FINANCIAL STATEMENTS AND
                            INDEPENDENT AUDITORS' REPORT

                                 BLUE HILL HOUSING
                                LIMITED PARTNERSHIP

                          DECEMBER 31, 1997, 1996 AND 1995


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                       Blue Hill Housing Limited Partnership
                                 TABLE OF CONTENTS




INDEPENDENT AUDITORS' REPORT


FINANCIAL STATEMENTS


      BALANCE SHEETS


      STATEMENTS OF PROFIT AND LOSS


      STATEMENTS OF PARTNERS' EQUITY


      STATEMENTS OF CASH FLOWS


      NOTES TO FINANCIAL STATEMENTS


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                            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, 1997 and 1996, and the related statements
of profit and loss, partners' equity and cash flows for the years ended December
31, 1997, 1996 and 1995. 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, 1997 and 1996, and the results of its operations,
the changes in partners'  equity and cash flows for the years ended December 31,
1997,  1996  and  1995,  in  conformity  with  generally   accepted   accounting
principles.


/s/ Reznick Fedder & Silverman

Bethesda, Maryland
January 31, 1998












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                       Blue Hill Housing Limited Partnership
                                   BALANCE SHEETS
                                    December 31,
<TABLE>
<CAPTION>
              ASSETS
                                                   1997         1996
<S>                                              <C>           <C>
CURRENT ASSETS
   Petty cash                               $     75       $    75
   Cash and cash equivalents                 369,091       250,530
   Cash and cash equivalents - partnership       707         5,687
   Tenant accounts receivable                  4,095         2,968
   Prepaid mortgage insurance                 27,152        27,263
                                             ----------------------
                                                            

        Total current assets                 401,120       286,523
                                                           
DEPOSITS HELD IN TRUST - FUNDED
   Tenant security deposits held              37,711        36,000

RESTRICTED DEPOSITS AND FUNDED RESERVES
   Mortgage escrow deposits                   77,066        72,692
   Reserve for replacements                  241,862       215,129
   Other escrows                             106,411       187,080
                                             -------------------------

                                             425,339       474,901
RENTAL PROPERTY
   Land                                      111,325       111,325
   Buildings and improvements             10,839,187    10,751,907
   Furnishings                                62,003         2,829
                                                             

                                             11,012,515   10,866,061
   Less accumulated depreciation               3,416,271   3,019,650
                                             ------------ -----------

                                               7,596,244   7,846,411
OTHER ASSET
   Mortgage costs, less accumulated
     amortization of $105,987 and $94,688        357,283     368,582
                                             -------------------------

                                            $   8,817,697$  9,012,417
                                             ============ ===========
</TABLE>








                                    (continued)



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                       Blue Hill Housing Limited Partnership
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                                   BALANCE SHEETS
                                    December 31,
<TABLE>
<CAPTION>
 LIABILITIES AND PARTNERS' EQUITY
                                         1997           1996
                                   ------------    ---------

<S>                                <C>            <C>
CURRENT LIABILITIES
   Accounts payable                   $ 111,431$       19,071
   Accrued interest payable -            55,751        56,153
   mortgage
   Management fees payable               10,663         9,608
   Partnership administrative fee        92,061        78,989
   Rent deferred credits                  4,004         3,918
   Current maturities of mortgage 
   payables                              28,319        25,571   
                                     ---------------------------                                              
                                                   

        Total current liabilities        302,229        193,310
                                      ------------- --------------

DEPOSITS LIABILITY
   Tenant security deposits (contra)      36,710         36,000
                                                         

LONG-TERM DEBT
   Mortgage payable, less current       6,498,779     6,527,098
   maturities
   Development fee payable                 98,377       180,518
                                      ----------------------------

                                         6,597,156    6,707,616
                                                     

CONTINGENCY                                   -             -

PARTNERS' EQUITY                         1,881,602     2,075,491
                                      ------------  ------------

