UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
(Mark One)

   X     ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR 15(d)  OF  THE  SECURITIES
-------  EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002

                                       OR

         TRANSITION  REPORT  PURSUANT  TO  SECTION 13 OR 15(d) OF THE SECURITIES
-------  EXCHANGE ACT OF 1934

                         Commission File Number 0-18491

                           CAPITAL MORTGAGE PLUS L.P.
                           --------------------------
             (Exact name of registrant as specified in its charter)

           Delaware                                              13-3502020
--------------------------------                             -------------------
(State or other jurisdiction of                              (I.R.S. Employer
incorporation or organization)                               Identification No.)

625 Madison Avenue, New York, New York                               10022
----------------------------------------                       -----------------
(Address of principal executive offices)                           (Zip Code)

Registrant's telephone number, including area code: (212) 421-5333

Securities registered pursuant to Section 12(b) of the Act:

     None

Securities registered pursuant to Section 12(g) of the Act:

     Beneficial Assignment Certificates

     Indicate by check mark  whether the  registrant:  (1) has filed all reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for 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]

     Indicate by check mark whether the registrant is an  accelerated  filer (as
defined in Exchange Act Rule 12b-2). Yes   No X
                                        ---  ---

     The  approximate  aggregate book value of the voting and non-voting  common
equity  held by  non-affiliates  of the  Registrant  as of  June  30,  2002  was
$23,880,785, based on Limited Partner equity as of such date.

                       DOCUMENTS INCORPORATED BY REFERENCE

     Registrant's  prospectus dated May 10, 1989, as supplemented  July 7, 1989,
January 8, 1990,  February 9, 1990, May 18, 1990, and October 24, 1990, as filed
with the Commission pursuant to Rules 424(b) and 424(c) of the Securities Act of
1933, but only to the extent expressly incorporated by reference in Parts I, II,
III and IV.

Index to exhibits may be found on page 26
Page 1 of 70


<PAGE>


                                     PART I

Item 1.  Business.

General
-------

Capital Mortgage Plus L.P. (the  "Registrant") is a limited  partnership  formed
under the laws of the State of Delaware on November 23,  1988.  The sole general
partner of the Registrant is CIP Associates,  Inc., a Delaware  corporation (the
"General Partner").  The General Partner manages and controls the affairs of the
Registrant.  See Item 10,  Directors and Executive  Officers of the  Registrant,
below.

Investment Objectives
---------------------

The  Registrant's  principal  investment  objectives  are to: (i)  preserve  and
protect the Registrant's  capital;  (ii) provide quarterly cash distributions of
adjusted cash from operations;  and (iii) provide additional  distributions from
additional  interest arising from  participations in the annual cash flow of the
developments  and/or the sale or refinancing  of a development.  There can be no
assurance that all of the objectives can be achieved.

The  Registrant  originated  federally  insured and  co-insured  first  mortgage
construction  and  permanent  loans   ("Mortgages")   to  finance   multi-family
residential  rental  properties   ("Developments"   and  each  a  "Development")
developed by unaffiliated entities. All base interest and initially at least 90%
in the  aggregate  of the  principal of the  Mortgages  in which the  Registrant
invests  are  insured  or  coinsured  by the  Department  of  Housing  and Urban
Development  ("HUD") and Related Mortgage  Corporation  ("RMC"), an affiliate of
the  General  Partner.  The  remaining  10% of  the  Registrant's  portfolio  is
comprised of  uninsured  non-interest  bearing  equity  loans  ("Equity  Loans")
secured by the  assignment  of the debtor's  interests in the  Development  made
directly to the same  developers as the  Mortgages  for,  among other  purposes,
defrayal  of  certain  specific  cash  requirements  of  the  Developments.  The
Registrant  made five Mortgages in the aggregate  amount of $26,158,190 and five
Equity Loans in the  aggregate  amount of  $3,062,135  in  connection  with five
Developments. The Registrant is a closed-end Company that made its last mortgage
investment in March 1993 and does not expect to make any additional investments.
The  Mortgage  and  Equity  Loan  relating  to the  Mortenson  Manor  Apartments
("Mortenson")  was repaid in full on October 31,  2002.  The Mortgage and Equity
Loan relating to the Willow Trace Apartments ("Willow Trace") was repaid in full
on December 16, 1998. The  Registrant  has no present  expectation as to when it
may dispose of its remaining Mortgages and Equity Loans.

The  Registrant is engaged  solely in the business of investing in Mortgages and
Equity Loans;  therefore,  presentation of industry  segment  information is not
applicable.

For detailed  financial  information  pertaining to the Registrant,  see Item 8,
Financial Statements and Supplementary Data, below.


                                       2
<PAGE>

Investments
-----------

The  following  table lists the  Mortgages  and Equity  Loans as of February 28,
2003; it excludes the  investment  in Mortenson  which was repaid on October 31,
2002.

<TABLE>
<CAPTION>

                                       Original     Interest
                            Date of    Mortgage     Rate on      Equity       Final
                            Invest-      Loan       Mortgage      Loan       Endorse-   Term    Occu
Project          Location    ment      Amount(2)    Loan (1)     Amount        ment      (5)    pancy
-------          --------   -------   -----------   --------   ----------   ---------   -----   -----

<S>              <C>         <C>      <C>           <C>        <C>          <C>         <C>       <C>
Windemere        Wichita,    9/28/                  9.62%-                               40       91%
Apartments (3)   Kansas      1990     $ 8,110,300    10.7%     $  736,550      7/92     years
Fieldcrest III   Dothan,     8/27/                  8.75%-                               40       92%
Apartments       Alabama     1991       3,343,700   10.11%        383,300     11/92     years
Holly Ridge II   Gresham,    3/16/                  9.25%-                               40       97%
Apartments (4)   Oregon      1993       5,310,100    9.89%        684,400      6/95     years
                                      -----------              ----------

                                      $16,764,100              $1,804,250
                                      ===========              ==========

</TABLE>

(1) The minimum  interest rate shown above includes  interest  payable under the
first mortgage note plus additional  interest payable pursuant to the terms of a
Limited   Operating   Guaranty   agreement   for   Fieldcrest   III   Apartments
("Fieldcrest")  and Holly Ridge II Apartments ("Holly Ridge") and the Additional
Interest Guaranty agreements for Windemere Apartments ("Windemere").

(2) The  Windemere  Mortgage is co-insured  by HUD and RMC. The  Fieldcrest  and
Holly Ridge  Mortgages  are fully  insured by HUD. As of February 28, 2003,  all
loan amounts under the Mortgages have been disbursed.

(3) Default interest payments in the aggregate amount of approximately  $466,000
for the years ended  December  31, 1999  through  2002 and $130,000 for the year
ended  December 31, 1996 have not been received and as a result,  the Registrant
established  an  allowance  for  uncollectability  for a portion  of the  unpaid
default interest  payments which equals  approximately  $565,000 and $472,000 at
December 31, 2002 and 2001, respectively.

(4) Default interest  payments in the aggregate amount of approximately  $26,000
and  $40,000  for the  years  ended  December  31,  2002 and 2001  have not been
received  and  as  a  result  the   Registrant   established  an  allowance  for
uncollectability  for a portion of the unpaid  default  interest  payments which
equals  approximately  $53,000  and  $40,000  at  December  31,  2002 and  2001,
respectively.

(5) All  Mortgages  and Equity Loans have call  provisions  effective  ten years
following  final  endorsement and a grace period.  The  Registrant,  in order to
enforce such provisions,  would be required to terminate the mortgage  insurance
contract with FHA (and/or the  coinsurer)  with respect to each of the Mortgages
not later than the accelerated  payment date.  Since the exercise of such option
would be at the  Registrant's  discretion,  it is intended to be exercised  only
where the Registrant  determines that the value of the Development has increased
by an amount which would justify  accelerating  payment in full and assuming the
risks of foreclosure if the mortgagor failed to make the accelerated payment.

                                       3
<PAGE>


The  following is the interest  income from  Mortgages as a percentage  of total
revenues.

<TABLE>
<CAPTION>

                         2002             2001            2000
                         ----             ----            ----

<S>                       <C>              <C>             <C>
Mortenson*                34%              20%             19%
Windemere                 25               37              37
Fieldcrest                 9               16              16
Holly Ridge               16               24              26

</TABLE>

*  Repaid in full on October 31, 2002

Repayment of Mortgage Loan
--------------------------
On October 31, 2002,  Mortenson II Associates  L.P. (the "Owner"),  the owner of
Mortenson,  prepaid  the  outstanding  Mortgage  and  Equity  Loan in full.  The
Mortgage  and the  Equity  Loan were  secured  by a  mortgage  on the  Mortenson
property and partnership  interests in the Owner.  The  outstanding  debt repaid
early to the Registrant totaled $5,934,739, including the $4,543,011 outstanding
balance  of the  Mortgage  Loan,  the  $577,885  Equity  Loan  and  $813,843  of
additional interest due pursuant to the loan documents.

Competition
-----------
The  Registrant's  business is affected  by  competition  to the extent that the
underlying  Developments  from which its borrowers derive interest and principal
payments  may  be  subject  to  competition  from  neighboring  properties.   In
particular,  the receipt of additional  interest and the repayment of the Equity
Loans,   neither  of  which  is  insured  or   guaranteed   by   government   or
quasi-government  agencies,  are dependent upon the economic  performance of the
underlying  Developments  which  could  be  adversely  affected  by  competitive
conditions.

Employees
---------
The Registrant does not directly  employ anyone.  All services are performed for
the Registrant by its General Partner and that entity's affiliates.  The General
Partner receives compensation in connection with such activities as set forth in
Items 11 and 13. In addition,  the Registrant reimburses the General Partner and
certain  of  its  affiliates  for  expenses  incurred  in  connection  with  the
performance by their employees of services for the Registrant in accordance with
the Partnership Agreement.

Item 2. Properties.

The Registrant does not own or lease any property.

Item 3. Legal Proceedings.

There are no  material  legal  proceedings  pending  against  or  involving  the
Registrant.

Item 4. Submission of Matters to a Vote of Security Holders.

No matters were  submitted to a vote of security  holders during the fiscal year
covered by this report through the solicitation of proxies or otherwise.

                                       4
<PAGE>


                                     PART II

Item 5. Market for the  Registrant's  Common Equity and Related  Security Holder
Matters.

As of December 31, 2002,  the Registrant  had issued and  outstanding  1,836,660
limited partnership  interests  ("Limited  Partnership  Interests").  All of the
issued and outstanding  Limited  Partnership  Interests are issued to Related FI
BUC$  Associates,  Inc.  (the  "Assignor  Limited  Partner"),  which has  issued
Beneficial  Assignment  Certificates  ("BACs").  Each BAC  represents all of the
economic and virtually all of the material  ownership  rights  attributable to a
Limited Partnership  Interest held by the Assignor Limited Partner.  BACs may be
converted  into  Limited  Partnership  Interests  at no cost to the holder,  but
Limited  Partnership  Interests  are not  convertible  back into BACs.  There is
currently  no  established  public  trading  market  for  BACs  and  it  is  not
anticipated  that BACs will be listed for trading on any securities  exchange or
included for quotation on the Nasdaq National Market.

The Registrant has 3,485 registered  holders of an aggregate of $1,836,660 BACs,
as of March 3, 2003.

All of the Registrant's general partnership interests, representing an aggregate
capital contribution of $1,000, are held by the General Partner.

There are no material legal restrictions upon the Registrant's present or future
ability  to  make  distributions  in  accordance  with  the  provisions  of  the
Registrant's Amended and Restated Agreement of Limited Partnership.

Distribution Information
------------------------

Accrued cash  distributions per BAC made to the limited partners or BACs holders
for the following  quarters in 2002, 2001 and 2000, which are paid in subsequent
quarters, were as follows:
<TABLE>
<CAPTION>

         1st Quarter       2nd Quarter      3rd Quarter    4th Quarter      Total
         -----------       -----------      -----------    -----------     -------
<S>        <C>               <C>               <C>           <C>            <C>

2002       .2164             .2188             .2212         3.7200         4.3764
2001       .2164             .2188             .2212          .2212          .8776
2000       .2182             .2182             .2206          .2206          .8776

</TABLE>

Quarterly  distributions  are generally  made 45 days following the close of the
calendar quarter.

A total of $4,835,138 was  distributed  to the limited  partners or BACs holders
during the years 2002,  2001 and 2000.  The  Registrant  utilized  the  original
working capital reserve, in the aggregate amount of $477,532,  for distributions
from 1989  through  1991,  which was  considered  to be a return of capital.  An
additional  working capital reserve of approximately  $2,800,000 was established
from uninvested offering proceeds,  a portion of which was applied to pay a part
of the 2002, 2001 and 2000 distributions (which was considered to be a return of
capital).  Approximately  $0, $396,000 and $274,000 paid to the limited partners
or BACs holders in each of the years ended  December  31,  2002,  2001 and 2000,
respectively,   represented  a  return  of  capital.  A  total  of  $98,676  was
distributed to the General Partner during 2002, 2001 and 2000.

The 2002 fourth quarter  distribution,  which was paid on February 14, 2003, was
funded primarily by the Mortenson repayment proceeds,  $3.59 per BAC of which is
considered to be a return of capital.

                                       5
<PAGE>

Item 6. Selected Financial Data.

The  information  set  forth  below  presents  selected  financial  data  of the
Registrant.  Additional  financial  information  is set  forth  in  the  audited
financial statements and footnotes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>

                                             Year ended December 31,
                          --------------------------------------------------------------
OPERATIONS                   2002         2001         2000         1999         1998
----------                ----------   ----------   ----------   ----------   ----------
<S>                       <C>          <C>          <C>          <C>          <C>
Interest income -
  Mortgage loans          $2,490,705   $1,944,183   $1,994,946   $1,987,628   $2,678,758
  Temporary                   26,244       36,909       45,335       61,369       32,135
  investments
Other income                 451,800        3,302        3,352        6,517      393,785
                          ----------   ----------   ----------   ----------   ----------

Total revenues             2,968,749    1,984,394    2,043,633    2,055,514    3,104,678
                          ----------   ----------   ----------   ----------   ----------

Operating expenses           506,531      482,697      501,529      488,707      567,549

Provision for bad debts      146,388      262,062      175,493       54,549      144,977
                          ----------   ----------   ----------   ----------   ----------

Total Expenses               652,919      744,759      677,022      543,256      712,526

                          ----------   ----------   ----------   ----------   ----------

Net income                $2,315,830   $1,239,635   $1,366,611   $1,512,258   $2,392,152
                          ==========   ==========   ==========   ==========   ==========

Net income per BAC        $     1.24   $     0.66   $     0.73   $     0.81   $     1.28
                          ==========   ==========   ==========   ==========   ==========
</TABLE>

<TABLE>
<CAPTION>

                                                   December 31,
                          --------------------------------------------------------------
FINANCIAL POSITION            2002         2001         2000         1999         1998
------------------        -----------  -----------  -----------  -----------  -----------
<S>                       <C>          <C>          <C>          <C>          <C>

Total assets              $23,814,436  $23,159,100  $23,535,982  $23,822,034  $28,561,927
                          ===========  ===========  ===========  ===========  ===========

CASH DISTRIBUTIONS
------------------

Distributions per BAC     $      4.38  $      0.88  $      0.88  $      0.88  $      3.45
                          ===========  ===========  ===========  ===========  ===========
</TABLE>

                                       6
<PAGE>


Item 7. Management's  Discussion and Analysis of Financial Condition and Results
of Operations.

Capital Resources and Liquidity
-------------------------------

Sources of Registrant  funds  included  interest  earned on (1)  investments  in
Mortgages  and Equity  Loans  (see also Item 1,  Business)  and (2) the  working
capital reserve.

During  the year ended  December  31,  2002,  cash and cash  equivalents  of the
Registrant  increased  by  approximately  $5,548,000  due to  cash  provided  by
operating  activities  ($1,909,000),  collections  of principal on Mortgages and
Equity Loans  approximately  ($5,283,000) and reduced by  distributions  paid to
partners and BACs holders ($1,645,000). Included in the adjustments to reconcile
the net income to cash flow provided by operating  activities is amortization of
approximately $209,000.

The regular quarterly distribution for the fourth quarter of 2002 was reduced to
$.13 per BAC. Subject to the future performance of the Registrant's  investments
and results of operations,  the General Partner  anticipates  that there will be
sufficient cash from operations  generated to cover anticipated expenses in 2003
and to fund future distributions of $.52 per BAC per annum paid quarterly.

