FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                             CASCADE PINES, L.P. II

                                DECEMBER 31, 2002










<PAGE>


                             Cascade Pines, L.P. II

                                TABLE OF CONTENTS



                                                                            PAGE


INDEPENDENT AUDITORS' REPORT                                                 3

FINANCIAL STATEMENTS

         BALANCE SHEET                                                       4

         STATEMENT OF OPERATIONS                                             5

         STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)                  6

         STATEMENT OF CASH FLOWS                                             7

         NOTES TO FINANCIAL STATEMENTS                                       8









<PAGE>


Reznick Fedder & Silverman                       5607 Glenridge Drive, Suite 500
Certified Public Accountants                     Atlanta, GA 30342-4998
A Professional Corporation                       404-847-9447 Phone
                                                 404-847-9495 Fax
                                                 WWW.rfs.com


                          INDEPENDENT AUDITORS' REPORT



To the Partners
Cascade Pines, L.P. II

     We have audited the accompanying  balance sheet of Cascade Pines,  L.P. II,
as of December 31, 2002,  and the related  statement 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 audit.

     We conducted our audit in  accordance  with  auditing  standards  generally
accepted in the United States of America.  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 Cascade Pines, L.P. II, as
of December 31, 2002,  the results of its  operations,  the changes in partners'
equity,  and cash flows for the year then ended,  in conformity  with accounting
principles generally accepted in the United States of America.

     The accompanying  financial statements have been prepared assuming that the
Partnership  will  continue as a going  concern.  As  discussed in Note C to the
financial  statements,  the  Partnership  has  suffered  recurring  losses  from
operations and has a net capital  deficiency that raises substantial doubt about
its ability to continue as a going concern. Management's plan in regard to these
matters is also described in Note C. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.



/S/Reznick Fedder & Silverman
Atlanta, Georgia
August 25, 2003


                                      -3-
<PAGE>


                             Cascade Pines, L.P. II

                                  BALANCE SHEET

                                December 31, 2002
<TABLE>
<CAPTION>


                                     ASSETS

<S>                                                                            <C>
Investmant in Operating Property, at cost
     Land                                                                      $        600,000
     Building                                                                         7,846,428
     Building improvements                                                               95,780
     Building equipment                                                                 195,334
                                                                               -----------------
                                                                                      8,737,542
Less accumulated depreciation                                                        (1,647,089)
                                                                               -----------------
                                                                                      7,090,453

Tenant Security deposits held in trust                                                   85,699
Accounts receivable-tenants                                                              45,654
Prepaid expenses                                                                         24,633
Utility deposits                                                                          9,400
Resticted cash-bond funds                                                               802,242
Bond issuance costs, net of accumulated amortization of $86,458                         267,232
Tax credit monitoring fees, net of accumulated amortization of$22,546                    25,767
                                                                               -----------------
                                                                               $      8,351,080
                                                                               =================
 LIABILITIES AND PARTNERS EQUITY(DEFICT)

LIABILITIES
     Bank Overdraft                                                            $          6,062
     Accounts payable-operations                                                        238,610
     Tenant Security deposits liability                                                  70,258
     Accrued interest payable                                                           214,137
     Accrued property taxes                                                             361,214
     Subordinate note payable                                                         1,100,000
     Mortgage payable                                                                 6,595,000
                                                                               -----------------
                                                                                      8,585,281
                                                                               -----------------
      Total  liabilities

CONTINGENCY                                                                                   -

PARTNERS EQUITY(DEFICT)                                                                (234,201)
                                                                               ------------------
                                                                               $      8,351,080
                                                                               ==================
</TABLE>

                        See notes to financial statements

                                      - 4 -


<PAGE>


                             Cascade Pines, L.P. II

                             STATEMENT OF OPERATIONS

                          Year ended December 31, 2002

<TABLE>
<CAPTION>
<S>                                                                            <C>
Revenues
  Rental, net of vacancies                                                     $    1,648,543
  Other                                                                                 5,527
  Interest                                                                             37,017
                                                                               ----------------

