PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                             FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                             FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



                               Table of Contents
                                                                        Page



Independent Auditors Report                                             F-32

Balance Sheets as of December 31, 1998 and 1997                         F-33

Statements of Operations for the Years Ended December 31,
  1998, 1997 and 1996                                                   F-34

Statements of Changes in Partners' Equity for the
  Years Ended December 31, 1998, 1997 and 1996                          F-35

Statements of Cash Flows for the Years Ended December 31,
  1998, 1997 and 1996                                                   F-36

Notes to Financial Statements                                           F-38























                                        F-31




                            INDEPENDENT AUDITOR REPORT




The Partners
Portland Lofts Associates Limited Partnership
Boston, Massachusetts

We have audited the  accompanying  balance sheets of Portland Lofts Associates
Limited  Partnership  (the  Partnership) as of December 31, 1998 and 1997, and
the related  statements of  operations,  changes in partners  equity and cash
flows  for  the  years  then  ended.   These  financial   statements  are  the
responsibility  of the  Partnerships  management.  Our  responsibility  is to
express an opinion on these financial statements based on our audits.

We  conducted  our  audits in  accordance  with  generally  accepted  auditing
standards.  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.

Because we were not engaged to audit the statements of operations,  changes in
partners  equity and cash flows for the year ended  December 31, 1996, we did
not extend our auditing  procedures  to enable us to express an opinion on the
results of operations,  changes in partners equity and cash flows of Portland
Lofts  Associates  Limited  Partnership  for the year ended December 31, 1996.
Accordingly, we express no opinion on them.

In our opinion,  the financial  statements  referred to in the first paragraph
present fairly, in all material  respects,  the financial position of Portland
Lofts  Associates  Limited  Partnership  as of December 31, 1998 and 1997, and
the results of its  operations  and its cash flows for the years then ended in
conformity with generally accepted accounting principles.


Lefkowitz, Garfinkel, Champi & DeRienzo P.C.


Providence, Rhode Island
February 16, 1999




                                     F-32

<PAGE>


                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                                BALANCE SHEETS
                          DECEMBER 31, 1998 AND 1997


                                    ASSETS

                                                        1998           1997
                                                    -------------   ------------
                                                  
Investment in real estate:
   Land                                             $    899,526   $    899,526
   Buildings and improvements                         10,684,704     10,684,704
   Furniture and equipment                                84,051         84,051
                                                    -------------   ------------
                                                  
                                                      11,668,281     11,668,281
   Less accumulated depreciation                       2,446,972      2,173,528
                                                    -------------   ------------
                                                  
                                                       9,221,309      9,494,753

Cash                                                      13,716          2,220
Rent receivable                                            8,663          5,006
Prepaid expenses                                          25,742         19,789
Replacement reserve                                       21,960         32,787
Deferred costs, less accumulated amortization
   (1998, $30,309; 1997, $17,357)                         81,583         94,535
                                                    -------------   ------------
                                                  
                                                    $  9,372,973    $ 9,649,090
                                                    =============   ============
                                               

                       LIABILITIES AND PARTNERS EQUITY

Liabilities:
   Notes payable:
     Mortgage                                         $5,463,137     $5,534,391
     General partner                                     298,152        320,221
     Other                                                     -            733
   Accounts payable and accrued expenses                  40,399         86,931
   Accrued interest                                       49,923         50,665
   Security deposits                                      32,775         16,010
                                                    -------------   ------------
                                                 
            Total liabilities                          5,884,386      6,008,951

Commitments (Note 5)

Partners equity                                        3,488,587      3,640,139
                                                    -------------   ------------
                                                                                
                                                   $   9,372,973    $ 9,649,090
                                                    =============   ============






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

                                      F-33
<PAGE>
             

                 PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                       1998            1997             1996
                                  --------------  --------------   -------------
                                                                     (Unaudited)
Revenue:
   Rental income                   $ 1,211,437      $ 1,092,135     $ 1,105,940
   Interest and other income            27,038           41,061          49,453
                                  ------------    --------------   -------------
                                     
     Total revenue                   1,238,475        1,133,196       1,155,393
                                  ------------    --------------   -------------
                                    