On October 31, 2002,  Mortenson II Associates  L.P. (the "Owner"),  the owner of
Mortenson,  prepaid the  outstanding  Mortgage Loan and Equity Loan in full. The
Mortgage  and the  Equity  Loan were  secured  by a  mortgage  on the  Mortenson
property and partnership  interests in the Owner.  The  outstanding  debt repaid
early to the Registrant totaled $5,934,739, including the $4,543,011 outstanding
balance of the  Mortgage,  the $577,885  Equity Loan and $813,843 of  additional
interest  due  pursuant  to the loan  documents.  The  repayment  proceeds  were
included in a cash  distribution  and were  considered  a return of capital made
during  the  first  quarter  of  2003  of  $6,593,609  ($3.59  per  BAC)  to the
BACsholders and $66,602 to the General Partner.

Regular  quarterly  distributions  other  than  the  distribution  of  repayment
proceeds for the Mortenson Loans, which on an annual basis totaled approximately
$1,612,000  and  $1,611,000,  were made to the limited  partners or BACs holders
during the years ended December 31, 2002 and 2001. Such  distributions were made
from adjusted cash flow from  operations  and, to a lesser extent,  from working
capital  reserves  which is considered to be a return of capital.  Approximately
$33,000  was  distributed  to the  General  Partner  in each of the years  ended
December 31, 2002 and 2001, respectively.

Management is not aware of any trends or events,  commitments  or  uncertainties
that will impact  liquidity  in a material  way.  Management  believes  the only
impact would be from laws that have not yet been adopted.  All base interest and
the  principal  of the  Registrant's  investments  in  Mortgages  are insured or
co-insured  by HUD and  additionally  one  Mortgage  is  coinsured  by a private
mortgage lender (which is an affiliate of the General Partner). The Registrant's
investments  in uninsured  non-interest  bearing  Equity Loans (which  represent
approximately 10% of the Registrant's  portfolio when originated) are secured by
a Registrant  interest in three properties.  Due to the prepayment of two of the
Registrant's  original  investments in Mortgages and Equity Loans, the portfolio
is not  diversified by location  around the United States.  Thus, the Registrant
may not be protected against a general downturn in the national economy.

Critical Accounting Policies
----------------------------

The financial  statements are prepared in accordance with accounting  principles
generally accepted in the United States of America, which requires Registrant to
make certain  estimates and  assumptions.  A summary of  significant  accounting
policies is disclosed in Note 2 to the financial  statements  which are included

                                       7
<PAGE>

in Registrant's annual report on Form 10-K for the year ended December 31, 2002.
The  following  section  is a summary of  certain  aspects  of those  accounting
policies that may require subjective or complex judgments and are most important
to the portrayal of Registrant's  financial condition and results of operations.
Registrant  believes that there is a low  probability  that the use of different
estimates or  assumptions in making these  judgments  would result in materially
different amounts being reported in the financial statements.

     o    Interest  income on the  mortgage  loans  consist  of  contingent  and
          non-contingent  interest  as defined in the  mortgage  notes and other
          additional interest  agreements.  Non-contingent  interest consists of
          base and default interest,  which is recognized as earned.  Contingent
          interest is based on the  development's  cash flows and is  recognized
          when received.

     o    If the interest  receivable  exceeds the  estimated  value  derived by
          management,  Registrant  adjusts the allowance  account to reflect its
          estimated fair value.

     o    The equity  loans are  considered  to be  premiums  paid to obtain the
          Mortgages and are  amortized  over the average  expected  lives of the
          respective Mortgages.

Results of Operations
---------------------

2002 vs. 2001
-------------

Results of operations  for the years ended  December 31, 2002 and 2001 consisted
primarily of interest income of $2,491,000 and $1,944,000,  respectively, earned
from investments in Mortgages.

Interest income from temporary investments  decreased  approximately $11,000 for
the year ended  December  31, 2002 as compared to 2001,  primarily  due to lower
interest rates in 2002.

Other income  increased  approximately  $448,000 for the year ended December 31,
2002 as compared to 2001,  primarily due to the gain realized from the repayment
of the Mortenson Mortgage Loan and Equity Loan in 2002.

General and administrative  increased  approximately  $12,000 for the year ended
December  31, 2002 as compared  to 2001,  primarily  due to an increase in legal
expenses in 2002.

General and  administrative-related  parties increased approximately $21,000 for
the year ended  December  31,  2002 as  compared  to 2001,  primarily  due to an
increase  in  expenses  reimbursements  due to the  General  Partner  for  asset
monitoring and overhead.

A provision for bad debts of approximately $146,000 and $262,000 was charged for
the years ended December 2002 and 2001, respectively,  representing the 2002 and
2001 Guaranteed  Interest due from  Hollyridge and the 2002 Guaranteed  Interest
due from Windemere and the 2001  Guaranteed  Interest due from Mortenson and the
2001 and 2000 Guaranteed Interest due from Windemere.


                                       8
<PAGE>

2001 vs. 2000
-------------

Results of operations  for the years ended  December 31, 2001 and 2000 consisted
primarily of interest income of $1,944,000 and $1,995,000,  respectively, earned
from investments in Mortgages.

Interest income from temporary  investments  decreased  approximately $8,000 for
the year ended  December  31, 2001 as compared  to 2000  primarily  due to lower
interest rates in 2001.

General and administrative  decreased  approximately  $15,000 for the year ended
December 31, 2001 as compared to 2000  primarily  due to a decrease in legal and
printing costs in 2001.

A provision for bad debts of approximately $262,000 and $175,000 was charged for
the years ended December 31, 2001 and 2000, respectively,  representing the 2001
Guaranteed Interest due from Mortenson and the 2001 and 2000 Guaranteed Interest
due from Windemere and the 2000  Guaranteed  Interest due from Mortenson and the
1999 Guaranteed Interest due from Windemere.


Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

Not Applicable


                                       9
<PAGE>

Item 8.  Financial Statements and Supplementary Data.
                                                                            Page
(a) 1.   Financial Statements                                               ----
         --------------------

         Independent Auditors' Report                                         11

         Statements  of  Financial   Condition
         as of December 31, 2002 and 2001                                     12

         Statements  of  Income  for the years
         ended  December  31,  2002,  2001 and
         2000                                                                 13

         Statements  of Changes  in  Partners'
         Capital   (Deficit)   for  the  years
         ended  December  31,  2002,  2001 and
         2000                                                                 14

         Statements  of  Cash  Flows  for  the
         years ended  December 31, 2002,  2001
         and 2000                                                             15

         Notes to Financial Statements                                        16


                                       10
<PAGE>

                          INDEPENDENT AUDITORS' REPORT




To the Partner of
Capital Mortgage Plus L.P.



We  audited  the  accompanying  statements  of  financial  condition  of Capital
Mortgage Plus, L.P. (a Delaware Limited Partnership) as of December 31, 2002 and
2001  and the  related  statements  of  income,  changes  in  partners'  capital
(deficit) and cash flows for the years ended  December 31, 2002,  2001 and 2000.
These financial  statements are the responsibility of the General Partners.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits 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 the General  Partner,  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 Capital Mortgage Plus, L.P. as
of December 31, 2002 and 2001,  and the results of its  operations  and its cash
flows for the three  years then  ended  December  31,  2002,  2001 and 2000,  in
conformity with accounting principles generally accepted in the United States of
America.



/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 20, 2003



                                       11
<PAGE>


                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                        STATEMENTS OF FINANCIAL CONDITION

                                     ASSETS
<TABLE>
<CAPTION>


                                                             December 31,
                                                     ----------------------------
                                                         2002            2001
                                                     ------------    ------------

<S>                                                  <C>             <C>
Investments in mortgage loans (Note 3)               $ 16,098,198    $ 21,002,372
Cash and cash equivalents                               6,659,016       1,110,785
Accrued interest receivable (net of allowance
  of $617,893 and $1,164,683)                             153,135         408,618
Loan origination costs (net of accumulated
  amortization of $162,743 and $196,624)                  497,858         637,325
Other assets                                              406,229               0
                                                     ------------    ------------

Total Assets                                         $ 23,814,436    $ 23,159,100
                                                     ============    ============

                   LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)

Liabilities:
  Accounts payable and other liabilities             $     25,741    $     25,000
  Due to general partner and affiliates (Note 4)           56,407          73,080
                                                     ------------    ------------

Total liabilities                                          82,148          98,080
                                                     ------------    ------------

Partners' capital (deficit):
  Limited Partners (1,836,660 BACs issued
   and outstanding) (Note 1)                           23,880,785      23,222,943
  General Partner                                        (148,497)       (161,923)
                                                     ------------    ------------

Total partners' capital (deficit)                      23,732,288      23,061,020
                                                     ------------    ------------

Total Liabilities and Partners' Capital (Deficit)    $ 23,814,436    $ 23,159,100
                                                     ============    ============

See accompanying notes to financial statements.
</TABLE>

                                       12
<PAGE>


                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                              STATEMENTS OF INCOME
<TABLE>
<CAPTION>


                                       Years Ended December 31,
                                ------------------------------------
                                   2002        2001         2000
                                ----------   ----------   ----------
<S>                             <C>          <C>          <C>
Revenues:

Interest income:

  Mortgage loans (Note 3)       $2,490,705   $1,944,183   $1,994,946
  Temporary investments             26,244       36,909       45,335
Other income                       451,800        3,302        3,352
                                ----------   ----------   ----------

Total revenues                   2,968,749    1,984,394    2,043,633
                                ----------   ----------   ----------

Expenses:

General and administrative          81,110       69,375       84,084
General and administrative-
  related parties (Note 4)         215,411      194,280      198,403
Provision for bad debts            146,388      262,062      175,493
Amortization                       210,010      219,042      219,042
                                ----------   ----------   ----------

Total expenses                     652,919      744,759      677,022
                                ----------   ----------   ----------

Net income                      $2,315,830   $1,239,635   $1,366,611
                                ==========   ==========   ==========

Net income - limited partners   $2,269,513   $1,214,842   $1,339,279
                                ==========   ==========   ==========

Number of BACs outstanding       1,836,660    1,836,660    1,836,660
                                ==========   ==========   ==========

Net income per BAC              $     1.24   $     0.66   $     0.73
                                ==========   ==========   ==========
</TABLE>


See accompanying notes to financial statements.

                                       13
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
              STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>

                                                                     Limited         General
                                                    Total           Partners         Partner
                                                  ------------    ------------    ------------
<S>                                               <C>             <C>             <C>
Partners' capital (deficit) - January 1, 2000     $ 23,744,026    $ 23,892,289    $   (148,263)
Net income                                           1,366,611       1,339,279          27,332
Distributions                                       (1,645,825)     (1,612,909)        (32,916)
                                                  ------------    ------------    ------------

Partners' capital (deficit) - December 31, 2000     23,464,812      23,618,659        (153,847)
Net income                                           1,239,635       1,214,842          24,793
Distributions                                       (1,643,427)     (1,610,558)        (32,869)
                                                  ------------    ------------    ------------

Partner's capital (deficit) - December 31, 2001     23,061,020      23,222,943        (161,923)
Net income                                           2,315,830       2,269,513          46,317
Distributions                                       (1,644,562)     (1,611,671)        (32,891)
                                                  ------------    ------------    ------------

Partner's capital (deficit) - December 31, 2002   $ 23,732,288    $ 23,880,785    $   (148,497)
                                                  ============    ============    ============

</TABLE>

See accompanying notes to financial statements.

                                       14
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                            (a limited partnership)
                            STATEMENTS OF CASH FLOWS


<TABLE>
<CAPTION>

                                                                    Years Ended December 31,
                                                          -----------------------------------------
                                                             2002           2001            2000
                                                          -----------    -----------    -----------
<S>                                                       <C>            <C>            <C>
Cash flows from operating activities:
Net income                                                $ 2,315,830    $ 1,239,635    $ 1,366,611
                                                          -----------    -----------    -----------

Adjustments to reconcile net income to net cash
  provided by operating activities:
Provision for bad debts                                       146,388        262,062        175,493
Gain on recovery of amortized portion of
  Mortenson Equity Loan                                      (569,859)             0              0
Loss of unamortized portion of Mortenson
  Loan costs                                                  121,561              0              0
Amortization                                                  210,010        219,042        219,042
Amortization of interest rate buydown                          (1,452)        (1,452)        (1,452)
Changes in operating assets and liabilities:
Decrease (increase) in accrued interest receivable            109,095        (67,751)      (341,240)
Increase in other assets                                     (406,229)             0              0
Increase in accounts payable
  and other liabilities                                           741              0          4,255
(Decrease) increase in due to general partner
  and affiliates                                              (16,673)        26,911        (11,093)
                                                          -----------    -----------    -----------
Total adjustments                                            (406,418)       438,812         45,005
                                                          -----------    -----------    -----------

Net cash provided by operating activities                   1,909,412      1,678,447      1,411,616
                                                          -----------    -----------    -----------

Cash flows from investing activities:
Receipt of principal on mortgage loans                      4,705,496        156,374        142,710
Receipt of principal on equity loan                           577,885              0              0
                                                          -----------    -----------    -----------

Net cash provided by investing activities                   5,283,381        156,374        142,710
                                                          -----------    -----------    -----------

Cash flows from financing activities:
Distributions to partners                                  (1,644,562)    (1,643,427)    (1,645,825)
                                                          -----------    -----------    -----------

Net cash used in financing activities                      (1,644,562)    (1,643,427)    (1,645,825)
                                                          -----------    -----------    -----------

Net increase (decrease) in cash and cash
  equivalents                                               5,548,231        191,394        (91,499)

Cash and cash equivalents at beginning of year              1,110,785        919,391      1,010,890
                                                          -----------    -----------    -----------

Cash and cash equivalents at end of year                  $ 6,659,016    $ 1,110,785    $   919,391
                                                          ===========    ===========    ===========
</TABLE>


See Accompanying Notes to Financial Statements.


                                       15
<PAGE>



                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000

NOTE 1 - General

Capital Mortgage Plus L.P., a Delaware limited  partnership (the  "Partnership")
commenced  a public  offering  (the  "Offering")  on May 10,  1989 of  5,000,000
($100,000,000)   Beneficial   Assignment   Certificates   ("BACs")  representing
assignments of limited partnership  interests.  The BACs represent an assignment
of all of the economic and all of the material ownership rights  attributable to
the limited  partnership  interests  in the  Partnership.  The BACs holders have
virtually the same rights and, for all practical purposes,  are limited partners
of the Partnership.

Pursuant to the Offering, the Partnership received $36,733,200 of gross proceeds
from the BACs holders  representing  the issuance of 1,836,660  BACs.  The final
closing of the Offering occurred on May 23, 1991 and no further issuance of BACs
is anticipated.

The  Partnership  was  organized  on November 23, 1988 and will  continue  until
December  31,  2041  unless  terminated  sooner  under  the  provisions  of  its
partnership agreement.

The general  partner of the  Partnership  is CIP  Associates,  Inc.,  a Delaware
corporation (the "General  Partner").  Related FI BUC$  Associates,  Inc. is the
Assignor Limited Partner of the Partnership. CIP Associates, Inc. and Related FI
BUC$ Associates, Inc. are under substantially common ownership.

The  Partnership  was  formed  to  invest  in  insured  or  guaranteed  mortgage
investments.  The  Partnership has invested in first mortgage  construction  and
permanent  loans  ("Mortgages")  to  finance   multifamily   residential  rental
properties  ("Developments")  developed by unaffiliated  entities. A substantial
portion of the Mortgages provides  additional  interest based on the annual cash
flow from the  Developments  and the  proceeds  of  prepayments,  sales or other
dispositions.  All base  interest and initially at least 90% of the principal of
the  Mortgages is insured or coinsured  by the  Department  of Housing and Urban
Development  ("HUD") and a private mortgage lender (which is an affiliate of the
General  Partner).  The Partnership has also invested in uninsured  equity loans
("Equity  Loans")  made  directly to  developers  of  developments  on which the
Partnership holds a Mortgage.

