FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                                BLUE HILL HOUSING
                               LIMITED PARTNERSHIP

                        DECEMBER 31, 1999, 1998 AND 1997

<PAGE>

                      Blue Hill Housing Limited Partnership

                                TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                 3

FINANCIAL STATEMENTS

      BALANCE SHEETS                                                         4

      STATEMENTS OF PROFIT AND LOSS                                          5

      STATEMENTS OF PARTNERS' EQUITY                                         6

      STATEMENTS OF CASH FLOWS                                               7

      NOTES TO FINANCIAL STATEMENTS                                          8

<PAGE>

                          INDEPENDENT AUDITORS' REPORT

To the Partners

Blue Hill Housing Limited Partnership

      We have  audited  the  accompanying  balance  sheets of Blue Hill  Housing
Limited Partnership as of December 31, 1999 and 1998, and the related statements
of profit and loss, partners' equity and cash flows for the years ended December
31, 1999, 1998 and 1997. 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.  These 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 Blue Hill Housing Limited
Partnership as of December 31, 1999 and 1998, and the results of its operations,
the changes in partners'  equity and cash flows for the years ended December 31,
1999,  1998  and  1997,  in  conformity  with  generally   accepted   accounting
principles.

Bethesda,  Maryland
January 25, 2000,  except for note G
as to which the date is May 2, 2000


                                      -3-
<PAGE>

                      Blue Hill Housing Limited Partnership

                                 BALANCE SHEETS

                                  December 31,

                      ASSETS
                                                   1999         1998
                                               -----------   -----------
CURRENT ASSETS
  Cash and cash equivalents - operations       $   474,699   $   272,243
  Cash and cash equivalents - entity               209,847       135,092
  Tenant accounts receivable                         4,138         1,409
  Miscellaneous prepaid expenses                    26,894        27,030
                                               -----------   -----------

    Total current assets                           715,578       435,774
                                               -----------   -----------

DEPOSITS HELD IN TRUST - FUNDED
  Tenant deposits                                   42,139        37,356
                                               -----------   -----------

RESTRICTED DEPOSITS AND FUNDED
RESERVES
  Escrow deposits                                   79,779       101,752
  Reserve for replacements                         228,405       213,165
                                               -----------   -----------

                                                   308,184       314,917

RENTAL PROPERTY
  Land                                             111,325       111,325
  Buildings                                     10,789,587    10,868,372
  Furnishings                                       60,495        62,003
  Office furniture and equipment                     3,250            --
                                               -----------   -----------
                                                10,964,657    11,041,700

  Less accumulated depreciation                  3,951,874     3,687,040
                                               -----------   -----------

                                                 7,012,783     7,354,660

OTHER ASSETS

  Intangible assets, net of accumulated            334,680       345,984
    amortization of $186,402 and $175,098
  Miscellaneous other assets                        90,000            --
                                               -----------   -----------

                                                   424,680       345,984

                                               $ 8,503,364   $ 8,488,691
                                               ===========   ===========


            LIABILITIES AND PARTNERS' EQUITY
                                                   1999          1998
                                               -----------   -----------
CURRENT LIABILITIES
  Accounts payable                             $    22,925   $     8,718
  Accrued interest payable - mortgage               55,751        55,751
  Management fees payable                           10,897        10,830
  Accounts payable - entity                        117,723        74,157
  Prepaid revenue                                  151,740         8,662
  Current maturities of mortgage payable            34,732        31,362
  Development fee payable                               --        16,235
                                               -----------   -----------
    Total current liabilities                      393,768       205,715
                                               -----------   -----------

DEPOSITS LIABILITY
  Tenant deposits held in trust (contra)            40,080        38,139
                                               -----------   -----------


LONG-TERM DEBT
  Mortgage payable, less current maturities      6,432,685     6,467,417
                                               -----------   -----------




CONTINGENCIES                                           --            --
                                               -----------   -----------

PARTNERS' EQUITY                                 1,636,831     1,777,420

                                               $ 8,503,364   $ 8,488,691
                                               ===========   ===========

                       See notes to financial statements


                                      -4-
<PAGE>

                      Blue Hill Housing Limited Partnership
                          STATEMENTS OF PROFIT AND LOSS
                             Year ended December 31,

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

Revenue
  Rental                              $ 2,222,212    $ 2,151,805    $ 2,104,840
  Interest and other                       37,183         34,475         37,566
                                      -----------    -----------    -----------

                                        2,259,395      2,186,280      2,142,406
                                      -----------    -----------    -----------

Expenses
  Administrative                          368,022        309,536        290,300
  Utilities                               293,196        317,797        307,875
  Operating and maintenance               475,350        462,009        344,999
  Taxes and insurance                     205,000        179,333        193,017
  Interest                                664,665        667,709        670,054
  Depreciation and amortization           276,139        282,068        407,921
  Other                                   117,612         72,010        117,129
                                      -----------    -----------    -----------