Expenses:
   Operating and administrative         83,510          154,526         119,295
   Management fees                      65,902           63,289          39,086
   Repairs and maintenance             152,375          154,355         111,164
   Utilities                            54,242           54,917          49,901
   Real estate taxes                    40,186           37,888          36,702
   Insurance                            22,813           23,407          19,809
   Depreciation and amortization       286,396          282,981         300,925
                                   -----------    -------------     ------------
                                    
     Total expenses                    705,424         771,363          676,882
                                   ------------   -------------     ------------
                                      
Income from operations                 533,051         361,833          478,511

Interest expense                       528,603         537,298          587,575
                                   --------------  --------------   ------------
                                    
Net income (loss) before                 4,448        (175,465)        (109,064)
extraordinary item

Extraordinary item  gain on
extinguishment of debt                       -               -        1,656,579
                                   --------------  --------------   ------------
                                 
Net income (loss)                  $     4,448    $   (175,465)     $ 1,547,515
                                  ==============  ==============   =============
                                    















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

                                     F-34
<PAGE>

                 PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                   STATEMENTS OF CHANGES IN PARTNERS' EQUITY
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                     Historic
                                   Preservation      East Bank
                                    Properties         Angel            Total
                                    1989 Limited        Joint          Partners
                                    Partnership        Venture          Equity
                                  ---------------  ---------------  ------------
                                   
Balance, December 31, 1995
 (Unaudited)                         1,418,459        1,031,630       2,450,089

Distributions                          (26,000)               -         (26,000)

Net income                           1,532,040           15,475       1,547,515
                                ---------------  ---------------  --------------
                       
Balance, December 31,1996 
 (Unaudited)                         2,924,499        1,047,105       3,971,604

Distributions                         (156,000)               -        (156,000)

Net loss                              (173,710)           (1,755)      (175,465)
                                ---------------  ---------------  --------------
             
Balance, December 31,1997            2,594,789        1,045,350       3,640,139

Distributions                         (156,000)               -        (156,000)

Net income                               4,404               44           4,448
                                ---------------  ---------------  --------------
                              
Balance, December 31, 1998       $   2,443,193      $ 1,045,394    $  3,488,587
                                ===============  ===============  ==============























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

                                     F-35
<PAGE>

              
                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                           STATEMENTS OF CASH FLOWS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


                                           1998         1997          1996
                                         ----------   ----------     ---------
                                                                     Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net income (loss)                    $   4,448    $ (175,465)   $  1,547,515
   Adjustments to reconcile net income
    (loss) to net cash provided by 
    operating activities:
     Depreciation and amortization        286,396       282,981         300,925
     Extraordinary gain on
     extinguishment of debt                     -             -      (1,656,579)

     Decrease (increase) in rent       
     receivable                            (3,657)       (2,165)          8,891
     Decrease (increase) in prepaid       
      expenses                             (5,953)        4,684         (24,473)
     Increase in deferred costs                 -        (9,152)              -
     Increase (decrease) in accounts
      payable and accrued expenses        (46,532)        3,347          22,527
     Increase (decrease) in accrued               
      interest                               (742)      (10,067)          4,616
     Increase (decrease) in security            
      deposits                             16,765         7,605            (720)
                                         ----------       -------    -----------
                                                 
   Net cash provided by operating              
    activities                            250,725       101,768         202,702
                                         ---------     ---------     -----------
                                         
CASH FLOWS FROM INVESTING ACTIVITIES:
   Additions to buildings and              
    improvements                                -             -          (3,655)
   Purchase of tenant improvements              -        (3,000)              -
   Decrease (increase) in replacement      
    reserve                                10,827       128,933        (161,720)
        
                                        ----------    -----------    -----------
   Net cash provided by (used in)          
    investing activities                   10,827       125,933        (165,375)
                                        -----------   -----------    -----------
                                         

CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from refinancing                    -             -       5,625,000
   Proceeds from general partner note              
    payable                                     -             -         340,000
   Payment on mortgage, notes payable
    and construction loan                       -             -      (5,815,000)
   Principal payments on mortgage and
    other notes payable                   (94,056)      (89,107)        (69,778)
   Payment of deferred financing fees           -             -         (94,739)
   Distributions                         (156,000)     (156,000)        (26,000)
                                         ----------  -----------    ------------
                                     
Net cash used in financing activities    (250,056)     (245,107)        (40,517)
                                        -----------  ------------   ------------

NET INCREASE (DECREASE) IN CASH            11,496       (17,406)         (3,190)

