FINANCIAL STATEMENTS AND
                        INDEPENDENT AUDITORS' REPORT

                        ST. JOHN HOUSING ASSOCIATES
                            LIMITED PARTNERSHIP

                      DECEMBER 31, 1997, 1996 AND 1995



<PAGE>



                St. John Housing Associates Limited Partnership

                               TABLE OF CONTENTS



INDEPENDENT AUDITORS' REPORT


FINANCIAL STATEMENTS


         BALANCE SHEETS


         STATEMENTS OF PROFIT AND LOSS


         STATEMENTS OF PARTNERS' EQUITY


         STATEMENTS OF CASH FLOWS


         NOTES TO FINANCIAL STATEMENTS



<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, 1997 and 1996, and the related
statements  of profit  and loss,  partners'  equity and cash flows for the years
ended  December 31, 1997,  1996 and 1995.  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, 1997 and 1996, and the results
of its  operations,  changes  in  partners'  equity and cash flows for the years
ended December 31, 1997,  1996 and 1995, in conformity  with generally  accepted
accounting principles.


/s/ Reznick Fedder & Silverman

Bethesda, Maryland
February 4, 1998














<PAGE>


   <TABLE>
   <CAPTION>
                                      St. John Housing Associates Limited Partnership
                                                      BALANCE SHEETS
                                                       December 31,





                                   ASSETS
                                                                                 1997              1996
                                                                             ------------      ------------
<S>                                                                        <C>              <C>
CURRENT ASSETS
    Petty cash                                                              $         100    $         100
    Cash in bank                                                                   13,099            6,315
    U.S. Treasury Bills                                                           227,032          242,677
    Partnership cash                                                                5,697           24,412
    Tenant accounts receivable                                                      1,280            1,202
    Accounts receivable - other project                                              -               9,246
    Prepaid insurance                                                               3,442            3,127
    Prepaid mortgage insurance                                                     13,666           13,972
    Account receivable - interest subsidy                                           9,122             -
                                                                             ------------     ------------

        Total current assets                                                      273,438          301,051
                                                                             ------------     ------------

DEPOSITS HELD IN TRUST - FUNDED
    Tenant security deposits                                                       15,246           14,407
                                                                             ------------     ------------

RESTRICTED DEPOSITS AND FUNDED RESERVES
    Mortgage escrow deposits                                                       39,627           81,467
    Reserve for replacements                                                      217,769          185,671
                                                                             ------------     ------------

                                                                                  257,396          267,138
                                                                             ------------     ------------

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                                                       243,279          243,279
    Automobile                                                                     10,029           10,029
                                                                             ------------     ------------

                                                                                8,346,728        8,346,728
    Less accumulated depreciation                                               1,095,083          758,539
                                                                             ------------     ------------

                                                                                7,251,645        7,588,189
                                                                             ------------     ------------
OTHER ASSETS
    Mortgage costs, net of accumulated amortization of $13,327
        and $9,934, respectively                                                   88,464           91,857
    Organization costs, net of accumulated amortization of $8,054
        and $6,036, respectively                                                    2,036            4,054
                                                                             ------------     ------------

                                                                            $   7,888,225    $   8,266,696
                                                                             ============     ============
   </TABLE>
                                                        (continued)


<PAGE>


   <TABLE>
   <CAPTION>
                                      St. John Housing Associates Limited Partnership
                                                      BALANCE SHEETS
                                                       December 31,


                                         LIABILITIES AND PARTNERS' EQUITY

                                                                                 1997             1996
                                                                            -------------    -------------
<S>                                                                       <C>              <C>
CURRENT LIABILITIES
    Accounts payable                                                       $      18,805    $      17,172
    Prepaid rents                                                                    375              121
    Accrued interest payable                                                      18,702           19,152
    Accrued real estate taxes                                                     98,000           95,000
    Due to management company                                                      4,791            4,880
    Accrued partnership administrative fee                                        94,002          108,517
    Mortgages payable - current maturities                                        87,673           81,612
                                                                            -------------    ------------

           Total current liabilities                                             322,348          326,454
                                                                            ------------     ------------

DEPOSITS LIABILITY
    Tenant security deposits (contra)                                             14,922           14,385
                                                                            ------------     ------------

LONG-TERM LIABILITIES
    Mortgages payable                                                          4,564,538        4,646,393
    Less current maturities                                                       87,673           81,612   
                                                                            ------------     ------------

                                                                               4,476,865        4,564,781
                                                                            ------------     ------------
 
CONTINGENCY                                                                         -                -

PARTNERS' EQUITY                                                               3,074,090        3,361,076
                                                                            ------------     ------------

                                                                           $   7,888,225    $   8,266,696
                                                                            ============     ============
   </TABLE>