Net income and distributions from operations of the Partnership are allocated 2%
to the  General  Partner  and 98% to the  limited  partners,  until the  limited
partners have received an 11% per annum non-cumulative  non-compounded return on
their adjusted contributions as defined in the Amended and Restated Agreement of
Limited Partnership.  Thereafter, net income and distributions will be allocated
90% to the limited  partners and 10% to the General  Partner.  Distributions  of
disposition  proceeds  are  allocated  1% to the General  Partner and 99% to the
limited  partners until each limited partner has received an amount equal to his
original   contribution   plus  an  amount  which,   when  added  to  all  prior
distributions  equals a 7% per  annum  cumulative  non-compounded  return on his
adjusted  contribution;  then 2% and 98% of  disposition  proceeds,  until  each
limited  partner  has  received  an  amount  which,  when  added  to  all  prior
distributions  equals an 11% per annum cumulative  non-compounded  return on his
adjusted contribution;  and thereafter 10% to the General Partner and 90% to the
limited partners.

The accrued cash distributions per BAC were  approximately  $4.38, $.88 and $.88
for 2002,  2001 and 2000. The 2002, 2001 and 2000  distributions  were made from
adjusted cash flow from  operations  (and, in particular,  of the fourth quarter
2002 distribution which was paid on February, 14, 2003 from the repayment of the
Mortenson loan, $3.59 per BAC was considered to be a return of capital) and to a

                                       16
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000

lesser  extent  were  supplemented  from  working  capital  reserves,  which was
considered to be a return of capital.

NOTE 2 - Accounting Policies

a)  Basis of Accounting

The books and records of the  Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles ("GAAP").

The  preparation  of financial  statements in conformity  with GAAP requires the
General  Partner to make  estimates  and  assumptions  that affect the  reported
amounts of assets and  liabilities  and the disclosure of contingent  assets and
liabilities  at the date of the  financial  statements  as well as the  reported
amounts of  revenues  and  expenses  during the  reporting  period.  Significant
estimates  are  made  when   accounting  for  the  allowance  for  the  interest
receivable. Actual results could differ from those estimates.

Acquisition  expenses  incurred  for  the  investment  of  Mortgages  have  been
capitalized and are included in loan origination costs, which are amortized over
the average expected lives of the respective Mortgages when acquired and written
off when the loan is repaid.

The Equity Loans are  considered to be premiums paid to obtain the Mortgages and
are amortized over the average expected lives of the respective Mortgages.

Interest rate buydowns are amortized as an adjustment to the effective  interest
rate over the average expected lives of the respective Mortgages.

b)  Cash and Cash Equivalents

Cash and cash equivalents  include temporary  investments with original maturity
dates of less than 3 months when  acquired  and are carried at cost plus accrued
interest, which approximates market.

c)  Income Taxes

The  Partnership  is not  required to provide  for, or pay,  any federal  income
taxes.  Income tax attributes  that arise from its operation are passed directly
to the individual  partners.  The  Partnership may be subject to state and local
taxes in jurisdictions in which it operates.

d)  Revenue Recognition

Interest income on the Mortgages loans consists of contingent and non-contingent
interest  as  defined  in the  mortgage  notes  and  other  additional  interest
agreements. Non-contingent interest consists of base and default interest, which
is  recognized  as  earned.  Contingent  interest  is  based  on the  underlying
Development's cash flows and is recognized when received.

                                       17
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 2002, 2001 and 2000
                                   (Unaudited)

Note 3 - Investments in Loans

Information relating to investments in Mortgages and Equity Loans as of December
31, 2002 and 2001 is as follows, one of which was repaid on October 31, 2002:
<TABLE>
<CAPTION>



                                                                             Amount Advanced
                                                        ---------------------------------------------------------
             No. of
              Apt     Date of    Fianl                                  Total      Investments in    Investments
Property/    -ment    Invest-   Maturity                  Equity       Amounts        Loans at       in Loans at
Location     Units     ment       Date      Mortgages      Loans       Advanced     12/31/2002(E)   12/31/2001(E)
---------    ------   -------   --------   -----------   ----------   -----------   -------------   -------------
<S>           <C>     <C>        <C>       <C>           <C>           <C>          <C>             <C>
Mortenson     104     8/1990          (F)  $ 4,974,090   $  577,885    $5,551,975   $         0     $   4,635,159
Manor
Apts./
Ames, IA

Windemere     204     9/1990     9/2030      8,110,300      736,550     8,846,850     7,650,456         7,773,702
Apts./
Wichita, KS

Fieldcrest    112     8/1991     8/2031      3,343,700      383,300     3,727,000     3,214,166         3,268,113
III
Apts./
Dothan, AL

Holly         144     3/1993     3/2033      5,310,100      684,400     5,994,500     5,233,576         5,325,398
Ridge II
Apts./
Gresham, OR
                                           ----------------------------------------------------------------------

Total                                      $21,738,190   $2,382,135   $24,120,325   $16,098,198       $21,002,372
                                           ======================================================================
</TABLE>

<TABLE>
<CAPTION>


                        Interest earned by the Partnership during 2002
              --------------------------------------------------------------------
                     Non-contingent                        Contingent
              -----------------------------    -----------------------------------

                                                            Car Flow
                                  Default       Annual      Partici-
                Base Interest     Interest       Yield       pation       Total
Property/         Amount/         Amount/       Amount/     Amount/      Interest
Location          Rate(A)         Rate(B)       Rate(C)     Rate(D)       Earned
---------     ---------------   -----------    ---------   ---------    ----------
<S>             <C>             <C>            <C>         <C>          <C>
Mortenson       $   242,327     $   768,843    $      0    $      0     $1,011,170
Manor                 6.45%           1.98%        .97%      30.00%
Apts./
Ames, IA

Windemere           610,504         124,574           0           0        735,078
Apts./                7.95%           1.60%       1.08%      30.00%
Wichita, KS

Fieldcrest          277,379               0           0           0        277,379
III                   8.68%              0%       1.36%      30.00%
Apts./
Dothan, AL

Holly               415,141          51,937           0           0        467,078
Ridge II             8.125%           1.00%        .64%      30.00%
Apts./
Gresham, OR
                ------------------------------------------------------------------

Total           $ 1,545,351     $   945,354    $      0    $      0     $2,490,705
                ==================================================================
</TABLE>

                                       18
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000


(A) Base interest on the Mortgages is that amount that is  insured/co-insured by
HUD and is being shown net of service fee.

(B) Default  Interest is the minimum  amount due over the base rate,  and is not
contingent upon cash flow. This interest is secured by partnership  interests in
the borrower.

(C) Annual Yield is the amount over the default rate and is contingent upon cash
flow of the Development.

(D) Cash Flow  Participation  is the percent of cash flow due to the Partnership
after payment of the Annual Yield and is contingent upon cash flow.

(E) The Investments in Loans amount reflects the unpaid balance of the Mortgages
and the  unamortized  balance of the Equity Loans in the amounts of  $15,945,807
and $152,391  respectively,  at December 31, 2002 and  $20,651,303 and $351,069,
respectively, at December 31, 2001.

(F) On October 31, 2002,  Mortenson II Associates L.P. (the "Owner"),  the owner
of Mortenson, prepaid the Mortgage and Equity Loan in full. The Mortgage and the
Equity Loan were secured by a mortgage on the Mortenson property and partnership
interests in the Owner.  The  outstanding  debt repaid early to the  Partnership
totaled  $5,934,739,   including  the  $4,543,011  outstanding  balance  of  the
Mortgage,  the  $577,885  Equity Loan and  $813,843 of  additional  interest due
pursuant to the loan documents.

Total  interest  earned,  as shown on the above  schedule of investment in loans
does not  include  the gain on the  recovery  of the  amortized  portion  of the
Mortenson Equity Loan of $569,859 and the writeoff of the unamortized portion of
the Mortenson Loan costs of $121,561, both of which are included in other income
on the Statements of Income.

                                       19
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000

<TABLE>
<CAPTION>

                                           2002            2001
                                       ------------    ------------

<S>                                    <C>             <C>
Investment in loans January 1,         $ 21,002,372    $ 21,357,424

Additions:
Fieldcrest discount amortization              1,452           1,452
                                       ------------    ------------

                                              1,452           1,452
Deductions:
Amortization of equity loans               (192,104)       (200,130)
Collection of principal -Mortgages
                        -Mortenson       (4,587,002)        (49,769)
                        -Windemere          (61,867)        (57,114)
                        -Fieldcrest         (21,839)        (20,016)
                        -Holly Ridge        (34,788)        (29,475)
Collection of principal -Equity Loan
                        -Mortenson*          (8,026)              0
                                       ------------    ------------
                                         (4,905,626)       (356,504)
                                       ------------    ------------

Investment in loans December 31,       $ 16,098,198    $ 21,002,372
                                       ============    ============
</TABLE>

*    This is the  unamortized  portion of the Equity Loan and the balance of the
     $577,885 repaid is included in other income on the Statements of Income.

The Windemere  Mortgage is co-insured  by HUD and Related  Mortgage  Corporation
("RMC"), an affiliate of the General Partner. The Fieldcrest III and Holly Ridge
II Mortgages are insured by HUD. Mortenson was co-insured by HUD and RMC.

In addition to the interest rate payable during the  post-construction  periods,
the  Partnership  will be  entitled  to  payment  of 30% of cash  flow,  if any,
remaining  after payment of the permanent loan interest and accrued  interest if
any, and certain amounts from sales or refinancing proceeds.

The Equity Loans are  non-interest  bearing and are secured by the assignment of
the  owner/developers'  interests in the Developments.  The Equity Loans are not
insured  by HUD or any  other  party  and,  for  financial  statement  reporting
purposes,  are  considered  to be premiums paid to obtain the  Mortgages.  These
premiums  are  amortized  over the  average  expected  lives  of the  respective
Mortgages.

At December 31, 2002, all of the loans due to the  Partnership  are current with
respect  to  their  Federal  Housing  Authority  ("FHA")  mortgage  obligations.
Windmere has not paid its default  interest of approximately  $125,000,  $88,000
and $126,000 for the years ended December 31, 2002, 2001 and 2000. Hollyridge II
has not paid its default interest of  approximately  $26,000 and $40,000 for the
years  ended  December  31,  2002  and  2001.  As a  result,  an  allowance  for
uncollectability  relating to the  default  interest  amounted to  approximately
$618,000 and $1,165,000 at December 31, 2002 and 2001, respectively.

                                       20
<PAGE>
                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000

NOTE 4 - Related Parties

The costs  incurred to related  parties for the years ended  December  31, 2002,
2001 and 2000 were as follows:

<TABLE>
<CAPTION>
                                      2002       2001       2000
                                    --------   --------   --------

<S>                                 <C>        <C>        <C>
Partnership management fees (a)     $119,098   $126,368   $126,368
Expense reimbursement (b)             96,313     67,912     72,035
                                    --------   --------   --------

Total general and administrative-
  related parties                   $215,411   $194,280   $198,403
                                    ========   ========   ========
</TABLE>


(a) A  Partnership  management  fee for managing the affairs of the  Partnership
equal to .5% per annum of  invested  assets is  payable  out of cash flow to the
General  Partner.  The  fourth  quarter  2002  Partnership  management  fee  was
calculated  on the  reduced  asset base due to the  repayment  of the  Mortenson
Mortgage  Loan and  Equity  Loan on October  31,  2002.  During the years  ended
December 31, 2002, 2001 and 2000, payments of approximately  $126,000,  $126,000
and $126,000 were made,  respectively.  At December 31, 2002 and 2001, a balance
of  approximately  $24,000 and $32,000 were due to the General Partner for these
fees.

(b) The General Partner and its affiliates  perform services for the Partnership
which  include,  but are not limited to:  accounting  and financial  management,
registrar,  transfer  and  assignment  functions,  asset  management;   investor
communications,  printing services and other administrative services. The amount
of  reimbursement  from the  Partnership  is  limited by the  provisions  of the
Partnership  Agreement.  An  affiliate  of the General  Partner  performs  asset
monitoring services for the Partnership. These asset monitoring services include
site visits and  evaluations of the  performance of the properties  securing the
loans.  During the years ended  December  31, 2002,  2001 and 2000,  payments of
approximately $106,000, $41,000 and $83,000 were made, respectively, relating to
these  costs.  As of  December  31, 2002 and 2001,  the General  Partner and its
affiliates were due approximately $32,000 and $41,000, respectively.

RMC is a  co-insurer  on the  Windemere  Mortgage in which the  Partnership  has
invested.  RMC was a co-insurer in the Mortenson Mortgage.  RMC is entitled to a
mortgage insurance premium which is paid by the mortgagors.

NOTE 5 - Concentration of Credit Risk

The  Partnership  maintains  its cash in several  banks which are insured by the
Federal Deposit Insurance  Corporation  (FDIC) for a balance up to $100,000.  At
times during 2002, 2001 and 2000, the account balance exceeded the FDIC limit.

NOTE 6 - Fair Value of Financial Instruments

Financial Accounting Standards Board SFAS No. 107, "Disclosures about Fair Value
of Financial  Instruments,"  requires that the estimated fair value of financial
instruments, as defined by SFAS No. 107, be disclosed. Financial instruments are
defined as cash,  evidence of an  ownership  interest in an entity or a contract
which creates  obligations  and rights to exchange  cash and/or other  financial
instruments.  SFAS  No.  107  also  requires  disclosures  of  the  methods  and

                                       21
<PAGE>

                           CAPITAL MORTGAGE PLUS L.P.
                             (a limited partnership)
                          NOTES TO FINANCIAL STATEMENTS
                        DECEMBER 31, 2002, 2001 and 2000

significant   assumptions   used  to  estimate   the  fair  value  of  financial
instruments.

Considerable  judgment is required in interpreting data to develop the estimates
of fair value.  Accordingly,  the estimates presented herein are not necessarily
indicative of the amounts that the Partnership could realize in a current market
exchange.   The  use  of  different   market   assumptions   and/or   estimation
methodologies may have a material effect on the estimated fair value amounts.

The following  methods/assumptions  were used to estimate the fair value of each
class of financial instrument:

Cash and Cash  Equivalents
--------------------------
Fair  value  is  determined  to be the  carrying  value  because  each  class of
financial  instrument  matures  in three  months or less and does not  represent
unanticipated credit concerns.

Investments in Loans
--------------------
At December 31, 2002,  the estimated  carrying value of the Mortgages and Equity
Loans  approximated  fair value.  The estimated fair values at December 31, 2002
were based on  internal  valuations  of the three  Developments  collateralizing
these loans. Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument which
sets  forth the terms of a loan.  This  estimate  is  subjective  in nature  and
involves   uncertainties  and  matters  of  significant  judgment.   Changes  in
assumptions could significantly affect estimates.  Due to the  property-specific
nature of the loans and the lack of a ready  market for such  investments,  this
fair  value  estimate  does not  necessarily  represent  the  amount  which  the
Partnership could realize upon a current sale of its investments.

NOTE 7 - Quarterly Financial Information (Unaudited)
<TABLE>
<CAPTION>

                               First Quarter       Second Quarter       Third Quarter
                               -------------       --------------       -------------

Fiscal Year 2002
-----------------------

<S>                            <C>                  <C>                  <C>
Total Revenue                  $   470,728          $   470,872          $   469,047
Net earnings (loss)                301,322              306,356              289,205

Fiscal Year 2001
-----------------------

Total Revenue                  $   502,401          $   504,329          $   490,541
Net earnings (loss)                395,536              172,563              333,323

</TABLE>

NOTE 8 - Subsequent Event

On February 14, 2003,  distributions  of $6,832,375 and $71,475 were paid to BAC
holders  and the General  Partner,  respectively,  representing  the 2002 fourth
quarter distributions.

                                       22
<PAGE>

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

None.

                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

The Registrant has no directors or executive officers.  The Registrant's affairs
are  managed and  controlled  by the General  Partner.  The General  Partner was
organized in Delaware in November 1988.  The executive  officers and director of
the General  Partner  have held their  positions  as  indicated  below.  Certain
information  concerning  the  director  and  executive  officers  of the General
Partner is set forth below.

The Registrant, the General Partner and its director and executive officers, and
any BACs  holder  holding  more than ten  percent of the  Registrant's  BACs are
required  to report  their  initial  ownership  of such BACs and any  subsequent
changes in that ownership to the Securities and Exchange  Commission on Forms 3,
4 and 5. Such  executive  officers,  directors  (and ten  percent  holders)  are
required  by  Securities  and  Exchange  Commission  regulators  to furnish  the
Registrant  with copies of all Forms 3, 4 or 5 they file.  The Registrant is not
aware of any BACs holders who own more than ten percent of the BACs.  During the
most recent fiscal year, all of these filing  requirements were satisfied by the
officers and director of the General  Partner on a timely basis. In making these
disclosures,  the Registrant has relied solely on written representations of the
General Partner's  director and executive officers or copies of the reports they
have filed with the Securities and Exchange  Commission  during and with respect
to its most recent fiscal year.

