<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, 1998

                             Commission File Number
                                     0-13810
                                     -------

                       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 E.F. Hutton 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 two unrelated individuals as limited
partners. The business of the Partnership is conducted primarily by NAPICO.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. The current members of NAPICO's Board of Directors are
Charles H. Boxenbaum, Bruce E. Nelson, Alan I. Casden and Henry C. Casden.

The Partnership holds limited partnership interests in 21 local limited
partnerships as of December 31, 1998. The Partnership also holds a general
partner interest in Real Estate Associates IV ("REA IV") which, in turn, holds
limited partnership interests in 15 additional local limited partnerships;
therefore, the Partnership holds interests, either directly or indirectly
through REA IV, in 36 local limited partnerships. The other general partner of
REA IV is NAPICO. In December 1998, the Partnership sold its interest in 11
local limited partnerships to the Operating Partnership. 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.

Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which was generally the case
under existing HAP Contracts. The payments under the renewed HAP Contracts are
not expected to be in an amount that would provide sufficient cash flow to
permit owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. In order to address the
reduction in payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997 ( "MAHRAA"),
which was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to the Section 8
program.


<PAGE>   3
Under MAHRAA, an FHA-insured mortgage loan can be restructured into a first
mortgage loan which will be amortized on a current basis and a low interest
second mortgage loan payable to FHA which will only be payable on maturity of
the first mortgage loan. This restructuring results in a reduction in annual
debt service payable by the owner of the FHA-insured mortgage loan and is
expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project- based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.

MAHRAA provides that properties begin the restructuring process in federal
fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued
interim regulations implementing MAHRAA and final regulations are expected to be
issued in 1999. With respect to the local limited partnerships' expiring HAP
Contracts, it is expected that the HAP payments will be reduced or terminated
pursuant to the terms of MAHRAA.

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

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 of default, the Partnership has the right to replace the
general partner of the local limited partnerships, but otherwise does not have
control of sale, refinancing, etc.

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.


<PAGE>   4
During 1998, 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, 1998, 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, 1998


<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>
Aristocrat Manor                   114              114/ 0                   80             70%
  Hot Springs, AR

Arkansas City Apts.                 16                4/ 7                    9             56%
  Arkansas City, AR

Bellair Manor Apts.                 68                7/ 7                   66             97%
  Niles, OH

Birch Manor Apts. I                 60               12/ 0                   60            100%
  Medina, OH

Birch Manor Apts II                 60                6/ 0                   60            100%
  Medina, OH

Bluewater Apts.                    116                None                  111             96%
  Port Huron, MI

Clarkwood Apts. I                   72               24/ 0                   67             93%
  Elyria, OH

Clarkwood Apts. II                 120               39/ 0                  116             97%
  Elyria, OH

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

Cleveland Apts. II                  50               50/ 0                   49             98%
  Hayti, MO

Cleveland Apts. III                 21               21/ 0                   19             90%
  Hayti, MO
</TABLE>


<PAGE>   5
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS AN INVESTMENT
                                DECEMBER 31, 1998
                                   (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>

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

Desoto Apts.                        42               42/ 0                   40             95%
  Desoto, MO

Dexter Apts.                        50               50/ 0                   46             92%
  Dexter, MO

Edgewood Terrace II                258              103/ 0                  245             95%
  Washington, DC

Goodlette Arms Apts.               250                None                  245             98%
  Naples, FL

Hampshire House                    150              150/ 0                  148             99%
  Warren, OH

Henrico Arms                       232              232/ 0                  232            100%
  Richmond, VA

Ivywood Apts.                      124               75/ 0                  123             99%
  Columbus, OH

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

Nantucket Apts.                     60               59/ 0                   57             95%
  Alliance, OH

Newton Apts.                        36                None                   30             83%
  Newton, MS

Oak Hill Apts.                     120               82/ 0                  116             97%
  Franklin, PA

Oakview Apts.                       32                None                   30             94%
  Monticello, AR
</TABLE>


<PAGE>   6
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                       IN WHICH REAL VII HAS AN INVESTMENT
                                DECEMBER 31, 1998
                                   (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>

Oakwood Park I Apts                50                 None                  50             100%
  Lorain, OH

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

Pachuta Apartments                 16                 None                  15              94%
  Pachuta, MS

Parkway Towers Apt                104               103/ 0                 103              99%
  E. Providence, RI

Pebbleshire Apts.                 120                24/ 0                 116              97%
  Vernon Hills, IL

Rand Grove Village                212               212/ 0                 163              77%
  Palatine, IL

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

Shubuta Properties                 16                 None                  15              94%
  Shubuta, MS

South Glen Apts.                  159                27/ 0                 157              99%
  Trenton, MI

Tradewinds East                   150                 None                 141              94%
  Essexville, MI

Warren Heights Apts II             88                87/ 0                  83              94%
  Warren, OH

Yorkview Estates                   50                50/ 0                  47              94%
  Massillon, OH

                                -----            ---------               -----
  TOTAL                         3,379            1,732/ 14               3,187              94%
                                =====            =========               =====
</TABLE>


<PAGE>   7
ITEM 2. PROPERTIES

The local limited and general partnerships in which REAL VII holds interests own
various multi-family rental properties. See Item 1 for information pertaining to
these properties.


ITEM 3. LEGAL PROCEEDINGS

On August 27, 1998, two investors holding an aggregate of eight units of limited
partnership interests in Real Estate Associates Limited III (an affiliated
partnership in which NAPICO is the managing general partner) and two investors
holding an aggregate of five units of limited partnership interest in Real
Estate Associates Limited VI (another affiliated partnership in which NAPICO is
the managing general partner) commenced an action in the United States District
Court for the Central District of California against the Partnership, NAPICO and
certain other affiliated entities. The complaint alleges that the defendants
breached their fiduciary duty to the limited partners of certain NAPICO managed
partnerships and made materially false and misleading statements in the consent
solicitation statements sent to the limited partners of such partnerships
relating to approval of the transfer of partnership interests in limited
partnerships, owning certain of the properties, to the Operating Partnership
organized by an affiliate of NAPICO. The plaintiffs seek preliminary and
permanent injunctive relief and other equitable relief, as well as compensatory
and punitive damages. The managing general partner of such NAPICO managed
partnerships and the other defendants believe that the plaintiffs' claims are
without merit and are contesting the action vigorously.

As of December 31, 1998, 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.


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

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests, held for investment by the Partnership, by a real estate
investment trust organized by an affiliate of NAPICO, together with certain
amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.


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 E.F. Hutton 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, 1998, there were 3,204 registered
holders of units in the Partnership. No distributions have been made from the
inception of the Partnership to December 31, 1998. 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. In March
1999, the Partnership made a distribution of $272,250 to the limited partners
and $2,750 to the general partners, using proceeds from the sale of the
partnership interests.


<PAGE>   8
ITEM 6. SELECTED FINANCIAL DATA:


<TABLE>
<CAPTION>
                                                              Year Ended December 31,
                               -----------------------------------------------------------------------------------
                                   1998              1997              1996              1995              1994
                               -----------       -----------       -----------       -----------       -----------
<S>                            <C>               <C>               <C>               <C>               <C>            
Loss From Operations           $(3,639,747)      $(3,472,967)      $(3,240,566)      $(3,234,086)      $(3,225,472)

Gain on Sale of Limited
   Partnership Interests         7,132,262                 --                   --                   --                   --

Distributions From
   Limited Partnerships
   Recognized as Income            199,985           234,084            63,515            19,632           249,371

Equity in Loss of Limited
   Partnerships and
   Amortization of
   Acquisition Costs            (9,496,388)          (61,791)         (243,392)         (511,033)       (1,074,503)
                               -----------       -----------       -----------       -----------       -----------

Net Loss                       $(5,803,888)      $(3,300,674)      $(3,420,443)      $(3,725,487)      $(4,050,604)
                               ===========       ===========       ===========       ===========       ===========

Net Loss per Limited
   Partnership Interest        $       279       $      (159)      $      (164)      $      (179)      $      (193)
                               ===========       ===========       ===========       ===========       ===========



Total assets                   $   794,295       $17,422,816       $18,321,519       $19,183,742       $20,411,116
                               ===========       ===========       ===========       ===========       ===========

Investments in Limited
   Partnerships                $   359,566       $16,870,487       $17,873,759       $18,600,961       $19,757,594
                               ===========       ===========       ===========       ===========       ===========

Notes Payable                  $17,424,501       $24,869,501       $24,869,501       $24,869,501       $24,869,501
                               ===========       ===========       ===========       ===========       ===========

Fees and Expenses Due to
   General Partner             $ 4,506,134       $ 3,762,494       $ 3,213,854       $ 2,630,214       $ 2,041,574
                               ===========       ===========       ===========       ===========       ===========
</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. The Partnership made a cash distribution to
investors in March 1999, using proceeds from the disposition of its investments
in certain limited partnerships.

