<PAGE>   1

                       SECURITIES AND EXCHANGE COMMISSION

                            Washington, D.C.  20549
                                   FORM 10-K

                Annual Report Pursuant to Section 13 or 15(d) of
                      the Securities Exchange Act of 1934

                  For the Fiscal Year Ended DECEMBER 31, 1996

                             Commission File Number
                                     2-84816   

                       REAL ESTATE ASSOCIATES LIMITED VII

                        A CALIFORNIA LIMITED PARTNERSHIP

               I.R.S. Employer Identification No.  95-3290316   

        9090 WILSHIRE BLVD., SUITE 201, BEVERLY HILLS, CALIFORNIA 90211

       Registrant's Telephone Number, Including Area Code (310) 278-2191

      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:

                                      NONE

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed with the Commission by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding twelve months (or such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                     Yes  X          No
                         ---            ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.  [X]
<PAGE>   2
PART I.

ITEM 1.  BUSINESS

Real Estate Associates Limited VII ("REAL VII" or the "Partnership") is a
limited partnership which was formed under the laws of the State of California
on May 24, 1983.  On February 1, 1984, the Partnership offered 2,600 units
consisting of 10,400 limited partnership interests and warrants to purchase a
maximum of 5,200 additional limited partnership interests through a public
offering managed by Lehman Brothers Inc.

The general partners of the Partnership are National Partnership Investments
Corp. ("NAPICO"), a California Corporation (the "Corporate General Partner"),
and National Partnership Investments Associates II ("NAPIA II").  NAPIA II is a
limited partnership formed under the California Limited Partnership Act and
consists of Mr. Charles H. Boxenbaum and an unrelated individual as limited
partners and NAPICO as general partner.  The business of the Partnership is
conducted primarily by its general partners as the Partnership has no employees
of its own.

Casden Investment Corporation ("CIC") owns 100 percent of NAPICO's stock.  The
current members of NAPICO's Board of Directors are Charles H.  Boxenbaum, Bruce
E. Nelson, Alan I. Casden, Henry C. Casden and Brian D. Goldberg.

The Partnership holds limited partnership interests in thirty-two local limited
partnerships as of December 31, 1996.  The Partnership also holds a general
partner interest in Real Estate Associates IV ("REA IV") which, in turn, holds
limited partnership interests in sixteen additional local limited partnerships;
therefore, the Partnership holds interests, either directly or indirectly
through REA IV, in forty-eight local limited partnerships.  The other general
partner of REA IV is NAPICO.  Each of the local partnerships owns a low income
housing project which is subsidized and/or has a mortgage note payable to or is
insured by agencies of the federal or local government.

In order to stimulate private investment in low income housing, the federal
government and certain state and local agencies have provided significant
ownership incentives, including among others, interest subsidies, rent
supplements, and mortgage insurance, with the intent of reducing certain market
risks and providing investors with certain tax benefits, plus limited cash
distributions and the possibility of long-term capital gains.  There remain,
however, significant risks.  The long-term nature of investments in government
assisted housing limits the ability of the Partnership to vary its portfolio in
response to changing economic, financial, and investment conditions.  Such
investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages, and other factors which have an impact on real
estate values.  These projects also require greater management expertise and
may have higher operating expenses than conventional housing projects.

The partnerships in which the Partnership has invested are principally existing
local limited partnerships.  The Partnership became the limited partner in
these local limited partnerships pursuant to arm's-length negotiations with the
local partnership's general partners who are often the original project
developers.  In certain other cases, the Partnership invested in newly formed
local partnerships which, in turn, acquired the projects.  As a limited
partner, the Partnership's liability for obligations of the local limited
partnership is limited to its investment.  The local general partner of the
local limited partnership retains the responsibility of maintaining, operating
and managing the project.  Under certain circumstances, the Partnership has the
right to replace the general partner of the local limited partnerships.





<PAGE>   3
Although each of the partnerships in which the Partnership has invested will
generally own a project which must compete in the market place for tenants,
interest subsidies and rent supplements from governmental agencies make it
possible to offer these dwelling units to eligible "low income" tenants at a
cost significantly below the market rate for comparable conventionally financed
dwelling units in the area.

During 1996, all of the projects in which the Partnership had invested were
substantially rented.  The following is a schedule of the status, as of
December 31, 1996, of the projects owned by local partnerships in which the
Partnership, either directly or indirectly through REA IV, has invested.


            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                      IN WHICH REAL VII HAS AN INVESTMENT
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                             Units Authorized
                                                For Rental
                                             Assistance Under
                                               Section 8 or
                                                Other Rent
                           No. of               Supplement                   Units           Percentage of
Name & Location             Units                 Program                   Occupied          Total Units 
---------------             -----            -----------------              --------         -------------
<S>                           <C>                  <C>                         <C>                <C>
Anthracite Apts.              121                  121/  0                     121                100%
  Pittston, PA

Aristocrat Manor              113                  113/  0                      91                 81%
  Hot Springs, AR

Arkansas City Apts.            16                    4/  7                      13                 81%
  Arkansas City, AR

Arrowsmith Apts.               70                   70/  0                      70                100%
  Corpus Christi, TX

Ashland Manor                 189                  189/  0                     185                 98%
  Toledo, OH

Bangor House                  121                  121/  0                     121                100%
  Bangor, ME

Bellair Manor Apts.            68                    7/  7                      63                 93%
  Niles, OH

Birch Manor Apts. I            60                   12/  0                      59                 98%
  Medina, OH

Birch Manor Apts II            60                    6/  0                      58                 97%
  Medina, OH

Bluewater Apts.               116                     None                     111                 96%
  Port Huron, MI
</TABLE>





<PAGE>   4
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                      IN WHICH REAL VII HAS AN INVESTMENT
                               DECEMBER 31, 1996
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                             Units Authorized
                                                For Rental
                                             Assistance Under
                                               Section 8 or
                                                Other Rent
                          No. of                Supplement                   Units         Percentage of
Name & Location           Units                   Program                   Occupied        Total Units 
---------------           -----              -----------------              --------       -------------
<S>                           <C>                  <C>                         <C>                <C>
Center City                   176                  175/  0                     176                100%
  Hazelton, PA

Clarkwood Apts. I              72                   24/  0                      66                 92%
  Elyria, OH

Clarkwood Apts. II            120                   39/  0                     112                 93%
  Elyria, OH

Cleveland Apts. I              50                   50/  0                      50                100%
  Hayti, MO

Cleveland Apts. II             50                   50/  0                      50                100%
  Hayti, MO

Cleveland Apts. III            21                   21/  0                      21                100%
  Hayti, MO

Danbury Park Manor            151                   85/  0                     142                 94%
  Superior Township, MI

Desoto Apts.                   42                   42/  0                      42                100%
  Desoto, MO

Dexter Apts.                   50                   50/  0                      49                 98%
  Dexter, MO

Edgewood Terrace II           258                  103/  0                     237                 92%
  Washington, DC

Goodlette Arms Apts.          250                     None                     249                100%
  Naples, FL

Hampshire House               150                  150/  0                     142                 95%
  Warren, OH

Henrico Arms                  232                  232/  0                     232                100%
  Richmond, VA
</TABLE>





<PAGE>   5
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                      IN WHICH REAL VII HAS AN INVESTMENT
                               DECEMBER 31, 1996
                                  (CONTINUED)
<TABLE>
<CAPTION>
                                             Units Authorized
                                                For Rental
                                             Assistance Under
                                               Section 8 or
                                                Other Rent
                          No. of                Supplement                   Units           Percentage of
Name & Location           Units                   Program                   Occupied          Total Units 
---------------           -----              -----------------              --------         -------------
<S>                           <C>                  <C>                         <C>                <C>
Ivywood Apts.                 124                   75/  0                     123                 99%
  Columbus, OH

Jasper County Prop.            24                     None                      23                 96%
  Heidelberg, MS

King Towers                    68                   14/  0                      68                100%
  Cincinnati, OH

Meherrin Landings              42                     None                      30                 71%
  Emporia, VA

Nantucket Apts.                60                   59/  0                      59                 98%
  Alliance, OH

Newton Apts.                   36                     None                      31                 86%
  Newton, MS

Oak Hill Apts.                120                   82/  0                     120                100%
  Franklin, PA

Oakview Apts.                  32                     None                      27                 84%
  Monticello, AR

Oakwood Park I Apts            50                     None                      49                 98%
  Lorain, OH

Oakwood Park II Apts           78                     None                      74                 95%
  Lorain, OH

Pachuta Apartments             16                     None                      16                100%
  Pachuta, MS

Parkway Towers Apt            104                  103/  0                     102                 98%
  E. Providence, RI

Pebbleshire Apts.             120                   24/  0                     118                 98%
  Vernon Hills, IL
</TABLE>





<PAGE>   6
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                      IN WHICH REAL VII HAS AN INVESTMENT
                               DECEMBER 31, 1996
                                  (CONTINUED)

<TABLE>
<CAPTION>
                                              Units Authorized
                                                 For Rental
                                              Assistance Under
                                                Section 8 or
                                                 Other Rent
                          No. of                 Supplement                 Units            Percentage of
Name & Location           Units                    Program                 Occupied           Total Units 
---------------           -----               -----------------            --------          -------------
<S>                         <C>                  <C>                         <C>                  <C>
Pinebrook Apts.               136                  109/  0                     126                 93%
  Lansing, MI

Rand Grove Village            212                  212/  0                     195                 92%
  Palatine, IL

Richards Park Apts.            60                   24/  0                      59                 98%
  Elyria, OH

Ridgewood Towers              140                  140/  0                     139                 99%
  Moline, IL

Shubuta Properties             16                     None                      15                 94%
  Shubuta, MS

South Glen Apts.              159                   27/  0                     159                100%
  Trenton, MI

South Park Apts.              138                  138/  0                     124                 90%
  Elyria, OH

Sunland Terrace                80                   80/  0                      80                100%
  Phoenix, AZ

Tradewinds East               150                     None                     145                 97%
  Essexville, MI

Warren Heights Apts II         88                   87/  0                      82                 93%
  Warren, OH

White Cliff Apts.              72                   72/  0                      71                 99%
  Cincinnati, OH

Yorkview Estates               50                   50/  0                      48                 96%
  Massillon, OH
                                                                                                     
                            -----                ---------                   -----

  TOTAL                     4,731                2,960/ 14                   4,543                 96%
                            =====                =========                   =====                    
</TABLE>





<PAGE>   7
ITEM 2.      PROPERTIES

Through its participation in local limited and general partnerships, the
Partnership holds interests in real estate properties.  See Item 1 and Schedule
XI for information pertaining to these properties.

ITEM 3.      LEGAL PROCEEDINGS

As of December 31, 1996, the Partnership's Corporate General Partner was a
plaintiff or defendant in several lawsuits.  In addition, the Partnership is
involved in the following lawsuit.  In the opinion of management and the
Corporate General Partner, the claims will not result in any material liability
to the Partnership.

John Mitchell v. Oakwood Apartments, NAPICO et al., Case No. 94CV112108, Court
of Common Pleas, Lorain County, Ohio.  On March 31, 1994, the Plaintiff filed a
lawsuit alleging that on May 5, 1992, while returning to his apartment (Oakwood
Apartments, Lorain, Ohio) he tripped and sustained mental and physical
injuries.  The Plaintiff voluntarily dismissed his action and a Notice of
Voluntary Dismissal without prejudice was filed.  The Plaintiff, however,
refiled the action which remains pending.

ITEM 4.      SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

Not applicable.

PART II.

ITEM 5.      MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED
             SECURITY HOLDER MATTERS.

The Limited Partnership Interests are not traded on a public exchange but were
sold through a public offering managed by Lehman Brothers, Inc.  It is not
anticipated that any public market will develop for the purchase and sale of
any partnership interest.  Limited Partnership Interests may be transferred
only if certain requirements are satisfied.  At December 31, 1996, there were
3,666 registered holders of units in the Partnership.  No distributions have
been made from the inception of the Partnership to December 31, 1996.  The
Partnership has invested in certain government assisted projects under programs
which in many instances restrict the cash return available to project owners.
The Partnership was not designed to provide cash distributions to investors in
circumstances other than refinancing or disposition of its investments in
limited partnerships.





<PAGE>   8

ITEM 6.  SELECTED FINANCIAL DATA:



<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                             ----------------------------------------------------------------------------
                                  1996           1995            1994            1993            1992
                             ------------    ------------    ------------    ------------    ------------
<S>                          <C>             <C>             <C>             <C>             <C>
Loss From Operations         $ (3,240,566)   $ (3,234,086)   $ (3,225,472)   $ (3,245,333)   $ (3,244,612)

Distributions From
   Limited Partnerships
   Recognized as Income            63,515          19,632         249,371         190,767         124,966

Equity in Loss of Limited
   Partnerships and
   Amortization of
   Acquisition Costs             (243,392)       (511,033)     (1,074,503)     (1,325,646)     (1,014,151)
                             ------------    ------------    ------------    ------------    ------------
Net Loss                     $ (3,420,443)   $ (3,725,487)   $ (4,050,604)   $ (4,380,212)   $ (4,133,797)

Net Loss per Limited
   Partnership Interest      $       (164)   $       (179)   $       (193)   $       (211)   $       (197)
                             ============    ============    ============    ============    ============

Total assets                 $ 18,321,519    $ 19,183,742    $ 20,411,116    $ 22,203,347    $ 24,129,351
                             ============    ============    ============    ============    ============
Investments in Limited
   Partnerships              $ 17,873,759    $ 18,600,961    $ 19,757,594    $ 21,590,427    $ 23,573,755
                             ============    ============    ============    ============    ============
Notes Payable                $ 24,869,501    $ 24,869,501    $ 24,869,501    $ 24,869,501    $ 24,869,501
                             ============    ============    ============    ============    ============
Fees and Expenses Due to
   General Partner           $  3,213,854    $  2,630,214    $  2,041,574    $  1,597,934    $  1,054,294
                             ============    ============    ============    ============    ============
</TABLE>





<PAGE>   9
ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
           RESULTS OF OPERATIONS

LIQUIDITY

The Partnership's primary sources of funds include interest income on money
market funds and certificates of deposit and distributions from local
partnerships in which the Partnership has invested.  It is not expected that
any of the local partnerships in which the Partnership has invested will
generate cash flow sufficient to provide for distributions to the Partnership's
limited partners in any material amount.

As of December 31, 1996, the fees and expenses due the general exceeded the
Partnership's cash.  The general partner, during the forthcoming year, will not
demand payment of amounts due in excess of such cash or such that the
Partnership would not have sufficient operating cash; however, the Partnership
will remain liable for all such amounts.

CAPITAL RESOURCES

The Partnership received $39,000,000 in subscriptions for units of limited
partnership interests (at $5,000 per unit) during the period March 7, 1984 to
June 11, 1985, pursuant to a registration statement on Form S-11.