CIP Associates Inc.

     Name                                  Position          Position Held Since
----------------                    ---------------------    -------------------

Stephen M. Ross                     Director                         1988

Stuart J. Boesky                    Senior Vice President            1988

Alan P. Hirmes                      Senior Vice President            1988

Glenn F. Hopps                      Treasurer                        1998

Teresa Wicelinski                   Secretary                        1998

STEPHEN M. ROSS, 62, is a Director of the General Partner. Mr. Ross is President
of The Related Companies, L.P. He graduated from The University of Michigan with
a Bachelor of Business Administration degree and from Wayne State School of Law.
Mr.  Ross  then  received  a Master  of Law  degree  in  taxation  from New York
University  School of Law. He joined the accounting firm of Coopers & Lybrand in
Detroit as a tax specialist and later moved to New York, where he worked for two
large Wall Street  investment  banking  firms in their real estate and corporate
finance departments.  Mr. Ross formed The Related Companies, Inc. ("Related") in
1972,  to  develop,  manage,  finance and acquire  subsidized  and  conventional
apartment  developments.  To date, Related has developed multi-family properties
totaling  in excess of 25,000  units,  all of which it  manages.  Mr.  Ross also
serves on the Board of Trustees of Charter Municipal Mortgage Acceptance Company
("CharterMac")  which is a public company managed by an affiliate of the General
Partner.

                                       23
<PAGE>

STUART J. BOESKY,  46, is a Vice  President of the General  Partner.  Mr. Boesky
practiced  real estate and tax law in New York City with the law firm of Shipley
&  Rothstein  from 1984  until  February  1986 when he joined  Capital  where he
presently  serves as Managing  Director.  From 1983 to 1984 Mr. Boesky practiced
law with  the  Boston  law firm of Kaye,  Fialkow  Richard  &  Rothstein  (which
subsequently  merged  with  Strook & Strook & Lavan) and from 1978 to 1980 was a
consultant  specializing  in real estate at the  accounting  firm of Laventhol &
Horwath.  Mr. Boesky graduated from Michigan State University with a Bachelor of
Arts degree and from Wayne State  School of Law with a Juris Doctor  degree.  He
then received a Master of Law degree in Taxation from Boston  University  School
of Law.  Mr.  Boesky  also serves on the Board of  Trustees  of  CharterMac  and
American  Mortgage  Acceptance  Company  and the  Board  of  Directors  of Aegis
Reality,  Inc.  ("Aegis"),  each of which  public  companies  is  managed  by an
affiliate of the General Partner.

ALAN P. HIRMES,  48, is a Vice President of the General Partner.  Mr. Hirmes has
been a Certified  Public  Accountant  in New York since  1978.  Prior to joining
Capital in October  1983,  Mr.  Hirmes was  employed by Weiner & Co.,  certified
public  accountants.  Mr.  Hirmes is also a Managing  Director of  Capital.  Mr.
Hirmes  graduated from Hofstra  University  with a Bachelor of Arts degree.  Mr.
Hirmes also serves on the Board of  Directors  of Aegis and Board of Trustees of
CharterMac.

GLENN F. HOPPS, 40, joined Related in December, 1990, and prior to that date was
employed  by Marks  Shron &  Company  and  Weissbarth,  Altman  and  Michaelson,
certified public accountants. Mr. Hopps graduated from New York State University
at Albany with a Bachelor of Science Degree in Accounting.

TERESA  WICELINSKI,  37, joined Related in June 1992, and prior to that date was
employed  by  Friedman,  Alprin  &  Green,  certified  public  accountants.  Ms.
Wicelinski  graduated  from Pace  University  with a Bachelor  of Arts Degree in
Accounting.

There  are  no  family  relationships  between  the  foregoing  director  and/or
executive officers.

                                       24
<PAGE>

Item 11. Executive Compensation.

The  Registrant  has no officers or directors.  The  Registrant  does not pay or
accrue  any fees,  salaries  or other  forms of  compensation  to  directors  or
officers of the General  Partner for their  services.  The  director and certain
officers of the General  Partner receive  compensation  from the General Partner
and its affiliates for services performed for various affiliated  entities which
may include  services  performed for the Registrant.  Such  compensation  may be
based in part on the performance of the Registrant; however, the General Partner
believes  that any  compensation  attributable  to  services  performed  for the
Registrant  is  immaterial.  See also Note  4-Related  Parties,  in Notes to the
Financial Statements, included in Item 8 above.

Item 12. Security Ownership of Certain Beneficial Owners and Management.

As of March 3, 2003, no person was known by the  Registrant to be the beneficial
owner of more than five  percent of the  Limited  Partnership  Interests  and/or
BACs; and neither the General Partner nor any director or officer of the General
Partner owns any Limited Partnership Interests or BACs.

As of March 3, 2003, the director and officers of the General Partner as a group
own, in the aggregate, 95.2% of the common stock of CIP Associates Inc.

Item 13. Certain Relationships and Related Transactions.

The  Registrant  has and will  continue to have certain  relationships  with the
General  Partner  and  its  affiliates,  as  discussed  in  Item  11,  Executive
Compensation.  However, there have been no direct financial transactions between
the Registrant and the director and/or officers of the General Partner. See Note
4-Related  Parties,  in Notes to the  Financial  Statements,  included in Item 8
above.

Item 14. Controls and Procedures

The  Principal   Executive  Officer  and  Principal  Financial  Officer  of  CIP
Associates,  Inc.,  the general  partner of the  Registrant  has  evaluated  the
Registrant's  disclosure  controls and procedures  relating to the  Registrant's
annual report on Form 10-K for the period ending December 31, 2002 as filed with
the  Securities  and  Exchange  Commission  and has  judged  such  controls  and
procedures to be effective as of December 31, 2002 (the "Evaluation Date").

There have been no  significant  changes in the  internal  controls  or in other
factors  that could  significantly  affect  internal  controls  relating  to the
Registrant since the Evaluation Date.

                                       25
<PAGE>

                                     PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

                                                                      Sequential
                                                                         Page
                                                                      ----------
(a) 1.   Financial Statements
         --------------------

         Independent Auditors' Report                                         11

         Statements  of  Financial   Condition
         as of December 31, 2002 and 2001                                     12

         Statements  of  Income  for the years
         ended  December  31,  2002,  2001 and
         2000                                                                 13

         Statements  of Changes  in  Partners'
         Capital   (Deficit)   for  the  years
         ended  December  31,  2002,  2001 and
         2000                                                                 14

         Statements  of  Cash  Flows  for  the
         years ended  December 31, 2002,  2001
         and 2000                                                             15

         Notes to Financial Statements                                        16


(a) 2.   Financial Statement Schedules
         -----------------------------
         All  schedules  have   been   omitted
         because  they  are  not  required  or
         because  the  required information is
         contained in the financial statements
         or notes hereto.

(a) 3.   Exhibits
         -----------

(3A)     The    Registrant's    Amended    and
         Restated    Agreement    of   Limited
         Partnership,      incorporated     by
         reference   to   Exhibit   A  to  the
         Registrant's  Prospectus,  dated  May
         10,  1989 (the  "Prospectus"),  filed
         pursuant  to Rule  424(b)  under  the
         Securities  Act  of  1933,  File  No.
         33-26690.

(3B)     The   Registrant's   Certificate   of
         Limited   Partnership,   as  amended,
         incorporated    by    reference    to
         Exhibits    3B    and   3C   to   the
         Registrant's  Registration  Statement
         on  Form  S-11,  File  No.  33-26690,
         dated   January   24,   1989  and  to
         Exhibit  3D  to  Amendment  No.  1 to
         such  Registration   Statement  dated
         April 28, 1989

(3C)     Amendment  No. 1,  dated July 7, 1989,
         to  the  Registrant's   Amended   and
         Restated    Agreement    of   Limited
         Partnership

(10A)    Mortgage   Note,   dated  August  31,
         1990,   with   respect  to  Mortenson
         Manor  Apartments  in Ames,  Iowa, in
         the  principal  amount of  $4,974,900
         (incorporated    by    reference   to
         Exhibit  10(a)  in  the  Registrant's
         Current  Report  on  Form  8-K  dated
         August 31, 1990)

(10B)    Equity  Loan Note  dated  August  31,
         1990,   with   respect  to  Mortenson
         Manor  Apartments  in Ames,  Iowa, in
         the  principal   amount  of  $577,885
         (incorporated    by    reference   to
         Exhibit  10(b)  in  the  Registrant's
         Current  Report  on  Form  8-K  dated
         August 31, 1990)

                                       26
<PAGE>


Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

                                                                      Sequential
                                                                         Page
                                                                      ----------
(10C)    Subordinated  Promissory  Note, dated
         August  31,  1990   with  respect  to
         Mortenson Manor Partnership   (incor-
         porated by reference to Exhibit 10(c)
         in the Registrant's Current Report on
         Form 8-K dated August 31, 1990)

(10D)    Mortgage  Note,  dated  September 27,
         1990,   with   respect  to  Windemere
         Apartments  in  Wichita,  Kansas,  in
         the  principal  amount of  $8,110,300
         (incorporated    by    reference   to
         Exhibit  10(a)  in  the  Registrant's
         Form 8  Amendment  dated  October 30,
         1990 to  Current  Report  on Form 8-K
         dated September 28, 1990)

(10E)    Equity  Loan  Note,  dated  September
         27,  1990,  with respect to Windemere
         Apartments  in  Wichita,  Kansas,  in
         the  principal   amount  of  $736,500
         (incorporated    by    reference   in
         Exhibit  10(b)  in  the  Registrant's
         Form 8  Amendment  dated  October 30,
         1990 to  Current  Report  on Form 8-K
         dated September 28, 1990)

(10F)    Subordinated  Promissory  Note, dated
         September  27,  1990 with  respect to
         Windemere      Development,      Inc.
         (incorporated    by    reference   to
         Exhibit  10(c)  in  the  Registrant's
         Form 8  Amendment  dated  October 30,
         1990 to  Current  Report  on Form 8-K
         dated September 28, 1990)

(10G)    Mortgage   Note,   dated  August  23,
         1991,   with  respect  to  Fieldcrest
         III  Apartments  in Dothan,  Alabama,
         in   the    principal    amount    of
         $3,450,200      (incorporated      by
         reference  to  Exhibit  10(a)  in the
         Registrant's  Current  Report on Form
         8-K dated August 27, 1991)

(10H)    Equity  Loan Note,  dated  August 27,
         1991,   with  respect  to  Fieldcrest
         III  Apartments  in Dothan,  Alabama,
         in the  principal  amount of $383,300
         (incorporated    by    reference   to
         Exhibit  10(b)  in  the  Registrant's
         Current  Report  on  Form  8-K  dated
         August 27, 1991)

(10I)    Subordinated  Promissory Note,  dated
         August  27,  1991  with   respect  to
         Fieldcrest   III   Apartments (incor-
         porated by reference to Exhibit 10(c)
         in the Registrant's Current Report on
         Form 8-K dated August 27, 1991)

(10J)    Mortgage  Note,  dated March 1, 1993,
         with    respect   to   Holly    Ridge
         Apartments  in  Gresham,  Oregon,  in
         the  principal  amount of  $5,310,000
         (incorporated    by    reference   to
         Exhibit  10(a)  in  the  Registrant's
         Current  Report  on  Form  8-K  dated
         March 16, 1993)

(10K)    Equity  Loan  dated  March 16,  1993,
         with    respect   to   Holly    Ridge
         Apartments  in  Gresham,  Oregon,  in
         the  principal   amount  of  $684,000
         (incorporated    by    reference   to
         Exhibit  10(b)  in  the  Registrant's
         Current  Report  on  Form  8-K  dated
         March 16, 1993)

                                       27
<PAGE>

Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K.

                                                                      Sequential
                                                                         Page
                                                                      ----------
(10L)    Subordinated  Promissory  Note, dated
         March 16, 1993, with respect to Holly
         Ridge  Apartments  in Gresham, Oregon
         (incorporated by reference to Exhibit
         10(c)  in  the  Registrant's  Current
         Report on  Form  8-K  dated March 16,
         1993)

(10M)    Modification Agreement, dated January
         1, 1995,  with  respect  to Mortenson
         Manor   Apartments  in   Ames,   Iowa
         (incorporated by reference to Exhibit
         (10P)  in  the Registrant's Form 10-K
         for  the  fiscal year ended  December
         31, 1995)

(10N)    Guaranty  made  for  the  benefit  of
         the  Registrant,   dated  January  1,
         1995,    with    respect    to    the
         Modification    Agreement   regarding
         Mortenson      Manor       Apartments
         (incorporated    by    reference   to
         Exhibit  (10Q)  in  the  Registrant's
         Form 10-K for the  fiscal  year ended
         December 31, 1995)

99.      Additional Exhibits

(99A)    The Financial Statements of Windemere
         Development,  Inc.,  which  owns  and
         operates  an  apartment complex known
         as  Windemere  at  Tallgrass  located
         in  Wichita, Kansas,  as  required by
         Staff Accounting Bulletin No. 71                                     34

(99B)    The  Financial  statements  of  HR II
         Associates,  which  owns and operates
         an  apartment complex  known as Holly
         Ridge II located in Gresham,  Oregon,
         as  required   by   Staff  Accounting
         Bulletin No 71.                                                      46

(99C)    The Financial  Statements  of  Field-
         crest  Apartments  III,  Ltd.,  which
         owns   and   operates   an  apartment
         complex  known as  Fieldcrest located
         in Dothan, Alabama,  as  required  by
         Staff   Accounting Bulletin No 71.                                   57

(b)      Reports on Form 8-K

         No  reports  on  Form  8-K were filed
         during the last quarter of the period
         covered by this report.

(c)      Exhibits:

         99.1  Certification  Pursuant  to  18
         U.S.C.  Section   1350,   as  adopted
         pursuant  to  Section   906  of   the
         Sarbanes-Oxley Act of 2002.



                                       28
<PAGE>

                                   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.


                           CAPITAL MORTGAGE PLUS L.P.
                                  (Registrant)



                                            By: CIP ASSOCIATES, INC.
                                                General Partner



Date:  March 31, 2003                           By: /s/ Alan P. Hirmes
                                                ----------------------
                                                Alan P. Hirmes
                                                Senior Vice President
                                                (Principal Executive and
                                                Financial Officer)


                                       29
<PAGE>

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed by the following persons on behalf of the registrant
and in the capacities and on the dates indicated:


     Signature                         Title                           Date
------------------    -----------------------------------------   --------------


                      Senior Vice President (principal
                      executive and financial officer)
/s/ Alan P. Hirmes    of CIP Associates, Inc.
------------------    (the  General  Partner of the Registrant)   March 31, 2003
Alan P. Hirmes




                      Treasurer(principal accounting
/s/ Glenn F. Hopps    officer) of CIP Associates, Inc.
------------------    (the  General  Partner of the Registrant)   March 31, 2003
Glenn F. Hopps




/s/ Stephen M. Ross   Director  of CIP  Associates, Inc.
-------------------   (the  General  Partner of the  Registrant)  March 31, 2003
Stephen M. Ross


                                       30
<PAGE>


                                                                    Exhibit 99.1


                            CERTIFICATION PURSUANT TO
                             18.U.S.C. SECTION 1350,
                             AS ADOPTED PURSUANT TO
                  SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002


In  connection  with the  Yearly  Report of  Capital  Mortgage  Plus  L.P.  (the
"Partnership")  on Form 10-K for the period  ending  December  31, 2002 as filed
with the Securities and Exchange  Commission on the date hereof (the  "Report"),
I, Alan P. Hirmes,  Principal  Executive Officer and Principal Financial Officer
of CIP  Associates,  Inc.,  the  general  partner of the  Partnership,  certify,
pursuant to 18 U.S.C.  Section 1350,  as adopted  pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:


     (1) The Report fully  complies  with the  requirements  of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and


     (2)  The  information  contained  in the  Report  fairly  presents,  in all
material  respects,  the  financial  condition  and result of  operations of the
Partnership.



