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| TABLE OF CONTENTS                                  |   |
|----------------------------------------------------|--------|
|                                               |   |
|                                               | PAGE   |
|                                               |   |
| Independent auditors' report                       | 1      |
|                                               |   |
|                                               |   |
| Financial statements:                              |   |
|                                               |   |
|                                               |   |
| Balance sheet                                      | 2      |
|                                               |   |
|                                               |   |
| Statement of operations                            | 3      |
|                                               |   |
|                                               |   |
| Statement of changes in partners' equity (deficit) | 4      |
|                                               |   |
|                                               |   |
| Statement of cash flows                            | 5      |
|                                               |   |
|                                               |   |
| Notes to financial statements                      | 6-8    |
|                                               |   |
|                                               |   |
| Supplemental information:                          |   |
|                                               |   |
|                                               |   |
| Supplemental schedules                             | 9-12   |
|                                               |   |
|                                               |   |
| Independent auditors' report on internal control   | 13     |
|                                               |   |
|                                               |   |
| Independent auditors' report on compliance with    |   |
| laws and regulations in accordance with            |   |
| government auditing standards                      | 14     |

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| ASSETS                                 |   |            |
|----------------------------------------|--------|-----------------|
|                                   |   |            |
| Current assets                         |   |            |
| Cash                                   | $      | 36,881          |
|      3,065    |   |            |
| Cash, tenant security deposits         |   | 7,800           |
| Cash, tax reserve                      |   | 7,502           |
| Accounts receivable                    |   | 2,430           |
| Prepaid expenses                       |   | 3,862           |
| Operating deficit reserve              |   | 95,024          |
|                                   |   |            |
| Total current assets3,065              |   | 153,499         |
|                                   |   |            |
| Property, plant and equipment, at cost |   | 4,645,661       |
|                                   |   | 2,860,155       |
| Less accumulated depreciation          |   | (75,288)        |
|                                   |   |            |
| Net property, plant and equipment      |   | 4,570,373       |
|                                   |   |            |
| Monitoring fees, at cost               |   | 7,800           |
| Less accumulated amortization          |   | (260)           |
|                                   |   |            |
| Net monitoring fees                    |   | 7,540           |
|                                   |   |            |
|                                   | $      |  4,731,412 |
|                                   |   | 2,863,220       |

| LIABILITIES AND PARTNERS' EQUITY (DEFICIT)                                            |   |                                        |
|---------------------------------------------------------------------------------------|--------|---------------------------------------------|
|                                                                                  |   |                                        |
| Current liabilities                                                                   | $      | 1,894                                       |
| Accounts payable                                                                      |   | 7,225                                       |
| Accrued property taxes                                                                |   |        9 |
| Prepaid rent                                                                          |   | 482,600                                     |
| Accrued developer fees                                                                |   |                                        |
|        117,320                                     |   |                                        |
| Tenant security deposits                                                              |   | 7,800                                       |
| Construction loan payable                                                             |   | 375,000                                     |
|                                                                                  |   |                                        |
| Total current liabilities                                                             |   | 874,528                                     |
|              117,320 |   |                                        |

| Partners' equity (deficit) |   | 3,856,884 |
|----------------------------|--------|-----------|
|                       |   | 2,484,463 |
|                       |   |      |
|                       | $      | 4,731,412 |
|                       |   | 2,601,783 |

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| Revenues        |   |    |
|-----------------|--------|---------|
| Rental income   | $      | 106,302 |
| Tenant charges  |   | 2,850   |
| Interest income |   | 26      |
|            |   |    |
| Total income    |   | 109,178 |

| Expenses                  |   |     |
|---------------------------|--------|----------|
| Maintenance and operating |   | 38,763   |
| Utilities                 |   | 5,982    |
| Administrative            |   | 26,244   |
| Taxes and insurance       |   | 41,534   |
| Interest                  |   | 14,847   |
| Depreciation              |   | 75,288   |
| Amortization              |   | 260      |
|                      |   |     |
| Total expenses            |   | 202,918  |
|                      |   |     |
| Net loss                  | $      | (93,740) |