                                             See notes to financial statements


<PAGE>


     <TABLE>
     <CAPTION>
                                      St. John Housing Associates Limited Partnership
                                               STATEMENTS OF PROFIT AND LOSS
                                                  Year ended December 31,


                                                             1997             1996             1995
                                                        -------------    -------------    -------------
<S>                                                     <C>             <C>              <C>
Revenue
    Rental                                              $   1,016,548    $   1,016,001    $     962,765
    Interest and other                                         17,645           23,638           37,720
                                                         ------------     ------------     ------------

                                                            1,034,193        1,039,639        1,000,485
                                                         ------------     ------------     ------------
Expenses
    Administrative                                            123,961          118,157          121,444
    Utilities                                                  61,802           54,676           67,571
    Operating and maintenance                                 196,929          171,031          125,714
    Taxes and insurance                                       148,556          157,793           98,369
    Interest                                                  226,741          232,146          227,226
    Depreciation and amortization                             341,955          359,716          322,365
                                                         ------------     ------------     ------------

                                                            1,099,944        1,093,519          962,689
                                                         ------------     ------------     ------------

Other entity expenses (income)                                103,217          110,847            (255)
                                                         ------------     ------------     ------------

NET PROFIT (LOSS)                                       $   (168,968)    $   (164,727)    $      38,051
                                                         ============     ============     ============
     </TABLE>
























                                             See notes to financial statements


<PAGE>


     <TABLE>
     <CAPTION>
                                      St. John Housing Associates Limited Partnership
                                              STATEMENTS OF PARTNERS' EQUITY
                                       Years ended December 31, 1997, 1996 and 1995


                                                                             General          Limited
                                                             Total          partners         partners
                                                        --------------    ------------   --------------  
<S>                                                     <C>             <C>              <C>
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, December 31, 1996                          3,361,076           (877)        3,361,953

Partners' 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
                                                         =============   ============     =============
     </TABLE>




















                                             See notes to financial statements


<PAGE>


   <TABLE>
   <CAPTION>
                                      St. John Housing Associates Limited Partnership
                                                 STATEMENTS OF CASH FLOWS
                                                  Year ended December 31,

                                                                   1997            1996             1995
                                                              -------------    ------------     ------------
<S>                                                          <C>              <C>             <C>
Cash flows from operating activities
    Net profit (loss)                                         $   (168,968)     $ (164,727)      $   38,051
    Adjustments to reconcile net profit (loss) to net cash
    provided by operating activities
        Depreciation                                               336,544         354,305          316,954
        Amortization                                                 5,411           5,411            5,411
        Interest income on U.S. Treasury Bills                      (7,323)           -                -
        Increase (decrease) in tenant accounts receivable              (78)         (1,098)           1,164
        Increase in accounts receivable - interest subsidy          (9,122)           -                -
        (Increase) decrease in prepaid expenses                         (9)         (5,858)          26,345
        Decrease  in escrow deposits                                41,840           5,107           23,737
        Increase (decrease) in accounts payable                      1,633           1,740          (27,962)
        Increase (decrease) in accrued interest payable               (450)           (434)          17,839
        Increase (decrease) in accrued real estate tax               3,000          30,000          (35,000)
        Increase in tenant security deposits - net                    (302)           (677)            (426)
        Increase in prepaid rents                                      254              32               59
        Increase (decrease) in due to management company               (89)            131           (2,443)
        Increase (decrease) in accrued partnership
           administrative fee                                      (14,515)        108,517             -
        Due from other project - deposit                             9,246          (9,246)            -
                                                                ----------       ---------       ----------

           Net cash provided by operating activities               197,072         323,203          363,729
                                                                ----------       ---------       ----------

Cash flows from investing activities
    Deposits in reserve for replacement                            (41,191)        (46,987)         (32,895)
    Investment in rental property                                     -           (120,414)      (1,048,229)
    Proceeds from redemption of U.S. Treasury Bills                250,000            -                -
    Withdrawals from replacement reserve                             9,093          15,694             -
    Decrease in accounts payable - development                        -             (9,462)        (682,390)
    Purchase of U.S. Treasury Bills                               (227,032)       (242,677)            -
                                                                 ---------       ---------       ----------      

           Net cash used in investing activities                    (9,130)       (403,846)      (1,763,514)
                                                                 ---------       ---------       ----------

Cash flows from financing activities
    Mortgage principal payments                                    (81,855)        (76,197)         (60,339)
    Mortgage loan proceeds                                            -               -             964,896
    Loans from general partner                                        -               -               8,000
    Repayment to general partner                                      -               -            (356,959)
    Decrease in due to general partner and affiliates                 -           (137,980)            -
    Capital contributions received                                    -               -           1,135,750
    Distributions                                                 (118,018)           -                -
                                                                 ---------       ---------       ----------

