<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION                       
                                                                                
                             Washington, D.C. 20549                             
                                                                                
                                    FORM 10-K                                   
                                                                                
                Annual Report Pursuant to Section 13 or 15(d) of                
                       the Securities Exchange Act of 1934                      
                                                                                
                   For the Fiscal Year Ended DECEMBER 31, 1997                  
                                                                                
                         Commission File Number 0-20610                         
                                                                                
                        NATIONAL TAX CREDIT INVESTORS II                        
                                                                                
                        A CALIFORNIA LIMITED PARTNERSHIP                        
                                                                                
                  I.R.S. Employer Identification No. 93-1017959                 
                                                                                
       9090 WILSHIRE BOULEVARD, SUITE 201, BEVERLY HILLS, CALIFORNIA 90211      
                                                                                
        Registrant's Telephone Number, Including Area Code (310) 278-2191       
                                                                                
      Securities Registered Pursuant to Section 12(b) or 12(g) of the Act:      
                                                                                
                                      NONE                                      
                                                                                
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed with the Commission by Section 13 or 15(d) of the Securities        
Exchange Act of 1934 during the preceding twelve months (or such shorter period 
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days.                               
                                                                                
                                 Yes [X] No [ ]                                 
                                                                                
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405  
of Regulation S-K is not contained herein, and will not be contained, to the    
best of registrant's knowledge, in definitive proxy or information statements   
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]                                                                  
                                                                                
                                                                                
<PAGE>   2
                                                                                
                                                                                
                                                                                
PART I.                                                                         
                                                                                
ITEM 1.       BUSINESS:                                                         
                                                                                
National Tax Credit Investors II ("NTCI-II" or the "Partnership") is a limited  
partnership formed under the laws of the State of California on January 12,     
1990. The Partnership was formed to acquire limited partnership interests in    
investee limited partnerships ("Local Partnerships") which own multifamily      
apartment complexes that are eligible for low-income housing federal income tax 
credits (the "Housing Tax Credit"). On April 23, 1990, the Partnership offered  
100,000 Units of Limited Partnership Interests ("Units") at $1,000 per Unit     
through a public offering managed by PaineWebber Incorporated (the "Selling     
Agent").                                                                        
                                                                                
The general partner of NTCI-II is National Partnership Investments Corp.        
("NAPICO"), a California corporation (the "General Partner"). PaineWebber T.C.  
Partners L.P., a Virginia limited partnership and an affiliate of PaineWebber   
Incorporated, is the special limited partner of the Partnership (the "Special   
Limited Partner"). NAPICO is a wholly owned subsidiary of Casden Investment     
Corporation ("CIC"), which is wholly owned by Alan I. Casden. The current       
members of NAPICO's Board of Directors are Charles H. Boxenbaum, Bruce E.       
Nelson, Alan I. Casden and Henry C. Casden.                                     
                                                                                
In general, an owner of a low-income housing project is entitled to receive the 
Housing Tax Credit in each year of a ten-year period (the "Credit Period"). The 
apartment complexes ("Apartment Complex") are subject to a minimum compliance   
period of not less than fifteen years (the "Compliance Period"). Tax Credits are
available to the limited partners to reduce their federal income taxes. The     
ability of a limited partner to utilize such credits may be restricted by the   
passive activity loss limitation and the general business tax credit limitation 
rules. NTCI-II has made capital contributions to 37 Local Partnerships. Each of 
these Local Partnerships owns an Apartment Complex that is eligible for the     
Housing Tax Credit. Several of the Local Partnerships also benefit from         
government programs promoting low or moderate income housing.                   
                                                                                
The Partnership's investments in Local Partnerships are subject to the risks    
incident to the management and ownership of multifamily residential real estate.
Neither the Partnership's investments nor the Apartment Complexes owned by the  
Local Partnerships will be readily marketable, and there can be no assurance    
that the Partnership will be able to dispose of its Local Partnership Interests 
or Apartment Complexes at the end of the Compliance Period. The value of the    
Partnership's investments will be subject to changes in national and local      
economic conditions, including substantial unemployment, which could adversely  
impact vacancy levels, rental payment defaults and operating expenses. This, in 
turn, could substantially increase the risk of operating losses for the         
Apartment Complexes and the Partnership. The Apartment Complexes are subject to 
the risk of loss through foreclosure. In addition, each Local Partnership is    
subject to risks relating to environmental hazards which might be uninsurable.  
Because the Partnership's ability to control its operations will depend on these
and other factors beyond the control of the General Partner and the local       
general partners, there can be no assurance that Partnership operations will be 
profitable or that the anticipated Housing Tax Credits will be available to the 
limited partners.                                                               
                                                                                
The Apartment Complexes owned by the Local Partnerships in which NTCI-II has    
invested were developed by the local operating general partners (the "Local     
Operating General Partners") who acquired the sites and applied for applicable  
mortgages and subsidies, if any. NTCI-II became the principal limited partner in
these Local Partnerships pursuant to arm's-length negotiations with the Local   
Operating General Partners. As a limited partner, NTCI-II's liability for       
obligations of the Local Partnership is limited to its investment. The Local    
Operating General Partner of the Local Partnership retains responsibility for   
developing, constructing, maintaining, operating and managing the Project. Under
certain circumstances, an affiliate of NAPICO or NTCI-II may act as the Local   
Operating General Partner. An affiliate, National Tax Credit Inc. II ("NTC-II") 
is acting either as a special limited partner or non-managing administrative    
general partner (the "Administrative General Partner") of each Local            
Partnership.                                                                    
                                                                                
                                                                                
                                                                                
<PAGE>   3
                                                                                
                                                                                
                                                                                
During 1997, the Apartment Complexes in which NTCI-II had invested were         
substantially rented.                                                           
                                                                                
The following is a schedule of the status as of December 31, 1997, of the       
Apartment Complexes owned by Local Partnerships in which NTCI-II is a limited   
partner.                                                                        
                                                                                
       SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS                 
                       IN WHICH NTCI-II HAS AN INVESTMENT                       
                                DECEMBER 31, 1997                               
<TABLE>                                                                         
<CAPTION>                                                                                      
                                                                              Units Occupied   
                                                                              as a Percentage  
                                                                              of Total Units   
                                        No. of              Units              Available for   
Name & Location                         Units            Occupied                Occupancy     
---------------                         -----            --------                ---------     
<S>                                     <C>              <C>                  <C>              
Ashville Equity (Westview)                                                                     
  Ashville, OH                           41                 41                     100%        
Columbus Junction Park                                                                         
  Columbus Junction, IA                  24                 24                     100%        
Cottages of North St. Paul (Elderly)                                                           
  North St. Paul, MN                     94                 94                     100%        
Cottonwood Park                                                                                
  Colorado Springs, CO                   90                 89                      99%        
Countryside                                                                                    
  Howell Township, NJ                   180                169                      94%        
East Ridge Apartments                                                                          
  St. Clair, MO                          48                 39                      81%        
Edgewood Apartments                                                                            
  Rogers, AR                            108                102                      94%        
Fourth Street                                                                                  
  Los Angeles, CA                        44                 39                      89%        
Germantown Apartments                                                                          
  Conway, AR                            132                132                     100%        
Great Basin Associates                                                                         
  Reno, NV                               28                 27                      96%        
Grimes Park Apartments                                                                         
  Grimes, IA                             16                 15                      94%        
Jamestown Terrace                                                                              
  Jamestown, CA                          56                52                       93%        
Jefferson Meadows Apartments                                                                   
  Detroit, MI                            83                 82                      99%        
Kentucky River Apartments                                                                      
  Winchester, KY                         42                 38                      90%        
Lincoln Grove Apartments                                                                       
  Greensboro, NC                        116                114                      98%        
Meadowlakes Apartments                                                                         
  Searcy, AR                            108                102                      94%        
Michigan Beach Apartments                                                                      
  Chicago, IL                           240                175                      73%        
Nickel River (Wedgewood) Apartments                                                            
  LaCrosse, WI                          105                 99                      94%        
Norwalk Park Apartments                                                                        
  Norwalk, IA                            16                 15                      94%        
</TABLE>                                                                    
                                                                            
                                                                            
<PAGE>   4
                                                                            
                                                                            
                                                                            
            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS     
                 IN WHICH NTCI-II HAS AN INVESTMENT (CONTINUED)          
                                DECEMBER 31, 1997                        
<TABLE>                                                                  
<CAPTION>                                                                
                                                                                               
                                                                              Units Occupied   
                                                                              as a Percentage  
                                                                              of Total Units   
                                        No. of             Units               Available for   
Name & Location                         Units            Occupied                Occupancy     
---------------                         -----            --------                ---------     
<S>                                     <C>              <C>                  <C>              
Oakview Apartments                                                                             
  Spartanburg, SC                       106                100                      94%         
Palm Springs View                                                                              
  Palm Springs, CA                      120                110                      92%        
Pam Apartments                                                                                 
  Pampa, TX                              96                 95                      99%        
Paramount Apartments                                                                           
  Maple Heights, OH                      99                 87                      88%        
Parkwood Landing                                                                               
  Huntsville, AL                        204                173                      85%        
Pensacola Affordable                                                                           
  Pensacola, FL                          56                 56                     100%        
Pineview Terrace                                                                               
  Katy, TX                              120                119                      99%        
Quivera                                                                                        
 Lenexa, KS                             289                260                      90%        
Rancho Del Mar                                                                                 
  Tucson, AZ                            312                275                      88%        
Salem Park Apartments                                                                          
  Conway, AR                            144                144                     100%        
Sheboygan Apartments                                                                           
  Sheboygan, WI                          59                 56                      95%        
Sitka III                                                                                      
  Sitka, AK                              16                 13                      81%        
Soldotna (Northwood Senior) Apartments                                                         
  Soldotna, AK                           23                 22                      96%        
Torres de Plata II                                                                             
  Toa Alto, PR                           78                 78                     100%        
Villa Real                                                                                     
  Santa Fe, NM                          120                114                      95%        
Virginia Park Meadows                                                                          
  Detroit, MI                            83                 79                      95%        
Wade Walton Apartments                                                                         
  Clarksdale, MI                        108                 94                      87%        
Westbridge Apartments                                                                          
  W. Columbia, SC                       112                104                      93%        
                                      -----              -----                                 
                                                                                               
                                      3,716              3,427                      92%        
                                      =====              =====            
</TABLE>                                                                  
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
                                                                          
<PAGE>   5
                                                                                
                                                                                
                                                                                
ITEM 2.       PROPERTIES:                                                       
                                                                                
Through its investment in Local Partnerships, NTCI-II holds interests in        
Apartment Complexes. See Item 1 and Schedule XI for information pertaining to   
these Apartment Complexes.                                                      
                                                                      
                                                                                
ITEM 3.       LEGAL PROCEEDINGS:                                                
                                                                                
As of December 31, 1997, NTCI-II's General Partner was a plaintiff or a         
defendant in several lawsuits. In addition, the Partnership was involved in the 
following lawsuits arising from transactions in the ordinary course of business.
In the opinion of management and the General Partner, these claims will not     
result in any material liability to the Partnership.                            
                                                                                
Michigan Beach/City of Chicago Litigation: On June 19, 1991, the City of Chicago
("Chicago") commenced an action in the Circuit Court of Cook County, Illinois   
(the "Chicago Litigation") against the unaffiliated local operating general     
partner, certain of its affiliates, the Michigan Beach Limited Partnership,     
National Tax Credit Investors II ("NTCI-II"), National Tax Credit Inc. II       
("NTC-II"), as the limited and administrative general partner, respectively, of 
the Michigan Beach Limited Partnership, and certain other defendants, including 
the Government National Mortgage Association ("GNMA"). On May 8, 1992, the      
Circuit Court of Cook County entered an order dismissing Counts I-V as against  
all defendants. On January 26, 1993, the Illinois Appellate Court affirmed the  
order dismissing all the claims asserted against NTCI-II and NTC-II. Chicago did
not appeal that judgment.                                                       
                                                                                
In August, 1994, Chicago brought Michigan Beach Limited Partnership, which is   
the local partnership, back into the Chicago Litigation by filing a second      
amended complaint which named the local partnership and others as defendants.   
(Counts I-IV were not directed to the local partnership. As was previously      
reported, the allegations directed against the local partnership are in Counts  
V, VI, VII and VIII). Chicago alleged, among other things, that Michigan Beach  
Cooperative, which was the previous owner of the Michigan Beach Apartments,     
fraudulently induced Chicago to loan to it $3,295,230, and breached its alleged 
agreement to use the loan proceeds solely for rehabilitating the building. In   
Counts V and VI, Chicago alleged that the local partnership's purchase of the   
Michigan Beach Apartments from the Michigan Beach Cooperative was a fraudulent  
conveyance intended to render the Michigan Beach Cooperative judgment proof and 
thereby deprive Chicago of its only source of recovery on its claims against the
Michigan Beach Cooperative; thus, Chicago alleged in these counts that a        
judgment entered in favor of Chicago on its claim against the Michigan Beach    
Cooperative could be satisfied by Michigan Beach Apartments. Counts VII and VIII
further alleged breaches of Chicago's junior note and mortgage.                 
                                                                                
The local partnership moved to dismiss all of these allegations. Dismissal of   
Counts VI, VII and VIII, was granted and the Michigan Beach local partnership   
filed an answer to Count V which denies all of the material allegations of      
wrongdoing. Additionally, the local partnership filed a counterclaim against    
Chicago requesting $1,000,000 in compensatory damages arising out of Chicago's  
conduct in preventing a modification of the senior debt on the property. On     
January 26, 1996, the Circuit Court of Cook County entered an order granting    
summary judgment in favor of certain defendants and against Chicago, thereby    
disposing of all counts of Chicago's Third Amended Complaint against all        
defendants. The court also found in favor of the local partnership on its motion
for summary judgment on Count II of its counterclaim against the City. The City 
has appealed these rulings and that appeal is currently pending.                
                                                                                
The Michigan Beach Limited Partnership is vigorously prosecuting its            
counterclaim against the City. The parties have completed discovery and Chicago 
has filed a motion for summary judgment with respect to those claims. At the    
present time, legal counsel for the local partnership is unable to predict the  
outcome of this litigation. The Partnership's investment in Michigan Beach      
Limited Partnership at December 31, 1997 and 1996 is zero.                      
                                                                                
                                                                                
                                                                                
                                                                                
<PAGE>   6
                                                                                
                                                                                
                                                                                
ITEM 4.       SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:              
                                                                                
Not applicable.                                                                 
                                                                                
                                                                                
PART II.                                                                        
                                                                                
ITEM 5.       MARKET FOR THE REGISTRANT'S PARTNERSHIP INTERESTS AND RELATED     
              SECURITY HOLDER MATTERS:                                          
                                                                                
The Limited Partnership Interests are not traded on a public exchange but were  
sold through a public offering managed by PaineWebber Incorporated. It is not   
anticipated that any active public market will develop for the purchase and sale
of any Limited Partnership Interests. Limited Partnership Interests may not be  
transferred but can be assigned only if certain requirements in the Partnership 
Agreement are satisfied. At December 31, 1997, there were 3,748 registered      
holders of units in NTCI-II. The Partnership was not designed to provide cash   
distributions to Limited Partners in circumstances other than refinancing or    
disposition of its investments in Local Partnerships. Distributions have not    
been made from inception of the Partnership to December 31, 1997.               
                                                                                
                                                                                
<PAGE>   7
ITEM 6.         SELECTED FINANCIAL DATA:                                        
                                                                                
                                                                                
                                                                                
<TABLE>                                                                         
<CAPTION>                                                                       
                                                                                                                                  
                                                                           Year Ended December 31,                                
                                     -------------------------------------------------------------------------------------------- 
                                          1997              1996                 1995                1994                 1993    
                                     ------------        ------------        ------------        ------------        ------------ 
<S>                                  <C>                 <C>                 <C>                 <C>                 <C>          
Revenues                             $     21,559        $     25,136        $    165,254        $     59,636        $    357,848 
                                                                                                                                  
Operating expenses                      1,060,595           1,037,055           1,291,664           1,213,388           1,042,576 
                                                                                                                                  
Equity in loss of limited                                                                                                         
   partnerships and                                                                                                               
   amortization of                                                                                                                
   acquisition costs                   (4,222,167)         (4,746,790)         (4,684,182)         (5,338,942)         (4,165,345)
                                                                                                                                  
Write-off of Local Partnership                 --          (1,117,893)                 --                  --                  -- 
                                     ------------        ------------        ------------        ------------        ------------ 
                                                                                                                                  
Net loss                             $ (5,261,203)       $ (6,876,602)       $ (5,810,592)       $ (6,492,694)       $ (4,850,073)
                                     ============        ============        ============        ============        ============ 
                                                                                                                                  
