MELODIE MEADOW ASSOCIATES, LTD.

                        (An Alabama Limited Partnership)



                              FINANCIAL STATEMENTS
                                      AND
                          INDEPENDENT AUDITORS' REPORT



                 For the Years Ended December 31, 2003 and 2002









    Cone
    &
    Smith, P.C.


--------------------------------------------------------------------------------
Certified Public Accountants



<PAGE>









                                TABLE OF CONTENTS

                                                                            PAGE

INDEPENDENT AUDITORS' REPORT                                                   1


 FINANCIAL STATEMENTS
   BALANCE SHEETS                                                            2-3

   STATEMENTS OF OPERATIONS                                                    4

   STATEMENTS OF PARTNERS' EQUITY                                              5

   STATEMENTS OF CASH FLOWS                                                    6


NOTES TO FINANCIAL STATEMENTS                                               7-13


















<PAGE>


Cone                                                          Jenny M. Cone, CPA
&                                                            David A. Smith, CPA
Smith, P.C.
Certified Public Accountants

                       839 West Main Street                 3421 Rainbow Parkway
                       Centre, Alabama 35960          Rainbow City,Alabama 35960

                       Telephone: (256) 927-3919       Telephone: (256) 413-3057
                       Fax: (256) 927-4699                   Fax: (256) 413-3058
--------------------------------------------------------------------------------



                          INDEPENDENT AUDITORS' REPORT


To the Partners of Melodie Meadow Associates, Ltd,

We have  audited the  balance  sheets of Melodie  Meadow  Associates,  Ltd.  (an
Alabama  Limited  Partnership) as of December 31, 2003 and 2002, and the related
statements of income, partners' equity, and cash flows for the years then ended.
These  financial   statements  are  the   responsibility  of  the  Partnership's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

We conducted our audits in accordance with standards  generally  accepted in the
United States of America.  Those standards  require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence supporting the amounts and disclosures in the financial statements.  An
audit also includes  assessing the accounting  principles  used and  significant
estimates  made by  management,  as well as  evaluating  the  overall  financial
statement  presentation.  We believe that our audits provide a reasonable  basis
for our opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material respects, the financial position of Melodie Meadow Associates, Ltd.
as of December 31, 2003 and 2002, and the results of its operations and its cash
flows  for the  years  then  ended  in  conformity  with  accounting  principles
generally accepted in the United States of America.



/s/CONE & SMITH
CONE & SMITH, P.C
Rainbow City, Alabama
February 20, 2004












<PAGE>


                         MELODIE MEADOW ASSOCIATES, LTD.
                                 BALANCE SHEETS
                           December 31, 2003 and 2002
<TABLE>
<CAPTION>


                                                                                             2003              2002
                                                                                    ----------------     ---------------
                                     ASSETS

<S>                                                                                 <C>                  <C>
CURRENT ASSETS
  Cash                                                                              $           658      $      178,023
  Due from partners                                                                             100                  --
  Prepaid insurance                                                                           2,722                  --
                                                                                    ----------------     ---------------

 TOTAL CURRENT ASSETS                                                                         3,480             178,023

 RESTRICTED DEPOSITS AND FUNDED RESERVES
  Operating deficit reserve                                                                  46,502                  --
  Replacement reserve escrow                                                                  3,387                  --
  Tenant security deposits                                                                    8,990                  --
  Tax and insurance escrow                                                                        5                  --
  Rental assistance reserve                                                                  27,779                  --
                                                                                    ----------------     ---------------

 TOTAL RESTRICTED DEPOSITS AND FUNDED RESERVES                                               86,663                  --

 PROPERTY AND EQUIPMENT
  Construction in
  progress                                                                                       --            1,528,096
  Land                                                                                      208,800              208,768
  Land improvements                                                                         137,942                  --
  Buildings                                                                               2,422,277                  --
  Furniture and fixtures                                                                    133,418                  --
                                                                                    ----------------     ---------------
                                                                                          2,902,437           1,736,864

LESS ACCUMULATED DEPRECIATION                                                                64,862                  --
                                                                                    ----------------     ---------------