     Total revenues                                                                 1,691,087
                                                                               ----------------
Expenses
  Depreciation                                                                        239,485
  Amortization                                                                         15,011
  Interest                                                                            468,324
  Administrative                                                                      352,605
  Management fees                                                                      56,339
  Repairs and maintenance                                                             483,093
  Property insurance                                                                   52,599
  Real estate taxes                                                                   228,192
  Salaries and wages                                                                  354,906
  Utilities                                                                           406,665
  Other taxes and insurance                                                            73,104
                                                                               ----------------
     Total expenses                                                                 2,730,323
                                                                               ----------------
NET LOSS                                                                       $   (1,039,236)
                                                                               ================
</TABLE>
                        See notes to financial statements

                                      - 5 -



<PAGE>


                             Cascade Pines, L.P. II

               STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)

                          Year ended December 31, 2002
<TABLE>
<CAPTION>



<S>                                                                            <C>
Beginning of year,
     partners' equity                                                          $   341,314

Contributions                                                                      463,721

Net loss                                                                        (1,039,236)
                                                                               --------------

End of year,
     partners' equity (deficit)                                                $   (234,201)
                                                                               ===============
</TABLE>

                        See notes to financial statements

                                      - 6 -


<PAGE>


                             Cascade Pines, L.P. II

                             STATEMENT OF CASH FLOWS

                          Year ended December 31, 2002
<TABLE>
<CAPTION>


<S>                                                                            <C>
Cash flows from operating activities
   Net loss                                                                    $   (1,039,236)
   Adjustments to reconcile net loss to net cash
   provided by (used in) operating activities
     Depreciation                                                                     239,485
     Amortization                                                                      15,011
   Decrease (increase) in assets
     Accounts receivable- tenants                                                     (39,922)
     Accounts receivable- HUD                                                          41,879
     Accounts receivable- other                                                         1,338
     Prepaid expenses                                                                 (21,302)
   Increase (decrease) in liabilities
     Accounts payable                                                                 164,640
     Accrued interest payable                                                          23,795
     Accrued property taxes                                                           361,214
     Tenant security deposits, net                                                    (15,441)
                                                                               -----------------
          Net cash provided by(used in)operating activities                          (268,539)
                                                                               -----------------
Cash flows from investing activities
     Investment in operating property                                                  (5,085)
     Withdrawals from restricted cash held by bond trustee                            168,782
                                                                               -----------------
          Net cash provided by(used in) investing activities                          163,697
                                                                               -----------------
Cash flows from financing activities
     Principal payments on bonds                                                     (150,000)
     Bank overdraft                                                                     6,062
     Capital contribution                                                             195,360
                                                                               -----------------
          Net cash provided by(used in)financing activities                            51,422
                                                                               -----------------
NET INCREASE(DECREASE)IN CASH                                                         (53,420)

Cash, beginning                                                                        53,420
                                                                               -----------------
Cash, ending                                                                                -
                                                                               =================
Supplemental disclosure of cash flow information:
     Cash paid during the year for interest                                    $      444,529
                                                                               =================
Supplemental schedule of non cash financing activities:
     During 2002, $268,361 of amounts due to owner reclassed
     as an equity contribution
</TABLE>

                        See notes to financial statements

                                       -7-
<PAGE>


                             Cascade Pines, L.P. II

                          NOTES TO FINANCIAL STATEMENTS

                                December 31, 2002



NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     Cascade  Pines,  L.P. II, (the  "Partnership"),  was organized as a limited
     partnership under the laws of the state of Georgia during September of 1995
     to acquire, own, rehabilitate, maintain, and operate a 376 unit multifamily
     apartment complex located in Atlanta,  Georgia,  and is currently operating
     under the name of Cascade Pines Apartments (the "Project").

     Each building of the Project has qualified  and been  allocated  low-income
     housing tax credits  pursuant to Internal Revenue Code Section 42 ("Section
     42"), which regulates the use of the Project as to occupant eligibility and
     unit gross rent,  among other  requirements.  Each  building of the Project
     must meet the provisions of these regulations during each of 15 consecutive
     years in order to remain qualified to receive the credits. In addition, the
     Partnership  has executed a Land Use  Restriction  Agreement which requires
     the  utilization of the Project  pursuant to Section 42 for a minimum of 30
     years, even if the Partnership disposes of the Project.

