FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                           ST. JOHN HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                        DECEMBER 31, 1999, 1998 and 1997


<PAGE>

                 St. John Housing Associates Limited Partnership

                                TABLE OF CONTENTS

                                                                           PAGE
                                                                           ----

INDEPENDENT AUDITORS' REPORT                                                3

FINANCIAL STATEMENTS

         BALANCE SHEETS                                                     4

         STATEMENTS OF PROFIT AND LOSS                                      6

         STATEMENTS OF PARTNERS' EQUITY                                     7

         STATEMENTS OF CASH FLOWS                                           8

         NOTES TO FINANCIAL STATEMENTS                                      9

<PAGE>

                          INDEPENDENT AUDITORS' REPORT


To the Partners
St. John Housing Associates Limited Partnership

         We have  audited the  accompanying  balance  sheets of St. John Housing
Associates Limited Partnership as of December 31, 1999 and 1998, and the related
statements  of profit  and loss,  partners'  equity and cash flows for the years
ended  December 31, 1999,  1998 and 1997.  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 generally  accepted auditing
standards.  Those standards require that we plan and perform our 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.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the financial  position of St. John Housing
Associates Limited Partnership as of December 31, 1999 and 1998, and the results
of its  operations,  changes  in  partners'  equity and cash flows for the years
ended December 31, 1999,  1998 and 1997, in conformity  with generally  accepted
accounting principles.



Bethesda, Maryland
February 10, 2000


                                       3

<PAGE>

                 St. John Housing Associates Limited Partnership

                                 BALANCE SHEETS

                                  December 31,

<TABLE>
<CAPTION>
                                     ASSETS
                                                                 1999                   1998
                                                                 ----                   ----
CURRENT ASSETS
<S>                                                           <C>                     <C>
Cash - operations                                             $  231,404              $  125,174
Cash - entity                                                      9,637                   8,495
Short-term investments - operations                                 --                    97,275
Tenant accounts receivable                                         1,363                   1,524
Miscellaneous prepaid expenses                                    17,159                  17,014
Accounts receivable - HUD                                         74,369                    --
Accounts and notes receivable - operations                         9,600                    --
                                                              ----------              ----------
Total current assets                                             343,532                 249,482
                                                              ----------              ----------
DEPOSITS HELD IN TRUST - FUNDED
Tenant deposits                                                   20,514                  18,039
                                                              ----------              ----------
RESTRICTED DEPOSITS AND FUNDED RESERVES
Escrow deposits                                                   35,259                  52,850
Reserve for replacements                                         275,135                 233,689
                                                              ----------              ----------
                                                                 310,394                 286,539
                                                              ----------              ----------
RENTAL PROPERTY
Land                                                              59,800                  59,800
Land improvements                                                 15,000                  15,000
Buildings and improvements                                     8,018,620               8,018,620
Furniture and equipment                                          250,659                 243,279
Motor vehicles                                                    10,029                  10,029
                                                              ----------              ----------
                                                               8,354,108               8,346,728
Less accumulated depreciation                                  1,641,846               1,419,336
                                                              ----------              ----------
                                                               6,712,262               6,927,392
                                                              ----------              ----------
OTHER ASSETS
Intangible assets, net of accumulated amortization of
$30,203 and $26,792, respectively                                 81,678                  85,089
                                                              ----------              ----------
                                                              $7,468,380              $7,566,541
                                                              ==========              ==========
</TABLE>

                                  (continued)

                                       4

<PAGE>

<TABLE>
<CAPTION>

                 St. John Housing Associates Limited Partnership

                           BALANCE SHEETS - CONTINUED

                                  December 31,


                        LIABILITIES AND PARTNERS' EQUITY

                                                                  1999                     1998
                                                                  ----                     ----
CURRENT LIABILITIES

<S>                                                            <C>                      <C>
Accounts payable                                               $   14,900               $   12,969
Prepaid rents                                                      72,125                      665
Accrued payroll taxes payable                                       1,508                    1,548
Accrued interest payable                                           18,290                   18,509
Accrued property taxes payable                                     88,500                   85,000
Due to management company                                           7,701                    4,861
Accounts payable - entity                                         121,250                   82,867
Mortgages payable - current maturities                            101,180                   94,185
                                                               ----------               ----------
Total current liabilities                                         425,454                  300,604
                                                               ----------               ----------
DEPOSITS LIABILITY
Tenant deposits held in trust (contra)                             19,596                   17,203
                                                               ----------               ----------
LONG-TERM LIABILITIES
Mortgages payable                                               4,382,140                4,476,604
Less current maturities                                           101,180                   94,185
                                                               ----------               ----------
                                                                4,280,960                4,382,419
                                                               ----------               ----------
CONTINGENCY                                                          --                       --

