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|                                                                                                                    | PAGE   |
|-------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                    |   |
| INDEPENDENT AUDITOR'S REPORT                                                                                            | 3      |
|                                                                                                                    |   |
| FINANCIAL STATEMENTS:                                                                                                   |   |
|                                                                                                                    |   |
| Balance Sheets                                                                                                          | 4-5    |
|                                                                                                                    |   |
| Statements of Income                                                                                                    | 6      |
|                                                                                                                    |   |
| Statements of Changes in Partners' Equity                                                                               | 7      |
|                                                                                                                    |   |
| Statements of Cash Flows                                                                                                | 8-9    |
|                                                                                                                    |   |
| Notes to Financial Statements                                                                                           | 10-14  |
|                                                                                                                    |   |
| INDEPENDENT AUDITOR'S REPORT ON SUPPLEMENTARY INFORMATION                                                               | 16     |
|                                                                                                                    |   |
| Balance Sheet Data                                                                                                      | 17-18  |
|                                                                                                                    |   |
| Statement of Income Data                                                                                                | 19-22  |
|                                                                                                                    |   |
| Statement of Changes in Partners' Equity Data                                                                           | 23     |
|                                                                                                                    |   |
| Statement of Cash Flows Data                                                                                            | 24-25  |
|                                                                                                                    |   |
| Supplementary Data Required by HUD                                                                                      | 26-28  |
|                                                                                                                    |   |
| INDEPENDENT AUDITOR'S REPORT ON THE INTERNAL CONTROL                                                                    | 29-30  |
|                                                                                                                    |   |
| INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO MAJOR HUD PROGRAMS                  | 31     |
|                                                                                                                    |   |
| INDEPENDENT AUDITOR'S REPORT ON COMPLIANCE WITH SPECIFIC REQUIREMENTS APPLICABLE TO FAIR HOUSING AND NON-DISCRIMINATION | 32     |
|                                                                                                                    |   |
| CERTIFICATION OF PARTNERS                                                                                               | 33     |
|                                                                                                                    |   |
| MANAGEMENT AGENT'S CERTIFICATION                                                                                        | 34     |
|                                                                                                                    |   |
| AUDITOR INFORMATION                                                                                                     | 35     |

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| ASSETS                                           |   |   |       |
|--------------------------------------------------|--------|--------|------------|
|                                             |   |   |       |
| Rental property and equipment, at cost:          |   |   |       |
| Buildings, furnishings and equipment             |   | $      | 9,624,597  |   |
| Accumulated depreciation                         |   |   | (437,618   | ) |
|                                             |   |   | 9,186,979  |   |
| Land                                             |   |   | 876,846    |   |
|                                             |   |   | 10,063,825 |   |
| Restricted deposits:                             |   |   |       |   |
| Other reserves                                   |   |   | 1,750      |   |
| Tenant trust - security deposits                 |   |   | 20,629     |   |
|                                             |   |   | 22,379     |   |
| Other assets:                                    |   |   |       |   |
| Cash                                             |   |   | 22,747     |   |
| Accounts receivable                              |   |   | 182,353    |   |
| Miscellaneous receivables                        |   |   | 3,963      |   |
| Prepaid expenses                                 |   |   | 11,115     |   |
| Intangible assets, net of amortization of $8,872 |   |   | 344,621    |   |
|                                             |   |   | 564,799    |   |
|                                             |   |   |       |   |
|                                             |   |   |       |   |
| TOTAL ASSETS                                     |   | $      | 10,051,003 |   |

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| LIABILITIES AND PARTNERS' EQUITY |   |   |       |
|----------------------------------|--------|--------|------------|
| Liabilities:                     |   |   |       |
| Mortgage note payable            |   | $      | 6,180,000  |   |
| Developer fee payable            |   |   | 1,487,120  |   |
| Notes payable - affiliate        |   |   | 2,047,334  |   |
| Accounts payable                 |   |   | 140,704    |   |
| Accrued interest payable         |   |   | 262,499    |   |
| General partner advances         |   |   | 30,455     |   |
| Construction costs payable       |   |   | 467,000    |   |
| Rents received in advance        |   |   | 5,960      |   |
| Tenant security deposits payable |   |   | 20,629     |   |
|                             |   |   | 10,641,701 |   |
|                             |   |   |       |   |
| Partners' equity                 |   |   | 9,302      |   |
|                             |   |   |       |   |
| TOTAL LIABILITIES AND EQUITY     |   | $      | 10,651,003 |   |

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| Revenue:                                                      |   |   |      |
|---------------------------------------------------------------|--------|--------|-----------|
| Rent, net                                                     |   | $      | 1,085,208 |   |
| Other                                                         |   |   | 8,514     |   |
|                                                          |   |   |      |   |
| Total Income                                                  |   |   | 1,093,722 |   |
|                                                          |   |   |      |   |
|                                                          |   |   |      |   |
| Expenses:                                                     |   |   |      |   |
| Administrative                                                |   |   | 273,307   |   |
| Utilities                                                     |   |   | 387,778   |   |
| Operating and maintenance                                     |   |   | 227,961   |   |
| Taxes and insurance                                           |   |   | 178,458   |   |
| Interest                                                      |   |   | 598,348   |   |
| Other financial                                               |   |   | 1,167     |   |
| Depreciation                                                  |   |   | 161,080   |   |
| Amortization                                                  |   |   | 5,846     |   |
| Total expenses                                                |   |   | 1,833,945 |   |
|                                                          |   |   |      |   |
| Operating income (loss) before partnership revenue (expenses) |   |   | (740,223  | ) |
| Partnership revenue                                           |   |   | 57,204    |   |
| Other expenses                                                |   |   | (15,000   | ) |
|                                                          |   |   |      |   |
| Net income (loss)                                             |   | $      | (698,019  | ) |