NET PROPERTY AND EQUIPMENT                                                                2,837,575           1,736,864

 OTHER ASSETS
  Amortizable costs (net of amortization)                                                    16,880              17,602
  Utility deposits                                                                              500                  --
                                                                                    ----------------     ---------------
 TOTAL OTHER ASSETS                                                                          17,380              17,602
                                                                                    ----------------     ---------------

TOTAL ASSETS                                                                        $     2,945,098      $    1,932,489
                                                                                    ================     ===============
</TABLE>



   The accompanying notes are an integral part of these financial statements.
                                       -2-







<PAGE>


                         MELODIE MEADOW ASSOCIATES, LTD.
                                 BALANCE SHEETS
                           December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                                             2003              2002
                                                                                    ----------------     ---------------
                        LIABILITIES AND PARTNERS' EQUITY

<S>                                                                                 <C>                 <C>
CURRENT LIABILITIES
 Notes payable:
   Current installments of long-term
    debt                                                                            $         4,039     $            --
 Accounts payable                                                                                --             169,605
 Accrued interest payable                                                                     1,718               4,897
 Accrued property taxes                                                                       3,697                  --
 Construction loan payable                                                                       --           1,383,562
 Developer fees payable                                                                     154,387              78,000
                                                                                    ----------------    ----------------

TOTAL CURRENT LIABILITIES                                                                   163,841           1,636,064

DEFERRED RENTAL REVENUE                                                                      27,750                  --

LONG-TERM DEBT
 First mortgage - net of current portion                                                     87,945                  --
 Second mortgage - AHFA (HOME) loan                                                       1,101,260                  --
 Third mortgage - Caanea loan                                                                48,016                  --
 Accrued interest - AHFA (HOME) loan                                                          1,373                  --
                                                                                    ----------------    ----------------

TOTAL LONG-TERM DEBT                                                                      1,238,594                  --

TENANT SECURITY DEPOSITS                                                                      9,000                  --
                                                                                    ----------------    ----------------
                                                                                          1,439,185           1,636,064
TOTAL LIABILITIES

PARTNERS' EQUITY                                                                          1,505,913             296,425
                                                                                    ----------------    ----------------








TOTAL LIABILITIES AND PARTNERS' EQUITY                                              $     2,945,098     $     1,932,489
                                                                                    ================    ================
</TABLE>







   The accompanying notes are an integral part of these financial statements.
                                       -3-








<PAGE>


                         MELODIE MEADOW ASSOCIATES, LTD.
                            STATEMENTS OF OPERATIONS
                     Years Ended December 31, 2003 and 2002
<TABLE>
<CAPTION>
                                                                                             2003              2002
                                                                                    ----------------    ----------------
<S>                                                                                 <C>                 <C>
OPERATING REVENUE
 Rental income                                                                      $        89,357     $            --
 Tenant charges                                                                               3,480                  --
 Miscellaneous income                                                                         1,165                  --
                                                                                    ----------------    ----------------
TOTAL OPERATING REVENUE
                                                                                             94,002                  --
OPERATING EXPENSES
 Advertising                                                                                    539                  --
 Bank fees                                                                                      624                  --
 Credit Bureau                                                                                  101                  --
 Education and training                                                                       1,966                  --
 Employee leasing                                                                            10,767                  --
 Garbage removal                                                                              1,280                  --
 Grounds upkeep                                                                               3,600                  --
 Insurance                                                                                    5,559                  --
 Lease-up                                                                                     5,000                  --
 Management fees                                                                              7,228                  --
 Office expense                                                                               5,247                  --
 Pest control                                                                                 1,575                  --
 Professional fees                                                                              548                  --
 Repairs and maintenance                                                                      3,437                  --
 Supplies                                                                                       160                  --
 Taxes and licenses                                                                          18,585                  --
 Telephone                                                                                    1,966                  --
 Utilities                                                                                    5,402                  --
                                                                                    -----------------   ----------------
TOTAL OPERATING EXPENSES                                                                     73,584                  --
                                                                                    -----------------   ----------------
     INCOME FROM RENTAL OPERATIONS                                                           20,418                  --

NON-OPERATING INCOME (EXPENSES)
       Interest expense                                                                     (18,306)                 --
       Interest income                                                                            8                  --
       Amortization expense                                                                    (982)                 --
       Depreciation expense                                                                 (64,862)                 --
                                                                                    -----------------   ----------------

