MECCA APARTMENTS II



                        Audit of the Financial Statements
                      For the Year ended December 31, 2002











<PAGE>



                                                               February 3, 2003

To the Partners of
       Mecca Apartments II

                          Independent Auditor's Report
                          ----------------------------

     We have audited the accompanying  balance sheets of Mecca Apartments II, as
of December 31, 2002, and 2001, and the related statements of income and changes
in partners'  capital and cash flows for the years then ended.  These  financial
statements   are  the   responsibility   of  the   project's   management.   Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

     We conducted  our audit in  accordance  with  generally  accepted  auditing
standards and Government Auditing Standards issued by the Comptroller General of
the United States. 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 audit  provides 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 Mecca Apartments II, as of
December  31, 2002,  and 2001,  and the results of its  operations  and its cash
flows for the years then ended in conformity with generally accepted  accounting
principles.

     Our audit was conducted for the purposes of forming an opinion on the basic
financial  statements taken as a whole. The supporting  information  included in
the report are presented  for the purposes of additional  analysis and are not a
required part of the basic  financial  state- ments.  Such  information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements  and, in our opinion,  is fairly  stated in all material  respects in
relation to the financial statements taken as a whole.

                                                     ROBERT G. CLAPHAM
                                                     ACCOUNTANCY CORPORATION

                                                     By  /s/ Robert G. Clapham
                                                     -------------------------
                                                                 President


<PAGE>



                               Mecca Apartments II
                               -------------------

                                 BALANCE SHEETS
                                 --------------

                          At December 31, 2002 and 2001
                          -----------------------------
<TABLE>
<CAPTION>


                Assets                                                 2002                  2001
                ------                                  ------------------------      --------------------------
<S>                                              <C>                 <C>                 <C>            <C>
Cash    - on hand                                $          100                              100
        - revenue accounts                              143,877         143,977          111,886        111,986
                                                     ----------                          --------

Accounts receivable
        - tenants                                                           343                           1,748

Prepaid expenses and deposits                                             7,787                           4,187

Deposits for taxes and insurance                                          4,352                           9,690

Tenants' security deposits                                               23,635                          23,999
                                                                      ---------                      ----------

                Total current assets                                    180,094                         151,610


Replacement reserve                                                      49,328                          85,757

Operating reserve                                                       105,370                          97,257


Land                                                    259,698                          259,698
Buildings and improvements                            3,961,851                        3,961,851
Furniture and equipment                                 139,749                          139,749
                                                      ----------                       ----------
                                                      4,361,298                        4,361,298
Less accumulated depreciation                           901,661       3,459,637          785,412      3,575,886
                                                      ----------                       ----------


Deferred financing costs                                                148,969                         163,074
                                                                     ----------                       ----------

                                                                     $3,943,398                       4,073,584
                                                                      =========                       =========
</TABLE>

                   The accompanying notes are an integral part
                           of the financial statements



<PAGE>

<TABLE>
<CAPTION>






         Liabilities                                        2002                               2001
         -----------                                  ----------------                ------------------
<S>                                                       <C>         <C>                <C>           <C>
Accounts payable,  trade                                              $      6,510                         6,607
Accrued interest                                                             5,359                         5,419
Tenants' security deposits                                                  23,342                        23,495
Prepaid rent                                                                 2,030                         2,594
Portion of notes payable
           due within one year                                               8,201                         6,558
                                                                       -----------                     ---------
                 Total current liabilities                                  45,442                        44,673



Notes payable, secured by real property                   2,496,819                      2,504,298
Less current portion due within one year                      8,201      2,488,618           6,558     2,497,740
                                                       ------------                   ------------
Deferred laundry revenue                                                    12,658                             -
Deferred interest                                                          523,625                       451,687

Partners' capital                                                          873,055                     1,079,484
                                                                        ----------                    ----------

                                                                        $3,943,398                     4,073,584
                                                                         =========                    ==========
</TABLE>