/s/ Alan P. Hirmes
-----------------
Alan P. Hirmes
Principal Executive Officer and Principal Financial Officer
March 31, 2003


                                       31
<PAGE>

                                  CERTIFICATION


I, Alan P. Hirmes,  Principal  Executive Officer and Principal Financial Officer
of CIP Associates, Inc., (the "General Partner"), the general partner of Capital
Mortgage Plus L.P. (the "Partnership"), hereby certify that:

     1.   I have  reviewed  this annual report on Form 10K for the period ending
          December 31, 2002 of the Partnership;

     2.   Based on my knowledge,  this annual report does not contain any untrue
          statement  of a  material  fact  or  omit to  state  a  material  fact
          necessary  in  order  to make  the  statements  made,  in light of the
          circumstances  under  which such  annual  statements  were  made,  not
          misleading with respect to the period covered by this annual report;

     3.   Based on my knowledge,  the financial statements,  and other financial
          information  included in this  annual  report,  fairly  present in all
          material respects the financial  condition,  results of operations and
          cash flows of the Partnership as of, and for, the periods presented in
          this annual report;

     4.   I am responsible for establishing and maintaining  disclosure controls
          and  procedures  (as defined in Exchange Act Rules 13a-14 and 15-d-14)
          for the Partnership and I have:

          a) designed  such  disclosure  controls and  procedures to ensure that
          material  information  relating to the Partnership is made known to me
          by others within the  Partnership,  particularly  during the period in
          which this annual report is being prepared;

          b)  evaluated  the  effectiveness  of  the  Partnership's   disclosure
          controls  and  procedures  as of December  31,  2002 (the  "Evaluation
          Date"); and

          c)  presented  in  this  annual  report  my   conclusions   about  the
          effectiveness  of the disclosure  controls and procedures  based on my
          evaluation as of the Evaluation Date;

     5.   I  have  disclosed,  based  on  my  most  recent  evaluation,  to  the
          Partnership's  auditors  and to the board of  directors of the General
          Partner:

          a) all significant deficiencies in the design or operation of internal
          controls which could  adversely  affect the  Partnership's  ability to
          record,  process,   summarize  and  report  financial  data  and  have
          identified for the Partnership's  auditors any material  weaknesses in
          internal controls; and

          b) any fraud,  whether or not material,  that  involves  management or
          other  employees  who  have a  significant  role in the  Partnership's
          internal controls; and

                                       32
<PAGE>

     6.   I have  indicated  in this  annual  report  whether  or not there were
          significant  changes in  internal  controls or in other  factors  that
          could significantly affect internal controls subsequent to the date of
          my most recent  evaluation,  including  any  corrective  actions  with
          regard to significant deficiencies and material weaknesses.



                          By: /s/ Alan P. Hirmes
                              --------------------------
                              Alan P. Hirmes
                              Principal Executive Officer and
                              Principal Financial Officer
                              March 31, 2003


                                       33
<PAGE>

                           WINDEMERE DEVELOPMENT, INC

                              Financial Statements
                           December 31, 2002 and 2001





                                    Contents
                                    --------

                          Independent Auditors' Report

                              Financial Statements

                                 Balance Sheets

                              Statements of Income

                  Statements of Changes in Stockholders' Equity

                            Statements of Cash Flows

                          Notes to Financial Statements


                                       34
<PAGE>

                          INDEPENDENT AUDITORS' REPORT


Board of Directors
Windemere Development, Inc.
Wichita, Kansas


     We have audited the accompanying  balance sheets of Windemere  Development,
Inc. (a  subchapter S  corporation),  as of December 31, 2002 and 2001,  and the
related  statements of income,  changes in stockholders'  deficit and cash flows
for the years then ended.  These financial  statements are the responsibility of
the Company'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 Windemere Development, Inc.,
as of December 31, 2002 and 2001, and the results of its operations,  changes in
stockholders' deficit and cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States of America.



/s/ Peterson, Peterson & Goss L.C.


March 26, 2003


                                       35
<PAGE>


                           WINDEMERE DEVELOPMENT, INC.
                                 Balance Sheets
                           December 31, 2002 and 2001


                                     Assets
                                     ------

<TABLE>
<CAPTION>
                                                                 2002        2001
                                                             ----------   ----------
<S>                                                          <C>          <C>

Current assets:
  Petty cash                                                 $      100   $      100
  Cash in bank and interest-bearing deposits                      5,945       25,937
  Rent receivable                                                   505        2,290
                                                             ----------   ----------
Total current assets                                              6,550       28,327

Deposits held in trust-funded:
  Tenant security deposits                                       26,845       38,913

Restricted deposits and funded reserves:
  Mortgagee escrow deposits                                      78,441       71,236
  Reserve for replacements                                       98,319       67,960
                                                             ----------   ----------
Total deposits                                                  176,760      139,196

Fixed assets:
  Land and special assessments                                  756,956      756,956
  Buildings and improvements                                  7,808,748    7,808,748
  Furniture and equipment                                       185,866      152,823
                                                             ----------   ----------
                                                              8,751,570    8,718,527
  Less accumulated depreciation                               2,194,997    1,982,803
                                                             ----------   ----------
Total fixed assets                                            6,556,573    6,735,724

Other assets:
  Loan costs, net of amortization of $178,491 and $161,943      482,271      498,790
                                                             ----------   ----------

Total                                                        $7,248,999   $7,440,950
                                                             ==========   ==========

</TABLE>

                       See notes to financial statements
                                       36
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                                 Balance Sheets
                           December 31, 2002 and 2001


                      Liabilities and Stockholders' Equity
                      ------------------------------------
<TABLE>
<CAPTION>
                                                                 2002          2001
                                                             -----------    ----------
<S>                                                          <C>           <C>

Current liabilities:
  Accounts payable, trade                                    $     7,280    $    20,063
  Accrued management fee                                         283,614        210,087
  Accrued interest payable                                       710,661        588,205
  Accrued real estate taxes                                       55,122         56,239
  Accrued mortgage insurance                                      28,699         28,930
  Mortgage payable, current portion                               67,015         61,867
  Rent deferred credits                                               --          2,751
                                                             -----------    -----------
Total current liabilities                                      1,152,391        968,142

Deposit liabilities:
  Tenant security deposits                                        28,940         32,330

Long-term liabilities:
  Mortgage payable                                             7,650,574      7,712,441
  Less current portion                                            67,015         61,867
                                                             -----------    -----------
Total long-term liabilities                                    7,583,559      7,650,574

Stockholders' deficit:
  Common stock, authorized 1,000 shares;issued - 1,000 shares      1,000          1,000
  Additional paid-in capital                                     763,420        763,420
  Retained deficit                                            (2,280,311)    (1,974,516)
                                                             -----------    -----------
Total stockholders' deficit                                   (1,515,891)    (1,210,096)
                                                             -----------    -----------

Total                                                        $ 7,248,999    $ 7,440,950
                                                             ===========    ===========
</TABLE>

                       See notes to financial statements
                                       37
<PAGE>


                           WINDEMERE DEVELOPMENT, INC.
                              Statements of Income
                     Years Ended December 31, 2002 and 2001


<TABLE>
<CAPTION>
                                      2002           2001
                                  -----------    -----------

<S>                               <C>            <C>
Operating income:
  Rental                          $ 1,278,954    $ 1,231,728

Operating expenses:
  Interest                            738,752        814,839
  Mortgage insurance                   57,167         57,647
  Bank charges                            474            389
  Property taxes                      110,245        112,397
  Insurance                            53,782         29,024
  Management fees                      76,679         74,724
  Salaries and wages                   84,436        104,338
  Payroll taxes                        10,360          4,275
  Utilities                            46,727         63,491
  Professional fees                     9,673          9,467
  Repairs and maintenance             130,502         99,280
  Outside services                     12,581             --
  Advertising                          13,661         11,610
  Office supplies and postage           1,836          2,360
  Miscellaneous                         9,410          2,181
  Depreciation and amortization       228,714        228,781
                                  -----------    -----------
Total operating expenses            1,584,999      1,614,803
                                  -----------    -----------

Loss from operations                 (306,045)      (383,075)

Other income (expense):
  Interest and dividends                  395          1,789
  Gain on sale of assets                   --             --
  Unrealized loss on securities          (145)        (7,608)
                                  -----------    -----------
Total other income (expense)              250         (5,819)
                                  -----------    -----------

Net Loss                          $  (305,795)   $  (388,894)
                                  ===========    ===========
</TABLE>

                       See notes to financial statements
                                       38
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
             Statements of Changes in Stockholders' Equity (Deficit)
                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                      Additional
                          Common        Paid-in       Retained
                          Stock         Capital        Deficit         Total
                       -----------    -----------    -----------    ------------

<S>                    <C>            <C>            <C>            <C>
Balance at
January 1,
  2001                 $     1,000    $   749,569    $(1,585,622)   $  (835,053)

Net Loss                                                (388,894)      (388,894)

Contributed
  capital                                  13,851                        13,851
                       -----------    -----------    -----------    -----------

Balance at
  December 31,
  2001                       1,000        763,420     (1,974,516)    (1,210,096)

Net Loss                                                (305,795)      (305,795)
                       -----------    -----------    -----------    -----------

Balance at
  December 31,
  2002                 $     1,000    $   763,420    $(2,280,311)   $(1,515,891)
                       ===========    ===========    ===========    ===========
</TABLE>


                       See notes to financial statements
                                       39
<PAGE>


                           WINDEMERE DEVELOPMENT, INC.
                            Statements of Cash Flows
                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                                          2002           2001
                                                       -----------    -----------
<S>                                                    <C>            <C>
Cash flows from operating activities:
  Rental receipts                                        1,277,986      1,240,081
  Interest and dividend receipts                               395          1,789
                                                       -----------    -----------

                                                         1,278,381      1,241,870

Administrative                                             (48,052)       (33,893)
Management fees                                             (3,152)        (5,516)
Utilities                                                  (46,727)       (63,491)
Salaries and wages                                        (102,808)      (108,613)
Operating and maintenance                                 (142,868)       (80,105)
Real estate taxes and escrow deposits                     (118,566)      (110,545)
Property insurance                                         (45,769)       (29,024)
Tenant security and other deposits                           8,533        (20,080)
Interest on mortgage                                      (616,296)      (658,510)
Mortgage insurance premium                                 (57,398)       (57,860)
                                                       -----------    -----------
                                                        (1,173,103)    (1,167,637)
Net cash provided by operating activities                  105,278         74,233

Cash flows from investing activities:
  Purchase of property and equipment                       (33,044)       (12,832)
  Deposits into reserve for replacement                    (30,359)       (30,889)
                                                       -----------    -----------
Net cash used in investing activities                      (63,403)       (43,721)

Cash flows from financing activities:
  Mortgage principal payments                              (61,867)       (57,114)
  Capital contributed                                           --         13,851
                                                       -----------    -----------
Net cash used in financing activities                      (61,867)       (43,263)
                                                       -----------    -----------

Net increase (decrease) in cash and cash equivalents       (19,992)       (12,751)

Cash and cash equivalents, beginning of year                26,037         38,788
                                                       -----------    -----------

Cash and cash equivalents, end of year                 $     6,045    $    26,037
                                                       ===========    ===========
</TABLE>


                       See notes to financial statements
                                       40
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                            Statements of Cash Flows
                     Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                                             2002         2001
                                                           ---------    ---------

<S>                                                        <C>          <C>
Cash flows from operating activities:
  Net loss                                                 $(305,795)   $(388,894)

Adjustments to reconcile net income to net cash provided
  by operating activities:
  Depreciation and amortization                              228,714      228,781
  Unrealized loss on securities                                  145        7,608
  (Increase) decrease in rent receivable                       1,785       11,875
  (Increase) decrease in cash restricted for tenant
   security deposits                                          11,923      (21,210)
  Increase in mortgagee escrow deposits                       (7,205)      (1,723)
  Increase (decrease) in accounts payable                    (12,783)      11,290
  Increase (decrease) in accrued liabilities                 194,635      228,898
  Increase (decrease) in tenant security deposits             (3,390)       1,130
  Decrease in deferred revenue                                (2,751)      (3,522)
                                                           ---------    ---------

Net cash provided by operating activities                  $ 105,278    $  74,233
                                                           =========    =========
</TABLE>


                       See notes to financial statements
                                       41
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                          Notes to Financial Statements
                           December 31, 2002 and 2001

1.   Summary of Significant Accounting Policies

     Method of Accounting
     --------------------

     The  Company   presents  it's  financial   statements  in  accordance  with
     accounting principles generally accepted in the United States of America.

     History and Business Activity
     -----------------------------

     Windemere  Development,  Inc.  was founded in 1991 to develop and operate a
     206-unit  apartment  complex in  Wichita,  Kansas,  known as  Windemere  at
     Tallgrass.

     The  apartments  are located at 8220 East Oxford  Circle,  Wichita,  Kansas
     67226 and consist of one and two bedroom units.

     Property and Equipment
     ----------------------

     Depreciation  is  computed  by  using  the  straight-line  method  over the
     following estimated useful lives:

                           Buildings - 40 years
                           Landscape improvements - 20 years
                           Furniture and equipment - 10 years

     Expenditures for maintenance and repairs are charged to income as incurred.
     Expenditures  materially extending the useful lives of assets or increasing
     their productivity are capitalized.

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

     An income tax provision  has not been included in the financial  statements
     since the  shareholder  reports  the  income or loss of the  Company on his
     respective income tax return.

     Cash and Cash Equivalents
     -------------------------

     The  Company   considers  all  highly  liquid   investments  with  original
     maturities of three months or less to be cash equivalents.

                                       42
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                          Notes to Financial Statements
                           December 31, 2002 and 2001

1.   Summary of Significant Accounting Policies (continued)

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

     The  preparation  of financial  statements  in  conformity  with  generally
     accepted  accounting  principles  requires management to make estimates and
     assumptions   that  affect  certain   reported   amounts  and  disclosures.
     Accordingly, actual results could differ from those estimates.

     Advertising
     -----------

     The  Company  follows the policy of charging  the costs of  advertising  to
     expense as  incurred.  Advertising  expense was $13,661 and $11,610 for the
     years ended December 31, 2002 and 2001, respectively.

2.   Restricted Deposits and Funded Reserves

     The Company has deposited with the lender the following amounts:

<TABLE>
<CAPTION>

                                                            2002          2001
                                                           -------       -------
        <S>                                                <C>           <C>
        Mortgagee escrow deposits
        -------------------------
        Mortgage and Property Insurance,
        Real estate taxes and special assessments          $78,441       $71,236
                                                           =======       =======
</TABLE>


     An evaluation of the adequacy of certain escrows is as follows:

     Estimated  amount  required  as of  December  31,  2002 and 2001 for future
     payment of:

<TABLE>
<CAPTION>

                                                            2002          2001
                                                           -------       -------
        <S>                                                <C>           <C>
        Property insurance                                 $18,775       $16,875
        Mortgage insurance                                  38,265        38,574
                                                           -------       -------
                                                            57,040        55,449
        Total confirmed by mortgagee                        78,441        71,236
                                                           -------       -------
        Amount on deposit in excess of
          estimated requirements                           $21,401       $15,787
                                                           =======       =======
</TABLE>

3.   Tenant Security Deposits and Funded Reserves

     Tenant security  deposits are held in a separate account in the name of the
     project.  The total held in the  account is $2,096  more than the  deposits
     held for tenants.  The account  consists of interest bearing deposits and a
     mutual fund that has been adjusted to market value at December 31, 2002.

                                       43
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                          Notes to Financial Statements
                           December 31, 2002 and 2001

4.   Reserve for Replacements

     In accordance  with the provisions of the Regulatory  Agreement  restricted
     cash is held by the mortgagee to be used for  replacement  of property with
     the approval of HUD as follows:

<TABLE>
<CAPTION>

                                                          2002             2001
                                                         -------         -------

<S>                                                      <C>             <C>
        Balance at beginning of year                     $67,960         $37,071
        Monthly deposits                                  30,031          30,031
        Withdrawal                                          --              --
                                                         -------         -------
                                                          97,991          67,102
        Interest earned                                      328             858
                                                         -------         -------
        Balance confirmed by mortgagee                   $98,319         $67,960
                                                         =======         =======
</TABLE>

5. Long-Term Liabilities

     Long-term  debt at December 31, 2002 and 2001  consisted  of the  following
     obligations:

<TABLE>
<CAPTION>

                                                                 2002         2001
                                                              ----------   ----------
     <S>                                                      <C>          <C>
     Mortgage  loan  payable in  monthly installments of
     $56,514 including interest at 8.02% and  principal.
     The  loan  is due May 1, 2032 and is  secured  by a
     first  mortgage  on the  land  and  buildings.  The
     debt  also  includes  a  subordinated    promissory
     note which provides that additional interest  shall
     be  payable  semiannually  in an amount  that  will
     provide  a  maximum cumulative yield (uncompounded)
     of  10.70%  on the principal amount of the mortgage
     loan outstanding.  The amounts for the years ending
     December  31,  2002  and  2001  were  $122,869  and
     $125,542  respectively  (at 1.60%) and are included
     in accrued interest payable.