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|                                  |   | General |   | Limited   |   |      |
|---------------------------------------|--------|---------|--------|-----------|--------|-----------|
|                                  |   | Partner |   | Partner   |   | Total     |
|                                  |   |    |   |      |   |      |
| Partners' equity (deficit)            |   |    |   |      |   |      |
| December 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),           |   |    |   |      |   |      |
| December 31, 2005                     | $      | (5)     | $      | 3,856,889 | $      | 3,856,884 |

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| Cash flows from operating activities              |   |        |
|---------------------------------------------------|--------|-------------|
| Net loss                                          | $      | (93,740)    |
| Adjustments to reconcile net loss to              |   |        |
| net cash provided (used) by operating activities  |   |        |
| Depreciation                                      |   | 75,288      |
| Amortization                                      |   | 260         |
| Changes in assets and liabilities                 |   |        |
| (Increase)Decrease in cash, tax reserve           |   | (7,502)     |
| (Increase)Decrease in accounts receivable         |   | (2,430)     |
| (Increase)Decrease in prepaid expenses            |   | (3,862)     |
| (Increase)Decrease in operating deficit reserve   |   | (95,024)    |
| Increase(Decrease) in accounts payable            |   | 1,894       |
| Increase(Decrease) in accrued property taxes      |   | 7,225       |
| Increase(Decrease) in deferred rent               |   | 9           |
|                                              |   |        |
| Total adjustments                                 |   | (24,142)    |
|                                              |   |        |
| Net cash provided (used) by                       |   |        |
| operating activities                              |   | (117,882)   |
|                                              |   |        |
| Cash flows from investing activities              |   |        |
| Purchase of monitoring fees                       |   | (7,800)     |
| Investment in rental property                     |   | (1,420,226) |
|                                              |   |        |
| Net cash provided (used) by investing activities  |   | (1,428,026) |
|                                              |   |        |
| Cash flows from financing activities              |   |        |
| Partner contributions                             |   | 1,466,161   |
| Proceeds from issuance of construction loan       |   | 113,563     |
|                                              |   |        |
| Net cash used by financing activities             |   | 1,579,724   |
|                                              |   |        |
| Net increase (decrease) in cash                   |   | 33,816      |
|                                              |   |        |
| Cash, beginning of year                           |   | 3,066       |
|                                              |   | 3,065       |
| Cash, end of year                                 | $      | 36,881      |
|                                              |   |        |
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |   |        |
|                                              |   |        |
|                                              |   |        |
| Cash paid during the years for Interest           | $      | 34,020      |

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

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| Maintenance and operating        |   |   |
|----------------------------------|--------|--------|
| Maintenance and repair           | $      | 4,883  |
| Maintenance and repair - payroll |   | 26,887 |
| Painting and decorating          |   | 677    |
| Grounds                          |   | 6,234  |
| Garbage removal                  |   | 82     |
|                             |   |   |
|                             | $      | 38,763 |
|                             |   |   |
| Utilities                        |   |   |
| Electric                         | $      | 4,433  |
| Water                            |   | 1,009  |
| Sewer                            |   | 540    |
|                             |   |   |
|                             | $      | 5,982  |
|                             |   |   |
| Administrative                   |   |   |
| Management fee                   | $      | 10,774 |
| Legal expense                    |   | 280    |
| Advertising                      |   | 840    |
| Telephone and answering service  |   | 1,219  |
| Office supplies                  |   | 7,094  |
| Training expense                 |   | 157    |
| Health insurance and other       |   | 844    |
| Payroll taxes                    |   | 2,212  |
| Workers' compensation            |   | 885    |
| Cable                            |   | 661    |
| Other administrative expenses    |   | 1,278  |
|                             |   |   |
|                             | $      | 26,244 |
|                             |   |   |
| Taxes and insurance              |   |   |
| Real estate taxes                | $      | 36,124 |
| Property and liability insurance |   | 5,410  |
|                             |   |   |
|                             | $      | 41,534 |