Net loss per limited                                                                                                              
   limited partnership                                                                                                            
   interest                          $        (72)       $        (94)       $        (79)       $        (89)       $        (66)
                                     ============        ============        ============        ============        ============ 
                                                                                                                                  
                                                                                                                                  
Total assets                         $ 26,193,937        $ 30,691,137        $ 37,053,252        $ 42,570,620        $ 50,742,001 
                                     ============        ============        ============        ============        ============ 
                                                                                                                                  
Investments                                                                                                                       
   in limited                                                                                                                     
   partnerships                      $ 25,724,722        $ 30,331,138        $ 36,116,847        $ 40,935,918        $ 46,510,625 
                                     ============        ============        ============        ============        ============ 
                                                                                                                                  
Capital contributions                                                                                                             
   payable                           $    356,985        $    356,985        $    356,985        $    369,681        $  2,512,258 
                                     ============        ============        ============        ============        ============ 
</TABLE>                                                                      
                                                                                
                                                                                
                                                                                
<PAGE>   8
                                                                                
ITEM 7.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND     
            RESULTS OF OPERATIONS:                                              
                                                                                
Capital Resources                                                               
                                                                                
The Partnership raised $72,404,000 from investors by a public offering, the term
of which expired on April 22, 1992, that was used for the acquisition of        
investments in Local Partnerships which own the Apartment Complexes. The        
Partnership holds limited partnership interests in 37 Local Partnerships.       
Normally, the capital contributions to the Local Partnerships are payable in    
installments, with each contribution due on a specified date and/or provided    
that certain conditions regarding construction operation and financing of the   
project have been fulfilled. At December 31, 1997, $356,985 remains outstanding 
for 2 Local Partnerships.                                                       
                                                                                
It is not expected that any of the Local Partnerships in which the Partnership  
invests will generate cash from operations sufficient to provide distributions  
to the Limited Partners in any material amount. Such cash from operations, if   
any, would first be used to meet operating expenses of the Partnership. The     
Partnership's investments will not be readily marketable and may be affected by 
adverse general economic conditions which, in turn, could substantially increase
the risk of operating losses for the Apartment Complexes, the Local Partnerships
and the Partnership. These problems may result from a number of factors, many of
which cannot be controlled by the General Partner.                              
                                                                                
The General Partner has the right to cause distributions received by the        
Partnership from the Local Partnerships (that would otherwise be available for  
distributions as cash flow) to be dedicated to the increase or replenishment of 
reserves at the Partnership level. The reserves will generally be available to  
satisfy working capital or operating expense needs of the Partnership (including
payment of partnership management fees) and will also be available to pay any   
excess third-party costs or expenses incurred by the Partnership in connection  
with the administration of the Partnership, the preparation of reports to the   
Limited Partners and other investor servicing obligations of the Partnership. At
the discretion of the General Partner, reserves may be available for            
contributions to the Local Partnerships.                                        
                                                                                
The Partnership does not have the ability to assess Limited Partners for        
additional capital contributions to provide capital if needed by the Partnership
or Local Partnerships. Accordingly, if circumstances arise that cause the Local 
Partnerships to require capital in addition to that contributed by the          
Partnership and any equity of the local general partners, the only sources from 
which such capital needs will be able to be satisfied (other than the limited   
reserves available at the Partnership level) will be (i) third-party debt       
financing (which may not be available if, as expected, the Apartment Complexes  
owned by the Local Partnerships are already substantially leveraged), (ii) other
equity sources (which could adversely affect the Partnership's interest in      
operating cash flow and/or proceeds of sale or refinancing of the Apartment     
Complexes which would result in adverse tax consequences to the Limited         
Partners), or (iii) the sale or disposition of Apartment Complexes. There can be
no assurance that any of such sources would be readily available in sufficient  
proportions to fund the capital requirements of the Local Partnerships. If such 
sources are not available, the Local Partnerships would risk foreclosure on     
their Apartment Complexes if they were unable to renegotiate the terms of their 
first mortgages and any other debt secured by the Apartment Complexes, which    
would have significant adverse tax consequences to the Limited Partners.        
                                                                                
Liquidity                                                                       
                                                                                
Each Partnership acquisition is analyzed by the General Partner with respect to 
its probable impact upon the Partnership's liquidity position. In this regard,  
the General Partner takes into account projected cash flow generated from the   
Apartment Complex, the anticipated debt service requirements of the existing    
financing and any restructuring or refinancing of such Apartment Complex, and   
the division of cash flow in excess of debt service between the Partnership and 
the local general partner.                                                      
                                                                                
Following an acquisition, adverse business or financial developments could      
negatively impact cash flow and the Partnership's liquidity position. The       
General Partner may attempt to obtain operating deficit guarantees from certain 
local general partners to fund operating deficits for limited periods of time.  
See "Investment Objectives and Policies - Operating                             
                                                                                
<PAGE>   9
                                                                                
                                                                                
Deficit Guarantees" in the Prospectus. In addition, the Local Partnerships are  
expected to maintain working capital reserves independent of those maintained by
the Partnership to the extent that (i) the terms of mortgage debt encumbering   
the Apartment Complexes or the terms of any government assistance program so    
require, or (ii) the Local General Partner determines that such reserves are    
necessary or advisable. Although reserves are to be maintained at both the      
Partnership and Local Partnership levels, if such reserves and other available  
income, if any, are insufficient to cover the Partnership's or any Local        
Partnership's operating expenses and liabilities, it may be necessary to        
accumulate additional funds from distributions received from Local Partnerships 
which would otherwise be available for distribution to the Limited Partners, or 
to liquidate the Partnership's investment in one or more Local Partnerships.    
                                                                                
Reserves of the Partnership and reserves of the Local Partnerships may be       
increased or decreased from time to time by the general partner or the local    
general partner, as the case may be, in order to meet anticipated costs and     
expenses. The amount of cash flow available for distribution and/or sale or     
refinancing proceeds, if any, which is available for distribution to the Limited
Partners may be affected accordingly.                                           
                                                                                
Results of Operations                                                           
                                                                                
The Partnership was formed to provide various benefits to its Limited Partners  
as discussed in Item 1. It is not expected that any of the Local Partnerships in
which the Partnership has invested will generate cash flow sufficient to provide
for distributions to Limited Partners in any material amount. The Partnership   
accounts for its investments in the Local Partnerships on the equity method,    
thereby adjusting its investment balance by its proportionate share of the      
income or loss of the Local Partnerships.                                       
                                                                                
In general, in order to avoid recapture of Housing Tax Credits, the Partnership 
does not expect that it will dispose of its Local Partnership Interests or      
approve the sale by a Local Partnership of any Apartment Complex prior to the   
end of the applicable 15-year Compliance Period. Because of (i) the nature of   
the Apartment Complexes, (ii) the difficulty of predicting the resale market for
low-income housing 15 or more years in the future, and (iii) the inability of   
the Partnership to directly cause the sale of Apartment Complexes by local      
general partners, but generally only to require such local general partners to  
use their respective best efforts to find a purchaser for the Apartment         
Complexes, it is not possible at this time to predict whether the liquidation of
substantially all of the Partnership's assets and the disposition of the        
proceeds, if any, in accordance with the partnership agreement will be able to  
be accomplished promptly at the end of the 15-year period. If a Local           
Partnership is unable to sell an Apartment Complex, it is anticipated that the  
local general partner will either continue to operate such Apartment Complex or 
take such other actions as the local general partner believes to be in the best 
interest of the Local Partnership. In addition, circumstances beyond the control
of the General Partner may occur during the Compliance Period which would       
require the Partnership to approve the disposition of an Apartment Complex prior
to the end of the Compliance Period.                                            
                                                                                
Except for interim investments in highly liquid debt investments, the           
Partnership's investments are entirely interests in other Local Partnerships    
owning Apartment Complexes. Funds temporarily not required for such investments 
in projects are invested in these highly liquid debt investments earning        
interest income as reflected in the statements of operations. These interim     
investments can be easily converted to cash to meet obligations as they arise.  
Included in interest income for 1995 is $86,095 related to interest earned in   
prior years on deposits held in escrow for capital contributions paid.          
                                                                                
The Partnership, as a Limited Partner in the Local Partnerships in which it has 
invested, is subject to the risks incident to the construction, management, and 
ownership of improved real estate. The Partnership investments are also subject 
to adverse general economic conditions, and accordingly, the status of the      
national economy, including substantial unemployment and concurrent inflation,  
could increase vacancy levels, rental payment defaults, and operating expenses, 
which in turn, could substantially increase the risk of operating losses for the
Apartment Complexes.                                                            
                                                                                
The Partnership accounts for its investments in the local limited partnerships  
on the equity method, thereby adjusting its investment balance by its           
proportionate share of the income or loss of the Local Partnerships. Equity in  
losses of limited partnerships is recognized in the financial statements until  
the limited partnership investment account is reduced to a zero balance. Losses 
incurred after the limited partnership investment account is reduced to zero are
not recognized. Limited                                                         
                                                                                
<PAGE>   10
                                                                                
                                                                                
partners are not liable for losses beyond their contributed capital. The equity 
in loss of limited partnerships was reduced from $4,746,790 and $4,684,182 in   
1996 and 1995, respectively, to $4,222,167 in 1997 as a result of the           
Partnership's investments in two local limited partnerships being reduced to    
zero at December 31, 1996. As a result, no losses were recognized from these    
partnerships in 1997, as compared to $1,032,475 and $809,247 which was          
recognized in 1996 and 1995, respectively.                                      
                                                                                
Distributions received from limited partnerships are recognized as return of    
capital until the investment balance has been reduced to zero or to a negative  
amount equal to future capital contributions required. Subsequent distributions 
received are recognized as income.                                              
                                                                                
Operating expenses consist primarily of recurring general and administrative    
expenses and professional fees for services rendered to the Partnership. In     
addition, an annual partnership management fee in an amount equal to 0.5% of    
invested assets is payable to the General Partner and Special Limited Partner.  
The management fee represents the annual recurring fee which will be paid to the
General Partner for its continuing management of Partnership affairs. The       
decrease in legal and accounting fees for the years ended December 31, 1997 and 
1996 as compared to 1995, is due to legal fees related to the Michigan Beach    
litigation and various securities matters in 1995.                              
                                                                                
The Palm Springs View property, a 120-unit apartment complex located in Palm    
Springs, California, was in default on the mortgage note in 1995. The mortgage  
note is insured by the United States Department of Housing and Urban Development
("HUD"). In January 1996, HUD paid to the lender a "partial payment of insurance
claim", which modified the mortgage note, including a reduction of the interest 
rate and the creation of a second deed of trust to HUD with required payments   
restricted to a proportion of available property cash flow. The completion of   
the partial payment of insurance claim, in addition to the application of       
reserve funds already held by the lender, served to cure the default. In        
December 1993, Local Partnership, PSVA Joint Venture, was admitted as an        
additional limited partner of the Palm Springs Local Partnership by its         
acquisition of 49% of the existing limited partner's 99% ownership interest. In 
exchange for the ownership interest, the additional limited partner originally  
agreed to invest $577,200, which was to be paid in seventy-eight installments of
$7,400 per month. In January 1996, in conjunction with the partial payment of   
insurance claim, the additional limited partner made a lump-sum contribution of 
$150,000 in lieu of the payment of the twenty-four installments payable during  
1996 and 1997.                                                                  
                                                                                
The Parkwood Landing Local Partnership obtained permanent financing of          
$4,700,000 in October 1994, the proceeds of which were used to repay the        
then-outstanding construction loan in the amount of $6,386,000. The remaining   
outstanding loan balance was paid primarily with the Partnership's investment of
the second and third capital contributions (approximately $1,200,000 and        
$400,000, respectively), with the remainder being funded by the Local Operating 
General Partner. Pursuant to a letter agreement dated October 13, 1994 between  
the Partnership and the Local Operating General Partner, the third capital      
contribution was advanced in order to facilitate the funding of the permanent   
loan. This advance capital contribution bears interest at the prime rate plus 2%
per annum, and the interest is due and payable upon the attainment of Rental    
Achievement. In consideration of the Partnership's advance of the third capital 
contribution, the local general partner agreed to redefine the benchmarks of the
fourth and final capital contribution of $355,909 so as to be payable in two    
separate installments. The final capital contribution shall now be payable in   
two installments: (a) $100,000 upon the attainment of breakeven operations and  
95% occupancy for six consecutive months, as defined in the letter agreement,   
and (b) $255,909 upon an additional three months of breakeven operations and 95%
occupancy. In addition, the management agent, which is an affiliate of the Local
Operating General Partner, shall subordinate its property management fees in the
event the project operates at a deficit during the guaranty period. As of       
December 31, 1997, Rental Achievement has not been attained and the interest on 
the capital contributions has not yet been received or accrued by the           
Partnership.                                                                    
                                                                                
The Michigan Beach property, a 240-unit apartment complex located in Chicago,   
Illinois, has been operating at a substantial deficit since 1996. The deficit   
has been attributable to a soft local rental market, high leverage and deferred 
maintenance. In November 1996, the local partnership ceased making payments on  
its first mortgage, and has commenced negotiations with the lender and the U.S. 
Department of Housing and Urban Development, who insures the loan, in order     
                                                                                
                                                                                
<PAGE>   11
                                                                                
                                                                                
                                                                                
to cure the default. As of December 31, 1997, the loan is still in default and  
negotiation of the loan workout is in progress. As a result of the above and the
legal proceedings discussed in Item 3, the carrying value of the investment of  
$1,117,893 was written off in 1996.                                             
                                                                                
The Partnership has assessed the potential impact of the Year 2000 computer     
systems issue on its operations. The Partnership believes that no significant   
actions are required to be taken by the Partnership to address the issue and    
that the impact of the Year 2000 computer systems issue will not materially     
affect the Partnership's future operating results or financial condition.       
                                                                                
                                                                                
ITEM 8.     FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA:                        
                                                                                
The Financial Statements and Supplementary Data are listed under Item 14.       
                                                                                
ITEM 9.     CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND      
            FINANCIAL DISCLOSURE:                                               
                                                                                
Not applicable.                                                                 
                                                                                
                                                                                
<PAGE>   12
                        NATIONAL TAX CREDIT INVESTORS II                        
                       (a California limited partnership)                       
                                                                                
                              FINANCIAL STATEMENTS,                             
                          FINANCIAL STATEMENT SCHEDULES                         
                  AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                  
                             AS OF DECEMBER 31, 1997                            
                                                                                
                                                                                
                                                                                
                                                                                
<PAGE>   13
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                                                                                
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS                    
                                                                                
To the Partners of                                                              
National Tax Credit Investors II                                                
(A California limited partnership)                                              
                                                                                
We have audited the accompanying balance sheets of National Tax Credit Investors
II (a California limited partnership) as of December 31, 1997 and 1996, and the 
related statements of operations, partners' equity (deficiency) and cash flows  
for each of the three years in the period ended December 31, 1997. Our audits   
also included the financial statement schedules listed in the index on item 14. 
These financial statements and financial statement schedules are the            
responsibility of the management of the Partnership. Our responsibility is to   
express an opinion on these financial statements and financial statement        
schedules based on our audits. We did not audit the financial statements of     
certain investee limited partnerships, the investments in which are reflected in
the accompanying financial statements using the equity method of accounting. The
investments in these investee limited partnerships represent 24 percent and 37  
percent of total assets as of December 31, 1997 and 1996, respectively, and the 
equity in the net loss of these partnerships represents 27 percent, 25 percent  
and 24 percent of the total net loss of the Partnership for the years ended     
December 31, 1997, 1996 and 1995, respectively, and represent a substantial     
portion of the investee information in Note 2 and financial statement schedules.
The financial statements of these investee limited partnerships were audited by 
other auditors. Their reports have been furnished to us and our opinion, insofar
as it relates to the amounts included for those limited partnerships, is based  
solely on the reports of the other auditors.                                    
                                                                                
We conducted our audits in accordance with generally accepted auditing          
standards. Those standards require that we plan and perform the 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 and the reports of other auditors provide a          
reasonable basis for our opinion.                                               
                                                                                
In our opinion, based on our audits and the reports of other auditors, the      
financial statements referred to above present fairly, in all material respects,
the financial position of National Tax Credit Investors II as of December 31,   
1997 and 1996, and the results of its operations and its cash flows for each of 
the three years in the period ended December 31, 1997 in conformity with        
generally accepted accounting principles. Also, in our opinion, based on our    
audits and the reports of other auditors, such financial statement schedules,   
when considered in relation to the basic financial statements taken as a whole, 
present fairly in all material respects the information set forth therein.      
                                                                                
                                                                                
                                                                                
DELOITTE & TOUCHE LLP                                                           
                                                                                
Los Angeles, California                                                         
April 8, 1998                                                                   
                                                                                
<PAGE>   14
                        [RICK J. TANNEBERGER LETTERHEAD]


                          Independent Auditor's Report

The Partners
Germantown, A Limited Partnership


We have audited the accompanying balance sheets of Germantown, A Limited
Partnership, as of December 31, 1996 and 1995, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the 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 Germantown, A Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                                        /s/ RICK J. TANNEBERGER


                                        Rick J. Tanneberger, CPA, P.A.