CASH, BEGINNING OF YEAR                     2,220        19,626          22,816
                                        ----------   -----------    ------------

CASH, END OF YEAR                     $    13,716     $   2,220     $    19,626
                                      ============    ==========    ============







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

                                     F-36
<PAGE>

                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                     STATEMENTS OF CASH FLOWS (CONTINUED)
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996



SUPPLEMENTAL CASH FLOW INFORMATION:

   Cash paid for interest               $   529,345     $  547,365    $582,959
                                        ============    ===========   ==========


NON-CASH FINANCING ACTIVITY:

In June 1996,  Portland  Lofts settled  $7,621,579 of mortgage and other notes
payable and paid closing costs through issuing a promissory  mortgage note and
other  promissory note totaling  $5,965,000 and  recognizing an  extraordinary
gain of $1,656,579.





































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


                                     F-37
<PAGE>

                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                        NOTES TO FINANCIAL STATEMENTS
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


1.   Organization and Description of Business 

     Portland  Lofts  Associates  Limited  Partnership  (the  Partnership),  a
     Delaware  limited  partnership,  was formed on August 8, 1989 to acquire,
     rehabilitate  and  operate  three  buildings  and the  related  land (the
     Property)  containing  89  residential  apartment  units and  23,470  net
     rentable square feet of commercial  space,  located at 555 Northwest Park
     Avenue, Portland, Oregon.

     The  general  partners  of the  Partnership  are East  Bank  Angel  Joint
     Venture  (EBAJV),  an  Oregon  general  partnership  (also  known  as the
     developer),   and   Historic   Preservation   Properties   1989   Limited
     Partnership  (HPP89),  a Delaware limited partnership whose sole general
     partner is Boston Historic  Partners Limited  Partnership.  EBAJV,  whose
     venturers are Pacific Star Corporation and Joseph Angel (Angel),  is also
     the only limited partner (see Note 5).

     At December 31, 1998 the  Partnership  had leased 88%  (unaudited) of the
     residential  apartment units and 95% (unaudited) of the commercial  space
     for a combined occupancy of 90% (unaudited).

2.   Basis of Presentation and Significant Accounting Policies

     Basis of accounting

     The Partnership's  financial statements are prepared on the accrual basis
     of  accounting  in  accordance   with   generally   accepted   accounting
     principles.

     Use of estimates

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

     Investment in real estate and depreciation

     Investment  in  real  estate  is held  for  lease  and  stated  at  cost.
     Depreciation  is  computed  on a  straight-line  basis  over 40 years for
     buildings and improvements, and over 5 to 7 years for personal property.

     Depreciation  expense for the years ended  December  31,  1998,  1997 and
     1996 totaled $273,444, $272,094 and $293,263 (unaudited), respectively.

     Cash, cash equivalents and concentration of credit risk

     The Partnership  considers all highly liquid  investments with a maturity
     of three  months  or less  when  purchased  to be cash  equivalents.  The
     Partnership   had  no  cash   equivalents   at  December   31,  1998  and
     1997.

     At December 31, 1998 and 1997, the  Partnership had no cash on deposit in
     banks in excess of  amounts  insured  by the  Federal  Deposit  Insurance
     Corporation.






                                     F-38
                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


2.   Basis of Presentation and Significant Accounting Policies (Continued)

     Deferred costs 

     Costs to lease residential apartment units are generally expensed; however,
     leasing costs  associated with commercial space are capitalized and 
     amortized on a  straight-line  basis over the  related  lease  terms. 
     Amortization  of costs associated  with leasing for the years ended 
     December  31, 1998,  1997 and 1996 totaled $3,478, $1,413 and $1,798 
     (unaudited), respectively.

     Direct costs  attributable  to obtaining  financing are  capitalized  and
     amortized on a  straight-line  basis over the terms of the related  debt.
     Amortization  of financing  costs for the years ended  December 31, 1998,
     1997  and  1996   totaled   $9,474,   $9,474  and   $5,864   (unaudited),
     respectively.

     Revenue  recognition

     Rental  revenue  from  commercial  leases is  recorded by  recognizing
     the aggregate  minimum rentals to be received over the terms of each lease
     in equal monthly  installments over the related lease terms. Rental income 
     recorded prior to actual  cash  collections  under the terms of the leases 
     is  included in rent receivable ($4,988 and $4,000 as of December 31, 1998 
     and 1997,  respectively). Principally  all  residential  apartment  units 
     are rented under month-to-month arrangements and rent is recorded when due.