RESULTS OF OPERATIONS

The Partnership was formed to provide various benefits to its partners as
discussed in Item 1.  It is anticipated that the local partnerships in which
the Partnership has invested could produce tax losses for as long as 20 years.
The Partnership will seek to defer income taxes from sale by not selling any
projects or project interests within 10 years, except to qualified tenant
cooperatives, or when proceeds of the sale would supply sufficient cash to
enable the Partners to pay applicable taxes.

Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense decrease as mortgage principal is amortized, and as the Tax Reform Act
of 1986 limits the deductions available.

The Partnership accounts for its investments in the local limited partnerships
on the equity method, thereby adjusting its investment balance by its
proportionate share of the income or loss of the local limited partnerships.
Losses incurred after the limited partnership investment account is reduced to
zero are not recognized.

Distributions received from limited partnerships are recognized as return of
capital until the investment balance has been reduced to zero or to a negative
amount equal to future capital contributions required.  Subsequent
distributions received are recognized as income.

Except for certificates of deposit and money market funds, the Partnership's
investments are entirely interests in other limited and general partnerships
owning government assisted projects.  Available cash is invested in money
market funds and certificates of deposit which  provide interest income as
reflected in the statement of operations.  These temporary investments can be
easily converted to cash to meet obligations as they arise.  The Partnership
intends to continue investing available funds in this manner.

A recurring Partnership expense is the management fee.  The fee is payable
monthly to the corporate general partner of the Partnership and is calculated
as a percentage of the Partnership's invested assets.  The fee is payable
beginning with the month following the Partnership's initial investment in a
local partnership.





<PAGE>   10
General and administrative expenses of the Partnership consist substantially of
professional fees or services rendered to the Partnership.

Interest expense did not vary significantly in the years presented.

The Partnership, as a limited partner in the local partnerships in which it has
invested, is subject to the risks incident to the construction, management and
ownership of improved real estate.  The Partnership investments are also
subject to adverse general economic conditions and, accordingly, the status of
the national economy, including substantial unemployment and concurrent
inflation, could increase vacancy levels, rental payment defaults and operating
expenses, which in turn, could substantially increase the risk of operating
losses for the projects.


ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Financial Statements and Supplementary Data are listed under Item 14.


ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
           FINANCIAL DISCLOSURE

Not applicable.





<PAGE>   11
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A California limited partnership)

                             FINANCIAL STATEMENTS,
                         FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                               DECEMBER 31, 1996





<PAGE>   12
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Partners of
Real Estate Associates Limited VII
(A California limited partnership)

We have audited the accompanying balance sheets of Real Estate Associates
Limited VII (a California limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' deficiency and cash
flows for each of the three years in the period ended December 31, 1996.  Our
audits also included the financial statement schedules listed in the index at
item 14.  These financial statements and financial statement schedules are the
responsibility of the management of the Partnership.  Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.  We did not audit the financial statements of
certain limited partnerships, the investments in which are reflected in the
accompanying financial statements using the equity method of accounting.  The
investments in these limited partnerships represent 32 percent and 31 percent
of total assets as of December 31, 1996 and 1995, respectively, and the equity
in loss of these limited partnerships represents 17 percent, 21 percent and 14
percent of the total net loss of the Partnership for the years ended December
31, 1996, 1995 and 1994, respectively, and represent a substantial portion of
the investee information in Note 2 and the financial statement schedules.  The
financial statements of these limited partnerships are audited by other
auditors.  Their reports have been furnished to us and our opinion, insofar as
it relates to the amounts included for these limited partnerships, is based
solely on the reports of the other auditors.

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 our audits and the reports of other
auditors provide a reasonable basis for our opinion.

In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material
respects, the financial position of Real Estate Associates Limited VII as of
December 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.  Also, in our
opinion, based on our audits and the reports of other auditors, such financial
statement schedules, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.




DELOITTE & TOUCHE LLP

Los Angeles, California
March 26, 1997





<PAGE>   13
    [LOGO]
    [PARENTE RANDOLPH ORLANDO CAREY & ASSOCIATES LETTERHEAD]

    To the Partners
    South Mill Associates:

    REPORT OF INDEPENDENT
    CERTIFIED PUBLIC ACCOUNTANTS

        We have audited the accompanying balance sheets of South Mill
    Associates (a limited partnership), FHA Project No. 034-35145-LD, as of
    December 31, 1996 and 1995, and the related statements of income, partners'
    equity (deficit) and cash flows for the years then ended.  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 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 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 Mill
    Associates (a limited partnership) as of December 31, 1996 and 1995, and
    the results of its operations, changes in partners' equity (deficit) and
    its cash flows for the years then ended in conformity with generally
    accepted accounting principles.

        In accordance with Government Auditing Standards and the Consolidated
    Audit Guide for Audits of HUD Programs issued by the U.S.  Department of
    Housing and Urban Development, we have also issued a report dated January
    29, 1997, on our consideration of South Mill Associates' (a limited
    partnership) internal control structure, and reports dated January 29,
    1997, on its compliance with specific requirements applicable to major HUD
    programs and specific requirements applicable to Affirmative Fair Housing.





<PAGE>   14

        Our audit was conducted for the purpose of forming an opinion on the
    basic financial statements taken as a whole. The accompanying supplementary
    information on pages 14 to 22 is presented for purposes of additional
    analysis and is not a required part of the basic financial statements of
    South Mill Associates (a limited partnership). 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 basic financial statements taken as a whole.

    /s/Parente Randolph Orlando, Carey & Associates

    Wilkes-Barre, Pennsylvania
    January 29, 1997





<PAGE>   15
    [LOGO]
    [BERRY & CACCAMISI P.C. LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    Partners
    Arkansas City Apartments Limited Partnership
    Arkansas City, Arkansas

        We have audited the accompanying Balance Sheet of ARKANSAS CITY
    APARTMENTS LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the
    related Statements of Operations, Partners' Equity (Deficit) and Cash Flows
    for the years then ended.  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 audit in accordance with generally accepted auditing
    standards and Government Auditing Standards issued by the Comptroller 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 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 ARKANSAS CITY
    APARTMENTS LIMITED PARTNERSHIP at December 31, 1996 and 1995, and the
    results of its operations and its cash flows for the year then ended in
    conformity with generally accepted accounting principles.

        Our audits were made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information
    included is presented for purposes of additional analysis and is not a
    required part of the basic financial statements. Such information has been
    subjected to the audit 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 basic financial statements taken as a whole.

    /s/Berry & Caccamisis P.C.

    January 22, 1997





<PAGE>   16
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Arrowsmith, Ltd.

    We have audited the accompanying balance sheets of ARROWSMITH, LTD. (a
    limited partnership), FHA Project No. 115-35166-PM-L8 (the "Partnership"),
    as of December 31, 1996 and 1995, and the related statements of operations,
    changes in partners' equity and cash flows for the years then ended. 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 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 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 Arrowsmith, Ltd. as of
    December 31, 1996 and 1995, and the results of its operations, changes in
    its partners' equity, and its cash flows for the years then ended, in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated February 17, 1997 on our consideration of the Partnership's
    internal control structure and a report dated February 17, 1997 on its
    compliance with laws and regulations.





<PAGE>   17
    Our audits were conducted for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional 1996
    financial data shown on pages 13 through 20 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. Such information has been subjected to the auditing procedures
    applied in the audit of the 1996 financial statements and, in our opinion,
    is fairly stated in all material respects in relation to the financial
    statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LTD

    Los Angeles, California
    February 17, 1997





<PAGE>   18
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Ashland Manor, Ltd.

    We have audited the balance sheets of ASHLAND MANOR, LTD., FHA Project
    Number 042-44803-LDP, as of December 31, 1996 and 1995, and the statements
    of operations, changes in partners' deficit and cash flows for the years
    then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States.  Those standards require that we plan and
    perform the audits 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
    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 Ashland Manor, Ltd. at
    December 31, 1996 and 1995, and the results of its operations, changes in
    partners' deficit and cash flows for the years then ended in conformity
    with generally accepted accounting principles

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations





<PAGE>   19

    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   20
    [LOGO]
    [HUGHES AND COMPANY P.C. LETTERHEAD]
    Independent Auditors' Report

    To the Partners
    Bangor House Proprietary
    Boston, Massachusetts

    We have audited the accompanying balance sheets of Bangor House Proprietary
    (A Limited Partnership) Project No. ME36-H017-107 as of December 31, 1996
    and 1995, and the related statements of changes in partners' equity,
    revenue and expenses, and cash flows for the years then ended. 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 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 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 Bangor House
    Proprietary (A Limited Partnership) as of December 31, 1996 and 1995, and
    the results of its operations, changes in partners' equity and cash flows
    for the years then ended in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards and the Consolidated Audit
    Guide for Audits of HUD Programs issued by the U.S. Department of Housing
    and Urban Development, we have also issued a report dated January 17, 1997,
    on our consideration of Bangor House Proprietary's internal control
    structure and reports dated January 17, 1997, on its compliance with laws
    and regulations, specific requirements applicable to major HUD programs and
    specific requirements applicable to Affirmative Fair Housing.

    Our audits were conducted for the purpose of forming an opinion on the
    basic financial statements taken as a whole. The accompanying supplementary
    information shown on pages 12 to 20 is presented for purposes of additional
    analysis and is not a required part of the basic financial statements. Such
    information has been subjected to the auditing procedures applied in the
    audits of the basic financial statements and, in our opinion, is fairly
    stated in all material respects in relation to the basic financial
    statements taken as a whole.

    /s/Hughes and Company P.C.
    
    Melrose, Massachusetts
    January 17, 1997





<PAGE>   21

                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Bellair Manor Apartments,
    Limited Partnership

    We have audited the balance sheets of BELLAIR MANOR APARTMENTS, LIMITED
    PARTNERSHIP, FHA Project Number 042-44174-LDP, as of December 31, 1996 and
    1995, and the statements of operations, changes in partners' equity and
    cash flows for the years then ended. 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 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
    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 Bellair Manor
    Apartments, Limited Partnership as of December 31, 1996 and 1995, and the
    results of its operations, changes in partners' equity and cash flows for
    the years then ended in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   22
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   23
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
                   AND ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Birch Manor Apartments Phase - I

    We have audited the balance sheets of BIRCH MANOR APARTMENTS - PHASE I, FHA
    Project Number 042-44031-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the year then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Birch Manor Apartments
    - Phase I as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners'equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   24
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 19 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LPP

    Chicago, Illinois
    January 21, 1997





<PAGE>   25
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Birch Manor Apartments - Phase II

    We have audited the balance sheets of BIRCH MANOR APARTMENTS - PHASE II,
    FHA Project Number 042-44144-LDP, (Partnership) as of December 31, 1996 and
    1995, and the statements of operations, changes in partners' equity and
    cash flows for the years then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Birch Manor Apartments
    - Phase II as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditinq Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   26
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 21 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

               /s/Altschuler, Melvoin & Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   27
    [LOGO]
    [COOPERS & LYBRAND LETTERHEAD]

    Report of Independent Accountants

    To the Partners of
    Bluewater Limited Dividend
    Housing Association:

    We have audited the accompanying balance sheet of Bluewater Limited
    Dividend Housing Association (a Michigan limited partnership), MSHDA
    Development No. 35, as of December 31, 1996 and the related statements of
    profit and loss, partners' equity, and cash flows for the year then ended.
    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 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 Bluewater Limited
    Dividend Housing Association, as of December 31, 1996 and the results of
    its operations and its cash flows for the year then ended, in conformity
    with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 31, 1997 on our consideration of Bluewater Limited
    Dividend Housing Association's internal control structure and a report
    dated January 31, 1997 on its compliance with laws and regulations.

    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole.  The supplemental data included on
    pages 13 and 14 is presented for purposes of additional analysis and is not
    a required part of the basic financial statements of Bluewater Limited
    Dividend Housing Association. 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 basic financial statements taken as a whole.





<PAGE>   28
    We have previously audited and expressed an unqualified opinion on the
    financial statements of Bluewater Limited Dividend Housing Association for
    the years 1990 through 1995.  In our opinion, the supplemental data
    included on page 15, relating to the years 1990 through 1996, is fairly
    stated, in all material respects, in relation to the basic financial
    statements from which it has been derived. The data on page 15 for the
    years 1974 through 1989 was not audited by us and, accordingly, we do not
    express an opinion on such data. That data was audited by other auditors
    who have ceased operation and whose report, dated January 24, 1990, stated
    that such information was fairly stated, in all material respects, in
    relation to the basic financial statements taken as a whole.

    /s/Coopers & Lybrand LLP

    Detroit, Michigan
    January 31, 1997





<PAGE>   29
    [LOGO]
    [PARENTE RANDOLPH ORLANDO CAREY & ASSOCIATES LETTERHEAD]

    REPORT OF INDEPENDENT
    CERTIFIED PUBLIC ACCOUNTANTS

    To the Partners
    Center City Associates:

        We have audited the accompanying balance sheets of Center City
    Associates (a limited partnership), FHA Project No. 034-35147-LD, as of
    December 31, 1996 and 1995, and the related statements of income, partners'
    equity (deficit) and cash flows for the years then ended.  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 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 signifcant 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 Center City
    Associates (a limited partnership) as of December 31, 1996 and 1995, and
    the results of its operations, changes in partners' equity (deficit) and
    its cash flows for the years then ended in conformity with generally
    accepted accounting principles.

        In accordance with Government Auditing Standards and the Consolidated
    Audit Guide for Audits of HUD Programs issued by the U.S.  Department of
    Housing and Urban Development, we have also issued a report dated January
    29, 1997, on our consideration of Center City Associates' (a limited
    partnership) internal control structure, and reports dated January 29,
    1997, on its compliance with specific requirements applicable to major HUD
    programs and specific requirements applicable to Affirmative Fair Housing.





<PAGE>   30
    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The accompanying supplementary
    information on pages 14 to 22 is presented for purposes of additional
    analysis and is not a required part of the basic financial statements of
    Center City Associates (a limited partnership). 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 basic financial statements taken as a whole.

    /s/Parente Randolph Orlando Carey & Associates

    Wilkes-Barre, Pennsylvania
    January 29, 1997





<PAGE>   31
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
                   AND ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Clarkwood Apartments - Phase I

    We have audited the balance sheets of CLARKWOOD APARTMENTS - PHASE I, FHA
    Project Number 042-44009-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended.  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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Clarkwood Apartments -
    Phase I at December 31, 1996 and 1995, and the results of its operations,
    changes in partners' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   32
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   33
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Clarkwood Apartments - Phase II

    We have audited the balance sheets of CLARKWOOD APARTMENTS - PHASE II, FHA
    Project Number 042-44066-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended.  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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Clarkwood Apartments -
    Phase II as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   34
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional
    financial data on pages 14 through 19 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. This information has been subjected to the procedures applied
    in the audits of the financial statements and, in our opinion, is stated
    fairly in all material respects in relation to the financial statements
    taken as a whole.