                                        2,399,984      2,290,462      2,331,295
                                      -----------    -----------    -----------

    NET LOSS                          $  (140,589)   $  (104,182)   $  (188,889)
                                      ===========    ===========    ===========

                       See notes to financial statements


                                      -5-
<PAGE>

                      Blue Hill Housing Limited Partnership

                         STATEMENTS OF PARTNERS' EQUITY

                  Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                        General            Limited
                                                      Total             partners           partner
                                                    -----------        -----------        -----------
<S>                                                 <C>                <C>                <C>
Partners' equity (deficit), December 31, 1996       $ 2,075,491        $   (60,311)       $ 2,135,802

Distribution                                             (5,000)                --             (5,000)

Net loss - 1997                                        (188,889)               490           (189,379)
                                                    -----------        -----------        -----------

Partners' equity (deficit), December 31, 1997         1,881,602            (59,821)         1,941,423

Net loss - 1998                                        (104,182)             1,940           (106,122)
                                                    -----------        -----------        -----------

Partners' equity (deficit), December 31, 1998         1,777,420            (57,881)         1,835,301

Net loss - 1999                                        (140,589)               325           (140,914)
                                                    -----------        -----------        -----------

Partners' equity (deficit), December 31, 1999       $ 1,636,831        $   (57,556)       $ 1,694,387
                                                    ===========        ===========        ===========

</TABLE>

                       See notes to financial statements


                                      -6-
<PAGE>

                      Blue Hill Housing Limited Partnership

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,

<TABLE>
<CAPTION>
                                                          1999        1998         1997
                                                       ---------    ---------    ---------
<S>                                                    <C>          <C>          <C>
Cash flows from operating activities
  Net loss                                             $(140,589)   $(104,182)   $(188,889)
  Adjustments to reconcile net loss to net cash
  provided by operating activities
    Depreciation                                         264,835      270,769      396,622
    Amortization                                          11,304       11,299       11,299
    Changes in asset and liability accounts
    (Increase) decrease in assets
      Tenant accounts receivable                          (2,729)       2,686       (1,128)
      Miscellaneous prepaid expenses                         136          122          111
      Tenant security deposits - funded                   (4,783)         355       (1,002)
      Mortgage escrow deposits                                --        1,686       (4,373)
    Increase (decrease) in liabilities
      Accounts payable                                    14,206     (102,713)       2,360
      Accrued interest payable                                --           --         (402)
      Accrued liabilities                                     67          167        1,055
      Tenant security deposits held in trust               1,941        1,429           --
      Prepaid revenue                                    143,078        4,658           86
      Entity/construction liabilities payable             43,566      (17,904)      13,072
                                                       ---------    ---------    ---------
        Net cash provided by operating activities        331,032       68,372      228,811
                                                       ---------    ---------    ---------

Cash flows from investing activities
  Net withdrawals from (deposits to) reserve for         (15,240)      28,697      (26,733)
    replacements
  Net withdrawals from (deposits to) other escrows        21,973       80,039       80,669
  Entity/construction investing activities paid from     (16,235)     (82,142)     (82,141)
    partnership cash
  Net purchases of fixed assets                          (12,957)     (29,185)     (56,454)
                                                       ---------    ---------    ---------
  Net cash used in investing activities                  (22,459)      (2,591)     (84,659)
                                                       ---------    ---------    ---------
Cash flows from financing activities
  Mortgage principal payments                            (31,362)     (28,319)     (25,571)
  Distributions paid                                          --           --       (5,000)
                                                       ---------    ---------    ---------
      Net cash used in financing activities              (31,362)     (28,319)     (30,571)
                                                       ---------    ---------    ---------

      NET INCREASE IN CASH AND CASH                      277,211       37,462      113,581
        EQUIVALENTS

Cash and cash equivalents, beginning                     407,335      369,873      256,292
                                                       ---------    ---------    ---------
Cash and cash equivalents, end                         $ 684,546    $ 407,335    $ 369,873
                                                       =========    =========    =========

Supplemental disclosure of cash flow information
  Cash paid for interest during the year               $ 664,665    $ 667,709    $ 670,456
                                                       =========    =========    =========
</TABLE>


                       See notes to financial statements

                                      -7-
<PAGE>

                      Blue Hill Housing Limited Partnership

                          NOTES TO FINANCIAL STATEMENTS

                           December 31, 1999 and 1998


NOTE A - ORGANIZATION

   Blue Hill Housing  Limited  Partnership  was organized  under the laws of the
   Commonwealth  of  Massachusetts  on  November  4,  1987,  for the  purpose of
   acquiring,  rehabilitating  and  operating a low-income  residential  housing
   project  under  Section  221(d)4 of the  National  Housing  Act.  The project
   consists of 144 units located in Dorchester,  Massachusetts, and is currently
   operating under the name of Blue Hill Housing.