     Income taxes

     No provision  (benefit) for income taxes is reflected in the accompanying
     financial  statements since income or loss of the Partnership is required
     to be reported in the tax returns of the respective partners.

     Reclassification

     Certain  amounts  in the 1997 and 1996  financial  statements  have  been
     reclassified to conform to the 1998 presentation.

3.   Mortgage and Notes Payable

     The  Partnerships  original  mortgage  note  was to  mature  on April 1,
     1997.  Also, the  Partnership had an unsecured note which it assumed from
     EBAJV  effective  December  19, 1989  bearing  interest at the prime rate
     plus 1%.   On
     May 21, 1996,  the  Partnership  and the holder of the mortgage  note and
     the  unsecured  note  entered  into a  Settlement  Agreement  (Settlement
     Agreement)  to  resolve  claims  concerning  the debt.  According  to the
     Settlement Agreement,  the Partnership was allowed,  until July 31, 1996,
     to pay $5,400,000 to the new holder in full  satisfaction of the mortgage
     note and the unsecured note.

     On June 20, 1996, the Partnership issued a promissory  mortgage note to a
     bank in the amount of  $5,625,000  and a promissory  note to Angel in the
     amount  of  $340,000  to  provide  sufficient  funds  to pay in full  the
     $5,400,000  settlement  amount with the holder of the  mortgage  note and
     unsecured note, a separate  $400,000  promissory note bearing interest at
     13.11%  and  due  currently,   and  all  related   closing   costs.   The
     transaction  resulted in an extraordinary  gain on extinguishment of debt
     of $1,656,579.  The mortgage note bears interest at 9%;  amortizes over a
     25-year schedule;  requires monthly payments of principal and interest of
     $47,205;  and matures on July 1, 2006, at which time all unpaid principal
     and  interest  is due.  The  mortgage  note is secured  by the  Property,
     rents and assignments of leases.

     The Angel Note bears interest at 11%;  amortizes over a 10-year schedule;
     requires  monthly  principal  and  interest  payments  in the  amount  of
     $4,684; and matures January 1, 2007.
                                     F-39
                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


3.   Mortgage and Notes Payable (Continued)

      At December 31, 1998,  aggregate  annual  maturities  under the mortgage
      note  payable and note  payable to general  partner for each of the next
      five years are as follows:

         Year Ending          Mortgage        Note Payable to
        December 31,        Note Payable      General Partner      Total
      ------------------  -----------------   ----------------  ------------
      
            1999           $   77,938             24,622         $  102,560
            2000               85,249             27,471            112,720
            2001               93,246             30,650            123,896
            2002              101,994             34,197            136,191
            2003              111,561             38,154            149,715

4.   Partners' Equity

     Profits,  losses and tax credits shall be distributed to the partners, as
     defined in the Partnership Agreement,  as follows : 99% to HPP89, .9% to
     EBAJV and .1% to EBAJV as a limited partner.  However,  if cash flows are
     distributed  to the partners in accordance  with (b) and (c) below,  then
     profits,  losses and tax credits shall be distributed in accordance  with
     those same formulas.

     Cash flows from  operations  shall be  distributed  to the  partners,  as
     defined in the Partnership Agreement, as follows:

        a.  100  percent to the payment of accrued  interest  on, and then the
           unpaid  principal  balance  of, any  outstanding  loans made to the
           Partnership by HPP89.

        b. Thereafter,  100  percent  to  HPP89  until  HPP89  has  received
           distributions  of cash flow in such year in an amount equal to an 8
           percent  cumulative,  noncompounded  return on its weighted average
           HPP89 invested capital for such year.

        c.    The  remaining   balance,   if  any,   prior  to  call/put  date
            (discussed below), 50% to HPP89,  49.9% to EBAJV and .1% to EBAJV
            as limited  partner,  and after the call/put  date, 75% to HPP89,
            24.9% to EBAJV and .1% to EBAJV as limited partner.

