    (40,776)
  Withdrawals from reserve for 
    replacements                               91,862           -           -
                                           ----------  ----------  ----------

      Net cash used in investing 
        activities                            (59,881)   (126,725)   (138,005)
                                           ----------  ----------  ----------

Cash flows from financing activities
  Repayment of mortgage payable               (88,328)    (81,964)    (76,060)
  Distributions paid to partners             (246,455)   (252,305)   (294,259)
                                           ----------  ----------  -----------

      Net cash used in financing
        activities                           (334,783)   (334,269)   (370,319)
                                           ----------  ----------  -----------

  NET INCREASE (DECREASE) IN
    CASH AND CASH EQUIVALENTS                 145,006     (22,571)    (54,430)

Cash and cash equivalents, beginning          486,602     509,173     563,603
                                          -----------  ----------  ----------

Cash and cash equivalents, ending         $   631,608  $  486,602  $  509,173
                                          ===========  ==========  ==========


                        See notes to financial statements



<PAGE>


                           Holbrook Apartments Company

                      STATEMENTS OF CASH FLOWS - CONTINUED

                  Years ended December 31, 1996, 1995 and 1994

                                                 1996       1995        1994
                                                 ----       ----        ----

Reconciliation of excess of revenue over
 expenses to net cash provided by 
 operating activities
  Excess of revenue over expenses              $165,738    $211,433    $218,703
  Adjustments to reconcile excess of 
    revenue over expenses to net cash 
    provided by operating activities
     Depreciation                               248,141     235,039     229,984
     Amortization of deferred financing costs    13,541      13,541      13,541
     Interest earned on replacement reserves     (8,912)    (20,089)    (11,805)
     Changes in assets and liabilities
       Decrease (increase) in tenant 
        accounts receivable                       6,087      (2,200)      (194)
       Decrease in accounts receivable - HAP          -         570         490
       Increase in accounts receivable - other  (11,745)     (7,103)       (806)
       Decrease (increase) in prepaid expenses      786        (263)      2,742
       (Increase) decrease in mortgage escrow
         deposits                               (18,174)     10,330      12,966
       Increase (decrease) in accounts payable
        and accrued expenses                     134,075     (1,443)     (5,521)
       Decrease in accrued interest payable        (552)       (513)       (475)
       Decrease (increase) in rent-deferred 
         credits                                 10,685        (879)     (5,731)

                                               --------    --------    --------

           Net cash provided by operating
             activities                        $539,670     438,423    $453,894
                                               ========    ========    ========






                        See notes to financial statements



<PAGE>


                           Holbrook Apartments Company

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1996, 1995 and 1994




NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   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 a
   bank with  maturities of three months or less when acquired,  stated at cost,
   which approximates market.

   Reserve for Replacements
   ------------------------

   Reserve for replacements  includes investments in money market accounts which
   are held to maturity.  The investments are carried at cost which approximates
   market 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 by use of the  straight-line  method for
   financial reporting purposes. For income tax purposes,  accelerated lives and
   methods are used.

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

   Deferred  financing  costs are amortized  over the term of the mortgage using
   the straight-line 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.

NOTE B - 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  totalling  $54,207 and bears  interest at a rate of
   7.5%.  Interest incurred during December 31, 1996, 1995 and 1994, amounted to
   $561,600, $568,003 and $573,944, respectively.
<PAGE>
   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, 1996 are as follows:

                                    December 31,
                                    ------------
                                   1997  $ 95,185
                                   1998  $102,574
                                   1999  $110,538
                                   2000  $119,119
                                   2001  $128,366

NOTE C - 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 1996,
   1995 and 1994 were $1,577,392, $1,587,132 and $1,577,104, respectively.

NOTE D - MANAGEMENT AGREEMENT

   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 $99,025,  $98,221,  and $97,710 for the years
   ended 1996, 1995 and 1994, respectively. In addition, CMJ Management Company,
   Inc., received incentive management fees of $133,795,  $137,695  and $165,684
   for the years ended December 31, 1996, 1995 and 1994, 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.

NOTE E - TAX BASIS INCOME

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

                                               1996         1995      1994
                                               ----         ----      ----

            Excess of revenue over
             expenses per statement 
             of operations                $   165,738   $ 211,433  $  218,703
           Additional amortization of 
             deferred costs                     8,393       8,393       8,393
           Increase (decrease) in 
             deferred rental income            10,688        (879)     (5,731)
            Additional depreciation           (32,751)   (126,502)   (139,140)
                                          -----------   ---------  ----------

            Income for Federal income
             tax purposes                 $   152,068   $  92,445  $   82,225
                                          ===========   =========  ==========

NOTE F - CONCENTRATION OF CREDIT RISK

   The Partnership maintains its cash balances in one bank, which consists of an
   overnight  repurchase  agreement  backed  by  government  securities  and  an
   operating  checking  account.  Account  balances  are  insured by the Federal
   Deposit  Insurance  Corporation up to $100,000 by the bank.  The  Partnership
   also has a  reserve  for  replacements  and  escrows  totalling  $505,489  at
   December 31, 1996, on deposit with  WMF/Huntoon,  Paige  Associates  Limited,
   including a money market account and U.S. Treasury Bill totalling $444,420.