<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, 1998

                             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 the Partnership is National Partnership Investments Corp.
("NAPICO"), a California corporation (the "General Partner"). The business of
the Partnership is conducted primarily by NAPICO.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. 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 1998, the Apartment Complexes in which NTCI-II had invested were
substantially rented.

The following is a schedule of the status as of December 31, 1998, 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, 1998
<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                 37                      90%
Columbus Junction Park
  Columbus Junction, IA                  24                 24                     100%
Cottages of North St. Paul (Elderly)
  North St. Paul, MN                     94                 91                      97%
Cottonwood Park
  Colorado Springs, CO                   90                 87                      97%
Countryside
  Howell Township, NJ                   180                174                      97%
East Ridge Apartments
  St. Clair, MO                          48                 34                      71%
Edgewood Apartments
  Rogers, AR                            108                 93                      86%
Fourth Street
  Los Angeles, CA                        44                 42                      95%
Germantown Apartments
  Conway, AR                            132                131                      99%
Great Basin Associates
  Reno, NV                               28                 24                      86%
Grimes Park Apartments
  Grimes, IA                             16                 15                      94%
Jamestown Terrace
  Jamestown, CA                          56                47                       84%
Jefferson Meadows Apartments
  Detroit, MI                            83                 80                      96%
Kentucky River Apartments
  Winchester, KY                         42                 42                     100%
Lincoln Grove Apartments
  Greensboro, NC                        116                  0                       0%
Meadowlakes Apartments
  Searcy, AR                            108                 90                      83%
Michigan Beach Apartments
  Chicago, IL                           240                210                      88%
Nickel River (Wedgewood) Apartments
  LaCrosse, WI                          105                 98                      93%
Norwalk Park Apartments
  Norwalk, IA                            16                 14                      88%


</TABLE>

<PAGE>   4



            SCHEDULE OF PROJECTS OWNED BY LOCAL LIMITED PARTNERSHIPS
                 IN WHICH NTCI-II HAS AN INVESTMENT (CONTINUED)
                                DECEMBER 31, 1998
<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                105                      99%
Palm Springs View
  Palm Springs, CA                      120                119                      99%
Pam Apartments
  Pampa, TX                              96                 96                     100%
Paramount Apartments
  Maple Heights, OH                      99                  0                       0%
Parkwood Landing
  Huntsville, AL                        204                191                      94%
Pensacola Affordable
  Pensacola, FL                          56                 54                      96%
Pineview Terrace
  Katy, TX                              120                111                      93%
Quivera
 Lenexa, KS                             289                263                      91%
Rancho Del Mar
  Tucson, AZ                            312                267                      86%
Salem Park Apartments
  Conway, AR                            144                122                      85%
Sheboygan Apartments
  Sheboygan, WI                          59                 43                      73%
Sitka III
  Sitka, AK                              16                 11                      69%
Soldotna (Northwood Senior) Apartments
  Soldotna, AK                           23                  0                       0%
Torres de Plata II
  Toa Alto, PR                           78                  0                       0%
Villa Real
  Santa Fe, NM                          120                112                      93%
Virginia Park Meadows
  Detroit, MI                            83                 76                      92%
Wade Walton Apartments
  Clarksdale, MI                        108                  0                       0%
Westbridge Apartments
  W. Columbia, SC                       112                108                      96%
                                      -----             ------
                                      3,716              3,011                      81%
                                      =====              =====
</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, 1998, 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.

As previously reported, 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") were engaged in litigation with the City
of Chicago. On October 27, 1998, the City and Michigan Beach entered into a
settlement agreement whereby the City agreed to the modification of Michigan
Beach's senior mortgage and the parties released each other from the claims
asserted or which could have been asserted in the action. The case was dismissed
on November 4, 1998.


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, 1998, there were 3,718 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, 1998.

<PAGE>   6
ITEM 6. SELECTED FINANCIAL DATA:

<TABLE>
<CAPTION>

                                                                   Year Ended December 31,
                                   ------------------------------------------------------------------------------------
                                       1998              1997              1996              1995              1994
                                   ------------      ------------      ------------      ------------      ------------
<S>                                <C>               <C>               <C>               <C>               <C>         
Revenues                           $     33,049      $     21,559      $     25,136      $    165,254      $     59,636

Operating expenses                    1,080,349         1,060,595         1,037,055         1,291,664         1,213,388

Equity in loss of limited
   partnerships and
   amortization of
   acquisition costs                 (4,040,526)       (4,222,167)       (4,746,790)       (4,684,182)       (5,338,942)

Write-off of Local Partnership               --                --        (1,117,893)               --                --
                                   ------------      ------------      ------------      ------------      ------------

Net loss                           $ (5,087,826)     $ (5,261,203)     $ (6,876,602)     $ (5,810,592)     $ (6,492,694)
                                   ============      ============      ============      ============      ============

Net loss per limited
   limited partnership
   interest                        $        (70)     $        (72)     $        (94)     $        (79)     $        (89)
                                   ============      ============      ============      ============      ============


Total assets                       $ 21,915,847      $ 26,193,937      $ 30,691,137      $ 37,053,252      $ 42,570,620
                                   ============      ============      ============      ============      ============

Investments
   in limited
   partnerships                    $ 21,167,503      $ 25,724,722      $ 30,331,138      $ 36,116,847      $ 40,935,918
                                   ============      ============      ============      ============      ============

Capital contributions
   payable                         $    356,985      $    356,985      $    356,985      $    356,985      $    369,681
                                   ============      ============      ============      ============      ============
</TABLE>




<PAGE>   7

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, 1998, $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>   8



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.