January 15, 1997
Fayetteville, AR 72704


<PAGE>   15
           [HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C. LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT

To the Partners
Grimes Park Apartments, Limited Partnership
West Des Moines, Iowa


      We have audited the accompanying balance sheets of GRIMES PARK APARTMENTS,
LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the related statements
of operations, partners' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Grimes Park Apartments,
Limited Partnership as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.




               /s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.


January 8, 1998
West Des Moines, Iowa
<PAGE>   16
              [HUMISTON, SKOKAN, WARREN & EICHENBERGER LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Grimes Park Apartments, Limited Partnership
West Des Moines, Iowa


      We have audited the accompanying balance sheets of GRIMES PARK APARTMENTS,
LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the related statements
of operations, partners' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Grimes Park Apartments,
Limited Partnership as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.


               /s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.


January 6, 1997
West Des Moines, Iowa
<PAGE>   17
                    [ROCKOFF, HARLAN, RASOF LTD. LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Jamestown Terrace (A California Limited Partnership)

We have audited the accompanying balance sheet of JAMESTOWN TERRACE (A
California Limited Partnership), RECD Project No. 04-055-0363605470, as of
December 31, 1997 and 1996, and the related statements of operations, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of JAMESTOWN TERRACE (A California
Limited Partnership) as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 29, 1998 on our consideration of the Partnership's internal
control structure and a report dated January 29, 1998 on its compliance with
laws and regulations.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 15
through 19 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the audit procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                         /s/ ROCKOFF, HARLAN, RASOF LTD.


Skokie, Illinois
January 29, 1998
<PAGE>   18
                       [PLANTE & MORGAN, LLP LETTERHEAD]


                          Independent Auditor's Report


To the Partners
Jefferson Meadows Limited Dividend
Housing Association Limited Partnership

We have audited the accompanying balance sheet of Jefferson Meadows Limited
Dividend Housing Association Limited Partnership (a Michigan limited
partnership) MSHDA Development No. 848, as of December 31, 1997, 1996, and 1995,
and the related statements of profit and loss, partners' equity, and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson Meadows Limited
Dividend Housing Association Limited Partnership as of December 31, 1997, 1996,
and 1995, and its profit and loss, partners' equity, and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 9, 1998, on our consideration of the Partnership's internal
controls and a report dated January 9, 1998, on its compliance with laws and
regulations.


                                        /s/ PLANTE & MORGAN, LLP


January 9, 1998
East Lansing, Michigan 48826-2500
<PAGE>   19
                        [PLANTE & MORAN, LLP LETTERHEAD]


                          Independent Auditor's Report



To the Partners
Jefferson Meadows Limited
  Dividend Housing Association
  Limited Partnership


We have audited the accompanying balance sheet of Jefferson Meadows Limited
Dividend Housing Association Limited Partnership (a Michigan limited
partnership), MSHDA Development No. 848, as of December 31, 1996, 1995, and
1994, and the related statements of profit and loss, partners' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Jefferson Meadows Limited
Dividend Housing Association Limited Partnership at December 31, 1996, 1995, and
1994, and the results of its operations and changes in partners' equity and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 13, 1997, on our consideration of the Partnership's internal
control structure and a report dated January 13, 1997, on its compliance with
laws and regulations.


                                        /s/ PLANTE & MORAN, LLP


January 13, 1997
East Lansing, Michigan 48826-2500
<PAGE>   20
                    [DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT

To the Partners
Kentucky River Apartments, Ltd.
A Kentucky Limited Partnership
Winchester, Kentucky

I have audited the accompanying balance sheet of Kentucky River Apartments,
Ltd., a Kentucky Limited Partnership as of December 31, 1997, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the partnership's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

I conducted the audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the 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.
I believe that the audit provides a reasonable basis for my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Kentucky River Apartments, Ltd., A
Kentucky Limited Partnership as of December 31, 1997, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

The audit were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental information on pages 10 and 11 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the audit
procedures applied in the audit of the basic financial statements and, in my
opinion is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.


/s/ DONALD W. CAUSEY, CPA, P.C.


February 12, 1998
Gadsden, Alabama 35902
<PAGE>   21
                    [DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT

To the Partners
Kentucky River Apartments, Ltd.
A Kentucky Limited Partnership
Winchester, Kentucky

I have audited the accompanying balance sheet of Kentucky River Apartments,
Ltd., a Kentucky Limited Partnership as of December 31, 1996, and the related
statements of operations, partners' capital and cash flows for the year then
ended. These financial statements are the responsibility of the partnership's
management. My responsibility is to express an opinion on the financial
statements based on my audit.

I conducted the audit in accordance with generally accepted auditing standards
and Government Auditing Standards issued by the Comptroller General of the
United States. Those standards require that I plan and perform the 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. I believe that the audit provides a reasonable basis for my
opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Kentucky River Apartments, Ltd., A
Kentucky Limited Partnership as of December 31, 1996, and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

The audit were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The supplemental information on Page 10 and 11 is
presented for purposes of additional analysis and is not a required part of the
basic financial statements. Such information has been subjected to the audit
procedures applied in the audit of the basic financial statements and, in my
opinion is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.


/s/ DONALD W. CAUSEY, CPA, P.C.


February 1, 1997
Gadsden, Alabama 35902
<PAGE>   22
                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Wynnefield Lincoln Grove Limited Partnership

      We have audited the accompanying balance sheet of Wynnefield Lincoln Grove
Limited Partnership as of December 31, 1997, and the related statements of
operations, changes in partners' equity and cash flows for the year then ended.
These financial statements are the responsibility of the partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

      We conducted our audit in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the 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 audit provides 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 Wynnefield Lincoln Grove
Limited Partnership as of December 31, 1997, and the results of its operations,
the changes in partners' equity and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.

      In accordance with Government Auditing Standards, we have also issued
reports dated January 9, 1998 on our consideration of Wynnefield Lincoln Grove
Limited Partnership's internal control and on its compliance with laws
regulations and contracts.


/s/ REZNICK FEDDER & SILVERMAN


Charlotte, North Carolina
January 9, 1998
<PAGE>   23
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Ashville Equity Limited Partnership

We have audited the accompanying balance sheets of ASHVILLE EQUITY LIMITED
PARTNERSHIP as of December 31, 1997 and 1996 and the related statements of
operations, changes in partners' equity and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Ashville Equity 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 then ended in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The additional 1997 financial data, listed in the
Table of Contents, are presented for the purpose of additional analysis and are
not a required part of the financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the 1997 financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
March 5, 1998
<PAGE>   24
           [HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C. LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Columbus Junction Park, Limited Partnership
West Des Moines, Iowa


      We have audited the accompanying balance sheets of COLUMBUS JUNCTION PARK,
LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the related statements
of operations, partners' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Columbus Junction Park,
Limited Partnership as of December 31, 1997 and 1996 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.


               /s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.


January 12, 1998
West Des Moines, Iowa
<PAGE>   25
              [HUMISTON, SKOKAN, WARREN & EICHENBERGER LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Columbus Junction Park, Limited Partnership
West Des Moines, Iowa


      We have audited the accompanying balance sheets of COLUMBUS JUNCTION PARK,
LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the related statements
of operations, partners' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Columbus Junction Park,
Limited Partnership as of December 31, 1996 and 1995 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.


               /s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.


January 9, 1997
West Des Moines, Iowa
<PAGE>   26
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Cottonwood Park Housing Partners

We have audited the accompanying balance sheets of COTTONWOOD PARK HOUSING
PARTNERS (a Colorado limited partnership) as of December 31, 1997 and 1996 and
the related statements of income, changes in partners' equity and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Cottonwood Park Housing
Partners as of December 31, 1997 and 1996 and the results of its operations,
changes in partners' equity and cash flows for the years then ended in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The additional 1997 financial data, listed in the
Table of Contents, are presented for the purpose of additional analysis and are
not a required part of the financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the 1997 financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
March 5, 1998
<PAGE>   27
                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Countryside North American Partners, L.P.

      We have audited the accompanying statements of assets, liabilities and
partners' equity of Countryside North American Partners, L.P. as of December 31,
1997 and 1996, and the related statements of operations, partners' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States. Those standards require that we plan and perform the 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.

      As described in note A, these financial statements were prepared in
conformity with the accounting practices prescribed or permitted by the New
Jersey Housing & Mortgage Finance Agency, and are not intended to be a
presentation in conformity with generally accepted accounting principles.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' equity of
Countryside North American Partners, L.P. as of December 31, 1997 and 1996, and
the results of its operations, the changes in partners' equity and cash flows
for the years then ended, on the basis of accounting described in note A.


                                      -4-
<PAGE>   28
      Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on pages 16
through 22 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, is fairly stated in all material
respects in relation the basic financial statements taken as a whole.

      In accordance with Government Auditing Standards, we have also issued a
report dated January 30, 1998 on our consideration of Countryside North American
Partners, L.P.'s internal control and a report dated January 30, 1998 on its
compliance with laws and regulations applicable to the financial statements.

      This report is intended solely for the information and use of the
management of Countryside North American Partners, L.P. and the New Jersey
Housing & Mortgage Finance Agency and should not be used for any other purpose.


                                                /s/ REZNICK, FEDDER & SILVERMANN


Bethesda, Maryland
January 30, 1998


                                      -5-
<PAGE>   29
                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Countryside North American Partners, L.P.

      We have audited the accompanying statements of assets, liabilities and
partners' equity of Countryside North American Partners, L.P. as of December 31,
1996 and 1995, and the related statements of operations, partners' equity and
cash flows for the years then ended. These financial statements are the
responsibility of the partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with generally accepted auditing
standards and Government Auditing Standards, issued by the Comptroller General
of the United States and the New Jersey Housing Finance Agency Policies and
Procedures Manual (revised July 1, 1996). Those standards and the Manual require
that we plan and perform the 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.

      As described in Note A, these financial statements were prepared in
conformity with the accounting practices prescribed or permitted by the New
Jersey Housing & Mortgage Finance Agency, and are not intended to be a
presentation in conformity with generally accepted accounting principles.

      In our opinion, the financial statements referred to above present fairly,
in all material respects, the assets, liabilities and partners' equity of
Countryside North American Partners, L.P. as of December 31, 1996 and 1995, and
the results of its operations, the changes in partners' equity and cash flows
for the years then ended, on the basis of accounting described in Note A.


                                      -3-

<PAGE>   30
      In accordance with Government Auditing Standards, we have also issued a
report dated January 29, 1997 on our consideration of Countryside North American
Partners, L.P. internal control structure and a report dated January 29, 1997 on
its compliance with laws and regulations applicable to the financial statements.

      This report is intended solely for the information and use of the
management of Countryside North American Partners, L.P. and the New Jersey
Housing & Mortgage Finance Agency and should not be used for any other purpose.


                                        /s/ REZNICK FEDDER & SILVERMANN


Bethesda, Maryland
January 30, 1998



                                      -4-
<PAGE>   31
                          [PANNETT & MARTI LETTERHEAD]


To the Partners

East Ridge Apartments (Limited Partnership)
Quincy, Illinois


We have audited the accompanying balance sheet of East Ridge Apartments (Limited
Partnership) as of December 31, 1997, 1996 and 1995, and the related statements
of income, partners' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 East Ridge Apartments (Limited
Partnership) as of December 31, 1997, 1996 and 1995, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles.


                                        [SIG]


                                        PANNETT & MARTI, P.C.
                                        Certified Public Accountants

March 6, 1998
Chesterfield, Missouri
<PAGE>   32
                          [PANNETT & MARTI LETTERHEAD]


To the Partners
East Ridge Apartments (Limited Partnership)
Quincy, Illinois


We have audited the accompanying balance sheet of East Ridge Apartments (Limited
Partnership) as of December 31, 1996, 1995 and 1994, and the related statements
of income, retained earnings, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides 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 East Ridge Apartments (Limited
Partnership) as of December 31, 1996, 1995 and 1994, and the results of its
operations and its cash flows for the years then ended in conformity with
generally accepted


                                        [SIG]


                                        PANNETT & MARTI, P.C.
                                        Certified Public Accountants


February 14, 1997
Chesterfield, Missouri
<PAGE>   33
                        [RICK J. TANNEBERGER LETTERHEAD]


                          Independent Auditor's Report

The Partners
Edgewood, A Limited Partnership

We have audited the accompanying balance sheets of Edgewood, A Limited
Partnership, as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the 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 audit provides 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 Edgewood, A Limited Partnership
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted accounting
principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                                        /s/ RICK J. TANNEBERGER, CPA, P.A.


                                        Rick J. Tanneberger, CPA, P.A.


January 27, 1998
Fayetteville, Arkansas
<PAGE>   34
                        [RICK J. TANNEBERGER LETTERHEAD]


                          Independent Auditor's Report

The Partners
Germantown, A Limited Partnership

We have audited the accompanying balance sheets of Germantown, A Limited
Partnership, as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the 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 audit provides 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 Germantown,
A Limited Partnership as of December 31, 1997 and 1996, and the results
of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                                        /s/ RICK J. TANNEBERGER, CPA, P.A.


                                        Rick J. Tanneberger, CPA, P.A.


January 26, 1998
Fayetteville, Arkansas
<PAGE>   35
                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


To the Partners
Wynnefield Lincoln Grove Limited Partnership

      We have audited the accompanying balance sheet of Wynnefield Lincoln Grove
Limited Partnership as of December 31, 1996, and the related statements of
operations, changes in partners' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial.
statements based on our audit.

      We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Wynnefield Lincoln Grove
Limited Partnership as of December 3 1, 1996, and the results of its operations
and its cash flows for the year then ended, in conformity with generally
accepted accounting principles.


                                        /s/ REZNICK FEDDER & SILVERMAN


January 14, 1997
Charlotte, North Carolina


<PAGE>   36
                        [RICK J. TANNEBERGER LETTERHEAD]


                          Independent Auditor's Report

The Partners
Meadow Lake I, A Limited Partnership

We have audited the accompanying balance sheets of Meadow Lake I, A Limited
Partnership, as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the 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 audit provides 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 Meadow Lake I, A Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                                        /s/ RICK J. TANNEBERGER
                                        -----------------------------
                                        Rick J. Tanneberger, CPA, P.A.


January 27, 1998
Fayetteville, Arkansas
<PAGE>   37
                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


            INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS AND
                      ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT


To the Partners of
Michigan Beach Limited Partnership


We have audited the accompanying balance sheets of MICHIGAN BEACH LIMITED
PARTNERSHIP, FHA Project No. 071-36644 (the "Partnership") , as of December 31,
1996 and 1995, and the related statements of operations, changes in partners'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 Michigan Beach Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations,
changes in its partners' equity and its cash flows for the years then ended, in
conformity with generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the
Partnership will continue as a going concern. Insufficient cash flows and
recurring losses from operations resulted in the Partnership becoming delinquent
on its required monthly payments of principal, interest and reserves which were
due for the period from November 1, 1996 through March 7, 1997. These conditions
raise substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to these matters are described in Notes 2
and 8. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty.


<PAGE>   38
Our audits were conducted for the purpose of forming an opinion on the financial
statements taken as a whole. The accompanying additional 1996 financial data
shown on pages 13 through 19 are presented for purposes of additional analysis
and are not a required part of the financial statements. Such information has
been subjected to the auditing procedures applied in the audit of the 1996
financial statements and, in our opinion, is fairly stated in all material
respects in relation to the financial statements taken as a whole.


                     /s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
January 31, 1997
<PAGE>   39
                  [RICK J. TANNEBERGER, CPA, P.A. LETTERHEAD]


                          Independent Auditor's Report

The Partners
Meadow Lake I, A Limited Partnership

We have audited the accompanying balance sheets of Meadow Lake I, A Limited
Partnership, as of December 31, 1996 and 1995, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the 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 Meadow Lake I, A Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.


