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, 1999

                                       OR

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

               For the transition period from ______ to _______ .


Commission File Number: 0-17151


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


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


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


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

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

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

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

                      UNITS OF LIMITED PARTNERSHIP INTEREST
                      -------------------------------------
                                (Title of class)

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

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

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

                       DOCUMENTS INCORPORATED BY REFERENCE

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

Current Report on Form 8-K of
registrant dated February 15, 2000                              Part IV

<PAGE>

                              PAINEWEBBER/CMJ PROPERTIES LP
                                      1999 FORM 10-K

                                    TABLE OF CONTENTS


Part I                                                                 Page
------                                                                 ----

Item  1     Business                                                    I-1

Item  2     Properties                                                  I-3

Item  3     Legal Proceedings                                           I-4

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 7A     Market Risk Disclosures                                     II-7


Item  8     Financial Statements and Supplementary Data                 II-8

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


Part III
--------

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

Item  11    Executive Compensation                                      III-2

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

Item  13    Certain Relationships and Related Transactions              III-3


Part IV
-------

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

Signatures                                                              IV-2

Index to Exhibits                                                       IV-3

Financial Statements and Supplementary Data                      F-1 to F-80

<PAGE>

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

                                     PART I
                                     ------

Item 1.  Business

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

      As of December 31, 1999,  the  Partnership  owned,  through  local limited
partnerships,  interests  in  six  apartment  properties  as  set  forth  in the
following table:
<TABLE>
<CAPTION>

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

Fawcett's  Pond
  Apartments Company
Village at Fawcett's Pond               100             6/30/83            95% (3)
Hyannis, Massachusetts                  units

Quaker Meadows
  Apartments Company
Quaker Court and The Meadows            104             6/30/83            95% (3)
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% (3)
Cotati, California                      units

Colonial Farms Ltd.
Colonial Farms                          100             7/29/83            95% (3)
Modesto, California                     units

Holbrook Apartments Company
Ramblewood Apartments                   170             8/30/83            85% (3)
Holbrook, Massachusetts                 units
</TABLE>


(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
     outstanding mortgage balances as of December 31, 1999, 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 acquired
     these real estate investments.

(3)  Subsequent  to  year-end,  the  Partnership  sold its interest in the local
     limited partnership (see further discussion below).

      On February 15, 2000,  the  Partnership  sold its interests in five of the
six real estate limited  partnerships that it held: Holbrook Apartments Company,
which owns the Ramblewood Apartments in Holbrook, Massachusetts;  Fawcett's Pond
Apartment  Company,  which owns the  Village at  Fawcett's  Pond  Apartments  in
Hyannis, Massachusetts;  Quaker Meadows Apartment Company, which owns the Quaker
Court  Apartments  and The Meadows  Apartments  in Lynn,  Massachusetts;  Marvin
Gardens  Associates,  which  owns  the  Marvin  Gardens  Apartments  in  Cotati,
California; and Colonial Farms Ltd., which owns the Colonial Farms Apartments in
Modesto,  California.  The  limited  partnership  interests  were sold for total
consideration  of $2,750,000 to affiliates of the operating  general partners of
the local  limited  partnerships.  The sales  closed into escrow on February 15,
2000 pending the receipt of the required  regulatory  approvals from the various
lenders  and state and  federal  housing  agencies  that  subsidize  the related
residential apartment  properties.  The sale proceeds were to be released to the
Partnership upon the receipt of all of the required regulatory approvals, but in
no event later than March 31,  2000.  On March 1, 2000,  the  affiliated  buyers
agreed to the release of the escrowed funds to the  Partnership  and indemnified
the  Partnership  for any  approvals  not yet  received.  As a  result  of these
transactions, the Partnership no longer has any interest in these five operating
investment  properties.  A special  distribution  of the net proceeds from these
sale  transactions  will be made to the Limited  Partners on or before March 31,
2000.

      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.  As
of December 31, 1999, the Partnership  retained an ownership interest in all six
of its original operating investment properties. As of December 31, 1999, all of
the properties  were  generating  sufficient  cash flow from operations to cover
their operating  expenses and debt service  payments,  and all of the properties
were  generating  excess cash flow, a portion of which was being  distributed to
the Partnership on an annual basis in accordance with the respective  regulatory
and limited  partnership  agreements.  Due to  improvements in cash flow and the
strong  operating  performances  of the  investment  properties,  management had
instituted  a program of regular  quarterly  distributions  in 1994 at an annual
rate of 2% on  original  invested  capital.  During  1996  distributions  to the
Partnership from the local limited partnerships declined,  causing management to
suspend  distributions  effective  for the  fourth  quarter  of  1996.  Based on
improved cash flow from the properties in 1998, the  Partnership  made an annual
distribution  payment  in  November  1998 at an  annual  rate of 2% on  original
invested capital. No distribution payments were made in 1999 or 1997.

      As discussed  further in Item 7,  subsequent to the sale of the five local
limited  partnership  interests  described  above, the Partnership and the local
general partner of the sixth and final local limited  partnership  began a joint
marketing effort for the sale of the Villages at Montpelier  Apartments.  A sale
of the Partnership's final asset, which management currently expects to complete
during the second quarter of calendar year 2000, would be followed by an orderly
liquidation of the Partnership. The Partnership's success in meeting its capital
preservation  objective will depend upon the proceeds  received from the sale of
this final asset,  which cannot  presently be determined.  Based on management's
estimate  of the  current  fair  market  value  of the  Villages  at  Montpelier
property, it appears unlikely at this time that the Partnership will realize any
potential capital appreciation on its portfolio of investments taken as a whole.

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

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

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

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

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

Item 2.  Properties

      As of December 31, 1999, the Partnership  owned interests in six operating
properties through investments in local limited partnerships.  The local limited
partnerships and related  properties are referred to under Item 1 above to which
reference is made for the description, name, location, and ownership interest in
each property.

      Occupancy  figures for each quarter during 1999, along with an average for
the year, are presented below for each property:
<TABLE>
<CAPTION>
                                                Percent Occupied At
                                      --------------------------------------------
                                                                            1999
                                      3/31/99  6/30/99  9/30/99  12/31/99  Average
                                      -------  -------  -------  --------  -------
<S>                                     <C>     <C>       <C>      <C>      <C>


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

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

Villages at Montpelier Apartments       87%      85%       91%      89%     88%

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

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

Ramblewood Apartments                  100%     100%      100%     100%    100%
</TABLE>


Item 3. Legal Proceedings

      None.

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

      None.


<PAGE>
                                     PART II
                                     -------

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

      At  December  31,  1999  there  were 829  record  holders  of Units in the
Partnership.  There is no public market for the Units, and it is not anticipated
that a public market for Units will develop.  Upon request, the Managing General
Partner will endeavor to assist a Unitholder  desiring to transfer his Units and
may utilize the  services  of PWI in this  regard.  The price to be paid for the
Units will be subject to negotiation  by the  Unitholder.  The Managing  General
Partner will not redeem or repurchase Units.

      No cash distributions were paid to the Limited Partners during 1999.

Item 6.  Selected Financial Data

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

                                         Years Ended  December 31,
                          ----------------------------------------------------

                           1999          1998        1997     1996       1995
                           ----          ----        ----     ----       ----

Revenues                 $   459       $  294       $  147   $   98     $  244

Expenses                 $   300       $  365       $  288   $  280     $  288

Partnership's share
 of local limited
 partnerships' income
 (loss)                  $    (3)      $  209       $  184   $  157     $  174

Net income (loss)        $   156       $  138       $   43   $  (25)    $  130

Net income (loss) per
 Limited Partnership
 Unit                    $ 17.57       $15.58       $ 4.85   $(2.82)    $14.75

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

Total assets             $   449       $  383       $  520   $  415     $  486

     (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

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

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

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

      The Partnership offered limited  partnership  interests to the public from
May 1983 to April 1984  pursuant  to a  Registration  Statement  filed under the
Securities Act of 1933. The  Partnership  received gross proceeds of $8,746,000,
and after  deducting  selling  expenses  and  offering  costs,  the  Partnership
invested  approximately  $6,960,000  in six local  limited  partnerships  owning
housing  projects  that  received  various  forms  of  federal,  state  or local
assistance  and that  could be  classified  as  "low-income  housing"  under the
Internal  Revenue  Code.  The  Partnership  does not have  any  commitments  for
additional  capital  expenditures or  investments.  As of December 31, 1999, the
Partnership  retained an ownership interest in all six of its original operating
investment  properties,  all of which were generating  sufficient cash flow from
operations  to cover their  operating  expenses  and debt service  payments.  In
addition,  all of the properties were generating  excess cash flow, a portion of
which was being  distributed to the Partnership on an annual basis in accordance
with the respective regulatory and limited partnership agreements. As previously
reported,  as  a  limited  partner  of  the  local  limited  partnerships,   the
Partnership does not control  property  disposition  decisions.  The partnership
agreements  state that the  limited  partner may cause the sale of the assets of
the local limited partnerships subsequent to June 30, 1995, but not earlier than
one year after it has given written notice to the operating  general  partner of
its intent to cause such sale,  and only if,  during such one-year  period,  the
operating  general  partner  does  not  cause  the sale of such  assets.  If the
operating  general  partner has not caused the assets of the  partnership  to be
sold within such one-year  period,  the limited partner may cause such sale, but
only after it has offered to sell such assets to the operating  general partner,
and either the  operating  general  partner does not accept such offer within 90
days of receiving  it, or the  operating  general  partner does not complete the
sale in accordance  with such offer after  accepting the terms. In October 1998,
the Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the  operating  general  partner  to  discuss  the  Partnership's  desire  to
liquidate its  investments in the near term.  With regard to the five properties
that were still receiving  government  subsidies,  the associated  distributable
cash flow restrictions,  substantial capital reserve requirements and regulatory
reporting  obligations,  which are  characteristic of all subsidized  low-income
housing properties, significantly limited the pool of potential buyers for these
real estate assets.  Furthermore,  the uncertainty  regarding  potential  future
reductions  in the level of federal  government  assistance  for these  programs
further  restricted the properties'  marketability.  Consequently,  a negotiated
sale of the Partnership's interests in these properties to the operating general
partners,  which receive  management fee revenues from the properties through an
affiliated  management  company,  was deemed to be in the best  interests of the
Limited Partners.

      On February 15, 2000,  the  Partnership  sold its interests in five of the
six real estate limited  partnerships that it held: Holbrook Apartments Company,
which owns the Ramblewood Apartments in Holbrook, Massachusetts;  Fawcett's Pond
Apartment  Company,  which owns the  Village at  Fawcett's  Pond  Apartments  in
Hyannis, Massachusetts;  Quaker Meadows Apartment Company, which owns the Quaker
Court  Apartments  and The Meadows  Apartments  in Lynn,  Massachusetts;  Marvin
Gardens  Associates,  which  owns  the  Marvin  Gardens  Apartments  in  Cotati,
California; and Colonial Farms Ltd., which owns the Colonial Farms Apartments in
Modesto,  California.  The  limited  partnership  interests  were sold for total
consideration  of $2,750,000 to affiliates of the operating  general partners of
the local  limited  partnerships.  The sales  closed into escrow on February 15,
2000 pending the receipt of the required  regulatory  approvals from the various
lenders  and state and  federal  housing  agencies  that  subsidize  the related
residential apartment  properties.  The sale proceeds were to be released to the
Partnership upon the receipt of all of the required regulatory approvals, but in
no event later than March 31,  2000.  On March 1, 2000,  the  affiliated  buyers
agreed to the release of the escrowed funds to the  Partnership  and indemnified
the  Partnership  for any  approvals  not yet  received.  As a  result  of these
transactions, the Partnership no longer has any interest in these five operating
investment  properties.  A special  distribution  of the net proceeds from these
sale  transactions  will be made to the Limited  Partners on or before March 31,
2000.

     Notwithstanding  the restrictions on the  Partnership's  ability to cause a
sale of the properties, the Partnership and the operating general partner of the
Villages at Montpelier limited  partnership reached an informal agreement during
the third quarter of 1999 to initiate a joint  marketing  effort for the sale of
the Villages at Montpelier  property,  which no longer  receives any  government
subsidies. As discussed previously,  the subsidy agreement covering the Villages
at Montpelier Apartments expired in July 1997. In July 1999, marketing proposals
were requested from three real estate  brokerage firms with a strong  background
in  selling  apartment  properties.  In  August  1999,  after a  review  of each
company's   proposals  and  their  capabilities  to  sell  this  property,   the
Partnership  selected one of the firms and  negotiated an agreement with them to
sell the property.  Marketing  materials  were prepared and  comprehensive  sale
efforts  began in early March 2000.  A sale of the  Partnership's  final  asset,
which  management  currently  expects to complete  during the second  quarter of
calendar  year  2000,  would  be  followed  by an  orderly  liquidation  of  the
Partnership.  Because a buyer of the Villages at Montpelier property is expected
to assume the existing HUD-insured mortgage loan secured by the property, a sale
transaction  will  require  formal  HUD  approval,  which  could take as long as
90-to-120 days after closing to receive.  Accordingly, the final distribution of
proceeds  from the sale of the  Villages at  Montpelier  property and the formal
liquidation of the  Partnership  may not be completed until the third quarter of
2000. Notwithstanding  management's  expectations,  there are no assurances that
the disposition of the remaining asset and a liquidation of the Partnership will
be completed within this time frame.

      The average  occupancy level at the Villages at Montpelier  Apartments was
88% for the year ended December 31, 1999, compared to 94% for the prior year. As
previously  reported,  prior to July 1997, 80% of the apartments at the Villages
at  Montpelier  were  rented  at market  rates  while  20%  received  government
subsidies under the Section 8 rental assistance program.  With the expiration of
the subsidy  agreement  in July 1997,  the  property  management  team began the
process of converting the former subsidized units at the property to market rent
units during the third quarter of 1997. As expected,  the conversion resulted in
a decline in occupancy at the property as a number of subsidized tenants vacated
the property and their units were  prepared to be  re-leased.  Subsequent to the
expiration  of the  Section  8  contract,  the  average  occupancy  level at the
property  fell to 88% for the third quarter of 1997 but rebounded to 90% for the
fourth  quarter of 1997 and  stabilized by the first quarter of 1998.  Cash flow
from  operations at the Villages at  Montpelier is comparable to the  previously
subsidized  level  now  that  the  occupancy  rate  at  the  property  has  been
stabilized.

      During 1999, the Partnership  received  distributions  totalling  $475,000
from all six local limited partnership investments.  During 1998 the Partnership
received   distributions   totalling   $460,000   from  all  six  local  limited
partnerships.  The  amounts  received in 1999 and 1998  represent  the cash flow
available for  distribution as of December 31, 1998 and 1997,  respectively,  as
determined  by  the  general  partners  of the  local  limited  partnerships  in
accordance  with the  partnership,  financing and regulatory  agreements.  Total
distributions from the Partnership's  investments  increased in the current year
due to increases in  distributions  from three of the local limited  partnership
investments.  Based on the amounts of the 1998  distribution  payments  from the
local limited  partnerships,  management believed that there was sufficient cash
flow to make a  distribution  of  operating  cash flow to the Limited  Partners.
Accordingly, the Partnership made an annual distribution to the Limited Partners
on  November  23,  1998  at a rate  of 2% on  original  invested  capital.  Such
distribution  totalled  approximately  $175,000,  or  $20  per  original  $1,000
investment.  Since the Partnership expects to be liquidated by the third quarter
of 2000,  no  distribution  of  operating  cash flow will be made for 1999.  The
Partnership's   remaining   cash   reserves,    after   the   payment   of   all
liquidation-related   expenses,  will  be  included  in  the  final  liquidating
distribution to the Limited Partners.

      At  December  31,  1999,  the  Partnership  had  available  cash  and cash
equivalents of approximately  $449,000,  which it intends to use for its working
capital  requirements and  distributions  to the partners.  The source of future
liquidity  and  distributions  to the  partners  is  expected  to be  from  cash
generated from the operations of the Partnership's  real estate  investments and
from the proceeds  received from the sale or refinancing of the properties owned
by the  local  limited  partnerships  or  from  the  sale  of the  Partnership's
interests in the local  limited  partnerships.  Such  sources of  liquidity  are
expected to be sufficient to meet the  Partnership's  needs on both a short-term
and long-term basis.

Results of Operations
1999 Compared to 1998
---------------------

      For the year ended December 31, 1999, the Partnership  reported net income
of $156,000,  as compared to net income of $138,000 for 1998.  This  increase in
the  Partnership's  net income was attributable to a $170,000  increase in other
income from local  limited  partnerships  and a $65,000  decrease in general and
administrative  expenses,  which were partially offset by a $212,000 decrease in
the Partnership's share of local limited  partnerships'  income. As discussed in
the notes to the  accompanying  financial  statements,  in  accordance  with the
equity method of accounting the Partnership records distributions  received from
investments in limited partnerships with carrying values of zero as other income
from local limited partnerships. The increase in other income from local limited
partnerships  is largely  due to a $47,000  increase in  distributions  from the
Villages at Montpelier  investment and an increase of $134,000 in the portion of
the  distributions  from the Holbrook  investment  that were classified as other
income after that investment  reached a zero carrying value in the current year.
General  and  administrative  expenses  decreased  in 1999 mainly due to certain
non-recurring professional fees incurred during the prior year for an evaluation
of potential  disposition  strategies for the  Partnership's  investments and an
independent third party valuation of the local limited partnership interests.

      Under the equity method of accounting for limited  partnership  interests,
losses in excess of the investment in individual local limited  partnerships are
not recognized  currently,  but rather,  are offset against future earnings from
such  entities.   As  a  result,  the  Partnership's   share  of  local  limited
partnerships'  operations  for the  current  and prior year  represent  only the
allocable  portions of the  operations  of the  Ramblewood  and  Fawcett's  Pond
partnerships.  The Partnership's share of operations from Fawcett's Pond changed
from income of $60,000 for 1998 to a loss of $42,000 for 1999.  The  unfavorable
change in the net  operating  results of Fawcett's  Pond was primarily due to an
increase  in  real  estate  taxes  and  property  operating  expenses.  Property
operating   expenses  increased  mainly  due  to  an  increase  in  repairs  and
maintenance  expenditures  during 1999. The  Partnership's  share of income from
Ramblewood  decreased  from  $149,000  for 1998 to $39,000 for the current  year
primarily due to an increase in repairs and maintenance  expenses.  Overall, the
combined net  operating  results of the six local limited  partnerships  changed
from net income of $65,000  for 1998 to a net loss of  $199,000  for the current
year. This  unfavorable  change of $264,000  resulted from a $12,000 decrease in
rental  revenues and a $252,000  increase in total expenses.  Combined  property
rental revenues  decreased  primarily due to a decrease in the average occupancy
level at the Villages at Montpelier Apartments.  Total expenses increased mainly
due to an increase in repairs and maintenance  expenses at five of the six local
limited partnerships.