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 limited partnerships in
which REAL VII has invested could produce tax losses for as long as 20 years.
Tax benefits will decline over time as the advantages of accelerated
depreciation are greatest in the earlier years, as deductions for interest
expense will decrease as mortgage principal is amortized and as the Tax Reform
Act of 1986 limits the deductions available.

At December 31, 1998, the Partnership has investments in 36 limited
partnerships, all of which own housing projects that were substantially all
rented. The Partnership sold its interests in 11 local partnerships in December
1998. The Partnership, as a limited partner, is entitled to 93% to 99% of the
profits and losses of the local limited partnerships. 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. Equity in losses of limited
partnerships are 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. Limited partners are not liable for losses beyond their contributed
capital.

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.

The total losses from the 47 local limited partnerships that were allocated to
the Partnership were $527,000, $441,000 and $1,642,000 for the years ended
December 31, 1998, 1997 and 1996, respectively. However, because losses incurred
after the investment account is reduced to a zero balance are not recognized,
the Partnership recognized equity in loss of limited partnerships of $9,496,388,
$61,791 and $243,392 for the years ended December 31, 1998, 1997 and 1996,
respectively. The loss in 1998 is greater than in 1997 and 1996 as a result of
an impairment of $9,558,352 recognized to the carrying values of certain
investments in local limited partnerships in 1998. Other than the impairment
loss recognized in 1998, recognized losses have been decreasing as investment
accounts are reduced to zero balances. The cumulative amount of the unrecognized
equity in losses of certain limited partnerships was approximately $8,231,599
and $8,729,000 as of December 31, 1998 and 1997, respectively.


<PAGE>   10
Distributions from the local limited partnerships in which the Partnership did
not have a positive investment balance were $199,985, $234,084 and $63,515 for
the years ended December 31, 1998, 1997 and 1996, respectively. These amounts
were recognized as income on the accompanying statements of operations, in
accordance with the equity method of accounting.

As of December 31, 1998, 1997 and 1996, the Partnership has cash and cash
equivalents of $0, $447,200 and $342,631, respectively. Substantially all of
these amounts are on deposit with two high credit quality financial
institutions, earning interest. This resulted in the Partnership earning
$18,004, $15,330 and $15,911 in interest income for the years ended December 31,
1998, 1997 and 1996, respectively. The amount of interest income varies with
market rates available on investments and with the amount of funds available for
investment. Cash equivalents can be converted to cash to meet obligations of the
Partnership as they arise. The Partnership intends to continue investing
available funds in this manner.

The Partnership is obligated on non-recourse notes payable of $17,424,501 and
$24,869,501 at December 31, 1998 and 1997, respectively, which bear interest at
9.5 percent per annum and have principal maturities ranging from August 1999 to
2002. The notes and related interest are payable from cash flow generated from
operations of the related rental properties as defined in the notes. These
obligations are collateralized by the Partnership's investments in the limited
partnerships. Unpaid interest is due at maturity of the notes. Since the
Partnership was not relieved of any notes until the end of 1998 in connection
with the sale of the limited partnership interests, interest expense has
remained fairly constant at $2,329,415, $2,344,792 and $2,320,842 for 1998, 1997
and 1996, respectively.

A recurring partnership expense is the annual management fee. The fee is payable
to the Corporate General Partner of the Partnership and is calculated at .5
percent of the Partnership's invested assets. The management fee is paid to the
Corporate General Partner for its continuing management of partnership affairs.
The fee is payable beginning with the month following the Partnership's initial
investment in a local limited partnership. Since the invested assets did not
change until the end of the three year period ended December 31, 1998,
management fees have remained constant at $743,640 for each of these years.

Under recent adopted law and policy, the United States Department of Housing and
Urban Development ("HUD") has determined not to renew the Housing Assistance
Payment ("HAP") Contracts on a long term basis on the existing terms. In
connection with renewals of the HAP Contracts under such new law and policy, the
amount of rental assistance payments under renewed HAP Contracts will be based
on market rentals instead of above market rentals, which was generally the case
under existing HAP Contracts. The payments under the renewed HAP Contracts are
not expected to be in an amount that would provide sufficient cash flow to
permit owners of properties subject to HAP Contracts to meet the debt service
requirements of existing loans insured by the Federal Housing Administration of
HUD ("FHA") unless such mortgage loans are restructured. In order to address the
reduction in payments under HAP Contracts as a result of this new policy, the
Multi-family Assisted Housing Reform and Affordability Act of 1997 ("MAHRAA"),
which was adopted in October 1997, provides for the restructuring of mortgage
loans insured by the FHA with respect to properties subject to the Section 8
program. Under MAHRAA, an FHA-insured mortgage loan can be restructured into a
first mortgage loan which will be amortized on a current basis and a low
interest second mortgage loan payable to FHA which will only be payable on
maturity of the first mortgage loan. This restructuring results in a reduction
in annual debt service payable by the owner of the FHA-insured mortgage loan and
is expected to result in an insurance payment from FHA to the holder of the
FHA-insured loan due to the reduction in the principal amount. MAHRAA also
phases out project-based subsidies on selected properties serving families not
located in rental markets with limited supply, converting such subsidies to a
tenant-based subsidy.


<PAGE>   11
MAHRAA provides that properties begin the restructuring process in federal
fiscal year 1999 (beginning October 1, 1998). On September 11, 1998, HUD issued
interim regulations implementing MAHRAA and final regulations are expected to be
issued in 1999. With respect to the local limited partnerships' expiring HAP
Contracts, it is expected that the HAP payments will be reduced or terminated
pursuant to the terms of MAHRAA.

When the HAP Contracts are subject to renewal, there can be no assurance that
the local limited partnerships in which the Partnership has an investment will
be permitted to restructure its mortgage indebtedness under MAHRAA. In addition,
the economic impact on the Partnership of the combination of the reduced
payments under the HAP Contracts and the restructuring of the existing
FHA-insured mortgage loans under MAHRAA is uncertain.

As a result of the foregoing, the Partnership in 1997 undertook an extensive
review of disposition, refinancing or re-engineering alternatives for the
properties in which the limited partnerships have invested and are subject to
HUD mortgage and rental subsidy programs. The Partnership has incurred expenses
in connection with this review by various third party professionals, including
accounting, legal, valuation, structural and engineering costs, which amounted
to $327,951 and $167,778 for the years ended December 31, 1998 and 1997,
respectively, and are included in general and administrative expenses.

On December 30, 1998, the Partnership sold its limited partnership interests in
11 local limited partnerships with a total carrying value of $6,588,686 to the
Operating Partnership. The sale resulted in proceeds to the Partnership of
$400,000 and a net gain of $7,132,262, after being relieved of notes and
interest payable of $13,515,691 and incurring selling costs of $194,743. In
March 1999, the Partnership made cash distributions of $272,250 to the limited
partners and $2,750 to the general partners, using proceeds from the sale of the
partnership interests.

The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (iii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.

Operating expenses, other than interest expense and management fees, consist of
legal and accounting fees for services rendered to the Partnership and general
and administrative expenses, which were generally consistent for the three years
presented. Legal and accounting fees were $125,129, $109,967 and $88,801 for the
years ended December 31, 1998, 1997 and 1996, respectively. General and
administrative expenses were $459,567, $289,898 and $103,194 for the years ended
December 31, 1998, 1997 and 1996, respectively. Included in administrative
expenses are reimbursements to NAPICO for certain expenses, which totaled
$46,979, $46,975 and $43,124 for the years ended December 31, 1998, 1997 and
1996, respectively. Also included in general and administrative expenses for
1998 and 1997 is $327,951 and $167,778, respectively, related to the
aforementioned third party reviewed of the properties owned by the local
partnerships.

The results of operations of the local limited partnerships were fairly constant
during the years ended December 31, 1998, 1997 and 1996. Contributing to the
relative stability of operations at the local partnerships is the fact that
substantially all of the local partnerships are operating apartment projects
which are subsidized and have mortgage notes payable to or insured by agencies
of the federal or local government.

Total revenue for the 47 local partnerships has remained fairly constant, and
was $28,239,000, $28,267,000 and


<PAGE>   12
$27,858,000 for the years ended December 31, 1998, 1997 and 1996, respectively.