PARTNERS' EQUITY                                                2,742,370                2,866,315
                                                               ----------               ----------
                                                               $7,468,380               $7,566,541
                                                               ==========               ==========
</TABLE>

                       See notes to financial statememnts

                                       5

<PAGE>

<TABLE>
<CAPTION>

                                 St. John Housing Associates Limited Partnership

                                          STATEMENTS OF PROFIT AND LOSS

                                             Year ended December 31,


                                                            1999                1998                  1997
                                                            ----                ----                  ----
Revenue

<S>                                                     <C>                  <C>                   <C>
Rental                                                  $ 1,013,931          $ 1,014,920           $ 1,016,548
Interest and other                                           17,943               21,926                17,645
                                                        -----------          -----------           -----------
                                                          1,031,874            1,036,846             1,034,193
                                                        -----------          -----------           -----------
Expenses
Administrative                                              126,513              122,933               123,961
Utilities                                                    65,345               66,844                61,802
Operating and maintenance                                   229,874              197,844               196,929
Taxes and insurance                                         131,648              113,072               148,556
Interest                                                    214,277              221,193               226,741
Depreciation and amortization                               225,921              329,664               341,955
                                                        -----------          -----------           -----------
                                                            993,578            1,051,550             1,099,944
                                                        -----------          -----------           -----------
Other entity expenses (income)                              100,741               92,569               103,217
                                                        -----------          -----------           -----------
NET LOSS                                                $   (62,445)         $  (107,273)          $  (168,968)
                                                        ===========          ===========           ===========
</TABLE>

                       See notes to financial statememnts


                                       6

<PAGE>

                 St. John Housing Associates Limited Partnership
                         STATEMENTS OF PARTNERS' EQUITY
                  Years ended December 31, 1999, 1998 and 1997

<TABLE>
<CAPTION>
                                                                    Total             General partner      Limited partners
                                                                    -----             ---------------      ----------------
<S>                                                              <C>                   <C>                   <C>
Partners' equity (deficit), December 31, 1996                    $ 3,361,076           $      (877)          $ 3,361,953

Partner distributions                                               (118,018)               (1,180)             (116,838)

Net loss - 1997                                                     (168,968)               (1,690)             (167,278)
                                                                 -----------           -----------           -----------

Partners' equity (deficit), December 31, 1997                      3,074,090                (3,747)            3,077,837

Partners' distributions                                             (100,502)               (1,005)              (99,497)

Net loss - 1998                                                     (107,273)               (1,073)             (106,200)
                                                                 -----------           -----------           -----------

Partners' equity (deficit), December 31, 1998                      2,866,315                (5,825)            2,872,140

Partners' distributions                                              (61,500)                 (615)              (60,885)

Net loss - 1999                                                      (62,445)                 (624)              (61,821)
                                                                 -----------           -----------           -----------

Partners' equity (deficit), December 31, 1999                    $ 2,742,370           $    (7,064)          $ 2,749,434
                                                                 ===========           ===========           ===========
</TABLE>

