FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                           ST. JOHN HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                        DECEMBER 31, 1996, 1995 AND 1994





<PAGE>
<TABLE>
<CAPTION>

                                TABLE OF CONTENTS


                                                                                                       PAGE

<S>                                                                                               <C>

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


</TABLE>





<PAGE>

                          INDEPENDENT AUDITOR'S 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, 1996 and 1995, and the related
statements  of profit  and loss,  partners'  equity and cash flows for the years
ended  December 31, 1996,  1995 and 1994.  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, 1996 and 1995, and the results
of its  operations,  changes  in  partners'  equity and cash flows for the years
ended December 31, 1996,  1995 and 1994, in conformity  with generally  accepted
accounting principles.



/s/ Reznick Fedder & Silverman

Bethesda, Maryland
February 6, 1997






<PAGE>
<TABLE>
<CAPTION>

                                St. John Housing Associates Limited Partnership

                                                      BALANCE SHEETS

                                                       December 31,

ASSETS
                                                                                1996              1995
                                                                            ------------      --------
<S>                                                                    <C>               <C>

CURRENT ASSETS
Petty cash                                                               $         100     $         100
Cash in bank                                                                     6,315           312,129
U.S. Treasury Bills                                                            242,677              -
Partnership cash                                                                24,412            13,418
Tenant accounts receivable                                                       1,202               104
Accounts receivable - other project                                              9,246              -
Prepaid insurance                                                                3,127             2,955
Prepaid mortgage insurance                                                      13,972             8,286
                                                                           ------------     -------------

Total current assets                                                           301,051           336,992
                                                                            -----------       -----------

DEPOSITS HELD IN TRUST - FUNDED
Tenant security deposits                                                        14,407            11,917
                                                                           ------------      ------------

RESTRICTED DEPOSITS AND FUNDED RESERVES
Mortgage escrow deposits                                                        81,467            86,574
Reserve for replacements                                                       185,671           154,378
                                                                               267,138           240,952
                                                                            -----------       -----------
RENTAL PROPERTY
Land                                                                            59,800            59,800
Land improvements                                                               15,000            15,000
Buildings and improvements                                                   8,018,620         7,898,206
Furniture and equipment                                                        243,279           243,279
Automobile                                                                      10,029            10,029
                                                                           ------------      ------------

                                                                              8,346,728         8,226,314

Less accumulated depreciation                                                   758,539           404,234
                                                                            -----------       -----------
                                                                              7,588,189         7,822,080
OTHER ASSETS
   Mortgage costs, net of accumulated amortization of $9,934 and
     $6,541, respectively                                                       91,857            95,250
   Organization costs, net of accumulated amortization of $6,036 and
     $4,018, respectively                                                  $     4,054             6,072

                                                                           $ 8,266,696       $ 8,513,263
                                                                             ==========        ==========




                        See notes to financial statements
</TABLE>






<PAGE>
<TABLE>
<CAPTION>

                            St. John Housing Associates Limited Partnership

                                            BALANCE SHEETS

                                             December 31,

<S>                                                                     <C>

LIABILITIES AND PARTNERS' EQUITY
                                                                                1996              1995
                                                                            ------------      --------

CURRENT LIABILITIES
Accounts payable                                                          $     17,172      $     15,432
Accounts payable - development                                                       -             9,462
Prepaid rents                                                                      121                89
Accrued interest payable                                                        19,152            19,586
Accrued real estate taxes                                                       95,000            65,000
Due to management company                                                        4,880             4,749
Due to general partner and affiliates                                            -               137,980
Accrued partnership administrative fee                                         108,517             -
Mortgages payable - current maturities                                          81,612            75,971
                                                                           ------------      ------------

Total current liabilities                                                      326,454           328,269
                                                                             ----------        ----------

DEPOSITS LIABILITY
Tenant security deposits (contra)                                               14,385            12,572
                                                                           ------------      ------------

LONG-TERM LIABILITIES
Mortgages payable                                                             4,646,393         4,722,590
Less current maturities                                                          81,612            75,971
                                                                              4,564,781         4,646,619

CONTINGENCY                                                                        -                 -

PARTNERS' EQUITY                                                              3,361,076         3,525,803

                                                                            $ 8,266,696       $ 8,513,263
                                                                             ==========        ==========