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 partners are not liable for losses beyond their
contributed capital. The equity in loss of limited partnerships has been


<PAGE>   9



decreasing primarily as a result of the Partnership's investments in certain
local limited partnerships being reduced to zero during the three year period
ended December 31, 1998, after which point losses are not recognized.

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 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, 1998, 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 to
cure the default. As of December 31, 1998, the loan has been restructured
through a Partial Payment of Claim ("PPC") with HUD. As a result, the first
mortgage balance was reduced from approximately $5.25 million to $2.84 million.
The interest rate was reduced from 10.125% to 7.625%. The PPC also resulted in a
new second mortgage of approximately $3.56 million payable only from "surplus
cash" or proceeds from sale of the property. The PPC cured the aforementioned
default. However, as a result of the default 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 received notification form the Internal Revenue Service
("IRS") in April, 1998, that the low income housing tax credits generated during
1992 and 1993 by the Wedgewood Commons local partnership were subject to
recapture due to the local partnership's alleged failure to properly comply with
federal tax credit guidelines. The Partnership has filed an administrative
appeal of the IRS notification. In addition, the local general partner and its
affiliated management agent are currently attempting to negotiate a settlement
with the IRS that reportedly includes a proposal to rescind the IRS
notification.

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.



<PAGE>   10



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>   11

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                              FINANCIAL STATEMENTS,
                          FINANCIAL STATEMENT SCHEDULES
                  AND REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
                             AS OF DECEMBER 31, 1998




<PAGE>   12



                    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, 1998 and 1997, and the
related statements of operations, partners' equity (deficiency) and cash flows
for each of the three years in the period ended December 31, 1998. Our audits
also included the financial statement schedules listed in the index in 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 32 percent and 24
percent of total assets as of December 31, 1998 and 1997, respectively, and the
equity in the net loss of these partnerships represents 42 percent, 27 percent
and 25 percent of the total net loss of the Partnership for the years ended
December 31, 1998, 1997 and 1996, 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,
1998 and 1997, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1998 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, 1999
<PAGE>   13
                        [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>   14
           [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>   15
              [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>   16
                    [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>   17
                       [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>   18
                        [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>   19
                    [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>   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, 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>   21
                     [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>   22
                [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>   23
           [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>   24
              [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>   25
                [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>   26
                     [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>   27
      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>   28
                     [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>   29
      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>   30
                          [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>   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, 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>   32
                        [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>   33
                        [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>   34
                     [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>   35
                        [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>   36
                [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>   37
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>   38
                  [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>   39
                                     [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>   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, 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>   41

                               [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>   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, 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>   43

                     [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>   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, 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>   45

[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>   46


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>   47

[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>   48


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>   49


                   [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>   50

[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>   51


                   [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>   52


                                 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>   53

                            [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>   54

                     [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>   55

                        [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>   56


                        [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>   57

                [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>   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, 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>   59

                [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>   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 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>   61


                [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>   62


                [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>   63


                        [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>   64


                    [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>   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, 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>   66

                         [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>   67

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                                 BALANCE SHEETS

                           DECEMBER 31, 1998 AND 1997

                                     ASSETS
<TABLE>
<CAPTION>

                                                                          1998                1997
                                                                       -----------         -----------

<S>                                                                    <C>                 <C>        
INVESTMENTS IN LIMITED PARTNERSHIPS
    (Notes 1 and 2)                                                    $21,167,503         $25,724,722

CASH AND CASH EQUIVALENTS (Note 1)                                         515,522             216,939

OTHER ASSETS                                                                     0              30,269

RESTRICTED CASH (Note 3)                                                   232,822             222,007
                                                                       -----------         -----------

          TOTAL ASSETS                                                 $21,915,847         $26,193,937
                                                                       ===========         ===========


                              LIABILITIES AND PARTNERS' EQUITY

LIABILITIES:
     Accrued fees due to partners (Notes 5 and 8)                      $ 2,831,597         $ 2,066,985
     Capital contributions payable (Note 4)                                356,985             356,985
     Accounts payable and accrued expenses                                 112,672              67,548
                                                                       -----------         -----------
                                                                         3,301,254           2,491,518
                                                                       -----------         -----------
CONTINGENCIES (Note 7)

PARTNERS' EQUITY                                                        18,614,593          23,702,419
                                                                       -----------         -----------

           TOTAL LIABILITIES AND PARTNERS' EQUITY                      $21,915,847         $26,193,937
                                                                       ===========         ===========

</TABLE>

   The accompanying notes are an integral part of these financial statements.
<PAGE>   68
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                      1998                 1997                 1996
                                                 -----------          -----------          -----------
<S>                                              <C>                  <C>                  <C>        
INTEREST INCOME                                  $    33,049          $    21,559          $    25,136
                                                 -----------          -----------          -----------

OPERATING EXPENSES:
     Management fees - partners (Note 5)             764,612              764,612              764,612
     General and administrative (Note 5)              94,641              136,311              124,934
     Legal and accounting                            221,096              159,672              147,509
                                                 -----------          -----------          -----------

         Total operating expenses                  1,080,349            1,060,595            1,037,055
                                                 -----------          -----------          -----------

LOSS FROM PARTNERSHIP OPERATIONS                  (1,047,300)          (1,039,036)          (1,011,919)