Total expenses for the 47 local partnerships remained fairly consistent, and
were $29,421,000, $29,362,000 and $29,519,000 for the years ended December 31,
1998, 1997 and 1996, respectively.

The total net loss for the 47 local partnerships for 1998, 1997 and 1996
aggregated $1,182,000, $1,095,000 and $1,661,000, respectively. The losses
allocated to the Partnership were $527,000, $441,000 and $1,642,000 for 1998,
1997 and 1996, respectively.

During the year ended December 31, 1997, the local limited partnership that owns
Meherrin consummated the sale of the apartment complex. The Partnership received
$187,297 which was recognized as distributions to income. The Partnership's
financial statements reflect no investment in the Meherrin Local Partnership,
thus no gain was recognized upon the sale.

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, concurrent inflation and
changing legislation, could increase vacancy levels, rental payment defaults and
operating expenses, which in turn, could substantially increase the risk of
operating losses for the projects.

The Partnership has assessed the potential impact of the Year 2000 computer
systems issue on its operations. The Partnership believes that no significant
actions are required to be taken by the Partnership to address the issue and
that the impact of the Year 2000 computer systems issue will not materially
affect the Partnership's future operating results or financial condition.


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>   13
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULES
                   AND INDEPENDENT PUBLIC ACCOUNTANTS' REPORT
                                DECEMBER 31, 1998


<PAGE>   14
                    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, 1998 and 1997,
and the related statements of operations, partners' deficiency and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedules listed in the index in 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 26 percent and 1 percent of
total assets as of December 31, 1998 and 1997, respectively, and the equity in
loss of these limited partnerships represents 13 percent, 13 percent and 17
percent of the total net loss of the Partnership for the years ended December
31, 1998, 1997 and 1996, 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,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 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.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. As discussed in Note 3 to the
financial statements, the Partnership's recurring losses from operations,
partners' deficiency and notes and related accrued interest payable of
$29,958,635 becoming payable in 1999 raise substantial doubt about the
Partnership's ability to continue as a going concern. Management's plans
concerning these matters are also described in Note 3. The financial statements
do not include any adjustments that might result from the outcome of this
uncertainty.


DELOITTE & TOUCHE LLP

Los Angeles, California
April 6, 1999


<PAGE>   15
         [PARENTE o RANDOLPH o ORLANDO o CAREY & ASSOCIATES LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT

To the Partners
South Mill Associates:

      We have audited the accompanying balance sheets of South Mill Associates
(a limited partnership), FHA Project No. 034-35145-LD, as of December 31, 1997
and 1996, 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, 1997 and 1996, and the results of its
operations, changes in partners' equity (deficit) 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 30, 1998, on
our consideration of South Mill Associates' (a limited partnership) internal
control, and reports dated January 30, 1998, on its compliance with specific
requirements applicable to major HUD programs and specific requirements
applicable to Fair Housing and Non-Discrimination.


                                      -2-
<PAGE>   16
      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 15 to 23 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 30, 1998


                                      -3-
<PAGE>   17
         [PARENTE o RANDOLPH o ORLANDO o CAREY & ASSOCIATES LETTERHEAD]


                              REPORT OF INDEPENDENT
                          CERTIFIED PUBLIC ACCOUNTANTS


To the Partners
South Mill Associates:

      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.


                                      -2-
<PAGE>   18
      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


                                      -3-
<PAGE>   19
               [JEFFREY PHILLIPS MOSLEY & SCOTT, P.A. LETTERHEAD]




                          INDEPENDENT AUDITORS' REPORT


TO THE PARTNERS
ARISTOCRAT MANOR, LTD.:

We have audited the accompanying financial statements of Aristocrat Manor, Ltd.
(Project Number 082-38007) (a limited partnership hereinafter referred to as
the "Partnership") as of December 31, 1997, and for the year then ended, listed
in the foregoing table of contents. These financial statements are the
responsibility of the General Partner. 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 the General Partner as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1997, 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 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 15, 1998, on our
consideration of Aristocrat Manor, Ltd.'s internal control and reports dated
January 15, 1998, on its compliance with specific requirements applicable to
major HUD programs and specific requirements applicable to fair housing and
non-discrimination.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of the
Partnership on pages 11 - 14 are presented for the purpose of additional
analysis and are not a required part of the basic financial statements of the
Partnership, but are required by the Consolidated Audit Guide for Audits of
HUD Programs, issued by the U.S. Department of Housing and Urban Development,
Office of Inspector General. Such schedules, which are the responsibility of
the General Partner, have been subjected to the auditing procedures applied in
our audit of the basic financial statements and, in our opinion, are fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.


JEFFREY, PHILLIPS, MOSLEY & SCOTT, P.A.


Little Rock, Arkansas
January 15, 1998




<PAGE>   20
              [JEFFREY, PHILLIPS, MOSLEY & SCOTT, P.A. LETTERHEAD]


INDEPENDENT AUDITORS' REPORT

TO THE PARTNERS

ARISTOCRAT MANOR, LTD.:

We have audited the accompanying financial statements of Aristocrat Manor, Ltd.
(Project Number 082-38007) (a limited partnership hereinafter referred to as the
"Partnership') as of December 31, 1996, and for the year then ended, listed in
the foregoing table of contents. These financial statements are the
responsibility of the General Partners. 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 the General Partners as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Partnership as of December 31, 1996, 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 9, 1997, on our consideration of Aristocrat Manor, Ltd.'s internal
control structure and a report dated January 9, 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 schedules of the
Partnership on pages 11 - 15 are presented for the purpose of additional
analysis and are not a required part of the basic financial statements of the
Partnership, but are required by the Consolidated Audit Guide for Audits of HUD
Programs, issued July 1993 by the U.S. Department of Housing and Urban
Development, Office of Inspector General. Such schedules, which are the
responsibility of the General Partners, have been subjected to the auditing
procedures applied in our audit of the basic financial statements and, in our
opinion, are fairly stated in all material respects in relation to the basic
financial statements taken as a whole.


/s/ JEFFREY, PHILLIPS, MOSLEY & SCOTT, P.A.


Little Rock, Arkansas
January 9, 1997

<PAGE>   21
                [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
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, 1997 and 1996 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, 1997 and 1996, 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 conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 18) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.


                                                                               2
<PAGE>   22
In accordance with Government Auditing Standards, we have also issued a report
dated February 10, 1998 on our consideration of the Partnership's internal
controls and a report dated February 10, 1998 on its compliance with laws and
regulations.


                    /s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
February 10, 1998



                                                                               3
<PAGE>   23
Our audit was conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying 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. Such information has been
subjected to the auditing procedures applied in the audit of the 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 15, 1996
<PAGE>   24
                      [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, 1997 and 1996,
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, 1997 and 1996, 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 16, 1998, on our
consideration of Bangor House Proprietary's internal control and reports dated
January 16, 1998, on its compliance with laws and regulations, specific
requirements applicable to major HUD programs and specific requirements
applicable to Fair Housing and Non-Discrimination.

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.

HUGHES AND COMPANY, P.C.
Melrose, Massachusetts
January 16, 1998
<PAGE>   25
                     [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.

HUGHES AND COMPANY, P.C.
Melrose, Massachusetts

January 17, 1997
<PAGE>   26
                [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 accompanying balance sheets of BELLAIR MANOR APARTMENTS,
LIMITED PARTNERSHIP, FHA Project No. 042-44174-LDP, as of December 31, 1997 and
1996, and the related 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 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 Bellair Manor Apartments,
Limited Partnership as of December 31, 1997 and 1996, and its results of
operations, changes in partners' equity and cash flows for the year then ended
in conformity with generally accepted accounting principles.


                                                                               2
<PAGE>   27
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 18) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.

In accordance with Government Auditing Standards, we have also issued a report
dated February 6, 1998 on our consideration of the Partnership's internal
control structure and a report dated February 6, 1998, on its compliance with
laws and regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Chicago, Illinois
February 6, 1998



                                                                               3
<PAGE>   28
                [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.




                                                                             2.
<PAGE>   29
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



                                                                              3.
<PAGE>   30
                     [COOPERS & LYBRAND L.L.P. 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, 1997 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, such financial statements referred to above present fairly, in
all material respects, the financial position of Bluewater Limited Dividend
Housing Association, MSHDA Development No. 35, as of December 31, 1997 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 26, 1998 on our consideration of Bluewater Limited Dividend
Housing Association's internal control structure and a report dated January 26,
1998 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. This supplementary data is the responsibility of the Partnership's
management. 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.


                                       1
<PAGE>   31
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 1997, 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 L.L.P.