</TABLE>




                        See notes to financial statements






<PAGE>
<TABLE>
<CAPTION>
                                St. John Housing Associates Limited Partnership

                                              STATEMENTS OF PROFIT AND LOSS

                                                 Year ended December 31,



<S>                                                   <C>              <C>               <C>
                                                           1996              1995              1994
                                                           ----              ----              ----
Revenue
   Rental                                              $ 1,016,001       $   962,765       $   537,251
   Interest and other                                       23,638            37,720            11,573
                                                       -----------       -----------       -----------

                                                         1,039,639         1,000,485           548,824
                                                         ---------         ---------        ----------
Expenses
   Administrative                                          118,157           121,444           111,677
   Utilities                                                54,676            67,571            53,252
   Operating and maintenance                               152,751           125,714           176,374
   Taxes and insurance                                     157,793            98,369           144,360
   Interest                                                250,426           227,226            30,832
   Depreciation and amortization                           359,716           322,365            92,428
                                                        ----------        ----------       -----------

                                                         1,093,519           962,689           608,923
                                                         ---------        ----------        ----------

Other entity expenses (income)                             110,847              (255)             -
                                                        ----------        ----------     ----------

NET PROFIT (LOSS)                                       $ (164,727)        $  38,051         $ (60,099)
                                                         =========          ========          ========

</TABLE>




                        See notes to financial statements






<PAGE>
<TABLE>
<CAPTION>

                               St. John Housing Associates Limited Partnership

                                       STATEMENTS OF PARTNERS' EQUITY

                              Years ended December 31, 1996, 1995 and 1994,

<S>                                                   <C>              <C>               <C>
                                                                       General partner   Limited partner
                                                           Total

Partners' equity, December 31, 1993                    $ 2,110,240       $      990        $ 2,109,250

Partner contribution                                       301,861            -                301,861

Net loss - 1994                                            (60,099)            (601)           (59,498)
                                                        ----------       ----------         ----------

Partners' equity, December 31, 1994                      2,352,002              389          2,351,613

Partners' contributions                                  1,135,750            -              1,135,750

Net profit - 1995                                           38,051              381             37,670
                                                       -----------       ----------        -----------

Partners' equity, December 31, 1995                      3,525,803              770          3,525,033

Net loss - 1996                                           (164,727)          (1,647)          (163,080)
                                                        ----------        ---------         ----------

Partners' equity (deficit), December 31, 1996          $ 3,361,076       $     (877)       $ 3,361,953
                                                        ==========        =========-        ==========

</TABLE>




                        See notes to financial statements






<PAGE>
<TABLE>
<CAPTION>
                              St. John Housing Associates Limited Partnership

                                                 STATEMENTS OF CASH FLOWS

                                                 Year ended December 31,
                                                                        1996             1995              1994
                                                                        ----             ----              ----
<S>                                                               <C>               <C>              <C>
Cash flows from operating activities
   Net profit (loss)                                               $   (164,727)      $   38,051       $   (60,099)
   Adjustments to reconcile net profit (loss) to net cash
      provided by operating activities
   Depreciation                                                         354,305          316,954            87,280
   Amortization                                                           5,411            5,411             5,148
   Increase (decrease) in tenant  accounts receivable                    (1,098)           1,164            (1,268)
   Decrease in accounts receivable - other                                -                -                   596
   (Increase) decrease in prepaid expenses                               (5,858)          26,345            (2,504)
   (Increase) decrease in escrow deposits                                 5,107           23,737           (23,123)
   Increase (decrease) in accounts payable                                1,740          (27,962)           29,938
   Increase (decrease) in accrued interest payable                         (434)          17,839             1,747
   Increase (decrease) in accrued real estate tax                        30,000          (35,000)           80,000
   (Increase) decrease in tenant security deposits - net                   (677)            (426)              108
   Increase in prepaid rents                                                 32               59             -
   Increase (decrease) in due to management company                         131           (2,443)            -
   Increase in accrued partnership administrative fee                   108,517            -                 -
   Due from other project - deposit error                                 (9,246)               -                -
                                                                  --------------    ------------------------------
     Net cash provided by operating activities                          323,203          363,729           117,823
                                                                  -------------      -----------       -----------