                                        /s/ RICK J. TANNEBERGER
                                        ------------------------------
                                        Rick J. Tanneberger, CPA, P.A.
                                        Rick J. Tanneberger, CPA


January 17, 1997
Fayetteville, Arkansas
<PAGE>   40
                                     [LOGO]

                           STIENESSEN . SCHLEGEL & CO.
                            LIMITED LIABILITY COMPANY
                          CERTIFIED PUBLIC ACCOUNTANTS

                          Independent Auditor's Report


To the Partners
Nickel River Investment, A Wisconsin
   Limited Partnership
Augusta, Wisconsin

We have audited the accompanying balance sheets of Nickel River Investment, A
Wisconsin Limited Partnership as of December 31, 1997, 1996, and 1995, and the
related statements of operations and changes in partners' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nickel River Investment, A
Wisconsin Limited Partnership as of December 31, 1997, 1996, and 1995, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supporting data on pages 10-13 is
presented for the purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.



/s/ STIENESSEN, SCHLEGEL & CO. LLC
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS

EAU CLAIRE, WI 54702-O810


January 14, 1998


<PAGE>   41

                                     [LOGO]

                           STIENESSEN . SCHLEGEL & CO.
                            LIMITED LIABILITY COMPANY
                          CERTIFIED PUBLIC ACCOUNTANTS

                          Independent Auditor's Report


To the Partners
Nickel River Investment, A Wisconsin
   Limited Partnership
Augusta, Wisconsin

We have audited the accompanying balance sheets of Nickel River Investment, A
Wisconsin Limited Partnership as of December 31, 1996, 1995, and 1994, and the
related statements of operations and changes in partners' equity and cash flows
for the years then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Nickel River Investment, A
Wisconsin Limited Partnership as of December 31, 1996, 1995, and 1994, and the
results of its operations and its cash flows for the years then ended in
conformity with generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supporting data on pages 10-13 is
presented for the purposes of additional analysis and is not a required part of
the basic financial statements. Such information has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.


/s/ STIENESSEN, SCHLEGEL & CO. LLC
----------------------------------
CERTIFIED PUBLIC ACCOUNTANTS

EAU CLAIRE, WI 54702-O810

January 13, 1997



<PAGE>   42

                               [HSW&E LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT

To the Partners
Norwalk Park Apartments, Limited Partnership
West Des Moines, Iowa


         We have audited the accompanying balance sheets of NORWALK PARK
APARTMENTS, LIMITED PARTNERSHIP as of December 31, 1997 and 1996, and the
related statements of operations, partners' equity (deficit) and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Norwalk Park
Apartments, Limited Partnership as of December 31, 1997 and 1996 and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.


/s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.
-------------------------------------------------


January 12, 1998


West Des Moines Iowa

<PAGE>   43

                               [HSW&E LETTERHEAD]




                          INDEPENDENT AUDITORS' REPORT

To the Partners
Norwalk Park Apartments, Limited Partnership
West Des Moines, Iowa


         We have audited the accompanying balance sheets of NORWALK PARK
APARTMENTS, LIMITED PARTNERSHIP as of December 31, 1996 and 1995, and the
related statements of operations, partners' equity (deficit) and cash flows for
the years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

         We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Norwalk Park
Apartments, Limited Partnership as of December 31, 1996 and 1995 and the results
of its operations and its cash flows for the years then ended, in conformity
with generally accepted accounting principles.


/s/ HUMISTON, SKOKAN, WARREN & EICHENBERGER, P.C.
-------------------------------------------------

January 8, 1997

West Des Moines, Iowa


<PAGE>   44

                     [NORMAN, JOHNSON & CO., PA LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT

To the Partners
Oak View Spartanburg Associates, L.P.
(A South Carolina Limited Partnership)
Spartanburg, South Carolina

We have audited the accompanying balance sheets of Oak View Spartanburg
Associates, L.P. (A South Carolina Limited Partnership) as of December 31, 1997
and 1996, and the related statements of operations and changes in partners'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Oak View Spartanburg
Associates, L.P. (A South Carolina Limited Partnership) as of December 31, 1997
and 1996, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.



/s/ NORMAN, JOHNSON & CO., PA LETTERHEAD
----------------------------------------

Spartanburg, South Carolina
February 9, 1998



<PAGE>   45


                     [NORMAN, JOHNSON & CO., PA LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT

To the Partners
Oak View Spartanburg Associates, L.P.
(A South Carolina Limited Partnership)
Spartanburg, South Carolina


We have audited the accompanying balance sheets of Oak View Spartanburg
Associates, L.P. (A South Carolina Limited Partnership) as of December 31, 1996
and 1995, and the related statements of operations and changes in partners'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Oak View Spartanburg
Associates, L.P. (A South Carolina Limited Partnership) as of December 31, 1996
and 1995, and the results of its operations and its cash flows for the years
then ended in conformity with generally accepted accounting principles.


/s/ NORMAN, JOHNSON & CO., PA LETTERHEAD
----------------------------------------

Spartanburg, South Carolina

February 24, 1997


<PAGE>   46

[LOGO]

                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
                    AND ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




To the Partners
Palm Springs View Apartments, Ltd.

We have audited the accompanying balance sheets of PALM SPRINGS VIEW APARTMENTS,
LTD. (a limited partnership), FHA Project No. 143-94002-PM (the "Partnership"),
as of December 31, 1997 and 1996, and the related statements of operations,
changes in partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 Palm Springs View Apartments,
Ltd. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.



                                                                               2

<PAGE>   47


In accordance with Government Auditing Standards, we have also issued a report
dated January 16, 1998 on our consideration of the Partnership's internal
control and a report dated January 16, 1998 on its compliance with laws and
regulations.


/S/ ALTSCHULER, MELVOIN AND GLASSER LLP
---------------------------------------

Los Angeles, California
January 16, 1998



<PAGE>   48

[LOGO]

                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS
                    AND ADDITIONAL FINANCIAL DATA REQUIRED BY
              THE U.S. DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT




To the Partners
Palm Springs View Apartments, Ltd.

We have audited the accompanying balance sheets of PALM SPRINGS VIEW APARTMENTS,
LTD. (a limited partnership), FHA Project No. 143-94002-PM (the "Partnership"),
as of December 31, 1997 and 1996, and the related statements of operations,
changes in partners' equity and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 Palm Springs View Apartments,
Ltd. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.

Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The accompanying 1997 additional
financial data (shown on pages 13 through 19) are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements of the Partnership. Such information has been subjected to the
auditing procedures applied in the audit of the 1997 basic financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the basic financial statements taken as a whole.


                                                                               2

<PAGE>   49


In accordance with Government Auditing Standards, we have also issued a report
dated January 16, 1998 on our consideration of the Partnership's internal
control and a report dated January 16, 1998 on its compliance with laws and
regulations.


/S/ ALTSCHULER, MELVOIN AND GLASSER LLP
---------------------------------------

Los Angeles, California
January 16, 1998

                                                                               3


<PAGE>   50


                   [WEINSTEIN SPIRA & COMPANY, PC. LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT


January 15, 1997


The Partners
Pampa Partnership Limited
Houston, Texas


We have audited the accompanying Balance Sheets of Pampa Partnership Limited as
of December 31, 1996 and 1995, and the related Statements of Operations, Changes
in Partners' Capital, 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
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pampa Partnership Limited as of
December 31, 1996 and 1995, and the results of its operations and cash flows for
the years ended December 31, 1996, 1995, and 1994, in conformity with generally
accepted accounting principles.


/s/ WEINSTEIN SPIRA & CO., P.C.
-------------------------------
Weinstein Spira & Co., P.C.
Houston, Texas


<PAGE>   51

[LOGO]

[ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT


To the Partners of
Paramount Limited Partnership


We have audited the income tax basis statement of assets, liabilities and
partners' capital of PARAMOUNT LIMITED PARTNERSHIP as of December 31, 1996 and
1995, and the income tax basis statements of revenue and expenses, changes in
partners' capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

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

As described in Note 1, these financial statements were prepared on the
accounting basis used for income tax purposes, which is a comprehensive basis of
accounting other than generally accepted accounting principles.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the assets, liabilities and partners' capital of
Paramount Limited Partnership as of December 31, 1996 and 1995, and its revenue
and expenses, changes in partners' capital and cash flows for the years then
ended on the basis of accounting described in Note 1.

Our audits were performed for the purpose of forming an opinion on the financial
statements taken as a whole. The Additional Financial Data on pages 11 and 12
are presented for the purposes of additional analysis and are not a required
part of the financial statements. This information has been subjected to the
procedures applied in the audits of the financial statements and, in our
opinion, is stated fairly in all material respects in relation to the financial
statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP
---------------------------------------

Chicago, Illinois
January 23, 1997



                                                                              2.

<PAGE>   52


                   [HABIF, AROGETIC & WYNNE, P.C. LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT


To the Partners
Huntsville Properties Limited Partnership
d/b/a The Arbors Of Madison

We have audited the accompanying balance sheet of HUNTSVILLE PROPERTIES LIMITED
PARTNERSHIP d/b/a THE ARBORS OF MADISON, as of December 31, 1996, and the
related statements of changes in partners' equity, operations, and cash flows
for the year then ended. These financial statements are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
these financial statements based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the 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 audit provides 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 HUNTSVILLE PROPERTIES LIMITED
PARTNERSHIP d/b/a THE ARBORS OF MADISON as of December 31, 1996, and the results
of its operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying supplemental information is
presented for the purpose of additional analysis and is not a required part of
the basic financial statements. Such information has not been subjected to the
auditing procedures applied in the audit of the basic financial statements.


/s/ HABIF, AROGETIC & WYNNE, P.C.
---------------------------------


Atlanta, Georgia

January 30, 1997


<PAGE>   53


                                 TOM E. BREWSTER
                           CERTIFIED PUBLIC ACCOUNTANT
                                 P. O. BOX 2900
                            PENSACOLA, FLORIDA 32513



Northwestern Partners, Ltd.                              INDEPENDENT AUDITOR'S
c/o Mr. James Reeves                                     REPORT
Operating General Partner
Pensacola, Florida

I have audited the accompanying balance sheet of Northwestern Partners, Ltd. (a
Florida limited partnership) as of December 31, 1996 and 1997, and the related
statements of income, partners' capital and cash flows for the years then ended.
These financial statements are the responsibility of the partnership's
management. My responsibility is to express an opinion on these financial
statements based on my audit.

I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the 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.
I believe that my audit provides a reasonable basis of my opinion.

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Northwestern Partners, Ltd. as of
December 31, 1996 and 1997, and the results of its operations, the changes in
partners' capital and cash flows for the years then ended in conformity with
generally accepted accounting principles.



                                       [SIG]
                                       CERTIFIED PUBLIC ACCOUNTANT
                                       Pensacola, Florida
                                       February 10, 1998

                                       1

<PAGE>   54

                            [KOCH & KOCH LETTERHEAD]

                          CERTIFIED PUBLIC ACCOUNTANTS
                          INDEPENDENT AUDITORS' REPORT

To the Partners of:
         Quivira Place Associates, L.P.

We have audited the accompanying balance sheet of Quivira Place Associates,
L.P., a limited partnership as of December 31, 1996 and the related statements
of income, expense, and partners' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Project's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.

Except as discussed in the following paragraph, we conducted our audit in
accordance with generally accepted auditing standards. Those standards require
that we plan and perform the 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
audit provides a reasonable basis for our opinion.

Because of the inadequacy of accounting records for the years prior to 1995, we
were unable to form an opinion regarding the amounts at which fixed assets,
accumulated depreciation, and partners' equity are recorded in the accompanying
balance sheet at December 31, 1996 stated at $11,118,852, $2,764,423, and
$4,468,939, respectively), or the amount of depreciation expense for the year
then ended (stated at $546,874).

In our opinion, except for the effects of such adjustments, if any, as might
have been determined to be necessary had prior year records concerning fixed
assets, accumulated depreciation, partners' equity, and depreciation expense
been adequate, the financial statements referred to in the first paragraph
present fairly, in all material respects, the financial position of Quivira
Place Associates, L.P., a limited partnership as of December 31, 1996 and the
results of its operations and the changes in partners' equity and cash flows for
the year then ended in conformity with generally accepted accounting principles.

                                         /s/ KOCH & KOCH
                                         ---------------------------------------
January 30, 1997                         Koch & Koch
                                         Certified Public Accountants
                                         Kansas City, Missouri


<PAGE>   55

                     [REZNICK FEDDER & SILVERMAN LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT




To the Partners
Rancho Del Mar Apartments Limited Partnership

           We have audited the accompanying balance sheet of Rancho Del Mar
Apartments Limited Partnership as of December 31, 1996, and the related
statements of revenue and expenses, partners' equity and cash flows for the year
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audit.

           We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 audit provides 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 Rancho Del Mar
Apartments Limited Partnership as of December 3 1, 1996, and the results of its
operations, the changes in partners' equity and its cash flows for the year then
ended in conformity with generally accepted accounting principles.


/s/ REZNICK FEDDER & SILVERMAN LETTERHEAD
-----------------------------------------

Baltimore, Maryland
February 6, 1997

                                       -3-


<PAGE>   56

                        [RICK J. TANNEBERGER LETTERHEAD]
                                                                   RECEIVED
                                                                 JAN 30 1998
                          INDEPENDENT AUDITOR'S REPORT            ASSET MGMT

The Partners
Salem Park, A Limited Partnership

We have audited the accompanying balance sheets of Salem Park, A Limited
Partnership, as of December 31, 1997 and 1996, and the related statements of
income, partners' capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards.
These standards require that we plan and perform the 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 audit provides 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 Salem Park, A Limited
Partnership as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.



                                       /s/ RICK J. TANNEBERGER
                                       -----------------------------------------
                                       Rick J. Tanneberger, CPA, P.A.



January 26, 1998
Fayetteville, AR

<PAGE>   57


                        [RICK J. TANNEBERGER LETTERHEAD]

                          INDEPENDENT AUDITOR'S REPORT

The Partners
Salem Park, A Limited Partnership


We have audited the accompanying balance sheets of Salem Park, A Limited
Partnership, as of December 31, 1996 and 1995, and the related statements of
income, partners, capital and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the 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 Salem Park, A Limited
Partnership as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

Our audit was conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplementary information presented
on page 11 is presented for purposes of additional analysis and is not a
required part of the basic financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the basic financial statements taken as a whole.



                                                /s/ RICK J. TANNEBERGER
                                                --------------------------------
                                                Rick J. Tanneberger, CPA, P.A.
                                                Rick J. Tanneberger, CPA

January 17, 1997
Fayetteville, AR
<PAGE>   58

                [HAWKINS, ASH, BAPTIE & COMPANY, LLP LETTERHEAD]



INDEPENDENT AUDITORS' REPORT


To the Partners
Sheboygan Regency House
Sheboygan, Wisconsin


We have audited the accompanying balance sheets of Sheboygan Regency House, (A
Wisconsin Limited Partnership) as of December 31, 1997, 1996, and 1995 and
the related statements of operations, partners' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Sheboygan Regency House as of
December 31, 1997, 1996, and 1995, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.



/s/ HAWKINS, ASH, BAPTIE & COMPANY, LLP
-----------------------------------------

Manitowoc, Wisconsin
January 7, 1998

                                       -2-

<PAGE>   59


                [HAWKINS, ASH, BAPTIE & COMPANY, LLP LETTERHEAD]




INDEPENDENT AUDITORS' REPORT


To the Partners
Sheboygan Regency House
Sheboygan, Wisconsin


We have audited the accompanying balance sheets of Sheboygan Regency House, (A
Wisconsin Limited Partnership) as of December 31, 1996, 1995, and 1994 and the
related statements of operations, partners' equity and cash flows for the years
then ended. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Sheboygan Regency House as of
December 31, 1996, 1995, and 1994, and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.


/s/ HAWKINS, ASH, BAPTIE & COMPANY, LLP
----------------------------------------

Manitowoc, Wisconsin
January 10, 1997


                                       -2-

<PAGE>   60

                [TORRES LLOMPART, SANCHEZ RUIZ & CO. LETTERHEAD]




              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS


Partners
Torres del Plata II Limited Partnership
San Juan, Puerto Rico

We have audited the accompanying balance sheets of Torres del Plata II Limited
Partnership, as of December 31, 1997 and 1996, and the related statements of
operations, partners' equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States and the US Department of Agriculture, Farmers Home Administration
Audit Program Handbook, issued in December 1989. Those standards require that we
plan and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements 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 Torres del Plata II 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 then ended
in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 28, 1998 on our consideration of the Partnership's internal
control structure and a report dated January 28, 1998 on its compliance with
laws, regulations, contracts, loans covenants and agreements.



                                   /s/ TORRES LLOMPART, SANCHEZ RUIZ & CO. 



January 28, 1998
License No. 169                    San Juan, Puerto Rico


Stamp number 1462222 was affixed
to the original of this report.