Detroit, Michigan
January 26, 1998


                                        2
<PAGE>   32
                     [COOPERS & LYBRAND L.L.P. 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.


                                       1
<PAGE>   33
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 L.L.P.


Detroit, Michigan
January 31, 1997


                                       2
<PAGE>   34
            [PARENTE RANDOLPH ORLANDO CAREY & ASSOCIATES LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT

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, 1997
and 1996, 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 Center City Associates (a
limited partnership) as of December 31, 1997 and 1996, and the results of its
operations, changes in partners' equity (deficit) 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 30, 1998, on
our consideration of Center City Associates' (a limited partnership) internal
control, and reports dated January 30, 1998, on its compliance with specific
requirements applicable to major HUD programs and specific requirements
applicable to Fair Housing and Non-Discrimination.


                                      -2-
<PAGE>   35
      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 15 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 30, 1998



                                     -3-
<PAGE>   36
            [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 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 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.


                                      -2-
<PAGE>   37
      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



                                      -3-
<PAGE>   38
                    [RESNICK 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, 1997, 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 I as of
December 31, 1997, 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 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.


                                      -6-
<PAGE>   39
      In accordance with Government Auditing Standards and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
January 26, 1998 on our consideration of Hayti Associates I's internal control
and on its compliance with specific requirements applicable to major and 
nonmajor HUD programs, fair housing and nondiscrimination and laws and 
regulations applicable to the financial statements.


                                       /s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland                     Federal Employer
January 26, 1998                       Identification Number:
                                       52-1088612


Audit Principal: Craig Birmingham


                                      -7-
<PAGE>   40
                    [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.


                                      -6-
<PAGE>   41
      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 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                     Federal Employer
January 26, 1998                       Identification Number:
                                       52-1088612


Audit Principal: Craig Birmingham


                                      -7-
<PAGE>   42
                     [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, 1997, 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 II
as of December 31, 1997, 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 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.


                                       -6-


<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 27, 1998 on our consideration of Hayti Associates II's internal control
and on its compliance with specific requirements applicable to major and
nonmajor HUD programs, fair housing and nondiscrimination, and laws and
regulations applicable to the financial statements.



                                 /s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland               Federal Employer
January 27, 1998                    Identification Number: 
                                    52-1088612


Audit Principal: Craig Birmingham


                                       -7-


<PAGE>   44
                     [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.


                                       -6-


<PAGE>   45
        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               Federal Employer
January 24, 1997                   Identification Number: 
                                   52-1088612


Audit Principal: Craig Birmingham


                                       -7-


<PAGE>   46
                     [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, 1997, 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 DeSoto Associates as
of December 31, 1997, 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 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.


                                       -6-


<PAGE>   47
                     [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 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 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.


                                      -6-


<PAGE>   48
        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                Federal Employer
January 24, 1997                    Identification Number: 
                                    52-1088612


Audit Principal: Craig Birmingham




<PAGE>   49
                     [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, 1997, 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 Dexter Associates I
as of December 31, 1997, 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 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.

                                  /s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland                Federal Employer
January 24, 1997                    Identification Number: 
                                    52-1088612


Audit Principal: Craig Birmingham



<PAGE>   50
                     [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.


                                      -6-


<PAGE>   51

        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               Federal Employer
January 24, 1997                    Identification Number: 
                                    52-1088612


Audit Principal: Craig Birmingham


                                       -7-


<PAGE>   52
                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]

                          INDEPENDENT AUDITORS' REPORT

To the Partners
Edgewood II Associates

        We have audited the accompanying balance sheet of Edgewood II Associates
as of December 31, 1997, 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 as of December 31, 1997, 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 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.


                                      -6-


<PAGE>   53
        In accordance with Government Auditing Standards and the "Consolidated
Audit Guide for Audits of HUD Programs," we have also issued reports dated
January 16, 1998 on our consideration of Edgewood II Associates' internal
control and on its compliance with specific requirements applicable to major HUD
programs, fair housing and non-discrimination, and laws and regulations
applicable to the financial statements.



                                 /s/ REZNICK FEDDER & SILVERMAN

Bethesda, Maryland               Federal Employer
January 16, 1998                   Identification Number:      
                                   52-1088612


Audit Principal: Bill D. Tzamaras


                                       -7-


<PAGE>   54
                     [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.


                                      -6-


<PAGE>   55
        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                  Federal Employer
January 17, 1997                       Identification Number: 
                                       52-1088612


Audit Principal: Bill D. Tzamaras


                                       -7-


<PAGE>   56
        In accordance with Government Auditing Standards, we have also issued
reports dated January 11, 1996 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               Federal Employer
January 11, 1996                   Identification Number: 
                                   52-1088612


Audit Principal: Jeffrey D. Barsky


                                       -7-


<PAGE>   57
                         [ERNST & YOUNG LLP 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, 1997, 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.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our 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, 1997, 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
entitled "Independent Auditors' Report on Compliance and Internal Control Over
Financial Reporting Based on an Audit of the Financial Statements in Accordance
with Government Auditing Standards" dated January 22, 1998 on our consideration
of the Partnership's internal control over financial reporting and our tests of
its compliance with certain provisions of laws, regulations and contracts.



                                       1
<PAGE>   58
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 LLP

Indianapolis, Indiana
January 22, 1998
<PAGE>   59
                         [ERNST & YOUNG LLP 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 with Government Auditing Standards" dated January 22,
1997 on its compliance with applicable laws and regulations.


                                       1


<PAGE>   60
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 LLP


Indianapolis, Indiana
January 22, 1997


                                       2

<PAGE>   61
                [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 accompanying balance sheets of IVYWOOD APARTMENTS, LIMITED
PARTNERSHIP, FHA Project No. 043-44072-LDP (Partnership), as of December 31,
1997 and 1996, 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 Ivywood Apartments, as of
December 31, 1997 and 1996, and its results of operations, changes in partners'
equity and cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 23) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.


                                                                               2
<PAGE>   62
In accordance with Government Auditing Standards, we have also issued a report
dated January 27, 1998 on our consideration of the Partnership's internal
control and a report dated January 27, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Chicago, Illinois
January 27, 1998


                                                                               3


<PAGE>   63
                [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 accompanying balance sheets of KING TOWERS ASSOCIATES (an
Ohio limited partnership) FHA Project No. 046-44165-LDP, as of December 31, 1997
and 1996, 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 King Towers Associates as of
December 31, 1997 and 1996, and its results of operations, changes in partners'
equity and cash flows for the years then ended in conformity with generally
accepted accounting principles.


                                                                               2


<PAGE>   64
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 14 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.

In accordance with Government Auditing Standards, we have also issued a report 
dated February 10, 1998 on our consideration of the Partnership's internal 
control and a report dated February 10, 1998, on its compliance with laws and 
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 10, 1998


                                                                               3


<PAGE>   65
                [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 accompanying balance sheets of MOUNT UNION APARTMENTS, LTD.,
aka Nantucket Circle FHA Project No. 042-44070-LDP, as of December 31, 1997 and
1996, 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 Mount Union Apartments, Ltd.,
as of December 31, 1997 and 1996, and its results of operations, changes in
partners' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 14 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.


                                                                               2


<PAGE>   66
In accordance with Government Auditing Standards, we have also issued a report
dated February 14, 1998 on our consideration of the Partnership's internal
control and a report dated February 14, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 14, 1998


                                                                               3


<PAGE>   67
                [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 accompanying balance sheets of OAK HILL APARTMENTS, LTD.,
FHA Project No. 033-44149-LDP, as of December 31, 1997 and 1996, and the related
statements of operations, changes in partners' equity (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 Oak Hill Apartments, Ltd., as
of December 31, 1997 and 1996, and its results of operations, changes in
partners' equity (deficiency) and cash flows for the years then ended in
conformity with generally accepted accounting principles.

Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The additional 1997 financial data (shown on pages
13 through 19) are presented for the purpose 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 audit of the 1997 financial statements
and, in our opinion, is stated fairly in all material respects in relation to
the financial statements taken as a whole.


                                                                               2


<PAGE>   68
In accordance with Government Auditing Standards, we have also issued a report
dated February 10, 1998 on our consideration of the Partnership's internal
control and a report dated February 10, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 10, 1998


                                                                               3


<PAGE>   69
                          [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

Providence, Rhode Island
September 13, 1996



<PAGE>   70
                [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
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, 1997 and 1996, 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, 1997 and 1996, 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 conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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/ ALTSCHULER, MELVOIN AND GLASSER LLP

Los Angeles, California
<PAGE>   71
                [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 accompanying balance sheets of RIDGEWOOD TOWERS ASSOCIATES,
FHA Project No. 071-35254-PM (Partnership), as of December 31, 1997 and 1996,
and the related 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 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 Ridgewood Towers Associates as
of December 31, 1997 and 1996, and its results of operations, changes in
partners' equity and cash flows for the year then ended in conformity with
generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 12 through 18) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.





