----

|                                                | PAGE   |
|-----------------------------------------------------|--------|
|                                                |   |
| Independent auditors' report                        | 1      |
|                                                |   |
|                                                |   |
| Financial statements:                               |   |
|                                                |   |
|                                                |   |
| Balance sheets                                      | 2      |
|                                                |   |
|                                                |   |
| Statements of operations                            | 3      |
|                                                |   |
|                                                |   |
| Statements of changes in partners' equity (deficit) | 4      |
|                                                |   |
|                                                |   |
| Statements of cash flows                            | 5-6    |
|                                                |   |
|                                                |   |
| Notes to financial statements                       | 7-10   |

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| ASSETS                                                                                                                |
|-----------------------------------------------------------------------------------------------------------------------|
|                                                                                                                  |   | 2006 |   | 2005 |
| Current assets                                                                                                        |   |   |   |   |
| Cash                                                                                                                  | $ | 29,782 | $ | 36,881 |
| Tenant security deposits                                                                                              |   | 7,950 |   | 7,800 |
| Replacement reserve                                                                                                   |   | 13,103 |   | 0 |
| Tax and insurance escrow                                                                                              |   | 11,620 |   | 7,502 |
| Accounts receivable                                                                                                   |   | 482 |   | 2,430 |
| Prepaid expenses                                                                                                      |   | 3,962 |   | 3,862 |
| Operating reserves                                                                                                    |   | 3,605 |   | 95,024 |
|                                                                                                                  |   |   |   |   |
|              Total current assets                    |   | 70,504 |   | 153,499 |
|                                                                                                                  |   |   |   |   |
| Property, plant and equipment, at cost                                                                                |   |   |   |   |
|    Land                                                                                                |   | 248,710 |   | 248,710 |
|    Land improvements                                                                                   |   | 663,095 |   | 626,383 |
|    Building                                                                                            |   | 3,687,417 |   | 3,687,417 |
|    Furniture and equipment                                                                             |   | 83,151 |   | 83,151 |
|                                                                                                                  |   | 4,682,373 |   | 4,645,661 |
|    Less accumulated depreciation                                                                       |   | (225,862) |   | (75,228) |
|                                                                                                                  |   |   |   |   |
|               Net property, plant and equipment |   | 4,456,511 |   | 4,570,373 |
|                                                                                                                  |   |   |   |   |
| Monitoring fees, at cost                                                                                              |   | 7,800 |   | 7,800 |
|      Less accumulated amortization                                                           |   | (780) |   | (260) |
|                                                                                                                  |   |   |   |   |
|               Net monitoring fees               |   | 7,020 |   | 7,540 |
|                                                                                                                  |   |   |   |   |
|                                                                                                                  | $ | 4,534,035 | $ | 4,731,412 |

| LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                                                              |
|---------------------------------------------------------------------------------------------------------|
| Current liabilities                                                                                     |   |   |   |   |
|      Accounts payable                                                          | $ | 463 | $ | 1,894 |
|      Accrued property taxes                                                    |   | 10,909 |   | 7,225 |
|      Prepaid rent                                                              |   | 70 |   | 9 |
|      Accrued developer fees                                                    |   | 53,000 |   | 482,600 |
|      Current portion mortgage payable                                          |   | 1,588 |   | 0 |
|      Tenant security deposits                                                  |   | 7,950 |   | 7,800 |
|      Construction loan payable                                                 |   | 0 |   | 375,000 |
|                                                                                                    |   |   |   |   |
|              Total current liabilities |   | 73,980 |   | 874,528 |
|                                                                                                    |   |   |   |   |
| Long-term debt                                                                                          |   |   |   |   |
|        Mortgage payable, net of current portion                      |   | 372,290 |   | 0 |
|                                                                                                    |   |   |   |   |
| Partners' equity (deficit)                                                                              |   | 4,087,765 |   | 3,856,884 |
|                                                                                                    |   |   |   |   |
|                                                                                                    | $ | 4,534,035 | $ | 4,731,412 |