               /s/Altschuler, Melvoin & Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   35
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Hayti Associates I

        We have audited the accompanying balance sheet of Hayti Associates I as
    of December 31, 1996, and the related statements of profit and loss (on HUD
    Form No. 92410), partners' equity and cash flows for the year then ended.
    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 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 Hayti
    Associates I as of December 31, 1996, and the results of its operations,
    the changes in partners' equity and cash flows for the year then ended, in
    conformity with generally accepted accounting principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 19 through 26 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   36
      In accordance with Government Auditing Standards and the "Consolidated
    Audit Guide for Audits of HUD Programs," we have also issued reports dated
    January 24, 1997 on our consideration of Hayd Associates I's internal
    control structure and on its compliance with specific requirements
    applicable to major and nonmajor HUD programs, affirmative fair housing and
    laws and regulations applicable to the financial statements.

    /S/Reznick Fedder and Silverman

    Bethesda, Maryland
    January 24, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Craig Birmingham





<PAGE>   37
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD}

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Hayti Associates II

        We have audited the accompanying balance sheet of Hayti Associates II
    as of December 31, 1996, and the related statements of profit and loss (on
    HUD Form No. 92410), partners' equity and cash flows for the year then
    ended. 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 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 Hayti
    Associates II as of December 31,1996, and the results of its operations,
    the changes in partners' equity and cash flows for the year then ended, in
    conformity with generally accepted accounting principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 19 through 25 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   38
      In accordance with Government Auditing Standards and the "Consolidated
    Audit Guide for Audits of HUD Programs," we have also issued reports dated
    January 24, 1997 on our consideration of Hayti Associates II's internal
    control structure and on its compliance with specific requirements
    applicable to major and nonmajor HUD programs, affirmative fair housing,
    and laws and regulations applicable to the financial statements.

    /s/Reznick, Fedder & Silverman

    Bethesda, Maryland
    January 24, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Craig Birmingham





<PAGE>   39
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Hayti Asssociates III

        We have audited the accompanying balance sheet of Hayti Associates III
    as of December 31, 1996, and the related statements of profit and loss (on
    HUD Form No. 92410), partners' deficit and cash flows for the year then
    ended. 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 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 Hayti
    Associates III as of December 31, 1996, and the results of its operations,
    the changes in partners' deficit and cash flows for the year then ended, in
    conformity with generally accepted accounting principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 19 through 25 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   40
      In accordance with Government Auditing Standards and the "Consolidated
    Audit Guide for Audits of HUD Programs", we have also issued reports dated
    January 24, 1997 on our consideration of Hayti Associates III's internal
    control structure and on its compliance with specific requirements
    applicable to major and nonmajor HUD programs, affirmative fair housing,
    and laws and regulations applicable to the financial statements.

    /s/ Reznick Fedder & Silverman

    Bethesda, Maryland
    January 24, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Craig Birmingham





<PAGE>   41
    [LOGO]
    [FREEDMAN & GOLDBERG LETTERHEAD]

    Independent Auditor 's Report

    To the Partners
    Danbury Park Manor

    We have audited the accompanying balance sheets of Danbury Park Manor, (a
    Michigan general partnership), FHA Project No. 044-44052-LD1, as of
    December 31, 1996 and 1995 and the related statements of income and
    expenses, partners' equity and cash flows for the years then ended.  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 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 missstatement. 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 Danbury Park Manor as
    of December 31, 1996 and 1995, and the results of its operations, changes
    in partners' equity and cash flows for the years then ended, in conformity
    with generally accepted accounting principles.

    In accordance with Government Auditing Standards and the Consolidated Audit
    Guide for Audits of BUD Programs issued by the U.S. Department of Housing
    and Urban Development, we have also issued a report dated January 13, 1997,
    on our consideration of Danbury Park Manor s Internal control structure and
    reports dated January 13, 1997, on its compliance with specific
    requirements applicable to major HUD programs, and specific requirements
    applicable to Affirmative Fair Housing.

    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental data included in
    pages 11 to 24 is presented For purposes of additional analysis and is not
    a required part of the basic financial statements.  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 basic financial statements taken as a whole
   
   
    Respectfully,
    /s/Freedman & Goldberg
    Certified Public Accountants
    Farmington Rills, MI
    January 13, 1997





<PAGE>   42
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    DeSoto Associates

        We have audited the accompanying balance sheet of DeSoto Associates as
    of December 31, 1996, and the related statements of profit and loss (on HUD
    Form No. 92410), partners' equity and cash flows for the year then ended.
    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 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 includs
    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 DeSoto
    Associates as of December 31, 1996, and the results of its operations, the
    changes in partners' equity and cash flows for the year then ended, in
    conformity with generally accepted accounting principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 19 through 26 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   43
      In accordance with Government Auditing Standards and the "Consolidated
    Audit Guide for Audits of HUD Programs," we have also issued reports dated
    January 24, 1997 on our consideration of DeSoto Associates' internal
    control structure and on its compliance with specific requirements
    applicable to major and nonmajor HUD programs, affirmative fair housing,
    and laws and regulations applicable to the financial statements.

    /s/Reznick Fedder & Silverman

    Bethesda, Maryland
    January 24, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Craig Birmingham





<PAGE>   44
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Dexter Associates I

        We have audited the accompanying balance sheet of Dexter Associates I
    as of December 31, 1996, and the related statements of profit and loss (on
    HUD Form No. 92410), partners' equity and cash flows for the year then
    ended. 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 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 Dexter Associates I as
    of December 31, 1996, and the results of its operations, the changes in
    partners' equity and cash flows for the year then ended, in conformity with
    generally accepted accounting principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 19 through 25 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   45
      In accordance with Government Auditing Standards, we have also issued
    reports dated January 24, 1997 on our consideration of Dexter Associates
    I's internal control structure and on its compliance with specific
    requirements applicable to major and nonmajor HUD programs, affirmative
    fair housing and laws and regulations applicable to the financial
    statements.

    /s/Reznick Fedder & Silverman

    Bethesda, Maryland
    January 24, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Craig Birmingham





<PAGE>   46
    [LOGO]
    [REZNICK FEDDER & SILVERMAN LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Edgewood II Associates Limited Partnership

        We have audited the accompanying balance sheet of Edgewood II
    Associates Limited Partnership as of December 31, 1996, and the related
    statements of profit and loss (on HUD Form No. 92410), partners' deficit
    and cash flows for the year then ended. 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 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 Edgewood II
    Associates Limited Partnership as of December 31, 1996, and the results of
    its operations, the changes in partners' deficit and cash flows for the
    year then ended in conformity with generally accepted accounting
    principles.

        Our audit was made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information on
    pages 20 through 26 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. 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 basic financial statements taken as a whole.





<PAGE>   47
      In accordance with Government Auditing Standards and the "Consolidated
    Audit Guide for Audits of HUD Programs," we have also issued reports dated
    January 17, 1997 on our consideration of Edgewood II Associates Limited
    Partnership's internal control structure and on its compliance with
    specific requirements applicable to major HUD programs, affirmative fair
    housing, and laws and regulations applicable to the financial statements.

    /s/Reznick Fedder & Silverman

    Bethesda, Maryland
    January 17, 1997

    Federal Employer
    Identification Number:
    52-1088612

    Audit Principal: Bill D. Tzamaras





<PAGE>   48
    [LOGO]
    [ERNST & YOUNG LETTERHEAD]

    Report of Independent Auditors

    To the Partners
    Goodlette Arms Apartments

    We have audited the accompanying balance sheet of Goodlette Arms
    Apartments, a limited partnership--Project Number 066-44117-NP, as of
    December 31, 1996, and the related statements of profit and loss, partners'
    capital and cash flows for the year then ended. 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.

    Except as discussed in the following paragraph, 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 determining the basis of fixed assets as a result of the transfer of
    ownership in 1984, the Partnership used the historical cost of purchase
    money notes given by the new partners as part of the transfer. Generally
    accepted accounting principles would require these notes be discounted to
    approximate their fair market value, thereby reducing the basis of fixed
    assets. The Partnership has not made (nor, in accordance with instructions
    from the Partnership, have we made) a determination of the basis of fixed
    assets using a discounted value of the purchase money notes; therefore, the
    effects on the Partnership's financial statements of using the historical
    cost of the notes are not known.

    In our opinion, except for the effects of such adjustments, if any, as
    might have been determined to be necessary had the basis of fixed assets
    been determined using a discounted value of purchase money notes been
    known, the financial statements referred to above present fairly, in all
    material respects, the financial position of Goodlette Arms Apartments at
    December 31, 1996, and the results of its operations and its cash flows for
    the year then ended in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards, we have issued a report
    entitled "Independent Auditors' Report on Internal Control Based on an
    Audit of the Financial Statements in Accordance with Government Auditing
    Standards" dated January 22, 1997 on our consideration of the Partnership's
    internal control and a report entitled "Independent Auditors' Report on
    Compliance with Laws and Regulations in Accordance





<PAGE>   49
    with Government Auditing Standards" dated January 22, 1997 on its
    compliance with applicable laws and regulations.

    Our audit was made for the purpose of forming an opinion on the financial
    statements taken as a whole.  The supporting data listed on the contents
    page is presented for purposes of additional analysis and is not a required
    part of the financial statements of the Partnership.  Such data has been
    subjected to the auditing procedures applied in our audit of the financial
    statements and, in our opinion, except for the effects on the supporting
    data of such adjustments, if any, as might have been determined to be
    necessary had the basis of fixed assets determined using a discounted value
    of purchase money notes been known, is fairly stated in all material
    respects in relation to the financial statements taken as a whole.

    /s/Ernst & Young

    January 22, 1997





<PAGE>   50
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of Hampshire
    House Apartments, Ltd.

    We have audited the balance sheets of HAMPSHIRE HOUSE APARTMENTS, LTD., FHA
    Project Number 042-44274-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' deficiency and cash flows
    for the years then ended.  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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Hampshire House
    Apartments, Ltd. at December 31, 1996 and 1995, and the results of its
    operations, changes in partners' deficiency and cash flows for the years
    then ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   51
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional
    financial data on pages 14 through 19 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. This information has been subjected to the procedures applied
    in the audits of the financial statements and, in our opinion, is stated
    fairly in all material respects in relation to the financial statements
    taken as a whole.

               /s/Alschuler, Melvoin & Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   52
    [LOGO]
    [SCHEINER, MISTER & GRANDIZIO, P.A. LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    To the Partners
    Henrico Limited Partnership
    Rockville, Maryland

    We have audited the accompanying balance sheet of HUD Project No. 051-
    35164LD/SUP of the Henrico Limited Partnership as of December 31, 1996, and
    the related statements of profit and loss, changes in partners' equity and
    cash flows for the year then ended. 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 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.

    The Partnership is required to file annually with the Department of Housing
    and Urban Development. The accompanying financial statements are presented
    in accordance with the financial presentation recommended by HUD. The
    elements of the presentation do not conflict with generally accepted
    accounting principles.

    In our opinion, the financial statements referred to above present fairly,
    in all material respects, the financial position of Henrico Limited
    Partnership as of December 31, 1996, and the results of its operations and
    the changes in partners' equity and cash flows for the year then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 11, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 11, 1997, on its
    compliance with laws and regulations.

    Our audit was conducted for the purpose of forming an opinion on the
    financial statements taken as a whole. The supporting information included
    in the report shown on pages 9 through 15 is presented for the purposes of
    additional analysis and is not a required part of the basic financial
    statements of Henrico Limited Partnership. 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





<PAGE>   53
    all material respects in relation to the financial statements taken as a
    whole.

    /s/Scheiner, Mister & Grandizio P.A.

    January 11, 1997





<PAGE>   54
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Ivywood Apartments, Limited Partnership

    We have audited the balance sheets of IVYWOOD APARTMENTS, LIMITED
    PARTNERSHIP, FHA Project Number 043-44072-LDP, as of December 31, 1996 and
    1995, and the statements of operations, changes in partners' equity and
    cash flows for the years then ended.  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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Ivywood Apartments,
    Limited Partnership as of December 31, 1996 and 1995, and the results of
    its operations, changes in partners' equity and cash flows for the years
    then ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   55
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the auditing procedures applied in the audits of the
    financial statements and, in our opinion, is stated fairly in all material
    respects in relation to the financial statements taken as a whole.

                /s/Alschuler, Melvoin and Glasser

    Chicago, Illinois
    January 21, 1997





<PAGE>   56
    [LOGO]
    [MINTER, CORKERN & CO. LETTERHEAD]

    The Partners
    Jasper County Properties, Ltd.
    Jackson, Mississippi

    We have compiled the accompanying Statement of Budget and Cash Flow (Form
    FmHA 19307) for the year ended December 31, 1996 and Year End Report and
    Analysis (FmHA 1930-8) of Jasper County Properties, Ltd. as of December 31,
    1996 included in the accompanying prescribed form in accordance with
    Statements on Standards for Accounting and Review Services issued by the
    American Institute of Certified Public Accountants.

    Our compilation was limited to presenting in the form prescribed by Farmers
    Home Administration information that is the representation of the owners.
    We have not audited or reviewed the accompanying financial statements and,
    accordingly, do not express an opinion or any other form of assurance on
    them.

    These financial statements on prescribed forms are presented in accordance
    with the requirements of FmHA, which differ from generally accepted
    accounting principles. Accordingly, these financial statements are not
    designed for those who are not informed about such differences.

    /s/Minter, Corken & Co. Certified Public Accountants

    Jackson, Mississippi
    February 10, 1997





<PAGE>   57
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    King Towers Associates

    We have audited the balance sheets of KING TOWERS ASSOCIATES (an Ohio
    limited partnership), FHA Project Number 046-44165-LDP, (the Partnership)
    as of December 31, 1996 and 1995, and the statements of operations, changes
    in partners' equity and cash flows for the years then ended. 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 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
    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 King Towers Associates
    as of December 31, 1996 and 1995, and the results of its operations,
    changes in partners' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   58
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional
    financial data on pages 14 through 19 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. This information has been subjected to the procedures applied
    in the audits of the financial statements and, in our opinion, is stated
    fairly in all material respects in relation to the financial statements
    taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   59
  [LOGO]
    [GAJDA, MARLOW & COMPANY LETTERHEAD]

    Independent Auditors' Report

    To the Partners
    Meherrin Limited Partnership

        We have audited the accompanying balance sheets of Meherrin Limited
    Partnership (a Virginia limited partnership), FmHA Project No.: 54-049-
    002723101, as of December 31, 1996 and 1995 and the related statements of
    operations, partners' deficit and cash flows for the years then ended.
    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 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 Meherrin
    Limited Partnership as of December 31, 1996 and 1995, and the results of
    its operations and its cash flows for the years then ended in conformity
    with generally accepted accounting principles.





<PAGE>   60
    Independent Auditors' Report (continued)

        Our audits were made for the purpose of forming an opinion on the basic
    financial statements taken as a whole.  The supplemental information on
    pages 15 through 24 is presented for purposes of additional analysis and is
    not a required part of the basic financial statements. Such information has
    been subjected to the audit 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 basic financial statements taken as a whole.