1998 Compared to 1997
---------------------

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

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

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

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

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

      As discussed  further above, the Partnership  accounts for its investments
in local limited  partnerships  using the equity method.  In accordance with the
equity  method,  the  Partnership  does not  record  losses  for  those  limited
partnership  investments  whose equity method basis has been reduced to zero and
recognizes future income from these entities only when it exceeds the previously
unrecorded   losses.   Distributions   received  from   investments  in  limited
partnerships  whose basis has been  reduced to zero are recorded as other income
from the  local  limited  partnerships.  Other  income  from the  local  limited
partnerships in 1997  represents  distributions  from Quaker  Meadows,  Colonial
Farms and Marvin  Gardens while the 1996 amount  represents  distributions  from
Quaker Meadows,  Colonial Farms and Fawcett's Pond.  Overall,  other income from
local  limited  partnerships  increased by $37,000 due to a $40,000  increase in
distributions  from Quaker Meadows,  a $4,000  distribution from Marvin Gardens,
which did not make a distribution in 1996, and an $7,000 reduction  attributable
to Fawcett's Pond. Although the distribution from the Fawcett's Pond partnership
remained   unchanged  from  1996  to  1997,  other  income  from  local  limited
partnerships  decreased because the entire  distribution from Fawcett's Pond was
recorded as a reduction of the equity method carrying value of the investment in
1997. The increase in interest income resulted from an increase in invested cash
reserves due to the  suspension  of the  Partnership's  quarterly  distributions
during the fourth  quarter of 1996 and an increase in  distributions  from local
limited  partnerships  in 1997.  The  increase  in  general  and  administrative
expenses was mainly due to increases in certain required  professional  services
during 1997.

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

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

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

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

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

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

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

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

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

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

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

      Availability of a Pool of Qualified Buyers.  The availability of a pool of
qualified  and  interested  buyers  for the  Partnership's  remaining  asset  is
critical to the  Partnership's  ability to realize the fair market value of such
property at the time of its final disposition.  Demand by buyers of multi-family
apartment  properties is affected by many factors,  including the size, quality,
age,  condition and location of the subject  property,  potential  environmental
liability concerns,  the existing debt structure,  the liquidity in the debt and
equity  markets for asset  acquisitions,  the general  level of market  interest
rates and the general and local economic climates.

Inflation
---------

      The  Partnership  completed its sixteenth full year of operations in 1999.
To date,  the effects of  inflation  and changes in prices on the  Partnership's
operating results have not been significant. Since the Partnership expects to be
liquidated in calendar  year 2000,  inflation and changes in prices are also not
expected to have a  significant  impact on the  Partnership's  future  operating
results.

Item 7A.  Market Risk Disclosures

      As  discussed   further  in  the  notes  to  the  accompanying   financial
statements, the Partnership's financial instruments are limited to cash and cash
equivalents.  The cash equivalents are invested  exclusively in short-term money
market  instruments.  The  Partnership  does not invest in derivative  financial
instruments  or  engage  in  hedging  transactions.  In light  of  these  facts,
management does not believe that the  Partnership's  financial  instruments have
any material exposure to market risk factors.

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              40      8/22/96
Terrence E. Fancher     Director                            46      10/10/96
Walter V. Arnold        Senior Vice President
                          and Chief Financial Officer       52      10/29/85
Thomas W. Boland        Vice President and Controller       37      12/1/91

*  The date of incorporation of the Managing General Partner

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

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

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

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

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

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

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

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

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

      Based solely on its review of the copies of such forms received by it, the
Partnership  believes  that,  during the year ended December 31, 1999 all filing
requirements  applicable to the officers and  directors of the Managing  General
Partner and ten-percent beneficial holders were complied with.

Item 11.  Executive Compensation

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

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

      The Partnership paid distributions to the Unitholders on a quarterly basis
at a rate of 2% per annum on  original  invested  capital  from June 30, 1994 to
September 30, 1996. The  Partnership's  quarterly  distributions  were suspended
effective for the quarter ended  December 31, 1996 due to an unexpected  decline
in the cash flow distributions from the local limited  partnerships in which the
Partnership  has  invested.  Subsequent  distributions,  based  on  management's
assessment of  distributable  cash, were expected to be made on an annual basis.
No distributions were made during 1999 and 1997, and an annual distribution at a
rate of 2% on original  invested  capital  was made in 1998.  In  addition,  the
Partnership's Units of Limited  Partnership  Interest are not actively traded on
any organized exchange,  and no efficient secondary market exists.  Accordingly,
no accurate  price  information  is  available  for these  Units.  Therefore,  a
presentation of historical Unitholder total returns would not be meaningful.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

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

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

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

Item 13.  Certain Relationships and Related Transactions

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

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

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

      Under  the  advisory  contract,   the  Adviser  has  specific   management
responsibilities, to administer the day-to-day operations of the Partnership and
to report  periodically  the  performance  of the  Partnership  to the  Managing
General  Partner.  The Adviser earns a basic  management  fee of .5% of invested
assets for these services.  Invested assets is the sum of the amount invested by
the Partnership in each local limited partnership plus a proportionate  interest
in the mortgage debt initially incurred by the local limited  partnerships.  The
Adviser earned management fees of $199,000 for the year ended December 31, 1999.

      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, 1999 is $38,000, 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 $1,000  (included in general and  administrative  expenses)  for managing the
Partnership's  cash assets during the year ended December 31, 1999. 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 1999.
        However,  a Current Report on Form 8-K dated February 15, 2000 was filed
        by the  Partnership  subsequent  to  year-end  to report the sale of the
        Partnership's  interests in five real estate limited partnerships and is
        hereby incorporated herein by reference.

   (c)  Exhibits

             See (a) (3) above.

   (d)  Financial Statement Schedules

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


<PAGE>

                                   SIGNATURES
                                   ----------

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

                         PAINE WEBBER/CMJ PROPERTIES, LP
                               LIMITED PARTNERSHIP

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

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

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



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


Dated:  March 29, 2000

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

By:  /s/ Bruce J. Rubin                Date:  March 29, 2000
     -------------------                      --------------
     Bruce J. Rubin
     Director

By:  /s/ Terrence E. Fancher           Date:  March 29, 2000
     -----------------------                  --------------
     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  reference.
                        of the registrant together with all
                        such contracts filed as exhibits of
                        previously filed Forms 8-K and Forms
                        10-K are hereby incorporated herein
                        by reference.


(13)                    Annual Reports to Limited Partners              No Annual Report for the year ended  December 31, 1999
                                                                        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>
<TABLE>
                           ANNUAL REPORT ON FORM 10-K

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

                         PAINE WEBBER/CMJ PROPERTIES, LP

                          INDEX TO FINANCIAL STATEMENTS
<CAPTION>
                                                                                        Reference
                                                                                        ---------
<S>                                                                                     <C>
Paine Webber/CMJ Properties, LP

   Independent Auditors' Report                                                          F-4

   Balance sheets at December 31, 1999 and 1998                                          F-5

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-6

   Statements of changes in partners' capital (deficit) for the years ended
    December 31, 1999, 1998 and 1997                                                     F-7

   Statement of cash flows for the years ended December 31, 1999, 1998 and 1997          F-8

   Notes to financial statements                                                         F-9

Fawcett's Pond Apartments Company

   Independent Auditors' Report                                                          F-21

   Balance sheets at December 31, 1999 and 1998                                          F-22

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-23

   Statements of partners' deficit for the years ended December 31, 1999,
    1998 and 1997                                                                        F-24

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-25

   Notes to financial statements                                                         F-27

Quaker Meadows Apartments Company

   Independent Auditors' Report                                                          F-31

   Balance sheets at December 31, 1999 and 1998                                          F-32

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-33

   Statements of partners' deficit for the years ended  December 31, 1999, 1998
    and 1997                                                                             F-34

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-35

   Notes to financial statements                                                         F-37

South Laurel Apartments Limited Partnership

   Independent Auditors' Report                                                          F-41

   Balance sheets at December 31, 1999 and 1998                                          F-42

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-43

   Statements of partners' deficit for the years ended December 31, 1999, 1998
    and 1997                                                                             F-44

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-45

   Notes to financial statements                                                         F-47

Marvin Gardens Associates

   Independent Auditors' Report                                                          F-51

   Balance sheets at December 31, 1999 and 1998                                          F-52

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-53

   Statements of partners'  deficit for the years ended  December 31, 1999,  1998
    and 1997                                                                             F-54

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-55

   Notes to financial statements                                                         F-57

<PAGE>

                         PAINE WEBBER/CMJ PROPERTIES, LP

                    INDEX TO FINANCIAL STATEMENTS - continued

                                                                                      Reference
                                                                                      ---------
Colonial Farms, Ltd.

   Independent Auditors' Report                                                          F-61

   Balance sheets at December 31, 1999 and 1998                                          F-62

   Statements  of  operations  for the years ended  December 31,  1999,  1998 and
    1997                                                                                 F-63

   Statements of partners'  deficit for the years ended  December 31, 1999,  1998
    and 1997                                                                             F-64

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-65

   Notes to financial statements                                                         F-67

Holbrook Apartments Company

   Independent Auditors' Report                                                          F-71

   Balance sheets at December 31, 1999 and 1998                                          F-72

   Statements of operations for the years ended December 31, 1999, 1998 and 1997         F-73

   Statements of partners'  deficit for the years ended  December 31, 1999,  1998
    and 1997                                                                             F-74

   Statements of cash flows for the years ended December 31, 1999, 1998 and 1997         F-75

   Notes to financial statements                                                         F-77



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.
</TABLE>



<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, 1999 and 1998, 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, 1999.
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, 1999 and 1998, 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,  1999 in  conformity  with  generally  accepted
accounting principles.

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

Baltimore, Maryland
March 1, 2000

<PAGE>

                         PAINE WEBBER/CMJ PROPERTIES, LP

                                 BALANCE SHEETS

                           December 31, 1999 and 1998
                     (In thousands, except per Unit amounts)

                                     ASSETS

                                                           1999        1998
                                                           ----        ----

Investments in local limited partnerships,
   at equity                                             $      -    $     42
Cash and cash equivalents                                     449         341
                                                         --------    --------
                                                         $    449    $    383
                                                         ========    ========



                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Accrued expenses and accounts payable                    $     27    $     18
Accounts payable - affiliates                                   -          99
                                                         --------    --------
                                                               27         117

Partners' capital (deficit):
  General Partners:
   Capital contributions                                        1           1
   Cumulative net losses                                      (66)        (68)
   Cumulative distributions                                    (7)         (7)

  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                                   (6,573)     (6,727)
   Cumulative distributions                                  (612)       (612)
                                                         --------    --------
      Total partners' capital                                 422         266
                                                         --------    --------
                                                         $    449    $    383
                                                         ========    ========















   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, 1999, 1998 and 1997
                     (In thousands, except per Unit amounts)

                                                   1999        1998       1997
                                                   ----        ----       ----

Revenues:
   Interest income                               $   23      $   28     $   26
   Other income from local
     limited partnerships                           436         266        121
                                                 ------      ------     ------
                                                    459         294        147

Expenses:
   Management fees                                  199         199        199
   General and administrative                       101         166         89
                                                 ------      ------     ------
                                                    300         365        288
                                                 ------      ------     ------
Operating income (loss)                             159         (71)      (141)

Partnership's share of local limited
  partnerships' income (loss)                       (3)         209        184
                                                 ------      ------     ------

Net income                                       $  156      $  138     $   43
                                                 ======      ======     ======


Net income per Limited Partnership Unit          $17.57      $15.58     $ 4.85
                                                 ======      ======     ======
Cash distributions per Limited
  Partnership Unit                               $    -      $20.00     $    -
                                                 ======      ======     ======



   The above net income 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, 1999, 1998 and 1997
                                 (In thousands)

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

Balance at December 31, 1996            $   (74)       $   336        $   262

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

Balance at December 31, 1997                (73)           378            305

Cash distributions                           (2)          (175)          (177)

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

Balance at December 31, 1998                (74)           340            266

Net income                                    2            154            156
                                        -------        -------        -------

Balance at December 31, 1999            $   (72)       $   494        $   422
                                        =======        =======        =======




















   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, 1999, 1998 and 1997
                Increase (Decrease) in Cash and Cash Equivalents
                                 (In thousands)

                                                1999         1998        1997
                                                ----         ----        ----

Cash flows from operating activities:
  Net income                                   $  156      $   138      $   43
  Adjustments to reconcile net income
   to net cash used in operating activities:
   Other income from local limited
      partnerships                               (436)        (266)       (121)
   Partnership's share of local limited
      partnerships' income (loss)                   3         (209)       (184)
   Changes in assets and liabilities:
     Accrued expenses and accounts payable          9            2          (5)
     Accounts payable - affiliates                (99)        (100)         67
                                               ------       ------      ------
        Total adjustments                        (523)        (573)       (243)
                                               ------       ------      ------
        Net cash used in operating
          activities                             (367)        (435)       (200)
                                               ------       ------      ------

Cash flows from investing activities:
   Distributions from local limited
     partnerships                                 475          460         370
                                               ------       ------      ------
        Net cash provided by investing
          activities                              475          460         370
                                               ------       ------      ------

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

Net increase (decrease) in cash and
  cash equivalents                                108         (152)        170

Cash and cash equivalents,
  beginning of year                               341          493         323
                                               ------       ------      ------

Cash and cash equivalents, end of year         $  449       $  341      $  493
                                               ======       ======      ======

















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

<PAGE>

                         PAINE WEBBER/CMJ PROPERTIES, LP
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 1999


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

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

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

      The Partnership  has generated tax losses since  inception.  However,  the
benefits of such losses to investors have been significantly  reduced by changes
in federal income tax law subsequent to the organization of the Partnership.  As
of December 31, 1999, the Partnership  retained an ownership interest in all six
of its original operating investment properties. As of December 31, 1999, all of
the  properties  were  generating  sufficient  cash flow from  operations  after
covering  their  operating  expenses and debt service  payments,  and all of the
properties  were  generating  excess  cash  flow,  a portion  of which was being
distributed  to the  Partnership  on an  annual  basis  in  accordance  with the
respective regulatory and limited partnership agreements. Due to improvements in
cash flow and the strong  operating  performances of the investment  properties,
management had instituted a program of regular  quarterly  distributions in 1994
at an annual rate of 2% on original invested  capital.  Effective for the fourth
quarter  of  1996,  due to an  unexpected  decline  in the  level  of cash  flow
distributions from the local limited partnerships, distributions to the partners
were suspended.  Based on an increase in the level of the cash flow distribution
from the  operating  investment  properties,  an annual  distribution  totalling
approximately  $175,000, or $20 per original $1,000 investment,  was made to the
Limited Partners in 1998. No distributions were paid in 1999 or 1997.

      The Partnership has been pursuing potential disposition strategies for the
six  investments in its portfolio.  As discussed  further in Note 4, during 1998
the  Partnership  initiated the formal  process  prescribed in the local limited
partnership agreements for liquidating the Partnership's  interests in the local
limited  partnerships.  On February 15, 2000, the Partnership sold its interests
in five of the six real  estate  limited  partnerships  that it  held:  Holbrook
Apartments   Company,   which  owns  the  Ramblewood   Apartments  in  Holbrook,
Massachusetts;  Fawcett's  Pond  Apartment  Company,  which owns the  Village at
Fawcett's Pond Apartments in Hyannis,  Massachusetts;  Quaker Meadows  Apartment
Company,  which owns the Quaker Court  Apartments and The Meadows  Apartments in
Lynn,  Massachusetts;  Marvin Gardens Associates,  which owns the Marvin Gardens
Apartments  in Cotati,  California;  and  Colonial  Farms  Ltd.,  which owns the
Colonial  Farms  Apartments  in Modesto,  California.  The  limited  partnership
interests were sold for total  consideration  of $2,750,000 to affiliates of the
operating general partners of the local limited  partnerships.  The sales closed
into escrow on February 15, 2000 pending the receipt of the required  regulatory
approvals from the various lenders and state and federal  housing  agencies that
subsidize the related residential apartment  properties.  The sale proceeds were
to be  released  to the  Partnership  upon the  receipt  of all of the  required
regulatory  approvals,  but in no event later than March 31,  2000.  On March 1,
2000, the  affiliated  buyers agreed to the release of the escrowed funds to the
Partnership  and indemnified the Partnership for any approvals not yet received.
A special  distribution of the net proceeds from these sale transactions will be
made to the Limited Partners on or before March 31, 2000.

      As  previously  reported,  as a  limited  partner  of  the  local  limited
partnerships,  the Partnership does not control property disposition  decisions.
The partnership  agreements state that the limited partner may cause the sale of
the assets of the local limited  partnerships  subsequent to June 30, 1995,  but
not earlier  than one year after it has given  written  notice to the  operating
general  partner  of its intent to cause such  sale,  and only if,  during  such
one-year period,  the operating  general partner does not cause the sale of such
assets.  If the  operating  general  partner  has not  caused  the assets of the
partnership  to be sold within such  one-year  period,  the limited  partner may
cause  such  sale,  but only  after it has  offered  to sell such  assets to the
operating  general  partner,  and either the operating  general partner does not
accept  such offer  within 90 days of  receiving  it, or the  operating  general
partner does not complete the sale in accordance with such offer after accepting
the terms.  In October 1998, the Partnership  gave the written notice  described
above to the operating  general  partner of all six local  limited  partnerships
after meeting with  representatives  of the operating general partner to discuss
the  Partnership's  desire to liquidate its  investments in the near term.  With
regard to the five properties that were still  receiving  government  subsidies,
the associated distributable cash flow restrictions, substantial capital reserve
requirements and regulatory reporting  obligations,  which are characteristic of
all subsidized low-income housing properties,  significantly limited the pool of
potential  buyers for these real estate  assets.  Furthermore,  the  uncertainty
regarding  potential  future  reductions  in the  level  of  federal  government
assistance for these programs further restricted the properties'  marketability.
Consequently,  a  negotiated  sale  of  the  Partnership's  interests  in  these
properties to the operating  general  partners,  which  receive  management  fee
revenues from the  properties  through an  affiliated  management  company,  was
deemed to be in the best interests of the Limited Partners.