<PAGE>



                               Mecca Apartments II
                               -------------------

                               STATEMENT OF INCOME
                               -------------------

                 For the Years ended December 31, 2002 and 2001
                 ----------------------------------------------
<TABLE>
<CAPTION>


                                                                            2002                                2001
                                                                ---------------------------          --------------------------
<S>                                                      <C>           <C>               <C>         <C>
        Tenants' rent, gross potential                   $277,164                        263,784
        Less vacancy loss                                   5,179      271,985             2,561     261,223
                                                        ---------                     ----------
        Laundry concession                                 14,354                          9,959
        Interest income                                     4,273                          8,293
        Other income                                        1,640       20,267             2,798      21,050
                                                        ---------     --------         ---------      -------
                                                                       292,252                       282,273
                                                                       -------                       -------
        Administrative
            Salaries                                       23,751                         23,048
            Office expenses                                 3,598                          4,679
            Management fee                                 14,156                         13,603
            Telephone                                         265                          1,615
            Legal                                           1,815                            100
            Auditing                                        6,550                          6,300
            Bad debts                                       2,359                          1,955

        Other
                                                            3,957       56,451             3,880      55,180
                                                        ---------                       --------
        Utilities
            Electricity                                     6,723                          7,187
            Water and sewer                                11,356                         11,269
            Gas                                             2,641       20,720             2,431      20,887
                                                        ---------                     ----------
        Operating and Maintenance
            Exterminating                                   2,071                          1,401
            Rubbish                                        11,990                         10,361
            Grounds                                        14,808                         12,261
            Materials and supplies                         50,230                         31,716
            Repairs contract and payroll                   18,601                         23,067
            Painting and decorating                         3,702      101,402             2,613      81,419
                                                        ---------                     ----------
        Depreciation                                                   116,249                       116,249
</TABLE>




                   The accompanying notes are an integral part
                           of the financial statements


<PAGE>

<TABLE>
<CAPTION>



                                                                              2002                         2001
                                                                   --------------------------   -------------------------

<S>                                                        <C>      <C>                   <C>     <C>
        Taxes and Insurance
            Real property taxes                            31,126                         15,440
            Other taxes                                     4,236                          4,337
            Insurance                                      19,027      54,389             15,725     35,502
                                                          -------                        -------

        Interest                                                      135,365                       141,646

        Amortization                                                   14,105                        14,105
                                                                     ---------                      --------
                                                                      498,681                       464,988
                                                                     ---------                       -------
        Net operating loss for the year                              (206,429)                     (182,715)
        Partners' fees                                                      -                        15,000
                                                                     ---------                    --------
        Net (loss) for the year                                     $(206,429)                    $(197,715)
                                                                     =========                     ========
</TABLE>

                   The accompanying notes are an integral part
                           of the financial statements













<PAGE>



                               Mecca Apartments II
                               -------------------


                         STATEMENT OF CHANGES IN CAPITAL
                         -------------------------------

                 For the Years ended December 31, 2002 and 2001
                 ----------------------------------------------


<TABLE>
<CAPTION>






<S>                                                                            <C>
                  Capital, December 31, 2000                                    1,294,903

                  Net loss for the year ended
                           December 31, 2001                                     (197,715)

                  Distributions                                                    17,704
                                                                                -----------

                  Capital, December 31, 2001                                    1,079,484

                  Net loss for the year ended
                           December 31, 2002                                     (206,429)
                                                                                 --------

                  Capital, December 31, 2002                                   $  873,055
                                                                                =========
</TABLE>












                   The accompanying notes are an integral part
                           of the financial statements



<PAGE>





                               Mecca Apartments II
                               -------------------

                             STATEMENT OF CASH FLOWS
                             -----------------------

                 For the Years ended December 31, 2002 and 2001
                 ----------------------------------------------
<TABLE>
<CAPTION>