TOTAL NON-OPERATING (EXPENSES)                                                              (84,142)                 --
                                                                                    -----------------   ----------------
NET (LOSS)                                                                          $       (63,724)    $            --
                                                                                    =================   ================
</TABLE>

   The accompanying notes are an integral part of these financial statements.
                                       -4-







<PAGE>






                         MELODIE MEADOW ASSOCIATES, LTD.
                          STATEMENT OF PARTNERS' EQUITY
                  For the Years Ended December 31, 2003 and 2002




<TABLE>
<CAPTION>
                                                                                     Gencral             Limited
                                                                     Total           Partners            Partners
                                                                     -----------   -------------       -------------

<S>                                                                  <C>              <C>             <C>
Balance,
 January 1, 2002                                                     $       100      $       2       $          98


Add:
 Capital contributed
  during year                                                            296,423             98             296,325


Deduct:
 withrawing partners capital distributions                           $       (98)     $      --       $         (98)
                                                                     -----------      ----------      ---------------
Balance,
 December 31, 2002
  year                                                               $   296,425      $     100       $     296,325


Add:
 Capital contributed
  during year                                                          1,273,212             --           1,273,212


Deduct:
 Net loss for
  year                                                                   (63,724)            (6)            (63,718)
                                                                     -----------      ----------        ------------
Balance,
 December 31, 2003                                                   $ 1,505,913      $      94       $   1,505,819
                                                                     ===========      ==========      ==============
</TABLE>









   The accompanying notes are an integral part of these financial statements.
                                      -5-


<PAGE>


                         MELODIE MEADOW ASSOCIATES, LTD.
                            STATEMENTS OF CASH FLOWS
                     Years Ended December 31, 2003 and 2002
<TABLE>
<CAPTION>


                                                                                             2003                2002
                                                                                   --------------------  -------------------
<S>                                                                                <C>                   <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss                                                                           $           (63,724)  $              --
Adjustments to reconcile net loss to net cash
provided by operating activities:
   Depreciation and amortization                                                                65,844                  --
   (Increase) Decrease in prepaid insurance                                                     (2,722)                 --
   (Increase) Decrease in amounts due from partners                                               (100)                 --
   (Increase) Decrease in operating deficit reserve                                            (46,502)                 --
   (Increase) Decrease in escrow for insurance and taxes                                            (5)                 --
   (Increase) Decrease in rental assistance reserve                                            (27,779)                 --
   (Increase) Decrease in replacement reserve escrow                                            (3,387)                 --
   Increase (Decrease) in accrued property taxes payable                                         3,697                  --
   Increase (Decrease) in deferred rental revenue                                               27,750                  --
   Increase (Decrease) in accrued interest payable                                               3,091                  --
   Net security deposits received (paid)                                                            10                  --
                                                                                   --------------------  ------------------

NET CASH (USED) BY OPERATING ACTIVITIES                                                        (43,827)                 --

CASH FLOWS FROM INVESTING ACTIVITIES
   Increase (Decrease) in utility deposits                                                        (500)                 --
   Increase (Decrease) in construction payables                                               (169,605)            169,605
   Increase (Decrease) in construction loan interest payable                                    (4,897)              4,897
   Increase (Decrease) in developer fees payable                                                76,237              78,000
   Purchase of land and fixed assets                                                        (1,165,573)         (1,736,864)
                                                                                   --------------------  ------------------
NET CASH (USED) BY INVESTING ACTIVITIES                                                     (1,264,338)         (1,484,362)

CASH FLOWS FROM FINANCING ACTIVITIES
   Proceeds from long-term debt                                                              1,241,260                  --
   Increase (Decrease) capital contributions                                                 1,273,362             296,425
   Increase (Decrease) in construction loan payable                                         (1,383,562)          1,383,562
   Permanent loan fees paid                                                                       (260)                 --
   Tax credit fees paid                                                                              -             (17,602)
                                                                                   --------------------  ------------------

NET CASH (PROVIDED) BY FINANCING ACTIVITIES                                                  1,130,800           1,662,385
                                                                                   --------------------  ------------------

NET (DECREASE) INCREASE IN CASH                                                               (177,365)            178,023
CASH AT BEGINNING OF YEAR                                                                      178,023                  --
                                                                                   --------------------  ------------------