      Notwithstanding  the restrictions on the Partnership's  ability to cause a
sale of the properties, the Partnership and the operating general partner of the
Villages at Montpelier limited  partnership reached an informal agreement during
the third quarter of 1999 to initiate a joint  marketing  effort for the sale of
the Villages at Montpelier  property,  which no longer  receives any  government
subsidies.  In July,  marketing  proposals were requested from three real estate
brokerage firms with a strong  background in selling  apartment  properties.  In
August,  after a review of each company's  proposals and their  capabilities  to
sell this property,  the Partnership selected one of the firms and negotiated an
agreement with them to sell the property.  Marketing materials were prepared and
comprehensive sale efforts began in early March 2000. The Partnership's  success
in meeting  its capital  preservation  objective  will depend upon the  proceeds
received  from  the  sale  of  this  final  asset,  which  cannot  presently  be
determined.  Based on management's  estimate of the current fair market value of
the Villages at Montpelier  property,  it appears unlikely at this time that the
Partnership will realize any potential capital  appreciation on its portfolio of
investments  taken as a whole. A sale of the  Partnership's  final asset,  which
management  currently  expects to complete during the second quarter of calendar
year 2000,  would be  followed  by an orderly  liquidation  of the  Partnership.
Because a buyer of the Villages at Montpelier property is expected to assume the
existing  HUD-insured  mortgage loan secured by the property, a sale transaction
will require  formal HUD  approval,  which could take as long as 90-to-120  days
after closing to receive.  Accordingly,  the final distribution of proceeds from
the sale of the Villages at Montpelier  property and the formal  liquidation  of
the  Partnership  may  not  be  completed  until  the  third  quarter  of  2000.
Notwithstanding  management's  expectations,  there are no  assurances  that the
disposition of the remaining asset and a liquidation of the Partnership  will be
completed within this time frame.

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

      The  accompanying  financial  statements have been prepared on the accrual
basis of accounting in accordance with generally accepted accounting  principles
which require  management  to make  estimates  and  assumptions  that affect the
reported amounts of assets and liabilities and disclosures of contingent  assets
and  liabilities  as of December 31, 1999 and 1998 and revenues and expenses for
each of the three years in the period ended  December 31, 1999.  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, 1999. The carrying amount of cash and cash equivalents approximates
their fair value as of December  31, 1999 due to the  short-term  maturities  of
these instruments.

      No provision  for income taxes has been made,  as the  liability  for such
taxes is that of the  partners  rather  than  the  Partnership.  The  cumulative
difference between the book basis and tax basis of the Partnership's  investment
in local limited  partnerships is  approximately  $18,160,000 as of December 31,
1999 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.  In  accordance  with  the  Partnership  Agreement,  sale  or
refinancing  proceeds are to be distributed  first, 100% to the Limited Partners
until the  Limited  Partners  have  received an amount  equal to their  Adjusted
Capital Contributions. Then a real estate brokerage commission is payable to the
Partnership's Adviser. In connection with the sale of each property, the Adviser
is entitled to receive a real estate brokerage  commission in an amount equal to
the lower of 1% of the selling  prices of the properties in the portfolio or 50%
of the  standard  real  estate  brokerage  commission  that  would be charged by
unaffiliated third parties providing  comparable services in the areas where the
property  is  located.  Any  remaining  sale or  refinancing  proceeds  would be
distributed 85% to the Limited Partners and 15% to the General Partners.

      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 ended
December 31, 1999, 1998 and 1997.  Accounts payable - affiliates at December 31,
1998 consisted of management fees of $99,000 payable to the Adviser.

      Included  in  general  and  administrative  expenses  for the years  ended
December 31, 1999, 1998 and 1997 is $38,000, $37,000 and $35,000,  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 $1,000,  $2,000 and $2,000,
(included in general and administrative expenses) for managing the Partnership's
cash  assets  during  the  years  ended  December  31,  1999,   1998  and  1997,
respectively.

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

      As of December 31, 1999,  the  Partnership  had  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, 1999 and 1998
                                 (In thousands)

                                     Assets
                                     ------
                                                            1999        1998
                                                            ----        ----

     Current assets                                      $  2,009    $  1,800
     Restricted deposits and funded reserves                1,991       2,127
     Operating investment property, net                    22,352      23,441
     Other assets                                             921         963
                                                         --------    --------
                                                         $ 27,273    $ 28,331
                                                         ========    ========
                             Liabilities and Capital
                             -----------------------

     Current liabilities and tenant
       security deposits                                 $  1,642    $  1,280
     Due to general partner                                 2,509       2,509
     Long-term mortgage debt, less current portion         30,986      31,663
     Partnership's share of combined partners'
       deficit accounts                                    (4,582)     (3,919)
     Local partners' shares of combined  partners'
        deficit accounts                                   (3,282)     (3,202)
                                                         --------    --------
                                                         $ 27,273    $ 28,331
                                                         ========    ========

                    Condensed Combined Summary of Operations
              For the years ended December 31, 1999, 1998 and 1997
                                 (In thousands)

                                             1999          1998         1997
                                             ----          ----         ----
     Rental revenues, including
        government subsidies               $ 9,850      $ 10,039     $  9,963
     Other income                              291           114          130
                                           -------      --------     --------
                                            10,141        10,153       10,093

     Property operating expenses             6,217         5,847        5,834
     Interest expense and mortgage
        insurance                            2,815         2,868        2,904
     Depreciation and amortization           1,308         1,373        1,389
                                           -------      --------     --------
                                            10,340        10,088       10,127
                                           -------      --------     --------
     Net income (loss)                     $  (199)     $     65     $    (34)
                                           =======      ========     ========

     Net income (loss):
       Partnership's share of
         operations                        $  (188)     $     52     $    (37)
       Local partners' share of
         operations                            (11)           13            3
                                           -------      --------     --------
                                           $  (199)     $     65     $    (34)
                                           =======      ========     ========

              Reconciliation of Partnership's Share of Operations
                                 (In thousands)

                                             1999          1998         1997
                                             ----          ----         ----
     Partnership's share of
       operations, as shown above          $  (188)     $     52     $    (37)
     Losses in excess of basis not
       recognized by Partnership               185           157          221
     Income offset with prior year
       unrecognized losses                       -             -            -
                                           -------      --------     --------
     Partnership's share of local
       limited partnerships' income
       (loss)                              $    (3)     $    209     $    184
                                           =======      ========     ========
<PAGE>
                  Reconciliation of Partnership's Investments
                                (In thousands)

                                                           1999         1998
                                                           ----         ----
     Partnership's share of combined partners'
       deficit accounts, as shown above                 $ (4,582)    $ (3,919)
     Accumulated losses in excess of basis
       not recognized by Partnership                       2,666        2,481
     Cumulative distributions in excess
       of investment basis                                 1,901        1,465
     Excess basis in local limited partnerships               15           15
                                                        --------     --------
     Investments in local limited
       partnerships, at equity                          $      -     $     42
                                                        ========     ========

      "Investments   in  local   limited   partnerships,   at   equity"  is  the
Partnership's  net  investment  in the local limited  partnerships.  These local
limited  partnerships  are  subject to  regulatory  agreements  and  partnership
agreements  which determine the distribution of available funds, the disposition
of the limited  partnership's assets and the rights of the partners,  regardless
of  the  Partnership's  percentage  ownership  interest  in  the  local  limited
partnership.  As a  limited  partner  of the  local  limited  partnerships,  the
Partnership does not control  property  disposition  decisions.  The partnership
agreements  state that the  limited  partner may cause the sale of the assets of
the local limited partnerships subsequent to June 30, 1995, but not earlier than
one year after it has given written notice to the operating  general  partner of
its intent to cause such sale,  and only if,  during such one year  period,  the
operating  general  partner  does  not  cause  the sale of such  assets.  If the
operating  general  partner has not caused the assets of the  partnership  to be
sold within such one year  period the limited  partner may cause such sale,  but
only after it has offered to sell such assets to the operating  general partner,
and either the  operating  general  partner does not accept such offer within 90
days of receiving  it, or the  operating  general  partner does not complete the
sale in accordance  with such offer after  accepting the terms. In October 1998,
the Partnership gave the written notice described above to the operating general
partner of all six local limited partnerships after meeting with representatives
of the  operating  general  partner  to  discuss  the  Partnership's  desire  to
liquidate its  investments in the near term.  With regard to the five properties
that were still receiving  government  subsidies,  the associated  distributable
cash flow restrictions,  substantial capital reserve requirements and regulatory
reporting  obligations,  which are  characteristic of all subsidized  low-income
housing properties, significantly limited the pool of potential buyers for these
real estate assets.  Furthermore,  the uncertainty  regarding  potential  future
reductions  in the level of federal  government  assistance  for these  programs
further  restricted the properties'  marketability.  Consequently,  a negotiated
sale of the Partnership's interests in these properties to the operating general
partners,  which receive  management fee revenues from the properties through an
affiliated  management  company,  was deemed to be in the best  interests of the
Limited Partners. As discussed further below and in Note 1, on February 15, 2000
the  Partnership  sold  its  interests  in five of the six real  estate  limited
partnerships  for  total  consideration  of  $2,750,000  to  affiliates  of  the
operating general partners of the local limited partnerships.  Subsequent to the
sale of these five local limited partnership interests,  the Partnership and the
local general partner of the sixth and final local limited  partnership  began a
joint marketing effort for the sale of the Villages at Montpelier Apartments.  A
sale of the  Partnership's  final asset,  which management  currently expects to
complete  during the second quarter of calendar year 2000,  would be followed by
an orderly liquidation of the Partnership.

      "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):

                                                     1999              1998
                                                     ----              ----

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

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

                                              1999        1998          1997
                                              ----        ----          ----

     Fawcett's Pond Apartments Company     $    24      $    24       $    24
     Quaker Meadows Apartments Company          63           99            90
     South Laurel Apartments Limited
       Partnership                             113           66             -
     Marvin Gardens Associates                  16           11             4
     Colonial Farms Ltd.                        22           26            27
     Holbrook Apartments Company               237          234           225
                                           -------      -------       -------
                                           $   475      $   460       $   370
                                           =======      =======       =======

      The  investments  in Fawcett's  Pond  Apartments  Company,  Quaker Meadows
Apartments Company, South Laurel Apartments Limited Partnership,  Marvin Gardens
Associates  and  Colonial  Farms  Ltd.  at  December  31,  1999  do not  reflect
accumulated  losses  therefrom of $66,000,  $1,323,000,  $902,000,  $199,000 and
$176,000,  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 1999,
1998 and 1997 were $743,000, $749,000 and $752,000,  respectively.  Such amounts
comprised  approximately  76%,  77%  and  76%,  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 was 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, 1999 of approximately $4,122,000, payable
in monthly installments of $30,746 including principal and interest at 7.5%.

      On February 15, 2000, the Partnership  sold its interest in Fawcett's Pond
to  an  affiliate  of  the  operating  general  partner  of  the  local  limited
partnership  for net  consideration  of $82,545.  The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory  approvals from
the mortgage  lender and state and federal  housing  agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership  upon the receipt of all of the required  regulatory  approvals,
but in no event  later than March 31,  2000.  On March 1, 2000,  the  affiliated
buyer  agreed  to the  release  of the  escrowed  funds to the  Partnership  and
indemnified the  Partnership for any approvals not yet received.  As a result of
this  transaction,  the Partnership no longer has any interest in the Village at
Fawcett's Pond Apartments.

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

      The agreement  also provided that taxable income and tax loss in each year
were to be  allocated,  generally,  in the  same  proportion  as cash  flow  was
distributed in that year.

      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 is also 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,
1999.

      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 1999, 1998 and 1997
were $1,351,000, $1,310,000 and $1,313,000, respectively. Such amounts comprised
approximately  81%, 81% and 81% of the limited  partnership's  total revenues in
each of such years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$1,358,925  (including an acquisition fee of $104,525 paid to the Adviser of the
Partnership).  The  Partnership's  interest  was  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,  1999  of   approximately   $4,840,000,   payable  in  monthly
installments of $62,930 including principal and interest at 12.5%.

      On February 15, 2000, the Partnership  sold its interest in Quaker Meadows
to  an  affiliate  of  the  operating  general  partner  of  the  local  limited
partnership for net  consideration  of $803,969.  The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory  approvals from
the mortgage  lender and state and federal  housing  agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership  upon the receipt of all of the required  regulatory  approvals,
but in no event  later than March 31,  2000.  On March 1, 2000,  the  affiliated
buyer  agreed  to the  release  of the  escrowed  funds to the  Partnership  and
indemnified the  Partnership for any approvals not yet received.  As a result of
this transaction, the Partnership no longer has any interest in the Quaker Court
and The Meadows Apartments.

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

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

      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 is also paid on an annual basis in
the  event  that the  property's  cash  flow  exceeds  certain  target  amounts.
Incentive  management  fees of  $42,000,  $77,000  and  $69,000  were paid to an
affiliate of the local general  partners for the years ended  December 31, 1999,
1998 and 1997, respectively.

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

      On June 30,  1983,  the  Partnership  acquired an 85% limited  partnership
interest in South Laurel Apartments  Limited  Partnership,  an existing Maryland
limited partnership ("South Laurel"),  that owns and operates a 520-unit housing
project in Laurel,  Maryland.  FHA contracted with the limited partnership under
Section 8 of Title II of the Housing and  Community  Development  Act of 1974 to
make  housing  assistance  payments  to the  limited  partnership  on  behalf of
qualified  tenants for 20% of the rental units. The subsidy agreement expired on
July 31, 1997,  and  management did not apply for an extension of the agreement.
The units  previously  designated  as  low-income  units have been  re-leased at
market rates which has kept the total revenues of the local limited  partnership
relatively  unchanged from the previously  subsidized level.  Total rent subsidy
received  by the  limited  partnership  during  1997 was  $506,000.  Such amount
comprised  approximately 12% of the limited partnership's total revenue for that
year.

      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,  1999 of  approximately  $11,525,000,  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 $40,000 and $3,000 were paid to an affiliate of the
local general partners for 1999 and 1998, respectively.  No incentive management
fees were earned for the year ended December 31, 1997.

      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  ("Marvin Gardens") 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 1999,  1998 and 1997 were $313,000,
$309,000 and $329,000,  respectively.  Such amounts comprised approximately 75%,
74% and 77%, respectively,  of the limited partnership's total revenues for such
years.

      The  aggregate  investment  by the  Partnership  for the 95%  interest was
$379,581  (including  an  acquisition  fee of $27,800 paid to the Adviser of the
Partnership).  The  Partnership's  interest was acquired  subject to a permanent
nonrecourse  mortgage  loan due June 1,  2013  with an  outstanding  balance  at
December 31, 1999 of approximately $1,500,000, payable to the California Housing
Finance Agency (CHFA) in monthly  installments of $15,310,  including  principal
and interest at 8.15%.

      On February 15, 2000, the Partnership  sold its interest in Marvin Gardens
to  an  affiliate  of  the  operating  general  partner  of  the  local  limited
partnership for net  consideration  of $254,420.  The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory  approvals from
the mortgage  lender and state and federal  housing  agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership  upon the receipt of all of the required  regulatory  approvals,
but in no event  later than March 31,  2000.  On March 1, 2000,  the  affiliated
buyer  agreed  to the  release  of the  escrowed  funds to the  Partnership  and
indemnified the  Partnership for any approvals not yet received.  As a result of
this  transaction,  the  Partnership  no longer has any  interest  in the Marvin
Gardens Apartments.

      The restated partnership agreement generally provided that the Partnership
would receive 95% of annual  distributable  cash flow payable  annually and that
the local partners would be entitled to receive 5% of annual  distributable cash
flow.  Cash  distributions  were  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 were  cumulative and
could be distributed in subsequent years if future  operations  provided surplus
cash in excess of current requirements.

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

      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 is also paid on an annual basis in the event that the
property's cash flow exceeds certain target amounts.  Incentive  management fees
of $5,000 and $1,000 were paid to an affiliate of the local general partners for
the  years  ended  December  31,  1999  and  1998,  respectively.  No  incentive
management fees were earned for the year ended December 31, 1997.

      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
("Colonial   Farms")  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  1999,  1998 and 1997 were  $561,000,  $531,000 and
$579,000,  respectively.  Such amounts comprised approximately 69%, 65% and 71%,
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  was  held  subject  to a  permanent
nonrecourse  mortgage  loan due June 1,  2013  with an  outstanding  balance  at
December  31,  1999 of  approximately  $2,537,000,  payable  to CHFA in  monthly
installments of $27,411, including principal and interest at 9.15%

      On February 15, 2000, the Partnership  sold its interest in Colonial Farms
to  an  affiliate  of  the  operating  general  partner  of  the  local  limited
partnership for net  consideration  of $387,849.  The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory  approvals from
the mortgage  lender and state and federal  housing  agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership  upon the receipt of all of the required  regulatory  approvals,
but in no event  later than March 31,  2000.  On March 1, 2000,  the  affiliated
buyer  agreed  to the  release  of the  escrowed  funds to the  Partnership  and
indemnified the  Partnership for any approvals not yet received.  As a result of
this  transaction,  the  Partnership  no longer has any interest in the Colonial
Farms Apartments.

      The restated partnership agreement generally provided that the Partnership
would receive 95% of annual  distributable  cash flow payable  annually and that
the local partners would be entitled to receive 5% of annual  distributable cash
flow.  Cash  distributions  were  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 were  cumulative and
could be distributed in subsequent years if future  operations  provided surplus
cash in excess of current requirements.

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

      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 is also paid to the  affiliate  of the local  general
partners on an annual basis in the event that the  property's  cash flow exceeds
certain  target  amounts.  Incentive  management  fees of $7,000 were paid to an
affiliate  of the local  general  partners  for each of the  three  years in the
period ended December 31, 1999.

      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  ("Holbrook  Apartments")  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 1999, 1998 and 1997 were $1,570,000,
$1,574,000 and $1,565,000,  respectively.  Such amounts comprised  approximately
75%, 75% and 74% 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, 1999 of approximately $7,139,000, payable to GNMA in monthly installments of
$54,207 including principal and interest at 7.5%.