                       See notes to financial statememnts

                                       7

<PAGE>

<TABLE>
<CAPTION>

                 St. John Housing Associates Limited Partnership

                            STATEMENTS OF CASH FLOWS

                             Year ended December 31,

                                                                                   1999             1998             1997
                                                                                   ----             ----             ----
<S>                                                                            <C>             <C>               <C>
Cash flows from operating activities
Net loss                                                                        $ (62,445)      $ (107,273)      $ (168,968)
Adjustments to reconcile net loss to net cash provided by operating activities
Depreciation                                                                      222,510          324,253          336,544
Amortization                                                                        3,411            5,411            5,411
Interest income on U.S. Treasury Bills                                                  -                -           (7,323)
(Increase) decrease in tenant accounts receivable                                     673             (244)             (78)
(Increase) decrease in accounts receivable - interest subsidy                      (9,600)           9,122           (9,122)
(Increase) decrease in prepaid expenses                                              (145)              94               (9)
(Increase) in accounts receivable - other                                         (74,369)               -                -
(Increase) decrease in escrow deposits                                             17,590          (13,223)          41,840
Increase (decrease) in accounts payable                                             1,930           (4,288)           1,633
Increase in accrued liabilities                                                     6,301                -                -
Decrease in accrued interest payable                                                 (219)            (193)            (450)
Increase (decrease) in accrued real estate tax                                          -          (13,000)           3,000
Increase in tenant security deposits - net                                           (593)            (512)            (302)
Increase in prepaid rents                                                          71,460              290              254
Increase (decrease) in due to management company                                        -               70              (89)
Increase (decrease) in accounts payable - entity                                   38,383          (11,135)         (14,515)
Due from other project - deposit error                                                 -                -             9,246
                                                                                ---------        ---------        ---------
Net cash provided by operating activities                                         214,887          189,372          197,072
                                                                                ---------        ---------        ---------
Cash flows from investing activities
Net deposits to reserve for replacement                                           (41,446)         (15,920)         (32,098)
Proceeds from redemption of U.S. Treasury Bills                                         -          129,757          250,000
Purchase of U.S. Treasury Bills                                                         -                -         (227,032)
Net purchase of fixed assets                                                       (7,380)              -                -
                                                                                ----------       ---------        ---------
Net cash provided by (used in) investing activities                               (48,826)        113,837            (9,130)
                                                                                ----------       ---------        ---------
Cash flows from financing activities
Mortgage principal payments                                                       (94,464)         (87,934)         (81,855)
Distributions                                                                     (61,500)        (100,502)        (118,018)
                                                                                ---------        ---------        ---------
Net cash used in financing activities                                            (155,964)        (188,436)        (199,873)
                                                                                ---------        ---------        ---------
NET INCREASE (DECREASE) IN CASH                                                    10,097          114,773          (11,931)

Cash, beginning                                                                   230,944           18,896           30,827
                                                                                ---------        ---------         --------
Cash, end                                                                       $ 241,041        $ 133,669         $ 18,896
                                                                                =========        ==========        ========
Supplemental disclosure of cash flow information
Cash paid for interest during the year                                          $ 214,496        $ 221,386        $ 227,191
                                                                                =========        =========        =========
</TABLE>

                       See notes to financial statememnts

                                       8

<PAGE>


                 St. John Housing Associates Limited Partnership

                          NOTES TO FINANCIAL STATEMENTS

                        December 31, 1999, 1998 and 1997


NOTE A - ORGANIZATION

    The  partnership was formed as a limited  partnership  under the laws of the
    State  of  Illinois  on  June  1,  1992,   for  the  purpose  of  acquiring,
    rehabilitating and operating a rental housing project under Sections 236 and
    241 of the National  Housing Act. The project,  which was acquired  December
    29, 1993,  consists of 144 units  located in Gary,  Indiana and is currently
    operating under the name of St. John Homes.

    Cash distributions are limited by agreements between the partnership and the
    Department  of Housing and Urban  Development  (HUD) to $121,682 per year to
    the extent of surplus  cash as defined  by HUD.  Undistributed  amounts  are
    cumulative and may be distributed in subsequent  years if future  operations
    provide surplus cash in excess of current requirements.

    Each  building of the project has qualified  and been  allocated  low-income
    housing credits  pursuant to Internal Revenue Code Section 42 ("Section 42")
    which  regulates the use of the project as to occupant  eligibility and unit
    gross rent, among other requirements. Each building of the project must meet
    the provisions of these regulations during each of 15 consecutive years, the
    compliance  period, in order to remain qualified to receive the credits.  In
    addition, on March 14, 1996, St. John Housing Associates Limited Partnership
    executed a Declaration of Extended  Low-Income Housing Commitment which will
    require the utilization of the project  pursuant to Section 42 for a minimum
    of 30 years, even if disposition of the project by the partnership occurs.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    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.

    Rental Property

    Rental property is carried at cost.  Depreciation is provided for in amounts
    sufficient to relate the cost of depreciable assets to operations over their
    estimated  service  lives by use of the  straight-line  method for financial
    reporting purposes.  For income tax purposes,  accelerated lives and methods
    are used.

                                       9

<PAGE>

                 St. John Housing Associates Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1999, 1998 and 1997


NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    Intangible Assets and Amortization

    Mortgage  costs are  amortized  over the term of the mortgage loan using the
straight-line method.