                                                                               2
<PAGE>   72


In accordance with Government Auditing Standards, we have also issued a report
dated February 12, 1998 on our consideration of the Partnership's internal
control and a report dated February 12, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Chicago, Illinois
February 12, 1998


                                                                               3


<PAGE>   73
Our audit was performed for the purpose of forming an opinion on the financial
statements taken as a whole. The additional financial data shown on pages 13
through 19 are presented for purposes of additional analysis and are not a
required part of the financial statements. Such information has been subjected
to the procedures applied in the audit of the 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

Chicago, Illinois
January 19, 1996


                                                                              3.


<PAGE>   74
[COOPERS & LYBRAND L.L.P. 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, 1997 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, such financial statements referred to above present fairly, in
all material respects, the financial position of Tradewinds East Associates
Limited Dividend Housing Association, MSHDA Development No. 147, as of December
31, 1997 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 26, 1998 on our consideration of Tradewinds East Associates
Limited Dividend Housing Association's internal control structure and a report
dated January 26, 1998 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 purpose of additional analysis and is not a required
part of the basic financial statements of Tradewinds East Associates Limited
Dividend Housing Association. This supplemental data is the responsibility of
the Partnership's management. 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.


                                       1


<PAGE>   75
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 1997, 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 L.L.P.

Detroit, Michigan
January 26, 1998


                                        2


<PAGE>   76
[COOPERS & LYBRAND L.L.P. 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.


                                       1


<PAGE>   77
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 L.L.P.

Detroit, Michigan
January 31, 1997


                                       2


<PAGE>   78
                [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 accompanying balance sheets of WARREN HEIGHTS APARTMENTS,
LTD., FHA Project No. 042-44156-LDP (Partnership), as of December 31, 1997 and
1996, 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 Warren Heights Apartments,
Ltd., as of December 31, 1997 and 1996, and its results of operations and cash
flows for the years then ended in conformity with generally accepted accounting
principles.


                                                                               2


<PAGE>   79
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.

In accordance with Government Auditing Standards, we have also issued a report
dated February 13, 1997 on our consideration of the Partnership's internal
control and a report dated February 13, 1997, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 13, 1998


                                                                               3


<PAGE>   80
                [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
No. 046-35409-LDP (Partnership), as of December 31, 1997 and 1996, 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 White Cliff Apartments, Ltd.,
as of December 31, 1997 and 1996, and its results of operations, changes in
partners' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 14 through 18) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.


                                                                               2


<PAGE>   81
In accordance with Government Auditing Standards, we have also issued a report
dated February 10, 1998 on our consideration of the Partnership's internal
control and a report dated February 10, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 10, 1998


                                                                               3


<PAGE>   82
                [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 accompanying balance sheets of YORKVIEW ESTATES, LTD., FHA
Project No. 042-44151-LDP, as of December 31, 1997 and 1996, 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 Yorkview Estates, Ltd., as of
December 31, 1997 and 1996, and its results of operations and cash flows for the
years then ended in conformity with generally accepted accounting principles.


                                                                               2


<PAGE>   83

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 12 through 18) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 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.

In accordance with Government Auditing Standards, we have also issued a report
dated February 4, 1998 on our consideration of the Partnership's internal
control and a report dated February 4, 1998, on its compliance with laws and
regulations.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP

Chicago, Illinois
February 4, 1998


                                                                               3


<PAGE>   84
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997

                                     ASSETS


<TABLE>
<CAPTION>
                                                                      1998                 1997
                                                                  ------------         ------------
<S>                                                               <C>                  <C>         
INVESTMENTS IN LIMITED PARTNERSHIPS (Note 2)                      $    359,566         $ 16,870,487

CASH                                                                      --                447,200

CASH DUE FROM ESCROW (Note 2)                                          400,000                 --

OTHER ASSETS                                                            34,729              105,129
                                                                  ------------         ------------

          TOTAL ASSETS                                            $    794,295         $ 17,422,816
                                                                  ============         ============


                      LIABILITIES AND PARTNERS' DEFICIENCY

LIABILITIES:
     Notes payable (Note 3)                                       $ 17,424,501         $ 24,869,501
     Accrued interest payable (Note 3)                              22,023,528           26,152,645
     Accrued fees and expenses
        due general partner (Note 4)                                 4,506,134            3,762,494
     Accounts payable and other liabilities                            122,156              116,312
                                                                  ------------         ------------

                                                                    44,076,319           54,900,952
                                                                  ------------         ------------

COMMITMENTS AND CONTINGENCIES (Notes 4 and 5)

PARTNERS' DEFICIENCY:
     General partners                                                 (755,951)            (697,912)
     Limited partners                                              (42,526,073)         (36,780,224)
                                                                  ------------         ------------

                                                                   (43,282,024)         (37,478,136)
                                                                  ------------         ------------
           TOTAL LIABILITIES AND PARTNERS'
                DEFICIENCY                                        $    794,295         $ 17,422,816
                                                                  ============         ============
</TABLE>


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


<PAGE>   85
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                           1998                1997                1996
                                                       -----------         -----------         -----------
<S>                                                    <C>                 <C>                 <C>        
REVENUE:
     Interest and other income                         $    18,004         $    15,330         $    15,911
                                                       -----------         -----------         -----------

OPERATING EXPENSES:
     Interest (Note 3)                                   2,329,415           2,344,792           2,320,842
     Management fees - general partner (Note 4)            743,640             743,640             743,640
     General and administrative (Note 4)                   459,567             289,898             103,194
     Legal and accounting                                  125,129             109,967              88,801
                                                       -----------         -----------         -----------

                                                         3,657,751           3,488,297           3,256,477
                                                       -----------         -----------         -----------

LOSS FROM OPERATIONS                                    (3,639,747)         (3,472,967)         (3,240,566)

GAIN ON SALE OF LIMITED PARTNERSHIP
     INTERESTS (Note 2)                                  7,132,262                --                  --

DISTRIBUTIONS FROM LIMITED
     PARTNERSHIP RECOGNIZED
     AS INCOME (Note 2)                                    199,985             234,084              63,515

EQUITY IN LOSS OF LIMITED
     PARTNERSHIPS AND AMORTIZATION
     OF ADDITIONAL BASIS AND
     ACQUISITION COSTS (Note 2)                         (9,496,388)            (61,791)           (243,392)
                                                       -----------         -----------         -----------

NET LOSS                                               $(5,808,888)        $(3,300,674)        $(3,420,443)
                                                       ===========         ===========         ===========

NET LOSS PER LIMITED PARTNERSHIP
     INTEREST                                          $      (279)        $      (159)        $      (164)
                                                       ===========         ===========         ===========
</TABLE>


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


<PAGE>   86
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                         General             Limited
                                        Partners             Partners               Total
                                      ------------         ------------         ------------
<S>                                   <C>                  <C>                  <C>          
DEFICIENCY, January 1, 1996           $   (630,701)        $(30,126,318)        $(30,757,019)

        Net loss for 1996                  (34,204)          (3,386,239)          (3,420,443)
                                      ------------         ------------         ------------

DEFICIENCY, December 31, 1996             (664,905)         (33,512,557)         (34,177,462)

        Net loss, 1997                     (33,007)          (3,267,667)          (3,300,674)
                                      ------------         ------------         ------------

DEFICIENCY, December 31, 1997             (697,912)         (36,780,224)         (37,478,136)

        Net loss, 1998                     (58,039)          (5,745,849)          (5,803,888)
                                      ------------         ------------         ------------

DEFICIENCY, December 31, 1998         $   (755,951)        $(42,526,073)        $(43,282,024)
                                      ============         ============         ============
</TABLE>


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


<PAGE>   87
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                         1998                1997                1996
                                                                     -----------         -----------         -----------
<S>                                                                  <C>                 <C>                 <C>         

CASH FLOWS FROM OPERATING ACTIVITIES:
        Net  loss                                                    $(5,803,888)        $(3,300,674)        $(3,420,443)
        Adjustments to reconcile net loss to net cash
           used in operating activities:
              Gain on sale of partnership interests                   (7,132,262)                 --
              Equity in loss of limited partnerships
                  and amortization of additional basis                                                           243,392
                  and acquisition costs                                9,496,388              61,791                  --
               Decrease in other assets                                   70,400                  --           1,965,517
               Decrease in accrued interest payable                    2,069,181           1,759,601
               Increase in accrued fees and expenses                                                             583,640
                  due general partner                                    743,640             548,640
               Increase in accounts payable                                5,844              93,730               9,063
                                                                     -----------         -----------         -----------