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)                (4,040,526)          (4,222,167)          (4,746,790)
                                                 -----------          -----------          -----------

NET LOSS                                          (5,087,826)         $(5,261,203)         $(6,876,602)
                                                 ===========          ===========          ===========
NET LOSS PER LIMITED
     PARTNERSHIP INTEREST (Note 1)               $       (70)         $       (72)         $       (94)
                                                 ===========          ===========          ===========
</TABLE>

   The accompanying notes are an integral part of these financial statements.
<PAGE>   69
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                          General              Limited
                                         Partners              Partners                Total
                                       ------------          ------------          ------------

<S>                                    <C>                   <C>                   <C>         
PARTNERS' EQUITY (DEFICIENCY),
      January 1, 1996                  $   (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

      Net loss for 1998                     (50,878)           (5,036,948)           (5,087,826)
                                       ------------          ------------          ------------

PARTNERS' EQUITY (DEFICIENCY),
      December 31, 1998                $   (442,778)         $ 19,057,371          $ 18,614,593
                                       ============          ============          ============
</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 CASH FLOWS
              FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>

                                                                            1998                 1997                 1996
                                                                        -----------          -----------          -----------
<S>                                                                     <C>                  <C>                  <C>         
CASH FLOWS FROM OPERATING ACTIVITIES:
     Net loss                                                           $(5,087,826)         $(5,261,203)         $(6,876,602)
     Adjustments to reconcile net loss to net
     cash used in operating activities:
           Equity in loss of limited partnerships
               and amortization of acquisition                            4,040,526            4,222,167            4,746,790
               costs
           Write-off of investee partnership                                     --                   --            1,117,893
           Decrease in other assets                                          30,269              (30,269)                  --
           Increase (decrease) in:
               Accounts payable and accrued expenses                         45,124                 (607)            (100,120)
               Accrued fees due to partners                                 764,612              764,610              614,607
                                                                        -----------          -----------          -----------

            Net cash used in operating activities                          (207,295)            (305,302)            (497,432)
                                                                        -----------          -----------          -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
     Investments in limited partnerships:
        Capital (contributions) recoveries                                 (669,677)               3,937             (220,440)
        Capitalized acquisition costs and fees                                   --                   --               (2,211)
        Distributions recognized as a return of                           1,186,370              380,312              143,677
            capital
     Decrease in capital contributions payable                                   --                   --                   --
     Decrease (increase) in restricted cash                                 (10,815)              (9,878)              (6,855)
                                                                        -----------          -----------          -----------

            Net cash provided by (used in) investing activities             505,878              374,371              (85,829)
                                                                        -----------          -----------          -----------

NET INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS                                                       298,583               69,069             (583,261)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                216,939              147,870              731,131
                                                                        -----------          -----------          -----------

CASH AND CASH EQUIVALENTS, END OF YEAR                                  $   515,522          $   216,939          $   147,870
                                                                        ===========          ===========          ===========

</TABLE>
   The accompanying notes are an integral part of these financial statements.
<PAGE>   71
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                          NOTES TO FINANCIAL STATEMENTS
                                DECEMBER 31, 1998

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


<PAGE>   72



                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998



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. During 1998,
      the Partnership recognized an impairment loss of $499,941 related to
      certain of the investments in local limited partnerships, which has been
      included in equity in loss of limited partnerships. During 1996, the
      Partnership recognized an impairment loss of $1,117,893.

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, 1998, 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.


<PAGE>   73

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


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>

                                                                    1998                  1997
                                                               ------------          ------------
<S>                                                            <C>                   <C>         
Investments balance, beginning of year                         $ 25,724,722          $ 30,331,138
Capital contributions (recoveries)                                  669,677                (3,937)
Equity in loss of limited partnerships                           (3,838,018)           (4,015,696)
Amortization of capitalized acquisition costs and fees             (202,508)             (206,471)
Distributions recognized as a return of capital                  (1,186,370)             (380,312)
                                                               ------------          ------------

Investments balance, end of year                               $ 21,167,503          $ 25,724,722
                                                               ============          ============
</TABLE>

      The difference between the investment per the accompanying balance sheets
      at December 31, 1998 and 1997, 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 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. As
      of December 31, 1998, the loan has been restructured and the
      aforementioned default has been cured. In addition, all litigation has
      been settled and the lawsuit has been dismissed.


<PAGE>   74
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998


2.    INVESTMENTS IN LIMITED PARTNERSHIPS (CONTINUED)

      Selected financial information from the combined financial statements of
      the Local Partnerships at December 31, 1998 and 1997 and for each of the
      three years in the period ended December 31, 1998 is as follows:

                                 Balance Sheets
<TABLE>
<CAPTION>

                                                           1998             1997
                                                         --------         --------
                                                              (in thousands)

<S>                                                      <C>              <C>     
      Land and buildings, net                            $121,455         $126,634
                                                         ========         ========

      Total assets                                       $134,315         $138,137
                                                         ========         ========

      Mortgages and construction loans payable
          secured by real property                       $ 88,330         $ 89,123
                                                         ========         ========

      Total liabilities                                  $104,094         $103,678
                                                         ========         ========

      Equity of National Tax Credit Investors II         $ 18,520         $ 24,499
                                                         ========         ========

      Equity of other partners                           $ 11,701         $  9,960
                                                         ========         ========
</TABLE>
<TABLE>
<CAPTION>