    Income Taxes

    No  provision  or  benefit  for  income  taxes  has been  included  in these
    financial  statements since taxable income or loss passes through to, and is
    reportable by, the partners individually.

    Rental Income

    Rental income is recognized as rentals become due. Rental payments  received
    in advance are deferred until earned. All leases between the partnership and
    the tenants of the property are operating leases.

    Investments

    Investments  in U.S.  Treasury  Bills are carried at amortized  cost,  which
    approximates  fair  value,  and  are  classified  as  held-to-maturity.  The
    remaining  bill bears  interest at 4.659% and matures  April 27, 2000.  This
    bill is included in security deposit cash.

NOTE C - MORTGAGES PAYABLE

    The mortgage note is insured by the Federal Housing Administration (FHA) and
    is  collateralized  by a deed of trust on the rental  property.  The note is
    payable in monthly principal and interest  installments of $5,394, net of an
    interest  reduction  subsidy through  maturity on November 1, 2014. The note
    bears  interest  at the rate of 7% per  annum;  however,  HUD,  through  the
    interest reduction subsidy, reduces the interest rate to an effective annual
    rate of approximately 1% over the term of the mortgage.  The annual interest
    subsidy of $109,832 for 1999,  $109,433  for 1998 and $109,721 for 1997,  is
    reflected  as a reduction of interest  expense.  As of December 31, 1999 and
    1998,  principal  balances of $1,614,987 and $1,674,405 were outstanding and
    accrued interest was $995 and $995, respectively.

                                       10

<PAGE>

                 St. John Housing Associates Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1999, 1998 and 1997


NOTE C - MORTGAGES PAYABLE (Continued)

    The second  mortgage in the original  amount of $2,908,300 is insured by the
    FHA and collateralized by a second deed of trust on the rental property. The
    note bears  interest at the rate of 7.5% per annum.  Principal  and interest
    are payable by the  partnership in monthly  installments  of $20,335 through
    maturity  on May 1,  2025.  As of  December  31,  1999 and  1998,  principal
    balances of $2,767,153 and $2,802,199 were  outstanding and accrued interest
    was $17,295 and $17,733, respectively.

    Under  agreements  with the  mortgage  lenders and FHA, the  partnership  is
    required  to  make  monthly  escrow   deposits  for  taxes,   insurance  and
    replacement  of  project  assets,  and  is  subject  to  restrictions  as to
    operating policies, rental charges, operating expenditures and distributions
    to partners.

    The liability of the partnership  under the mortgage notes is limited to the
    underlying value of the real estate  collateral plus other amounts deposited
    with the lenders.

    Aggregate  maturities  of the  mortgages  payable over each of the next five
years and thereafter are as follows:

                                    First
                                   Mortgage       Second Mortgage      Total
                                   --------       ---------------      -----

        December 31, 2000       $      63,413     $     37,767      $  101,180
                     2001              67,997           40,699         108,696
                     2002              72,913           43,859         116,772
                     2003              78,184           47,264         125,448
                     2004              83,836           50,933         134,769
               Thereafter           1,248,644        2,546,631       3,795,275
                                -------------     ------------      ----------
                                $   1,614,987     $  2,767,153      $4,382,140
                                =============     ============      ==========


                                       11

<PAGE>

                 St. John Housing Associates Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1999, 1998 and 1997


NOTE D - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENTS

    FHA has contracted  with the  partnership,  effective  December 1989,  under
    Section 8 of The National  Housing Act of 1937,  to make housing  assistance
    payments to the partnership on behalf of qualified tenants. The terms of the
    agreements are:

            Number of units covered                    Expiration date
        --------------------------------        -------------------------------

                   110                                  September 30, 2000
                    34                                    June 30, 2000

    Under the  Multifamily  Assisted  Housing and Reform and  Affordability  Act
    (MAHRA)  of 1997,  as  amended,  Congress  set forth the  legislation  for a
    permanent  "mark-to-market" program and provided permanent authority for the
    renewal of Section 8  contracts.  Owners with  Section 8 contracts  expiring
    after  September  30,  1998 are  subject  to the  provisions  of  MAHRA.  On
    September 11, 1998, HUD issued an interim rule to provide  clarification for
    implementation of the mark-to-market  program.  Since then, revised guidance
    has been provided  through  various HUD housing  notices,  most recently HUD
    housing  notice 99-36,  which  addresses  project-based  Section 8 contracts
    expiring in fiscal year 2000.