     The  subordinated  promissory note is secured  by a
     second mortgage on the land and buildings.               $7,650,574   $7,712,441

     Less current portion                                         67,015       61,867
                                                              ----------   ----------
                                                              $7,583,559   $7,650,574
                                                              ==========   ==========
</TABLE>

                                       44
<PAGE>

                           WINDEMERE DEVELOPMENT, INC.
                          Notes to Financial Statements
                           December 31, 2002 and 2001

5. Long-Term Liabilities (continued)

     Maturities of debt are as follows:

<TABLE>
<CAPTION>
                                                         2002         2001
                                                      ----------   ----------
         <S>                                          <C>          <C>
         2002                                         $       --   $   61,867
         2003                                             67,015       67,015
         2004                                             72,592       72,592
         2005                                             78,633       78,633
         2006                                             85,176       85,176
         2007                                             92,264       92,264
         Later years                                   7,254,894    7,254,894
                                                      ----------   ----------
                                                      $7,650,574   $7,712,441
                                                      ==========   ==========
</TABLE>


6.   Accrued Real Estate Taxes

     Accrued real estate taxes at December 31, 2002 consist of the following:

     Description     Basis for          Period                          Amount
       of Tax         Accrual          Covered         Due Date         Accrued
     -----------    ------------     ------------    -------------      --------
     Real estate    Second-half      January 1 to    June 20, 2003       $55,122
     taxes and      due for 2002     December 31
     special
     assessments

7.   Related Party Transactions

     Gaddis  Properties,  Inc., a related entity  controlled by Jerry A. Gaddis,
     manages the  Apartments.  Under the terms of the management  agreement with
     Gaddis Properties, Inc., a management fee not in excess of 6% of cash basis
     rental  revenue,  is payable  monthly for  management  services.  The total
     management fees earned in 2002 were $76,679.

     The following summarizes other related party transactions for 2002:

<TABLE>
<CAPTION>

     Related Party               Classification                Amount
     -------------             ------------------           -----------

     <S>                       <C>                          <C>
     Carolyn Gaddis            Salaries and wages                13,115
     Doug Gaddis               Salaries and wages                 2,500
                                                            -----------
        Total                                               $    15,615
                                                            ===========

</TABLE>

8.   Operations

     The project has incurred increasing accrual basis operating losses over the
     last two years.  Management has maintained  positive cash flow by deferring
     payment of  management  fees and reducing  salaries.  Occupancy  rates have
     increased  slightly during the year.  Management has also been  researching
     lower rate financing for the project.  The accrued  management  fees in the
     amount of  $283,614  are not  expected to require  payment  during the next
     year.  Based  on  terms  in the loan  agreement,  $659,529  of the  accrued
     interest  payable  will not require  payment  until the  project  generates
     excess cash flow.

                                       45
<PAGE>










                                 HRII ASSOCIATES

                   Financial Statements and Supplemental Data

                           December 31, 2002 and 2001























                                       46
<PAGE>

[Hansen, Bradshaw, Malmrose & Erickson Letterhead]

To the Owners of
HRII Associates


We  have  audited  the  accompanying  balance  sheets  of HRII  Associates  (the
Partnership)  as of December 31, 2002 and 2001,  and the related  statements  of
operations,  changes  in  partners'  deficit,  and cash flows for the years then
ended.  These financial  statements are the  responsibility of the Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America and the standards  applicable to financial audit
contained in 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 HRII Associates as of December
31,  2002 and 2001,  and the  results of its  operations,  changes in  partners'
deficit,  and cash flows for the years then ended in conformity  with accounting
principles generally accepted in the United States of America.

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 February 17, 2003, on our
consideration of the Project's internal controls, and reports dated February 17,
2003,  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 accompanying supplementary
information on pages 18 to 31 is presented for purposes of additional analysis
and is 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 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/ Hansen, Bradshaw, Malmrose & Erickson

February 17, 2003

                                       47
<PAGE>

                                 HRII ASSOCIATES

                                 Balance Sheets

                           December 31, 2002 and 2001


<TABLE>
<CAPTION>

                                                       2002             2001
                                                   -----------       -----------
<S>                                                <C>               <C>
Assets
------

Cash and cash equivalents                          $   145,926       $   200,452
Tenant accounts receivable, net of allowance for
   doubtful accounts of $13,356 in 2002 and 2001         6,313            15,780
Prepaid expenses                                        83,171            78,372
Restricted deposits (note 3)                           246,493           218,247
Land, buildings and equipment (notes 1,4)            3,789,815         3,903,105
Loan costs, net of accumulated amortization
   of $61,382 (note 1)                                 220,559           227,608
                                                   -----------       -----------

Total assets                                       $ 4,492,277       $ 4,643,564
                                                   ===========       ===========

Liabilities and Partners' Deficit
---------------------------------

Accounts payable                                   $     5,267       $     3,283
Accrued liabilities                                    101,645           131,687
Related party payable                                    8,133             8,133
Mortgage note payable (note 5)                       5,107,627         5,139,848
Note payable (note 5)                                   71,012            80,835
Tenant security deposits (note 1)                       26,452            31,973
Prepaid revenue (note 1)                                 1,360             3,236
Equity loan (note 6)                                   684,400           684,400
                                                   -----------       -----------

Total liabilities                                    6,005,896         6,083,395

Partners' deficit                                   (1,513,619)       (1,439,831)
                                                   -----------       -----------

Total liabilities and partners' deficit            $ 4,492,277       $ 4,643,564
                                                   ===========       ===========

</TABLE>


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

                                       48
<PAGE>

                                 HRII ASSOCIATES

                 Statements of Operations and Partners' Deficit

                 For the Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                            2002           2001
                                         -----------    -----------
<S>                                      <C>            <C>

Revenues:
Rent                                     $ 1,091,395    $ 1,110,419
Other                                         50,987         47,177
                                         -----------    -----------

                                           1,142,382      1,157,596
                                         -----------    -----------
Operating expenses:
Administrative                               226,879        199,575
Utilities                                     99,362         94,311
Operating and maintenance                    118,821        158,901
Taxes and insurance                          143,716        138,831
Depreciation and amortization (note 1)       145,704        143,386
                                         -----------    -----------

                                             734,482        735,004
                                         -----------    -----------

   Income from operations                    407,900        422,592
                                         -----------    -----------

Other income (expense):
Interest income                                3,556          6,497
Interest expense                            (442,960)      (517,851)
                                         -----------    -----------

   Total other expense                      (439,404)      (511,354)
                                         -----------    -----------

   Net loss                                  (31,504)       (88,762)

Partners' deficit beginning of year       (1,439,831)    (1,348,951)

Distributions to partners                    (42,284)        (2,118)
                                         -----------    -----------

Partners' deficit end of year            $(1,513,619)   $(1,439,831)
                                         ===========    ===========

</TABLE>

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


                                       49
<PAGE>

                                 HRII ASSOCIATES

                            Statements of Cash Flows

                 For the Years Ended December 31, 2002 and 2001

<TABLE>
<CAPTION>

                                                             2002          2001
                                                         -----------    -----------
<S>                                                      <C>            <C>

Cash flows from operating activities:
Rental receipts                                          $ 1,098,986    $ 1,101,287
Interest receipts                                              3,556          6,497
Other receipts                                                50,987         47,177
                                                         -----------    -----------
                                                           1,153,529      1,154,961

Administrative                                              (133,577)      (103,287)
Management fees                                              (44,443)       (46,682)
Utilities                                                    (99,362)       (94,311)
Salaries and wages                                           (96,048)       (93,198)
Operating and maintenance                                    (73,901)      (111,528)
Real estate taxes and escrow deposits                       (107,048)      (102,729)
Property insurance                                           (11,204)       (10,285)
Mortgage insurance premium                                   (25,465)       (25,817)
Interest on mortgage                                        (453,203)      (507,856)
Tenant security deposits                                      (3,159)        (2,648)
Interest expense - other loans                               (20,344)       (92,020)
                                                         -----------    -----------

   Net cash provided (used) by operating activities           85,775        (35,400)
                                                         -----------    -----------

Cash flows from investing activities:
Reduction in (deposits to) mortgage escrow                    (9,192)         6,742
Deposits to replacement reserve                              (21,416)       (22,865)
Purchase of property and equipment                           (25,365)            --
Reduction in operating reserve                                    --         82,362
                                                         -----------    -----------
   Net cash provided by (used in) investing activities       (55,973)        66,239
                                                         -----------    -----------

Cash flows from financing activities:
Principal payments on long-term debt                         (32,221)       (29,864)
Distributions to partners                                    (42,284)        (2,118)
Increase (decrease) in note payable                           (9,823)        (9,258)
                                                         -----------    -----------

   Net cash used in financing activities                     (84,328)       (41,240)
                                                         -----------    -----------

   Net increase (decrease) in cash                           (54,526)       (10,401)

Cash and cash equivalents, beginning of year                 200,452        210,853
                                                         -----------    -----------

Cash and cash equivalents, end of year                   $   145,926    $   200,452
                                                         ===========    ===========
</TABLE>

                                       50
<PAGE>

                                 HRII ASSOCIATES

                      Statements of Cash Flows (Continued)

                 For the Years Ended December 31, 2002 and 2001


<TABLE>
<CAPTION>

                                                            2002         2001
                                                         ---------    ----------
<S>                                                      <C>            <C>

Cash flows from operating activities:
Net loss                                                 $ (31,504)   $ (88,762)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization                              145,704      143,386
Decrease (increase) in tenant accounts receivable, net       9,467       (7,443)
Increase in miscellaneous prepaid expenses                  (4,799)      (2,379)
Decrease (increase) in restricted security deposits          2,362          (22)
Increase (decrease) in accounts payable                      1,984         (697)
Decrease in accrued liabilities                            (30,042)     (82,297)
Increase in related party payable                               --        7,129
Decrease in tenant security deposits liability              (5,521)      (2,626)
Decrease in prepaid revenue                                 (1,876)      (1,689)
                                                         ---------    ---------

   Net cash provided (used) by operating activities      $  85,775    $ (35,400)
                                                         =========    =========

</TABLE>

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

                                       51
<PAGE>

                                 HRII ASSOCIATES

                        Notes to the Financial Statements

                           December 31, 2002 and 2001


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------

     Business Organization
     ---------------------
          HRII  Associates (HUD Project No.  126-35216)  (the  Partnership) is a
     Utah Limited Partnership, which was organized in 1989. The Project consists
     of 144 units in  apartment  buildings  in Gresham,  Oregon.  The  apartment
     complex is financed with a loan which is insured by the U.S.  Department of
     Housing  and  Urban  Development  (HUD),  under  Section  221(d)(4)  of the
     National  Housing  Act  (HUD  Project  No.  126-35216).  The  Partnership's
     operating  methods  are  regulated  by HUD under the terms of a  regulatory
     agreement.

     Use of Estimates in the Preparation of Financial Statements
     -----------------------------------------------------------

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

     Concentration of Credit Risk
     ----------------------------

          Financial  instruments  which  potentially  subject the Partnership to
     concentration of credit risk consist  primarily of tenant rents receivable.
     The  Partnership  maintains  allowances  for possible  losses  which,  when
     realized, have been within range of management's expectations.

          The Partnership  maintains its cash in bank deposit accounts which, at
     times,  may  exceed  federally  insured  limits.  The  Partnership  has not
     experienced  any losses in such  accounts and believes it is not exposed to
     any significant credit risk on cash and cash equivalents.

     Cash and Cash Equivalents
     -------------------------

          For  purposes  of  the  statements  of  cash  flows,  the  Partnership
     considers all highly liquid debt instruments  with an original  maturity of
     three month\ or less to be cash equivalents.


                                       52
<PAGE>


                                 HRII ASSOCIATES

                        Notes to the Financial Statements

                           December 31, 2002 and 2001


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     -----------------------------------------------------

     Land, Buildings and Equipment
     -----------------------------

          Land, buildings and equipment are recorded at cost and are depreciated
     using the  straight-line  method over estimated useful lives ranging from 5
     to 40 years.  Major additions and improvements are capitalized  while minor
     replacements,  maintenance  and repairs  which do not  increase  the useful
     lives of the property are expensed as incurred.

     Loan Costs
     ----------

          Costs  incurred by the  Partnership  in connection  with obtaining the
     construction  loan and long-term  financing have been  capitalized  and are
     amortized using the  straight-line  method over the term of the HUD insured
     mortgage.

     Revenue Recognition
     -------------------

          Prepaid  rents are accrued as a liability by the  Partnership  and the
     associated revenue is recognized as it is earned.  Tenant security deposits
     are recognized as income when forfeited.

     Cost Allocation
     ---------------

          On  March 1,  1993,  the  Partnership  entered  into a cross  easement
     agreement with Holly Ridge Associates, an entity that owns Phase I of Holly
     Ridge.  Holly Ridge Phase I is located on property adjacent to the Phase II
     property.  The two  phases  share  common  amenities  such as the  exercise
     facilities, sauna, tanning beds, swimming pools, tennis courts, maintenance
     building,  etc. In addition,  the same  management  company  (The  Stoddard
     Group,  L.L.C.)  manages both  projects.  Under the terms of the agreement,
     joint costs of the two phases are allocated based on the number of units in
     each phase.

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

          The  Partnership  paid a management  fee equal to 4% of defined  gross
     revenues.

                                       53
<PAGE>


                                 HRII ASSOCIATES

                        Notes to the Financial Statements

                           December 31, 2002 and 2001

1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
     ------------------------------------------------------

     Income Taxes
     ------------
          Under tax law provisions, the Partnership does not pay income taxes on
     its income.  Instead, the income or loss of the Partnership is allocated to
     the partners, and the partners are responsible for any income taxes related
     to their share of allocated income.

     Financial Instruments
     ---------------------

          None of the Partnership's  financial  instruments are held for trading
     purposes.  The  Partnership  estimates that the fair value of all financial
     instruments at December 31, 2002 and 2001, does not differ  materially from
     the aggregate carrying values of its financial  instruments recorded in the
     accompanying  balance  sheet.  The  estimated  fair value amounts have been
     determined  by the  Partnership  using  available  market  information  and
     appropriate valuation  methodologies.  Considerable judgment is required in
     interpreting  market data to develop  the  estimates  of fair  value,  and,
     accordingly,  the estimates are not  necessarily  indicative of the amounts
     that the Partnership could realize in a current market exchange.

2.   RELATED PARTY TRANSACTIONS
     --------------------------

          A general  partner of HRII  Associates  also owns The Stoddard  Group,
     L.L.C.  (Stoddard).  Stoddard provides services for the Partnership,  which
     include accounting  services and management  functions.  The management fee
     expensed  to  Stoddard  for the year ended  December  31,  2002 was $44,443
     ($46,682 in 2001).  In  addition,  $121,153 was paid to Stoddard in 2002 to
     reimburse  costs of  payroll,  payroll  taxes  and  workman's  compensation
     insurance  for their  employees  who provide  on-site  labor to the Project
     ($120,273 in 2001).

          Accrued workman's compensation and payroll taxes of $5,514 at December
     31, 2002 represents a payable to Stoddard ($4,970 in 2001).

3.   RESTRICTED DEPOSITS
     -------------------

          Restricted deposits consist of the following at December 31, 2002:
<TABLE>
<CAPTION>

              <S>                                                     <C>
              Property tax and insurance escrow                       $   32,534
              Replacement reserve escrow                                 181,532
              Tenant security deposits                                    32,427
                                                                      ----------

                                                                      $  246,493
                                                                      ==========
</TABLE>


                                       54
<PAGE>


                                 HRII ASSOCIATES

                        Notes to the Financial Statements

                           December 31, 2002 and 2001

4.   LAND, BUILDING AND EQUIPMENT
     ----------------------------
          Land, buildings and equipment consist of the following:

<TABLE>
<CAPTION>
                                                           2002          2001
                                                       ------------  -----------
          <S>                                          <C>           <C>

          Land and land improvements                   $    242,044  $    242,044
          Buildings                                       4,643,591     4,627,115
          Furniture for tenant use                          303,447       295,312
          Office furniture and equipment                      5,981         5,226
                                                       ------------  ------------
          Less: accumulated depreciation                 (1,405,248)   (1,266,592)
                                                       ------------  ------------

                                                       $  3,789,815   $ 3,903,105
                                                       ============  ============
</TABLE>

5.   MORTGAGE PAYABLE AND NOTE PAYABLE
     ---------------------------------

          The HUD insured mortgage note is payable to a financial institution in
     monthly  installments of $37,921  including  interest at 8.25%. The loan is
     secured by the apartment complex and matures on August 1, 2034.