   Cash  distributions are limited by agreements between the partnership and the
   Department  of Housing and Urban  Development  (HUD) to the extent of surplus
   cash as defined  by HUD.  If the  partnership  does not  distribute  at least
   $2,500 annually to the limited partner, the general partners are obligated to
   pay such shortfall. The distribution is payable from partnership cash.

   Each  building of the project has  qualified  and been  allocated  low-income
   housing credits  pursuant to Internal  Revenue Code Section 42 ("Section 42")
   which  regulates the use of the project as to occupant  eligibility  and unit
   gross rent, among other requirements.  Each building of the project must meet
   the provisions of these  regulations  during each of 15 consecutive  years in
   order to remain qualified to receive the credits.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   Use of Estimates

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

   Property and Equipment

   Land,  buildings  and  improvements  are  recorded 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  over a 40-year  life.  Personal  property  is recorded at cost and is
   depreciated  over its  estimated  service  life of five to seven  years using
   accelerated methods or 12 years using the straight-line method.  Improvements
   are capitalized,  while  expenditures for maintenance and repairs are charged
   to  expense  as  incurred.   Upon  disposal  of  depreciable  property,   the
   appropriate   property   accounts  are  reduced  by  the  related  costs  and
   accumulated depreciation. The resulting gains and losses are reflected in the
   statements of profit and loss.


                                      -8-
<PAGE>

                      Blue Hill Housing Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE B - SUMMARY OF  SIGNIFICANT  ACCOUNTING  POLICIES (Continued)

   Amortization

   Mortgage  costs are  amortized  over the term of the mortgage  loan using the
   effective interest method.

   Cash and Cash Equivalents

   The partnership invests all cash balances in overnight repurchase  agreements
   with its bank which are invested in U.S. Treasury Notes. Management considers
   highly liquid  investments with original maturity dates of 90 days or less to
   be cash equivalents.

   Provision for Doubtful Accounts

   The  partnership  considers  accounts  receivable  to be  fully  collectible;
   accordingly,  no  allowance  for doubtful  accounts is  required.  If amounts
   become   uncollectible,   they  will  be  charged  to  operations  when  that
   determination is made.

   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.

   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.

NOTE C - MORTGAGE PAYABLE

   The mortgage note is co-insured by the Federal Housing  Administration  (FHA)
   and collateralized by a deed of trust on the rental property.  The note bears
   interest at the rate of 10.25%.  Principal  and  interest  are payable by the
   partnership in monthly installments of $58,002 through October 2029.


                                      -9-
<PAGE>

                      Blue Hill Housing Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE C - MORTGAGE PAYABLE (Continued)

   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 note is limited to the
   underlying value of the real estate  collateral plus other amounts  deposited
   with the lender.

   Aggregate  maturities of the mortgage payable for each of the next five years
   and thereafter, are as follows:

                                          December 31, 2000    $   34,732
                                                       2001        38,591
                                                       2002        42,597
                                                       2003        47,175
                                                       2004        52,244
                                                 Thereafter     6,252,078
                                                              -----------

                                                              $ 6,467,417
                                                              ===========

NOTE D - RELATED PARTY TRANSACTIONS

   Development Fee Payable

   The partnership has accrued a development fee payable to the general partners
   for  services  provided  during the  development  and  rehabilitation  of the
   project.  This fee was  capitalized as part of the rental property during the
   year ended December 31, 1989 and is payable from capital  contributions,  the
   operating deficit escrow and interest earned on the escrow. During 1999, 1998
   and 1997, $16,235, $82,142 and $82,141,  respectively,  of this fee was paid.
   As of  December  31,  1999 and 1998,  $0 and  $16,235,  respectively,  remain
   payable.  If future  releases from the operating  deficit escrow (see note F)
   exceed entity income,  the excess will be considered  additional  development
   fee.  Accordingly,  during 1999,  $9,707 was paid and capitalized into rental
   property.


                                      -10-
<PAGE>

                      Blue Hill Housing Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE D - RELATED PARTY TRANSACTIONS (Continued)

   Management Fees (Continued)

   The property is managed by affiliates of the general partners,  pursuant to a
   management  agreement  approved  by HUD.  The  current  management  agreement
   provides for a management  fee of 6% of monthly rental  collections.  The fee
   charged to operations  during 1999, 1998 and 1997 was $133,904,  $129,936 and
   $127,538,  respectively.  In addition,  a reporting fee of $5.25 per unit per
   month is charged for  bookkeeping and reporting  services.  The reporting fee
   charged to  operations  during each of the three years ended  December 31 was
   $9,072. At December 31, 1999 and 1998, $10,897 and $10,830,  respectively, in
   management fees are payable.