----

|                                                                                                                 |   | 2006      |   | 2005     |
|----------------------------------------------------------------------------------------------------------------------|--------|-----------|--------|----------|
| Revenues                                                                                                             |   |      |   |     |
|      Rental income                                                                          | $      | 217,497   | $      | 106,302  |
|      Tenant charges                                                                         |   | 6,074     |   | 2,850    |
|      Interest income                                                                        |   | 1         |   | 26       |
|                                                                                                                 |   |      |   |     |
|             Total income                                 |   | 223,572   |   | 109,178  |
|                                                                                                                 |   |      |   |     |
|                                                                                                                 |   |      |   |     |
|                                                                                                                 |   |      |   |     |
|                                                                                                                 |   |      |   |     |
| Expenses                                                                                                             |   |      |   |     |
|      Maintenance and operating                                                              |   | 62,258    |   | 38,763   |
|      Utilities                                                                              |   | 9,352     |   | 5,982    |
|      Administrative                                                                         |   | 44,008    |   | 26,244   |
|      Taxes and insurance                                                                    |   | 58,768    |   | 41,534   |
|      Investor service fee                                                                   |   | 2,500     |   | 0        |
|      Interest                                                                               |   | 28,969    |   | 14,847   |
|      Depreciation                                                                           |   | 150,574   |   | 75,288   |
|      Amortization                                                                           |   | 520       |   | 260      |
|                                                                                                                 |   |      |   |     |
|             Total expenses                               |   | 356,949   |   | 202,918  |
|                                                                                                                 |   |      |   |     |
|                   Net loss | $      | (133,377) | $      | (93,740) |

----

|                                  |   | General |   | Limited   |   |      |
|---------------------------------------|--------|---------|--------|-----------|--------|-----------|
|                                  |   | Partner |   | Partners  |   | Total     |
|                                  |   |    |   |      |   |      |
| Partners' equity (deficit),           |   |    |   |      |   |      |
|   12/31/2004                | $      | 0       | $      | 2,484,463 | $      | 2,484,463 |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Add:  Capital contributions |   | 0       |   | 1,466,161 |   | 1,466,161 |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Net loss                              |   | (5)     |   | (93,735)  |   | (93,740)  |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Partners' equity (deficit),           |   | (5)     |   | 3,856,889 |   | 3,856,884 |
|   12/31/2005                |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Add:  Capital contributions |   | 0       |   | 364,258   |   | 364,258   |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Net loss                              |   | (7)     |   | (133,370) |   | (133,377) |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
|                                  |   |    |   |      |   |      |
| Partners' equity (deficit)            | $      | (12)    | $      | 4,087,777 | $      | 4,087,765 |
|   12/31/2006                |   |    |   |      |   |      |