                                                                            2002                                2001
                                                                ---------------------------          --------------------------
<S>                                                       <C>               <C>           <C>               <C>
Cash Flows provided by (Used for)
Operating Activities
       Cash collected from tenants
           and concessionaires                            $  281,014                       272,270
       Cash paid to suppliers and employees                 (216,348)                     (204,362)
       Interest paid - mortgage                              (63,487)                      (66,536)
       Interest collected  4,273                                                             8,293
       Withdrawals from (deposits to)
            restricted cash, net                               5,702                             4
                                                            ---------                    -----------
       Net cash flows provided by (used
           for) operating activities                                        11,154                          9,669
Cash Flows Provided by (Used for)
Financing Activities
       Payments on loans                                      (7,479)                       (1,431)
       Distributions                                              (-)                      (17,704)
                                                      --------------                  ------------
       Net cash flows provided by (used
           for) financing activities                                        (7,479)                       (19,135)
Cash Flows Provided by (Used for)
Investing Activities
       Withdrawals from restricted cash                       28,316                             -
       Deposits to restricted cash                                (-)                      (14,562)
                                                      --------------                      --------
       Net cash flows provided by (used
           for) investing activities                                        28,316                        (14,562)
                                                                          --------                       --------
Increase (decrease) in cash                                                 31,991                        (24,028)
Unrestricted cash, beginning of year                                       111,986                        136,014
                                                                          --------                       --------
Unrestricted cash, end of year                                           $ 143,977                        111,986
                                                                          ========                       ========
</TABLE>












                   The accompanying notes are an integral part
                           of the financial statements




<PAGE>


<TABLE>
<CAPTION>



                                                                 2002                        2001
                                                             -------------              ------------
Reconciliation of Net Income with Cash
Provided by (Used for) Operating Activities
<S>                                                          <C>          <C>              <C>             <C>

         Net income (loss) for the year                      $(206,429)                    (197,715)
         Add depreciation and amortization                     130,354                      130,353
         Deferred interest                                      71,938                       71,937
         Deferred income                                        12,658        8,521               -        4,575
                                                             -------------              ------------
         (Increase) decrease in assets:
              Accounts receivable                                1,405                        4,524
              Prepaid expenses and deposits                     (3,600)                        (180)
              Restricted cash                                    5,702                            4


         Increase (decrease) in liabilities:
              Accounts payable and
                  accrued liabilities                             (157)                        (509)
              Other liabilities                                   (717)       2,633           1,255        5,094
                                                             ------------- --------     ------------       -----
Cash flows provided by (used for) operating activities                    $  11,154                        9,669
                                                                          =========                        =====
</TABLE>










<PAGE>




                               Mecca Apartments II

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2002


Note 1.  Organization
------   ------------

     The partnership was organized to develop and operate  low-income housing in
the City of Mecca, California. The property included in the financial statements
consists  of sixty  units of rental  housing  placed  in  service  in 1995.  The
partnership  has entered  into an  agreement  with the State of  California  Tax
Credit  Allowance  Committee;  under the terms of which the partnership  will be
allocated federal low-income housing credits which will be passed through to the
partners for the ten year period following initial occupancy of the housing. The
credits are to be 8.72% of the eligible basis up to a maximum credit of $387,873
per year.  Agreements  with the Tax Credit  Allocation  Committee and the lender
place  substantial  restrictions  on the  use  and  operation  of  the  housing,
including  restrictions on rents,  expenditures and withdrawals and requirements
that various restricted cash deposits be maintained.

Note 2.  Accounting Principles
------   ---------------------
         The partnership uses the accrual basis, in that income is recorded as
earned and expenses as they are incurred.

     Income from rents is recorded at the gross  potential  amount,  with losses
due to  vacancy  of bad  debts  shown  as  reductions  of  income  and  free  or
reduced-rate occupancy by on-site employees is shown as an expense.  Losses from
bad debts are  recorded at the time a tenant  vacates a unit owing more than the
amount of the security deposit.