   Partnership Administration Fee

   The  partnership  has  entered  into a  Partnership  Administrative  Services
   agreement  with the general  partners  for their  services  in  managing  the
   business of the partnership.  The annual fee is equal to 50% of net cash flow
   available for  distribution  as defined in the  partnership  agreement with a
   maximum of $500,000 per annum.  For the years ended  December 31, 1999,  1998
   and 1997, a partnership  administrative fee of $117,723, $74,157 and $92,061,
   respectively, was incurred, of which $117,723 and $74,157, were payable as of
   December 31, 1999 and 1998, respectively.

NOTE E - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENT

   FHA has contracted with the  partnership,  under Section 8 of Title II of the
   Housing  and  Community  Development  Act of  1974,  to make  annual  housing
   assistance  payments to the partnership on behalf of qualified  tenants.  The
   agreement expires June 16, 2003.

NOTE F - OPERATING DEFICIT ESCROW

   The  partnership  has entered  into an  agreement  with the  Commonwealth  of
   Massachusetts,  Executive  Office of Communities  and  Development  (EOCD) in
   order to receive its allocation of housing credit dollar amounts  pursuant to
   Section  42  of  the  Internal  Revenue  Code.  The  agreement  requires  the
   establishment  of a reserve to fund  operating  deficits for a period of five
   years from the date of final endorsement of the mortgage. The partnership was
   required to deposit into an escrow account  $684,507,  reduced by an estimate
   of interest which will be earned on the


                                      -11-
<PAGE>

                      Blue Hill Housing Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE F - OPERATING DEFICIT ESCROW (Continued)

   account  during  the  deficit  period.  The  deposit  was made prior to final
   endorsement  of the  mortgage.  As of  December  31,  1999 and  1998,  $0 and
   $26,372, respectively, are in escrow.

NOTE G - CONTINGENCIES

   Tax Credits

   The project's  low-income  housing  credits are  contingent on its ability to
   maintain  compliance  with  applicable  sections  of Section  42.  Failure to
   maintain compliance with occupant eligibility,  and/or unit gross rent, or to
   correct  noncompliance  within  a  specified  time  period  could  result  in
   recapture of previously  taken tax credits plus interest.  In addition,  such
   potential  noncompliance may require an adjustment to the contributed capital
   by the limited partner.

   Insurance Claim

   During 1999,  the  partnership  filed a claim with the  insurance  company in
   connection with required  repairs to certain boilers of the project's  boiler
   system. The partnership is still negotiating with the insurance company for a
   final  settlement  and is  obtaining  bids to repair the boiler  system.  The
   partnership will record in the financial  statements the insurance settlement
   when the  claim is  settled  and the  liability  when  the  contract  for the
   required repairs is executed and completed.

   Physical Inspection

   In November 1999, the property underwent a physical  inspection  performed by
   the Real  Estate  Assessment  Center  (REAC).  Due to the  number  of  severe
   problems found in the property's physical condition,  the inspection resulted
   in a failing score and was forwarded to the Departmental  Enforcement  Center
   (DEC).  DEC is responsible for performing a  comprehensive  evaluation of the
   property in which the physical  condition of the property and  financial  and
   management matters are reviewed.

   Management  concluded,  upon  examination  of  the  inspection  report,  that
   material  errors  were  made  and  that  the  report  was   inconsistent  and
   inaccurate.  Therefore,  on December 22, 1999,  management submitted a formal
   appeal of the REAC inspection, requesting a re-scoring of the property.


                                      -12-
<PAGE>

                      Blue Hill Housing Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                           December 31, 1999 and 1998

NOTE G - CONTINGENCIES (Continued)

   Physical Inspection (Continued)

   On May 2, 2000,  management received  correspondence from REAC in response to
   the  appeal.  REAC  acknowledged  that  material  errors  were  made  in  the
   inspection.  A  separate  quality  assurance  onsite  review of the  property
   performed  on March 20,  2000 also  found  that the  inspector  made  certain
   mistakes  and  misstatements  in  the  inspection  report.   Therefore,  REAC
   determined that the original  inspection was not conducted in accordance with
   proper protocol.  It has decided to initiate a complete  re-inspection of the
   property.

   Due to the uncertainty of the events  described above and possible  outcomes,
   the amount resulting from any ultimate  unfavorable  decision by REAC related
   to possible repair costs cannot be determined.

NOTE H - NEIGHBORHOOD NETWORK CENTER

   During  1997,  pursuant  to  HUD's  approval,  the  partnership  and Elm Hill
   Housing, L.P., an affiliate,  established a Neighborhood Network Center. Cost
   incurred  by the  partnership  during  1999 and 1998  amounted to $69,056 and
   $29,185,  respectively. The amount of these costs capitalized during 1999 and
   1998 amounted to $0 and $29,185, respectively. $69,056 was expensed in 1999.

                                      -13-