----

|                                                                                                                                                         |   | 2006      |       | 2005        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------|------------|-------------|
|                                                                                                                                                         |   |      |       |        |
| Cash flows from operating activities                                                                                                                         |   |      |       |        |
|     Net loss                                                                                                                             | $      | (133,377) | $          | (93,740)    |
|     Adjustments to reconcile net loss to                                                                                                 |   |      |       |        |
|     net cash provided (used) by operating activities                                                                                     |   |      |       |        |
|       Depreciation                                                                                                             |   | 150,574   |       | 75,288      |
|       Amortization                                                                                                             |   | 520       |       | 260         |
|       Changes in assets and liabilities                                                                                        |   |      |       |        |
|            (Increase)Decrease in accounts receivable                                                  |   | 1,948     |       | (2,430)     |
|            (Increase)Decrease in prepaid expenses                                                     |   | (100)     |       | (3,862)     |
|            Increase(Decrease) in accounts payable                                                     |   | (1,431)   |       | 1,894       |
|            Increase(Decrease) in accrued property taxes                                               | 3,684  |      | 7,225      |
|            Increase(Decrease) in prepaid rent                                                         |   | 61        |       | 9           |
|                                                                                                                                                         |   |      |       |        |
|                Total adjustments                                                  |   | 155,256   |       | 78,384      |
|                                                                                                                                                         |   |      |       |        |
|                   Net cash provided (used) by operating activities |   |      |
|                                                                                                                                                         |   | 21,879    |       | (15,356)    |
|                                                                                                                                                         |   |      |       |        |
| Cash flows from investing activities                                                                                                                         |   |      |       |        |
|     Monitoring fees                                                                                                                      |   | 0         |       | (7,800)     |
|     Net deposits to tax and insurance escrow                                                                                             |   | (4,118)   |       | (7,502)     |
|     Net deposits to operating reserves                                                                                                   |   | 91,419    |       | (95,024)    |
|     Net deposits to reserve for replacement                                                                                              |   | (13,103)  |       | 0           |
|     Investment in rental property                                                                                                        |   | (36,712)  |       | (1,420,226) |
|                                                                                                                                                         |   |      |       |        |
|         Net cash provided (used) by investing activities                                                             | 37,486 |      | (,530,552) |
|                                                                                                                                                         |   |      |       |        |
| Cash flows from financing activities                                                                                                                         |   |      |       |        |
|     Principal payments on mortgage                                                                                                       |   | (1,122)   |       | 0           |
|     Payment to developer                                                                                                                 |   | (429,600) |       | 0           |
|     Partner contributions                                                                                                                |   | 364,258   |       | 1,466,161   |
|     Proceeds from issuance of construction loan                                                                                          |   | 0         |       | 113,563     |
|                                                                                                                                                         |   |      |       |        |
|        Net cash provided (used) by financing activities                                                                   |   | (66,464)  |       | 1,579,724   |
|                                                                                                                                                         |   |      |       |        |
|             Net increase (decrease) in cash                                                      |   | (7,099)   |       | 33,816      |
|                                                                                                                                                         |   |      |       |        |
| Cash, beginning of year                                                                                                                                      |   | 36,881    |       | 3,065       |
|                                                                                                                                                         |   |      |       |        |
|             Cash, end of year                                                                    | $      | 29,782    | $          | 36,881      |
|                                                                                                                                                         |   |      |       |        |
|                                                                                                                                                         |   |      |       |        |

----

| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION                                              |
|------------------------------------------------------------------------------------------------|
|                                                                                           |   |   |   |   |
|                                                                                           |   | 2006 |   | 2005 |
| Cash paid during the years for                                                                 |   |   |   |   |
|      Interest, which includes capitalized interest of $19,173 in 2005 | $ | 28,969 | $ | 34,020 |

----

----

|                                                                         |   | 2006    |   | 2005    |
|------------------------------------------------------------------------------|--------|---------|--------|---------|
|                                                                         |   |    |   |    |
| Tenant security deposit cash account                                         | $      | 7,950   | $      | 7,800   |
| Tenant security deposits payable balance                                     | $      | (7,950) | $      | (7,800) |
|                                                                         |   |    |   |    |
|           Excess (Deficit) | $      | 0       | $      | 0       |

|                                              |   | 2006   |   | 2005   |
|---------------------------------------------------|--------|--------|--------|--------|
|                                              |   |   |   |   |
|   Beginning balances                    | $      | 0      | $      | 0      |
|   Add:  Deposits              |   | 13,103 |   | 0      |
|   Less: Reserve releases                |   | 0      |   | 0      |
|                                              |   |   |   |   |
|   Ending balances, as confirmed by bank | $      | 13,103 | $      | 0      |

|                          |   | 2006   |   | 2005   |
|-------------------------------|--------|--------|--------|--------|
|                          |   |   |   |   |
| Operating deficit reserves    |   | 2,293  |   | 95,024 |
| USDA annual guarantee reserve |   | 1,312  |   | 0      |
|                          |   |   |   |   |
| Ending balances               | $      | 3,605  | $      | 95,024 |

----

| December 31,      |   | Amount  |
|-------------------|--------|---------|
|              |   |    |
| 2007              | $      | 1,588   |
| 2008              |   | 1,713   |
| 2009              |   | 1,847   |
| 2010              |   | 1,992   |
| 2011              |   | 2,148   |
| 2012 - thereafter |   | 364,590 |
|              |   | 372,290 |
|              |   |    |
|              | $      | 373,878 |

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