FINANCIAL STATEMENTS AND
                          INDEPENDENT AUDITORS' REPORT

                           ST. JOHN HOUSING ASSOCIATES
                               LIMITED PARTNERSHIP

                        DECEMBER 31, 1998, 1997 AND 1996


<PAGE>




                                TABLE OF CONTENTS

                 St. John Housing Associates Limited Partnership


                                                                            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, 1998 and 1997, and the related
statements  of profit  and loss,  partners'  equity and cash flows for the years
ended  December 31, 1998,  1997 and 1996.  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, 1998 and 1997, and the results
of its  operations,  changes  in  partners'  equity and cash flows for the years
ended December 31, 1998,  1997 and 1996, in conformity  with generally  accepted
accounting principles.



/s/ Reznick Fedder & Silverman
Bethesda, Maryland
January 10, 1999


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

<TABLE>
<CAPTION>
<S>                                                    <C>                <C>

             ASSETS
                                                             1998             1997
                                                       ------------       ------------
CURRENT ASSETS
  Cash - operations                                    $    125,174       $     13,199
  Cash - entity                                               8,495              5,697
  Short-term investments - operations                        97,275            227,032
  Tenant accounts receivable                                  1,524              1,280
  Miscellaneous prepaid expenses                             17,014             17,108
  Account receivable - interest subsidy                           -              9,122
                                                       ------------       ------------
      Total current assets                                  249,482            273,438
                                                       ------------       ------------
DEPOSITS HELD IN TRUST - FUNDED
  Tenant deposits                                            18,039             15,246
                                                       ------------       ------------
RESTRICTED DEPOSITS AND FUNDED RESERVES
  Escrow deposits                                            52,850             39,627
  Reserve for replacements                                  233,689            217,769
                                                       ------------       ------------
                                                            286,539            257,396
                                                       ------------       ------------
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
  Motor vehicles                                             10,029             10,029
                                                       ------------       ------------
                                                          8,346,728          8,346,728
    Less accumulated depreciation                         1,419,336          1,095,083
                                                       ------------       ------------
                                                          6,927,392          7,251,645
                                                       ------------       ------------
OTHER  ASSET
  Intangible assets, net of accumulated
     amortization of $26,792 and $21,381,
     respectively.                                          85,089              90,500
                                                      ------------        ------------
                                                      $  7,566,541        $  7,888,225
                                                      ============        ============

        LIABILITIES AND PARTNERS' EQUITY

CURRENT LIABILITIES
  Accounts payable                                    $     12,969       $     18,805
  Prepaid rents                                                665                375
  Accrued payroll taxes payable                              1,548                  -
  Accrued interest payable                                  18,509             18,702
  Accrued property taxes payable                            85,000             98,000
  Due to management company                                  4,861              4,791
  Accounts payable - entity                                 82,867             94,002
  Mortgages payable - current maturities                    94,185             87,673
                                                      ------------       ------------
      Total current liabilities                            300,604            322,348
                                                      ------------       ------------
DEPOSITS LIABILITY
  Tenant deposits held in trust (contra)                    17,203             14,922
                                                      ------------       ------------
LONG-TERM LIABILITIES
  Mortgages payable                                      4,476,604          4,564,538
  Less current maturities                                   94,185             87,673
                                                      ------------       ------------
                                                         4,382,419          4,476,865
                                                      ------------       ------------
CONTINGENCY                                                      -                  -

PARTNERS' EQUITY                                         2,866,315          3,074,090
                                                      ------------       ------------
                                                      $  7,566,541       $  7,888,225
                                                      ============       ============

                       See notes to financial statements
</TABLE>
<PAGE>


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

<TABLE>
<CAPTION>
<S>                                        <C>             <C>             <C>

                                               1998            1997            1996
                                           ------------    ------------    ------------
Revenue
  Rental                                   $  1,014,920    $  1,016,548     $ 1,016,001
  Interest and other                             21,926          17,645          23,638
                                           ------------    ------------     -----------
                                              1,036,846       1,034,193       1,039,639
                                           ------------    ------------     -----------
Expenses
  Administrative                                122,933         123,961         118,157
  Utilities                                      66,844          61,802          54,676
  Operating and maintenance                     197,844         196,929         171,031
  Taxes and insurance                           113,072         148,556         157,793
  Interest                                      221,193         226,741         232,146
  Depreciation and amortization                 329,664         341,955         359,716
                                           ------------    ------------     -----------
                                              1,051,550       1,099,944       1,093,519
                                           ------------    ------------     -----------

Other entity expenses (income)                   92,569         103,217         110,847

NET LOSS                                   $   (107,273)   $   (168,968)    $  (164,727)
                                           ============    ============     ===========

                        See notes to financial statements
</TABLE>
<PAGE>

                 St. John Housing Associates Limited Partnership
                         STATEMENTS OF PARTNERS' EQUITY
                  Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
<S>                                                 <C>                <C>             <C>

                                                                         General          Limited
                                                         Total           partners         partners
                                                    -------------      -----------     -------------

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

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
                                                    =============      ===========     =============
</TABLE>
<PAGE>

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

<TABLE>
<CAPTION>
<S>                                                                 <C>              <C>              <C>