Cash flows from investing activities
   Deposits in reserve for replacement                                  (46,987)         (32,895)          (19,779)
   Investment in rental property                                       (120,414)      (1,048,229)       (3,818,702)
   Withdrawals from renovation escrow                                     -                -             1,158,604
   Withdrawals from replacement reserve                                  15,694            -                 -
   Decrease in accounts payable - development                            (9,462)        (682,390)            -
   Purchase of U.S. Treasury Bills                                     (242,677)           -                 -
   Decrease in due to general partner and affiliates                   (137,980)           -                 -
                                                                    -----------     ---------------     ----------
     Net cash used in investing activities                             (541,826)      (1,763,514)       (2,679,877)
                                                                    -----------       ----------        ----------

Cash flows from financing activities
   Mortgage principal payments                                          (76,197)         (60,339)          (41,913)
   Mortgage loans proceeds                                                -              964,896         1,943,404
   Loans from general partner                                             -                8,000           254,565
   Repayment to general partner                                           -             (356,959)            -
   Capital contributions received                                             -        1,135,750           301,861
                                                                  -----------------   ----------       -----------

     Net cash provided by (used in) financing activities                (76,197)       1,691,348         2,457,917
                                                                    -----------       ----------        ----------

     NET INCREASE (DECREASE) IN CASH                                   (294,820)         291,563          (104,137)

Cash, beginning                                                         325,647           34,084           138,221
                                                                    -----------     -------------      -----------
Cash, end                                                         $      30,827     $    325,647       $    34,084
                                                                  =============     ============       ===========

Supplemental disclosure of cash flow information
   Cash paid for interest during the year                          $    250,860     $    209,387       $    29,085
                                                                   ============     ============       ===========

</TABLE>

See notes to financial statements





<PAGE>
                              St. John Housing Associates Limited Partnership

                                          NOTES TO FINANCIAL STATEMENTS

                                         December 31, 1996, 1995 and 1994,


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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. The project is managed by an affiliate of one of the stockholders of
the general  partner  under an  agreement  approved by HUD which  provides for a
management fee of 5.14% of monthly rental collections.

Cash  distributions are limited by agreements between the partnership and 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 fifteen  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.

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.

Amortization

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

Organization costs are amortized over 60 months 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.






<PAGE>

                               St. John Housing Associates Limited Partnership

                                              NOTES TO FINANCIAL STATEMENTS

                                            December 31, 1996, 1995 and 1994,


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.

U.S. Treasury Bills

The U.S.  Treasury Bills are carried at amortized cost, which  approximates fair
value, and are classified as held-to-maturity. These Bills bear interest ranging
from 4.805% to 5.193% and mature through March 20, 1997.

NOTE B - 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 $109,989 for
1996,  and $110,240  for 1995 and 1994,  is reflected as a reduction of interest
expense. As of December 31, 1996 and 1995,  principal balances of $1,781,493 and
$1,829,685  were  outstanding  and  accrued  interest  was  $1,247  and  $1,505,
respectively.

The second  mortgage  in the  original  amount of  $2,908,300  is insured by the
Federal  Housing  Administration  (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, 1996
and 1995,  principal  balances of $2,864,900 and $2,892,905 were outstanding and
accrued interest was $17,905 and $18,081, 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
are as follows:

<TABLE>
<CAPTION>
                                        First Mortgage       Second Mortgage           Total
        <S>               <C>         <C>                  <C>                  <C>
        December 31,      1997             $  51,433            $  30,179            $  81,612
                          1998                55,151               32,522               87,673
                          1999                59,138               35,047               94,185
                          2000                63,413               37,767              101,180
                          2001                67,997               40,699              108,696
</TABLE>






<PAGE>

                                St. John Housing Associates Limited Partnership

                                              NOTES TO FINANCIAL STATEMENTS

                                            December 31, 1996, 1995 and 1994,


NOTE C - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENTS

The Federal  Housing  Administration  (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, 1997
                             34                                  June 30, 1999