                            Statements of Operations

                                               1998              1997              1996 
                                              --------          --------          --------
                                                             (in thousands)

<S>                                           <C>               <C>               <C>     
Total revenues                                $ 18,722          $ 18,303          $ 18,218
                                              ========          ========          ========

Interest expense                              $  7,148          $  7,245          $  7,229
                                              ========          ========          ========

Depreciation and amortization                 $  5,495          $  5,551          $  5,594
                                              ========          ========          ========

Total expenses                                $ 23,236          $ 23,016          $ 22,790
                                              ========          ========          ========

Net loss                                      $ (4,514)         $ (4,713)         $ (4,572)
                                              ========          ========          ========

Net loss allocable to the Partnership         $ (4,064)         $ (4,510)         $ (4,402)
                                              ========          ========          ========
</TABLE>



<PAGE>   75
                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998


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>

                                                           1998              1997              1996 
                                                         --------          --------          --------
                                                                         (in thousands)

<S>                                                      <C>               <C>               <C>
      Total assets                                       $ 13,396          $ 12,498
                                                         ========          ========

      Total liabilities                                  $  9,026          $  7,730
                                                         ========          ========

      Equity of National Tax Credit Investors II         $  1,812          $  3,680
                                                         ========          ========

      Equity of other partners                           $  2,558          $  1,088
                                                         ========          ========

      Total revenue                                      $  1,789          $  1,754          $  1,754
                                                         ========          ========          ========

      Net loss                                           $   (477)         $   (376)         $   (375)
                                                         ========          ========          ========
</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.


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

                   NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                               DECEMBER 31, 1998



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 $764,612 were recorded as
          an expense in 1998, 1997 and 1996. As of December 31, 1998 and 1997,
          management fees in the amount of $2,831,597 and $2,066,985,
          respectively, were due to the General Partner and the Special Limited
          Partner.

          As of December 31, 1998, the fees and expenses due the General Partner
          and Special Limited Partner exceeded the Partnership's cash. The
          partners, during the forthcoming year, will not demand payment of
          amounts due in excess of such cash or such that the Partnership would
          not have sufficient operating cash; however, the Partnership will
          remain liable for all such amounts.

      (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 $0, $42,085 and
          $41,991 during 1998, 1997 and 1996, 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 $136,296,
      $122,740 and $131,023 in 1998, 1997 and 1996, respectively.



<PAGE>   77

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998


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.

      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") were engaged in
      litigation with the City of Chicago. On October 27, 1998, the City and
      Michigan Beach entered into a settlement agreement whereby the City agreed
      to the modification of Michigan Beach's senior mortgage and the parties
      released each other from the claims asserted or which could have been
      asserted in the action. The case was dismissed on November 4, 1998.

      The Partnership has received notification form the Internal Revenue
      Service ("IRS") in April, 1998, that the low income housing tax credits
      generated during 1992 and 1993 by the Wedgewood Commons local partnership
      were subject to recapture due to the local partnership's alleged failure
      to properly comply with federal tax credit guidelines. The Partnership has
      filed an administrative appeal of the IRS notification. In addition, the
      local general partner and its affiliated management agent are currently
      attempting to negotiate a settlement with the IRS that reportedly includes
      a proposal to rescind the IRS notification.

      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.


<PAGE>   78

                        NATIONAL TAX CREDIT INVESTORS II
                       (a California limited partnership)