          The Partnership has a note payable to a corporation due in semi-annual
     installments  of $7,130,  including  interest  at 6%.  The loan  matures on
     September 1, 2005.  The loan balance at December 31, 2002 includes  accrued
     interest of $1,385 ($1,576 in 2001).

          Future maturities over the next five years are as follows:

<TABLE>
<CAPTION>

          Year Ending December 31
          -----------------------
               <S>                                                   <C>

               2003                                                  $    45,646
               2004                                                       49,260
               2005                                                       91,055
               2006                                                       45,075
               2007                                                       48,938
               Thereafter                                              4,898,665
                                                                     -----------
                                                                     $ 5,178,639
                                                                     ===========
</TABLE>

                                       55
<PAGE>



                                 HRII ASSOCIATES

                        Notes to the Financial Statements

                           December 31, 2002 and 2001

6.   EQUITY LOAN
     -----------

          The  Partnership  also  has an  equity  loan  payable  to a  financial
     institution payable upon maturity of the HUD insured mortgage in the amount
     of $684,400. This is a non-interest equity loan. The Partnership also has a
     Subordinated  Promissory Note payable to a financial institution related to
     both the mortgage loan and the equity loan.  This note requires  additional
     interest payments based on the outstanding  balance of the mortgage note to
     assure an annual  yield of 9.89%.  The  total  amount of  interest  payable
     related to this loan at December 31, 2002 was $61,015 ($91,380 in 2001).

7.   COMMITMENT AND CONTINGENCY
     --------------------------

          The Partnership entered into an agreement in March 1993 with an entity
     which provided funds for certain costs in connection with the  construction
     of the  Project.  Under  the terms of the  agreement,  HRII  Associates  is
     obligated  to pay  additional  interest  amounts  to this  entity  from the
     proceeds of events such as sale or refinancing of the Project.

8.   ALLOWABLE DISTRIBUTIONS TO PARTNERS
     -----------------------------------

          Under the HUD  regulatory  agreement for Section  221(d)(4)  projects,
     distributions  to partners  from funds  provided by rental  operations  are
     allowed,  provided:  1) surplus  cash,  as defined by HUD, is available for
     such purposes, 2) the project is in compliance with all outstanding notices
     of requirements for proper maintenance and 3) there is no default under the
     regulatory  agreement  or under  the  mortgage  note.  For the  year  ended
     December 31, 2002, surplus cash was $54,066 ($88,811 in 2001).

                                       56
<PAGE>





                         FIELDCREST APARTMENTS III, LTD.
                          HUD PROJECT NUMBER 062-35425


                              FINANCIAL STATEMENTS
                              AND SUPPLEMENTAL DATA

                                DECEMBER 31, 2002



















                            KENMORE AND COMPANY, P.C.
                          Certified Public Accountants
                               Montgomery, Alabama











                                       57
<PAGE>

                         FIELDCREST APARTMENTS III, LTD.


                                TABLE OF CONTENTS
<TABLE>
<CAPTION>


<S>                                                                                                       <C>
Independent Auditor's Report                                                                              3

Financial Statements:
                  Balance Sheet                                                                           4

                  Statement of Profit and Loss (Hud Form No. 92410)                                       6

                  Statement of Changes in Partners' Deficit                                               8

                  Statement of Cash Flows                                                                 9

                  Notes to Financial Statements                                                          11

Supplemental Information:
                  Supplemental Data Required by HUD                                                      15

Independent Auditor's Report on Internal Control                                                         18

Independent Auditor's Report on Compliance with Specific Requirements Applicable to Major HUD Programs   20

Independent Auditor's Report on Compliance with Specific Requirements Applicable to Affirmative Fair
   Housing and  Non-Discrimination                                                                       21

Schedule of Findings and Questioned Costs                                                                22

Auditor's Comments on Audit Resolution Matters Related to the HUD Programs                               23

Certification of Partners                                                                                24

Management Agent's Certification                                                                         25
</TABLE>


                                       58
<PAGE>


                          INDEPENDENT AUDITOR'S REPORT


To The Partners of
Fieldcrest Apartments III, LTD.

We have audited the  accompanying  balance sheet of Fieldcrest  Apartments  III,
LTD.,  HUD  Project No.  062-35425,  as of December  31,  2002,  and the related
statements of income,  changes in partners' deficit, and cash flows for the year
then ended.  These financial  statements are the responsibility of the Project's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States of America 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 Fieldcrest Apartments III, LTD.
as of December 31, 2002, and the results of its operations, changes in partners'
deficit,  and cash flows for the year then ended in conformity  with  accounting
principles generally accepted in the United States of America.

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  March 8, 2003,  on our
consideration of Fieldcrest Apartments III, LTD.'s internal control, and reports
dated March 8, 2003, on its compliance with specific requirements  applicable to
major HUD  programs  and specific  requirements  applicable  to Fair Housing and
Non-Discrimination.  Those reports are an integral part of an audit performed in
accordance with Government  Auditing Standards and should be read in conjunction
with this report in considering the results of our audit.

Our audits  were  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 25 is presented for purposes of additional  analysis
and is not a  required  part of the basic  financial  statements  of  Fieldcrest
Apartments  III,  LTD..  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/ Kenmore & Company, P.C.

KENMORE & COMPANY, P.C.
Montgomery, Alabama
March 8, 2003



                                       59
<PAGE>

                         FIELDCREST APARTMENTS III, LTD.

                          HUD Project Number 062-35425
                                  BALANCE SHEET
                                December 31, 2002

                                     ASSETS
<TABLE>
<CAPTION>


<S>                                                              <C>
Current Assets:
        1120 Cash - Operations                                   $       904
        1130 Tenant Accounts Receivable                                4,071
        1200 Miscellaneous Prepaid Expenses                           32,735
                                                                 -----------
             Total Current Assets                                     37,710

Deposits Held in Trust:
        1191 Tenant Security Deposits                                 24,380

Restricted Deposits and Funded Reserves:
        1310 Mortgage Escrow Deposits                                 34,144
        1320 Reserve for Replacements                                 59,589
                                                                 -----------

             Total Restricted Deposits and Funded Reserves            93,733

Property and Equipment (at Cost):
        1410 Land                                                    151,750
        1420 Buildings                                             3,273,721
        1440 Building Equipment (Portable)                           127,476
                                                                 -----------

             Total Fixed Assets                                    3,552,947

        1495 Less Accumulated Depreciation                        (1,429,804)
                                                                 -----------

                   Net Property and Equipment                      2,123,143

Other Assets (at Cost):
        1520 Intangible Assets                                       141,068

             Total Assets                                        $ 2,420,034
                                                                 ===========
</TABLE>


                                       60
<PAGE>



                         FIELDCREST APARTMENTS III, LTD.

                          HUD Project Number 062-35425
                            BALANCE SHEET - CONTINUED
                                December 31, 2002


                        LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>

<S>                                                              <C>
Current Liabilities:
        2110 Accounts Payable - Operations                       $    30,144
        2123 Accrued Management Fee                                    7,800
        2131 Accrued Interest Payable - First Mortgage                69,606
        2150 Accrued Property Taxes                                    4,881
        2173 Loan-Related Company                                     28,000
        2170 Mortgage Payable - Current Portion                       23,829
                                                                 -----------

             Total Current Liabilities                               164,260

Deposits and Prepayment Liabilities:
        2191 Tenant Security Deposits                                 24,080

Long-Term Liabilities:
        2310 Note Payable - Equity Loan                              383,300
        2320 Mortgage Payable, Net of Current Maturities           3,163,777
                                                                 -----------

             Total Long-Term Liabilities                           3,547,077
                                                                 -----------

             Total Liabilities                                     3,735,417

        3130 Partners' Deficit                                    (1,315,383)
                                                                 -----------

             Total Liabilities and Partners' Deficit             $ 2,420,034
                                                                 ===========
</TABLE>


                        See notes to financial statements


                                       61
<PAGE>
<TABLE>
<CAPTION>

Statement of                                           U.S.  Department of Housing
Profit and Loss                                        and Urban  Development
                                                       Office of Housing                   OMB Approval No. 2502-
                                                       Federal Housing  Commissioner       0052 (Exp. 1/31/95)
-----------------------------------------------------------------------------------------------------------------
Public  Reporting  Burden for this  collection  of  information  is  estimated to average 1.0 hours per response,
including the time for reviewing  instructions, searching existing data  sources,  gathering and maintaining the
data needed, and completing  and  reviewing  the  collection  information.  Send comments  regarding  this burden
estimate or any other  aspect  of  this  collection  of  information, including  suggestions  for  reducing  this
burden,  to the Reports  Management Officer,  Office of infor.  Policies and Systems, U.S. Department of  Housing
and Urban Development,  Washington,  D.C. 20410-3600  and  to  the Office  of  Management  and  Budget, Paperwork
Reduction Project (2502-0052),  Washington, D.C. 20503. Do not send this completed to either of these addresses.
-----------------------------------------------------------------------------------------------------------------
For Month/Period                                       Project Number            Project Name
Beginning:                     Ending:

    January 1, 2002            December 31, 2002       062-35425                 Fieldcrest Apartments III, LTD.
-----------------------------------------------------------------------------------------------------------------
Part 1             Description of Account                            Acct. No.      Amount *
-----------------------------------------------------------------------------------------------------------------
                   <S>                                     <C>         <C>         <C>
                   Rent Revenue-Gross Potential                        5120        $  729,940
                   ----------------------------------------------------------------------------------------------
                   Tenant Assistance Payments                          5121
                   ----------------------------------------------------------------------------------------------
 Rental            Stores and Commercial                               5140
 Income            ----------------------------------------------------------------------------------------------
                   Garage and Parking Spaces                           5170
                   ----------------------------------------------------------------------------------------------
     5100          Flexible Subsidy Income                             5180
                   ----------------------------------------------------------------------------------------------
                   Miscellaneous (specify)                             5190
                   ----------------------------------------------------------------------------------------------
                   Excess Rent                                         5191
                   ----------------------------------------------------------------------------------------------
                   Rent Revenue/Insurance                              5192
                   ----------------------------------------------------------------------------------------------
                   Special Claims Revenue                              5193
                   ----------------------------------------------------------------------------------------------
                   Retained Excess Income                              5194
                   ----------------------------------------------------------------------------------------------
                   Total Rent Revenue Potential at 100%
                      Occupancy                                        5100T                      $       729,940
-----------------------------------------------------------------------------------------------------------------
                   Apartments                                          5220        $ (148,701)
                   ----------------------------------------------------------------------------------------------
Vacancies          Stores and Commercial                               5240
                   ----------------------------------------------------------------------------------------------
     5200          Rental Concessions                                  5250
                   ----------------------------------------------------------------------------------------------
                   Garage and Parking Spaces                           5270
                   ----------------------------------------------------------------------------------------------
                   Miscellaneous (specify)                             5290
                   ----------------------------------------------------------------------------------------------
                   Total Vacancies                                     5200T                      $      (148,701)
                   ----------------------------------------------------------------------------------------------
                   Net Rental Revenue Rent Revenue Less
                      Vacancies                                        5152N                      $       581,239
-----------------------------------------------------------------------------------------------------------------
                   Elderly and Congregate Services
                     Income - 5300 Total Service Income
                     (Schedule Attached)                               5300                       $
-----------------------------------------------------------------------------------------------------------------
                   Interest Income-Project Operations                  5410        $       75
                   ----------------------------------------------------------------------------------------------
Financial          Income from Investments-Residual
Revenue               Receipts                                         5430
                   ----------------------------------------------------------------------------------------------
                   Income from Investments-Reserve
                      for Replacement                                  5440               233
                   ----------------------------------------------------------------------------------------------
     5400          Income from Investments-Miscellaneous               5490
                   ----------------------------------------------------------------------------------------------
                   Total Financial Revenue                             5400T                      $           308
-----------------------------------------------------------------------------------------------------------------
                   Laundry and Vending                                 5910        $
                   ----------------------------------------------------------------------------------------------
Other              Tenant Charges                                      5920            20,222
Revenue            ----------------------------------------------------------------------------------------------
                   Other Revenue (specify)                             5990               670
                   ----------------------------------------------------------------------------------------------
     5900          Total Other Revenue                                 5900T                      $        20,892
                   ----------------------------------------------------------------------------------------------
                   Total Revenue                                       5000T                      $       602,439
-----------------------------------------------------------------------------------------------------------------
                   Conventions & Meetings                              6203        $
                   ----------------------------------------------------------------------------------------------
                   Management Consultants                              6204
                   ----------------------------------------------------------------------------------------------
                   Advertising & Marketing                             6210            12,859
                   ----------------------------------------------------------------------------------------------
                   Other Renting Expense                               6250               643
                   ----------------------------------------------------------------------------------------------
                   Office Salaries                                     6310            19,471
                   ----------------------------------------------------------------------------------------------
                   Office Expenses                                     6311             8,421
                   ----------------------------------------------------------------------------------------------
                   Office or Model Apartment Rent                      6312
                   ----------------------------------------------------------------------------------------------
Adminis-           Management Fee                                      6320            29,367
 trative           ----------------------------------------------------------------------------------------------
Expenses           Manager or Superintendent Salaries                  6330            22,762
                   ----------------------------------------------------------------------------------------------
6200/6300          Administrative Rent Free Unit                       6331            10,795
                   ----------------------------------------------------------------------------------------------
                   Legal Expenses (Project)                            6340             1,512
                   ----------------------------------------------------------------------------------------------
                   Auditing Expenses (Project)                         6350             3,400
                   ----------------------------------------------------------------------------------------------
                   Bookkeeping Fees/Accounting Services                6351
                   ----------------------------------------------------------------------------------------------
                   Bad Debts                                           6370             8,234
                   ----------------------------------------------------------------------------------------------
                   Miscellaneous Administrative Expenses
                      (specify)                                        6390             3,243
                   ----------------------------------------------------------------------------------------------
                   Total Administrative Expenses                       6263T                      $       120,707
-----------------------------------------------------------------------------------------------------------------
                   Fuel Oil/Coal                                       6420        $
                   ----------------------------------------------------------------------------------------------
Utilities          Electricity (Light and Misc. Power)                 6450            14,030
Expenses           ----------------------------------------------------------------------------------------------
                   Water                                               6451            15,181
                   ----------------------------------------------------------------------------------------------
     6400          Gas                                                 6452
                   ----------------------------------------------------------------------------------------------
                   Sewer                                               6453
                   ----------------------------------------------------------------------------------------------
                   Total Utilities Expense                             6400T                      $        29,211
-----------------------------------------------------------------------------------------------------------------
* All amounts  must be rounded to                  Page 1 of 2                               form HUD-92410 (7/91)
the nearest dollar; $.50 and                                                                 Ref. HB 4370.2
over, round up - $.49 and below,
round down
</TABLE>
                                       62
<PAGE>
<TABLE>
<CAPTION>
Statement of                                           U.S.  Department of Housing
Profit and Loss                                        and Urban  Development
                                                       Office of Housing                   OMB Approval No. 2502-
                                                       Federal Housing  Commissioner       0052 (Exp. 1/31/95)
-----------------------------------------------------------------------------------------------------------------
                    <S>                                                 <C>        <C>            <C>
                    Payroll                                             6510       $  41,012
                   ----------------------------------------------------------------------------------------------
                    Supplies                                            6515          48,191
                   ----------------------------------------------------------------------------------------------
                    Contracts                                           6520          59,881
                   ----------------------------------------------------------------------------------------------
                    Operating & Maintenance Rent Free Unit              6521
                   ----------------------------------------------------------------------------------------------
Operating and       Garbage and Trash Removal                           6525           6,436
                   ----------------------------------------------------------------------------------------------
Maintenance         Security Payroll/Contract                           6530              22
                   ----------------------------------------------------------------------------------------------
Expenses            Security Rent Free Unit                             6531
                   ----------------------------------------------------------------------------------------------
6500                Heating/Cooling Repairs and Maintenance             6546             969
                   ----------------------------------------------------------------------------------------------
                    Snow Removal                                        6548
                   ----------------------------------------------------------------------------------------------
                    Vehicle & Maintenance Equipment Operation & Repair  6570
                   ----------------------------------------------------------------------------------------------
                    Miscellaneous Operating & Maintenance Exp.          6590             440
                   ----------------------------------------------------------------------------------------------
                    Total Operating & Maintenance Expenses              6500T                     $       156,951
-----------------------------------------------------------------------------------------------------------------
                    Real Estate Taxes                                   6710      $   18,981
                   ----------------------------------------------------------------------------------------------
                    Payroll Taxes (FICA)                                6711           6,072
                   ----------------------------------------------------------------------------------------------
Taxes               Property and Liability Insurance (Hazard)           6720          31,275
                   ----------------------------------------------------------------------------------------------
And                 Fidelity Bond Insurance                             6721
                   ----------------------------------------------------------------------------------------------
Insurance           Workmen's Compensation                              6722           4,779
                   ----------------------------------------------------------------------------------------------
6700                Health Insurance & Other Employee Benefits          6723           9,774