      On  February  15,  2000,  the  Partnership  sold its  interest in Holbrook
Apartments to an affiliate of the operating general partner of the local limited
partnership for net consideration of $1,221,217.  The sale closed into escrow on
February 15, 2000 pending the receipt of the required regulatory  approvals from
the mortgage  lender and state and federal  housing  agencies that subsidize the
related residential apartment property. The sale proceeds were to be released to
the Partnership  upon the receipt of all of the required  regulatory  approvals,
but in no event  later than March 31,  2000.  On March 1, 2000,  the  affiliated
buyer  agreed  to the  release  of the  escrowed  funds to the  Partnership  and
indemnified the  Partnership for any approvals not yet received.  As a result of
this  transaction,  the Partnership no longer has any interest in the Ramblewood
Apartments.

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

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

      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 is also paid on an annual basis in
the  event  that the  property's  cash  flow  exceeds  certain  target  amounts.
Incentive  management  fees of $155,000,  $153,000 and $146,000  were paid to an
affiliate of the local general  partners for the years ended  December 31, 1999,
1998 and 1997, respectively.

<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, 1999 and 1998, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1999.  These  financial  statements  are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards. Those standards requires that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material  respects,  the financial  position of Fawcett's Pond Apartments
Company as of December 31, 1999 and 1998, and the results of its operations, the
changes in  partners'  deficit and its cash flows for each of the three years in
the period ended  December 31,  1999,  in  conformity  with  generally  accepted
accounting principles.



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

Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note J as to which the
date is March 1, 2000

<PAGE>

                        FAWCETT'S POND APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                      1999        1998
                                                      ----        ----

CURRENT ASSETS
   Cash and cash equivalents                      $  377,797  $  378,141
   Accounts receivable                                 3,060       2,647
   Due from affiliates                                 2,366           -
   Prepaid expenses                                   12,629      12,464
                                                  ----------  ----------

      Total current assets                           395,852     393,252
                                                  ----------  ----------

RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenants' security deposits                         19,173      20,583
   Mortgage escrow deposits                           28,212      53,570
   Reserve for replacements                          279,007     286,880
                                                  ----------  ----------

                                                     326,392     361,033
                                                  ----------  ----------
PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $2,494,671 and $2,344,695       3,209,743   3,298,592

DEFERRED FINANCING COSTS, net of accumulated
   amortization of $138,431 and $130,269             198,295     206,486
                                                  ----------  ----------

      Total assets                                $4,130,282  $4,259,363
                                                  ==========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT

CURRENT LIABILITIES
   Current maturities of mortgage payable         $   61,920  $   57,459
   Accounts payable and accrued expenses              18,544      11,851
   Accrued interest payable                           25,761      26,120
   Rent deferred credits                              65,070       2,966
                                                  ----------  ----------

      Total current liabilities                      171,295      98,396

LONG-TERM LIABILITIES
   Mortgage payable, less current maturities       4,059,795   4,121,716
   Due to general partner                            277,400     277,400
   Tenants' security deposits                         19,018      19,850
                                                  ----------  ----------

      Total liabilities                            4,527,508   4,517,362

PARTNERS' DEFICIT                                   (397,226)   (257,999)
                                                  ----------  ----------

      Total liabilities and partners' deficit     $4,130,282  $4,259,363
                                                  ==========  ==========




                       See notes to financial statements

<PAGE>

                        FAWCETT'S POND APARTMENTS COMPANY

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997

                                          1999        1998        1997
                                          ----        ----        ----
Revenue

   Rental income, net                  $ 937,498   $ 940,839   $ 941,478
   Financial revenue                      16,658      17,448      25,534
   Other income                           17,968      16,596      16,701
                                       ---------   ---------   ---------

      Total revenue                      972,124     974,883     983,713
                                       ---------   ---------   ---------

Expenses
  Operating expenses

   Marketing                               1,324         751       1,756
   Administration                         44,693      48,067      59,354
   Utilities                              29,541      27,464      30,591
   Management fee                         46,875      47,131      47,098
   Maintenance and repairs               286,032     114,064     126,573
   Salaries                               91,414      92,736      76,232
   Payroll taxes                           7,178       8,111       7,648
   Insurance                              22,901      23,832      25,206
   Real estate taxes                      59,194      46,352      67,717
                                       ---------   ---------   ---------

      Total operating expenses           589,152     408,508     442,175
                                       ---------   ---------   ---------

  Nonoperating expenses

   Interest                              311,130     315,296     319,161
   Mortgage insurance premium             20,739      21,018      21,275
   Depreciation and amortization         158,139     160,760     162,549
   Incentive management fee                6,303       6,303       6,303
   Miscellaneous financial expenses          674         345         625
                                       ---------   ---------   ---------

      Total nonoperating expenses        496,985     503,722     509,913
                                       ---------   ---------   ---------

      Total expenses                   1,086,137     912,230     952,088
                                       ---------   ---------   ---------


      EXCESS (DEFICIENCY) OF
        REVENUE OVER EXPENSES          $(114,013)  $  62,653   $  31,625
                                       =========   =========   =========











                        See notes to financial statements

<PAGE>

                        FAWCETT'S POND APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997


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

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

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

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

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

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

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

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

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

Excess of expenses over revenue             (5,701)   (108,312)   (114,013)
                                         ---------   ---------   ---------

Partners' deficit, December 31, 1999     $ (76,722)  $(320,504)  $(397,226)
                                         =========   =========   =========


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, 1999, 1998 and 1997

                                                1999        1998        1997
                                                ----        ----        ----

 Cash flows from operating activities
   Rental income received                  $  999,410  $  942,681  $  941,319
   Interest received                           13,523      17,448      15,978
   Other income received                       17,747      16,596      16,600
   Administrative expenses paid              (140,690)    (96,205)    (97,068)
   Management fees paid                       (47,319)    (47,131)    (47,098)
   Utilities paid                             (26,791)    (30,782)    (28,522)
   Maintenance and repairs expenses paid     (278,388)   (164,733)   (171,100)
   Real estate taxes paid                     (59,194)    (80,210)    (33,859)
   Payroll taxes paid                          (7,178)     (8,111)     (7,648)
   Property insurance paid                     (8,621)     (8,233)     (8,275)
   Other taxes and insurance paid             (14,539)    (15,571)    (16,038)
   Interest paid on mortgage                 (311,488)   (315,629)   (319,470)
   Mortgage insurance paid                    (20,645)    (20,929)    (21,193)
   Miscellaneous financial expenses paid         (674)       (345)       (625)
   Mortgagor entity expenses paid              (6,303)     (6,303)     (6,303)
   (Increase) decrease in mortgage escrow
     deposits                                  25,358      14,057     (31,945)
   Net security deposits received (paid)          578         281       3,745
                                           ----------  ----------  ----------

      Net cash provided by operating
        activities                            134,786     196,881     188,498
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment        (61,127)    (72,415)    (78,343)
   Deposits to reserve for replacements       (22,092)    (22,092)    (22,092)
   Withdrawals from reserve for
     replacements                              33,099         416      17,312
   Increase in due from affiliates             (2,336)          -           -
                                           ----------  ----------  ----------
      Net cash used in investing
        activities                            (52,456)    (94,091)    (83,123)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Repayment of mortgage payable              (57,460)    (53,319)    (49,479)
   Distributions                              (25,214)    (25,214)    (25,214)
                                           ----------  ----------  ----------
      Net cash used in financing
        activities                            (82,674)    (78,533)    (74,693)
                                           ----------  ----------  ----------

      NET (DECREASE) INCREASE IN
           CASH AND CASH EQUIVALENTS             (344)     24,257      30,682

 Cash and cash equivalents, beginning         378,141     353,884     323,202
                                           ----------  ----------  ----------

 Cash and cash equivalents, ending         $  377,797  $  378,141  $  353,884
                                           ==========  ==========  ==========



                                   (continued)

<PAGE>
<TABLE>

                        FAWCETT'S POND APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997
<CAPTION>

                                                       1999          1998         1997
                                                       ----          ----         ----
<S>                                                    <C>           <C>          <C>

 Reconciliation of excess (deficiency)
  of revenue over expenses to net cash
  provided by operating activities
   Excess (deficiency) of revenue
     over expenses                                    $ (114,013)    $  62,653    $  31,625
   Adjustments to reconcile excess
     (deficiency) of revenue over
     expenses to net cash provided by
     operating activities
       Depreciation                                      149,977       152,601      154,387
       Amortization                                        8,162         8,159        8,162
       Interest earned on reserve for
         replacements                                     (3,136)            -       (9,103)
       Changes in assets and liabilities
         Increase in accounts receivable                    (413)         (636)        (394)
         (Increase) decrease in prepaid
           expenses                                         (165)          117          975
         Decrease (increase) in mortgage
           escrow deposits                                25,358        14,057      (31,945)
         Decrease in tenants' security
           deposits - net                                    578           281        3,745
         Increase (decrease) in accounts
           payable and accrued expenses                    6,693       (42,496)      31,674
         Decrease in accrued interest payable               (359)         (333)        (309)
         Increase (decrease) in rent-deferred
           credits                                           450         2,478         (319)
         Increase in deferred subsidy income              61,654             -            -
                                                      ----------     ---------    ---------

         Net cash provided by operating activities    $  134,786     $ 196,881    $ 188,498
                                                      ==========     =========    =========

</TABLE>




















                        See notes to financial statements

<PAGE>

                        FAWCETT'S POND APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

   As of December  31,  1999,  management  does not  believe  that these are any
   current facts or circumstances  that would indicate  impairment of the rental
   property in  accordance  with  Statement  of Financial  Accounting  Standards
   (SFAS) No. 121.

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

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

   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 - RESTRICTED DEPOSITS AND FUNDED RESERVES

   At December 31, 1999 and 1998, the  Partnership  maintained  tenant  security
   deposits of $19,173 and $20,583 in interest-bearing escrow bank accounts.

   The  Partnership  also has a reserve for  replacements  and  mortgage  escrow
   deposits  totaling  $307,219  and  $340,450  at  December  31, 1999 and 1998,
   respectively,  on deposit with Reilly  Mortgage  Group,  Inc. These funds are
   held in interest-bearing  bank accounts and money market accounts,  which are
   carried at cost and approximate fair value.
<PAGE>

NOTE C - PROPERTY AND EQUIPMENT

   Investment in property and  equipment  consisted of the following at December
   31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $   440,000       $   440,000
         Buildings and improvements             4,431,850         4,436,077
         Furniture and equipment                  832,564           767,210
                                              -----------       -----------
                                                5,704,414         5,643,287
         Less accumulated depreciation          2,494,671         2,344,695
                                              -----------       -----------
                                              $ 3,209,743       $ 3,298,592
                                              ===========       ===========
NOTE D - MORTGAGE PAYABLE

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

   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, 1999, are as follows:

               December 31,
               ------------
                  2000       $   61,920
                  2001       $   66,727
                  2002       $   71,907
                  2003       $   71,489
                  2004       $   83,505

   Management  believes  that  the  carrying  amount  of  the  mortgage  payable
   approximates  fair value at December  31,  1999,  as there is no  significant
   difference  in the market rate of interest for similar debt between that date
   and the date of the mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT

   The FHA contracted  with the  Partnership  under Section 8 of Title II of the
   Housing and Community  Development  Act of 1974,  to make housing  assistance
   payments to the Partnership on behalf of qualified tenants for all units. The
   agreement expires August 19, 2002. Total housing assistance payments received
   during  1999,   1998  and  1997  were  $742,514,   $749,294,   and  $751,930,
   respectively.

NOTE F - RELATED PARTY TRANSACTIONS

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

   At December  31, 1999 and 1998,  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
   ---------------

   The project is managed by CMJ Management Company,  Inc. (CMJ Management),  an
   affiliate of the general  partner,  pursuant to an agreement  approved by HUD
   which  provides for a  management  fee of 5% of monthly  rental  collections.
   Management fees totaled $46,875, $47,131 and $47,098 for 1999, 1998 and 1997,
   respectively. Further, CMJ Management is paid accounting and bookkeeping fees
   which amounted to $8,748 for each of the years ended December 31, 1999,  1998
   and 1997. In addition,  CMJ Management received incentive  management fees of
   $6,303 payable from  distributable  cash for each of the years ended December
   31, 1999, 1998 and 1997.
<PAGE>

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

   CMJ Management and affiliates make monthly  expenditures  (primarily payroll,
   central office accounting services,  direct marketing and insurance costs) on
   behalf of the  Partnership,  which are reimbursed the following  month. As of
   December 31, 1999, intercompany balances receivable totaled $2,366.

   Laundry Services
   ----------------

   During 1999, the Partnership entered into an agreement with Norlantic Laundry
   Services,  Inc.,  an affiliate  of the general  partner,  to provide  laundry
   facilities  for the  project.  The  Partnership  received  50% of the revenue
   earned on the laundry  facilities  which  totaled  $3,613 as of December  31,
   1999, and is included in other income.

   Maintenance Services
   --------------------

   During the year, the Partnership contracted with Go Pro Maintenance Services,
   Inc., an affiliate of the general  partner,  to perform  certain  repairs and
   maintenance. As of December 31, 1999, $45,000 has been incurred.

NOTE G - TAX BASIS INCOME (LOSS)

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

                                               1999        1998        1997
                                               ----        ----        ----
      Excess (deficiency) of revenue
        over expenses per statement
        of operations                      $ (114,013)   $  62,653   $  31,625
      GAAP to tax depreciation adjustment     107,765     (137,101)    (56,395)
      Deferred rental income adjustment        62,104        2,248         328
                                           ----------    ---------   ---------

      Income (loss) for Federal
        income tax purposes                $   55,856    $ (72,200)  $ (24,442)
                                           ==========    =========   =========

NOTE H - CONCENTRATION OF CREDIT RISK

   The Partnership maintains operating cash balances,  security deposits held in
   trust with major  financial  institutions  and its  funded  reserve  with the
   mortgage lender.  The cash balances consist of a repurchase  agreement backed
   by  government  securities  totaling  $383,207  and a checking  account.  The
   security  deposits  consist of a savings  account.  The  checking and savings
   account  balances in the bank are insured by the  Federal  Deposit  Insurance
   Corporation up to $100,000.  The  Partnership  has not experienced any losses
   with respect to bank  balances in excess of  government  provided  insurance.
   Management  believes that no significant  concentration of credit risk exists
   with respect to these cash balances at December 31, 1999.

NOTE J - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS

      The Partnership  agreement allows the limited partner to cause the sale of
   the assets of the  Partnership  subsequent to June 30, 1995,  but not earlier
   than one year after it has given  written  notice of its desire to cause such
   sale to the general partner,  and only if, during such one-year  period,  the
   general partner does not cause the sale of the  Partnership's  assets. If the
   general  partner  has not  caused the  assets of the  Partnership  to be sold
   within such one-year  period,  the limited  partner may cause such sale,  but
   only  after it has  offered to sell the assets to the  general  partner,  and
   either  the  general  partner  does not accept  such offer  within 90 days of
   receiving it, or the general partner does not complete the sale in accordance
   with such offer  after  accepting  the terms.  In October  1998,  the limited
   partner gave the written notice described above to the general partner of the
   Partnership and exercised its rights under the Partnership agreement to cause
   the sale of the  Partnership's  assets.  At December  31,  1999,  the general
   partner  was  negotiating  with the limited  partner for the  purchase of its
   interest in the Partnership.

      Subsequent  to year-end,  on February 15, 2000 an affiliate of the general
   partner purchased the limited  partner's  interest in the Partnership for net
   consideration  of $82,545.  The sale closed into escrow on February  15, 2000
   pending the receipt of the required  regulatory  approvals  from the mortgage
   lender  and  state  and  federal   housing   agencies   that   subsidize  the
   Partnership's  residential  apartment property.  The sale proceeds were to be
   released  to the  former  limited  partner  upon  the  receipt  of all of the
   required regulatory approvals,  but in no event later than March 31, 2000. On
   March 1, 2000,  the  affiliated  buyer  agreed to the release of the escrowed
   funds to the former limited  partner and  indemnified the limited partner for
   any  approvals  not yet received.  It is the general  partner's  intention to
   continue the business of the Partnership.
<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,  1999 and  1998,  and the  related  statements  of
operations,  partner's deficit and cash flows for each of the three years in the
period  ended   December  31,  1999.   These   financial   statements   are  the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on the financial statements based on our audit.

   We  conducted  our audits in  accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

   In our opinion,  the financial  statements  present  fairly,  in all material
respects,  the financial  position of Quaker  Meadows  Apartments  Company as of
December 31, 1999 and 1998,  and the results of its  operations,  the changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.