CASH AT END OF YEAR                                                                $               658   $         178,023
                                                                                   ====================  ==================
</TABLE>






   The accompanying notes are an integral part of these financial statements.
                                       -6-








<PAGE>


MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOTE A - ORGANIZATION

Melodie Meadow Associates,  Ltd. (An Alabama Limited  partnership) was organized
in 2002 under the laws of the State of  Alabama to  develop,  own,  operate  and
maintain Melodic Meadow Apartments,  a 40 unit rental housing project located in
Glencoe,  Alabama  for  persons  of low  income.  The  major  activities  of the
Partnership  are governed by the  Partnership  agreement and the Alabama Housing
Finance Authority.  The Partnership is receiving  low-income housing tax credits
established by the Tax Reform Act of 1986.

The  Partnership  consists  of two general  partner  and two  limited  partners.
Operating  profits,  losses, and tax credits are allocated 99,99% to the limited
partners and .01% to the general partners. Annual distributions are allocated to
the  limited  partners  and general  partner as  formulated  in the  Partnership
agreement,

NOTE B - SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting
-------------------

The Partnership  utilizes the accrual basis of accounting  whereby  revenues are
recognized as earned and expenses are recognized as obligations are incurred.

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

Cash and cash equivalents consist of cash in banks.

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

No provision for income taxes has been made in these  financial  statements,  as
income taxes are a liability of the partners rather than of the Partnership.

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

Land,  buildings  and  improvements  are  recorded  at  cost.  Improvements  are
capitalized,  while  expenditures  for  maintenance  and  repairs are charged to
expense as incurred.  Upon disposal of  depreciable  property,  the  appropriate
property accounts are reduced by the related costs and accumulated depreciation.
The resulting  gains and losses are  reflected in the  statement of  operations.
Depreciation  is computed  using the  straight-line  method  over the  estimated
useful lives of the related assets, which range as follows:

                            Buildings                                 40 Years
                            Land Improvements                         15 Years
                            Furniture and fixturves                    Various


                                      -7-
<PAGE>


MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOTE B - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment (continued)
----------------------------------

Total depreciation expense was $64,862 for the year ended December 31, 2003.

Estimates
---------

The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires the use of estimates that affect certain reported
amounts and disclosures. These estimates are based on management's knowledge and
experience. Accordingly, actual results could differ from these estimates.

Tax Credit Fees and Permanent Loan Fees
---------------------------------------

Tax credit fees and  permanent  loan fees are being  amortized  over a period of
fifteen years to twenty years. Total amortization  expense was $982 for the year
ended December 31, 2003.

NOTE C - CASH AND ESCROW ACCOUNTS

Rental Assistance
-----------------

The Partnership established a rental assistance account in the amount of $30,000
to assist income  eligible  qualified  tenants with monthly rent  payments.  The
Partnership  is  authorized  to draw fifty dollars per unit from the account per
month for no more than ten  units.  A maximum  of ten units may  receive  rental
assistance  at any one time.  The rental  assistance  is to  continue  until the
entire account balance has been depleted.

Replacement Reserve
-------------------

As described in Note D, the Partnership has agreed to transfer $10,000 annually,
in monthly  payments of $883 into a reserve  account  until the  balance  equals
$70,000. The reserve's status at December 31, 2003 and 2002, is as fellows:

<TABLE>
<CAPTION>
                                                                      2003            2002
                                                                  -------------   ----------

<S>                                                               <C>             <C>
               Reserve Account Bank Balance                       $      3,387    $      -
               Required Reserve Account Balance                          2,499           -
                                                                  -------------   ----------

               Excess/(Deficit)                                   $        888    $      -
                                                                  -------------   ----------
</TABLE>





                                      -8-
<PAGE>

MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOW C - CASH AND ESCROW ACCOUNTS (CONTINUED)

Operating Deficit Reserve
-------------------------

As  described  in Note D, the  Partnership  has agreed to  establish a operating
deficit reserve account with a minimum balance of $46,430.  The reserve's status
at December 31, 2003 and 2002, is as follows:
<TABLE>
<CAPTION>

                                                                                 2003            2002
                                                                             -------------   ----------
<S>                                                                          <C>             <C>
      Account Balance                                                        $     46,502    $      -
      Required Reserve Account Balance                                             46,430           -
                                                                             -------------   ----------
      Excess/(Deficit)
                                                                             $         72    $      -
                                                                             =============   ==========