                                      $ 8,817,697 $    9,012,417
                                       ============  =============
</TABLE>

















                         See notes to financial statements



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                       Blue Hill Housing Limited Partnership
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                           STATEMENTS OF PROFIT AND LOSS
                              Year ended December 31,
<TABLE>
<CAPTION>
                                             1997         1996         1995
                                       ------------ -----------  ----------

<S>                                    <C>          <C>          <C>
Revenue
   Rental                              $2,104,840    1,914,452     2,087,780
   Interest and other                      37,566       30,997        38,472
                                       -----------------------------------------
                                          

                                         2,142,406    1,945,449    2,126,252
                                       -----------  -----------  -----------

Expenses
   Administrative                        290,300      261,456       300,770
   Utilities                             307,875      283,606       280,783
   Operating and maintenance             344,999      382,255       575,190
   Taxes and insurance                   193,017      179,562       180,237
   Interest                              670,054      672,924       675,128
   Depreciation and amortization         407,921      404,875       405,574
   Other                                 117,129       69,184         8,312
                                       -----------------------------------------

                                        2,331,295    2,253,862    2,425,994
                                       ----------  ------------ ------------
                                      
                                       

     NET LOSS                          $   (188,889)$   (308,413)$    (299,742)
                                        ============ ============ =============
</TABLE>
























                         See notes to financial statements



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                       Blue Hill Housing Limited Partnership
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                           STATEMENTS OF PARTNERS' EQUITY
                    Years ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
                                                      General      Limited
                                          Total       partners     partners
<S>                                     <C>           <C>          <C>
Partners' equity, December 31, 1994    $2,683,646    $(84,193)    $2,767,839

Net loss - 1995                          (299,742)     16,584     (316,326)
                                        -----------------------------------------

Partners' equity, December 31, 1995     2,383,904     (67,609)     2,451,513

Net loss - 1996                          (308,413)      7,298       (315,711)
                                        -----------------------------------------

Partners' equity, 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, December 31, 1997      $1,881,602    (59,821)$   1,941,423
                                        ============= ============ ==============
</TABLE>


























                         See notes to financial statements



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                       Blue Hill Housing Limited Partnership
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                              STATEMENTS OF CASH FLOWS
                              Year ended December 31,
<TABLE>
<CAPTION>
                                              1997          1996         1995
                                        -------------------------------------
<S>                                     <C>           <C>          <C>
Cash flows from operating activities
   Net loss                            $(188,889)    $(308,413)   $(299,742)
   Adjustments to reconcile net loss
   to net cash provided by operating
   activities
     Depreciation                        396,621      393,576       394,275
     Amortization                         11,299       11,299        11,299
     Changes in asset and liability
     accounts
     (Increase) decrease in assets
        Tenant accounts receivable       (1,128)        (696)        3,560
        Prepaid expenses                     111        2,476       (2,286)
        Tenant security deposits - net   (1,002)        5,791       (4,326)
        Mortgage escrow deposits         (4,373)        (974)       (4,407)
     Increase (decrease) in
     liabilities
        Accounts payable                   2,361      (40,474)       41,566
        Accrued interest payable           (402)         (14)         (178)
        Management fees payable            1,055      (1,404)         1,786
        Rent deferred credits                 86        1,066         2,852
        Partnership administrative fee    13,072       51,823        27,166

          Net cash provided by           228,811      114,056       171,565
                                        ------------- -------------------------
            operating activities

Cash flows from investing activities
   Deposits to reserve for              (42,766)      (40,654)     (42,833)
   replacements
   Withdrawals from reserve for           16,033       31,983        12,634
   replacements
   Withdrawal from other escrow                -       72,416        63,347
   Payment of development fees           (82,141)     (79,500)      (79,400)
   Decrease in other escrows              80,669          -             -
   Investment in buildings and
     improvements and furnishings        (56,454)         -             -
                                        ----------------------------------------

          Net cash used in investing     (84,659)     (15,755)      (46,252)
                                        ----------------------------------------
            activities

Cash flows from financing activities
   Mortgage principal payments          (25,571)      (23,091)     (20,721)
   Distributions paid                    (5,000)          -            -
                                        --------------------------------------
                                                                                