        The accompanying financial statements have been prepared assuming that
    Meherrin Limited Partnership will continue as a going concern.  As
    discussed in Note H to the financial statements , Meherrin Limited
    Partnership has suffered from losses from operations and has a net capital
    deficiency that raise substantial doubt about its ability to continue as a
    going concern.  Managements plans in regard to these matters are also
    described in Note H. The financial statements do not include any
    adjustments that might result from the outcome of this unacertainty .

    /s/Gadja, Marlow & Co.

    March 3, 1997
    Wi11iamstown, Massachusetts





<PAGE>   61
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of Mount
    Union Apartments, Ltd.

    We have audited the balance sheets of MOUNT UNION APARTMENTS, LTD., aka
    Nantucket Circle, FHA Project Number 042-44070-LDP, as of December 31, 1996
    and 1995, and the statements of operations, changes in partners' equity and
    cash flows for the years then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Mount Union Apartments,
    Ltd. as of December 31, 1996 AND 1995, and the results of its operations,
    changes in partners' equity and cash flows for the year then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   62
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Alschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   63
    [LOGO]
    [MINTER, CORKERN & CO LETTERHEAD]

    INDEPENDENT AUDITORS' REPORT

    The Partners
    Newton Apartments, Ltd.
    Jackson, Mississippi

    We have audited the accompanying balance sheets of Newton Apartments, Ltd.,
    FmHA Case No. 28-51-64087535, a Mississippi limited partnership, as of
    December 31, 1996 and 1995, and the related statements of income, partners'
    capital, and cash flows for the years then ended. 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 and Government Auditing Standards issued by the Comptroller
    General of the United States and the U. S. Department of Agriculture,
    Farmers Home Administration Audit Program. Those standards require that we
    plan and perform the audits 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 statements
    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 Newton Apartments,
    Ltd., FmHA Case No. 28-51-64087535, as of December 31, 1996 and 1995, and
    the results of its operations and its cash flows for the years then ended
    in conformity with generally accepted accounting principles.

    Our audits were made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The accompanying financial
    information included on pages 16 through 22 is presented for purposes of
    additional analysis and is not a required part of the basic financial
    statements. Such information, except for the budget, the proposed budget,
    and the market rent budget, on pages 17 through 20, on which we express no
    opinion, has been subjected to the auditing procedures applied in the
    audits of the basic financial statements, and in our opinion, is fairly
    stated in all material respects in relation to the basic financial
    statements taken as a whole.





<PAGE>   64
    Page 2

    In accordance with Government Auditing Standards, we have also issued our
    reports dated January 24, 1997, on our consideration of Newton Apartments,
    Ltd's internal control and on its compliance with laws and regulations.

    /s/ Minter, Corkern & Co
    Certified Public Accountants

    January 24, 1997





<PAGE>   65
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Oak Hill Apartments, Ltd.

    We have audited the balance sheets of OAK HILL APARTMENTS, LTD., FHA
    Project Number 03344149-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Oak Hill Apartments,
    Ltd. at December 31, 1996 and 1995, and the results of its operations,
    changes in partners' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   66

    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional 1996 financial data
    on pages 14 through 19 are presented for purposes of additional analysis
    and are not a required part of the financial statements. This information
    has been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   67
    [LOGO]
    [BERRY & CACCAMISI, P.C LETTERHEAD]

    Partners
    Oakview Apartments Limited Partnership
    Monticello. Arkansas

        We have audited the accompanying Balance Sheet of OAKVIEW APARTMENTS
    LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the related
    Statements of Operations, Partners' Equity (Deficit) and Cash Flows for the
    years then ended.  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 and Government Auditing Standards issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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 OAKVIEW
    APARTMENTS LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the
    results of its operations and its cash flows for the years then ended in
    conformity with generally accepted accounting principles.

        Our audits were made for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental information
    included is presented for purposes of additional analysis and is not a
    required part of the basis financial statements. Such information has been
    subjected to the audit 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 basic financial statements taken as a whole.

    /s/Berru & Caccamisi P.C.

    January 22. 1997





<PAGE>   68
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Oakwood Park Apartments - Phase I

    We have audited the balance sheets of OAKWOOD PARK APARTMENTS - PHASE I,
    FHA Project No. 042-55031-LDC, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States.  Those standards require that we plan and
    perform the audits 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
    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 Oakwood Park Apartments
    - Phase I as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   69
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 13 through 19 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   70
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Oakwood Park Apartments - Phase II

    We have audited the balance sheets of OAKWOOD PARK APARTMENTS - PHASE II,
    FHA Project No. 042-55049-LDC, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended. 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 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
    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 Oakwood Park Apartments
    - Phase II as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   71
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 13 through 19 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   72
    [LOGO]
    [MINTER, CORKERN & CO. LETTERHEAD]

    The Partners
    Pachuta Apartments, Ltd.
    Jackson, Mississippi

    We have compiled the accompanying Statement of Budget and Cash Flow (Form
    FmHA 19307) for the year ended December 31, 1996 and Year End Report and
    Analysis (FmHA 1930-8) of Pachuta Apartments, Ltd. as of December 31, 1996
    included in the accompanying prescribed form in accordance with Statements
    on Standards for Accounting and Review Services issued by the American
    Institute of Certified Public Accountants.

    Our compilation was limited to presenting in the form prescribed by Farmers
    Home Administration information that is the representation of the owners.
    We have not audited or reviewed the accompanying financial statements and,
    accordingly, do not express an opinion or any other form of assurance on
    them.

    These financial statements on prescribed forms are presented in accordance
    with the requirements of FmHA, which differ from generally accepted
    accounting principles. Accordingly, these financial statements are not
    designed for those who are not informed about such differences.

    /s/Minter, Corken & Co.
    Certified Public Accountants

    Jackson, Mississippi
    February 10, 1997





<PAGE>   73
    [LOGO]
    [KPMG PEAT MARWICK LLP LETTERHEAD]

    Report on Audited Financial Statements
    and Supplementary Information
    Independent Auditors' Report

    The Partners
    Parkway Towers Associates
    (A Limited Partnership):

    We have audited the accompanying balance sheet of Parkway Towers Associates
    (A Limited Partnership) (the "Partnership"), HUD Project No.
    RI-43-HO23-026, as of July 31, 1996, and the related statements of profit
    and loss (on HUD Form 92410), changes in partners' equity and cash flows
    for the year then ended. 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 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 the Partnership as of
    July 31, 1996 and the results of its operations and its cash flows for the
    year then ended in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards, we have also issued
    reports dated September 13, 1996, on: our consideration of the
    Partnership's internal control structure, the Partnership's compliance with
    specific requirements applicable to major HUD programs, and the
    Partnership's compliance with specific requirements applicable to
    affirmative fair housing.

    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The accompanying supplementary
    information included in Schedules 1 through 7 is presented for purposes of
    additional analysis and is not a required part of the basic financial
    statements. 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.

    /s/ KPMG Peat Marwick LLP
    September 13, 1996





<PAGE>   74
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                   ADDITIONAL FINANCIAL DATA REQUIRED BY THE
                 ILLINOIS HOUSING DEVELOPMENT AUTHORITY AND THE
                U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Pebbleshire Housing Associates Limited

    We have audited the accompanying balance sheets of PEBBLESHIRE HOUSING
    ASSOCIATES LIMITED (an Illinois limited partnership), IHDA Project No.
    ML-57 (the "Partnership"), as of December 31, 1996 and 1995, and the
    related statements of operations, changes in partners' deficiency and cash
    flows for the years then ended.  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 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 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 Pebbleshire Housing
    Associates Limited as of December 31, 1996 and 1995, and the results of its
    operations, changes in its partners' deficiency, and its cash flows for the
    years then ended, in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated February 17, 1997 on our consideration of the Partnerships
    internal control structure and a report dated February 17, 1997 on its
    compliance with laws and regulations.





<PAGE>   75
    Our audits were conducted for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional 1996
    financial data shown on pages 16 through 20 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. Such information has been subjected to the auditing procedures
    applied in the audit of the 1996 financial statements and, in our opinion,
    is fairly stated in all material respects in relation to the financial
    statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Los Angeles, California
    February 17, 1997





<PAGE>   76
                                     [LOGO]
                  [ALTSCHULER, MELVOIN AND GLASSER LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Pinebrook Manor AKA Coachlight Apartments Co.

    We have audited the accompanying balance sheets of PINEBROOK MANOR AKA
    COACHLIGHT APARTMENTS CO. (a limited partnership), FHA Project No. 047-
    44016-LDP-SUP (the "Partnership") as of December 31, 1996 and 1995, and the
    related statements of income, changes in partners' equity and cash flows
    for the years then ended. 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 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 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 Pinebrook Manor AKA
    Coachlight Apartments Co. as of December 31, 1996 and 1995, and the results
    of its operations, changes in its partners' equity and its cash flows for
    the years then ended, in conformity with generally accepted accounting
    principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated February 17, 1997 on our consideration of the Partnership's
    internal control structure and a report dated February 17, 1997 on its
    compliance with laws and regulations.





<PAGE>   77
    Our audits were conducted for the purpose of forming an opinion on the
    financial statements taken as a whole. The accompanying additional 1996
    financial data shown on pages 13 through 20 are presented for purposes of
    additional analysis and are not a required part of the financial
    statements. Such information has been subjected to the auditing procedures
    applied in the audit of the 1996 financial statements and, in our opinion,
    is fairly stated in all material respects in relation to the financial
    statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Los Angeles, California
    February 17, 1997





<PAGE>   78
    [LOGO]
    [HARAN & ASSOCIATES LTD LETTERHEAD]

    INDEPENDENT AUDITOR'S REPORT

    To the Partners
    RAND GROVE VILLAGE PARTNERSHIP
    Chicago, Illinois

    HUD Field Office Director
    Chicago, Illinois

    We have audited the accompanying balance sheet of RAND GROVE VILLAGE
    PARTNERSHIP, Project No. 071-44126-LD, as of December 31, 1996, and the
    related statements of profit and loss, changes in partners' equity and
    statement of cash flows for the year then ended. 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 audit in accordance with generally accepted auditing
    standards and Government Auditing Standards, issued by the Comptroller
    General of the United States. These standards require that we plan and
    perform the audit to obtain reasonable assurance about whether the
    financial statements are free of material misstatements. 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.

    As more fully described in the notes to the financial statements, the
    Partnership has expensed construction period interest and real estate taxes
    associated with the building. In our opinion, construction period interest
    and taxes should be capitalized and depreciated over the life of the
    building to conform with generally accepted accounting principles. In
    addition, the project recognized depreciation for the building over a
    shorter useful life than would be allowable under generally accepted
    accounting principles. The effects on the financial statements of the
    preceding practices are not reasonably determinable.

    In our opinion, except for the effects of the matters discussed in the
    preceding paragraph, the financial statements referred to in the first
    paragraph present fairly, in all material respects, the financial position
    of RAND GROVE VILLAGE PARTNERSHIP, as of December 31, 1996, and its profit
    or 1066, changes in partners' equity, and its cash flows for the year then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997 on our consideration of RAND GROVE VILLAGE
    PARTNERSHIP's internal control structure and reports dated January 21, 1997
    on its compliance with specific requirements applicable to Major





<PAGE>   79
    HUD Programs and specific requirements applicable to Affirmative Fair
    Housing.

    INDEPENDENT AUDITOR'S REPORT (CONTINUED)

    The accompanying supplementary information (shown on pages 14 to 19) is
    presented for purposes of additional analysis and is not a required part of
    the basic financial statements. 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.

    /s/Haran and Associates Ltd
    Certified Public Accountants
    Wilmette, Illinois
    Illinois Certificate No. 060-002892
    Federal Certification No. 36-3097692
    Audit Partner: James E. Haran(847)853-2580

    January 21, 1997





<PAGE>   80
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

                   INDEPENDENT AUDITORS' REPORT ON FINANCIAL
              STATEMENTS AND ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Richards Park Apartments

    We have audited the balance sheets of RICHARDS PARK APARTMENTS, FHA Project
    Number 04244089-LDP, as of December 31, 1996 and 1995, and the statements
    of operations, changes in partners' equity and cash flows for the years
    then ended. 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 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
    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 Richards Park
    Apartments as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   81
    Our audits were performed for the purpose of forming an opinion on the
    financial statements conducted as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

             /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   82
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Ridgewood Towers Associates

    We have audited the balance sheets of RIDGEWOOD TOWERS ASSOCIATES, FHA
    Project Number 071-35254-PM, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States.  Those standards require that we plan and
    perform the audits 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
    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 Ridgewood Towers
    Associates as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 31, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 31, 1997, on its
    compliance with laws and regulations.





<PAGE>   83
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 13 through 19 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 31, 1997





<PAGE>   84
    [LOGO]
    [MINTER, CORKERN & CO LETTERHEAD]

    The Partners
    Shubuta Properties, Ltd.
    Jackson, Mississippi

    We have compiled the accompanying Statement of Budget and Cash Flow (Form
    FmHA 19307) for the year ended December 31, 1996 and Year End Report and
    Analysis (FmHA 1930-8) of Shubuta Properties, Ltd. as of December 31, 1996
    included in the accompanying prescribed form in accordance with Statements
    on Standards for Accounting and Review Services issued by the American
    Institute of Certified Public Accountants.

    Our compilation was limited to presenting in the form prescribed by Farmers
    Home Administration information that is the representation of the owners.
    We have not audited or reviewed the accompanying financial statements and,
    accordingly, do not express an opinion or any other form of assurance on
    them.

    These financial statements on prescribed forms are presented in accordance
    with the requirements of FmHA, which differ from generally accepted
    accounting principles. Accordingly, these financial statements are not
    designed for those who are not informed about such differences.

    /s/Minter, Corkern & Co.
    Certified Public Accountants

    Jackson, Mississippi
    February 10, 1997





<PAGE>   85
    [LOGO]
    [SWEITZER HARON & BACHMAN]

    To the General Partners South Glen Limited
    Dividend Housing Association

    We have audited the accompanying balance sheet of South Glen Limited
    Dividend Housing Association. (a Michigan limited partnership), MSHDA
    Development No. 291 as of December 31, 1996 and the related statements of
    profit and loss (HUD Format), partners' equity (deficit) and cash flows
    income tax basis for the year then ended. 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 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.

    As described in Notes A and J. these financial statements were prepared on
    the accounting basis used for income tax purposes and are not intended to
    be a presentation in conformity with generally accepted accounting
    principles.

    In our opinion, the financial statements referred to above present fairly,
    in all material respects, the financial position of South Glen Limited
    Dividend Housing Association. at December 31, 1996 and the results of its
    operations and cash flows for the year then ended on the basis of
    accounting described in Note A.

    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental data on page 12
    through 14 is presented for purposes of additional analysis and is not a
    required part of the basic financial statements. 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 basic financial statements taken as a whole.