Tenant Security Deposits
------------------------

Security deposits collected from tenants are held in a separate bank account. The account's status at December 31. 2003 and 2002, is
as follows:

                                                                                2003             2002
                                                                             ----------       -----------
       Security Deposits Bank Balance                                        $   8,990        $       -
       Security Deposits Payable                                                 9,000                -
                                                                             ----------       -----------
      Excess / (Deficit)                                                     $     (10)       $       -
                                                                             ==========       ===========
Real Estate Tax and Insurance Escrow
------------------------------------

The Real Estate Tax and Insurance Escrow account's status at December 31, 2003, and 2002, is as follows:

                                                                                2003            2002
                                                                            ------------    ------------

      Real Estate Tax and Insurance Escrow Bank Balance                     $         5     $         -
      Accrued Real Estate Taxes                                                   3,697               -
                                                                            ------------    ------------

      Excess/(Deficit)                                                      $    (3,692)    $         -
                                                                            =============   ============
</TABLE>






                                      -9-
<PAGE>


MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOTE D - LONG-TERM DEBT

Long-term debt at December 31, 2003, consists of the following:

Note Payable - Alabama Housing Finance Authority
------------------------------------------------

This note is dated September 11, 2003 in the principal  amount of $1,101,260 and
was made under the State of Alabama's HOME Investment  Partnership  Program. The
term of the note is for a period of twenty  years with a fixed rate of  interest
of one-half of one percent (0.5%) per annum compounded  annually and no payments
of principal or interest until maturity on October 1, 2023.

In the event of default.  the interest  rate on the entire  unpaid loan balances
shall increase to the greater of (a) 12% per annum or (b) 4% per annum in excess
of the prime rate  published in the Wall Street Journal under the heading "Money
Rates," until the default is fully cured or the loan is paid in full.

Notwithstanding  the  foregoing,  any excess cash flow (defined as the amount by
which  actual  rents plus  other  income  exceeds  1.4 times the total of actual
operating  expenses and debt service) from the project for a calendar year shall
be paid by no later  than May 1  immediately  following  such  calendar  year to
reduce the outstanding principal balance of the loan.

The  loan  is  secured  by  a  second  mortgage  on  the  project,  constituting
approximately  5 acres of land,  land  improvements,  and the 52 unlit apartment
complex,  together with a second perfected security interest in all fixtures and
personal property of the Partnership located at the project.

A reserve for replacements  account is to be maintained in the minimum amount of
$70,000.  The  account  shall be opened  with an  initial  lump sum or by making
monthly  contributions of $883. Such contributions are required during any month
in which the account balance is less than the minimum reserve amount.

As  a  condition  of  obtaining  financing  from  the  Alabama  Housing  Finance
Authority, the Partnership is required to maintain a lease-up/operating  deficit
reserve   account   with  a  balance  of  $46,430  or  provide  an   irrevocable
unconditional  letter  of  credit  of  $46,430.  The  account  is to be used for
lease-up  expenses  during the lease up phase of  operations.  Once the  project
achieves an occupancy rate of 95%, the reserve account  converts to an operating
deficit reserve account to only be used for operating  expenses and debt service
if and only if the net  operating  income of the Project  falls below 87% of the
budgeted net operating income. If any of this reserve is expended,  the Borrower
must  replenish the account to the minimum  amount of $46,430.  The Borrower may
replenish this account by making a lump sum  contribution,  or by making monthly
contributions equal to one-sixth of the amount expended until the



                                      -10-
<PAGE>


MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOTE D - LONG-TERM DEBT (CONTINUED)

Note Payable - Alabama Housing Finance Authority (Continued)
------------------------------------------------------------

minimum amount is reached, or by providing an irrevocable  unconditional  letter
of  credit.  Such lump sum  payments  shall be made  within  thirty  days of the
expenditure from the reserve or another letter of credit must be provided within
10 days. As of December 31, 2003, no withdrawals have been made from the reserve
account.

Mortgage Payable - Regions Bank
-------------------------------

The note is dated  September  11,  2003,  in the  original  principal  amount of
$90,000  and is payable  over a twenty year  period in monthly  installments  of
$716.80  including  interest at 7.35% per annum, with a maturity date of October
1, 2023.