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|               Name of Company |   |                             |   |                                 |
|-----------------------------------------------------------------------------------------------------|--------|----------------------------------|--------|--------------------------------------|
|                                                                                                |   |                             |   |                                 |
| State Farm Fire and Casualty Company                                                                |   |                             |   |                                 |
| 11350 Johns Creek Parkway                                                                           |   |                             |   |                                 |
| Duluth, GA 30098                                                                                    |   |                             |   |                                 |
|                                                                                                |   |     Coverage |   |                                 |
|                                                                                                |   | Expiration Date                  |   |      Amount |
| Property coverage:                                                                                  |   |                             |   |                                 |
| Blanket                                                                                             |   | May 25, 2006                     | $      | 4,272,000                            |
| Loss of rents                                                                                       |   | May 25, 2006                     |   | Actual loss                          |
|                                                                                                |   |                             |   |                                 |
| Liability coverage:                                                                                 |   |                             |   |                                 |
| General aggregate                                                                                   |   | May 25, 2006                     |   | 4,000,000                            |
|                                                                                                |   |                             |   |                                 |
| Fidelity coverage:                                                                                  |   |                             |   |                                 |
| Fidelity bond - corporate                                                                           |   | January 1, 2006                  |   | 1,000,000                            |
|                                                                                                |   |                             |   |                                 |
|      Name of Company                                                       |   |                             |   |                                 |
|                                                                                                |   |                             |   |                                 |
| Hartford Insurance Company                                                                          |   |                             |   |                                 |
| Hartford, CT 06115                                                                                  |   |                             |   |                                 |
|                                                                                                |   |                             |   |                                 |
| Fidelity coverage:                                                                                  |   |                             |   |                                 |
| Fidelity bond - resident manager                                                                    |   | December 4, 2006                 | $      | 30,000                               |

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|                                                |   |    |   | # Units    |   | Allowable       |   |  Amount |
|-----------------------------------------------------|--------|---------|--------|-----------------|--------|-----------------|--------|--------------|
|      Month                 |   | #Vacant |   |   Occupied |   |   Fee |   | Calculated   |
|                                                |   |    |   |            |   |            |   |         |
| January                                             |   | 52      |   | 0               | $      | 33              | $      | 0            |
| February                                            |   | 52      |   | 0               |   | 33              |   | 0            |
| March                                               |   | 52      |   | 0               |   | 33              |   | 0            |
| April                                               |   | 52      |   | 0               |   | 33              |   | 0            |
| May                                                 |   | 52      |   | 0               |   | 33              |   | 800          |
| June                                                |   | 48      |   | 4               |   | 33              |   | 800          |
| July                                                |   | 18      |   | 34              |   | 33              |   | 1,122        |
| August                                              |   | 8       |   | 44              |   | 33              |   | 1,452        |
| September                                           |   | 6       |   | 46              |   | 33              |   | 1,518        |
| October                                             |   | 1       |   | 51              |   | 33              |   | 1,683        |
| November                                            |   | 1       |   | 51              |   | 33              |   | 1,683        |
| December                                            |   | 0       |   | 52              |   | 33              |   | 1,716        |
|                                                |   |    |   |            |   |            |   |         |
| Earned Management Fees:                             |   |    |   |            |   |            | $      | 10,774       |
|                                                |   |    |   |            |   |            |   |         |
| Management Fees Collected:                          |   |    |   |            |   |            | $      | 8,975        |
|                                                |   |    |   |            |   |            |   |         |
| Management Fees Accrued:                            |   |    |   |            |   |            | $      | 1,799        |
|                                                |   |    |   |            |   |            |   |         |
| Previous Years' Management Fees Collected this Year |   |    |   |            |   |            | $      | 0            |
|                                                |   |    |   |            |   |            |   |         |
| Vacancy Percentage = 55%                            |   |    |   |            |   |            |   |         |

| Note: | The Resident Manager's unit is considered nonoccupied for management fee purposes unless the manager is paying normal rent. |
|-------|-----------------------------------------------------------------------------------------------------------------------------|

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