<PAGE>   61
                [TORRES LLOMPART, SANCHEZ RUIZ & CO. LETTERHEAD]




              INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENTS


Partners
Torres del Plata II Limited Partnership
San Juan, Puerto Rico

We have audited the accompanying balance sheet of Torres del Plata II Limited
Partnership, as of December 31, 1996, and the related statements of operations,
partners' equity, and cash flows for the year ended. These financial statements
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements based on our audit. The
financial statements of Torres del Plata II Limited Partnership as of December
31, 1995, were audited by other auditors whose report dated January 26, 1996,
expressed an unqualified opinion on those statements.

We conducted our audit in accordance with generally accepted auditing standards
and Government Auditing Standards, issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 statements
presentation. We believe that our audit provides 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 Torres del Plata II Limited
Partnership, as of December 31, 1996, and the results of its operations, changes
in partners' equity and cash flows for the year then ended in conformity with
generally accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 23, 1997 on our consideration of the Partnership's internal
control structure and a report dated January 23, 1997 on its compliance with
laws, regulations, contracts, loans covenants and agreements.


                               /s/ TORRES LLOMPART, SANCHEZ RUIZ & CO. 
                               San Juan, Puerto Rico
                               

January 23, 1997
License No. 169               

Stamp number 1412224 was affixed
to the original of this report.





<PAGE>   62


                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]



                          INDEPENDENT AUDITORS' REPORT


To the Partners
Villa Real Limited Partnership

We have audited the accompanying balance sheets of VILLA REAL LIMITED
PARTNERSHIP (a New Mexico limited partnership) as of December 31, 1997 and 1996
and the related statements of operations, changes in partners' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Villa Real 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 then ended in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The additional 1997 financial data, listed in the
Table of Contents, are presented for the purpose of additional analysis and are
not a required part of the financial statements. Such information has been
subjected to the auditing procedures applied in the audit of the 1997 financial
statements and, in our opinion, is fairly stated in all material respects in
relation to the financial statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP 


Los Angeles, California
March 5, 1998



<PAGE>   63


                [ALTSCHULER, MELVOIN AND GLASSER LLP LETTERHEAD]


                          INDEPENDENT AUDITORS' REPORT



To the Partners of
Villa Real Limited Partnership


we have audited the accompanying balance sheets of VILLA REAL LIMITED
PARTNERSHIP (a New Mexico limited partnership) as of December 31, 1996 and 1995,
and the related statements of operations, changes in partners' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the 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 Villa Real Limited Partnership
as of December 31, 1996 and 1995, and its results of operations, changes in
partners' equity and cash flows for the years then ended in conformity with
generally accepted accounting principles.

Our audits were made for the purpose of forming an opinion on the financial
statements taken as a whole. The additional 1996 financial data, listed in the
Table of Contents, are presented for purposes of additional analysis and are not
a required part of the financial statements. Such information has been subjected
to the auditing procedures applied in the audit of the 1996 financial statements
and, in our opinion, is fairly stated in all material respects in relation to
the financial statements taken as a whole.


/s/ ALTSCHULER, MELVOIN AND GLASSER LLP


Los Angeles, California
February 17, 1997

<PAGE>   64


                        [PLANTE & MORAN, LLP LETTERHEAD]


                          INDEPENDENT AUDITOR'S REPORT



To the Partners
Virginia Park Meadows Limited
     Dividend Housing Association
     Limited Partnership


We have audited the accompanying balance sheet of Virginia Park Meadows Limited
Dividend Housing Association Limited Partnership (a Michigan limited
partnership), MSHDA Development No. 849, as of December 31, 1996, 1995, and
1994, and the related statements of profit and loss, partners' equity, and cash
flows for the years then ended. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Virginia Park Meadows Limited
Dividend Housing Association Limited Partnership at December 31, 1996, 1995, and
1994, and the results of its operations and changes in partners' equity and cash
flows for the years then ended, in conformity with generally accepted accounting
principles.

In accordance with Government Auditing Standards, we have also issued a report
dated January 13, 1997, on our consideration of the Partnership's internal
control structure and a report dated January 13, 1997, on its compliance with
laws and regulations.


                                           /s/ PLANTE & MORAN, LLP

January 13, 1997                           East Lansing, Michigan

<PAGE>   65


                    [DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]




                          INDEPENDENT AUDITOR'S REPORT

To the Partners
Clarksdale Community Housing Group, Ltd.
Clarksdale, Mississippi

I have audited the accompanying balance sheets of Clarksdale Community Housing
Group, Ltd., a limited partnership, as of December 31, 1997 and 1996, and the
related statements of operations, partners' capital and cash flows for the years
then ended. These financial statements are the responsibility of the
partnership's management. My responsibility is to express an opinion on these
financial statements based on my audits.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Clarksdale Community Housing Group,
Ltd., as of December 31, 1997 and 1996, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 10
and 11 is presented for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the audit procedures applied in the audits of the basic financial statements
and, in my opinion is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.


/s/ DONALD W. CAUSEY, CPA, P.C.


February 17, 1998

GADSDEN, ALABAMA

                                       -1-

<PAGE>   66


                    [DONALD W. CAUSEY, CPA, P.C. LETTERHEAD]




                          INDEPENDENT AUDITOR'S REPORT

To the Partners
Clarksdale Community Housing Group, Ltd.
Clarksdale, Mississippi

I have audited the accompanying balance sheets of Clarksdale Community Housing
Group, Ltd., a limited partnership, as of December 31, 1996 and 1995, and the
related statements of operations, partners' capital and cash flows for the years
then ended. These financial statements are the responsibility of the
partnership's management. My responsibility is to express an opinion on these
financial statements based on my audits.

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

In my opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Clarksdale Community Housing Group,
Ltd., as of December 31, 1996 and 1995, and the results of its operations and
its cash flows for the years then ended in conformity with generally accepted
accounting principles.

The audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information on page 10
and 11 is presented for purposes of additional analysis and is not a required
part of the basic financial statements. Such information has been subjected to
the audit procedures applied in the audits of the basic financial statements
and, in my opinion is fairly stated in all material respects in relation to the
basic financial statements taken as a whole.


/s/ DONALD W. CAUSEY, CPA, P.C.
-------------------------------


February 18, 1997
Gadsden, Alabama


<PAGE>   67

                         [DURANT, SCHRAIBMAN & LINDSAY]



                         INDEPENDENT ACCOUNTANTS' REPORT

To the Partners
Pen-Hill-Co Limited Partnership
Columbia, South Carolina

We have audited the balance sheets of Pen-Hill-Co Limited Partnership, as of
December 31, 1997 and 1996, and the related statements of income, changes in
partner's capital and cash flows for the years then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
and Governmental Auditing Standards issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 audit provides 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 Pen-Hill-Co Limited
Partnership, as of December 31, 1997 and 1996, and the results of its
operations, changes in partners capital and cash flows for the years then ended
in conformity with generally accepted accounting principles.

In accordance with Government Auditing Standards and the Consolidated Audit
Guide for Audits of HUD Programs issued by the U.S. Department of Housing and
Urban Development, we have also issued a report dated February 19, 1998 on our
consideration of Pen-Hill-Co Limited Partnership's internal control and reports
dated February 19, 1998 on its compliance with specific requirements applicable
to major HUD programs and Fair Housing and Non-Discrimination.


                                            /s/ DURANT, SCHRAIBMAN & LINDSAY]
                                            ------------------------------------
                                            Durant, Schraibman & Lindsay
                                                                       


February 19, 1998
Columbia, South Carolina
<PAGE>   68

                          [DURANT, SCHRAIBMAN & LINDSAY]



                         INDEPENDENT ACCOUNTANTS' REPORT


To the Partners
Pen-Hill-Co Limited Partnership
Columbia, South Carolina

We have audited the balance sheets of Pen-Hill-Co 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 then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.

We conducted our audit in accordance with generally accepted auditing standards
and Governmental Auditing Standards issued by the Comptroller General of the
United States. Those standards require that we plan and perform the 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 audit provides 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 Pen-Hill-Co Limited
Partnership, as of December 31, 1996 and 1995, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.

In accordance with Government Auditing Standards, we have also issued a report
dated February 18, 1997 on our consideration of Pen-Hill-Co Limited
Partnership's internal control structure and reports dated February 18, 1997 on
its compliance with the specific requirements of major HUD programs and
affirmative fair housing regulations.

Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The accompanying supplemental schedules are
presented for purposes of additional analysis and are not a required part of the
basic financial statements. Such information has been subjected to the auditing
procedures applied in the examination of the basic financial statements and, in
our opinion, is fairly stated in all material respects in relation to the basic
financial statements taken as a whole.


                                            /s/ DURANT, SCHRAIBMAN & LINDSAY]
                                            ------------------------------------
                                                Durant, Schraibman & Lindsay


February 18,1997
Columbia, South Carolina

<PAGE>   69
                        NATIONAL TAX CREDIT INVESTORS II
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                                 BALANCE SHEETS

                           DECEMBER 31, 1997 AND 1996

                                     ASSETS

<TABLE>
<CAPTION>
                                                        1997              1996
                                                    -----------       -----------
<S>                                                 <C>               <C>        
INVESTMENTS IN LIMITED PARTNERSHIPS
    (Notes 1 and 2)                                 $25,724,722       $30,331,138

CASH AND CASH EQUIVALENTS (Note 1)                      216,939           147,870

OTHER ASSETS                                             30,269                --

RESTRICTED CASH (Note 3)                                222,007           212,129
                                                    -----------       -----------

TOTAL ASSETS                                        $26,193,937       $30,691,137
                                                    ===========       ===========


                        LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:
Accrued fees due to partners (Notes 5 and 8)        $ 2,066,985       $ 1,302,375
Capital contributions payable (Note 4)                  356,985           356,985
Accounts payable and accrued expenses                    67,548            68,155
                                                    -----------       -----------
                                                      2,491,518         1,727,515
                                                    -----------       -----------

CONTINGENCIES (Note 7)

PARTNERS' EQUITY                                     23,702,419        28,963,622
                                                    -----------       -----------

TOTAL LIABILITIES AND PARTNERS' EQUITY              $26,193,937       $30,691,137
                                                    ===========       ===========
</TABLE>




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

<PAGE>   70
                        NATIONAL TAX CREDIT INVESTORS II
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                                   1997               1996               1995
                                               -----------        -----------        -----------
<S>                                            <C>                <C>                <C>        
INTEREST INCOME                                $    21,559        $    25,136        $   165,254
                                               -----------        -----------        -----------

OPERATING EXPENSES:
     Management fees - partners (Note 5)           764,610            764,607            764,607
     General and administrative (Note 5)           136,313            124,939            126,134
     Legal and accounting                          159,672            147,509            400,923
                                               -----------        -----------        -----------

         Total operating expenses                1,060,595          1,037,055          1,291,664
                                               -----------        -----------        -----------

LOSS FROM PARTNERSHIP OPERATIONS                (1,039,036)        (1,011,919)        (1,126,410)

WRITE-OFF OF INVESTMENT IN
     LIMITED PARTNERSHIP (Note 2)                       --         (1,117,893)                --

EQUITY IN LOSS OF LIMITED
     PARTNERSHIPS AND AMORTIZATION
     OF ACQUISITION COSTS (Note 2)              (4,222,167)        (4,746,790)        (4,684,182)
                                               -----------        -----------        -----------

NET LOSS                                       $(5,261,203)       $(6,876,602)       $(5,810,592)
                                               ===========        ===========        ===========

NET LOSS PER LIMITED
     PARTNERSHIP INTEREST (Note 1)             $       (72)       $       (94)       $       (79)
                                               ===========        ===========        ===========
</TABLE>



   The accompanying notes are an integral part of these financial statements.
<PAGE>   71

                        NATIONAL TAX CREDIT INVESTORS II
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995

<TABLE>
<CAPTION>

                                        General            Limited
                                       Partners            Partners             Total
                                     ------------        ------------        ------------
<S>                                  <C>                 <C>                 <C>         
PARTNERS' EQUITY (DEFICIENCY),
      January 1, 1995                $   (212,416)       $ 41,863,232        $ 41,650,816

      Net loss for 1995                   (58,106)         (5,752,486)         (5,810,592)
                                     ------------        ------------        ------------

PARTNERS' EQUITY (DEFICIENCY),
      December 31, 1995                  (270,522)         36,110,746          35,840,224

      Net loss for 1996                   (68,766)         (6,807,836)         (6,876,602)
                                     ------------        ------------        ------------

PARTNERS' EQUITY (DEFICIENCY),
      December 31, 1996                  (339,288)         29,302,910          28,963,622

      Net loss for 1997                   (52,612)         (5,208,591)         (5,261,203)
                                     ------------        ------------        ------------

PARTNERS' EQUITY (DEFICIENCY),
      December 31, 1997              $   (391,900)       $ 24,094,319        $ 23,702,419
                                     ============        ============        ============
</TABLE>


   The accompanying notes are an integral part of these financial statements.
<PAGE>   72
                        NATIONAL TAX CREDIT INVESTORS II
                       (A CALIFORNIA LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>

                                                                  1997              1996                1995
                                                              -----------        -----------        -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                           <C>                <C>                <C>         
    Net loss                                                  $(5,261,203)       $(6,876,602)       $(5,810,592)
    Adjustments to reconcile net loss to net cash
     used in operating activities:
      Equity in loss of limited partnerships
       and amortization of acquisition costs                    4,222,167          4,746,790          4,684,182
      Write-off of investee partnership                                --          1,117,893                 --
      Decrease in other receivables                               (30,269)                --             15,095
      Increase (decrease) in:
       Accounts payable and accrued expenses                         (607)          (100,120)            44,853
       Accrued fees due to partners                               764,610            614,607            261,067
                                                              -----------        -----------        -----------

      Net cash used in operating activities                      (305,302)          (497,432)          (805,395)
                                                              -----------        -----------        -----------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Investments in limited partnerships:
     Capital contributions                                          3,937           (220,440)          (201,276)
     Capitalized acquisition costs and fees                            --             (2,211)           (10,692)
     Distributions recognized as a return of capital              380,312            143,677            346,857
    Decrease in capital contributions payable                          --                 --            (12,696)
    Maturity of short-term investments                                 --                 --          1,000,000
    Decrease (increase) in restricted cash                         (9,878)            (6,855)           (12,369)
                                                              -----------        -----------        -----------

      Net cash provided by (used in) investing activities         374,371            (85,829)         1,109,824
                                                              -----------        -----------        -----------

NET INCREASE (DECREASE) IN CASH AND
      CASH EQUIVALENTS                                             69,069           (583,261)           304,429

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                      147,870            731,131            426,702
                                                              -----------        -----------        -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                        $   216,939        $   147,870        $   731,131
                                                              ===========        ===========        ===========
</TABLE>



   The accompanying notes are an integral part of these financial statements.
<PAGE>   73
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1997

1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

      Organization

      National Tax Credit Investors II (the Partnership) was formed under the
      California Revised Limited Partnership Act and organized on January 12,
      1990. The Partnership was formed to invest primarily in other limited
      partnerships which own and operate multifamily housing complexes that are
      eligible for low income housing tax credits. The general partner of the
      Partnership (the "General Partner") is National Partnership Investments
      Corp., a California corporation ("NAPICO"). The special limited partner of
      the Partnership (the "Special Limited Partner") is PaineWebber TC Partners
      L.P., a Virginia Limited Partnership.

      The Partnership offered for sale up to 100,000 units of limited
      partnership interests ("Units") at $1,000 per unit (including 50,000 units
      subject to the selling agent's option). The term of the offering expired
      on April 22, 1992, at which date a total of 72,404 units had been sold
      amounting to $72,404,000 in capital contributions. Offering expenses of
      $9,412,868 were incurred in connection with the sale of such limited
      partner interests.

      The General Partner has a 1 percent interest in operating profits and
      losses of the Partnership. The limited partners will be allocated the
      remaining 99 percent interest in proportion to their respective
      investments.

      The Partnership shall continue in full force and effect until December 31,
      2030, unless terminated earlier pursuant to the partnership agreement or
      law.

      Upon total or partial liquidation of the Partnership or the disposition or
      partial disposition of a project or project interest and distribution of
      the proceeds, the General Partner will be entitled to a property
      disposition fee as mentioned in the partnership agreement. The limited
      partners will have a priority item equal to their invested capital plus 6
      percent priority return as defined in the partnership agreement. This
      property disposition fee may accrue but shall not be paid until the
      limited partners have received distributions equal to 100 percent of their
      capital contributions plus the 6 percent priority return.

      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 reported amounts of revenues and expenses during
      the reporting period. Actual results could differ from those estimates.