Note Payable - Community Action Agency of Northeast Alabama. Inc.
-----------------------------------------------------------------

The note is dated  September 10, 2003, in the original  amount of $50,000 and is
payable over a twenty year period in monthly  installments of $316.32  including
interest at 4.5% per annum, with a maturity date of October 1, 2023.


Aggregate  amounts of  principal  payments  due in the years after  December 31,
2003, are as follows:

                                        Year Ending
                                            2004                $     4,039
                                            2005                      3,880
                                            2006                      4,125
                                            2007                      4,386
                                            2008                      4,665
                                         Thereafter                 118,905
                                                                 -----------
                                                                $   140,000
                                                                ============

This notes are secured by a security  interest in all real estate,  fixtures and
personal property of the Partnership located at the project.


                                      -11-
<PAGE>


MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------

NOTE E - RELATED PARTY TRANSACTIONS

Development Fees
----------------

The partnership owes Barron Development, Inc., an affiliate of General Partners,
development fees of $390,000 for services rendered in connection with developing
the project.  As of December 31, 2003,  the  Partnership  had paid  $235,763 and
still owes $154,237.

Management Fees
---------------

In accordance with the  Partnership  agreement,  the Partnership  paid to Barron
Land Company,  Inc., an affiliate of the General  Partners,  management  fees of
$7,227 for the year ended December 31, 2003 for services  rendered in connection
with the leasing and operation of the project.

Employee Leasing
----------------

The Partnership has entered into an employee leasing  agreement with Barron Land
Company,  an affiliate of the General  Partner,  where the Partnership  leases a
site manager and maintenance  personnel.  The Partnership  reimburses the Barron
Land Company,  Inc, for the actual cost of payroll,  taxes,  insurance and a 15%
fee for it's  services  related to  processing  the payroll.  For the year ended
December 31, 2003, Barron Land Company, Inc. was reimbursed $10,767.

NOTE F - CONTINGENCIES

Low-Income Housing Tax Credits
------------------------------

The  Partnership's  low-income  tax credits are  contingent  on it's  ability to
maintain  compliance  with  applicable  sections  of Section 42 of the  Internal
Revenue Code. Failure to maintain compliance with occupant  eligibility,  and/or
unit gross rent,  or to correct  noncompliance  within a specified  time period,
could result in  recapture of  previously  taken tax credits plus  interest.  In
addition,  such  potential  noncompliance  could result in an  adjustment to the
capital contributed by the limited partners.

NOTE G- CONCENTRATION OF CREDIT RISK

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


                                      -12-
<PAGE>

MELODIE MEADOW ASSOCIATES, LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2003 and 2002
--------------------------------------------------------------------------------


NOTE H - FAIR VALUE OF FINANCIAL INSTRUMENTS

The  Partnership has a number of financial  instruments,  none of which are held
for  trading  purposes,  The  Partnership  estimates  that the fair value of all
financial  instruments at December 31, 2003 does not differ  materially from the
aggregate  carrying  values  of  its  financial   instruments  recorded  in  the
accompanying   balance  sheet.  The  estimated  fair  value  amounts  have  been
determined by the Partnership using available market information and appropriate
valuation  methodologies.  Considerable  judgment is required when  interpreting
market  data to develop  the  estimates  of fair value,  and,  accordingly,  the
estimates are not  necessarily  indicative  of the amounts that the  Partnership
could realize in a current market exchange

NOTE 1- TAXABLE (LOSS)

The financial  statements of the Partnership and the Partnership tax returns are
prepared on the accrual  basis.  The following is a  reconciliation  between net
(loss) as reported in the financial  statements and  Partnership  (loss) for tax
purposes:
<TABLE>
<CAPTION>

                                                                        2003              2002
                                                                   -------------     -------------

<S>                                                                <C>               <C>
             Net (Loss) per Financial Statements                   $    (63,724)     $         --
             Tax Depreciation and Amortization
             in Excess of Book Depreciation                            (109,942)               --
                                                                   -------------     -------------

             Partnership (Loss) for Tax Purposes                   $   (173,666)     $         --
                                                                   -------------     -------------
</TABLE>









                                      -13-