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



Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note I as to which
the date is March 1, 2000

<PAGE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                      1999       1998
                                                      ----       ----

 CURRENT ASSETS
   Cash and cash equivalents                      $  141,167  $  189,109
   Accounts receivable - tenants                       8,729       6,549
   Accounts receivable - subsidy                     106,559      42,715
   Other receivables                                     720         381
   Prepaid expenses                                    1,068       1,068
                                                  ----------  ----------

      Total current assets                           258,243     239,822
                                                  ----------  ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenant security deposits                           19,211      18,685
   Mortgage escrow deposits                           12,603      12,742
   Reserve for replacements                          262,141     254,514
                                                  ----------  ----------

                                                     293,955     285,941
                                                  ----------  ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $4,536,826 and $4,324,098       3,329,417   3,520,803

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $70,656 and $66,591                59,495      63,560
                                                  ----------  ----------

      Total assets                                $3,941,110  $4,110,126
                                                  ==========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable         $  151,877  $  135,044
   Accounts payable and accrued expenses              97,426      46,245
   Accrued interest payable                           50,778      52,125
   Rent deferred credits                              23,230       3,658
                                                  ----------  ----------

      Total current liabilities                      323,311     237,072
                                                  ----------  ----------

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities       4,688,074   4,839,950
   Due to general partner                          1,072,952   1,072,952
   Tenants' security deposits                         16,235      16,594
                                                  ----------  ----------
      Total liabilities                            6,100,572   6,166,568

 PARTNERS' DEFICIT                                (2,159,462) (2,056,442)
                                                  ----------  ----------

      Total liabilities and partners' deficit     $3,941,110  $4,110,126
                                                  ==========  ==========


                        See notes to financial statements

<PAGE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997

                                           1999        1998          1997
                                           ----        ----          ----

 Revenue
   Rental income                      $1,660,022   $1,594,319     $1,600,492
   Less vacancies                        (16,202)           -         (1,774)
   Financial revenue                      14,548       19,081         24,836
   Other income                           10,372          530          1,718
                                      ----------   ----------     ----------

      Total revenue                    1,668,740    1,613,930      1,625,272
                                      ----------   ----------     ----------

 Expenses
  Operating expenses
   Administration                        107,917       89,376         58,502
   Management fees to affiliate           66,028       63,652         63,958
   Utilities                             123,967      130,386        136,254
   Maintenance and repairs               287,419      167,879        220,781
   Insurance                              12,251       12,753         14,026
   Real estate taxes                      56,413       59,519         50,624
   Salaries                              152,777      130,272        125,272
                                      ----------   ----------     ----------

      Total operating expenses           806,772      653,837        669,417
                                      ----------   ----------     ----------

  Nonoperating expenses
   Interest                              618,770      634,112        641,632
   Depreciation and amortization         216,796      270,251        274,586
   Incentive management fee               41,810       76,627         68,655
   Social services expense                21,578       36,080         32,757
                                      ----------   ----------     ----------

      Total nonoperating expenses        898,954    1,017,070      1,017,630
                                      ----------   ----------     ----------
      Total expenses                   1,705,726    1,670,907      1,687,047
                                      ----------   ----------     ----------

      EXCESS OF EXPENSES OVER
        REVENUES                      $  (36,986)  $  (56,977)     $ (61,775)
                                      ==========   ==========      =========















                        See notes to financial statements

<PAGE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997

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

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

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

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

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

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

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

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

 Distributions                            (3,303)      (62,731)      (66,034)

 Excess of expenses over revenue          (1,849)      (35,137)      (36,986)
                                       ---------   -----------   -----------

 Partners' deficit, December 31, 1999  $(353,536)  $(1,805,926   $(2,159,462)
                                       =========   ===========   ===========

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
























                        See notes to financial statements

<PAGE>
<TABLE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                            STATEMENTS OF CASH FLOWS

                  Years ended December 31, 1999, 1998 and 1997
<CAPTION>
                                                           1999         1998          1997
                                                           ----         ----          ----
<S>                                                   <C>           <C>           <C>

 Cash flows from operating activities
   Rental income received                             $1,597,029    $1,588,003    $1,558,213
   Interest received                                       5,233         6,586         6,268
   Other income received                                  10,372           530        16,194
   Administrative expenses paid                         (107,980)      (89,376)      (91,259)
   Management fees paid                                  (66,028)      (63,652)      (63,958)
   Utilities paid                                       (116,422)     (130,386)     (137,125)
   Maintenance and repair expenses paid                 (243,723)     (113,966)     (202,054)
   Real estate taxes paid                                (56,413)      (59,519)      (50,624)
   Property insurance paid                               (12,251)       (5,338)      (12,724)
   Interest paid on mortgages                           (620,117)     (642,069)     (641,632)
   Salaries and wages paid                              (152,777)     (130,272)     (125,272)
   Social services expenses paid                         (21,578)      (36,080)      (32,757)
   Incentive fees paid                                   (41,810)      (76,627)      (68,655)
   (Increase) decrease in mortgage escrow deposits           139           627          (595)
   (Increase) decrease in tenant security
      deposits - net                                        (885)         (450)          529
                                                      ----------    ----------    ----------

      Net cash provided by operating activities          172,789       248,011       154,549
                                                      ----------    ----------    ----------

 Cash flows from investing activities
   Additions to building and equipment                   (21,342)      (18,982)      (59,313)
   Decrease (increase) in reserve for replacements         5,852       (31,460)       58,103
   Increase in residual receipts deposits                 (4,164)            -             -
                                                      ----------    ----------    ----------

      Net cash used in investing activities              (19,654)      (50,442)       (1,210)
                                                      ----------    ----------    ----------

 Cash flows from financing activities
   Repayment of mortgage payable                        (135,043)     (119,850)     (106,769)
   Distributions to partners                             (66,034)     (103,727)      (95,090)
                                                      ----------    ----------    ----------

      Net cash used in financing activities             (201,077)     (223,577)     (201,859)
                                                      ----------    ----------    ----------

      NET DECREASE IN CASH AND
         CASH EQUIVALENTS                                (47,942)      (26,008)      (48,520)

 Cash and cash equivalents, beginning                    189,109       215,117       263,637
                                                      ----------    ----------    ----------

 Cash and cash equivalents, ending                    $  141,167    $  189,109    $  215,117
                                                      ==========    ==========    ==========
</TABLE>










                                   (continued)
<PAGE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997

                                                1999        1998      1997
                                                ----        ----      ----

 Reconciliation of excess of expenses
   over revenue to net cash provided
   by operating  activities
     Excess of expenses over revenue       $ (36,986)  $ (56,977)  $(61,775)
     Adjustments to reconcile excess
     of expenses over revenue to
     net cash provided by operating
     activities
       Depreciation                          212,731     266,186    270,521
       Amortization                            4,065       4,065      4,065
       Interest earned on reserve for
        replacement                           (9,315)    (12,495)   (18,568)
       Changes in assets and liabilities
        (Increase) decrease in accounts
         receivable                          (66,363)     42,086    (26,255)
        Decrease (increase) in mortgage
         escrow deposits, net                    139         627       (595)
        (Increase) decrease in tenants'
         security deposits, net                 (885)       (450)       529
        Decrease in prepaid expenses               -       7,415      1,302
        Increase (decrease) in accounts
         payable and accrued expenses         51,178      (2,091)   (14,901)
        Decrease in accrued interest
         payable                              (1,347)          -          -
        Increase (decrease) in rent
         deferred credits                     19,572        (355)       226
                                           ---------   ---------   --------

            Net cash provided by
              operating activities         $ 172,789   $ 248,011   $154,549
                                           =========   =========   ========



























                        See notes to financial statements

<PAGE>

                        QUAKER MEADOWS APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

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

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

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

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

   Rental income is recognized as rentals become due. Rental  payments  received
   in advance are deferred until earned.  All leases between the Partnership and
   tenants of the property are operating leases.

   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 - RESTRICTED DEPOSITS AND FUNDED RESERVES

   At December 31, 1999 and 1998, the  Partnership  maintained  tenant  security
   deposits of $19,211 and $18,685,  respectively,  in interest  bearing  escrow
   bank accounts and U.S. Treasury Bills. The investment in a U.S. Treasury Bill
   is held to maturity and is carried at cost which approximates fair value.

   The Partnership also has a reserve for replacements and escrow funds totaling
   $274,744 and $267,256 at December 31, 1999 and 1998, respectively, on deposit
   with MHFA. These funds are held in interest bearing bank accounts,  which are
   carried at cost which approximates fair value.
<PAGE>

NOTE C - PROPERTY AND EQUIPMENT

   Investment in property and  equipment  consisted of the following at December
   31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $    46,363       $    46,363
         Buildings and improvements             7,051,645         7,051,645
         Furniture and equipment                  768,235           746,893
                                              -----------       -----------
                                                7,866,243         7,844,901
         Less accumulated depreciation          4,536,826         4,324,098
                                              -----------       -----------
                                              $ 3,329,417       $ 3,520,803
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE

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

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

   Aggregate  maturities  of the mortgage  payable for the five years  following
   December 31, 1999, are as follows:

               December 31,
               ------------
                 2000        $  151,877
                 2001        $  170,808
                 2002        $  192,098
                 2003        $  216,043
                 2004        $  242,972

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

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT

   The Federal Housing  Administration (FHA) has contracted with the Partnership
   under Section 8 of Title II of the Housing and Community  Development  Act of
   1974 to make  housing  assistance  payments to the  Partnership  on behalf of
   qualified  tenants.  The  agreement  expires May 2002,  and has two five-year
   renewal options. Total housing assistance payments received during 1999, 1998
   and 1997 were $1,350,956, $1,310,382 and $1,312,610, respectively.

NOTE F - RELATED PARTY TRANSACTIONS

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

   At December  31, 1999 and 1998,  due to general  partner  consisted of unpaid
   developer advances of $1,072,952. These advances are non-interest bearing and
   payable from proceeds upon sale of  refinancing  of the project after certain
   priority payments, as defined in the Partnership agreement.

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

   The project is managed by CMJ Management Company,  Inc. (CMJ Management),  an
   affiliate of the general partner,  pursuant to an agreement  approved by MHFA
   which  provides for a  management  fee of 4% of monthly  rental  collections.
   Management fees totaled $66,028, $63,652 and $63,958 for 1999, 1998 and 1997,
   respectively. Further, CMJ Management is paid accounting and bookkeeping fees
   which amounted to $8,004, for 1999, 1998 and 1997, respectively. In addition,
   CMJ Management  received  incentive  management fees of $41,830,  $76,627 and
   $68,655 for the years ended December 31, 1999, 1998 and 1997, respectively.

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

   CMJ Management 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.
<PAGE>

 NOTE G - TAX BASIS (LOSS) INCOME

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

                                               1999        1998         1997
                                               ----        ----         ----

      Excess of expenses over revenues
         per statement of operations       $  (36,986)   $ (56,977)  $ (61,775)
      GAAP to tax depreciation adjustment     184,916     (143,496)     26,048
      Deferred rental income adjustment        19,573        3,659         226
                                           ----------    ---------   ---------

      Income (loss) for Federal income
         tax purposes                      $  167,503    $(196,814)  $ (35,501)
                                           ==========    =========   =========

NOTE H - CONCENTRATION OF CREDIT RISK

   The Partnership maintains operating cash balances,  security deposits held in
   trust with major  financial  institutions  and its  funded  reserve  with the
   mortgage lender.  The cash balances consist of a repurchase  agreement backed
   by  government  securities  totaling  $163,376  and a checking  account.  The
   security  deposits  consist of a United States Treasury Bill in the amount of
   $14,683 and a savings  account.  The checking and savings account balances in
   the bank are  insured by the  Federal  Deposit  Insurance  Corporation  up to
   $100,000. The Partnership has not experienced any losses with respect to bank
   balances in excess of government provided  insurance.  Management believes no
   significant  concentration  of credit risk exists with  respect to these cash
   balances as of December 31, 1999.

NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS

   The Partnership agreement allows the limited partner to cause the sale of the
   assets of the  Partnership  subsequent to June 30, 1995, but not earlier than
   one year after it has given  written  notice of its desire to cause such sale
   to the general partner, and only if, during such one-year period, the general
   partner does not cause the sale of the  Partnership's  assets. If the general
   partner has not caused the assets of the  Partnership  to be sold within such
   one-year  period,  the limited partner may cause such sale, but only after it
   has offered to sell the assets to the general partner, and either the general
   partner  does not accept such offer  within 90 days of  receiving  it, or the
   general  partner  does not complete  the sale in  accordance  with such offer
   after  accepting  the terms.  In October 1998,  the limited  partner gave the
   written notice  described above to the general partner of the Partnership and
   exercised its rights under the Partnership agreement to cause the sale of the
   Partnership's   assets.  At  December  31,  1999,  the  general  partner  was
   negotiating  with the limited partner for the purchase of its interest in the
   Partnership.

   Subsequent  to  year-end,  on February  15, 2000 an  affiliate of the general
   partner purchased the limited  partner's  interest in the Partnership for net
   consideration  of $803,969.  The sale closed into escrow on February 15, 2000
   pending the receipt of the required  regulatory  approvals  from the mortgage
   lender  and  state  and  federal   housing   agencies   that   subsidize  the
   Partnership's  residential  apartment property.  The sale proceeds were to be
   released  to the  former  limited  partner  upon  the  receipt  of all of the
   required regulatory approvals,  but in no event later than March 31, 2000. On
   March 1, 2000,  the  affiliated  buyer  agreed to the release of the escrowed
   funds to the former limited  partner and  indemnified the limited partner for
   any  approvals  not yet received.  It is the general  partner's  intention to
   continue the business of the Partnership.

<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, 1999 and 1998, and the related statements
of operations,  partners'  deficit and cash flows for each of the three years in
the  period  ended  December  31,  1999.  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, 1999 and 1998,  and the results of its
operations,  the changes in partners' deficit and its cash flows for each of the
three years in the period ended December 31, 1999, in conformity  with generally
accepted accounting principles.



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

Baltimore, Maryland
January 24, 2000

<PAGE>

                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                     1999       1998
                                                     ----       ----

 CURRENT ASSETS
   Cash and cash equivalents                      $  321,730  $  322,501
   Accounts receivable                                18,603      24,580
   Other receivables - property tax abatement         28,502           -
   Due from affiliates                                 6,871           -
   Prepaid expenses                                  179,087     151,963
                                                  ----------  ----------

      Total current assets                           554,793     499,044
                                                  ----------  ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenants' security deposits                        131,598     119,274
   Mortgage escrow deposits                          159,673     168,666
   Reserve for replacement                           150,549     143,468
                                                  ----------  ----------

                                                     441,820     431,408
                                                  ----------  ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $7,781,574 and $7,331,024       7,747,461   8,129,744

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $204,752 and $197,758             300,806     312,968
                                                  ----------  ----------

      Total assets                                $9,044,880  $9,373,164
                                                  ==========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable         $  178,384  $  165,533
   Accounts payable and accrued expenses              82,014      70,941
   Accrued interest payable                           72,034      73,068
   Rent deferred credits                              27,923       5,170
   Deferred laundry income                             5,000       5,000
   Due to affiliates                                       -       2,181
                                                  ----------  ----------

      Total current liabilities                      365,355     321,893
                                                  ----------  ----------

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities      11,346,995  11,525,378
   Due to general partner                            645,989     645,989
   Tenants' security deposits                        128,310     122,670
   Deferred laundry income                            20,000      25,000
                                                  ----------  ----------

      Total liabilities                           12,506,649  12,640,930

 PARTNERS' DEFICIT                                (3,461,769) (3,267,766)
                                                  ----------  ----------
      Total liabilities and partners' deficit     $9,044,880  $9,373,164
                                                  ==========  ==========

                        See notes to financial statements

<PAGE>

                   South Laurel Apartments Limited Partnership

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997

                                         1999         1998         1997
                                         ----         ----         ----
 Revenue
   Rental income                    $4,494,641    $4,337,446    $4,298,989
   Vacancies                          (490,656)     (249,244)     (306,701)
   Financial revenue                    18,485        22,548        18,629
   Other income                        140,310       119,662       109,369
                                    ----------    ----------    ----------

      Total revenue                  4,162,780     4,230,412     4,120,286
                                    ----------    ----------    ----------

 Expenses
  Operating expenses
   Administration                      430,983       420,403       483,602
   Management fee                      216,990       218,093       214,497
   Utilities                           514,088       510,907       485,153
   Maintenance and repairs             808,710       920,248       810,622
   Salaries                            548,407       529,704       519,252
   Insurance                            40,535        39,108        44,875
   Real estate taxes                   230,445       252,279       260,632
                                    ----------    ----------    ----------

      Total operating expenses       2,790,158     2,890,742     2,818,633
                                    ----------    ----------    ----------

  Nonoperating expenses
   Interest                            870,170       882,171       893,305
   Mortgage insurance premium           58,011        58,812        59,553
   Depreciation and amortization       462,711       471,363       479,869
   Incentive management fee             40,176         2,985             -
   Miscellaneous financial expenses      2,308         1,423         3,750
                                    ----------    ----------    ----------

      Total nonoperating expenses    1,433,376     1,416,754     1,436,477
                                    ----------    ----------    ----------

      Total expenses                 4,223,534     4,307,496     4,255,110
                                    ----------    ----------    ----------

 EXCESS OF EXPENSES OVER REVENUE    $  (60,754)   $  (77,084)   $ (134,824)
                                    ==========    ==========    ==========













                        See notes to financial statements

<PAGE>
<TABLE>

                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997

<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, 1996                    $(106,781)    $(1,278,259)   $(1,054,670)    $(538,684)    $(2,978,394)

Excess of expenses over
   revenue                                 (1,348)         (5,394)      (114,600)      (13,482)       (134,824)
                                        ---------     -----------    -----------     ---------     -----------

Partners' deficit,
   December 31, 1997                     (108,129)     (1,283,653)    (1,169,270)     (552,166)     (3,113,218)

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

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

Distributions                              (1,332)         (5,330)      (113,262)      (13,325)       (133,249)

Excess of expenses over
   revenue                                   (608)         (2,430)       (51,641)       (6,075)        (60,754)
                                        ---------     -----------    -----------     ---------     -----------
Partners' deficit,
   December 31, 1999                    $(111,615)    $(1,297,595)   $(1,465,539)    $(587,020)    $(3,461,769)
                                        =========     ===========    ===========     =========     ===========


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, 1999, 1998 and 1997

                                               1999        1998       1997
                                               ----        ----       ----

 Cash flows from operating activities
   Rental income received                  $4,032,714  $4,090,458  $4,011,723
   Interest received                           15,856      19,878      15,309
   Other income received                      135,310     124,158     102,435
   Administrative expenses paid              (438,565)   (427,196)   (483,602)
   Utilities paid                            (487,142)   (514,815)   (492,180)
   Management fees paid                      (226,042)   (218,093)   (214,497)
   Maintenance and repairs expenses paid     (817,000)   (916,171)   (861,868)
   Salaries paid                             (506,354)   (487,275)   (474,215)
   Real estate taxes paid                    (283,321)   (251,887)   (260,467)
   Payroll taxes paid                         (42,053)    (42,429)    (39,245)
   Property insurance paid                    (43,285)    (39,085)    (44,875)
   Mortgage insurance paid                    (58,011)    (58,812)    (59,158)
   Interest paid on mortgage                 (871,204)   (883,131)   (894,196)
   Incentive management fees                  (40,176)     (2,985)          -
   Miscellaneous financial expenses paid       (2,308)     (1,424)     (3,750)
   (Increase) decrease in tenants security
     deposits, net                             (6,684)      3,396       3,088
   Decrease (increase) in mortgage
     escrow deposits                            8,993      (8,318)     22,891
                                           ----------  ----------  ----------

      Net cash provided by operating
        activities                            370,728     386,269     327,393
                                           ----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment        (68,266)    (42,490)   (137,952)
   Deposits to reserve for replacements       (52,520)    (52,520)    (52,520)
   Withdrawals from reserve for
     replacements                              48,068      27,341      85,111
                                           ----------  ----------  ----------

      Net cash used in investing
        activities                            (72,718)    (67,669)   (105,361)
                                           ----------  ----------  ----------

 Cash flows from financing activities
   Mortgage principal payments               (165,532)   (153,608)   (142,542)
   Distributions to partners                 (133,249)    (77,464)          -
                                           ----------  ----------  ----------

      Net cash used in financing
        activities                           (298,781)   (231,072)   (142,542)
                                           ----------  ----------  ----------

         CASH AND CASH EQUIVALENTS               (771)     87,528      79,490

 Cash and cash equivalents, beginning         322,501     234,973     155,483
                                           ----------  ----------  ----------

 Cash and cash equivalents, ending         $  321,730  $  322,501  $  234,973
                                           ==========  ==========  ==========






                                   (continued)

<PAGE>
<TABLE>

                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997
<CAPTION>

                                                            1999           1998          1997
                                                             ----          ----          ----
<S>                                                     <C>           <C>            <C>

  Reconciliation of excess of expenses over revenue
   to net cash provided by operating activities
  Excess of expenses over revenue                      $  (60,754)    $  (77,084)    $(134,824)
  Adjustments to reconcile excess of expenses
   over revenue to net cash provided by
   operating activities
     Depreciation                                         450,549        459,200       467,707
     Amortization                                          12,162         12,162        12,162
     Interest earned on reserve for replacements           (2,629)        (2,670)       (3,320)
     Changes in assets and liabilities
       Decrease in tenant accounts receivable               5,977          8,477        31,282
       (Increase) decrease in accounts receivable -
         other                                            (28,502)        11,258        (1,934)
       (Increase) decrease in prepaid expenses            (27,124)           339         6,351
       Decrease (increase) in mortgage escrow
         deposits                                           8,993         (8,318)       22,891
       Increase (decrease) in accounts payable and
         accrued expenses                                  11,074        (10,490)      (58,273)
       Decrease in accrued interest payable                (1,034)          (960)         (891)
       Increase (decrease) in rent - deferred credits      22,752         (6,222)      (11,845)
       Decrease in deferred laundry income                 (5,000)        (5,000)       (5,000)
       Due to/from affiliates - net                        (9,052)         2,181             -
       Tenants' security deposits - net                    (6,684)         3,396         3,087
                                                       ----------     ----------     ---------
           Net cash provided by operating activities   $  370,728     $  386,269     $ 327,393
                                                       ==========     ==========     =========

</TABLE>























                        See notes to financial statements

<PAGE>

                   SOUTH LAUREL APARTMENTS LIMITED PARTNERSHIP

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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

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

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

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

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

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

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

   As of December  31,  1999,  management  does not  believe  that there are any
   current  facts or  circumstances  that would  indicate  impairment  of rental
   property in  accordance  with  Statement  of Financial  Accounting  Standards
   (SFAS) No. 121.