                    NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 1998



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 $1,584,000
      between the estimated nine-month equity in loss and the actual 1998 year
      end equity in loss has been recorded in the fourth quarter.
<PAGE>   79
                    NATIONAL TAX CREDIT INVESTORS II                   SCHEDULE
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                 YEAR ENDED DECEMBER 31, 1998
                          ----------------------------------------------------------------------------------------------------------
                             BALANCE                 CAPITALIZED                  EQUITY    AMORTIZATION    BALANCE      CAPITAL
   LIMITED                 JANUARY 1,     CAPITAL    ACQUISITION       CASH      INCOME    OF CAPITALIZED DECEMBER 31, CONTRIBUTIONS
PARTNERSHIPS                 1998      CONTRIBUTIONS  COSTS/FEES  DISTRIBUTIONS   (LOSS)      ACQ. COSTS      1998        PAYABLE
---------------           -----------  ------------- ------------ ------------- ----------- -------------- ----------- -------------
<S>                       <C>          <C>           <C>          <C>           <C>         <C>            <C>         <C>
Ashville Equity           $   413,853  $    101,869  $             $            $  (147,276)   $  (5,891)  $  362,555   $
Columbus Junction              52,477                                                (1,486)      (1,931)      49,060
Cottonwood Park             1,118,398                                                13,928       (8,012)   1,124,314
The Cottages I                      0                                                     0            0            0
Countryside                 2,155,571                                (133,950)     (207,553)     (11,362)   1,802,706
Eastridge Apartments          529,585        17,000                                 (71,899)      (2,987)     471,699
Edgewood Apartments         1,265,063                                 (80,250)      (86,817)      (5,834)   1,092,162
Fourth Street               1,652,546                                              (136,696)      (7,053)   1,508,797
Germantown Apartments       1,346,628                                 (39,501)      (72,912)      (6,811)   1,227,404
Great Basin Associates              0                                                     0            0            0
Grimes Park Apartments         58,603                                                (9,180)      (2,116)      47,307
Jamestown                     385,783                                               (59,068)      (3,322)     323,393
Jefferson Meadows 
  Apartments                  489,630                                              (230,366)      (7,574)     251,690
Kentucky River Apartments     912,289                                               (33,174)      (4,719)     874,396
Lincoln Grove                 905,313                                 (20,400)      (84,221)      (4,527)     796,165
Meadowlakes Apartments      1,179,475                                 (17,594)      (58,007)      (5,828)   1,098,046
Michigan Beach Apartments           0       549,308                   (23,727)     (525,581)           -            0
Nickel River 
  (Wedgewood) Apts.           882,426                                               (32,342)      (7,170)     842,914
Norwalk Park Apartments        62,141                                               (18,175)      (1,416)      42,550
Oakview                       753,664                                                34,027       (2,926)     784,765
Pam Apartments                112,633                                 (12,902)      (63,394)      (2,836)      33,501
Palm Springs View             360,155                                              (350,166)      (9,989)           0         1,081
Paramount Apartments          412,304                                              (403,837)      (8,467)           0
Parkwood Landing              973,811                                              (287,422)     (13,783)     672,606       355,904
Pensacola Affordable          435,601                                 (47,476)      (22,837)      (3,401)     361,887
Pineview Terrace              439,624                                               (37,671)      (6,197)     395,756
Quivera                       573,070                                (177,996)     (148,207)     (11,045)     235,822
Rancho Del Mar              3,664,430                                 (37,500)     (201,887)     (16,084)   3,408,959
Salem Park Apartments         622,601                                 (12,048)      (49,328)      (6,787)     554,438
Sheboygan Apartments          582,167                                              (107,664)      (3,550)     470,953
Sitka III Apartments           19,538                                               (17,634)      (1,904)           0
Soldotna 
  (Northwood Senior) Apts.    208,878                                  (1,698)      (21,339)      (1,900)     183,941
Torres De Plata II             69,532                                  (6,328)            0       (2,580)      60,624
Villa Real                  2,466,601         1,500                  (575,000)      (31,349)     (11,617)   1,850,135
Virginia Park Meadows         501,471                                              (255,245)      (7,268)     238,958
Wade Walton Apartments        118,224                                              (114,851)      (3,373)           0
Westbridge Apartments             637                                                 1,611       (2,248)       
Western (Ellis) Court               0                                                                               0   
                          ----------- ------------- ------------ ------------    ---------   ----------    -----------  ------------

                          $25,724,722  $    669,677 $          0 $ (1,186,370)  $(3,838,017)  $(202,508)   $21,167,503  $    356,985
                          ===========  ============ ============ ============   ===========   ==========   ===========  ============
</TABLE>

<PAGE>   80
                        NATIONAL TAX CREDIT INVESTORS II              SCHEDULE
                       INVESTMENTS IN LIMITED PARTNERSHIPS           (CONTINUED)
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996


<TABLE>
<CAPTION>
                                                                YEAR ENDED DECEMBER 31, 1996
                                   ----------------------------------------------------------------------------------------
                                       BALANCE                           CAPITALIZED                            EQUITY     
   LIMITED                            JANUARY 1,         CAPITAL         ACQUISITION           CASH             INCOME     
PARTNERSHIPS                            1996          CONTRIBUTIONS       COSTS/FEES       DISTRIBUTIONS        (LOSS)     
                                   --------------   -----------------   --------------   ----------------   -------------- 
<S>                                <C>                  <C>                <C>               <C>             <C>  
Ashville Equity                    $   642,399          $ 36,000           $                 $               $  (125,114)
Columbus Junction                       90,439                                                                   (22,284)
Cottonwood Park                      1,198,665                                                                       490 
The Cottages I                          56,926                                                                   (53,537)
Countryside                          2,543,515                                                                  (182,374)
Eastridge Apartments                   625,090                                                                   (51,821)
Edgewood Apartments                  1,447,572                                                                   (93,969)
Fourth Street                        1,929,180                                                 (16,400)         (123,386)
Germantown Apartments                1,602,141                                                 (20,691)         (113,124)
Great Basin Associates                 404,856                                                                    22,801 
Grimes Park Apartments                  81,823                                                                    (7,855)
Jamestown                              537,293                                                  (3,600)          (62,087)
Jefferson Meadows Apartments           975,565                                                                  (247,262)
Kentucky River Apartments            1,001,233                                                                   (29,921)
Lincoln Grove                        1,142,686                                                 (18,705)          (85,229)
Meadowlakes Apartments               1,385,676                                                 (16,128)          (77,760)
Michigan Beach Apartments            1,916,791           174,440            2,211                             (2,071,830)
Nickel River (Wedgewood) Apts.       1,028,528                                                                   (64,491)
Norwalk Park Apartments                 81,404                                                                    (6,419)
Oakview                                676,876                                                                    32,775 
Pam Apartments                         302,442                                                 (18,000)          (75,334)
Palm Springs View                      680,224                                                                  (138,098)
Paramount Apartments                   628,464            10,000                                                (144,199)
Parkwood Landing                     1,802,848                                                                  (402,316)
Pensacola Affordable                   512,786                                                                   (29,755)
Pineview Terrace                       735,002                                                                  (190,945)
Quivera                              1,244,761                                                 (25,663)         (227,578)
Rancho Del Mar                       4,327,385                                                                  (244,654)
Salem Park Apartments                  841,761                                                 (15,000)         (100,981)
Sheboygan Apartments                   723,743                                                                   (36,949)
Sitka III Apartments                   119,865                                                  (1,464)          (44,798)
Soldotna (Northwood Senior) Apts.      258,158                                                  (1,698)          (19,051)
Torres De Plata II                     294,162                                                  (6,328)         (123,208)
Villa Real                           2,826,307                                                                  (138,037)
Virginia Park Meadows                  974,362                                                                  (230,816)
Wade Walton Apartments                 381,762                                                                   (69,469)
Westbridge Apartments                   94,157                                                                   (54,626)
Western (Ellis) Court                        0                                                                           
                                   -----------          --------           ------           ----------       ----------- 
                                   $36,116,847          $220,440           $2,211            $(143,677)      $(5,633,211)
                                   ===========          ========           ======           ==========       =========== 