    Under this notice project owners have several options for Section 8 contract
    renewals,  depending on the type of project and rent level  Options  include
    marking rents up to market,  renewing other contracts with rents at or below
    market,  referring projects to the Office of Multifamily  Housing Assistance
    Restructuring (OMHAR) for mark-to-market or "OMHAR lite" renewals,  renewing
    contracts that are exempted from referral to OMHAR,  renewing  contracts for
    portfolio reengineering  demonstration and preservation projects, and opting
    out of the  Section 8 program.  Owners must  submit  their  option to HUD at
    least 120 days before  expiration of their  contract.  Each option  contains
    specific  rules and  procedures  that must be  followed  to comply  with the
    requirements of housing notice 99-36.

    As of the date of the report,  the partnership  intends to apply for renewal
    of their contracts without mortgage restructuring.


                                       12

<PAGE>

                 St. John Housing Associates Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1999, 1998 and 1997


NOTE E - RELATED PARTY TRANSACTIONS

    Management Fee

    The property is managed by L-B Residential  Management Company, an affiliate
    of one of the stockholders of the general partner,  pursuant to a management
    agreement  approved by HUD that  expired  February  28,  1997,  and which is
    presently on a month-to-month basis. The management agreement provided for a
    management fee of 5.14% of monthly  rental  collections.  Additionally,  the
    partnership  pays L-B  Residential  Management  Company a  monthly  computer
    accounting/bookkeeping  fee of  $3.50  per  unit.  During  the  years  ended
    December 31, 1999, 1998 and 1997,  management  fees of $48,975,  $52,833 and
    $52,724, and computer and accounting fees of $6,048,  $6,048 and $6,048 were
    charged to  operations,  respectively.  At December  31, 1999 and 1998,  the
    partnership owed the management agent $7,701 and $4,861, respectively, which
    consisted  of unpaid  management  fees of $7,197  and  $4,357  and  computer
    accounting/bookkeeping fees of $504 and $504, respectively.

    Maintenance Services

    An  affiliate of one of the  stockholders  of the general  partner  provides
    certain maintenance and repair services. During the years ended December 31,
    1999, 1998 and 1997, $7,650,  $3,060, and $1,080 were charged to operations,
    respectively.

    Repurchase Guaranty

    Under  the  terms of the  partnership  agreement,  the  general  partner  is
    obligated  to purchase  the  partnership  interest of the  investor  limited
    partner  upon the  occurrence  of a  repurchase  event as  described  in the
    partnership agreement.

    Partnership Administration Fee

    The  partnership  has entered  into a  partnership  administration  services
    agreement  with  the  general  partner  for its  services  in  managing  the
    partnership throughout the term of the partnership.  Under the terms of this
    agreement,  commencing  January 1, 1996, the partnership is obligated to pay
    to the  general  partner an annual fee in the amount of the lesser of 50% of
    the project's net cash flow as defined in the partnership agreement or 3% of
    the  replacement  cost of the rental  property as of the date of substantial
    completion. In the event that in any year 50% of net cash flow exceeds 3% of
    the  replacement  cost of the rental  property as of the date of substantial
    completion, such excess

                                       13

<PAGE>

                 St. John Housing Associates Limited Partnership

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

                        December 31, 1999, 1998 and 1997


NOTE E - RELATED PARTY TRANSACTIONS (Continued)

    Partnership Administration Fee (Continued)

    amount  shall  be  paid  to the  general  partner  to the  extent  that  the
    partnership  administration  fee paid in any prior years was less than 3% of
    the replacement  cost. For the years ended December 31, 1999, 1998 and 1997,
    a  partnership   administrative  fee  of  $100,883,  $92,367  and  $103,502,
    respectively, was incurred, of which $121,250 and $82,867 were payable as of
    December 31, 1999 and 1998, respectively.

    Consulting Fees

    The general partner received  compensation  from L-B Residential  Management
    Company,  the management  agent, for consulting  services  rendered in 1999,
    1998 and 1997.

NOTE F - CONTINGENCY

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

NOTE G - CONCENTRATION OF CREDIT RISK

    The partnership  maintains its cash balances in two banks.  The balances are
    insured by the Federal Deposit Insurance  Corporation up to $100,000 by each
    bank. As of December 31, 1999 and 1998,  the  uninsured  portion of the cash
    balances held at one of the banks was $134,570 and $25,074, respectively.


                                       14