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

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

   Deferred Laundry Income
   -----------------------

   Deferred   laundry  income  is  being  recognized  into  other  income  on  a
   straight-line basis over the term of the related contract.

   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 - RESTRICTED DEPOSITS AND FUNDED RESERVES

   At December 31, 1999 and 1998, the  Partnership  maintained  tenant  security
   deposits of $131,598 and $119,274 in  interest-bearing  escrow bank  accounts
   and a money market  account  which is carried at cost and  approximates  fair
   value.

   The Partnership also has a reserve for replacements and escrow funds totaling
   $310,222 and $312,134 at December 31, 1999 and 1998, respectively, on deposit
   with Reilly  Mortgage  Group,  Inc. These funds are held in  interest-bearing
   bank  accounts  and a money  market  account  which  is  carried  at cost and
   approximates fair value.

NOTE C - PROPERTY AND EQUIPMENT

   Investment in property and  equipment  consisted of the following at December
   31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $  140,756        $   140,756
         Buildings and improvements           12,558,456         15,149,544
         Furniture and equipment               2,829,823            170,468
                                              ----------        -----------
                                              15,529,035         15,460,768
         Less accumulated depreciation         7,781,574          7,331,024
                                              ----------        -----------
                                              $7,747,461        $ 8,129,744
                                              ==========        ===========

NOTE D - MORTGAGE PAYABLE

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

   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, 1999, are as follows:

               December 31,
               ------------
                 2000        $178,384
                 2001        $192,232
                 2002        $207,155
                 2003        $223,237
                 2004        $240,568

   Management  believes that the carrying amounts of the  Partnerships  mortgage
   approximates  fair value at December  31,  1999,  as there is no  significant
   difference  in the market rate of interest  between that date and the date of
   the mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT

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

NOTE F - RELATED PARTY TRANSACTIONS

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

   At December  31,  1999 and 1998,  due to general  partner  consists of unpaid
   development advances of $645,989. These advances are non-interest bearing and
   payable from proceeds upon sale or  refinancing  of the project after certain
   priority payments as defined in the Partnership agreement.

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

   The project is managed by CMJ Management Company,  Inc. (CMJ Management),  an
   affiliate of the general  partner,  pursuant to an agreement  approved by HUD
   which provides for a management  fee of 5.25% of monthly rental  collections.
   Management  fees totaled  $216,900,  $218,093 and $214,497 for 1999, 1998 and
   1997,   respectively.   Further,   CMJ  Management  is  paid  accounting  and
   bookkeeping  fees  which  amounted  to  $45,490  for each of the years  ended
   December  31,  1999,  1998 and 1997.  In addition,  CMJ  Management  received
   incentive   management  fees  of  $40,176,   $2,985  and  $-0-  payable  from
   distributable  cash for the years ended  December  31,  1999,  1998 and 1997,
   respectively.
<PAGE>

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

   CMJ Management and affiliates make monthly  expenditures  (primarily payroll,
   central office accounting, direct marketing and insurance costs) on behalf of
   the Partnership  which are reimbursed the following month. As of December 31,
   1999 and 1998, the amount due to/from  affiliate for such  expenditures  were
   $6,871 and $2,181, respectively.

NOTE G - TAX BASIS LOSS

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

                                               1999        1998         1997
                                               ----        ----          ----

      Excess of expenses over revenue
        per statements of operations       $  (60,754)   $  (77,084) $(134,824)
      Deferred rental income and laundry
        income adjustment                      17,753       (11,213)   (16,844)
      GAAP to tax depreciation adjustment     313,406      (136,923)  (166,665)
                                           ----------    ----------  ----------

      Income (loss) for Federal income
        tax purposes                       $  270,405    $ (225,220) $(318,333)
                                           ==========    ==========  =========


NOTE H - CONCENTRATION OF CREDIT RISK

   The  Partnership  maintains  operating  cash balances,  including  repurchase
   agreements  and  security   deposits  held  in  trust  with  major  financial
   institutions  and its funded  reserves  with the  mortgage  lender.  The cash
   balances consist of a repurchase  agreement  backed by government  securities
   totaling $319,031 and a checking account.  The security deposits consist of a
   money market and a savings account. The checking and savings account balances
   are insured by the Federal Deposit Insurance Corporation up to $100,000.  The
   Partnership  has not  experienced any losses with respect to bank balances in
   excess  of  government  provided  insurance.   Management  believes  that  no
   significant  concentration  of credit risk exists with  respect to these cash
   balances as of December 31, 1999.

NOTE I - CONTINUATION OF THE PARTNERSHIP

   The Partnership agreement allows the limited partner to cause the sale of the
   assets of the  Partnership  subsequent to June 30, 1995, but not earlier than
   one year after it has given  written  notice of its desire to cause such sale
   to the general partner, and only if, during such one-year period, the general
   partner does not cause the sale of the  Partnership's  assets. If the general
   partner has not caused the assets of the  Partnership  to be sold within such
   one-year  period,  the limited partner may cause such sale, but only after it
   has offered to sell the assets to the general partner, and either the general
   partner  does not accept such offer  within 90 days of  receiving  it, or the
   general  partner  does not complete  the sale in  accordance  with such offer
   after  accepting  the terms.  In October 1998,  the limited  partner gave the
   written notice described above to the general partner of the Partnership. The
   limited  partner has exercised its right under the  Partnership  agreement to
   cause the sale of the Partnership's assets. The general partner has agreed to
   allow the limited partner to actively market the assets of the Partnership in
   fiscal year 2000

<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, 1999 and 1998,  and the  related  statements  of
operations,  partners' deficit and cash flows for each of the three years in the
period  ended   December  31,  1999.   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, 1999 and 1998, and the results of its operations, the changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.



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

Baltimore, Maryland
February 4, 2000, except for
the second paragraph of
Note I as to which
the date is March 1, 2000

<PAGE>

                            MARVIN GARDENS ASSOCIATES

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                        1999        1998
                                                        ----        ----

 CURRENT ASSETS
   Cash                                           $    2,369  $    37,207
   Accounts receivable                                 1,836        1,694
   Accounts receivable - tenant subsidy               22,539        2,723
   Due to affiliates                                      93            -
   Prepaid expenses                                    4,074        2,263
                                                  ----------  -----------

      Total current assets                            30,911       43,887
                                                  ----------  -----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Tenant security deposits                            9,169       10,677
   Real estate tax impound fund                        5,096        5,822
   Replacement reserve fund                          125,037      121,104
   Insurance impound fund                              2,560        4,146
   Interest income receivable - impounds               1,200        1,480
   Utility deposit                                     1,478        1,478
                                                  ----------  -----------

                                                     144,540      144,707
                                                  ----------  -----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $1,262,451 and $1,187,715       1,158,860    1,233,596

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $23,691 and $22,318                22,678       24,051
                                                  ----------  -----------

      Total assets                                $1,356,989  $ 1,446,241
                                                  ==========  ===========

                        LIABILITIES AND PARTNERS' DEFICIT

 LIABILITIES
   Current maturities of mortgage payable         $   64,178  $    59,171
   Accounts payable and accrued expenses              19,003       20,236
   Deferred rental income                                670          156
                                                  ----------  -----------

      Total current liabilities                       83,851       79,563
                                                  ----------  -----------

 Mortgage payable, less current maturities         1,436,309    1,500,449
 Due to general partner                              194,019      194,019
 Tenants' security deposits                            7,659        7,869
                                                  ----------  -----------

      Total liabilities                            1,721,838    1,781,900

 PARTNERS' DEFICIT                                  (364,849)    (335,659)
                                                  ----------  -----------

      Total liabilities and partners' deficit     $1,356,989  $ 1,446,241
                                                  ==========  ===========

                        See notes to financial statements

<PAGE>

                            MARVIN GARDENS ASSOCIATES

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997


                                            1999      1998        1997
                                            ----      ----        ----
 Revenue
   Rental income                       $  410,364  $406,235    $410,401
   Less vacancies                          (4,700)   (3,603)     (1,496)
   Financial revenue                        7,603     6,798       7,742
   Other income                             4,470     4,887       8,405
                                       ----------  --------    --------

      Total revenue                       417,737   414,317     425,052
                                       ----------  --------    --------

 Expenses
  Operating expenses
   Administration                          19,172    18,488      25,512
   Utilities                               31,142    27,546      29,201
   Management fee                          17,778    17,782      17,738
   Maintenance and repairs                 80,368    66,813      75,504
   Salaries                                47,483    58,611      56,766
   Insurance                                5,132     7,906       8,102
   Real estate taxes                       22,720    23,015      22,556
                                       ----------  --------    --------

      Total operating expenses            223,795   220,161     235,379
                                       ----------  --------    --------
 Nonoperating expenses
   Interest                               124,677   129,258     133,514
   Depreciation and amortization           76,109    76,110      76,109
   Incentive management fee                 4,908       981           -
                                       ----------  --------    --------

      Total nonoperating expenses         205,694   206,349     209,623
                                       ----------  --------    --------

      Total expenses                      429,489   426,510     445,002
                                       ----------  --------    --------

      EXCESS OF EXPENSES OVER REVENUE  $  (11,752) $(12,193)   $(19,950)
                                       ==========  ========    ========










                        See notes to financial statements

<PAGE>
<TABLE>

                            MARVIN GARDENS ASSOCIATES

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997

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


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

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

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

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

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

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

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

 Distributions                             (174)        (698)    (16,566)     (17,438)

 Excess of expenses over revenue           (118)        (470)    (11,164)     (11,752)
                                        -------     --------   ---------    ---------

 Balance, December 31, 1999             $(9,573)    $(72,417)  $(282,859)   $(364,849)
                                        =======     ========   =========    ==========


 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, 1999, 1998 and 1997


                                                1999        1998        1997
                                                ----        ----        ----

 Cash flows from operating activities
   Rental income received                  $ 386,220   $  402,470  $  405,562
   Interest receipts                           2,539          203       1,256
   Other income received                       4,470        4,887       8,405
   Administrative expenses paid               19,557)     (26,331)    (25,512)
   Management fees paid                      (17,778)     (17,782)    (17,738)
   Utilities paid                            (32,427)     (27,546)    (28,085)
   Salaries and wages paid                   (44,251)     (45,857)    (52,567)
   Operating and maintenance expenses paid   (84,186)     (66,712)    (75,937)
   Real estate taxes paid                    (22,720)     (23,015)    (22,556)
   Payroll taxes                              (3,232)      (4,912)     (4,199)
   Property and other insurance paid          (6,943)      (7,625)     (5,592)
   Interest paid on mortgage                (124,677)    (129,258)   (133,514)
   Incentive management fee paid                (746)        (981)          -
   Decrease (increase) in insurance
    impound fund                               1,586        6,648      (5,023)
   Decrease (increase) in real estate
    tax impound fund                             726        1,368        (900)

      Net security deposits received (paid)    1,298          (36)       (195)
                                           ---------   ----------  ----------

      Net cash provided by operating
        activities                            40,322       65,521      43,405
                                           ---------   ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment             -            -      (6,170)
   Deposits to replacement reserve fund      (16,128)     (13,440)    (16,128)
   Withdrawals from reserve for
    replacements                              17,539       17,422      42,312
                                           ---------   ----------  ----------

      Net cash provided by
        investing activities                   1,411        3,982      20,014
                                           ---------   ----------  ----------

 Cash flows from financing activities
   Repayment of mortgage payable             (59,133)     (51,007)    (50,300)
   Distributions                             (17,438)     (11,548)     (4,033)
                                           ---------   ----------  ----------

      Net cash used in financing
        activities                           (76,571)     (62,555)    (54,333)
                                           ---------   ----------- ----------

      NET (DECREASE) INCREASE IN CASH        (34,838)       6,948       9,086

 Cash, beginning                              37,207       30,259      21,173
                                           ---------   ----------  ----------

 Cash,  ending                             $   2,369   $   37,207  $   30,259
                                           =========   ==========  ==========


                                   (continued)

<PAGE>
<TABLE>

                            MARVIN GARDENS ASSOCIATES

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997

<CAPTION>

                                                         1999           1998        1997
                                                         ----           ----        ----
<S>                                                   <C>             <C>          <C>

 Reconciliation of excess of expenses over revenue
 to net cash provided by operating activities
   Excess of expenses over revenue                    $ (11,752)     $  (12,193)  $  (19,950)
   Adjustments to reconcile excess of expenses
    over revenue to net cash provided by
    operating activities
      Depreciation                                       74,736          74,737       74,736
      Amortization of deferred financing costs            1,373           1,373        1,373
      Interest earned on reserve for replacements        (5,344)         (6,780)      (6,027)
      Changes in assets and liabilities:
       (Increase) decrease in accounts
         receivable - tenant subsidy                       (142)         (1,282)      (1,441)
       (Increase) decrease in accounts receivable -
         other                                          (19,816)          1,330       (2,004)
       Decrease (increase) in interest income
         receivable -impounds                               280             185         (459)
       (Increase) decrease in prepaid expenses           (1,811)            281        2,510
       Decrease (increase) in real estate tax
         impound fund                                       726           1,368         (900)
       Decrease (increase) in insurance
         impound fund                                     1,586           6,648       (5,023)
       (Decrease) increase in accounts payable
         and accrued expenses                            (1,233)            100          683
       Increase (decrease) in prepaid revenue               514            (210)         102
       Decrease in due to affiliates                        (93)              -            -
       Increase (decrease) in tenant security
         deposits funded                                  1,298             (36)        (195)
                                                      ---------      ----------   ----------
        Net cash provided by operating
        activities                                    $  40,322      $   65,521   $   43,405
                                                      =========      ==========   ==========

</TABLE>

















                        See notes to financial statements

<PAGE>

                            MARVIN GARDENS ASSOCIATES

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Marvin  Gardens   Associates  (the  Partnership)  is  a  California   limited
   partnership which commenced operations in February 1983. The Partnership owns
   and  operates a 37-unit  rental  housing  project  (the  Project)  located in
   Modesto,  California.  The Project  operates  under Section 8 of the National
   Housing Act, and therefore,  receives  monthly rental subsidies from the U.S.
   Department of Housing and Urban  Development  (HUD). The agreement expires in
   July  2003,  and has two  five-year  renewal  options.  For the  years  ended
   December 31, 1999,  1998 and 1997 rental  subsidies  for the Project  totaled
   $312,683,  $308,541  and  $328,830,  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 of the date of the financial statements and
   the reported  amounts of revenue and expenses  during the  reporting  period.
   Actual results could differ from those estimates.

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

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

   As of December  31,  1999,  management  does not  believe  that there are any
   current  facts or  circumstances  that would  indicate  impairment  of rental
   property in  accordance  with  Statement  of Financial  Accounting  Standards
   ("SFAS") No. 121.

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

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

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

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

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

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

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

   Certain  amounts  in  the  1998  and  1997  financial  statements  have  been
   reclassified to conform to the 1999 presentation.

NOTE B - RESTRICTED DEPOSITS  AND FUNDED  RESERVES

   At December 31, 1999 and 1998, the  Partnership  maintained  tenant  security
   deposits of $9,169 and $10,677,  respectively,  in an interest bearing escrow
   bank  account  and a  certificate  of deposit  which are  carried at cost and
   approximate fair value.

   The Partnership also has a reserve for replacements and escrow funds totaling
   $133,893 and $132,552 at December 31, 1999 and 1998, respectively, on deposit
   with CHFA. These funds are held in interest bearing bank accounts,  which are
   carried at cost and approximate fair value.
<PAGE>

NOTE C - PROPERTY AND EQUIPMENT

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $   294,320       $   294,320
         Buildings and improvements             2,126,991         2,126,991
                                              -----------       -----------
                                                2,421,311         2,421,311
         Less accumulated depreciation          1,262,451         1,187,715
                                              -----------       -----------
                                              $ 1,158,860       $ 1,233,596
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE

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

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

   Aggregate  maturities  of the  mortgage  payable  for each of the five  years
   following December 31, 1999, are as follows:

               December 31,
               ------------
                 2000        $64,178
                 2001        $69,908
                 2002        $75,498
                 2003        $81,887
                 2004        $88,815


   Management  believes  that  the  carrying  amount  of  the  mortgage  payable
   approximates  fair value at December  31,  1999,  as there is no  significant
   difference  in the market rate of interest for similar debt between that rate
   and the rate of the mortgage.