           Net cash provided by (used in) financing               
              activities                                          (199,873)       (214,177)       1,691,348
                                                                 ---------       ---------       ----------

           NET INCREASE (DECREASE) IN CASH                         (11,931)       (294,820)         291,563

Cash, beginning                                                     30,827         325,647           34,084
                                                                 ---------       ---------       ----------

Cash, end                                                       $   18,896      $   30,827      $   325,647
                                                                 =========       =========       ==========

Supplemental disclosure of cash flow information
    Cash paid for interest during the year                      $  227,191      $  250,860      $   209,387
                                                                ==========       =========       ==========
  </TABLE>

                                             See notes to financial statements


<PAGE>


                   St. John Housing Associates Limited Partnership
                            NOTES TO FINANCIAL STATEMENTS
                          December 31, 1997, 1996 and 1995


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 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.

    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.
















<PAGE>


                  St. John Housing Associates Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                          December 31, 1997, 1996 and 1995


NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)

    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.

    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 5.082% to 5.592% and mature through March 5, 1998.

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 $109,721 for 1997,  $109,989 for 1996,  and $110,240 for 1995, is
    reflected  as a reduction of interest  expense.  As of December 31, 1997 and
    1996,  principal  balances of $1,729,819 and $1,781,493 were outstanding and
    accrued interest was $969 and $1,247, respectively.
















<PAGE>


                  St. John Housing Associates Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                         December 31, 1997, 1996 and 1995


NOTE B - MORTGAGES PAYABLE (Continued)

    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,
    1997  and  1996,  principal  balances  of  $2,834,721  and  $2,864,900  were
    outstanding and accrued interest was $17,733 and $17,905, 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             Second
                                     Mortgage          Mortgage         Total
                                    ----------        ----------      ---------
<S>                             <C>             <C>               <C>
             December 31, 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
                          2002         72,913            43,859         116,772
</TABLE>

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












<PAGE>


                  St. John Housing Associates Limited Partnership
                     NOTES TO FINANCIAL STATEMENTS - CONTINUED
                         December 31, 1997, 1996 and 1995


NOTE C - HOUSING ASSISTANCE PAYMENT CONTRACT AGREEMENTS (Continued)

    One  agreement,  covering 110 units,  expired on September  30, 1997 and was
    renewed through  September 30, 1998. With  Congressional  passage in October
    1997 of the Multifamily  Assisted Housing and Reform and  Affordability  Act
    (the Act), HUD has been giving  budgetary  authority to approve requests for
    one-year renewals on all Section 8 contracts  expiring through September 30,
    1998.  Thus, this  partnership HAP agreement will be eligible for a one-year
    renewal through September 30, 1999.

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, 1997, 1996 and 1995,  management fees of
    $52,724,  $52,453,  and $52,103, and computer and accounting fees of $6,048,
    $6,048,  and $11,592 were charged to operations,  respectively.  At December
    31, 1997 and 1996,  the  partnership  owed the  management  agent $4,791 and
    $4,880,  respectively,  which consisted of unpaid  management fees of $4,287
    and  $4,376  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,
    1997, 1996 and 1995, $1,080,  $1,560, and $6,180 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.
















<PAGE>


                 St. John Housing Associates Limited Partnership
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                        December 31, 1997, 1996 and 1995


NOTE D - RELATED PARTY TRANSACTIONS (Continued)

    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 years ended December 31, 1997
    and  1996,  a  partnership  administrative  fee of  $103,502  and  $108,517,
    respectively was incurred, of which $94,002 and $108,517,  respectively, was
    payable as of December 31, 1997 and 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 year ended December 31, 1996,  the general  partner
    was paid  $120,414  for fees,  which  have been  capitalized  in the cost of
    rental property.

    Consulting Fees

    The general partner received  compensation  from L-B Residential  Management
    Company,  the management agent, for consulting services rendered in 1997 and
    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 - CONTINUED
                         December 31, 1997, 1996 and 1995


NOTE F - MORTGAGOR ENTITY EXPENSES (INCOME)

    Mortgagor entity expenses (income) consists of the following:

<TABLE>
<CAPTION>
                                                             1997             1996            1995
                                                        -------------    -------------   -------------
        <S>                                                       <C>               <C>              <C>
        Interest income                                 $       (300)    $        (857)  $        (814)
        Miscellaneous administrative                              15             1,444             559
        Interest expense                                         -               1,743             -
        Partnership administrative fee                       103,502           108,517
                                                         -----------     -------------    ------------
                                                                                                 
                                                        $    103,217     $     110,847   $        (255)
                                                         ===========      ============    ============
</TABLE>