                     Net cash used in operating activities              (439,196)           (836,912)           (618,831)
                                                                     -----------         -----------         -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
        Costs related to Sale of Partnership Interest                   (194,743)                 --             125,000
        Distributions from limited partnerships recognized
           as a return of capital                                        461,516             966,260             499,766
        Capital contributions to limited partnerships                    (35,669)            (24,779)            (15,956)
                                                                     -----------         -----------         -----------

                    Net cash provided by investing activities            231,104             941,481             608,810
                                                                     -----------         -----------         -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
        Payment of notes payable                                        (127,607)                 --                  --
                                                                     -----------         -----------         -----------

NET INCREASE (DECREASE) IN CASH                                         (447,200)            104,569             (10,021)

CASH, BEGINNING OF YEAR                                                  447,200             342,631             352,652
                                                                     -----------         -----------         -----------

CASH, END OF YEAR                                                    $        --         $   447,200         $   342,631
                                                                     ===========         ===========         ===========

SUPPLEMENTAL DISCLOSURE OF
   CASH FLOW INFORMATION
        Cash paid during the year for interest                       $   260,234         $   585,191         $   355,325
                                                                     ===========         ===========         ===========

SUPPLEMENTAL SCHEDULE OF
   NON-CASH FINANCING ACTIVITIES
        See Note 2 to financial statements regarding notes
        and interest payable
</TABLE>


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


<PAGE>   88
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

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. The business of REAL VII is conducted primarily by NAPICO.

       Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of
       Casden Investment Corporation ("CIC"), which is wholly owned by Alan I.
       Casden. On December 30, 1998, Casden Properties Operating Partnership,
       L.P. (the "Operating Partnership"), a majority owned subsidiary of Casden
       Properties Inc., a real estate investment trust organized by Alan I.
       Casden, purchased a 95.25% economic interest in 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.

       On December 30, 1998, the Partnership sold its interests in 11 local
       limited partnerships for $400,000 to the Operating Partnership.


                                       5
<PAGE>   89
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

       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.

       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.

       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.
       During 1998, the Partnership recognized an impairment loss of $9,558,352
       related to certain investments in local limited partnerships, which has
       been included in equity in loss of limited partnerships.

       The Partnership holds limited partnership interests in 21 limited
       partnerships as of December 31, 1998, after selling its interests in 11
       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 15 additional limited
       partnerships. In total, therefore, the Partnership holds interests,
       either directly or indirectly through REA IV, in 36 partnerships all of
       which own residential low income rental projects consisting of 3,379
       apartment units. The mortgage loans of these projects are payable to or
       insured by various governmental agencies.


                                       6
<PAGE>   90
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


2.     INVESTMENTS IN LIMITED PARTNERSHIPS

       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 equity in losses of certain unconsolidated limited
       partnerships was approximately $8,231,599 and $8,129,000 as of December
       31, 1998 and 1997, 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>
                                                            1998                 1997 
                                                       ------------         ------------
<S>                                                    <C>                  <C>         
       Investment balance, beginning of year           $ 16,870,487         $ 17,873,759
       Cash distributions recognized as
         a return of capital                               (461,516)            (966,260)
       Equity in loss of limited partnerships            (9,309,403)             129,945
       Investment in limited partnership sold            (6,588,686)                --
       Amortization of additional basis and
         capitalized acquisition costs and fees            (186,985)            (191,736)
       Capital contributions                                 35,669               24,779
                                                       ------------         ------------
       Investment balance, end of year                 $    359,566         $ 16,870,487
                                                       ============         ============
</TABLE>

       The difference between the investment per the accompanying balance sheets
       at December 31, 1998 and 1997, 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.


                                       7
<PAGE>   91
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


2.     INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

       Selected financial information from the combined financial statements at
       December 31, 1998 and 1997 and for each of the three years in the period
       ended December 31, 1998, of the limited partnerships in which the
       Partnership has invested directly or indirectly, is as follows:

                                 Balance Sheets

<TABLE>
<CAPTION>
                                                                           1997             1996   
                                                                        ----------       ----------
<S>                                                                     <C>              <C>       
                                                                              (in thousands)

       Land and buildings, net                                          $   43,072       $   72,595
                                                                        ==========       ==========

       Total assets                                                     $   56,433       $   93,230
                                                                        ==========       ==========

       Mortgages loan payable                                           $   46,240       $   72,899
                                                                        ==========       ==========

       Total liabilities                                                $   60,455       $   92,672
                                                                        ==========       ==========

       Equity (deficiency) of Real Estate Associates Limited VII        $   (3,559)      $    1,212
                                                                        ==========       ==========

       Deficiency of other partners                                     $     (463)      $     (654)
                                                                        ==========       ==========
</TABLE>


                            Statements of Operations


<TABLE>
<CAPTION>
                                                       1998             1997             1996 
                                                    ----------       ----------       ----------
<S>                                                 <C>              <C>              <C>       
                                                                   (in thousands)

       Total revenue                                $   28,239       $   28,267       $   27,858
                                                    ==========       ==========       ==========

       Interest expense                             $    3,423       $    4,078       $    4,068
                                                    ==========       ==========       ==========

       Depreciation                                 $    5,555       $    5,512       $    5,472
                                                    ==========       ==========       ==========

       Total expenses                               $   29,421       $   29,362       $   29,519
                                                    ==========       ==========       ==========

       Net loss                                     $   (1,182)      $   (1,095)      $   (1,661)
                                                    ==========       ==========       ==========

       Net loss allocable to the Partnership        $     (527)      $     (441)      $   (1,642)
                                                    ==========       ==========       ==========
</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.


                                       8
<PAGE>   92
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


2.     INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

       Prior to the sale of certain partnership interests on December 30, 1998,
       an affiliate of NAPICO was the general partner in 26 of the limited
       partnerships included above, and another affiliate received property
       management fees of approximately 5 to 6 percent of the revenue from three
       of these partnerships. The affiliate received property management fees of
       $115,731, $117,571 and $116,995 in 1998, 1997 and 1996, respectively. The
       following sets forth the significant data for these partnerships in which
       an affiliate of NAPICO was the general partner prior to the sale referred
       to above, reflected in the accompanying financial statements using the
       equity method of accounting:

<TABLE>
<CAPTION>
                                                                     1998             1997             1996 
                                                                  ----------       ----------       ----------
<S>                                                               <C>              <C>              <C>        
                                                                                 (in thousands)

       Total assets                                               $   24,626       $   39,068
                                                                  ==========       ==========

       Total liabilities                                          $   34,124       $   50,465
                                                                  ==========       ==========

       Deficiency of Real Estate Associates Limited VII           $   (9,319)      $  (11,088)
                                                                  ==========       ==========

       Deficiency of other partners                               $     (179)      $     (309)
                                                                  ==========       ==========

       Total revenue                                              $   13,019       $   12,950       $   12,785
                                                                  ==========       ==========       ==========

       Net loss                                                   $   (1,217)      $   (1,240)      $   (1,141)
                                                                  ==========       ==========       ==========
</TABLE>

       Subsequent to the sale of certain partnership interests, NAPICO is the
       general partner in 19 of the limited partnerships, and another affiliate
       manages 1 of the limited partnership's properties.

       The Meherrin Local Partnership had been operating at a deficit. During
       the year ended December 31, 1997, the apartment complex was sold. The
       Partnership received $187,297 which was recognized as distributions to
       income. No gain was recognized upon the sale, as the Partnership had a
       zero investment balance in Meherrin.

       Under recent adopted law and policy, the United States Department of
       Housing and Urban Development ("HUD") has determined not to renew the
       Housing Assistance Payment ("HAP") Contracts on a long term basis on the
       existing terms. In connection with renewals of the HAP Contracts under
       such new law and policy, the amount of rental assistance payments under
       renewed HAP Contracts will be based on market rentals instead of above
       market rentals, which was generally the case under existing HAP
       Contracts. The payments under the renewed HAP Contracts are not expected
       to be in an amount that would provide sufficient cash flow to permit
       owners of properties subject to HAP Contracts to meet the debt service
       requirements of existing loans insured by the Federal Housing
       Administration of HUD ("FHA") unless such mortgage loans are
       restructured. In order to address the reduction in payments under HAP
       Contracts as a result of this new policy, the Multi-family Assisted
       Housing Reform and Affordability Act of 1997 ( "MAHRAA"), which was
       adopted in October 1997, provides for the restructuring of mortgage loans
       insured by the FHA with respect to properties subject to the Section 8


                                       9
<PAGE>   93
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


2.     INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)

       program. Under MAHRAA, an FHA-insured mortgage loan can be restructured
       into a first mortgage loan which will be amortized on a current basis and
       a low interest second mortgage loan payable to FHA which will only be
       payable on maturity of the first mortgage loan. This restructuring
       results in a reduction in annual debt service payable by the owner of the
       FHA-insured mortgage loan and is expected to result in an insurance
       payment from FHA to the holder of the FHA-insured loan due to the
       reduction in the principal amount. MAHRAA also phases out project-based
       subsidies on selected properties serving families not located in rental
       markets with limited supply, converting such subsidies to a tenant- based
       subsidy.