     The Partnership  Agreement  provides  HPP89 with certain put rights,  as
     defined in the agreement,  to require the Developer to purchase  HPP89s
     interest in the  Partnership.  On July 1, 1997,  HP89 and the Developer
     entered  into an  agreement  under  which the parties  acknowledged  that
     HPP89s  put right  commenced  July 1,  1997 and  HPP89  agreed  not to
     exercise  its  put  right  until  July  1,  2000   provided  it  receives
     distributions  of no less than $30,000 per quarter.  Under the put right,
     the  Developer is required to pay HPP89 the excess of  $5,750,000,  plus
     $25,467  for each  month  commencing  July 1, 1997  through  the month in
     which  the  closing  of the  sale of  HPP89s  interest  is  consummated
     pursuant  to the put right,  less the amount  previously  distributed  to
     HPP89. The Developer,  provided it has met certain conditions defined in
     the  agreement,  shall have the right to locate a third party to purchase
     HPP89s  interest  on behalf  of the  Developer.  Cash from the sale or
     refinancing   of  the  Property   shall  be   distributed  to  repay  any
     outstanding  loans and  related  interest  and then to the  partners,  as
     defined in the Partnership Agreement.





                                     F-40
                PORTLAND LOFTS ASSOCIATES LIMITED PARTNERSHIP
                  NOTES TO FINANCIAL STATEMENTS (CONTINUED)
             FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


5.   Transactions with Related Parties and Commitments

     Interest  expense for the years ended  December 31,  1998,  1997 and 1996
     totaled $33,931, $36,241 and $18,735 (unaudited),  respectively,  related
     to the Angel Note.  At December  31, 1998 and 1997,  $8,949 and $9,152 is
     included in accrued interest.

     In November 1996, the Partnership  entered into an agreement to pay EBAJV
     a monthly fee of $2,400 for partnership  management  services provided to
     the  Partnership.   Partnership  management  fees  for  the  years  ended
     December  31,  1998,  1997 and 1996  totaled  $28,800  $28,800 and $4,800
     (unaudited), respectively.

     The  Partnership  has  a  month-to-month  management  agreement  with  an
     unrelated  party to manage  the  property  for a fee equal to 3% of gross
     receipts  as  defined  in the  agreement.  Management  fees for the years
     ended  December 31,  1998,  1997 and 1996  totaled  $37,102,  $34,489 and
     $34,286   (unaudited).   The  unrelated   party  also  receives   leasing
     commissions equal to 5% of amounts due under commercial leases.

6.   Minimum Future Rentals under Operating Leases

     The Partnership rents space to commercial  tenants under operating leases
     of  varying  terms  expiring  through  2004.  Approximately  16%  of  all
     residential  apartment  units are  rented  to  tenants  under  short-term
     operating   leases  and  the   remaining   rented  under   month-to-month
     arrangements.  As of December 31, 1998, the  Partnership had entered into
     seventeen  commercial  leases covering  approximately  95% (unaudited) of
     the building's net rentable  commercial space. The Partnershis  largest
     commercial  tenant  occupancies  23% of the commercial  space at December
     31,  1998,  representing  only  5.8%  of the  total  square  feet  of the
     property.

     At December 31, 1998, minimum future rentals,  excluding reimbursement of
     real estate taxes and certain  operating  expenses,  to be received under
     noncancellable  commercial  leases for each of the next five years are as
     follows:
                     Year Ending December 31,
                    ------------------------
                    
                             1999                     243,169
                             2000                     141,081
                             2001                      89,642
                             2002                      53,180
                             2003                      53,180

     The above amounts do not include  additional rentals that will become due
     as a result of escalation provisions in the commercial leases.

     In most cases,  management expects that in the normal course of business,
     commercial  leases  will be  renewed  or  replaced  by other  leases  and
     month-to-month  arrangements  with residential  tenants will be continued
     or replaced by short-term operating leases.

7.   Fair Value of Financial Instruments

      The  carrying  amounts  of  cash,  rent  receivable,  prepaid  expenses,
      replacement  reserve,  accounts  payable and accrued  expenses,  accrued
      interest   and   security   deposits  at  December  31,  1998  and  1997
      approximate  their fair values due to their short  maturities.  The fair
      values of the  Partnerships  mortgage  note  payable  and  other  notes
      payable  at  December  31,  1998 and  1997  approximate  their  carrying
      amounts based on interest rates  currently  available to the Partnership
      for similar financing  arrangements.  All financial instruments are held
      for non-trading purposes.

                                     F-41