    /s/Sweitzer, Haron & Bachman, CPAs, PLLC

    January 17, 1997





<PAGE>   86
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

                        INDEPENDENT AUDITORS' REPORT ON
                            FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Joint Venturers of
    South Park Apartments

    We have audited the balance sheets of SOUTH PARK APARTMENTS (a Joint
    Venture) FHA Project Number 042-35040-LDP, as of December 31, 1996 and
    1995, and the statements of operations, changes in venturers' equity and
    cash flows for the years then ended.  These financial statements are the
    responsibility of the Venture'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 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
    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 Park Apartments
    as of December 31, 1996 and 1995, and the results of its operations,
    changes in venturers' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Venture's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   87
    Our audits were conducted for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional 1996 financial data
    on pages 14 through 20 are presented for purposes of additional analysis
    and are not a required part of the financial statements. This information
    has been subjected to the procedures applied in the audit of the 1996
    financial statements and, in our opinion, is stated fairly in all material
    respects in relation to the financial statements taken as a whole.

             /s/ Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   88
    [LOGO]
    [MCGLADREY & PULLEN LLP LETTERHEAD]

    INDEPENDENT AUDITOR'S REPORT ON THE FINANCIAL
    STATEMENTS AND SUPPLEMENTARY INFORMATION

    To the Partners
    Sunland Terrace. Ltd.
      (A Limited Partnership)
    San Bernardino, California

    U.S. Department of Housing
      and Urban Development
    Phoenix, Arizona

    We have audited the accompanying balance sheet of U.S. Department of
    Housing and Urban Development ("HUD") Project No. 123-35131/AZ16-8023- 002
    of Sunland Terrace, Ltd. (A Limited Partnership) as of December 31, 1996,
    and the related statements of profit and loss, changes in partners'
    (deficit) and cash flows for the year then ended. These financial
    statements are the responsibility of Sunland Terrace, Ltd. (A Limited
    Partnership)'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, and the "Consolidated Audit Guide for Audits
    of HUD Programs," (the "Guide") issued by the U.S. Department of Housing
    and Urban Development, Office of the Inspector General in July 1993. 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 HUD Project No.
    123-35131/AZ16-8023-002 of Sunland Terrace, Ltd. (A Limited Partnership) as
    of December 31, 1996, and the results of its operations and the changes in
    partners' (deficit) and cash flows for the year then ended in conformity
    with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report, dated February 14, 1997, on our consideration of Sunland Terrace,
    Ltd. (A Limited Partnership)'s internal control structure and a report,
    dated February 14, 1997, on its compliance with laws and regulations.





<PAGE>   89
    The accompanying supplementary information included on pages 13 through 17 
    of this report is presented for purposes of additional analysis and is not a
    required part of the basic financial statements of HUD Project No.
    123-35131/AZ16-8023-002 of Sunland Terrace, Ltd. 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 basic financial statements taken as a whole

    /s/McGladrey & Pullen, LLP

    San Bernardino, California
    February 14, 1997





<PAGE>   90
    [LOGO]
    [COOPERS & LYBRAND LETTERHEAD]

    Report of Independent Accountants

    To the Partners of
    Tradewinds East Associates Limited
    Dividend Housing Association:

    We have audited the accompanying balance sheet of Tradewinds East
    Associates Limited Dividend Housing Association (a Michigan limited
    partnership), MSHDA Development No. 147, as of December 31, 1996 and the
    related statements of profit and loss, partners' equity, and cash flows for
    the year then ended. 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 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 Tradewinds East
    Associates Limited Dividend Housing Association, as of December 31, 1996
    and the results of its operations and its cash flows for the year then
    ended, in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 31, 1997 on our consideration of Tradewinds East
    Associates Limited Dividend Housing Association's internal control
    structure and a report dated January 31, 1997 on its compliance with laws
    and regulations.

    Our audit was conducted for the purpose of forming an opinion on the basic
    financial statements taken as a whole. The supplemental data included on
    pages 13 and 14 is presented for purposes of additional analysis and is not
    a required part of the basic financial statements of Tradewinds East
    Associates Limited Dividend Housing Association. 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 basic financial statements taken as a whole.





<PAGE>   91
    We have previously audited and expressed an unqualified opinion on the
    financial statements of Tradewinds East Associates Limited Dividend Housing
    Association for the years 1990 through 1995. In our opinion, the
    supplemental data included on page 15, relating to the years 1990 through
    1996, is fairly stated, in all material respects, in relation to the basic
    financial statements from which it has been derived. The data on page 15
    for the years 1975 through 1989 was not audited by us and, accordingly, we
    do not express an opinion on such data. That data was audited by other
    auditors who have ceased operation and whose report, dated January 24,
    1990, stated that such information was fairly stated, in all material
    respects, in relation to the basic financial statements taken as a whole.

    /s/Coopers & Lybrand LLP

    Detroit, Michigan
    January 31, 1997





<PAGE>   92
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Warren Heights Apartments, Ltd.

    We have audited the balance sheets of WARREN HEIGHTS APARTMENTS, LTD., FHA
    Project Number 042-44156-LDP (Partnership), as of December 31, 1996 and
    1995, and the statements of operations, changes in partners' equity and
    cash flows for the years then ended. These financial statements are the
    responsibility of the Partnerships 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 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
    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 Warren Heights
    Apartments, Ltd. as of December 31, 1996 and 1995, and the results of its
    operations, changes in partners' equity and cash flows for the years then
    ended in conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   93
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data shown
    on pages 14 through 20 are presented for purposes of additional analysis
    and are not a required part of the financial statements. This information
    has been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   94
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    White Cliff Apartments,Ltd.

    We have audited the balance sheets of WHITE CLIFF APARTMENTS, LTD., FHA
    Project Number 046-35409-LDP, as of December 31, 1996 and 1995, and the
    statements of operations, changes in partners' equity and cash flows for
    the years then ended. 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 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
    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 White Cliff Apartments,
    Ltd. at December 31, 1996 and 1995, and the results of its operations,
    changes in partners' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   95
    The financial statements have been prepared assuming the partnership will
    continue as a going concern.  As discussed in Note 6 to the financial
    statements, the Partnership will experience a substantial decrease in
    rental income with the six-month extension of the HAP contract. This matter
    raises substantial doubt about the Partnership's ability to continue as a
    going concern. Management's plans with regard to this matter are described
    in Note 6. The financial statements do not include any adjustments that
    might result from the outcome of this uncertainty.

    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   96
                                     [LOGO]
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]

            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                     ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT

    To the Partners of
    Yorkview Estates, Ltd.

    We have audited the balance sheets of YORKVIEW ESTATES, LTD., FHA Project
    Number 04244151-LDP, as of December 31, 1996 and 1995, and the statements
    of operations, changes in partners' equity and cash flows for the years
    then ended. 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 and Government Auditing Standards, issued by the Comptroller
    General of the United States. Those standards require that we plan and
    perform the audits 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
    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 Yorkview Estates, Ltd.
    as of December 31, 1996 and 1995, and the results of its operations,
    changes in partners' equity and cash flows for the years then ended in
    conformity with generally accepted accounting principles.

    In accordance with Government Auditing Standards, we have also issued a
    report dated January 21, 1997, on our consideration of the Partnership's
    internal control structure and a report dated January 21, 1997, on its
    compliance with laws and regulations.





<PAGE>   97
    Our audits were performed for the purpose of forming an opinion on the
    financial statements taken as a whole. The additional financial data on
    pages 14 through 20 are presented for purposes of additional analysis and
    are not a required part of the financial statements. This information has
    been subjected to the procedures applied in the audits of the financial
    statements and, in our opinion, is stated fairly in all material respects
    in relation to the financial statements taken as a whole.

              /s/Altschuler, Melvoin and Glasser LLP

    Chicago, Illinois
    January 21, 1997





<PAGE>   98

                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                           DECEMBER 31, 1996 AND 1995

                                     ASSETS

<TABLE>
<CAPTION>
                                                                 1996              1995
                                                             -------------      ------------
     <S>                                                    <C>                 <C>
     INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)            $  17,873,759      $ 18,600,961

     CASH                                                          342,631           352,652

     SHORT TERM INVESTMENTS (Note 1)                                -                125,000

     OTHER ASSETS                                                  105,129           105,129
                                                             -------------      ------------

               TOTAL ASSETS                                  $  18,321,519      $ 19,183,742
                                                             =============      ============


                               LIABILITIES AND PARTNERS' DEFICIENCY

     LIABILITIES:
          Notes payable (Note 3)                             $  24,869,501      $ 24,869,501
          Accrued interest payable (Note 3)                     24,393,044        22,427,527
          Accrued fees and expenses
             due general partner (Note 4)                        3,213,854         2,630,214
          Accounts payable and other liabilities                    22,582            13,519
                                                             -------------      ------------
                                                                52,498,981        49,940,761
                                                             -------------      ------------
     COMMITMENTS AND CONTINGENCIES
         (Notes 4 and 5)

     PARTNERS' DEFICIENCY:
          General partners                                        (664,905)         (630,701)
          Limited partners                                     (33,512,557)      (30,126,318)
                                                             -------------      ------------
                                                               (34,177,462)      (30,757,019)
                TOTAL LIABILITIES AND PARTNERS'
                     DEFICIENCY                              $  18,321,519      $ 19,183,742
                                                             =============      ============
</TABLE>




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

<PAGE>   99


                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                                       1996             1995             1994
                                                  ------------      -----------     -------------
<S>                                               <C>               <C>            <C>
REVENUE:
     Interest income                              $     15,911      $    20,741     $      16,409
                                                  ------------      -----------     -------------

OPERATING EXPENSES:
     Interest (Note 3)                               2,320,842        2,323,426         2,326,128
     Management fees - general partner (Note 4)        743,640          743,640           743,640
     General and administrative (Note 4)               103,194          106,227            98,197
     Legal and accounting                               88,801           81,534            73,916
                                                  ------------      -----------     -------------
                                                     3,256,477        3,254,827         3,241,881

LOSS FROM OPERATIONS                                (3,240,566)      (3,234,086)       (3,225,472)
                                                  ------------      -----------     -------------
DISTRIBUTIONS FROM LIMITED
     PARTNERSHIP RECOGNIZED
     AS INCOME (Note 2)                                 63,515           19,632           249,371

EQUITY IN LOSS OF LIMITED
     PARTNERSHIPS AND AMORTIZATION
     OF ADDITIONAL BASIS AND
     ACQUISITION COSTS (Note 2)                       (243,392)        (511,033)       (1,074,503)
                                                  ------------      -----------     -------------
NET LOSS                                          $ (3,420,443)     $(3,725,487)    $  (4,050,604)
                                                  ============      ===========     =============
NET LOSS PER LIMITED PARTNERSHIP
     INTEREST                                     $       (164)     $      (179)   $         (193)
                                                  ============      ===========     =============
</TABLE>





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





<PAGE>   100


                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                       STATEMENTS OF PARTNERS' DEFICIENCY
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994




<TABLE>
<CAPTION>
                                       General           Limited
                                       Partners          Partners            Total
                                      ----------      -------------      -------------
   <S>                                <C>             <C>                <C>
   DEFICIENCY, January 1, 1994        $ (552,940)     $ (22,427,988)     $ (22,980,928)

      Net loss for 1994                  (40,506)        (4,010,098)        (4,050,604)
                                      ----------      -------------      -------------
   DEFICIENCY, December 31,. 1994       (593,446)       (26,438,086)       (27,031,532)

      Net loss, 1995                     (37,255)        (3,688,232)        (3,725,487)
                                      ----------      -------------      -------------
   DEFICIENCY, December 31, 1995        (630,701)       (30,126,318)       (30,757,019)

      Net loss, 1996                     (34,204)        (3,386,239)        (3,420,443)
                                      ----------      -------------      -------------
   DEFICIENCY, December 31, 1996      $ (664,905)     $ (33,512,557)     $ (34,177,462)
                                      ==========      =============      =============
</TABLE>




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

<PAGE>   101


                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE>
<CAPTION>
                                                                 1996             1995              1994
                                                             ------------     -------------     -------------
<S>                                                          <C>              <C>               <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net loss                                                  $ (3,420,443)    $  (3,725,487)    $  (4,050,604)
   Adjustments to reconcile net loss to net cash
      used in operating activities:
         Equity in loss of limited partnerships
             and amortization of additional basis
             and acquisition costs                                243,392           511,033         1,074,503
         Decrease (increase) in other assets                       -                (75,561)          (25,911)
          Increase in accrued interest payable                  1,965,517         1,913,055         1,803,220
          Increase in accrued fees and expenses
             due general partner                                  583,640           588,640           443,640
          Increase (decrease) in accounts payable
            and other liabilities                                   9,063            (3,582)           11,513
                                                             ------------     -------------     -------------
                Net cash used in operating activities            (618,831)         (791,902)         (743,639)
                                                             ------------     -------------     -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Maturity of short term investments                             125,000            -                 -
   Distributions from limited partnerships recognized
      as a return of capital                                      499,766           649,950           869,113
   Capital contributions to limited partnerships                  (15,956)           (4,350)         (110,783)
                                                             ------------     -------------     -------------
               Net cash provided by investing activities          608,810           645,600           758,330

NET INCREASE (DECREASE) IN CASH                                   (10,021)         (146,302)           14,691

CASH, BEGINNING OF YEAR                                           352,652           498,954           484,263
                                                             ------------     -------------     -------------
CASH, END OF YEAR                                            $    342,631     $     352,652     $     498,954
                                                             ============     =============     =============
SUPPLEMENTAL DISCLOSURE OF
   CASH FLOW INFORMATION
   CASH PAID DURING THE YEAR FOR INTEREST                    $    355,325     $     410,370     $     522,908
                                                             ============     =============     =============
</TABLE>



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





<PAGE>   102
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                         NOTES TO FINANCIAL STATEMENTS
                               DECEMBER 31, 1996

1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

       ORGANIZATION

       Real Estate Associates Limited VII (the "Partnership") was formed under
       the California Limited Partnership Act on May 24, 1983.  The Partnership
       was formed to invest primarily in other limited partnerships or joint
       ventures which own and operate primarily federal, state or local
       government-assisted housing projects.  The general partners are Coast
       Housing Investments Associates, a limited partnership and National
       Partnership Investments Corp. (NAPICO), the corporate general partner,
       and National Partnership Investments Associates II (NAPIA II), a limited
       partnership.  Casden Investment Corporation owns 100 percent of NAPICO's
       stock.  The general partner of NAPIA II is NAPICO.

       These financial statements include the accounts of Real Estate
       Associates Limited VII and Real Estate Associates IV ("REA IV"), a
       California general partnership in which the Partnership holds a 99
       percent general partner interest.  Losses in excess of the minority
       interest in equity that would otherwise be attributed to the minority
       interest are being allocated to the Partnership.

       The Partnership issued 5,200 units of limited partnership interests
       through a public offering.  Each unit was comprised of two limited
       partnership interests and two warrants granting the investor the right
       to purchase two additional limited partnership interests.  An additional
       10,400 interests associated with warrants were exercised.  The general
       partners have a 1 percent interest in profits and losses of the
       Partnership.  The limited partners have the remaining 99 percent
       interest in proportion to their respective investments.