                                                                        1998             1997            1996
                                                                    -----------      -----------      -----------
Cash flows from operating activities
    Net loss                                                        $  (107,273)     $  (168,968)     $  (164,727)
    Adjustments to reconcile net loss to net cash provided
     by operating activities
        Depreciation                                                    324,253          336,544          354,305
        Amortization                                                      5,411            5,411            5,411
        Interest income on U.S. Treasury Bills                                -           (7,323)               -
        Decrease in tenant accounts receivable                             (244)             (78)          (1,098)
        (Increase) decrease in accounts receivable -                       9,122          (9,122)               -
           interest subsidy
        (Increase) decrease in prepaid expenses                              94               (9)          (5,858)
        (Increase) decrease in escrow deposits                          (13,223)          41,840            5,107
        Increase (decrease) in accounts payable                          (4,288)           1,633            1,740
        Decrease in accrued interest payable                               (193)            (450)            (434)
        Increase (decrease) in accrued real estate tax                  (13,000)           3,000           30,000
        Increase in tenant security deposits - net                         (512)            (302)            (677)
        Increase in prepaid rents                                           290              254               32
        Increase (decrease) in due to management company                     70              (89)             131
        Increase (decrease) in accounts payable - entity                (11,135)         (14,515)         108,517
        Due from other project - deposit error                                -            9,246           (9,246)
                                                                    -----------      -----------      -----------
           Net cash provided by operating activities                    189,372          197,072          323,203
                                                                    -----------      -----------      -----------
Cash flows from investing activities
    Net deposits to reserve for replacement                             (15,920)         (32,098)         (31,293)
    Investment in rental property                                             -                -         (129,876)
    Proceeds from redemption of U.S. Treasury Bills                     129,757          250,000                -
    Purchase of U.S. Treasury Bills                                           -         (227,032)        (242,677)
                                                                    -----------      -----------      -----------
           Net cash provided by (used in) investing activities          113,837            (9130)        (403,846)
                                                                    -----------      -----------      -----------

    Mortgage principal payments                                         (87,934)         (81,855)         (76,197)
    Decrease in due to general partner and affiliates                         -                -         (137,980)
    Distributions                                                      (100,502)        (118,018)               -
                                                                    -----------      -----------      -----------
           Net cash used in financing activities                       (188,436)        (199,873)        (214,177)
                                                                    -----------      -----------      -----------
           NET INCREASE (DECREASE) IN CASH                              114,773          (11,931)        (294,820)

Cash, beginning                                                          18,896           30,827          325,647
                                                                    -----------      -----------      -----------
Cash, end                                                           $   133,669      $    18,896      $    30,827
                                                                    ===========      ===========      ===========
Supplemental disclosure of cash flow information
    Cash paid for interest during the year                          $   221,386      $   227,191      $   250,860
                                                                    ===========      ===========      ===========
</TABLE>
<PAGE>

                 St. John Housing Associates Limited Partnership
                          NOTES TO FINANCIAL STATEMENTS
                        December 31, 1998, 1997 and 1996

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.

Intangible Assets and 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.

Investments

Investments  in 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 5.041% to 5.152% and mature  through  February 25,
1999. One of these bills is included in security deposit cash.
<PAGE>
                 St. John Housing Associates Limited Partnership
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                        December 31, 1998, 1997 and 1996

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 $109,433 for
1998,  $109,721 for 1997 and  $109,989 for 1996,  is reflected as a reduction of
interest  expense.  As of  December  31,  1998 and 1997,  principal  balances of
$1,674,405 and $1,729,819  were  outstanding  and accrued  interest was $995 and
$969, respectively.

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, 1998 and 1997,  principal  balances of  $2,802,199  and
$2,834,721  were  outstanding  and accrued  interest  was  $17,514 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, 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
               2003              78,184              47,264              125,448
         Thereafter           1,332,760           2,597,563            3,930,323
                           ------------        ------------         ------------
                           $  1,674,405        $  2,802,199         $  4,476,604
                           ============        ============         ============



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, 1999
         34                                              June 30, 1999

Under the Multifamily Assisted Housing and Reform and Affordability Act (MAHRAA)
of 1997,  Congress set forth the  legislation  for a permanent  "mark-to-market"
program  and  provided  for  permanent  authority  for the  renewal of Section 8
contracts.  On  September  11,  1998,  HUD  issued an  interim  rule to  provide
clarification of the implementation of the mark-to-market  program.  Owners with
Section 8  contracts  expiring  after  September  30,  1998 are  subject  to the
provisions of MAHRAA.  As such, the  partnership may choose to either opt out of
the Section 8 program, request mortgage restructuring and renewal of the Section
8  contract,  or request  renewal of the  Section 8  contract  without  mortgage
restructuring.  Each option contains a specific set of rules and procedures that
must be followed in order to comply with the  requirements of MAHRAA.  As of the
date of the report, the partnership  intends to request renewal of the Section 8
contracts without mortgage restructuring.
<PAGE>
                St. John Housing Associates Limited Partnership
                    NOTES TO FINANCIAL STATEMENTS - CONTINUED
                        December 31, 1998, 1997 and 1996

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,  1998,  1997 and 1996,
management  fees of $52,833,  $52,724 and $52,453,  and computer and  accounting
fees of $6,048, $6,048 and $6,048 were charged to operations,  respectively.  At
December 31, 1998 and 1997, the partnership owed the management agent $4,861 and
$4,791,  respectively,  which consisted of unpaid  management fees of $4,357 and
$4,287 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, 1998, 1997
and 1996, $3,060, $1,080 and $1,560 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 years ended
December 31, 1998, 1997 and 1996, a partnership  administrative  fee of $92,367,
$103,502 and $108,517, respectively, was incurred, of which $82,867 and $94,002,
respectively, were payable as of December 31, 1998 and 1997.

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 1998, 1997
and 1996.

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,  1998 and 1997,  the  uninsured  portion of the cash
balances held at one of the banks was $25,074 and $0, respectively.