The United States Department of Housing and Urban Development ("HUD") has issued
Notice 96-74 implementing Section 405(a) of the Continuing Resolution of January
26, 1996 ("CR")  which  grants the  Secretary  discretion  to provide  Section 8
assistance upon certain terms and conditions and Notice 96-89  implementing  the
provisions  of The  Departments  of  Veterans  Affairs  and  Housing  and  Urban
Development,   and  the  Independent  Agencies   Appropriations  Act,  1997  (PL
104-204,110STAT.2874, approved 9/26/96), ("The Act"), concerning HUD's policy on
Section 8 Housing  Assistance  Payments  contracts,  exclusive  of the Section 8
Moderate Rehabilitation Program, expiring during HUD's fiscal year 1997. Section
211 of the Act and notice generally provides that the Secretary will renew, when
requested by the owner of a multifamily housing project, a project-based Section
8 contract  expiring  in HUD's FY 1997 for a period of not more than one year at
rent levels that are equal to those under the  expiring  contract as of the date
on which the contract expires. The rent levels of most such renewals are limited
to 120  percent of the fair market rent for the market area in which the project
is located,  however for certain  types of projects,  the fair market value rent
(FMR)  limitation  does not apply.  Section 212 of the Act repeals the Portfolio
Reengineering   Demonstration   of  1996  and   replaces  it  with  an  expanded
demonstration   program  for  HUD's  FY  1997  which  in  general  provides  for
restructuring  involving reducing rents to market levels and adjusting mortgages
to accommodate reduced cash flow and rehabilitation  needs, although the statute
permits  instances  in which  only  rents but not  mortgages  are  restructured.
Section 212 of the Act also  provides  that  owners of FHA  insured  multifamily
projects whose Section 8 project-based  assistance  contracts exceed 120 percent
of  the  applicable   FMR  ,  may  elect  to  participate  in  the   multifamily
demonstration program.

NOTE D - 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  expires  February  28,  1997.  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,  1996,  1995 and 1994,  management  fees of $52,453,  $52,103,  and
$40,820,  and computer and  accounting  fees of $6,048,  $11,592 and $9,700 were
charged  to  operations,  respectively.  At  December  31,  1996 and  1995,  the
partnership  owed the management  agent $4,880 and $4,749,  respectively,  which
consisted  of  unpaid   management  fees  of  $4,376  and  $4,245  and  computer
accounting/bookkeeping fees of $504 and $504, respectively.






<PAGE>
                                St. John Housing Associates Limited Partnership

                                              NOTES TO FINANCIAL STATEMENTS

                                            December 31, 1996, 1995 and 1994,


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, 1996, 1995
and 1994, $1,560, $6,180 and $4,760 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 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 year ended
December 31, 1996, a  partnership  administrative  fee of $108,517 was incurred,
all of which was payable as of December 31, 1996.

Fees Payable

The  partnership  has entered into  agreements  which provide for the payment of
various fees to the general  partner and its  affiliates  in  consideration  for
various guarantees.  Fees are payable to the general partner and affiliates from
capital  contributions  or available  surplus  cash. As of December 31, 1996 all
fees have been paid.

In addition,  during the years ended  December 31, 1996 and 1995,  the general  
partner was paid  $120,414 and $982,500 for fees which have
been capitalized in the cost of rental property.

Consulting Fees

The  general  partner  received  compensation  of $15,984  from L-B  Residential
Management  Company,  the management agent, for consulting  services rendered in
1996.

NOTE E - 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.






<PAGE>
                               St. John Housing Associates Limited Partnership

                                              NOTES TO FINANCIAL STATEMENTS

                                            December 31, 1996, 1995 and 1994,


NOTE F - MORTGAGOR ENTITY EXPENSES (INCOME)

Mortgagor entity expenses (income) consists of the following:

<TABLE>
<CAPTION>
                                                           1996              1995              1994
                                                           ----              ----              ----
<S>                                                   <C>              <C>               <C>
   Interest income                                      $     (857)       $     (814)     $      -
   Miscellaneous administrative                               1,444               559
   Interest expense                                           1,743             -                -
   Partnership administrative fee                           108,517             -                -
                                                          ---------         ---------     --------
                                                                                -                -
                                                          $ 110,847         $   (255)      $     -
                                                          =========         =========      =======
</TABLE>