      Method of Accounting for Investment in Limited Partnerships

      The investments in limited partnerships are accounted for on the equity
      method. Acquisition, selection and other costs related to the acquisition
      of the projects acquired are capitalized as part of the

                                       5
<PAGE>   74



                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997


1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

      investment accounts and are being amortized on a straight line basis over
      the estimated lives of the underlying assets, which is generally 30 years.

      Net Loss Per Limited Partnership Interest

      Net loss per limited partnership interest was computed by dividing the
      limited partners' share of net loss by the number of limited partnership
      interests outstanding during the year. The number of limited partner
      interests was 72,404 for all years presented.

      Cash and Cash Equivalents

      The Partnership considers all highly liquid debt instruments purchased
      with a maturity of three months or less to be cash equivalents.

      Impairment of Long-Lived Assets

      The Partnership reviews long-lived assets to determine if there has been
      any permanent impairment whenever events or changes in circumstances
      indicate that the carrying amount of the asset may not be recoverable. If
      the sum of the expected future cash flows is less than the carrying amount
      of the assets, the Partnership recognizes an impairment loss.

2.    INVESTMENTS IN LIMITED PARTNERSHIPS

      The Partnership holds limited partnership interests in 37 local
      partnerships (the "Local Partnerships"). As a limited partner of the Local
      Partnerships, the Partnership does not have authority over day-to-day
      management of the Local Partnerships or their properties (the "Apartment
      Complexes"). The general partners responsible for management of the Local
      Partnerships (the "Local Operating General Partners") are not affiliated
      with the General Partner of the Partnership, except as discussed below.

      At December 31, 1997, the Local Partnerships own residential projects
      consisting of 3,716 apartment units.

      The Partnership, as a limited partner, is generally entitled to 99 percent
      of the operating profits and losses of the Local Partnerships. National
      Tax Credit, Inc. II ("NTC-II"), an affiliate of the General Partner,
      serves either as a special limited partner or non-managing administrative
      general partner in each Local Partnership, in which case it receives .01
      percent of operating profits and losses of the Local Partnership. In
      addition, NTC-II is the Local Operating General Partner of four Local
      Partnerships, in which case it is entitled to .09 percent of the operating
      profits and losses of the Local Partnership.

                                       6
<PAGE>   75

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997


2.    INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

      The Partnership is generally entitled to receive 50 percent of the net
      cash flow generated by the Apartment Complexes, subject to repayment of
      any loans made to the Local Partnerships (including loans made by NTC-II
      or an affiliate), repayment for funding of development deficit and
      operating deficit guarantees by the Local Operating General Partners or
      their affiliates (excluding NTC-II and its affiliates), and certain
      priority payments to the Local Operating General Partners other than
      NTC-II or its affiliates.

      The Partnership's allocable share of losses from Local Partnerships are
      recognized in the financial statements until the related investment
      account is reduced to a zero balance. Losses incurred after the investment
      account is reduced to zero will not be recognized.

      Distributions received by the Partnership from the Local Partnerships are
      accounted for as a return of capital until the investment balance is
      reduced to zero or to a negative amount equal to further capital
      contributions required. Subsequent distributions received will be
      recognized as income.

      The following is a summary of the investments in and advances to Local
      Partnerships and reconciliation to the Local Partnerships accounts:
<TABLE>
<CAPTION>

                                                                 1997                1996
                                                             ------------        ------------
<S>                                                          <C>                 <C>         
           Investments balance, beginning of year            $ 30,331,138        $ 36,116,847
           Capital contributions                                   (3,937)            220,440
           Capitalized acquisition costs and fees                     --                2,211
           Equity in loss of limited partnerships              (4,015,696)         (4,515,318)
           Write off of investee partnership                          --           (1,117,893)
           Amortization of capitalized acquisition costs 
             and fees                                            (206,471)           (231,472)
           Distributions recognized as a return of capital       (380,312)           (143,677)
                                                             ------------        ------------

           Investments balance, end of year                  $ 25,724,722        $ 30,331,138
                                                             ============        ============
</TABLE>

      The difference between the investment per the accompanying balance sheets
      at December 31, 1997 and 1996, and the equity per the Local Partnerships'
      combined financial statements is due primarily to costs capitalized to the
      investment account and the Partnership's recording of capital
      contributions payable to the Local Partnerships in its investment balance.

      Michigan Beach

      The Michigan Beach property, a 240-unit apartment complex located in
      Chicago, Illinois, has been operating at a substantial deficit since 1996.
      The deficit has been attributable to a soft local rental market, high
      leverage and deferred maintenance. In November 1996, the local partnership
      ceased making payments on its first mortgage, and has commenced
      negotiations with the lender and the U.S. Department of Housing and Urban
      Development, who insures the loan, in order to cure the default. As of
      December 31, 1997, the loan is still in default and negotiation of the
      loan workout is in progress. As a result of the above and the legal
      proceedings discussed in Note 7, the carrying value of the investment of
      $1,117,893 was written off in 1996.

                                       7
<PAGE>   76
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1997



2.    INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

      Selected financial information from the combined financial statements of
      the Local Partnerships at December 31, 1997 and 1996 and for each of the
      three years ended December 31, 1997 is as follows:
<TABLE>
<CAPTION>

                                 Balance Sheets

                                                   1997           1996
                                                 --------       --------
                                                     (in thousands)

<S>                                              <C>            <C>     
Land and buildings, net                          $126,634       $130,819
                                                 ========       ========

Total assets                                     $138,137       $142,439
                                                 ========       ========

Mortgages and construction loans payable
    secured by real property                     $ 89,123       $ 91,311
                                                 ========       ========

Total liabilities                                $103,678       $102,772
                                                 ========       ========

Equity of National Tax Credit Investors II       $ 24,499       $ 29,340
                                                 ========       ========

Equity of other partners                         $  9,960       $ 10,327
                                                 ========       ========
</TABLE>

<TABLE>
<CAPTION>
                            Statements of Operations

                                              1997            1996           1995
                                            --------        --------        --------
                                                         (in thousands)

<S>                                         <C>             <C>             <C>     
Total revenues                              $ 18,303        $ 18,218        $ 17,883
                                            ========        ========        ========

Interest expense                            $  7,245        $  7,229        $  7,508
                                            ========        ========        ========

Depreciation and amortization               $  5,551        $  5,594        $  5,627
                                            ========        ========        ========

Total expenses                              $ 23,016        $ 22,790        $ 22,597
                                            ========        ========        ========

Net loss                                    $ (4,713)       $ (4,572)       $ (4,714)
                                            ========        ========        ========

Net loss allocable to the Partnership       $ (4,510)       $ (4,402)       $ (4,375)
                                            ========        ========        ========
</TABLE>

                                       8

<PAGE>   77
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1997



2.    INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

      An affiliate of the General Partner is the Local Operating General Partner
      in four of the Local Partnerships included above, and another affiliate
      receives property management fees of approximately 5 percent of gross
      revenues from three of these four Local Partnerships and from one other
      Local Partnership (Note 5) in which the affiliate is not the General
      Partner. The following sets forth the significant combined data for the
      Local Partnerships in which an affiliate of the General Partner was the
      Local Operating General Partner:
<TABLE>
<CAPTION>

                                                   1997             1996          1995
                                                ---------        ---------      -------
                                                              (in thousands)

<S>                                              <C>             <C>             <C>
Total assets                                     $ 12,498        $ 13,032
                                                 ========        ========

Total liabilities                                $  7,730        $  7,808
                                                 ========        ========

Equity of National Tax Credit Investors II       $  3,680        $  4,107
                                                 ========        ========

Equity of other partners                         $  1,088        $  1,117
                                                 ========        ========

Total revenue                                    $  1,754        $  1,754        $  1,735
                                                 ========        ========        ========

Net loss                                         $   (376)       $   (375)       $   (365)
                                                 ========        ========        ========
</TABLE>

3.    RESTRICTED CASH

      Restricted cash represents funds in escrow to be used, to fund operating
      deficits, if any, of one of the Local Partnerships, as defined in the
      Local Partnership Agreement.

4.    CAPITAL CONTRIBUTIONS PAYABLE

      Capital contributions payable represents amounts which are due at various
      times based on conditions specified in the respective Local Partnership
      agreements. The capital contributions payable are unsecured and
      non-interest bearing. These amounts are generally due upon the Local
      Partnership achieving certain operating or financing benchmarks.


                                       9
<PAGE>   78

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997



5.      RELATED-PARTY TRANSACTIONS

      Under the terms of the Amended and Restated Agreement of Limited
      Partnership, the Partnership is obligated to the General Partner and the
      Special Limited Partner for the following fees:

      (a) An annual Partnership management fee in an amount equal to 0.5 percent
          of invested assets (as defined in the partnership agreement) is
          payable to the General Partner and Special Limited Partner.
          Partnership management fees in the amount of $764,610 were recorded as
          an expense in 1997, 1996 and 1995. As of December 31, 1997 and 1996,
          management fees in the amount of $2,066,985 and $1,302,375,
          respectively, were due to the General Partner and the Special Limited
          Partner.

      (b) A property disposition fee is payable to the General Partner in an
          amount equal to the lesser of (i) one-half of the competitive real
          estate commission that would have been charged by unaffiliated third
          parties providing comparable services in the area where the apartment
          complex is located, or (ii) 3 percent of the sale price received in
          connection with the sale or disposition of the apartment complex or
          local partnership interest, but in no event will the property
          disposition fee and all amounts payable to unaffiliated real estate
          brokers in connection with any such sale exceed in the aggregate, the
          lesser of the competitive rate (as described above) or 6 percent of
          such sale price. Receipt of the property disposition fee will be
          subordinated to the distribution of sale or refinancing proceeds by
          the Partnership until the limited partners have received distributions
          of sale or refinancing proceeds in an aggregate amount equal to (i)
          their 6 percent priority return for any year not theretofore satisfied
          (as defined in the partnership agreement) and (ii) an amount equal to
          the aggregate adjusted investment (as defined in the partnership
          agreement) of the limited partners. No disposition fees have been
          paid.

      (c) The Partnership reimburses certain expenses to the General Partner.
          The reimbursement paid to the General Partner was $42,085, $41,991 and
          $38,700 during 1997, 1996 and 1995, respectively, and is included in
          general and administrative expenses.

      NTC-II is the Local Operating General Partner in four of the Partnership's
      37 Local Partnerships. In addition, NTC-II is either a special limited
      partner or non-managing administrative general partner in each Local
      Partnership.

      An affiliate of the General Partner is responsible for the on-site
      property management for four Local Partnerships (Note 2). The Local
      Partnerships paid the affiliate property management fees of $122,740,
      $131,023 and $117,827 in 1997, 1996 and 1995, respectively.


                                       10
<PAGE>   79






                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1997


6.    INCOME TAXES

      No provision has been made for income taxes in the accompanying financial
      statements since such taxes, if any, are the liability of the individual
      partners. The major differences in tax and financial statement losses
      result from the use of different bases and depreciation methods for the
      properties held by the Local Partnerships.

7.    CONTINGENCIES

      The General Partner of the Partnership is a plaintiff in various lawsuits
      and has also been named a defendant in other lawsuits arising from
      transactions in the ordinary course of business. In addition, the
      Partnership was involved in the following lawsuit. In the opinion of
      management and the General Partner, the claims will not result in any
      material liability to the Partnership.

      Michigan Beach/City of Chicago Litigation: On June 19, 1991, the City of
      Chicago ("Chicago") commenced an action in the Circuit Court of Cook
      County, Illinois (the "Chicago Litigation") against the unaffiliated local
      operating general partner, certain of its affiliates, the Michigan Beach
      Limited Partnership, National Tax Credit Investors II ("NTCI-II"),
      National Tax Credit Inc. II ("NTC-II"), as the limited and administrative
      general partner, respectively, of the Michigan Beach Limited Partnership,
      and certain other defendants, including the Government National Mortgage
      Association ("GNMA"). On May 8, 1992, the Circuit Court of Cook County
      entered an order dismissing Counts I-V as against all defendants. On
      January 26, 1993, the Illinois Appellate Court affirmed the order
      dismissing all the claims asserted against NTCI-II and NTC-II. Chicago did
      not appeal that judgment.

      In August, 1994, Chicago brought Michigan Beach Limited Partnership, which
      is the local partnership, back into the Chicago Litigation by filing a
      second amended complaint which named the local partnership and others as
      defendants. (Counts I-IV were not directed to the local partnership. As
      was previously reported, the allegations directed against the local
      partnership are in Counts V, VI, VII and VIII). Chicago alleged, among
      other things, that Michigan Beach Cooperative, which was the previous
      owner of the Michigan Beach Apartments, fraudulently induced Chicago to
      loan to it $3,295,230, and breached its alleged agreement to use the loan
      proceeds solely for rehabilitating the building. In Counts V and VI,
      Chicago alleged that the local partnership's purchase of the Michigan
      Beach Apartments from the Michigan Beach Cooperative was a fraudulent
      conveyance intended to render the Michigan Beach Cooperative judgment
      proof and thereby deprive Chicago of its only source of recovery on its
      claims against the Michigan Beach Cooperative; thus, Chicago alleged in
      these counts that a judgment entered in favor of Chicago on its claim
      against the Michigan Beach Cooperative could be satisfied by Michigan
      Beach Apartments. Counts VII and VIII further alleged breaches of
      Chicago's junior note and mortgage.

      The local partnership moved to dismiss all of these allegations. Dismissal
      of Counts VI, VII and VIII, was granted and the Michigan Beach local
      partnership filed an answer to Count V which denies all of the material
      allegations of wrongdoing. Additionally, the local partnership filed a
      counterclaim against Chicago requesting $1,000,000 in compensatory damages
      arising out of Chicago's conduct in preventing a modification of the
      senior debt on the property. On January 26, 1996, the Circuit Court

                                       11
<PAGE>   80
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1997



7.    CONTINGENCIES (CONTINUED)

      of Cook County entered an order granting summary judgment in favor of
      certain defendants and against Chicago, thereby disposing of all counts of
      Chicago's Third Amended Complaint against all defendants. The court also
      found in favor of the local partnership on its motion for summary judgment
      on Count II of its counterclaim against the City. The City has appealed
      these rulings and that appeal is currently pending.

      The Michigan Beach Limited Partnership is vigorously prosecuting its
      counterclaim against the City. The parties have completed discovery and
      Chicago has filed a motion for summary judgment with respect to those
      claims. At the present time, legal counsel for the local partnership is
      unable to predict the outcome of this litigation. The Partnership's
      investment in Michigan Beach Limited Partnership at December 31, 1997 and
      1996 is zero.

      The Partnership has assessed the potential impact of the Year 2000
      computer systems issue on its operations. The Partnership believes that no
      significant actions are required to be taken by the Partnership to address
      the issue and that the impact of the Year 2000 computer systems issue will
      not materially affect the Partnership's future operating results or
      financial condition.

8.    FAIR VALUE OF FINANCIAL INSTRUMENTS

      Statement of Financial Accounting Standards No. 107, "Disclosure about
      Fair Value of Financial Instruments," requires disclosure of fair value
      information about financial instruments, when it is practicable to
      estimate that value. The operations generated by the investee limited
      partnerships, which accounts for the Partnership's primary source of
      revenues, are subject to various government rules, regulations and
      restrictions which make it impracticable to estimate the fair value of the
      accrued fees due to partners. The carrying amount of other assets and
      liabilities reported on the balance sheets that require such disclosure
      approximates fair value due to their short-term maturity.

9.    FOURTH-QUARTER ADJUSTMENT

      The Partnership's policy is to record its equity in the loss of limited
      partnerships on a quarterly basis using estimated financial information
      furnished by the various local operating general partners. The equity in
      loss reflected in the accompanying annual consolidated financial
      statements is based primarily upon audited financial statements of the
      investee limited partnerships. The increase, approximately $1,375,167
      between the estimated nine-month equity in loss and the actual 1997 year
      end equity in loss has been recorded in the fourth quarter.