          Net cash used in financing
            activities                  (30,571)      (23,091)     (20,721)
                                        --------      --------     --------

          NET INCREASE IN CASH AND
            CASH EQUIVALENTS             113,581       75,210       104,592
                                                                    

Cash and cash equivalents, beginning     256,292      181,082        76,490
                                        ------------- ----------------------------

Cash and cash equivalents, end         $ 369,873      $256,292      $181,082
                                         ============ ============ ==============

Supplemental disclosure of cash flow
information
   Cash paid for interest during the   $ 670,456      $672,938      $675,306
                                         ============  ===========  =============
   year
</TABLE>
                         See notes to financial statements


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                       Blue Hill Housing Limited Partnership
                           NOTES TO FINANCIAL STATEMENTS
                             December 31, 1997 and 1996


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

   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.  The project qualifies for the
   Low-Income Tax Credit established by the Tax Reform Act of 1986.

   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.

   Cash  distributions are limited by agreements between the partnership and 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.

   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 27.5-year  life.  Personal  property is recorded at cost and is
   depreciated  over its  estimated  service  life of five to seven  years using
   accelerated  methods.  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 statement of profit and loss.
















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                       Blue Hill Housing Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                             December 31, 1997 and 1996


NOTE A - ORGANIZATION AND 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.

   U.S. Treasury Note

   U.S.  Treasury  notes of $39,791 and  $131,580 at December 31, 1997 and 1996,
   respectively,  are carried at amortized cost, which  approximates fair value,
   and are classified as held-to-maturity. The U.S. Treasury notes are reflected
   in the other  escrows  account.  The notes bear interest at 5.10% - 6.25% and
   mature through February 28, 1998.















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                       Blue Hill Housing Limited Partnership
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                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                             December 31, 1997 and 1996


NOTE B - 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.

   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
   are as follows:
<TABLE>
<CAPTION>
<S>                      <C>
December 31, 1998      $ 28,319
             1999        31,362
             2000        34,732
             2001        38,591
             2002        42,597
</TABLE>
NOTE C - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES

   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 1997, 1996
   and 1995, $82,141, $79,500 and $79,400,  respectively,  of this fee was paid.
   As of December 31, 1997 and 1996, $98,377 and $180,518, respectively, remains
   payable.

















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                       Blue Hill Housing Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                             December 31, 1997 and 1996


NOTE C - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES (Continued)

   Management Fees

   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 1997, 1996 and 1995 was $127,538,  $115,165 and
   $146,974,  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, 1997 and 1996, $10,663 and $9,608,  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. As of December 31, 1997 and 1996,  $92,061 and
   $78,989 remains payable.

NOTE D - HOUSING ASSISTANCE PAYMENT CONTRACT 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 annual housing assistance payments to the partnership on behalf
   of qualified tenants. The agreement expires June 16, 2003.

NOTE E - 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 account  during the deficit  period.
   The  deposit  was made  prior to final  endorsement  of the  mortgage.  As of
   December  31, 1997 and 1996,  $106,411  and  $187,080,  respectively,  are in
   escrow.  Annually,  the escrow will be released by one-fifth  (reduced by any
   required funding of operations or to make any replacement required by EOCD).














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                       Blue Hill Housing Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                             December 31, 1997 and 1996


NOTE F - CONTINGENCY

   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.

NOTE G - OTHER MORTGAGOR ENTITY EXPENSES (INCOME)

   Other mortgagor entity expenses (income) consist of the following:
<TABLE>
<CAPTION>

                                          1997          1996          1995
                                        ----------    ---------    -------

   <S>                                  <C>           <C>          <C>
   Interest income, other escrow -        $(2,405)      $(9,805)     $(18,854)
      partnership cash
   Bank charges                               913             -             -
   Partnership administration fee          92,061        78,989        27,166
   Neighborhood work center expense        26,560       -
                                        -------------   ------------------------

                                       $  117,129      $ 69,184      $  8,312
                                        ============   =========== =============
</TABLE>
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  amounted to  $173,014,  of which  $146,454  was
   capitalized and $26,560 was expensed.