<CAPTION>
                                   ------------------------------------------------------
                                     AMORTIZATION          BALANCE           CAPITAL
   LIMITED                          OF CAPITALIZED       DECEMBER 31,     CONTRIBUTIONS
PARTNERSHIPS                          ACQ. COSTS             1996            PAYABLE
                                   -----------------   ---------------   ----------------
<S>                                  <C>                <C>                 <C>
Ashville Equity                      $  (5,891)         $   547,394         $
Columbus Junction                       (1,931)              66,224
Cottonwood Park                         (8,012)           1,191,143
The Cottages I                          (3,389)                   0
Countryside                            (11,362)           2,349,779
Eastridge Apartments                    (2,987)             570,282
Edgewood Apartments                     (5,834)           1,347,769
Fourth Street                           (7,053)           1,782,341
Germantown Apartments                   (6,811)           1,461,515
Great Basin Associates                  (3,963)             423,694
Grimes Park Apartments                  (2,116)              71,852
Jamestown                               (3,322)             468,284
Jefferson Meadows Apartments            (7,574)             720,729
Kentucky River Apartments               (4,719)             966,593
Lincoln Grove                           (4,527)           1,034,225
Meadowlakes Apartments                  (5,828)           1,285,960
Michigan Beach Apartments              (21,612)                   0
Nickel River (Wedgewood) Apts.          (7,170)             956,867
Norwalk Park Apartments                 (1,416)              73,569
Oakview                                 (2,926)             706,725
Pam Apartments                          (2,836)             206,272
Palm Springs View                       (9,989)             532,137            1,081
Paramount Apartments                    (8,467)             485,798
Parkwood Landing                       (13,783)           1,386,749          355,904
Pensacola Affordable                    (3,401)             479,630
Pineview Terrace                        (6,197)             537,860
Quivera                                (11,045)             980,475
Rancho Del Mar                         (16,084)           4,066,647
Salem Park Apartments                   (6,787)             718,993
Sheboygan Apartments                    (3,549)             683,245
Sitka III Apartments                    (1,905)              71,698
Soldotna (Northwood Senior) Apts.       (1,900)             235,509
Torres De Plata II                      (2,580)             162,046
Villa Real                             (11,617)           2,676,653
Virginia Park Meadows                   (7,268)             736,278
Wade Walton Apartments                  (3,373)             308,920
Westbridge Apartments                   (2,248)              37,283
Western (Ellis) Court                                             0
                                     ---------          -----------         --------
                                     $(231,472)         $30,331,138         $356,985
                                     =========          ===========         ========
</TABLE>
<PAGE>   81
                                                                        SCHEDULE
                  NATIONAL TAX CREDIT INVESTORS II                   (CONTINUED)
                INVESTMENTS IN LIMITED PARTNERSHIPS
           YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>

                                                                YEAR ENDED DECEMBER 31, 1997
                          ----------------------------------------------------------------------------------------------------------
                            BALANCE                  CAPITALIZED                 EQUITY    AMORTIZATION     BALANCE      CAPITAL
   LIMITED                JANUARY 1,     CAPITAL     ACQUISITION      CASH       INCOME   OF 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

                    NATIONAL TAX CREDIT INVESTORS II SCHEDULE
                       INVESTMENTS IN LIMITED PARTNERSHIPS
                  YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996

<TABLE>
<CAPTION>

                                                                  YEAR ENDED DECEMBER 31, 1998
                                            --------------------------------------------------------------------------------
                                                 BALANCE                                CAPITALIZED                          
   LIMITED                                      JANUARY 1,            CAPITAL           ACQUISITION             CASH         
PARTNERSHIPS                                      1998             CONTRIBUTIONS         COSTS/FEES         DISTRIBUTIONS    
                                             --------------     ------------------     --------------     ------------------ 
<S>                                          <C>               <C>                     <C>                <C>                
Ashville Equity                              $      413,853    $           101,869     $                  $                  
Columbus Junction                                    52,477                                                                  
Cottonwood Park                                   1,118,398                                                                  
The Cottages I                                            0                                                                  
Countryside                                       2,155,571                                                         (133,950)
Eastridge Apartments                                529,585                 17,000                                           
Edgewood Apartments                               1,265,063                                                          (80,250)
Fourth Street                                     1,652,546                                                                  
Germantown Apartments                             1,346,628                                                          (39,501)
Great Basin Associates                                    0                                                                  
Grimes Park Apartments                               58,603                                                                  
Jamestown                                           385,783                                                                  
Jefferson Meadows Apartments                        489,630                                                                  
Kentucky River Apartments                           912,289                                                                  
Lincoln Grove                                       905,313                                                          (20,400)
Meadowlakes Apartments                            1,179,475                                                          (17,594)
Michigan Beach Apartments                                 0                549,308                                   (23,727)
Nickel River (Wedgewood) Apts.                      882,426                                                                  
Norwalk Park Apartments                              62,141                                                                  
Oakview                                             753,664                                                                  
Pam Apartments                                      112,633                                                          (12,902)
Palm Springs View                                   360,155                                                                  
Paramount Apartments                                412,304                                                                  
Parkwood Landing                                    973,811                                                                  
Pensacola Affordable                                435,601                                                          (47,476)
Pineview Terrace                                    439,624                                                                  
Quivera                                             573,070                                                         (177,996)
Rancho Del Mar                                    3,664,430                                                          (37,500)
Salem Park Apartments                               622,601                                                          (12,048)
Sheboygan Apartments                                582,167                                                                  
Sitka III Apartments                                 19,538                                                                  
Soldotna (Northwood Senior) Apts.                   208,878                                                           (1,698)
Torres De Plata II                                   69,532                                                           (6,328)
Villa Real                                        2,466,601                  1,500                                  (575,000)
Virginia Park Meadows                               501,471                                                                  
Wade Walton Apartments                              118,224                                                                  
Westbridge Apartments                                   637                                                                  
Western (Ellis) Court                                     0                                                                  
                                             --------------     ------------------     --------------     ------------------ 