     Expenses  incurred that expire over a period of time are pro-rated over the
time period.

     Property and equipment is recorded at cost;  depreciation is provided using
the straight-line method over estimated lives of 40 years for the building and 5
to 7 years for  furnishings.  Repairs and routine  replacement of assets will be
recorded  as  a  current  expense.   Major  renovations  or  replacements  of  a
significant  part of a group of assets are recorded as additions to property and
disposal of the assets being replaced.



<PAGE>


         Estimates are used to determine amounts in financial statements. Actual
results may vary from those estimates.

         Expenses being incurred during the construction period related to
financing have been deferred.


These costs will be amortized  over a  thirty-year  period on the  straight-line
method.

Note 3.  Accounts Receivable
-------  -------------------
         The details of accounts receivable are presented in the supplementary
data following the financial statements.

Note 4.  Prepaid Expenses and Deposits
-------  -----------------------------
         At December 31, 2002, prepaid expenses consisted of the following:

                           Insurance                                      $7,787
                                                                           =====

Note 5.  Replacement Reserve Deposits
-------  ----------------------------
     The  partnership  is  required  to make  deposits of $1,193 per month to an
account held by the lender to accumulate  funds for the  replacement  of assets,
and $554 to another a savings  accounts at U.S. Bank. A schedule of the activity
in these reserve accounts is included in the supplementary data.

Note 6.  Notes Payable
------   -------------
     The notes  payable  consist of a loan with an original  balance of $715,000
payable  in monthly  installments  of $5,914,  including  interest  at 9.25% per
annum, due January 1, 2026, a loan with a balance of $500,000 from the County of
Riverside Home Funds,  payable together with accumulated simple interest of 6.5%
per annum,  over a fifteen-year  period beginning May, 2010, in monthly payments
of $8,469  including  interest  at 6.5% per annum,  and a loan with a balance of
$1,314,577  from  the  Rental  Housing  Construction  Program  of the  State  of
California  Department  of Housing and  Community  Development,  bearing  simple
interest at 3% per annum,  on which  payments of interest and principal  will be
deferred,  unless the operation of the property generates surplus cash in excess
of allowable distributions.



<PAGE>

     The fair value of the mortgage  payable is  estimated  based on the current
rates  offered to the project for debt of the same  maturities.  At December 31,
2002, the fair value of the mortgage payable approximates the amount recorded in
the financial statements. The amounts of principal due in each of the five years
after December 31, 2002, except for payments that might be required from surplus
cash, and the amount due after five years are as follows:

                           2003                                     $      8,201
                           2004                                            8,993
                           2005                                            8,960
                           2006                                           10,512
                           2007                                           12,156
                           Thereafter                                    632,520

Note 7.  Property Taxes
------   --------------
     The managing general partner is Indio Housing Development  Corporation,  an
organization  exempt from income taxes under the provisions of Internal  Revenue
Code Section 501(c)(3). As a provider of rental housing to qualifying low income
families,  the partnership  qualifies for a welfare  exemption from a portion of
the property  taxes  assessed by the County of Riverside.  The Riverside  County
Assessor  is  contending  the  grant  of  the  welfare  exemption  for  2002-03.
Discussions are being held with the assessor's representative. The first half of
2002-03 taxes are included in expenses.

Note 8.  Concentration of Activities
------   ---------------------------
     The  partnership's  sole  asset  is 60  units  of  housing.  The  project's
operations are concentrated in the multifamily real estate market.  In addition,
the project operates in a heavily regulated  environment.  The operations of the
project are  subject to  administrative  directives,  rules and  regulations  of
federal, state and local regulatory agencies, including, but not limited to HUD.
Such administrative  directives,  rules and regulations are subject to change by
an act of congress,  or and administrative  change mandated by HUD. Such changes
may occur with little notice or inadequate  funding to pay for the related cost,
including the additional administrative burden to comply with a change.