                                       12
<PAGE>   81
                         NATIONAL TAX CREDIT INVESTORS II               SCHEDULE
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                                  YEAR ENDED DECEMBER 31, 1997
                             -------------------------------------------------------------------------------------------------------
                                                                                             AMORTIZATION
                               BALANCE                 CAPITALIZED                  EQUITY       OF        BALANCE         CAPITAL
  LIMITED                     JANUARY 1,    CAPITAL    ACQUISITION    CASH          INCOME   CAPITALIZED  DECEMBER 31, CONTRIBUTIONS
PARTNERSHIPS                     1997    CONTRIBUTIONS  COSTS/FEES DISTRIBUTIONS    (LOSS)    ACQ. COSTS     1997         PAYABLE
------------                 ----------- ------------- ----------- -------------  ---------  -----------  ------------ ------------
<S>                           <C>          <C>          <C>         <C>           <C>          <C>         <C>           <C>
Ashville Equity              $   547,394   $(10,000)    $            $            $(117,650)     (5,891)      413,853     $
Columbus Junction                 66,224                                            (11,816)     (1,931)       52,477
Cottonwood Park                1,191,143                              (84,205)       19,472      (8,012)    1,118,398
The Cottages I                         0                                                  0           0             0
Countryside                    2,349,779                                           (182,846)    (11,362)    2,155,571
Eastridge Apartments             570,282                                            (37,710)     (2,987)      529,585
Edgewood Apartments            1,347,769                                            (76,872)     (5,834)    1,265,063
Fourth Street                  1,782,341                              (12,300)     (110,442)     (7,053)    1,652,546
Germantown Apartments          1,461,515                              (22,572)      (85,504)     (6,811)    1,346,628
Great Basin Associates           423,694                                           (419,731)     (3,963)            0
Grimes Park Apartments            71,852                                            (11,133)     (2,116)       58,603
Jamestown                        468,284                               (3,600)      (75,579)     (3,322)      385,783
Jefferson Meadows
  Apartments                     720,729                                           (223,525)     (7,574)      489,630
Kentucky River Apartments        966,593                                            (49,585)     (4,719)      912,289
Lincoln Grove                  1,034,225                              (22,100)     (102,285)     (4,527)      905,313
Meadowlakes Apartments         1,285,960                              (17,594)      (83,063)     (5,828)    1,179,475
Michigan Beach Apartments              0                                                  0           0             0
Nickel River (Wedgewood)
  Apts.                          956,867                                            (67,271)     (7,170)      882,426
Norwalk Park Apartments           73,569                                            (10,012)     (1,416)       62,141
Oakview                          706,725                                             49,865      (2,926)      753,664
Pam Apartments                   206,272                              (16,950)      (73,853)     (2,836)      112,633
Palm Springs View                532,137                                           (161,993)     (9,989)      360,155        1,081
Paramount Apartments             485,798      6,063                                 (71,090)     (8,467)      412,304
Parkwood Landing               1,386,749                                           (399,155)    (13,783)      973,811      355,904
Pensacola Affordable             479,630                                            (40,628)     (3,401)      435,601
Pineview Terrace                 537,860                                            (92,039)     (6,197)      439,624
Quivera                          980,475                              (44,327)     (352,033)    (11,045)      573,070
Rancho Del Mar                 4,066,647                             (113,573)     (272,560)    (16,084)    3,664,430
Salem Park Apartments            718,993                              (12,500)      (77,105)     (6,787)      622,601
Sheboygan Apartments             683,245                                            (97,529)     (3,549)      582,167
Sitka III Apartments              71,698                               (1,945)      (48,310)     (1,905)       19,538
Soldotna (Northwood Senior)
  Apts.                          235,509                               (1,698)      (23,033)     (1,900)      208,878
Torres De Plata II               162,046                               (6,328)      (83,606)     (2,580)       69,532
Villa Real                     2,676,653                              (20,620)     (177,815)    (11,617)    2,466,601
Virginia Park Meadows            736,278                                           (227,539)     (7,268)      501,471
Wade Walton Apartments           308,920                                           (187,323)     (3,373)      118,224
Westbridge Apartments             37,283                                            (34,398)     (2,248)          637
Western (Ellis) Court                  0                                                                            0
                             -----------   --------    -----------  ---------    ----------    --------    ----------     --------
                             $30,331,138     (3,937)             0   (380,312)   (4,015,696)   (206,471)   25,724,722      356,985
                             ===========   ========    ===========  =========    ==========    ========    ==========     ========
</TABLE>





















































<PAGE>   82
                                                                        SCHEDULE
                                                                     (CONTINUED)
                        NATIONAL TAX CREDIT INVESTORS II
                      INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995                  
<TABLE>
<CAPTION>
                                                             YEAR ENDED DECEMBER 31, 1996
                      --------------------------------------------------------------------------------------------------------------
                         BALANCE                 CAPITALIZED                   EQUITY      AMORTIZATION    BALANCE       CAPITAL
   LIMITED             JANUARY 1,    CAPITAL     ACQUISITION      CASH         INCOME     OF CAPITALIZED  DECEMBER 31, CONTRIBUTIONS
PARTNERSHIPS              1996    CONTRIBUTIONS   COSTS/FEES  DISTRIBUTIONS    (LOSS)        ACQ. COSTS       1996        PAYABLE
------------          ----------- -------------  -----------  -------------  -----------  --------------  -----------  -------------
<S>                   <C>           <C>             <C>         <C>          <C>             <C>          <C>             <C>
Ashville Equity       $   642,399   $ 36,000        $           $            $  (125,114)    $  (5,891)   $   547,394     $
Columbus Junction          90,439                                                (22,284)       (1,931)        66,224
Cottonwood Park         1,198,665                                                    490        (8,012)     1,191,143
The Cottages I             56,926                                                (53,537)       (3,389)             0
Countryside             2,543,515                                               (182,374)      (11,362)     2,349,779
Eastridge Apartments      625,090                                                (51,821)       (2,987)       570,282
Edgewood Apartments     1,447,572                                                (93,969)       (5,834)     1,347,769
Fourth Street           1,929,180                                 (16,400)      (123,386)       (7,053)     1,782,341
Germantown
  Apartments            1,602,141                                 (20,691)      (113,124)       (6,811)     1,461,515
Great Basin
  Associates              404,856                                                 22,801        (3,963)       423,694
Grimes Park
  Apartments               81,823                                                 (7,855)       (2,116)        71,852
Jamestown                 537,293                                  (3,600)       (62,087)       (3,322)       468,284
Jefferson Meadows
  Apartments              975,565                                               (247,262)       (7,574)       720,729
Kentucky River
  Apartments            1,001,233                                                (29,921)       (4,719)       966,593
Lincoln Grove           1,142,686                                 (18,705)       (85,229)       (4,527)     1,034,225
Meadowlakes
  Apartments            1,385,676                                 (16,128)       (77,760)       (5,828)     1,285,960
Michigan Beach
  Apartments            1,916,791    174,440         2,211                    (2,071,830)      (21,612)             0
Nickel River
  (Wedgewood) Apts.     1,028,528                                                (64,491)       (7,170)       956,867
Norwalk Park
  Apartments               81,404                                                 (6,419)       (1,416)        73,569
Oakview                   676,876                                                 32,775        (2,926)       706,725
Pam Apartments            302,442                                 (18,000)       (75,334)       (2,836)       206,272
Palm Springs View         680,224                                               (138,098)       (9,989)       532,137       1,081
Paramount Apartments      628,464     10,000                                    (144,199)       (8,467)       485,798
Parkwood Landing        1,802,848                                               (402,316)      (13,783)     1,386,749     355,904
Pensacola Affordable      512,786                                                (29,755)       (3,401)       479,630
Pineview Terrace          735,002                                               (190,945)       (6,197)       537,860
Quivera                 1,244,761                                 (25,663)      (227,578)      (11,045)       980,475
Rancho Del Mar          4,327,385                                               (244,654)      (16,084)     4,066,647
Salem Park Apartments     841,761                                 (15,000)      (100,981)       (6,787)       718,993
Sheboygan Apartments      723,743                                                (36,949)       (3,549)       683,245
Sitka III Apartments      119,865                                  (1,464)       (44,798)       (1,905)        71,698
Soldotna (Northwood
  Senior) Apts.           258,158                                  (1,698)       (19,051)       (1,900)       235,509
Torres De Plata II        294,162                                  (6,328)      (123,208)       (2,580)       162,046
Villa Real              2,826,307                                               (138,037)      (11,617)     2,676,653
Virginia Park Meadows     974,362                                               (230,816)       (7,268)       736,278
Wade Walton
  Apartments              381,762                                                (69,469)       (3,373)       308,920
Westbridge
  Apartments               94,157                                                (54,626)       (2,248)        37,283
Western (Ellis)
  Court                         0                                                                                   0
                      -----------   --------        ------      ---------    -----------     ---------    -----------    --------
                      $36,116,847   $220,440        $2,211      $(143,677)   $(5,633,211)    $(231,472)   $30,331,138    $356,985
                      ===========   ========        ======      =========    ===========     =========    ===========    ========
</TABLE>

<PAGE>   83
                         NATIONAL TAX CREDIT INVESTORS II              SCHEDULE
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


<TABLE>
<CAPTION>
                                                               YEAR ENDED DECEMBER 31, 1995
                        -----------------------------------------------------------------------------------------------------------
                                                                                                                             CAPITAL
                           BALANCE       CAPITAL    CAPITALIZED     CASH        EQUITY        AMORTIZATIONS    BALANCE       CONTRI-
   LIMITED               JANUARY 01,     CONTRI-    ACQUISITION     DISTRI-     INCOME        OF CAPITALIZED   DECEMBER 31,  BUTIONS
PARTNERSHIPS                1995         BUTIONS    COSTS/FEES      BUTIONS     (LOSS)          ACQ.COSTS        1995        PAYABLE
------------           -------------     -------  -------------    ---------   ---------      --------------  ------------   ------
<S>                    <C>             <C>         <C>             <C>         <C>             <C>               <C>           <C>
Ashville Equity        $   730,598      $ 14,000   $               $           $  (96,308)     $   (5,891)    $  642,399    $      0
Columbus Junction          107,181                                                (14,811)         (1,931)        90,439           0
Cottonwood Park          1,244,432                                   (38,420)         665          (8,012)     1,198,665           0
The Cottages I             185,001                                               (124,686)         (3,389)        56,926           0
Countryside              2,817,879                                   (89,300)    (173,702)        (11,362)     2,543,515           0
Eastridge Apartments       694,416                                                (66,339)         (2,987)       625,090           0
Edgewood Apartments      1,545,445                                    (2,000)     (90,039)         (5,834)     1,447,572           0
Fourth Street            1,995,615                                   (16,400)     (42,982)         (7,053)     1,929,180           0
Germantown Apartments    1,749,147                                   (11,286)    (128,909)         (6,811)     1,602,141           0
Great Basin
Associates                 501,869                                                (93,050)         (3,963)       404,856           0
Grimes Park Apartments      91,597                                                 (7,658)         (2,116)        81,823           0
Jamestown                  597,717                                    (3,600)     (53,502)         (3,322)       537,293           0
Jefferson Meadows
Apartments               1,241,765                                               (258,626)         (7,574)       975,565           0
Kentucky River
Apartments               1,066,016                                                (60,064)         (4,719)     1,001,233           0
Lincoln Grove              963,723                                   (20,405)     203,895          (4,527)     1,142,686           0
Meadowlakes
Apartments               1,473,438                                                (81,934)         (5,828)     1,385,676           0
Michigan Beach
Apartments               2,399,784       187,487         10,692                  (659,775)        (21,397)     1,916,791           0
Nickel River
(Wedgewood)
Apartments               1,078,815                                                (43,117)         (7,170)     1,028,528           0
Norwalk Park
Apartments                  88,994                                                 (6,174)         (1,416)        81,404           0
Oakview                    595,515                                                 84,287          (2,926)       676,876           0
Pam Apartments             395,107                                    (6,300)     (83,529)         (2,836)       302,442           0
Palm Springs View          880,636                                               (190,423)         (9,989)       680,224       1,081
Paramount Apartments       796,465                                               (159,534)         (8,467)       628,464           0
Parkwood Landing         2,272,439                                               (455,808)        (13,783)     1,802,848     355,904
Pensacola Affordable       563,644                                                (47,457)         (3,401)       512,786           0
Pineview Terrace           901,394                                               (160,195)         (6,197)       735,002           0
Quivera                  1,704,362                                   (42,002)    (406,554)        (11,045)     1,244,761           0
Rancho Del Mar           4,683,230          (211)                    (57,895)    (281,655)        (16,084)     4,327,385           0
Salem Park Apartments      905,794                                   (10,000)     (47,246)         (6,787)       841,761           0
Sheboygan Apartments       801,836                                                (74,544)         (3,549)       723,743           0
Sitka III Apartments       156,400                                    (1,223)     (33,407)         (1,905)       119,865           0
Soldotna (Northwood
Senior) Apartments         286,601                                    (1,698)     (24,845)         (1,900)       258,158           0
Torres De Plata II         417,154                                    (6,328)    (114,084)         (2,580)       294,162           0
Villa Real               2,992,410                                   (40,000)    (114,486)        (11,617)     2,826,307           0
Virginia Park Meadows    1,275,211                                               (293,581)         (7,268)       974,362           0
Wade Walton Apartments     461,848                                                (76,713)         (3,373)       381,762           0
Westbridge Apartments      194,487                                                (98,083)         (2,247)        94,157           0
Western (Ellis) Court       77,953                                                                (77,953)             0
Abandoned Properties
acquisition cost
                       -----------    ----------    -----------    ---------  -----------     -----------    -----------    --------
                       $40,935,918    $  201,276    $    10,692    $(346,857) $(4,374,973)    $  (309,209)   $36,116,847    $356,985
                       ===========    ==========    ===========    =========  ===========     ===========    ===========    ========
</TABLE>

<PAGE>   84
                                                                        SCHEDULE
                                                                     (Continued)


                        NATIONAL TAX CREDIT INVESTORS II
            INVESTMENTS IN, EQUITY IN EARNINGS OF, AND DISTRIBUTIONS
                   RECEIVED FROM LIMITED PARTNERSHIPS FOR THE
                  YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995


NOTES:      1.    Equity in income (loss) represents the Partnership's allocable
                  share of the net income (loss) from the Local Partnerships for
                  the year. Equity in loss of the Local Partnerships will be
                  recognized until the investment balance is reduced to zero or
                  a negative balance equal to further commitments by the
                  Partnership.

            2.    Cash distributions from the Local Partnerships are treated as
                  a return of the investment and reduce the investment balance
                  until such time as the investment is reduced to zero or a
                  negative balance equal to further commitments by the
                  Partnership. Distributions subsequently received will be
                  recognized as income.

<PAGE>   85
                        NATIONAL TAX CREDIT INVESTORS II
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                 OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS     SCHEDULE III
                               DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                                                    Buildings, Furnishings
                                                                        & Equipment
                                 Number    Outstanding                  Amount Carried
                                   of       Mortgage                     at Close of                        Accumulated
Partnership/Location             Units        Loan         Land             Period             Total        Depreciation
------------------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>             <C>           <C>                   <C>          <C>
Ashville Equity (Westview)         41         $977,202    $100,000         $1,774,617        $1,874,617       ($541,905)  
  Ashville, OH
Columbus Junction Park             24          655,023      40,000            779,438           819,438        (166,709)
  Columbus Junction, IA
Cottages of North St. Paul         94        4,140,000     616,092          5,129,938         5,746,030      (1,020,730) 
  North St. Paul, MN
Cottonwood Park                    90        1,454,349     194,154          2,637,861         2,832,015        (552,609)
  Colorado Springs, CO
Countryside Place                 180        4,660,562     450,000          8,101,618         8,551,618      (1,873,415)
  Howell Township, NJ
Eastridge Apartments               48          978,967      35,210          1,897,802         1,933,012        (255,017)
  St Clair, MO
Edgewood Apartments               108        1,814,824     157,500          3,894,252         4,051,752      (1,040,563)
  Rogers, AR
Fourth Street                      44        1,051,403     241,979          4,205,938         4,447,917        (899,178)
  Los Angeles, Ca
Germantown Apartments             132        2,602,839     210,000          4,585,517         4,795,517      (1,294,576) 
  Conway, AR
Great Basin Associates             28          644,976     143,000          1,408,600         1,551,600        (338,125)  
  Reno, NV
Grimes Park Apartments             16          462,648      50,000            517,413           567,413        (116,783)
  Grimes, IA
Jamestown Terrace                  56        2,886,236     298,000          3,444,289         3,742,289        (562,324)
  Jamestown, CA
Jefferson Meadows                  83        3,043,143      85,500          4,880,995         4,966,495      (1,408,482)
  Detroit, MI
Kentucky River                     42        1,021,711     149,000          2,002,100         2,151,100        (384,144)
  Winchester, KY
Lincoln Grove                     116          726,125     117,853          3,881,068         3,998,921        (700,777)
  Greensboro, NC
Meadowlakes                       108        1,574,154     136,352          3,886,681         4,023,033      (1,040,662) 
  Searcy, AR
Michigan Beach                    240        8,402,559   2,173,970         14,358,480        16,532,450      (2,726,637) 
  Chicago, IL
Nickel River (Wedgewood)          105        1,987,866     140,157          3,043,524         3,183,681        (616,486)   
  LaCrosse, WI
Norwalk Park Apartments            16          432,304      50,600            474,265           524,865        (108,897)
  Norwalk, IA
Oakview Apartments                106        2,650,000      80,800          3,594,096         3,674,896        (798,482)
  Spartanburg, SC
Palm Springs View                 120        5,287,289     901,137          6,744,287         7,645,424      (1,505,786)
  Palm Springs, CA
Pam Apartments                     96        1,796,839      50,000          2,604,686         2,654,686      (1,101,994)
  Pampa, TX
Paramount Apartments               99        1,802,160      95,200          2,852,701         2,947,901        (744,281)
  Maple Heights, OH
Parkwood Landing                  204        4,568,114     720,238          9,226,496         9,946,734      (2,318,617)
  Huntsville, AL
Pensacola Affordable               56        1,403,931     251,630          1,845,425         2,097,055        (468,552)
  Pensacola, FL
Pineview Terrace                  120        1,657,934      82,264          2,788,915         2,871,179        (647,758)
  Katy, TX
Quivera                           289        4,057,605     100,000         12,172,522        12,272,522      (3,499,769) 
  Lenexa, Tx
Rancho del Mar                    312        3,599,899      74,858          8,677,742         8,752,600      (2,011,867)  
  Tucson, AZ
Salem Park Apartments             144        2,822,528     210,000          4,271,878         4,481,878      (1,409,924)
  Conway, AR
Sheboygan                          59        1,379,910      47,200          2,561,520         2,608,720        (717,848)
  Sheboygan, WI
Sitka III                          16        1,172,047      42,588          1,434,207         1,476,795        (389,837)
  Sitka, AK
Soldotna (Northwood Senior)        23        1,485,905      59,943          1,874,460         1,934,403        (320,149)
  Soldotna, AK
Torres de Plata II                 78        3,092,088     158,175          3,816,334         3,974,509        (967,915)
  Toa Alta, PR
Villa Real                        120        3,056,506     897,283          6,375,999         7,273,282      (1,249,465)
  Santa Fe, NM
Virginia Park Meadows              83        2,988,033      78,500          4,850,023         4,928,523      (1,376,054)
  Detroit, MI
Wade Walton Apartments            108        4,000,000     102,020          3,912,853         4,014,873        (776,181)
  Clarksdale, MI
Westbridge Apartments             112        2,785,000     201,468          3,064,426         3,265,894        (528,745)
  W. Columbia, SC
                              -----------------------------------------------------------------------------------------
                                3,716      $89,122,679  $9,542,671       $153,572,966      $163,115,637    ($36,481,243)
                              =========================================================================================
</TABLE>