       The Partnership shall be dissolved only upon the expiration of 50
       complete calendar years (December 31, 2033) from the date of the
       formation of the Partnership or the occurrence of various other events
       as specified in the Partnership agreement.

       Upon total or partial liquidation of the Partnership or the disposition
       or partial disposition of a project or project interest and distribution
       of the proceeds, the general partners will be entitled to a liquidation
       fee as stipulated in the Partnership agreement.  The limited partners
       will have a priority return equal to their invested capital attributable
       to the project(s) or project interest(s) sold and shall receive from the
       sale of the project(s) or project interest(s) an amount sufficient to
       pay state and federal income taxes, if any, calculated at the maximum
       rate then in effect.  The general partners' fee may accrue but shall not
       be paid until the limited partners have received distributions equal to
       100 percent of their capital contributions.

       USES 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 reported amounts of revenues and expenses
       during the reporting period.  Actual results could differ from those
       estimates.




                                       5
<PAGE>   103
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       METHOD OF ACCOUNTING FOR INVESTMENTS IN LIMITED PARTNERSHIPS

       The investments in limited partnerships are accounted for on the equity
       method.  Acquisition, selection and other costs related to the
       acquisition of the projects have been capitalized as part of the
       investment account and are being amortized on a straight line basis over
       the estimated lives of the underlying assets, which is generally 30
       years.

       NET LOSS PER LIMITED PARTNERSHIP INTEREST

       Net loss per limited partnership interest was computed by dividing the
       limited partners' share of net loss by the number of limited partnership
       interests outstanding during the year.  The number of limited
       partnership interests was 20,802 for all years presented.

       SHORT TERM INVESTMENTS

       Short term investments consist of bank certificates of deposit with
       original maturities ranging from more than three months to twelve
       months.  The fair value of these securities, which have been classified
       as held for sale, approximates their carrying value.

       IMPAIRMENT OF LONG-LIVED ASSETS

       The Partnership reviews long-lived assets to determine if there has been
       any permanent impairment whenever events or changes in circumstances
       indicate that the carrying amount of the asset may not be recoverable.
       If the sum of the expected future cash flows is less than the carrying
       amount of the assets, the Partnership recognizes an impairment loss.

2.     INVESTMENTS IN LIMITED PARTNERSHIPS

       The Partnership holds limited partnership interests in 32 limited
       partnerships.  In addition, the Partnership holds a general partner
       interest in REA IV.  NAPICO is also the general partner in REA IV.  REA
       IV, in turn, holds limited partner interests in 16 additional limited
       partnerships.  In total, therefore, the Partnership holds interests,
       either directly or indirectly through REA IV, in 48 partnerships all of
       which own residential low income rental projects consisting of 4,731
       apartment units.  The mortgage loans of these projects are payable to or
       insured by various governmental agencies.

       The Partnership, as a limited partner, is entitled to between 93 percent
       and 99 percent of the profits and losses in the limited partnerships it
       has invested in directly.  The Partnership is also entitled to 99
       percent of the profits and losses of REA IV.  REA IV holds a 99 percent
       interest in each of the limited partnerships in which it has invested.

       Equity in losses of limited partnerships is recognized in the financial
       statements until the limited partnership investment account is reduced
       to a zero balance.  Losses incurred after the limited partnership
       investment account is reduced to zero are not recognized. The cumulative
       amount of the unrecognized





                                       6
<PAGE>   104
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996


2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       equity in losses of certain unconsolidated limited partnerships was
       approximately $8,129,000 and $6,359,000 as of December 31, 1996 and
       1995, respectively.

       Distributions from the limited partnerships are accounted for as a
       return of capital until the investment balance is reduced to zero.
       Subsequent distributions received are recognized as income.

       The following is a summary of the investments in limited partnerships
and reconciliation to the limited partnership accounts:
<TABLE>
<CAPTION>
                                                                       1996                  1995   
                                                                   -----------           -----------
       <S>                                                         <C>                   <C>
       Investment balance, beginning of year                       $18,600,961           $19,757,594
       Cash distributions recognized as
         a return of capital                                          (499,766)             (649,950)
       Equity in loss of limited partnerships                          (51,136)             (309,810)
       Amortization of additional basis and
         capitalized acquisition costs and fees                       (192,256)             (201,223)
       Capital contributions to limited partnerships                    15,956                 4,350
                                                                   -----------           -----------

       Investment balance, end of year                             $17,873,759           $18,600,961
                                                                   ===========           ===========
</TABLE>

       The difference between the investment per the accompanying balance
       sheets at December 31, 1996 and 1995, and the equity per the limited
       partnerships' combined financial statements is due primarily to
       cumulative unrecognized equity in losses of certain limited
       partnerships, additional basis and costs capitalized to the investment
       account and cumulative distributions recognized as income.

       Selected financial information from the combined financial statements at
       December 31, 1996 and 1995 and for each of the three years in the period
       ended December 31, 1996, of the limited partnerships in which the
       Partnership has invested directly or indirectly, is as follows:

                                 Balance Sheets
<TABLE>
<CAPTION>
                                                                               1996             1995  
                                                                             --------         --------
                                                                                  (in thousands)
                                                                                                
      <S>                                                                   <C>             <C>
      Land and buildings, net                                                $ 79,208         $ 83,427
                                                                             ========         ========

      Total assets                                                           $ 96,894         $ 99,949
                                                                             ========         ========

      Mortgages loan payable                                                 $ 75,690         $ 77,936
                                                                             ========         ========

      Total liabilities                                                      $ 95,054         $ 95,863
                                                                             ========         ========

      Equity of Real Estate Associates Limited VII                           $  2,612         $  4,793
                                                                             ========         ========

      Deficiency of other partners                                           $   (772)        $   (707)
                                                                             ========         ========
</TABLE>




                                       7
<PAGE>   105
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996


2.    INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

                            Statements of Operations

<TABLE>
<CAPTION>
                                                             1996              1995             1994  
                                                           --------          --------         --------
                                                                     (in thousands)   
                                                                                      
       <S>                                                 <C>               <C>               <C>
       Total revenue                                        $27,858           $27,145          $26,507
                                                            =======           =======          =======

       Interest expense                                     $ 4,068           $ 3,503          $ 3,871
                                                            =======           =======          =======

       Depreciation                                         $ 5,472           $ 6,596          $ 5,867
                                                            =======           =======          =======

       Total expenses                                       $29,519           $28,768          $29,209
                                                            =======           =======          =======

       Net loss                                             $(1,661)          $(1,623)         $(2,702)
                                                            =======           =======          =======

       Net loss allocable to the Partnership                $(1,642)          $(1,606)         $(1,835)
                                                            =======           =======          =======
</TABLE>

       Land and buildings above have been adjusted for the amount by which the
       investments in the limited partnerships exceed the Partnership's share
       of the net book value of the underlying net assets of the investee which
       are recorded at historical costs.  Depreciation on the adjustment is
       provided for over the estimated remaining useful lives of the
       properties.

       An affiliate of NAPICO is the general partner in 26 of the limited
       partnerships included above,  and another affiliate receives property
       management fees of approximately 5 to 6 percent of the revenue from
       three of these partnerships. The affiliate received property management
       fees of $116,995, $116,175 and $107,237 in 1996, 1995 and 1994
       respectively.  The following sets forth the significant data for these
       partnerships  in which an affiliate of NAPICO was the general partner,
       reflected in the accompanying financial statements using the equity
       method of accounting:

<TABLE>
<CAPTION>
                                                               1996            1995            1994  
                                                             --------        --------        --------
                                                                          (in thousands)   
                                                                                      
       <S>                                                   <C>             <C>               <C>
       Total assets                                           $40,934         $42,346
                                                              =======         =======

       Total liabilities                                      $50,671         $50,676
                                                              =======         =======

       Deficiency of Real Estate Associates Limited VII       $(9,442)        $(8,047)
                                                              =======         =======

       Deficiency of other partners                           $  (295)        $  (283)
                                                              =======         =======

       Total revenue                                          $12,785         $12,311          $11,934
                                                              =======         =======          =======

       Net loss                                               $(1,141)        $(1,262)         $(1,934)
                                                              =======         =======          =======
</TABLE>




                                       8
<PAGE>   106
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996

3.     NOTES PAYABLE

       Certain of the Partnership's investments involved purchases of
       partnership interests from partners who subsequently withdrew from the
       operating partnership.  The Partnership is obligated on non-recourse
       notes payable of $24,869,501, bearing interest at 9 1/2 percent, to the
       sellers of the partnership interests.  The notes have principal maturity
       dates ranging from August 1999 to December 2002 or upon sale or
       refinancing of the underlying partnership properties.  These obligations
       and related interest are collateralized by the Partnership's investments
       in the investee limited partnerships and are payable only out of cash
       distributions from the investee partnerships, as defined in the notes.
       Unpaid interest is due at maturity of the notes.

       Maturity dates on the notes and related accrued interest payable are as
follows:

<TABLE>
<CAPTION>
                                                                                            Accrued
        Years Ending December 31,                                           Notes           Interest   
        -------------------------                                        -----------       -----------
                  <S>                                                    <C>               <C>
                  1997                                                   $                 $
                  1998
                  1999                                                    18,059,000        17,358,918
                  2000
                  2001                                                     4,595,000         4,837,648
                  Thereafter                                               2,215,501         2,196,478
                                                                         -----------       -----------

                                                                         $24,869,501       $24,393,044
                                                                         ===========       ===========
</TABLE>

4.    FEES AND EXPENSES DUE GENERAL PARTNER

      Under the terms of the Restated Certificate and Agreement of Limited
      Partnership, the Partnership is obligated to NAPICO for an annual
      management fee equal to .5 percent of the original invested assets of the
      partnerships.  Invested assets is defined as the costs of acquiring
      project interests, including the proportionate amount of the mortgage
      loans related to the Partnership's interest in the capital accounts of
      the respective partnerships.

      As of December 31, 1996, the fees and expenses due the general partner
      exceeded the Partnership's cash.  The general partners, during the
      forthcoming year, will not demand payment of amounts due in excess of
      such cash or such that the Partnership would not have sufficient
      operating cash; however, the Partnership will remain liable for all such
      amounts.

      The Partnership reimburses NAPICO for certain expenses.  The
      reimbursement to NAPICO was $43,124, $39,900 and $38,450 in 1996, 1995
      and 1994, respectively, and is included in operating expenses.




                                       9
<PAGE>   107
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1996

5.     CONTINGENCIES

       The corporate general partner of the Partnership and the Partnership are
       involved in various lawsuits arising from transactions in the ordinary
       course of business.  In the opinion of management and the corporate
       general partner, the claims will not result in any material liability to
       the Partnership.

6.     INCOME TAXES

       No provision has been made for income taxes in the accompanying
       financial statements since such taxes, if any, are the liability of the
       individual partners.  The major differences in tax and financial
       reporting result from the use of different bases and depreciation
       methods for the properties held by the limited partnerships.
       Differences in tax and financial reporting also arise as losses are not
       recognized for financial reporting purposes when the investment balance
       has been reduced to zero.

7.     FAIR VALUE OF FINANCIAL INSTRUMENTS

       Statement of Financial Accounting Standards No. 107, "Disclosure about
       Fair Value of Financial Instruments," requires disclosure of fair value
       information about financial instruments, when it is practicable to
       estimate that value.  The notes payable are collateralized by the
       Partnership's investments in investee limited partnerships and are
       payable only out of cash distributions from the investee partnerships.
       The operations generated by the investee limited partnerships, which
       account for the Partnership's primary source of revenues, are subject to
       various government rules, regulations and restrictions which make it
       impracticable to estimate the fair value of  the notes payable and
       related accrued interest and amounts due general partner.  The carrying
       amount of other assets and liabilities reported on the balance sheets
       that require such disclosure approximates fair value due to their
       short-term maturity.

8.     FOURTH-QUARTER ADJUSTMENT

       The Partnership's policy is to record its equity in the loss of limited
       partnerships on a quarterly basis, using estimated financial information
       furnished by the various local operating general partners.  The equity
       in loss of limited partnerships reflected in the accompanying annual
       financial statements is based primarily upon audited financial
       statements of the investee limited partnerships.  The decrease of
       approximately $144,000 between the estimated nine-month equity in loss
       and the actual 1996 year end equity in loss has been recorded in the
       fourth quarter.




                                       10
<PAGE>   108

                                                                        SCHEDULE

                       REAL ESTATE ASSOCIATES LIMITED VII
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

       
<TABLE>
<CAPTION>                                                                                                 
                                                        Year Ended December 31, 1996                      
                             ---------------------------------------------------------------------------- 
                                                                  Cash           Equity                   
                               Balance                           Distri-           in           Balance    
                              January 1,        Capital         butions          Income       December 31,
Limited Partnerships             1996        Contributions      Received         (Loss)          1996   
--------------------        ------------    -------------    ------------    ------------    ------------ 
<S>                         <C>             <C>             <C>             <C>             <C>           
Anthracite Apts.            $  1,057,033    $               $    (25,948)   $     22,825    $  1,053,910
Aristocrat Manor                 547,020                                         (50,499)        496,521
Arkansas City Apts.
Arrowsmith Apts.                 382,819                                         (10,399)        372,420
Ashland Manor
Bangor House                   1,613,076                                          71,308       1,684,384
Bellair Manor Apts.              282,472                          (2,654)        (20,472)        259,346
Birch Manor I
Birch Manor II
Bluewater Apts.                1,796,000                         (13,502)         83,850       1,866,348
Center CIty Apts.              2,190,092                         (36,470)        192,016       2,345,638
Clarkwood Apts. I                                  1,316          (1,316)
Clarkwood Apts. II                                 2,729          (2,729)
Cleveland I                      108,138                         (37,821)        (17,836)         52,481
Cleveland II                     136,258                         (19,268)        (38,167)         78,823
Cleveland III                     24,941                         (13,150)        (11,791)              0
Danbury Park Manor
Desoto Apts.                     140,188                         (13,209)        (17,820)        109,159
Dexter Apts.                     112,122                         (22,451)        (26,100)         63,571
Edgewood Terrace II              768,565                                        (104,531)        664,034
Goodlette Arms Apts.           2,520,096                          (1,485)        (89,520)      2,429,091
Hampshire House Apts.
Henrico Arms
Ivywood Apts.                    359,633                          (5,790)        (47,671)        306,172
Jasper County
King Towers                      296,703                          (2,045)        (55,046)        239,612
Meherrin Landings
Nantucket Apts.                  255,625                          (1,417)        (17,157)        237,051
Newton Apts.
Oak Hill I                       189,146                          (3,085)        (82,513)        103,548
Oakview Apts.
Oakwood Park I                                     1,207          (1,207)
Oakwood Park II                                      694            (694)
Pachuta Apts.
Parkway Towers                 1,707,990                         (15,801)        131,170       1,823,359
Pebbleshire Apts.                                  9,840          (9,840)
Pinebrook Apts.                  728,826                                          42,017         770,843
Rand Grove Village               518,851                         (24,284)       (265,173)        229,394
Richards Park Apts.                                  170            (170)
Ridgewood Towers                 616,752                        (221,751)        169,680         564,681
Shubuta Properties
South Glen Apts.                   9,305                                          (9,305)              0
South Park Apts.
Sunland Terrace
Tradewinds East Apts.          1,610,376                         (19,388)         (4,264)      1,586,724
Warren Heights Apts. II          284,076                          (4,230)        (37,638)        242,208
White Cliffs Apts.               210,389                                         (39,957)        170,432
Yorkview Estates                 134,469                             (61)        (10,399)        124,009 
                            ------------    ------------    ------------    ------------    ------------
                            $ 18,600,961    $     15,956    $   (499,766)   $   (243,392)   $ 17,873,759 
                            ============    ============    ============    ============    ============
</TABLE>