     Use of Estimates
     ----------------

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

     Operating Property
     ------------------

     Operating  property is carried at cost.  Depreciation  is  provided  for in
     amounts  sufficient to relate the cost of depreciable  assets to operations
     over  their   estimated   service   lives  using  the   straight-line   and
     double-declining balance methods as follows:

                  Building                                              40 years
                  Building improvements                                 40 years
                  Building equipment                                   5-7 years



                                      - 8 -
<PAGE>


                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002


     NOTE A -  ORGANIZATION  AND  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES
               (Continued)

     Amortization
     ------------

     Bond issuance costs consist of fees for obtaining the mortgage note payable
     and are being  amortized over the 30-year life of the mortgage note payable
     using the straight-line  method,  which approximates the effective interest
     method.

     Tax credit fees are being  amortized over 15 years using the  straight-line
     method.

     Income Taxes
     ------------

     Profit or loss of the  Partnership  is  allocated  1 percent to the general
     partners and 99 percent to the  investor  limited  partners.  No income tax
     provision  has been included in the  financial  statements  since income or
     loss of the  Partnership  is  required  to be  reported  by the  respective
     partners on their income tax returns.

     Rental Income
     -------------

     Rents are  recognized  as they  become  due.  Rental  payments  received in
     advance are deferred until earned.  All leases between the  Partnership and
     the tenants of the property are operating leases.

     Accounts Receivable and Bad Debts
     ---------------------------------

     Tenant receivables are charged to bad debt expense when they are determined
     to be  uncollectible  based  upon a  periodic  review  of the  accounts  by
     management.  Accounting  principles generally accepted in the United States
     of America  require  that the  allowance  method be used to  recognize  bad
     debts;  however,  the  effect of using the direct  write-off  method is not
     materially  different  from the results that would have been obtained under
     the allowance method.



                                      -9-
<PAGE>


                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002


NOTE B - CAPITAL CONTRIBUTIONS

     As of December 31, 2002, the general  partner has advanced  $463,721 to the
     partnership  to fund  operations.  The  advances  have been  recorded  as a
     capital  contribution.  This  treatment  has been  approved  by the limited
     partner.

NOTE C - GOING CONCERN CONSIDERATIONS

     The accompanying financial statements have been prepared in conformity with
     accounting  principles  generally accepted in the United States of America,
     which contemplates  continuation of the partnership as a going concern. The
     partnership has suffered significant operating losses in recent years. This
     factor raises substantial doubt about the partnership's ability to continue
     as a going concern. Management's plans are as follows:

          1. Develop a marketing  plan and upgrade  apartment  units to increase
          occupancy.

          2. Replace the current project management agent.

          3. Replace the managing general partner.

          4. Apply for a rent increase  from the U.S.  Department of Housing and
          Urban Development (HUD).

          5. Request that the debt service fund be utilized on a temporary basis
          to pay debt services.

     Management believes that these measures will ensure the continued operation
     of the partnership.

NOTE D - MORTGAGE PAYABLE

     The mortgage payable, in the original amount of $7,455,000, was funded with
     the proceeds from the issuance of Multifamily  Housing Revenue Bonds issued
     by Urban  Residential  Finance  Authority  of the City of Atlanta,  Georgia
     ("URFA").  The note bears  interest  at the rates of 6.25  percent and 6.60
     percent  on unpaid  principal  amounts  at  December  31,  2002.  Principal
     installments  are required to be paid  annually on  September  1.  Interest
     installments  are due  semi-annually  on March 1st and September 1st, until
     maturity on September 1, 2025.  At December 31, 2002,  accrued  interest is
     $143,217.



                                      -10-
<PAGE>


                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002

NOTE D - MORTGAGE PAYABLE (Continued)

     Under  agreements  with the Trustee,  the  Partnership  is required to make
     monthly escrow  deposits for property taxes and insurance,  and replacement
     of project assets, and is subject to restrictions as to operating policies,
     rental charges, operating expenditures, and distributions to partners.

     The  liability  of the  Partnership  under the  mortgage  is limited to the
     underlying value of the real estate collateral plus other amounts deposited
     with the Trustee.

     Aggregate annual maturities of the mortgage payable are as follows:

             December 31, 2003                             $          160,000
                          2004                                        170,000
                          2005                                        180,000
                          2006                                        195,000
                          2007                                        205,000
           2008 and thereafter                                      5,685,000
                                                            ------------------
                                                           $        6,595,000
                                                            ==================

NOTE E - SUBORDINATE NOTE PAYABLE

     In connection with the acquisition of the Project, the Partnership obtained
     an assignment  of the property  purchase  agreement,  granting the right to
     purchase the Project in exchange for a $1,100,000 note payable to URFA. The
     note is secured by a second deed of trust in the  property  and  equipment,
     and originally bore interest at a rate of 7 percent. During September 2000,
     the note was refinanced by URFA. As part of the refinancing, the balance of
     the note was restored to $1,100,000 and the interest rate was reduced to 3%
     per annum.  The note  matures  December  31,  2031.  At December  31, 2002,
     accrued  interest is $70,919.  Annual  payments of  principal  and interest
     continue until final payment of unpaid principal and interest.