<PAGE>   86
                                                                    SCHEDULE III
                                                                     (Continued)


                        NATIONAL TAX CREDIT INVESTORS II
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                           HELD BY LOCAL PARTNERSHIPS
                        IN WHICH NTCI-II HAS INVESTMENTS
                                DECEMBER 31, 1997


NOTES:      1.    Each local partnership is developing or has developed, owns
                  and operates the Apartment Complex. Substantially all project
                  costs, including construction period interest expense, were
                  capitalized by the local partnerships.

            2.    Depreciation is provided for by various methods over the
                  estimated useful lives of the Apartment Complexes. The
                  estimated composite useful lives of the buildings are
                  generally from 25 to 40 years.

            3.    Investments in property and equipment:

<TABLE>
<CAPTION>
                                                        Buildings,
                                                       Furnishings,
                                        Land             Equipment            Total
                                    ------------       ------------       ------------
<S>                                 <C>                <C>                <C>         
Balance at January 1, 1995          $  9,540,173       $151,647,966       $161,188,139

Net additions during the year
ended December 31, 1995                    1,803            458,760            460,563
                                    ------------       ------------       ------------

Balance at December 31, 1995           9,541,976        152,106,726        161,648,702

Net additions during the year
ended December 31, 1996                     --               89,786             89,786
                                    ------------       ------------       ------------

Balance at December 31, 1996           9,541,976        152,196,512        161,738,488

Net additions during the year
ended December 31, 1997                      695          1,376,454          1,377,149
                                    ------------       ------------       ------------

Balance at December 31, 1997        $  9,542,671       $153,572,966       $163,115,637
                                    ============       ============       ============
</TABLE>


<PAGE>   87
                                                                    SCHEDULE III
                                                                     (Continued)


                        NATIONAL TAX CREDIT INVESTORS II
              REAL ESTATE AND ACCUMULATED DEPRECIATION OF PROPERTY
                           HELD BY LOCAL PARTNERSHIPS
                        IN WHICH NTCI-II HAS INVESTMENTS
                                DECEMBER 31, 1997


<TABLE>
<CAPTION>
                                              Buildings,
                                             Furnishings,
                                                And
                                              Equipment
                                             -----------
<S>                                          <C>        
ACCUMULATED DEPRECIATION:                 
                                          
Balance at January 1, 1995                   $19,555,868
                                          
Net additions during                      
the year ended                            
December 31, 1995                              5,879,559
                                             -----------
                                          
Balance at December 31, 1995                  25,435,427
                                          
Net additions during                      
the year ended                            
December 31, 1996                              5,483,906
                                             -----------
                                          
Balance at December 31, 1996                  30,919,333
                                          
Net additions during                      
the year ended                            
December 31, 1997                              5,561,910
                                             -----------
                                          
Balance at December 31, 1997                 $36,481,243
                                             ===========
</TABLE>


<PAGE>   88
PART III.

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT:

NATIONAL TAX CREDIT INVESTORS II (the "Partnership") has no directors or
executive officers of its own.

National Partnership Investments Corp. ("NAPICO" or the "General Partner") is a
wholly-owned subsidiary of Casden Investment Corporation, an affiliate of The
Casden Company. The following biographical information is presented for the
directors and executive officers of NAPICO with principal responsibility for the
Partnership's affairs.

CHARLES H. BOXENBAUM, 68, Chairman of the Board of Directors and Chief Executive
Officer of NAPICO.

Mr. Boxenbaum has been associated with NAPICO since its inception. He has been
active in the real estate industry since 1960, and prior to joining NAPICO was a
real estate broker with the Beverly Hills firm of Carl Rhodes Company.

Mr. Boxenbaum has been a guest lecturer at national and state realty
conventions, certified properties exchanger's seminars, Los Angeles Town Hall,
National Association of Home Builders, International Council of Shopping
Centers, Society of Conventional Appraisers, California Real Estate Association,
National Institute of Real Estate Brokers, Appraisal Institute, various mortgage
banking seminars, and the North American Property Forum held in London, England.
In 1963, he was the winner of the Snyder Award, the highest annual award offered
by the National Association of Real Estate Boards for Best Exchange. He is one
of the founders and a past director of the First Los Angeles Bank, organized in
November 1974. Mr. Boxenbaum was a member of the Board of Directors of the
National Housing Council. Mr. Boxenbaum received his Bachelor of Arts degree
from the University of Chicago.

BRUCE E. NELSON, 46, President and a director of NAPICO.

Mr. Nelson joined NAPICO in 1980 and became President in February 1989. He is
responsible for the operations of all NAPICO sponsored limited partnerships.
Prior to that he was primarily responsible for the securities aspects of the
publicly offered real estate investment programs. Mr. Nelson is also involved in
the identification, analysis, and negotiation of real estate investments.

From February 1979 to October 1980, Mr. Nelson held the position of Associate
General Counsel at Western Consulting Group, Inc., private residential and
commercial real estate syndicators. Prior to that time, Mr. Nelson was engaged
in the private practice of law in Los Angeles.

Mr. Nelson received his Bachelor of Arts degree from the University of Wisconsin
and is a graduate of the University of Colorado School of Law. He is a member of
the State Bar of California and is a licensed real estate broker in California
and Texas.

ALAN I. CASDEN, 52, Chairman of The Casden Company, an affiliate of Casden
Properties (formerly CoastFed Properties), a director and member of the audit
committee of NAPICO, and chairman of the Executive Committee of NAPICO.

Mr. Casden is Chairman of the Board, Chief Executive Officer and sole
shareholder of The Casden Company and Casden Investment Corp. Prior to that, he
was the president and chairman of Mayer Group, Inc., which he joined in 1975. He
is also chairman of Mayer Management, Inc., a real estate management firm. Mr.
Casden has been involved in approximately $3 billion of real estate financings
and sales and has been responsible for the development and construction of more
than 12,000 apartment units and 5,000 single-family homes and condominiums. 

<PAGE>   89
Mr. Casden is a member of the American Institute of Certified Public Accountants
and of the California Society of Certified Public Accountants. Mr. Casden is a
member of the advisory board of the National Multi-Family Housing Conference,
the Multi-Family Housing Council, and the President's Council of the California
Building Industry Association. He also serves on the advisory board to the
School of Accounting of the University of Southern California. He holds a
Bachelor of Science degree and a Masters in Business Administration degree from
the University of Southern California.

HENRY C. CASDEN, 54, President, Chief Operating Officer and Secretary of The
Casden Company and a director and secretary of NAPICO.

Mr. Casden has been President and Chief Operating Officer of The Casden Company,
as well as a director of NAPICO since February 1988. He became secretary of both
companies in late 1994. From 1982 to 1988, Mr. Casden was of counsel and a
partner in the Los Angeles law firm of Troy, Casden & Gould. From 1978 to 1981,
he was of counsel and a partner in the Los Angeles law firm of Loeb & Loeb. From
1972 to 1978, Mr. Casden was a member of the Beverly Hills law firm of Fink &
Casden, Professional Corporation.

Mr. Casden received his Bachelor of Arts degree from the University of
California at Los Angeles, and is a graduate of the University of San Diego Law
School. Mr. Casden is a member of the State Bar of California and has numerous
professional affiliations.

BOB SCHAFER, 56, Senior Vice President and Corporate Controller.

Mr. Schafer joined NAPICO in 1984 and is the Corporate Controller responsible
for the financial reporting function of the company. Prior to this, he was a
Group and Division Controller at Bergen Brunswig for over eight years,
Controller at a Flintkote subsidiary for over four years, and Assistant
Controller at an electronics subsidiary of General Electric for two years. Mr.
Schafer is a member of the California Society of Certified Public Accountants.
He holds a Bachelor of Science degree in accounting from Woodbury University,
Los Angeles.

PATRICIA W. TOY, 68, Senior Vice President - Communications and Assistant
Secretary

Mrs. Toy joined NAPICO in 1977, following her receipt of an MBA from the
Graduate School of Management, UCLA. From 1952 to 1956, Mrs. Toy served as a
U.S. Naval Officer in communications and personnel assignments. She holds a
Bachelor of Arts Degree from the University of Nebraska.

MARK L. WALTHER, 37, Executive Vice President, General Counsel and Assistant
Secretary.

Mr. Walther joined NAPICO in 1987 and is responsible for the legal affairs of
the NAPICO sponsored limited partnerships. Prior to joining NAPICO, Mr. Walther
worked in the San Francisco law firm of Browne and Kahn which specialized in
construction litigation. Mr. Walther received his Bachelor of Arts Degree in
Political Science from the University of California, Santa Barbara and is a
graduate of the University of California, Davis, School of Law. He is a member
of the State Bar of Hawaii.

NAPICO and several of its officers, directors and affiliates, including Charles
H. Boxenbaum, Bruce E. Nelson and Alan I. Casden, consented to the entry, on
June 25, 1997, of an administrative cease and desist order by the U.S.
Securities and Exchange Commission (the "Commission"), without admitting or
denying any of the findings made by the Commission. The Commission found that
NAPICO and others had violated certain federal securities laws in connection
with transactions unrelated to the Partnership. The Commission's order did not
impose any cost, burden or penalty on any partnership managed by NAPICO and does
not impact NAPICO's ability to serve as the Partnership's Managing General
Partner. 


<PAGE>   90
ITEM 11. MANAGEMENT RENUMERATION AND TRANSACTIONS:

National Tax Credit Investors II has no officers, employees, or directors.
However, under the terms of the Restated Certificate and Agreement of Limited
Partnership, the Partnership is obligated to the General Partner and Special
Limited Partner for the following fees:

(a)   An Acquisition Fee in the amount equal to 6.0 percent of the gross
      proceeds allocable to each of the Local Partnerships or Apartment
      complexes is payable to the General Partner and Special Limited Partner.
      Through December 31, 1997, acquisition fees of approximately $4,316,895
      have been incurred and are included in the amount presented for
      Investments in Limited Partnerships.

(b)   An annual Partnership management fee in an annual amount equal to 0.5
      percent of invested assets (as defined) is payable to the General Partner
      and Special Limited Partner. For the years ended December 31, 1997, 1996
      and 1995 $764,610, $764,607 and $764,607, respectively, has been incurred.

(c)   A Property Disposition Fee is payable to the General Partner in an amount
      equal to the lesser of (i) one-half of the competitive real estate
      commission that would have been charged by unaffiliated third parties
      providing comparable services in the area where the Apartment Complex is
      located, or (ii) 3 percent of the sale price received in connection with
      the sale or disposition of the Apartment Complex or Local Partnership
      Interest, but in no event will the Property Disposition Fee and all
      amounts payable to unaffiliated real estate brokers in connection with any
      such sale exceed in the aggregate the lesser of the competitive rate (as
      described above) or 6 percent of such sale price. Receipt of the Property
      Disposition Fee will be subordinated to the distribution of Sale or
      Refinancing Proceeds by the Partnership until the Limited Partners have
      received distributions of Sale or Refinancing Proceeds in an aggregate
      amount equal to (i) their 6 percent Priority Return for any year not
      theretofore satisfied and (ii) an amount equal to the aggregate adjusted
      investment (as defined) of the limited partners. No disposition fees have
      been paid.

(d)   The Partnership reimburses certain expenses to the General Partner. For
      the years ended December 31, 1997, 1996 and 1995, $42,085, $41,991,
      $38,700, respectively, has been paid.

(e)   An affiliate of the General Partner is responsible for the on-site
      property management for four Local Partnerships. The Local Partnerships
      paid the affiliate property management fees of $122,740, $131,023 and
      $117,827 in 1997, 1996 and 1995, respectively. 


<PAGE>   91
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT:

(a)   Security Ownership of Certain Beneficial Owners

      The General Partner owns all of the outstanding general partnership
      interests of NTCI-II; no person is known to own beneficially in excess of
      5 percent of the outstanding limited partnership interests.

(b)   None of the officers or directors of the General Partner own directly or
      beneficially any limited partnership interests in NTCI-II.

(c)   Changes in Control

      None.


ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS:

The Partnership has no officers, directors, or employees of its own. All of its
affairs are managed by the General Partner, National Partnership Investments
Corp. The transactions with the General Partner are primarily in the form of
fees paid by the Partnership to the General Partner for services rendered to the
Partnership, as discussed in Item 11 and in the notes to the accompanying
financial statements.


<PAGE>   92
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K:

FINANCIAL STATEMENTS

Report of Independent Public Accountants.

Balance Sheets as of December 31, 1997 and 1996.

Statements of Operations for the years ended December 31, 1997, 1996 and 1995.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
1997, 1996 and 1995.

Statements of Cash Flows for the years ended December 31, 1997, 1996 and 1995.

Notes to Financial Statements.

FINANCIAL STATEMENT SCHEDULES
APPLICABLE TO THE LIMITED PARTNERSHIPS IN WHICH NTCI-II HAS INVESTMENTS:

Schedule - Investments in Limited Partnerships, December 31, 1997, 1996 and
1995.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1997.

The remaining schedules are omitted because the required information is included
in the financial statements and notes thereto, or they are not applicable or not
required.

EXHIBITS

(3)   Articles of incorporation and bylaws: The registrant is not incorporated.
      The Partnership Agreement was filed with Form S-11 Registration #33-27658
      incorporated herein by reference.

(10)  Material contracts: The registrant is not party to any material contracts,
      other than the Restated Certificate and Agreement of Limited Partnership
      dated January 12, 1990, previously filed and which is hereby incorporated
      by reference.

REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the year ended December 31, 1997.


<PAGE>   93
                                   SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Los Angeles,
State of California.


NATIONAL TAX CREDIT INVESTORS II

By:  NATIONAL PARTNERSHIP INVESTMENTS CORP.
     The General Partner


/S/ CHARLES H. BOXENBAUM
-----------------------------------------
Charles H. Boxenbaum
Chairman of the Board of Directors
and Chief Executive Officer


/S/ BRUCE E. NELSON
-----------------------------------------
Bruce E. Nelson
Director and President


/S/ ALAN I. CASDEN
-----------------------------------------
Alan I. Casden
Director


/S/ HENRY C. CASDEN
-----------------------------------------
Henry C. Casden
Director


/S/ BOB E. SCHAFER
-----------------------------------------
Bob E. Schafer
Senior Vice President of Finance