<PAGE>   109


                                                                        SCHEDULE
                                                                     (Continued)
                       REAL ESTATE ASSOCIATES LIMITED VII
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                        Year Ended December 31, 1995                      
                             ---------------------------------------------------------------------------- 
                                                                  Cash           Equity                   
                               Balance                           Distri-           in          Balance   
                             January 1,         Capital         butions          Income      December 31, 
Limited Partnerships            1996         Contributions      Received         (Loss)          1995  
--------------------        ------------    -------------    ------------    ------------    ------------ 
<S>                         <C>             <C>             <C>             <C>             <C>           
Anthracite Apts.           $  1,037,867    $               $    (25,948)   $     45,114    $  1,057,033
Aristocrat Manor                660,098                                        (113,078)        547,020
Arkansas City Apts.
Arrowsmith Apts.                469,332                         (14,850)        (71,663)        382,819
Ashland Manor
Bangor House                  1,609,060                        (101,136)        105,152       1,613,076
Bellair Manor Apts.             305,068                          (4,882)        (17,714)        282,472
Birch Manor I                                       581            (581)
Birch Manor II                                    3,244          (3,244)
Bluewater Apts.               1,797,663                         (27,003)         25,340       1,796,000
Center CIty Apts.             2,033,873                         (36,470)        192,689       2,190,092
Clarkwood Apts. I                                 1,061          (1,061)
Clarkwood Apts. II
Cleveland I                     133,418                         (33,240)          7,960         108,138
Cleveland II                    166,434                         (18,230)        (11,946)        136,258
Cleveland III                    30,597                          (1,734)         (3,922)         24,941
Danbury Park Manor
Desoto Apts.                    178,452                         (18,253)        (20,011)        140,188
Dexter Apts.                    149,359                          (5,623)        (31,614)        112,122
Edgewood Terrace II             934,508                         (30,738)       (135,205)        768,565
Goodlette Arms Apts.          2,543,290                          (1,485)        (21,709)      2,520,096
Hampshire House Apts.
Henrico Arms                                                     (9,865)          9,865
Ivywood Apts.                   411,136                          (4,015)        (47,488)        359,633
Jasper County
King Towers                     337,383                                         (40,680)        296,703
Meherrin Landings
Nantucket Apts.                 274,141                                         (18,516)        255,625
Newton Apts.
Oak Hill I                      241,932                                         (52,786)        189,146
Oakview Apts.
Oakwood Park I                                    1,640          (1,640)
Oakwood Park II                                     864            (864)
Pachuta Apts.
Parkway Towers                1,558,737                         (15,590)        164,843       1,707,990
Pebbleshire Apts.                                 9,840          (9,840)
Pinebrook Apts.                 679,155                                          49,671         728,826
Rand Grove Village              822,741                         (24,284)       (279,606)        518,851
Richards Park Apts.                               1,022          (1,022)
Ridgewood Towers                721,120                        (224,604)        120,236         616,752
Shubuta Properties
South Glen Apts.                323,984         (15,000)        (23,763)       (275,916)          9,305
South Park Apts.                                  1,098          (1,098)
Sunland Terrace
Tradewinds East Apts.         1,634,847                                         (24,471)      1,610,376
Warren Heights Apts. II         308,241                          (3,915)        (20,250)        284,076
White Cliffs Apts.              246,471                          (1,031)        (35,051)        210,389
Yorkview Estates                148,687                          (3,941)        (10,277)        134,469 
                           ------------    ------------    ------------    ------------    ------------
                           $ 19,757,594    $      4,350    $   (649,950)   $   (511,033)   $ 18,600,961 
                           ============    ============    ============    ============    ============
</TABLE>





<PAGE>   110


                                                                        SCHEDULE
                                                                     (Continued)
                       REAL ESTATE ASSOCIATES LIMITED VII
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994


<TABLE> 
<CAPTION>
                                                        Year Ended December 31, 1994                      
                             ---------------------------------------------------------------------------- 
                                                                  Cash           Equity                   
                               Balance                           Distri-           in           Balance   
                             January 1,         Capital         butions          Income      December 31, 
Limited Partnerships            1995         Contributions      Received         (Loss)          1994  
--------------------        ------------     -------------     -----------    ------------    ------------ 
<S>                          <C>             <C>                <C>          <C>              <C>
Anthracite Apts.             $ 1,082,364     $                    $(25,948)   $  (18,549)     $ 1,037,867
Aristocrat Manor                 711,571                                         (51,473)         660,098
Arkansas City Apts.                         
Arrowsmith Apts.                 499,723                               -         (30,391)         469,332
Ashland Manor                                     15,276           (15,276)
Bangor House                   1,552,706                           (33,006)       89,360        1,609,060
Bellair Manor Apts.              335,256                            (9,693)      (20,495)         305,068
Birch Manor I                                     10,154           (10,154)
Birch Manor II                                     3,288            (3,288)
Bluewater Apts.                1,764,963                           (13,502)       46,202        1,797,663
Center City Apts.              1,965,002                           (36,470)      105,341        2,033,873
Clarkwood Apts. I                                  6,543            (6,543)
Clarkwood Apts. II                                 7,613            (7,613)
Cleveland I                      198,885                           (77,743)       12,276          133,418
Cleveland II                     188,636                           (26,191)        3,989          166,434
Cleveland III                    45,999                             (8,437)       (6,965)          30,597
Danbury Park Manor                          
Desoto Apts.                     209,309                           (27,077)       (3,780)         178,452
Dexter Apts.                     212,500                           (17,987)      (45,154)         149,359
Edgewood Terrace II            1,138,047                           (32,298)     (171,241)         934,508
Goodlette Arms Apts.           2,603,418                            (1,485)      (58,643)       2,543,290
Hampshire House Apts.                       
Henrico Arms                     214,044                           (22,021)     (192,023)            -
Ivywood Apts.                    491,855                           (17,327)      (63,392)         411,136
Jasper County                               
King Towers                      409,865                            (4,871)      (67,611)         337,383
Meherrin Landings                           
Nantucket Apts.                  299,135                           (10,403)      (14,591)         274,141
Newton Apts.                                
Oak Hill I                       358,228                           (10,426)     (105,870)         241,932
Oakview Apts.                               
Oakwood Park I                                     8,137            (8,137)
Oakwood Park II                                    7,239            (7,239)
Pachuta Apts.                               
Parkway Towers                 1,523,261                           (16,131)       51,607        1,558,737
Pebbleshire Apts.                                 25,838           (25,838)
Pinebrook Apts.                  983,052                                        (303,897)         679,155
Rand Grove Village               955,840                           (24,284)     (108,815)         822,741
Richards Park Apts.                                7,576            (7,576)
Ridgewood Towers                 880,227                          (267,282)      108,175          721,120
Shubuta Properties                          
South Glen Apts.                 454,860                           (23,763)     (107,113)         323,984
South Park Apts.                                  19,119           (19,119)
Sunland Terrace                             
Tradewinds East Apts.          1,681,237                           (19,388)      (27,002)       1,634,847
Warren Heights Apts. II          350,469                            (9,929)      (32,299)         308,241
White Cliffs Apts.               298,180                            (4,993)      (46,716)         246,471
Yorkview Estates                 181,795                           (17,675)      (15,433)         148,687
                             -----------       ---------        ----------   -----------      -----------
                             $21,590,427       $ 110,783        $ (869,113)  $(1,074,503)     $19,757,594
                             ===========       =========        ==========   ===========      ===========
</TABLE>





<PAGE>   111
                                                                        SCHEDULE
                                                                     (Continued)


                       REAL ESTATE ASSOCIATES LIMITED VII
       INVESTMENTS IN, EQUITY IN EARNINGS OF AND DIVIDENDS RECEIVED FROM
                          AFFILIATES AND OTHER PERSONS
                              FOR THE YEARS ENDED
                        DECEMBER 31, 1996, 1995 AND 1994


NOTES:    1.     Equity in income (losses) of the limited partnerships
                 represents the Partnership's allocable share of the net
                 results of operations from the limited partnerships for the
                 year.  Equity in losses of the limited partnerships will be
                 recognized until the investment balance is reduced to zero or
                 below zero to an amount equal to future capital contributions
                 to be made by the Partnership.

          2.     Cash distributions from the limited partnerships will be
                 treated as a return of the investment and will reduce the
                 investment balance until such time as the investment is
                 reduced to an amount equal to additional contributions.
                 Distributions subsequently received will be recognized as
                 income.





<PAGE>   112
                                                                   SCHEDULE III
                                                                    (CONTINUED)

                      REAL ESTATE ASSOCIATES LIMITED VII
                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS INVESTMENTS
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                            BUILDINGS, FURNISHINGS
                                       NUMBER   OUTSTANDING                       & EQUIPMENT                                   
                                         OF       MORTGAGE                      AMOUNT CARRIED                    ACCUMULATED 
PARTNERSHIP/LOCATION                   UNITS       LOAN           LAND        AT CLOSE OF PERIOD      TOTAL       DEPRECIATION
--------------------                   ------   -----------     --------   ----------------------   ----------    ------------
<S>                                     <C>     <C>             <C>               <C>               <C>            <C>         
ANTHRACITE APARTMENTS                   121     $3,476,966      $132,875          $4,247,165        $4,380,040     $1,639,16? 
  Piaston, PA

ARISTOCRAT MANOR                        113      1,201,620       265,158           3,007,932         3,273,090      1,168,45?
  Hot Springs, AR

ARKANSAS CITY APARTMENTS                 16        500,268        22,416             504,920           527,336        142,97?
  Arkansas City, AR

BANGOR HOUSE                            121      3,879,192       125,277           6,507,809         6,633,086      2,320,20?
  Bangor ME

BLUEWATER APARTMENTS                    116      1,786,321       130,163           3,787,990         3,918,153      1,624,58?
  Port Huron, MI

CENTER CITY APARTMENTS                  176      4,953,112       216,196           6,148,217         6,364,413      2,397,55?
  Hazelton, PA

CLEVELAND APARTMENTS I                   50        816,296        60,000           1,406,756         1,466,756        740,62?
  Hayti, MO

CLEVELAND APARTMENTS II                  50        807,295        50,000           1,427,920         1,477,920        734,13?
  Hayti, MO

CLEVELAND APARTMENTS III                 21        358,570        25,000             604,465           629,465        324,19?
  Hayti, MO

DANBURY PARK MANOR                      151      1,934,112       183,752           4,434,935         4,618,687      1,777,97?
  Superior Township, MI

DESOTO APARTMENTS                        42        677,371        50,000           1,223,646         1,273,646        621,92?
  Desoto, MO

DEXTER APARTMENTS                        50        816,383        50,000           1,522,911         1,572,911        787,78?
  Dexter, MO

GOODLETTE ARMS APARTMENTS               250      3,116,476       500,000           6,948,002         7,448,002      2,979,38?
  Naples, FL

HENRICO ARMS                            232      2,946,479       206,980           3,783,137         3,990,117      3,402,79?
  Richmond, VA

JASPER COUNTY PROP.                      24        664,804        33,000             770,478           803,478        653,01?
  Heidelberg, MS

MEHERRIN LANDINGS                        42      1,253,760       105,000           1,283,499         1,388,499        804,62?
  Emporia, VA

NEWTON APARTMENTS                        36        958,324        55,017           1,053,680         1,108,697        935,68?
  Newton, MS

OAKVIEW APARTMENTS                       32      1,113,354        75,000           1,153,487         1,228,487        310,62?
  Monticello, AR

PACHUTA APARTMENTS                       16        446,306        20,680             489,524           510,204        431,95?
  Pachuta, MS

PARKWAY TOWERS APARTMENTS               104      1,453,797       287,919           4,077,524         4,365,443      3,304,7??
  East Providence, RI

RAND GROVE VILLAGE                      212      2,844,395       491,000           6,335,858         6,826,858      4,033,37?
  Palatine, IL

SHUBUTA PROPERTIES                       16        447,517        23,179             537,279           560,458        436,00?
  Shubuta, MS

SOUTH GLEN APARTMENTS                   159      2,857,548       298,089           4,779,323         5,077,412      3,413,7??
  Trenton, MI

SUNLAND TERRACE                          80      2,416,624        55,500           2,990,298         3,045,798      1,508,2??
  Phoenix, AZ

TRADEWINDS EAST APARTMENTS              150      2,352,652       117,692           5,172,205         5,289,897      2,197,6??
  Essexville, MI

ARROWSMITH APARTMENTS                    70      1,287,638       252,480           2,312,151         2,564,631      1,075,5??
  Corpus Christi, TX

ASHLAND MANOR                           189      2,291,775        91,530           4,484,942         4,576,472      2,206,1??
  Toledo, OH

BELLAIR MANOR APARTMENTS                 68        928,644       152,995           1,597,944         1,750,939        695,5??
  Niles, OH

BIRCH MANOR APARTMENTS I                 60        608,953        60,889           1,373,175         1,434,064        604,4??
  Medina, OH

BIRCH MANOR APARTMENTS II                60        780,853        50,284           1,432,405         1,482,689        623,6??
  Medina, OH

CLARKWOOD APARTMENTS I                   72        670,857        68,841           1,592,455         1,661,296        698,7??
  Elyria, OH
</TABLE>

<PAGE>   113
                                                                   SCHEDULE III
                                                                    (CONTINUED)

                      REAL ESTATE ASSOCIATES LIMITED VII
                   REAL ESTATE AND ACCUMULATED DEPRECIATION
                OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS INVESTMENTS
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
                                                                            BUILDINGS, FURNISHINGS
                                       NUMBER   OUTSTANDING                       & EQUIPMENT                                   
                                         OF       MORTGAGE                      AMOUNT CARRIED                    ACCUMULATED 
PARTNERSHIP/LOCATION                   UNITS       LOAN           LAND        AT CLOSE OF PERIOD      TOTAL       DEPRECIATION
--------------------                   ------   -----------     --------   ----------------------   ----------    ------------
<S>                                    <C>      <C>            <C>               <C>               <C>             <C>         
CLARKWOOD APARTMENTS                     120    $ 1,221,690    $   92,510        $  2,730,574      $  2,823,084    $ 1,197,35? 
  Elyria, OH