NOTE E - RELATED PARTY TRANSACTIONS

   At December 31, 1999 and 1998, 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, 1999,  and 1998 and 1997 were $17,778,  $17,738
   and $17,738, respectively.  Effective September 1994, CMJ Management Company,
   Inc. receives 30% of the monthly fee which totaled $5,333,  $5,321 and $5,321
   for the years ended December 31, 1999, 1998 and 1997,  respectively.  For the
   years ended December 31, 1999 and 1998, incentive management fees charged for
   the project totaled $4,908 and $981, respectively.

NOTE F - TAX BASIS LOSS

   The  reconciliation  of the excess of expenses  over revenue  reported in the
   accompanying statements of operations with the income/(loss)  reportable on a
   Federal income tax basis for the years ended December 31, 1999, 1998 and 1997
   are as follows:

                                               1999        1998         1997
                                               ----        ----         ----
      Excess of expenses over revenue per
        statements of operations           $  (11,752)   $  (12,193) $  (19,950)
      GAAP to tax depreciation adjustment      66,190       (30,842)    (11,448)
      Deferred rental income adjustments          514          (202)        102
                                           ---------     ----------  ----------
      Income (loss) for Federal income
        tax purposes                       $  54,952     $  (43,237) $  (31,296)
                                           =========     ==========  ===========
<PAGE>

NOTE G - CONCENTRATION OF CREDIT RISK

   The Partnership  maintains operating cash balances and security deposits held
   in trust with major financial  institutions  and its funded reserves with the
   mortgage lender.  The Partnership has not experienced any losses with respect
   to bank  balances  in excess of  government  provided  insurance.  Management
   believes that no significant concentration to credit risk exists with respect
   to these cash balances as of December 31, 1999.

NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS

   The Partnership agreement allows the limited partner to cause the sale of the
   assets of the  Partnership  subsequent to June 30, 1995, but not earlier than
   one year after it has given  written  notice of its desire to cause such sale
   to the general partner, and only if, during such one-year period, the general
   partner does not cause the sale of the  Partnership's  assets. If the general
   partner has not caused the assets of the  Partnership  to be sold within such
   one year period,  the limited  partner may cause such sale, but only after it
   has offered to sell the assets to the general partner, and either the general
   partner  does not accept such offer  within 90 days of  receiving  it, or the
   general  partner  does not complete  the sale in  accordance  with such offer
   after  accepting  the terms.  In October 1998,  the limited  partner gave the
   written notice  described above to the general partner of the Partnership and
   exercised its rights under the Partnership agreement to cause the sale of the
   Partnership's   assets.  At  December  31,  1999,  the  general  partner  was
   negotiating  with the limited partner for the purchase of its interest in the
   Partnership.

   Subsequent  to  year-end,  on February  15, 2000 an  affiliate of the general
   partner purchased the limited  partner's  interest in the Partnership for net
   consideration  of $254,420.  The sale closed into escrow on February 15, 2000
   pending the receipt of the required  regulatory  approvals  from the mortgage
   lender  and  state  and  federal   housing   agencies   that   subsidize  the
   Partnership's  residential  apartment property.  The sale proceeds were to be
   released  to the  former  limited  partner  upon  the  receipt  of all of the
   required regulatory approvals,  but in no event later than March 31, 2000. On
   March 1, 2000,  the  affiliated  buyer  agreed to the release of the escrowed
   funds to the former limited  partner and  indemnified the limited partner for
   any  approvals  not yet received.  It is the general  partners'  intention to
   continue the business of the Partnership.

<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,  1999 and 1998,  and the  related  statements  of  operations,
partners' deficit and cash flows for each of the three years in the period ended
December 31, 1999.  These  financial  statements are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audits.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material  respects,  the financial position of Colonial Farms, Ltd. as of
December 31, 1998 and 1997,  and the results of its  operations,  the changes in
partners'  deficit  and its cash flows for each of the three years in the period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles.



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

Baltimore, Maryland
February 11, 2000, except for
the second paragraph of
Note H as to which
the date is March 1, 2000

<PAGE>

                               COLONIAL FARMS LTD.

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                      1999         1998
                                                      ----         ----
 CURRENT ASSETS
   Cash and cash equivalents                      $   27,328  $   69,430
   Short-term investment                              29,333           -
   Rents receivable                                        -       1,100
   Deposits                                              675         675
   Prepaid expenses                                    7,228       4,808
                                                  ----------  ----------

      Total current assets                            64,564      76,013
                                                  ----------  ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Real estate tax impound fund                       14,091      14,141
   Reserve for replacements                          245,943     236,465
   Insurance impound fund                              6,891       8,961
   Reserve fund for operations                        44,944      43,101
   Tenants' security deposits                         27,341      25,281
   Interest income receivable - impounds               3,458       3,370
                                                  ----------  ----------

                                                     342,668     331,319
                                                  ----------  ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $2,190,253 and $2,064,714       1,913,396   2,038,935

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $40,417 and $38,140                35,350      37,627
                                                  ----------  ----------

      Total assets                                $2,355,978  $2,483,894
                                                  ==========  ==========

                       LIABILITIES AND PARTNERS' DEFICITS

 CURRENT LIABILITIES
   Current maturities of mortgage payable         $  100,990  $   92,191
   Accounts payable and accrued expenses              25,454      22,286
   Accrued interest payable                           19,342      20,046
   Deferred rental income                              7,644       2,868
                                                  ----------  ----------

      Total current liabilities                      153,430     137,391
                                                  ----------  ----------

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities       2,435,760   2,536,750
   Due to general partner                            318,115     318,115
   Tenants' security deposits                         20,946      19,455
                                                  ----------  ----------

      Total liabilities                            2,928,251   3,011,711

 PARTNERS' DEFICIT                                  (572,273)   (527,817)
                                                  ----------  ----------

      Total liabilities and partners' deficit     $2,355,978  $2,483,894
                                                  ==========  ==========

                        See notes to financial statements

<PAGE>

                               COLONIAL FARMS LTD.

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997


                                            1999       1998       1997
                                            ----       ----       ----
 Revenue
   Rental income                       $ 788,067   $ 786,081   $785,784
   Less vacancies                              -     (23,294)    (7,410)
   Financial revenue                      16,694      16,527     17,490
   Other income                           11,247      32,686     23,694
                                       ---------   ---------   --------

      Total revenue                      816,008     812,000    819,558
                                       ---------   ---------   --------

 Operating expenses
   Administrative                         28,640      68,109     34,427
   Management fee                         44,740      43,440     42,640
   Utilities                              32,840      31,434     34,619
   Maintenance and repairs               204,565     167,816    155,985
   Salaries                              101,855      81,179     79,872
   Insurance                              10,736      13,372     12,135
   Real estate taxes                      43,173      42,663     41,368
                                       ---------   ---------   --------

      Total operating expenses           466,549     448,013    401,046
                                       ---------   ---------   --------

  Non-operating expenses
   Interest                              236,043     244,135    244,011
   Depreciation and amortization         127,816     128,129    128,174
   Incentive management fee                7,060       7,060      7,060
   Earned surplus reimbursement                -      12,059     69,664
                                       ---------   ---------   --------

      Total nonoperating expenses        370,919     391,383    448,909
                                       ---------   ---------   --------

      Total expenses                     837,468     839,396    849,955
                                       ---------   ---------   --------

      EXCESS OF EXPENSES
          OVER REVENUE                 $ (21,460)  $ (27,396)  $(30,397)
                                       =========   =========   ========














                        See notes to financial statements

<PAGE>
<TABLE>

                               COLONIAL FARMS LTD.

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997
<CAPTION>

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


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

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

 Excess of expenses over revenue         (608)         (912)     (28,877)    (30,397)
                                    ---------      --------    ---------   ---------

 Balance, December 31, 1997           (24,206)      (95,932)    (352,044)   (472,182)

 Distributions                           (565)         (847)     (26,827)    (28,239)

 Excess of expenses over revenue         (548)         (822)     (26,026)    (27,396)
                                     ---------      --------    ---------   ---------

 Balance, December 31, 1998           (25,319)      (97,601)    (404,897)   (527,817)

 Distributions                           (460)         (690)     (21,846)    (22,996)

 Excess of expenses over revenue         (429)         (644)     (20,387)    (21,460)
                                    ---------      --------    ---------   ---------

 Balance, December 31, 1999         $ (26,208)     $(98,935)   $(447,130)  $(572,273)
                                    =========      ========    =========   =========


 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, 1999, 1998 and 1997

                                                1999        1998        1997
                                                ----        ----        ----

 Cash flows from operating activities
   Rental income received                   $ 793,917    $776,725    $770,456
   Interest received                            5,930       6,303       5,597
   Other income received                       11,273      32,685      23,694
   Administrative expenses paid               (28,814)    (68,108)    (34,427)
   Management fees paid                       (44,994)    (43,440)    (42,640)
   Utilities paid                             (32,236)    (31,434)    (40,324)
   Salaries and wages paid                    (77,779)    (67,973)    (67,643)
   Maintenance and repairs expenses paid     (201,572)   (173,759)   (166,198)
   Real estate taxes paid                     (43,174)    (42,663)    (41,368)
   Payroll taxes paid                         (24,076)    (13,207)    (12,228)
   Property and other insurance paid          (13,156)    (15,834)     (5,710)
   Interest paid on mortgage                 (236,747)   (244,776)   (244,305)
   Incentive management fee paid               (7,060)     (7,060)     (7,060)
   Earned surplus reimbursement                     -     (12,058)    (69,666)
   Increase in reserve fund for operations     (1,843)     (1,929)        (33)
   (Increase) decrease in real estate
     tax impound fund                              50        (913)       (793)
   (Increase) decrease in insurance
     impound fund                               2,070       7,203      (6,654)
   Net security deposits (paid) received         (569)       (472)       (399)
                                            ---------    --------    --------
      Net cash provided by
        operating activities                  101,220      99,290      60,299
                                            ---------    --------    --------

 Cash flows from investing activities
   Purchases of equipment                           -           -     (21,366)
   Deposits to reserve for replacements       (22,404)    (22,404)    (22,404)
   Withdrawals from reserve for
     replacements                              23,602      32,364      24,391
                                            ---------    --------    --------
      Net cash provided by (used in)
        investing activities                    1,198       9,960     (19,379)
                                            ---------    --------    --------

 Cash flows from financing activities
   Repayment of mortgage payable              (92,191)    (84,160)    (76,827)
   Distributions to partners                  (22,996)    (28,239)    (28,238)
                                            ---------    --------    --------

      Net cash used in financing activities  (115,187)   (112,399)   (105,065)
                                            ---------    --------    --------

      NET DECREASE IN CASH AND
         CASH EQUIVALENTS                     (12,769)     (3,149)    (64,145)

 Cash and cash equivalents, beginning          69,430      72,579     136,724
                                            ---------    --------    --------

 Cash and cash equivalents, ending          $  56,661    $ 69,430    $ 72,579
                                            =========    ========    ========





                                   (continued)

<PAGE>

                               COLONIAL FARMS LTD.

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997

                                                1999        1998        1997
                                                ----        ----        ----

Reconciliation of excess of expenses over
   revenue to net cash provided by
   operating activities
   Excess of expenses over revenue         $  (21,460) $  (27,396) $  (30,397)
   Adjustments to reconcile excess of
   expenses over revenue to net cash
   provided by operating activities
      Depreciation                            125,539     125,852     125,896
      Amortization                              2,277       2,277       2,277
      Interest earned on reserve for
       replacements                           (10,676)    (10,485)    (10,611)
      Changes in assets and liabilities
      (Increase) decrease in assets
        Tenant accounts receivable              1,100      11,534      (8,010)
        Accounts receivable - other               (88)        261      (1,282)
        Miscellaneous prepaid expenses         (2,420)     (2,462)      6,425
        Tenant security deposits funded        (2,060)       (472)       (399)
        Reserve fund for operations            (1,843)     (1,929)        (33)
        Real estate tax impound                    50        (913)       (793)
        Insurance impound fund                  2,070       7,203      (6,654)
      Increase (decrease) in liabilities
        Accounts payable and accrued
         expenses                               3,422      (5,943)    (10,507)
        Accrued interest payable                 (704)       (641)     (5,705)
        Tenant security deposits held in
         trust                                  1,491           -           -
        Prepaid revenue                         4,776       2,404          92
        Due to affiliates                        (254)          -           -
                                           ----------  ----------  ----------
            Net cash provided by
              operating activities         $  101,220  $   99,290  $   60,299
                                           ==========  ==========  ==========


                        See notes to financial statements

<PAGE>

                              COLONIAL FARMS, LTD.

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


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 Modesta,
   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, 1999, 1998
   and 1997,  rental subsidies for the Project totaled $560,837,  $531,063,  and
   $579,485, respectively.

   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.  As of December 31,
   1999, accumulated limited distributions available totaled $40,542.

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

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

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

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

   Investments
   -----------

   Investments  with  maturities  between three and twelve months are considered
   short-term  investments.  Short-term  investments  consist  of United  States
   Treasury Bills which are held to maturity.  Held to maturity  investments are
   carried at cost which approximate fair value.

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

   Property and equipment are carried at cost.  Depreciation  is provided for in
   amounts  sufficient  to relate the cost of  depreciable  assets to operations
   over their  estimated  service lives using the  straight-line  method.  As of
   December  31,  1999,  management  does not believe that there are any current
   facts or circumstances  that would indicate  impairment of rental property in
   accordance with Statement of Financial Accounting Standards ("SFAS") No. 121.

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

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

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

   Rental income is recognized as rentals become due. Rental  payments  received
   in advance are deferred until earned.  All leases between the Partnership and
   the tenants of the property are operating leases.

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

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

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

   Certain  amounts  in  the  1998  and  1997  financial  statements  have  been
   reclassified to conform to the 1999 presentation.

NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES

   At December 31, 1999 and 1998, the  Partnership  maintained  tenant  security
   deposits of $27,341 and $25,281,  respectively, in an interest bearing escrow
   bank  account  and a  certificate  of deposit  which are  carried at cost and
   approximate fair value.

   The  Partnership  also  has a  reserve  for  replacements  and  escrow  funds
   totalling $315,327 and $306,281 at December 31, 1999 and 1998,  respectively,
   on deposit with CHFA.  These funds are held in interest bearing bank accounts
   which are carried at cost and approximate fair value.

NOTE C - PROPERTY AND EQUIPMENT

      Investment  in  property  and  equipment  consisted  of the  following  at
December 31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $  450,000        $  450,000
         Buildings and improvements            3,238,575         3,238,575
         Furniture and equipment                 415,074           415,074
                                              ----------        ----------
                                               4,103,649         4,103,649
         Less accumulated depreciation         2,190,253         2,064,714
                                              ----------        ----------
                                              $1,913,396        $2,038,935
                                              ==========        ==========

NOTE D - MORTGAGE PAYABLE

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

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

   Aggregate  maturities  of the  mortgage  payable  for each of the five  years
   following December 31, 1999, are as follows:

               December 31,
               ------------
                 2000        $100,990
                 2001        $110,628
                 2002        $121,186
                 2003        $132,751
                 2004        $145,421

   Management  believes  that  the  carrying  amount  of  the  mortgage  payable
   approximates  fair value at December  31,  1999,  as there is no  significant
   difference  in the market rate of interest for similar debt between that date
   and the date of the mortgage.

NOTE E - RELATED PARTY TRANSACTIONS

   At  December  31,  1999  and  1998,  due  to  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, 1999,  1998, and 1997
   were $44,740, $43,440, and $42,640,  respectively.  Effective September 1994,
   CMJ  Management  receives  30% of the monthly  management  fee which  totaled
   $13,425  and  $13,032  for the  years  ended  December  31,  1999  and  1998,
   respectively.  CMJ  Management  Company,  Inc. also is entitled to receive an
   incentive management fee. For each of the years ended December 31, 1999, 1998
   and  1997,  incentive  fees  charged  for  the  project  totaled  $7,060,  in
   accordance with the terms of the supplemental management agreement.
<PAGE>

NOTE F - RECONCILIATION OF TAX (LOSS) INCOME WITH EXCESS OF EXPENSES OVER
         REVENUE PER FINANCIAL STATEMENTS

   The  reconciliation  of the excess of expenses  over revenue  reported in the
   statements  of  operations  with the (loss)  income  reported  on the Federal
   income tax return for the years ended December 31, 1999, 1998, and 1997 is as
   follows:

                                               1999        1998         1997
                                               ----        ----         ----

      Excess of expenses over revenue      $ (21,460)    $ (27,396)  $ (30,397)
      GAAP to tax depreciation adjustment     65,987       (53,713)    (19,460)
      Deferred rental income adjustments      (1,195)          731          90
                                           ---------     ---------   ---------
      Income (loss) for Federal income
        tax purposes                       $  43,332     $ (80,378)  $ (49,767)
                                           =========     =========   =========

NOTE G - CONCENTRATION OF CREDIT RISK

   The Partnership  maintains operating cash balances and security deposits held
   in trust with major financial  institutions  and its funded reserves with the
   mortgage  lender.  The cash  balance  consists  of a  checking  account.  The
   security  deposits  consist  of a  checking  account.  The  checking  account
   balances in the bank is insured by the Federal Deposit Insurance  Corporation
   up to $100,000.  The  Partnership has not experienced any losses with respect
   to bank  balances  in excess of  government  provided  insurance.  Management
   believes that no significant concentration of credit risk exists with respect
   to these cash balances as of December 31, 1999.

NOTE H - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS

   The Partnership agreement allows the limited partner to cause the sale of the
   assets of the  Partnership  subsequent to June 30, 1995, but not earlier than
   one year after it has given  written  notice of its desire to cause such sale
   to the general partner, and only if, during such one-year period, the general
   partner does not cause the sale of the  Partnership's  assets. If the general
   partner has not caused the assets of the  Partnership  to be sold within such
   one-year  period,  the limited partner may cause such sale, but only after it
   has offered to sell the assets to the general partner, and either the general
   partner  does not accept such offer  within 90 days of  receiving  it, or the
   general  partner  does not complete  the sale in  accordance  with such offer
   after  accepting  the terms.  In October 1998,  the limited  partner gave the
   written notice  described above to the general partner of the Partnership and
   exercised its right under the Partnership  Agreement to cause the sale of the
   Partnership's   assets.  At  December  31,  1999,  the  general  partner  was
   negotiating  with the limited partner for the purchase of its interest in the
   Partnership.