       MAHRAA provides that properties begin the restructuring process in
       federal fiscal year 1999 (beginning October 1, 1998). On September 11,
       1998, HUD issued interim regulations implementing MAHRAA and final
       regulations are expected to be issued in 1999. With respect to the local
       limited partnerships' expiring HAP Contracts, it is expected that the HAP
       payments will be reduced or terminated pursuant to the terms of MAHRAA.

       When the HAP Contracts are subject to renewal, there can be no assurance
       that the local limited partnerships in which the Partnership has an
       investment will be permitted to restructure its mortgage indebtedness
       under MAHRAA. In addition, the economic impact on the Partnership of the
       combination of the reduced payments under the HAP Contracts and the
       restructuring of the existing FHA-insured mortgage loans under MAHRAA is
       uncertain.

3.     NOTES PAYABLE

       Certain of the Partnership's investments involved purchases of
       partnership interests from partners who subsequently withdrew from the
       operating partnership. As of December 31, 1998, the Partnership is
       obligated on non-recourse notes payable of $17,424,501, bearing interest
       at 9.5 percent, to the sellers of the partnership interests. The
       Partnership was relieved of notes payable in the amount of $7,445,000 in
       connection with the sale of the partnership interests to the Operating
       Partnership. 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>        
             1999                        $13,279,000        $16,679,635
             2000                    
             2001                          2,555,000          3,202,935
             2002                          1,400,000          1,846,431
             2003                    
             Thereafter                      190,501            294,527
                                         -----------        -----------
                                         $17,424,501        $22,023,528
                                         ===========        ===========
</TABLE>


                                       10
<PAGE>   94
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


3.     NOTES PAYABLE (CONTINUED)

       Notes and related accrued interest payable, aggregating $29,958,635 as of
       December 31, 1998, became payable in 1999. Due to the Partnership's lack
       of cash and partners' deficiency, there is substantial doubt about its
       ability to make these payments, which would result in the possible
       foreclosure of the investments in the local limited partnerships. As a
       result, there is substantial doubt about the Partnerships; ability to
       continue as a going concern.

       Management will attempt to negotiate extensions of the maturity dates on
       the notes payable.

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.

       The Partnership reimburses NAPICO for certain expenses. The reimbursement
       to NAPICO was $46,979, $46,975 and $43,124 in 1998, 1997 and 1996,
       respectively, and is included in administrative expenses.

5.     CONTINGENCIES

       On August 27, 1998, two investors holding an aggregate of eight units of
       limited partnership interests in Real Estate Associates Limited III (an
       affiliated partnership in which NAPICO is the managing general partner)
       and two investors holding an aggregate of five units of limited
       partnership interest in Real Estate Associates Limited VI (another
       affiliated partnership in which NAPICO is the managing general partner)
       commenced an action in the United States District Court for the Central
       District of California against the Partnership, NAPICO and certain other
       affiliated entities. The complaint alleges that the defendants breached
       their fiduciary duty to the limited partners of certain NAPICO managed
       partnerships and made materially false and misleading statements in the
       consent solicitation statements sent to the limited partners of such
       partnerships relating to approval of the transfer of partnership
       interests in limited partnerships, owning certain of the properties, to
       the Operating Partnership organized by an affiliate of NAPICO. The
       plaintiffs seek preliminary and permanent injunctive relief and other
       equitable relief, as well as compensatory and punitive damages. The
       managing general partner of such NAPICO managed partnerships and the
       other defendants believe that the plaintiffs' claims are without merit
       and are contesting the action vigorously.

       The corporate general partner of the Partnership is a plaintiff in
       various lawsuits and has also been named a defendant in other 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.


                                       11
<PAGE>   95
                       REAL ESTATE ASSOCIATES LIMITED VII
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


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
       $9,541,388 between the estimated nine-month equity in loss and the actual
       1998 year end equity in loss has been recorded in the fourth quarter.


                                       12
<PAGE>   96
                                                                        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, 1998, 1997 AND 1996


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>   97
                                                                        SCHEDULE

                       REAL ESTATE ASSOCIATES LIMITED VII
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                Year Ended December 31, 1998
                             ----------------------------------------------------------------------------------------------------
                                                                   Cash             Equity
                               Balance                            Distri-             in                                Balance
                               January          Capital           butions           Income              Gain           December
Limited Partnerships           1, 1998       Contributions        Received          (Loss)            on Sale          31, 1998
-----------------------      -----------      -----------       -----------       -----------       -----------       -----------
<S>                          <C>             <C>                <C>               <C>               <C>               <C>
Anthracite Apartments*         1,054,456                            (25,948)           46,548        (1,075,056)
Aristocrat Manor                 428,050                                             (428,050)
Arkansas City Apts
Arrowsmith Apts.*                300,214                            (24,818)          (13,401)         (261,995)
Ashland Manor*                                      4,060            (4,060)
Bangor House*                  1,485,524                                               88,983        (1,574,507)
Bellair Manor Apts               229,540                             (3,531)         (226,009)
Birch Manor I                                       2,249            (2,249)
Birch Manor II                                      1,355            (1,355)
Bluewater Apts                 1,938,577                            (13,502)       (1,925,075)                          
Center City Apts.*             2,509,667                            (36,470)          125,672        (2,598,869)
Clarkwood Apts. I                                   2,900            (2,900)
Clarkwood Apts. II                                  3,657            (3,657)
Cleveland I                       15,335                             (5,422)             (742)                              9,171
Cleveland II                      31,115                             (5,753)          (25,362)
Cleveland III
Danbury Park Manor
Desoto Apts                       78,903                             (1,667)          (77,236)
Dexter Apts                       10,412                             (5,418)           (4,994)
Edgewood Terrace II              463,069                                             (112,674)                            350,395
Goodlette Arms Apts            2,458,687                             (1,485)       (2,457,202)
Hampshire House Apts
Henrico Arms
Ivywood Apts                     253,948                                             (253,948)
Jasper County
King Towers*                     207,114                               (647)          (63,141)         (143,326)
Nantucket Apts                   224,253                             (3,379)         (220,874)
Newton Apts
Oak Hill I                        45,552                                              (45,552)
Oakview Apts
Oakwood Park I                                      3,338            (3,338)
Oakwood Park II                                     4,636            (4,636)
Pachuta Apts
Parkway Towers                 1,989,251                            (15,635)       (1,973,616)
Pebbleshire Apts                                    9,840            (9,840)
Pinebrook Apts.*                 786,035                                               29,836          (815,871)
Rand Grove Village
Richards Park Apts                                  1,313            (1,313)
Ridgewood Towers*                356,751                           (256,116)         (100,635)
Shubuta Properties
South Glen Apts
South Park Apts.*                                   2,322            (2,322)
Sunland Terrace*
Tradewinds East Apts           1,575,656                            (19,388)       (1,556,268)
Warren Heights Apts. II          195,110                             (1,694)         (193,416)
White Cliffs Apts                129,449                             (1,722)           (8,665)         (119,062)
Yorkview Estates                 103,819                             (3,252)         (100,567)
                             -----------      -----------       -----------       -----------       -----------       -----------
                             $16,870,487      $    35,670       $  (461,517)      $(9,496,388)      $(6,588,686)      $   359,566
                             ===========      ===========       ===========       ===========       ===========       ===========
</TABLE>

*Sold to the Operating Partnership in 1998.