HAMPSHIRE HOUSE APARTMENT                150      2,984,173       101,163           4,062,821         4,163,984      1,761,35?
  Warren, OH

IVYWOOD APARTMENTS                       124      1,716,635       200,184           3,020,686         3,220,870      1,312,87?
  Columbus, OH

KING TOWERS                               68        794,907        97,919           1,532,422         1,630,341        664,14?
  Cincinnati, OH

NANTUCKET APARTMENTS                      60        655,856        34,676           1,344,874         1,379,550        587,11?
  Alliance, OH

OAK HILL APARTMENTS                      120      1,922,818        75,834           3,173,971         3,249,805      1,374,98?
  Franklin, PA

OAKWOOD PARK I APARTMENTS                 50        261,487        63,123             889,197           952,320        392,37?
  Lorain, OH

OAKWOOD PARK II APARTMENTS                78        469,269       102,202           1,437,489         1,539,691        633,07?
  Lorain, OH

RICHARDS PARK APARTMENTS                  60        753,567        52,416           1,448,588         1,501,004        629,82?
  Elyria, OH

SOUTH PARK APARTMENTS                    138      1,045,107       135,579           2,852,592         2,988,171      1,248,95?
  Elyria, OH

WARREN HEIGHTS APARTMENTS II              88      1,221,749        21,803           2,268,950         2,290,753        983,90?
  Warren, OH

WHITE CLIFF APARTMENTS                    72      1,165,792        62,911           1,966,523         2,029,434        850,88?
  Cincinnati, OH

YORKVIEW ESTATES                          50        679,271        22,049           1,240,379         1,262,428        538,70?
  Massillon, OH

EDGEWOOD TERRACE II                      258      4,008,850       525,000           9,676,726        10,201,726      5,981,12?
  Washington, DC

PEBBLESHIRE APARTMENTS                   120      1,969,775       359,943           4,311,798         4,671,741      1,804,03?
  Vernon Hills, IL

PINEBROOK APARTMENTS                     136      1,546,321       265,172           3,569,357         3,834,529      1,500,52?
  Lansing, MI

RIDGEWOOD TOWERS                         140      2,624,968        88,658           6,403,429         6,492,087      3,784,29?
  Moline, IL

Additional basis of real estate due to
  capital contribution to investee
  limited partnership                                             332,570           8,022,823         8,355,393      4,789,64?
                                       -----    -----------    ----------        ------------      ------------    -----------
TOTAL                                  4,731    $75,690,497    $6,890,624        $146,945,231      $153,835,855    $74,627,83? 
                                       =====    ===========    ==========        ============      ============    ===========
</TABLE>

<PAGE>   114


                                                                    SCHEDULE III
                                                                     (Continued)



                       REAL ESTATE ASSOCIATES LIMITED VII
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS INVESTMENTS
                               DECEMBER 31, 1996


NOTES:    1.     Each local limited partnership has developed, owns and
                 operates the housing project.  Substantially all project
                 costs, including construction period interest expense, were
                 capitalized by the limited partnerships.

          2.     Depreciation is provided for by various methods over the
                 estimated useful lives of the projects.  The estimated
                 composite useful lives of the buildings are from 25 to 40
                 years.

          3.     Investments in property and equipment:

<TABLE>
<CAPTION>
                                                                      Buildings,
                                                                     Furnishings,
                                                                           And
                                                  Land                Equipment                 Total
                                                  ----               -----------                -----
<S>                                             <C>                    <C>                     <C>
Balance, January 1, 1994                        $6,735,343             $143,853,561            $150,588,904

Net additions - 1994                                36,000                1,077,123               1,113,123
                                                ----------             ------------            ------------

Balance, December 31, 1994                       6,771,343              144,930,684             151,702,027

Net additions - 1995                                31,400                  755,312                 786,712
                                                ----------             ------------            ------------

Balance, December 31, 1995                       6,802,743              145,685,996             152,488,739

Net additions - 1996                                87,881                1,259,235               1,347,116
                                                ----------             ------------            ------------

Balance, December 31, 1996                      $6,890,624             $146,945,231            $153,835,855
                                                ==========             ============            ============
</TABLE>





<PAGE>   115

                                                                    SCHEDULE III
                                                                     (Continued)

                       REAL ESTATE ASSOCIATES LIMITED VII
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                       HELD BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS INVESTMENTS
                               DECEMBER 31, 1996


<TABLE>
<CAPTION>
                                                                    Buildings,
                                                                   Furnishings
                                                                      And
                                                                    Equipment  
                                                                 --------------
<S>                                                                <C>
ACCUMULATED DEPRECIATION:
------------------------ 

Balance, January 1, 1994                                           $56,767,167

Net additions, 1994                                                  5,731,210
                                                                   -----------

Balance, December 31, 1994                                          62,498,377

Net additions, 1995                                                  6,563,752
                                                                   -----------

Balance, December 31, 1995                                          69,062,129

Net additions, 1996                                                  5,565,703
                                                                   -----------

Balance, December 31, 1996                                         $74,627,832
                                                                   ===========
</TABLE>





<PAGE>   116

PART III.

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

REAL ESTATE ASSOCIATES LIMITED VII (the "Partnership") has no directors or
executive officers of its own.

National Partnership Investment Corp. ("NAPICO" or "the Managing General
Partner") is a wholly-owned subsidiary of Casden Investment Company, an
affiliate of The Casden Company.  The following biographical information is
presented for the directors and executive officers of NAPICO with principal
responsibility for the Partnership's affairs.

CHARLES H. BOXENBAUM, 67, Chairman of the Board of Directors and Chief
Executive Officer of NAPICO.

Mr. Boxenbaum has been associated with NAPICO since its inception.  He has been
active in the real estate industry since 1960, and prior to joining NAPICO was
a real estate broker with the Beverly Hills firm of Carl Rhodes Company.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate
Association, National Institute of Real Estate Brokers, Appraisal Institute,
various mortgage banking seminars, and the North American Property Forum held
in London, England.  In 1963, he was the winner of the Snyder Award, the
highest annual award offered by the National Association of Real Estate Boards
for Best Exchange.  He is one of the founders and a past director of the First
Los Angeles Bank, organized in November 1974.  Mr. Boxenbaum was a member of
the Board of Directors of the National Housing Council.  Mr. Boxenbaum received
his Bachelor of Arts degree from the University of Chicago.

BRUCE E. NELSON, 45, President and a director of NAPICO.

Mr. Nelson joined NAPICO in 1980 and became President in February 1989.  He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs.  Mr. Nelson is also involved
in the identification, analysis, and negotiation of real estate investments.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators.  Prior to that time Mr. Nelson was engaged
in the private practice of law in Los Angeles.  Mr. Nelson received his
Bachelor of Arts degree from the University of Wisconsin and is a graduate of
the University of Colorado School of Law.  He is a member of the State Bar of
California and is a licensed real estate broker in California and Texas.

ALAN I. CASDEN, 51, Chairman of The Casden Company, an affiliate of Casden
Properties (formerly CoastFed Properties), a director and member of the audit
committee of NAPICO, and chairman of the Executive Committee of NAPICO.

Mr. Casden is Chairman of the Board, Chief Executive Officer and sole
shareholder of The Casden Company and Casden Investment Company.  Prior to
that, he was the president and chairman of Mayer Group, Inc., which he joined
in 1975.  He is also chairman of Mayer Management, Inc., a real estate
management firm.   Mr. Casden has been involved in approximately $3 billion of
real estate financings and sales and has been responsible for the development
and construction of more than 12,000 apartment units and 5,000 single-family
homes and condominiums.





<PAGE>   117

Mr. Casden is a member of the American Institute of Certified Public
Accountants and of the California Society of Certified Public Accountants.  Mr.
Casden is a member of the advisory board of the National Multi-Family Housing
Conference, the Multi-Family Housing Council, and the President's Council of
the California Building Industry Association.  He also serves on the advisory
board to the School of Accounting of the University of Southern California.  He
holds a Bachelor of Science and a Masters in Business Administration degree
from the University of Southern California.

HENRY C. CASDEN, 53, President, Chief Operating Officer and Secretary of The
Casden Company and a director and secretary of NAPICO.

Mr. Casden has been President and Chief Operating Officer of The Casden
Company, as well as a director of NAPICO since February 1988.  He became
secretary of both companies in late 1994.  From 1982 to 1988, Mr. Casden was of
counsel and a partner in the Los Angeles law firm of Troy, Casden & Gould.
From 1978 to 1981, he was of counsel and a partner in the Los Angeles law firm
of Loeb & Loeb.  From 1972 to 1978, Mr.  Casden was a member of the Beverly
Hills law firm of Fink & Casden, Professional Corporation.

Mr. Casden received his Bachelor of Arts degree from the University of
California at Los Angeles, and is a graduate of the University of San Diego Law
School.  Mr. Casden is a member of the State Bar of California and has numerous
professional affiliations.

BRIAN D. GOLDBERG, 33, Chief Financial Officer of The Casden Company and a
director of NAPICO.

Mr. Goldberg joined The Casden Company in 1990 as Vice President of Finance and
became Chief Financial Officer in March 1991.  Prior to joining The Casden
Company, Mr. Goldberg was with Arthur Andersen & Co., an international public
accounting firm, from August 1985 until July 1990 in their Los Angeles office.
He received his bachelor of science degree in Accounting from the University of
Denver.  Mr. Goldberg is a member of the American Institute of Certified Public
Accountants and the California Society of Certified Public Accountants.

SHAWN HORWITZ, 37, Executive Vice President and Chief Financial Officer.

Mr. Horwitz joined NAPICO in 1990 and is responsible for the financial affairs
of NAPICO and the limited partnerships sponsored by NAPICO.  Prior to joining
NAPICO, Mr. Horwitz was President of Star Sub Shops, Inc., a corporation
engaged in the business of selling fast food franchises, for approximately one
year, was an audit manager in the real estate industry group for Altschuler,
Melvin & Glasser for six years, and was an auditor with Arthur Young & Co. for
3 years.

Mr. Horwitz received his Bachelor of Commerce degree in accounting from Rhodes
University in South Africa and is a member of the Illinois Society of Certified
Public Accountants, the American Institute of Certified Public Accountants and
the South African Institute of Chartered Accountants.

BOB SCHAFER, 55, Vice President and Corporate Controller.

Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible
for the financial reporting function of the Company.  Prior to this, he was a
Group and Division Controller at Bergen Brunswig for over eight years,
Controller at a Flintkote subsidiary for over four years, and Assistant
Controller at an electronics subsidiary of General Electric for two years.

Mr. Schafer is a member of the California Society of Certified Public
Accountants.  He holds a Bachelor of Science degree in accounting from Woodbury
University, Los Angeles.





<PAGE>   118

PATRICIA W. TOY, 67, Senior Vice President - Communications and Assistant
Secretary.

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA.  From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments.  She holds a
Bachelor of Arts Degree from the University of Nebraska.

MARK L. WALTHER, 36, Executive Vice President, General Counsel and Assistant
Secretary.

Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships.  Prior to joining NAPICO, Mr.
Walther worked in the San Francisco law firm of Browne and Kahn which
specialized in construction litigation.  Mr. Walther received his Bachelor of
Arts Degree in Political Science from the University of California, Santa
Barbara and is a graduate of the University of California, Davis, School of
Law.  He is a member of the State Bar of Hawaii.





<PAGE>   119

ITEM 11.     MANAGEMENT REMUNERATION AND TRANSACTIONS

Real Estate Associates Limited VII has no officers, directors or employees.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to pay the Corporate General Partner
an annual management fee.  The annual management fee is approximately equal to
 .5 percent of the invested assets, including the Partnership's allocable share
of the mortgages related to the real estate properties held by local limited
partnerships.  The fee is earned beginning in the month the Partnership makes
its initial contribution to the local partnership.  In addition, the
Partnership reimburses the Corporate General Partner for certain expenses.

An affiliate of the General Partner is responsible for the on-site property
management for certain properties owned by the limited partnerships in which
the Partnership has invested.


ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

(a)    Security Ownership of Certain Beneficial Owners

       The General Partners own all of the outstanding general partnership
       interests of REAL VII; no person is known to own beneficially in excess
       of 5 percent of the outstanding limited partnership interests.

(b)    With the exception of the initial limited partner, Bruce Nelson, who is
       an officer of the Corporate General Partner, none of the officers or
       directors of the Corporate General Partner own directly or beneficially
       any limited partnership interests in REAL VII.


ITEM 13.     CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Partnership has no officers, directors or employees of its own.  All of its
affairs are managed by the Corporate General Partner, National Partnership
Investments Corp.  The transactions with the Corporate General Partner are
primarily in the form of fees paid by the Partnership to the general partner
for services rendered to the Partnership, as discussed in Item 11 and in the
accompanying notes to the  financial statements.





<PAGE>   120

ITEM 14.     FINANCIAL STATEMENTS, SCHEDULES, EXHIBITS AND REPORT ON FORM 8-K

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 1996 and 1995.

Statements of Operations for the years ended December 31, 1996, 1995 and 1994.

Statements of Partners' Deficiency for the years ended December 31, 1996, 1995
and 1994.

Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994.

Notes to Financial Statements.

FINANCIAL STATEMENT SCHEDULES
APPLICABLE TO REAL ESTATE ASSOCIATES LIMITED VII, REAL ESTATE ASSOCIATES IV AND
THE LIMITED PARTNERSHIPS IN WHICH REAL ESTATE ASSOCIATES LIMITED VII AND REAL
ESTATE ASSOCIATES IV HAVE INVESTMENTS.

Schedule - Investments in Limited Partnerships, December 31, 1996, 1995 and
1994.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1996.

The remaining schedules are omitted because the required information is
included in the financial statements and notes thereto or they are not
applicable or not required.

EXHIBITS

(3)   Articles of incorporation and bylaws:  The registrant is not
      incorporated.  The Partnership Agreement was filed with Form S-11
      #2-84816 which is incorporated herein by reference.

(10)  Material contracts:  The registrant is not party to any material
      contracts, other than the Restated Certificate and Agreement of Limited
      Partnership dated May 24, 1983 and the forty-eight contracts representing
      the partnership investment in local limited partnership's as previously
      filed at the Securities Exchange Commission, File #2-84816 which is
      hereby incorporated by reference.

(13)  Annual report to security holders:  Pages 96 to 105.

REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the year ended December 31, 1996.





<PAGE>   121

                                  SIGNATURES


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


REAL ESTATE ASSOCIATES LIMITED VII

By:       NATIONAL PARTNERSHIP INVESTMENTS CORP.
          The General Partner


_______________________________________________
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


_______________________________________________
Bruce E. Nelson
Director and President


_______________________________________________
Alan I. Casden
Director


_______________________________________________
Henry C. Casden
Director


_______________________________________________
Brian D. Goldberg
Director


_______________________________________________
Shawn D. Horwitz
Executive Vice President and
Chief Financial Officer


_______________________________________________
Bob E. Schafer
Senior Vice President and Corporate Controller