                   ----------------------------------------------------------------------------------------------
                    Miscellaneous Taxes, Licenses,  Permits &
                    Insurance                                           6790             249
                   ----------------------------------------------------------------------------------------------
                    Total Taxes and Insurance                           6700T                     $        71,130
-----------------------------------------------------------------------------------------------------------------
                    Interest on Mortgage Payable                        6820       $ 279,981
                   ----------------------------------------------------------------------------------------------
Financial           Interest on Notes Payable (Long-Term)               6830
                   ----------------------------------------------------------------------------------------------
Expenses            Interest on Notes Payable (Short-Term)              6840
                   ----------------------------------------------------------------------------------------------
6800                Mortgage insurance Premium/Service Charge           6850          15,978
                   ----------------------------------------------------------------------------------------------
                    Miscellaneous Financial Expenses                    6890
                   ----------------------------------------------------------------------------------------------
                    Total Financial Expenses                            6800T                     $       295,959
-----------------------------------------------------------------------------------------------------------------
Elderly &           Nursing   Homes/Assisted   Living/Board  &          6900                      $
                    Care/Other Elderly Care Exp
                   ----------------------------------------------------------------------------------------------
Congregate          Total Cost of Operations before Depreciation        6000T                     $       673,958
                   ----------------------------------------------------------------------------------------------
Service            Profit (Loss) before Depreciation                    5060T                     $       (71,519)
                   ----------------------------------------------------------------------------------------------
Expenses            Depreciation (Total) - 6600 (specify)               6600                      $       120,521
                   ----------------------------------------------------------------------------------------------
6900                Amortization Expense                                6610                      $         4,768
                   ----------------------------------------------------------------------------------------------
                    Operating Profit of (Loss)                          5060N                     $      (196,808)
-----------------------------------------------------------------------------------------------------------------
                    Officer Salaries                                    7110       $
                   ----------------------------------------------------------------------------------------------
                    Legal Expenses (Entity)                             7120
                   ----------------------------------------------------------------------------------------------
Corporate or        Federal, State & Other Income Taxes                 7130
                   ----------------------------------------------------------------------------------------------
Mortgagor           Interest Income                                     7140
                   ----------------------------------------------------------------------------------------------
Entity              Interest on Notes Payable                           7141
                   ----------------------------------------------------------------------------------------------
Expenses            Interest on Mortgage Payable                        7142
                   ----------------------------------------------------------------------------------------------
7100                Other Expenses (Entity)                             7190         (46,363)
                   ----------------------------------------------------------------------------------------------
                    Total Corporate Expenses                            7100T                     $       (46,363)
                   ----------------------------------------------------------------------------------------------
                   Net Profit or (Loss)                                  3250                     $      (243,171)
-----------------------------------------------------------------------------------------------------------------
Warning:  HUD will prosecute  false claims and stmts.  Conviction may result in criminal  and/or civil  penalties.
(18 U.S.C. 1001, 1010, 1012: 31 U.S.C. 3729, 3802)

Miscellaneous or other Income and Expense  Sub-account  Groups.  If miscellaneous or other income and/or expense
sub-accounts (5190, 5290, 5490, 5990, 6390,6590,6729)

6890, and 7190) exceed the Account Groupings by 10% or more, attach a separate
schedule describing or explaining the miscellaneous income or expense.
-----------------------------------------------------------------------------------------------------------------
Part II
-----------------------------------------------------------------------------------------------------------------
1. Total principal payments required under the mortgage, even if payments under a Workout         $        21,840
   Agreement are less or more than those required under the mortgage.
-----------------------------------------------------------------------------------------------------------------
2. Replacement Reserve deposits required by the Regulatory Agreement or Amendments thereto,       $        19,366
   even if payments may be temporarily suspended or waived.
-----------------------------------------------------------------------------------------------------------------
3. Replacement or Painting Reserve releases which are included as expense items                   $        38,242
   on this Profit and Loss Statement
-----------------------------------------------------------------------------------------------------------------
4. Project  Improvement  Reserve  Releases under the Flexible Subsidy Program that are
   included as expense items on this Profit and Loss Statement.                                   $             0
-----------------------------------------------------------------------------------------------------------------
                                                   Page 2 of 2                               form HUD-92410 (7/91)
                                                                                             Ref. HB 4370.2
</TABLE>
                       See notes to financial statements.
                                       63
<PAGE>

                         FIELDCREST APARTMENTS III, LTD.

                          HUD Project Number 062-35425
                    STATEMENT OF CHANGES IN PARTNERS' DEFICIT
                      For the year ended December 31, 2002

<TABLE>
<CAPTION>

<S>                                                                <C>

Balance, Beginning of Year                                         $(1,118,619)

 Net Income (Loss)                                                    (243,171)

 Capital Contributions                                                  46,407
                                                                   -----------

Balance, End of Year                                               $(1,315,383)
                                                                   ===========
</TABLE>

                        See notes to financial statements


                                       64
<PAGE>




                         FIELDCREST APARTMENTS III, LTD.

                          HUD Project Number 062-35425
                             STATEMENT OF CASH FLOWS
                      For the year ended December 31, 2002

<TABLE>
<CAPTION>

<S>                                                                <C>

Cash Flows From Operating Activities:
 Rental Receipts                                                   $   560,923
 Interest Receipts                                                         308
 Other Receipts                                                         20,892
                                                                   -----------

                                                                       582,123

 Administrative                                                        (30,530)
 Management Fees                                                       (23,702)
 Utilities                                                             (29,597)
 Salaries                                                              (70,092)
 Operating and Maintenance                                            (110,374)
 Real Estate Taxes                                                     (19,523)
 Property Insurance                                                    (56,049)
 Miscellaneous Taxes and Insurance                                     (18,237)
 Tenant Security Deposits                                                3,489
 Interest on Mortgage                                                 (326,372)
 Mortgage Insurance Premium                                            (15,923)
                                                                   -----------

                                                                      (696,910)
                                                                   -----------

 Net Cash Provided (Used) by Operating Activities                     (114,787)

Cash Flows From Investing Activities:
 Net Deposits to the Mortgage Escrow Account                            (3,655)
 Net Deposits from the Reserve for Replacement Account                  19,578
 Purchase of Fixed Assets                                                 (934)
                                                                   -----------

 Net Cash Provided (Used) by Investing Activities                       14,989

Cash Flows From Financing Activities:
 Mortgage Principal Payments                                           (21,840)
 Capital Contributions                                                  46,407
 Loan From Related Company                                              28,000
                                                                   -----------

 Net Cash Provided (Used) by Financing Activities                       52,567
                                                                   -----------

 Net Increase (Decrease) in Cash                                       (47,231)

              Cash at Beginning of Year                                 48,135
                                                                   -----------

              Cash at End of Year                                  $       904
                                                                   ===========
</TABLE>


                                       65
<PAGE>




                         FIELDCREST APARTMENTS III, LTD.

                          HUD Project Number 062-35425
                       STATEMENT OF CASH FLOWS - CONTINUED
                      For the year ended December 31, 2002

<TABLE>
<CAPTION>

<S>                                                                <C>
Reconciliation of Net Income (Loss) to Net Cash
 Provided (Used) by Operating Activities:

          Net Income (Loss)                                        $  (243,171)

Adjustments to Reconcile Net Income (Loss) to
 Net Cash Provided (Used) by Operating Activities:
          Depreciation                                                 120,521
          Amortization                                                   4,768

          (Increase) Decrease in:
            Accounts Receivable - Tenants                                  517
            Prepaid Expenses                                           (24,719)
            Cash - Security Deposits                                      (241)

          Increase (Decrease) in:
            Accounts Payable - Trade                                    20,517
            Accounts Payable - Managing Agent                            5,665
            Accrued Interest Payable                                       (28)
            Prepaid Rental Income                                       (1,804)
            Accrued Property Taxes                                        (542)
            Tenant Security Deposits                                     3,730
                                                                   -----------

                   Total Adjustments                                   128,384
                                                                   -----------

          Net Cash Provided (Used) by Operating Activities         $  (114,787)
                                                                   ===========
</TABLE>

                        See notes to financial statements



                                       66
<PAGE>



                         FIELDCREST APARTMENTS III, LTD.

                          HUD PROJECT NUMBER 062-35425
                          NOTES TO FINANCIAL STATEMENTS
                                December 31, 2002
--------------------------------------------------------------------------------

NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


ORGANIZATION:
The partnership is organized as a limited partnership formed August 23, 1991, to
acquire an interest in real property located in Dothan, Alabama and to construct
and operate thereon an apartment  complex of 112 units,  under Section 221(d)(4)
of the National  Housing  Act.  Such  projects  are  regulated by HUD as to rent
charges and operating methods. Cash distributions to partners are limited to the
extent of "surplus cash" as defined by the HUD regulatory agreement. The Section
221(d)(4) loan is a major HUD program.

PROPERTY  AND  EQUIPMENT:
Property and equipment are stated at cost.  Major renewals and  betterments  are
charged to the property  accounts  while  replacement,  maintenance  and repairs
which do not improve or extend the life of the  respective  assets are expensed.
Depreciation  is  provided  primarily  using the  straight-line  method over the
estimated useful lives of the assets.

AMORTIZATION:
Amortization of deferred loan costs is computed on a straight line basis over 40
years.

INCOME TAXES:
Fieldcrest Apartments III, Ltd. is a partnership with earnings taxed directly to
the partners in their personal tax returns.

CASH FLOWS:
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments  purchased with a maturity of three months or less to be
cash  equivalents.  However,  mortgage escrows,  replacement  reserve funds, and
security  deposits are excluded from cash due to  restrictions  on  expenditures
from these accounts.

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


NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES

The HUD regulatory agreement requires that monthly deposits of $1,279 be made to
a  replacement  reserve  account.  The  reserve's  purpose is for use in funding
extraordinary maintenance, repair, and replacement of capital items. Withdrawals
from this account must be approved by HUD.

Monthly  deposits to escrow for  property  insurance,  mortgage  insurance,  and
property taxes are made as required by the mortgage agreement.



                                       67
<PAGE>



                         FIELDCREST APARTMENTS III, LTD.

                          HUD PROJECT NUMBER 062-35425
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 2002


NOTE B - RESTRICTED DEPOSITS AND FUNDED RESERVES - CONTINUED

Tenant  security  deposits are required by HUD to be fully funded and segregated
in separate bank accounts in the name of the project.


NOTE C - LONG-TERM LIABILITIES

Mortgage Payable
----------------

The  mortgage  note is held by Related  Mortgage  Company  and is secured by the
rental property.  The note bears interest at a default rate of 8.75%.  Principal
and  interest are payable in monthly  installments  of $25,150  through  October
2032.

The  mortgage  loan has a  participation  feature  which  increases  the rate of
interest on the mortgage. This additional interest is only payable from "surplus
cash" or additional capital contributions by the partners. Under this agreement,
the stated interest rate increases to 10.11% plus 30% of any remaining  "surplus
cash"  available  after payment of the  additional  interest.  The obligation is
evidenced by a subordinated  promissory  note secured by (i) a second  mortgage,
(ii)  collateral  assignments  of excess  cash and capital  proceeds,  and (iii)
operating  guaranties  of the  partners.  During  2002,  additional  interest of
$46,363 was charged to expense and $46,363 was included in year end accruals.

Current  maturities  of the  mortgage  payable  for the next  five  years are as
follows:
<TABLE>
<CAPTION>

                             <S>          <C>
                             2003         $   23,829
                             2004             26,000
                             2005             28,368
                             2006             30,953
                             2007             33,772
                             Thereafter    3,044,684
                                           ---------

                             Total        $3,187,606
                                          ==========
</TABLE>


Note Payable - Equity Loan
--------------------------

In connection  with  obtaining the mortgage loan, the partners also entered into
an "equity loan"  agreement  with Related  Mortgage  Company.  The  non-interest
bearing  equity loan is due October 2032, or upon payoff or  refinancing  of the
mortgage  and is  callable  after  October  1,  2002.  This loan is  secured  by
collateral  assignments of partnership  interest and a third mortgage to be held
in escrow for so long as a mortgage insurance contract is in effect.



                                       68
<PAGE>



                         FIELDCREST APARTMENTS III, LTD.

                          HUD PROJECT NUMBER 062-35425
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 2002
--------------------------------------------------------------------------------

NOTE D - RELATED PARTY TRANSACTIONS

The managing  agent,  Aronov Realty  Management,  Inc., and one of the project's
insurance  providers,  Aronov Insurance,  are related to the partnership through
common  ownership.  The  following  amounts  payable to Aronov  were  charged to
expense in 2002:
<TABLE>
<CAPTION>

        <S>                                                         <C>
        Management fees (5% of gross receipts)                      $   23,703

        Insurance                                                       60,828
                                                                    ----------

         Total                                                      $   84,531
                                                                    ==========
</TABLE>

Included  in  accounts  payable at December  31,  2002 were  salaries  and group
insurance  due to Aronov  Realty  Management  in the amount of  $15,790.  Aronov
Realty,  a company  related by common  ownership,  advanced  $28,000 in 2002 for
operating expenses. This advance is to be paid from surplus cash.

NOTE E - OTHER EXPENSES (ENTITY) (HUD FORM 92410)

The  components  of Line 7190 Other  Expenses  (Entity) on HUD Form 92410 are as
follows:
<TABLE>
<CAPTION>

        <S>                                                         <C>
        Additional interest due on mortgage, payable from
        surplus cash or partner contributions                       $   46,363
                                                                    ==========
</TABLE>



                                       69
<PAGE>



                         FIELDCREST APARTMENTS III, LTD.

                          HUD PROJECT NUMBER 062-35425
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                                December 31, 2002
--------------------------------------------------------------------------------

NOTE G - ALLOWABLE DISTRIBUTIONS TO PARTNERS

Under the regulatory agreement for Section 221 (d)(4) projects, distributions to
partners from funds  provided by rental  operations  are allowed,  provided:  1)
surplus cash, as defined by HUD, is available for such purposes,  2) the project
is in  compliance  with all  outstanding  notices  of  requirements  for  proper
maintenance,  and 3) there is no default under the regulatory agreement or under
the mortgage note. Surplus cash as of December 31, 2002, amounted to $0. For the
year ended  December 31, 2002,  allowable  distributions  of surplus cash to the
partners is as
<TABLE>
<CAPTION>

    <S>                                                             <C>
    Surplus Cash Available at 12/31/02                              $        0
                                                                    ==========

    2002 Cash Distributions to Partners                                      0
    2002 Payments of Additional Interest on the Mortgage                46,407
                                                                    ----------

                                                                    $   46,407
                                                                    ==========
</TABLE>

Partner capital contributions of $46,407 were made in 2002 to pay the additional
2000 interest expense.

NOTE H - CURRENT VULNERABILITY DUE TO CERTAIN CONCENTRATIONS

The   Partnership's   sole  asset  is  Fieldcrest   Apartments  III,  Ltd..  The
Partnership's operations are concentrated in the multifamily real estate market.
In addition,  the Partnership operates in a heavily regulated  environment.  The
operations  of the  Partnership  are subject to the  administrative  directives,
rules  and  regulations  of  federal,   state  and  local  regulatory  agencies,
including,  but not limited to, HUD. Such administrative  directives,  rules and
regulations  are subject to change by an act of  congress  or an  administrative
change  mandated by HUD. Such changes may occur with little notice or inadequate
funding to pay for the related  cost,  including the  additional  administrative
burden, to comply with a change.


                                       70
<PAGE>