     Aggregate annual maturities of the subordinate note payable are as follows:

             December 31, 2003                             $           46,936
                          2004                                         24,529
                          2005                                         25,265
                          2006                                         26,023
                          2007                                         26,804
                    Thereafter                                        950,443
                                                            ------------------
                                                                  $ 1,100,000
                                                            ==================

                                     - 11 -
<PAGE>


                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002


NOTE F - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENT

     The U.S.  Department of Housing and Urban  Development  ("HUD")  contracted
     with the Partnership  effective  October 1, 1995, under Section 8 of the U.
     S. Housing Act of 1937, to make housing assistance  payments ("HAP") to the
     Partnership  on behalf of  qualified  tenants  for a term of 15 years.  The
     Project has 70 units that receive HUD  assistance.  This agreement  expires
     October 1, 2010.

     The HAP contract is pledged as collateral  under the promissory  note loan.
     Payments  received  are  required to be  deposited  into the  revenue  fund
     pursuant to the Trust Indenture.  All disbursements are strictly controlled
     by the Trustee.

NOTE G - RESTRICTED CASH HELD BY BOND TRUSTEE

     Cash held by the Bond  Trustee  consists of various  funds  established  at
     closing of the bond issue as  required  by the trust  indenture.  The funds
     were established to remit the amounts required to pay for insurance, taxes,
     principal and interest when due and payable.  The debt service reserve fund
     is used  solely  to make up any  deficiency  in the bond fund  relating  to
     payments of interest  and  principal  on the bonds,  whether at maturity or
     upon earlier  redemption.  Investments  for the amounts held by the Trustee
     are  subject  to  limitations.  The funds  consist  of cash,  money  market
     investments,   and  securities  that  are  primarily  issued  by  the  U.S.
     Government.   These  short-term  investments  are  stated  at  cost,  which
     approximates their market value.

     The balances in the funds at December 31, 2002, are as follows:

              Bond fund                                       $                6
              Debt service fund                                          593,091
              Maintenance and replacement fund                                59
              Revenue fund                                                42,247
              Transition fund                                             57,934
              Bond surplus fund                                               65
              Tax and insurance fund                                     107,986
              Bond administration fund                                       854
                                                              ------------------
                                                              $          802,242
                                                              ==================

                                     - 12 -
<PAGE>

                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002


NOTE H - RESTRICTED CASH HELD BY BOND TRUSTEE (Continued)

     The  Partnership  will  receive  any  amounts  remaining  in the funds upon
     redemption of the bonds after payment of all fees and expenses.

NOTE I - RELATED PARTY TRANSACTIONS

     Incentive Management Fee
     ------------------------

     The Partnership is to pay the general partner and special limited partner a
     non  cumulative,  annual  Incentive  Management  Fee equal to 45 percent of
     available  cash  flows,  as  defined,   for  services  in  connection  with
     administration  of  Partnership  affairs.  No amount  has been  charged  to
     operations during the year 2002.

     Management Fee
     --------------

     The Project contracts with a third party for management services. Fees are
     4 percent of gross collection, as defined. During 2002, Management fees of
     $56,339 were incurred.

NOTE J - COMMITMENTS AND CONTINGENCIES

     Tax Credits
     -----------

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

                                     - 13 -
<PAGE>


                             Cascade Pines, L.P. II

                    NOTES TO FINANCIAL STATEMENTS (Continued)

                                December 31, 2002


NOTE K -COMMITMENTS AND CONTINGENCIES (Continued)

     Land Use Restriction
     --------------------

     The  Partnership  has  entered  into a Land Use  Restriction  Agreement  in
     connection  with its note with URFA which restricts the use of the Project.
     Under this land use restriction,  40 percent of the units must be leased to
     households whose income does not exceed 60 percent of the applicable county
     median income. The agreement expires on the latest of the redemption of the
     bonds or September 28, 2010.










                                      -14-