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|                                 |   | Total  |     |   | GeneralPartner |   |       | LimitedPartner |   |
|--------------------------------------|--------|--------|----------|--------|----------------|--------|------------|----------------|--------|
| Balance - January 1, 2007            |   | $      | (181,600 | )      |           | $      | (1,321,275 | )              |   | $ | 1,139,675 |   |
|                                 |   |   |     |   |           |   |       |           |   |   |   |   |
| Prior period adjustment              |   |   | 148,570  |   |           |   | 15         |           |   |   | 148,555 |   |
|                                 |   |   |     |   |           |   |       |           |   |   |   |   |
| Balance - January 1, 2007 - Restated |   |   | (33,030  | )      |           |   | (1,321,260 | )              |   |   | 1,288,230 |   |
|                                 |   |   |     |   |           |   |       |           |   |   |   |   |
| Contributions                        |   |   | 740,351  |   |           |   |       |           |   |   | 740,351 |   |
|                                 |   |   |     |   |           |   |       |           |   |   |   |   |
| Net income (loss)                    |   |   | (698,019 | )      |           |   | (70        | )              |   |   | (697,949 | ) |
|                                 |   |   |     |   |           |   |       |           |   |   |   |   |
| Balance - December 31, 2007          |   | $      | 9,302    |   |           | $      | (1,321,330 | )              |   | $ | 1,330,632 |   |

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| Cash flows from operating activities:                                                           |   |   |       |
|-------------------------------------------------------------------------------------------------|--------|--------|------------|
| Net Income (Loss)                                                                               |   | $      | (698,019   | ) |
| Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities: |   |   |       |   |
| Depreciation and amortization expense                                                           |   |   | 166,926    |   |
| Changes in certain assets and liabilities:                                                      |   |   |       |   |
| Accounts receivable                                                                             |   |   | (165,181   | ) |
| Prepaid expenses                                                                                |   |   | (11,115    | ) |
| Accounts payable                                                                                |   |   | (182,873   | ) |
| Accrued interest payable                                                                        |   |   | 188,891    |   |
| Rent received in advance                                                                        |   |   | (432       | ) |
| Tenant security deposits                                                                        |   |   | (1,223     | ) |
|                                                                                            |   |   |       |   |
| Net cash provided (used) by operating activities                                                |   |   | (703,026   | ) |
|                                                                                            |   |   |       |   |
|                                                                                            |   |   |       |   |
| Cash flow from investing activities:                                                            |   |   |       |   |
| Additions to fixed assets                                                                       |   |   | (3,988,494 | ) |
| Deposits to reserve accounts                                                                    |   |   | (1,750     | ) |
| Proceeds from construction reserves                                                             |   |   | 218,691    |   |
| Net cash provided (used) by investing activities                                                |   |   | (3,771,553 | ) |
|                                                                                            |   |   |       |   |
| Cash flow from financing activities:                                                            |   |   |       |   |
| Proceeds from notes payable                                                                     |   |   | 595,806    |   |
| Contributions                                                                                   |   |   | 740,351    |   |
| Net cash provided (used) by financing activities                                                |   |   | 1,336,157  |   |
|                                                                                            |   |   |       |   |
| Net increase (decrease) in cash and equivalents                                                 |   |   | (3,138,422 | ) |
| Cash and equivalents, beginning of year                                                         |   |   | 3,161,169  |   |
| Cash and equivalents, end of year                                                               |   | $      | 22,747     |   |

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| Supplemental disclosure of cash flow information:                     |   |   |      |
|-----------------------------------------------------------------------|--------|--------|-----------|
| Cash paid for interest                                                |   | $      | 409,457   |   |
|                                                                  |   |   |      |   |
| Supplemental schedule of non-cash investing and financing activities: |   |   |      |   |
|                                                                  |   |   |      |   |
| Additions to fixed assets financed by:                                |   |   |      |   |
| Developer fee payable                                                 |   | $      | 578,710   |   |
| Construction costs payable                                            |   | $      | 296,948   |   |
|                                                                  |   |   |      |   |
| Additions to fixed assets from reclassification of:                   |   |   |      |   |
| Construction-in-progress                                              |   | $      | 2,339,377 |   |

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| Year   |   | Amount |      |
|--------|--------|--------|-----------|
| 2008   |   | $      | 27,953    |   |
| 2009   |   |   | 71,352    |   |
| 2010   |   |   | 76,896    |   |
| 2011   |   |   | 81,704    |   |
| 2012   |   |   | 86,819    |   |
| 2013   |   |   | 5,835,276 |   |
|   |   | $      | 6,180,000 |   |

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