<PAGE>   98
                                                                        SCHEDULE
                                                                     (CONTINUED)


                       REAL ESTATE ASSOCIATES LIMITED VII
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                        Year Ended December 31, 1997
                             ---------------------------------------------------------------------------------------
                                                                      Cash              Equity
                                Balance                              Distri-              in               Balance
                                January           Capital            butions            Income            December
Limited Partnerships            1, 1997        Contributions        Received            (Loss)            31, 1997
-----------------------      ------------      -------------      ------------       ------------       ------------
<S>                          <C>               <C>                <C>                <C>                <C>

Anthracite Apts              $  1,053,910      $                  $    (25,948)      $     26,494       $  1,054,456
Aristocrat Manor                  496,521                                                 (68,471)           428,050
Arkansas City Apts
Arrowsmith Apts                   372,420                              (55,000)           (17,206)           300,214
Ashland Manor                                         1,483             (1,483)
Bangor House                    1,684,384                             (296,478)            97,618          1,485,524
Bellair Manor Apts                259,346                               (1,826)           (27,980)           229,540
Birch Manor I                                         1,149             (1,149)
Birch Manor II
Bluewater Apts                  1,866,348                              (13,502)            85,731          1,938,577
Center CIty Apts                2,345,638                              (36,470)           200,499          2,509,667
Clarkwood Apts. I                                     1,696             (1,696)
Clarkwood Apts. II                                    3,173             (3,173)
Cleveland I                        52,481                              (35,008)            (2,138)            15,335
Cleveland II                       78,823                              (20,389)           (27,319)            31,115
Cleveland III
Danbury Park Manor
Desoto Apts                       109,159                              (26,303)            (3,953)            78,903
Dexter Apts                        63,571                              (28,783)           (24,376)            10,412
Edgewood Terrace II               664,034                              (16,279)          (184,686)           463,069
Goodlette Arms Apts             2,429,091                               (1,485)            31,081          2,458,687
Hampshire House Apts
Henrico Arms
Ivywood Apts                      306,172                                  (32)           (52,192)           253,948
Jasper County
King Towers                       239,612                               (2,266)           (30,232)           207,114
Meherrin Landings
Nantucket Apts                    237,051                               (3,066)            (9,732)           224,253
Newton Apts
Oak Hill I                        103,548                                                 (57,996)            45,552
Oakview Apts
Oakwood Park I                                          786               (786)
Oakwood Park II                                         171               (171)
Pachuta Apts
Parkway Towers                  1,823,359                              (16,537)           182,429          1,989,251
Pebbleshire Apts                                      9,840             (9,840)
Pinebrook Apts                    770,843                                                  15,192            786,035
Rand Grove Village                229,394                              (24,284)          (205,110)                 0
Richards Park Apts                                    2,992             (2,992)
Ridgewood Towers                  564,681                             (312,501)           104,571            356,751
Shubuta Properties
South Glen Apts
South Park Apts                                       3,489             (3,489)
Sunland Terrace
Tradewinds East Apts            1,586,724                              (19,388)             8,320          1,575,656
Warren Heights Apts. II           242,208                                 (519)           (46,579)           195,110
White Cliffs Apts                 170,432                               (3,172)           (37,811)           129,449
Yorkview Estates                  124,009                               (2,245)           (17,945)           103,819
                             ------------      ------------       ------------       ------------       ------------

                             $ 17,873,759      $     24,779       $   (966,260)      $    (61,791)      $ 16,870,487
                             ============      ============       ============       ============       ============
</TABLE>


<PAGE>   99
                                                                        SCHEDULE
                                                                     (CONTINUED)


                       REAL ESTATE ASSOCIATES LIMITED VII
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                        Year Ended December 31, 1996
                             ---------------------------------------------------------------------------------------
                                                                      Cash              Equity
                                Balance                              Distri-              in               Balance
                                January           Capital            butions            Income            December
Limited Partnerships            1, 1996        Contributions        Received            (Loss)            31, 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>   100
                                                                    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, 1998


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, 1996        $   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

Net deletions - 1997                  (84,424)         (1,151,672)         (1,236,096)
                                -------------       -------------       -------------

Balance, December 31, 1997          6,806,200         145,793,559         152,599,759

Sale of Properties                 (1,638,515)        (47,366,524)        (49,005,039)

Net additions - 1998                  688,860             177,371             866,231
                                -------------       -------------       -------------

Balance, December 31, 1998      $   5,856,545       $  98,604,406       $ 104,460,951
                                =============       =============       =============
</TABLE>


<PAGE>   101
                                                                    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, 1998


<TABLE>
<CAPTION>
                                                 Buildings,
                                                Furnishings
                                                    And
                                                 Equipment
                                               ------------
<S>                                            <C>         
ACCUMULATED DEPRECIATION:                   
                                            
Balance, January 1, 1996                       $ 69,062,129
                                            
Net additions, 1996                               5,565,703
                                               ------------
                                            
Balance, December 31, 1996                       74,627,832
                                            
Net additions, 1997                               5,376,393
                                               ------------
                                            
Balance, December 31, 1997                       80,004,225
                                            
Sale of Properties                              (24,273,559)
                                            
Net additions, 1998                               5,657,944
                                               ------------
                                            
Balance, December 31, 1998                     $ 61,388,610
                                               ============
</TABLE>


<PAGE>   102
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.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. 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, 69, 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, 47, 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, 53, Chairman of Casden Properties Inc. and 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. He also became
the Chairman of the Board of Casden Properties Inc. in 1998. Previously, 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>   103
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, 55, 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. He also became the President of Casden Properties Inc.
in 1998. 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.

PAUL PATIERNO, 42, Chief Financial Officer.

Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs,
as well as the limited partnerships sponsored by it. From 1995 until joining
NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable
housing group of Altschuler, Melvoin and Glasser LLP, a national public
accounting firm. From 1990 to 1995, he practiced public accounting with a firm
specializing in real estate syndication. Mr. Patierno received his bachelor of
science degree in accounting from California State University at Northridge, and
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.

PATRICIA W. TOY, 69, 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, 38, 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.

NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and does
not impact NAPICO's ability to serve as the Partnership's Managing General
Partner.


<PAGE>   104
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 Partnership is obligated to NAPICO for an annual
management fee equal to .4 percent of the original invested assets of the
limited 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. The management fee was $743,640 for each of the three years in the
period ended December 31, 1998.

The Partnership reimburses NAPICO for certain expenses. The reimbursement to
NAPICO was $46,979, $46,975 and $43,124 in 1998, 1997 and 1996, respectively,
and is included in operating expenses.

Prior to the sale of certain partnership interests on December 30, 1998, an
affiliate of NAPICO was the general partner in 26 of the limited partnerships in
which the Partnership had an investment, and another affiliate received property
management fees of approximately 5 to 6 percent of the revenue from three of
these partnerships. The affiliate received property management fees of $115,731,
$117,571 and $116,995 in 1998, 1997 and 1996, respectively.

Subsequent to the sale of certain partnership interests, NAPICO is the general
partner in 19 of the limited partnerships, and another affiliate manages 1 of
the limited partnership's properties.

On December 30, 1998, the Partnership sold its limited partnership interests in
11 local limited partnerships, with a total carrying value of $6,588,686, to the
Operating Partnership. The sale resulted in proceeds to the Partnership of
$400,000 and a net gain of $7,132,262 after being relieved of notes and interest
payable of $13,515,691 and incurring selling costs of $194,743. In March 1999,
the Partnership made cash distributions of $272,250 to the limited partners and
$2,750 to the general partners, using proceeds from the sale of the partnership
interests.


<PAGE>   105
The Operating Partnership purchased such limited partner interests for cash,
which it raised in connection with a private placement of its equity securities.
The purchase was subject to, among other things, (i) the purchase of the general
partner interests in the local limited partnerships by the Operating
Partnership; (ii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by the Partnership.

In August 1998, a consent solicitation statement was sent to the limited
partners setting forth the terms and conditions of the purchase of the limited
partners' interests held for investment by the Partnership, together with
certain amendments to the Partnership Agreement and other disclosures of various
conflicts of interest in connection with the proposed transaction. Prior to the
sale of the partnership interests, the consents of the limited partners to the
sale and amendments to the Partnership Agreement were obtained.


ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 1998 and 1997.

Statements of Operations for the years ended December 31, 1998, 1997 and 1996.

Statements of Partners' Deficiency for the years ended December 31, 1998, 1997
and 1996.

Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.

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, 1998, 1997 and
1996.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1998.

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.


<PAGE>   106
                                   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.
           General Partner


/s/ CHARLES H. BOXENBAUM
---------------------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


/s/ BRUCE E. NELSON
---------------------------------------------
Bruce E. Nelson
Director and President


/s/ ALAN I. CASDEN
---------------------------------------------
Alan I. Casden
Director


/s/ HENRY C. CASDEN
---------------------------------------------
Henry C. Casden
Director


/s/ PAUL PATIERNO
---------------------------------------------
Paul Patierno
Chief Financial Officer