   Subsequent  to  year-end,  on February  15, 2000 an  affiliate of the general
   partner purchased the limited  partner's  interest in the Partnership for net
   consideration  of $387,849.  The sale closed into escrow on February 15, 2000
   pending the receipt of the required  regulatory  approvals  from the mortgage
   lender  and  state  and  federal   housing   agencies   that   subsidize  the
   Partnership's  residential  apartment property.  The sale proceeds were to be
   released  to the  former  limited  partner  upon  the  receipt  of all of the
   required regulatory approvals,  but in no event later than March 31, 2000. On
   March 1, 2000,  the  affiliated  buyer  agreed to the release of the escrowed
   funds to the former limited  partner and  indemnified the limited partner for
   any  approvals not yet received.  It is the general  partner's  intentions to
   continue the business of the Partnership.

<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,  1999  and  1998  and the  related  statements  of
operations,  partners'  deficit and cash flows for each of the three years ended
December 31, 1999.  These  financial  statements are the  responsibility  of the
Partnership's  management.  Our responsibility is to express an opinion on these
financial statements based on our audit.

      We conducted our audits in accordance  with  generally  accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, the financial statements referred to above present fairly,
in all material respects,  the financial position of Holbrook Apartments Company
as of December 31, 1999 and 1998, and the results of its operations, the changes
in  partners'  deficit  and its cash  flows  for each of the three  years  ended
December 31, 1999, in conformity with generally accepted accounting principles.



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

Baltimore, Maryland
January 26, 2000, except for
the second paragraph of
Note I as to which the
date is March 1, 2000

<PAGE>

                           HOLBROOK APARTMENTS COMPANY

                                 BALANCE SHEETS

                           December 31, 1999 and 1998

                                     ASSETS

                                                      1999        1998
                                                      ----        ----

 CURRENT ASSETS
   Cash and cash equivalents                      $  670,730  $  514,632
   Accounts receivable - tenants                       1,821       1,998
   Other receivables                                  15,202      14,182
   Prepaid expenses                                   15,084      15,871
                                                  ----------  ----------

      Total current assets                           702,837     546,683
                                                  ----------  ----------

 RESTRICTED DEPOSITS AND FUNDED RESERVES
   Security deposits                                   3,611           -
   Mortgage escrow deposits                           47,733      77,606
   Reserve for replacements                          391,552     496,439
                                                  ----------  ----------
                                                     442,896     574,045
                                                  ----------  ----------

 PROPERTY AND EQUIPMENT, net of accumulated
   depreciation of $4,665,089 and $4,412,465       4,993,103   5,219,391

 DEFERRED FINANCING COSTS, net of accumulated
   amortization of $249,595 and $235,877             304,356     318,074
                                                  ----------  ----------
      Total assets                                $6,443,192  $6,658,193
                                                  ==========  ==========

                        LIABILITIES AND PARTNERS' DEFICIT

 CURRENT LIABILITIES
   Current maturities of mortgage payable         $  119,118 $   110,538
   Accounts payable and accrued expenses              31,930      38,017
   Accrued interest payable                           45,308      45,308
   Rent deferred credits                             132,712       1,054
   Due to affiliates                                     620       1,067
   Tenants' security deposits                          3,009           -
                                                  ----------  ----------

      Total current liabilities                      332,697     195,984

 LONG-TERM LIABILITIES
   Mortgage payable, less current maturities       7,019,552   7,138,669
                                                  ----------  ----------

      Total liabilities                            7,352,249   7,334,653

 PARTNERS' DEFICIT                                  (909,057)   (676,460)
                                                  ----------  ----------

      Total liabilities and partners' deficit     $6,443,192  $6,658,193
                                                  ==========  ==========



                        See notes to financial statements

<PAGE>

                           HOLBROOK APARTMENTS COMPANY

                            STATEMENTS OF OPERATIONS

                  Years ended December 31, 1999, 1998 and 1997

                                           1999        1998        1997
                                           ----        ----        ----

 Revenue
   Rental income                       $ 2,077,992  $2,074,864  $2,079,319
   Vacancies                                (6,659)     (7,275)     (4,727)
   Financial revenue                        24,865      31,766      35,842
   Other income                              7,769       8,345       8,608
                                       -----------  ----------  ----------

      Total revenue                      2,103,967   2,107,700   2,119,042
                                       -----------  ----------  ----------

 Expenses
  Operating expenses
   Administration                          136,463     123,690     134,493
   Utilities                                86,807      81,913     112,614
   Management fee                           98,765      98,128      98,776
   Maintenance and repairs                 318,437     201,428     173,586
   Salaries                                208,531     195,890     214,500
   Insurance                                14,457      14,776      16,350
   Real estate taxes                       197,579     213,250     181,311
                                       -----------  ----------  ----------

      Total operating expenses           1,061,039     929,075     931,630
                                       -----------  ----------  ----------

  Nonoperating expenses
   Interest                                539,942     547,260     554,700
   Mortgage insurance premium               35,947      36,480      36,979
   Depreciation and amortization           266,341     265,973     268,185
   Incentive management fee                155,013     153,231     146,297
                                       -----------  ----------  ----------

      Total nonoperating expenses          997,243   1,002,944   1,006,161
                                       -----------  ----------  ----------

      Total expenses                     2,058,282   1,932,019   1,937,791
                                       -----------  ----------  ----------

      EXCESS OF REVENUE OVER
           EXPENSES                    $    45,685  $  175,681  $  181,251
                                       ===========  ==========  ==========













                        See notes to financial statements

<PAGE>

                           HOLBROOK APARTMENTS COMPANY

                         STATEMENTS OF PARTNERS' DEFICIT

                  Years ended December 31, 1999, 1998 and 1997



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

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

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

 Excess of revenue over expenses           27,188      154,063      181,251
                                        ---------    ---------   ----------

 Partners' (deficit) equity,
   December 31, 1997                     (597,777)      21,245     (576,532)

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

 Excess of revenue over expenses           26,352      149,329      175,681
                                        ---------    ---------   ----------

 Partners' deficit,
   December 31, 1998                     (612,766)     (63,694)    (676,460)

 Distributions                            (41,742)    (236,540)    (278,282)

 Excess of revenue over expenses            6,853       38,832       45,685
                                        ---------    ---------   ----------

 Partners' deficit,
   December 31, 1999                    $(647,655)   $(261,402)  $ (909,057)
                                        =========    =========   ==========


 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, 1999, 1998 and 1997

                                                1999        1998        1997
                                                ----        ----        ----

 Cash flows from operating activities
   Rental income received                 $ 2,203,168  $2,061,424  $2,069,734
   Interest received                           15,165      19,587      15,185
   Other income received                        7,769       3,803      28,030
   Administrative expenses paid              (169,100)   (123,690)   (135,301)
   Management fees paid                       (98,765)    (98,128)    (98,776)
   Utilities paid                             (83,045)    (81,913)   (119,299)
   Salaries paid                              (30,613)   (160,249)   (181,164)
   Operating and maintenance paid            (435,802)   (199,621)   (312,749)
   Real estate taxes paid                    (197,579)   (213,250)   (181,311)
   Property insurance paid                    (14,457)    (14,625)    (14,811)
   Payroll taxes paid                         (18,520)    (15,194)    (14,705)
   Other taxes and insurance paid             (18,439)    (20,447)    (18,631)
   Net tenant security deposits received
     (paid)                                      (602)          -           -
   Interest paid on mortgage                 (539,942)   (547,901)   (555,294)
   Increase in mortgage escrow deposits        29,873      (1,247)    (15,290)
   Mortgage insurance paid                    (35,966)    (36,480)    (36,899)
   Mortgage entity expenses paid             (155,013)   (153,231)   (146,297)
   Due to affiliates - net                     (1,467)      1,067           -
                                          -----------  ----------  ----------
      Net cash provided by
        operating activities                  456,665     419,905     282,422
                                          -----------  ----------  ----------

 Cash flows from investing activities
   Additions to property and equipment        (26,335)    (9,476)     (52,029)
   Deposits to reserve for replacements       (51,936)   (40,920)     (40,920)
   Withdrawals from reserve for
    replacements                              166,523     15,428       47,190
                                          -----------  ---------   ----------

      Net cash provided by (used in)
        investing activities                   88,252    (34,968)     (45,759)
                                          -----------  ---------   ----------


 Cash flows from financing activities
   Mortgage principal payments               (110,537)  (102,574)     (95,185)
   Distributions paid to partners            (278,282)  (275,609)    (265,208)
                                          -----------  ---------   ----------

      Net cash used in financing
        activities                           (388,819)  (378,183)    (360,393)
                                          -----------  ----------  ----------

      NET INCREASE (DECREASE) IN
         CASH AND CASH EQUIVALENTS            156,098      6,754     (123,730)

 Cash and cash equivalents, beginning         514,632    507,878      631,608
                                          -----------  ---------   ----------

 Cash and cash equivalents, ending        $   670,730  $ 514,632   $  507,878
                                          ===========  =========   ==========






                                   (continued)

<PAGE>

                           HOLBROOK APARTMENTS COMPANY

                      STATEMENTS OF CASH FLOWS (CONTINUED)

                  Years ended December 31, 1999, 1998 and 1997

                                                1999        1998        1997
                                                ----        ----        ----

 Reconciliation of excess of revenue
   over expenses to net cash provided
   by operating activities
   Excess of revenue over expenses          $  45,685   $ 175,681   $ 181,251
   Adjustments to reconcile excess of
    revenue over expenses to net cash
    provided by operating activities
     Depreciation                             252,623     252,254     254,644
     Amortization of deferred financing
       costs                                   13,718      13,719      13,541
     Interest earned on replacement reserves   (9,700)    (12,179)    (20,618)
     Changes in assets and liabilities
      Decrease (increase) in accounts
       receivable - tenants                       177       1,298      (1,143)
      Decrease (increase) in accounts
       receivable - other                           -      (4,542)     18,908
      Decrease in prepaid expenses                787         151       1,619
      Tenant security deposits funded          (3,611)          -           -
      Decrease (increase) in mortgage
       escrow deposits                         29,873      (1,247)    (15,290)
      Decrease in other assets                      -           -         475
      (Decrease) increase in accounts
        payable and accrued expenses           (6,087)      4,849    (146,656)
      Decrease in accrued interest payable          -        (641)       (594)
      Tenant security deposits held in trust    3,009           -           -
      Increase (decrease) in prepaid revenue  131,658     (10,505)     (3,715)
      Increase in due to affiliates - net      (1,467)      1,067           -
                                            ---------   ---------   ---------

         Net cash provided by operating
           activities                       $ 456,665   $ 419,905   $ 282,422
                                            =========   =========   =========























                        See notes to financial statements

<PAGE>

                           HOLBROOK APARTMENTS COMPANY

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Holbrook  Apartments  Company  (the  Partnership)  was  formed  as a  limited
   partnership  under the laws of the State of  Massachusetts  in July 1981, for
   the purpose of  constructing  and  operating a rental  housing  project under
   Section  221(d)(4) of the National  Housing Act. The project  consists of 170
   units located in Holbrook,  Massachusetts,  and is currently  operating under
   the name of Holbrook  Apartments.  All leases between the Partnership and the
   tenants of the property are operating leases.

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

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

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

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

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

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

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

   As of December  31,  1999,  management  does not  believe  that there are any
   current facts or circumstances  that would indicate  impairment of the rental
   property in  accordance  with  Statement  of Financial  Accounting  Standards
   ("SFAS") No. 121.

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

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

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

   Rental income is recognized as 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 - RESTRICTED DEPOSITS AND FUNDED RESERVES

   At December 31, 1999, the Partnership  maintained tenant security deposits of
   $3,611 in an interest bearing escrow bank account.

   The Partnership has a reserve for  replacements  and mortgage escrow deposits
   totaling  $439,285 and $574,045 at December 31, 1999 and 1998,  respectively,
   on deposit with WMF/Huntoon,  Paige Associates Limited.  These funds are held
   in  interest-bearing  money market  accounts  and are carried at cost,  which
   approximates fair value.
<PAGE>

NOTE C - PROPERTY AND EQUIPMENT

   Investment in property and  equipment  consisted of the following at December
   31, 1999 and 1998:

                                                  1999              1998
                                                  ----              ----

         Land                                 $   390,000       $   390,000
         Buildings and improvements             9,032,409         9,006,073
         Furniture and equipment                  235,783           235,783
                                              -----------       -----------
                                                9,658,192         9,631,856
         Less accumulated depreciation          4,665,089         4,412,465
                                              -----------       -----------
                                              $ 4,993,103       $ 5,219,391
                                              ===========       ===========

NOTE D - MORTGAGE PAYABLE

   The  mortgage  is insured by the  Federal  Housing  Administration  (FHA) and
   collateralized by a deed of trust on the rental property. The mortgage, which
   is due  February  1,  2023,  is  payable  in equal  monthly  installments  of
   principle and interest totaling $54,207 and bears interest at a rate of 7.5%.

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

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

   Aggregate  annual  maturities  of the  mortgage  payable  for the five  years
   following December 31, 1999, are as follows:

               December 31,
               ------------
                 2000        $119,118
                 2001        $128,366
                 2002        $138,331
                 2003        $149,070
                 2004        $160,643

   Management  believes  that  the  carrying  amount  of  the  mortgage  payable
   approximates  fair value at December  31,  1999,  as there is no  significant
   difference  in the market rate of interest for similar debt between that date
   and the date of the mortgage.

NOTE E - HOUSING ASSISTANCE PAYMENT AGREEMENT

   FHA  contracted  with  the  Partnership  under  Section  8 of Title II of the
   Housing and Community  Development  Act of 1974,  to make housing  assistance
   payments to the  Partnership  on behalf of qualified  tenants.  The agreement
   expires July 1, 2001. Total housing assistance payments received during 1999,
   1998 and 1997 were $1,570,186, $1,573,691 and $1,565,374, respectively.

NOTE F- RELATED PARTY TRANSACTIONS

   Management Fee
   --------------

   The project is managed by CMJ Management Company,  Inc. (CMJ Management),  an
   affiliate of the general  partner,  pursuant to an agreement  approved by HUD
   which provides for a management  fee of 4.5% of monthly  rental  collections.
   Management fees totaled $98,765, $98,128 and $98,776 for 1999, 1998 and 1997,
   respectively. Further, CMJ Management is paid accounting and bookkeeping fees
   which amounted to $14,868 for each of the years ended December 31, 1999, 1998
   and 1997. In addition,  CMJ Management received incentive  management fees of
   $155,013,  $153,231 and $146,297 for the years ended December 31, 1999,  1998
   and 1997, respectively.

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

   CMJ Management and affiliates make monthly  expenditures  (primarily payroll,
   central office accounting services,  direct marketing and insurance costs) on
   behalf of the  Partnership,  which are reimbursed the following  month. As of
   December 31, 1999 and 1998,  intercompany balances receivable totaled $15,202
   and $14,182,  respectively.  Intercompany  balances  payable totaled $620 and
   $1,067, respectively.
<PAGE>

   Laundry Services
   ----------------

   During 1999 the Partnership  entered into an agreement with Norlantic Laundry
   Services,  Inc.,  an affiliate  of the general  partner,  to provide  laundry
   facilities  for the  project.  The  Partnership  receives  50% of the revenue
   earned on the  laundry  facilities  which  totaled  $7,145 for the year ended
   December 31, 1999, and is included in other income.

   Maintenance Services
   --------------------

   During the year, the Partnership contracted with Go Pro Maintenance Services,
   Inc.,  an  affiliate  of  the  general   partner,   to  perform  repairs  and
   maintenance. For the year ended December 31, 1999, $1,638 has been incurred.

NOTE G - TAX BASIS INCOME

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

                                               1999        1998         1997
                                               ----        ----         ----

      Excess of revenue over expenses
        per statement of operations        $  45,685     $  175,681  $  181,251
      Additional amortization of
        deferred costs                         8,571          8,571       8,393
      GAAP to tax depreciation adjustment    201,896       (52,693)     140,373
      Deferred rental income adjustment      131,658       (10,504)      (3,715)
                                           ---------     ---------   ----------

      Income for Federal income tax
        purposes                           $ 387,810     $ 121,055   $  326,302
                                           =========     =========   ==========

NOTE H - CONCENTRATION OF CREDIT RISK

   The Partnership maintains operating cash balances,  security deposits held in
   trust with major  financial  institutions  and its funded  reserves  with the
   mortgage lender.  The cash balances consist of a repurchase  agreement backed
   by  government  securities  totaling  $689,708  and a checking  account.  The
   security  deposits  consist of a savings  account.  The  checking and savings
   account  balances in the bank are insured by the  Federal  Deposit  Insurance
   Corporation up to $100,000.  The  Partnership  has not experienced any losses
   with respect to bank  balances in excess of  government  provided  insurance.
   Management  believes that no significant  concentration of credit risk exists
   with respect to these cash balances as of December 31, 1999.

NOTE I - CONTINUATION OF THE PARTNERSHIP AND SUBSEQUENT EVENTS

   The Partnership agreement allows the limited partner to cause the sale of the
   assets of the  Partnership  subsequent to June 30, 1995, but not earlier than
   one year after it has given  written  notice of its desire to cause such sale
   to the general partner, and only if, during such one-year period, the general
   partner does not cause the sale of the  Partnership's  assets. If the general
   partner has not caused the assets of the  Partnership  to be sold within such
   one-year  period,  the limited partner may cause such sale, but only after it
   has offered to sell the assets to the general partner, and either the general
   partner  does not accept such offer  within 90 days of  receiving  it, or the
   general  partner  does not complete  the sale in  accordance  with such offer
   after  accepting  the terms.  In October 1998,  the limited  partner gave the
   written notice  described above to the general partner of the Partnership and
   exercised its rights under the Partnership Agreement to cause the sale of the
   Partnership's   assets.  At  December  31,  1999,  the  general  partner  was
   negotiating  with the limited partner for the purchase of its interest in the
   Partnership.

   Subsequent  to  year-end,  on February  15, 2000 an  affiliate of the general
   partner purchased the limited  partner's  interest in the Partnership for net
   consideration of $1,221,217. The sale closed into escrow on February 15, 2000
   pending the receipt of the required  regulatory  approvals  from the mortgage
   lender  and  state  and  federal   housing   agencies   that   subsidize  the
   Partnership's  residential  apartment property.  The sale proceeds were to be
   released  to the  former  limited  partner  upon  the  receipt  of all of the
   required regulatory approvals,  but in no event later than March 31, 2000. On
   March 1, 2000,  the  affiliated  buyer  agreed to the release of the escrowed
   funds to the former limited  partner and  indemnified the limited partner for
   any  approvals  not yet received.  It is the general  partner's  intention to
   continue the business of the Partnership.