                                             $   25,724,722     $          669,677     $            0     $       (1,186,370)
                                             ==============     ==================     ==============     ================== 
</TABLE>


<TABLE>
<CAPTION>
  
                                                                 YEAR ENDED DECEMBER 31, 1998
                                            ----------------------------------------------------------------------------------
                                              EQUITY             AMORTIZATION           BALANCE                 CAPITAL
   LIMITED                                    INCOME             OF CAPITALIZED        DECEMBER 31,           CONTRIBUTIONS
PARTNERSHIPS                                  (LOSS)               ACQ. COSTS             1998                  PAYABLE
                                            --------------      -----------------     ----------------      -----------------
<S>                                         <C>                 <C>                   <C>                   <C>
Ashville Equity                             $     (147,276)     $          (5,891)    $        362,555      $
Columbus Junction                                   (1,486)                (1,931)              49,060
Cottonwood Park                                     13,928                 (8,012)           1,124,314
The Cottages I                                           0                      0                    0
Countryside                                       (207,553)               (11,362)           1,802,706
Eastridge Apartments                               (71,899)                (2,987)             471,699
Edgewood Apartments                                (86,817)                (5,834)           1,092,162
Fourth Street                                     (136,696)                (7,053)           1,508,797
Germantown Apartments                              (72,912)                (6,811)           1,227,404
Great Basin Associates                                   0                      0                    0
Grimes Park Apartments                              (9,180)                (2,116)              47,307
Jamestown                                          (59,068)                (3,322)             323,393
Jefferson Meadows Apartments                      (230,366)                (7,574)             251,690
Kentucky River Apartments                          (33,174)                (4,719)             874,396
Lincoln Grove                                      (84,221)                (4,527)             796,165
Meadowlakes Apartments                             (58,007)                (5,828)           1,098,046
Michigan Beach Apartments                         (525,581)                     -                    0
Nickel River (Wedgewood) Apts.                     (32,342)                (7,170)             842,914
Norwalk Park Apartments                            (18,175)                (1,416)              42,550
Oakview                                             34,027                 (2,926)             784,765
Pam Apartments                                     (63,394)                (2,836)              33,501
Palm Springs View                                 (350,166)                (9,989)                   0                  1,081
Paramount Apartments                              (403,837)                (8,467)                   0
Parkwood Landing                                  (287,422)               (13,783)             672,606                355,904
Pensacola Affordable                               (22,837)                (3,401)             361,887
Pineview Terrace                                   (37,671)                (6,197)             395,756
Quivera                                           (148,207)               (11,045)             235,822
Rancho Del Mar                                    (201,887)               (16,084)           3,408,959
Salem Park Apartments                              (49,328)                (6,787)             554,438
Sheboygan Apartments                              (107,664)                (3,550)             470,953
Sitka III Apartments                               (17,634)                (1,904)                   0
Soldotna (Northwood Senior) Apts.                  (21,339)                (1,900)             183,941
Torres De Plata II                                       0                 (2,580)              60,624
Villa Real                                         (31,349)               (11,617)           1,850,135
Virginia Park Meadows                             (255,245)                (7,268)             238,958
Wade Walton Apartments                            (114,851)                (3,373)                   0
Westbridge Apartments                                1,611                 (2,248)                   0
Western (Ellis) Court                                                                                0
                                            --------------      -----------------     ----------------      -----------------

                                            $   (3,838,018)     $        (202,508)    $     21,167,503      $         356,985
                                            ==============      =================     ================      =================
</TABLE>
<PAGE>   83


                                                                        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, 1998, 1997 AND 1996



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>   84
                        NATIONAL TAX CREDIT INVESTORS II
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                 OF PROPERTY HELD BY LOCAL LIMITED PARTNERSHIPS     SCHEDULE III
                                DECEMBER 31, 1998


<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    $     971,312    $     100,000    $   1,774,617    $   1,874,617         $(612,773)
  ASHVILLE, OH
COLUMBUS JUNCTION PARK                    24          653,656           40,000          779,438    $     819,438          (189,982)
  COLUMBUS JUNCTION, IA
COTTAGES OF NORTH ST. PAUL                94        4,055,000          616,092        5,184,102    $   5,800,194        (1,196,920)
  NORTH ST. PAUL, MN
COTTONWOOD PARK                           90        1,428,923          194,154        2,637,861    $   2,832,015          (616,119)
  COLORADO SPRINGS, CO
COUNTRYSIDE PLACE                        180        4,605,987          450,000        8,122,739    $   8,572,739        (2,181,270)
  HOWELL TOWNSHIP, NJ
EASTRIDGE APARTMENTS                      48        1,203,859           35,210        1,897,802    $   1,933,012          (302,462)
  ST CLAIR, MO
EDGEWOOD APARTMENTS                      108        1,785,255          157,500        3,894,252    $   4,051,752        (1,183,694)
  ROGERS, AR
FOURTH STREET                             44        1,038,792          241,979        4,205,938    $   4,447,917        (1,054,706)
  LOS ANGELES, CA
GERMANTOWN APARTMENTS                    132        2,560,431          210,000        4,587,119    $   4,797,119        (1,464,412)
  CONWAY, AR
GREAT BASIN ASSOCIATES                    28          639,734          143,000        1,408,600    $   1,551,600          (401,631)
  RENO, NV
GRIMES PARK APARTMENTS                    16          461,652           50,000          517,413    $     567,413          (132,353)
  GRIMES, IA
JAMESTOWN TERRACE                         56        2,880,351          298,000        3,463,047    $   3,761,047          (656,841)
  JAMESTOWN, CA
JEFFERSON MEADOWS                         83        3,054,398           85,500        4,883,910    $   4,969,410        (1,594,495)
  DETROIT, MI
KENTUCKY RIVER                            42        1,003,767          149,000        2,004,350    $   2,153,350          (444,965)
  WINCHESTER, KY
LINCOLN GROVE                            116          703,681          117,853        3,881,068    $   3,998,921          (815,659)
  GREENSBORO, NC
MEADOWLAKES                              108        1,514,301          136,352        3,892,592    $   4,028,944        (1,185,523)
  SEARCY, AR
MICHIGAN BEACH                           240        8,442,377        2,173,970       14,358,480    $  16,532,450        (3,086,633)
  CHICAGO, IL
NICKEL RIVER (WEDGEWOOD) ..              105        1,952,199          140,157        3,043,524    $   3,183,681          (702,733)
  LACROSSE, WI
NORWALK PARK APARTMENTS                   16          431,158           50,600          480,435    $     531,035          (124,388)
  NORWALK, IA
OAKVIEW APARTMENTS                       106        2,470,000           80,800        3,594,827    $   3,675,627          (919,301)
  SPARTANBURG, SC
PALM SPRINGS VIEW                        120        5,258,295          901,137        6,744,287    $   7,645,424        (1,697,438)
  PALM SPRINGS, CA
PAM APARTMENTS                            96        1,710,000           50,000        2,608,868    $   2,658,868        (1,269,168)
  PAMPA, TX
PARAMOUNT APARTMENTS                      99        1,785,117           95,200        2,852,701    $   2,947,901          (848,860)
  MAPLE HEIGHTS, OH
PARKWOOD LANDING                         204        4,516,287          720,238        9,226,496    $   9,946,734        (2,654,034)
  HUNTSVILLE, AL
PENSACOLA AFFORDABLE                      56        1,385,129          251,630        1,845,425    $   2,097,055          (533,650)
  PENSACOLA, FL
PINEVIEW TERRACE                         120        1,648,538           82,264        2,789,451    $   2,871,715          (714,009)
  KATY, TX
QUIVERA                                  289        3,996,395          100,000       12,271,808    $  12,371,808        (4,075,802)
  LENEXA, TX
RANCHO DEL MAR                           312        3,539,261           74,858        8,677,742    $   8,752,600        (2,382,035)
  TUCSON, AZ
SALEM PARK APARTMENTS                    144        2,776,541          210,000        4,273,480    $   4,483,480        (1,553,361)
  CONWAY, AR
SHEBOYGAN                                 59        1,368,016           47,200        2,561,520    $   2,608,720          (811,098)
  SHEBOYGAN, WI
SITKA III                                 16        1,169,670           41,868        1,438,048    $   1,479,916          (441,128)
  SITKA, AK
SOLDOTNA (NORTHWOOD SENIOR)               23        1,482,806           59,284        1,875,840    $   1,935,124          (370,149)
  SOLDOTNA, AK
TORRES DE PLATA II                        78        3,084,986          158,175        3,817,848    $   3,976,023        (1,128,641)
  TOA ALTA, PR
VILLA REAL                               120        3,001,908          897,283        6,375,999    $   7,273,282        (1,487,657)
  SANTA FE, NM
VIRGINIA PARK MEADOWS                     83        2,999,773           78,500        4,865,474    $   4,943,974        (1,563,330)

  DETROIT, MI
WADE WALTON APARTMENTS                   108        4,000,000          102,020        3,911,173    $   4,013,193          (892,057)
  CLARKSDALE, MI
WESTBRIDGE APARTMENTS                    112        2,750,000          201,468        3,064,426    $   3,265,894          (609,973)
  W. COLUMBIA, SC
                                                                                                                     -------------
                                       3,716    $  88,329,555    $   9,541,292    $ 153,812,700    $ 163,353,992     ($ 41,899,250)
                                                                                                                     =============

</TABLE>
<PAGE>   85


                                                                    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, 1998


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, 1996            $  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

Net additions during the year
ended December 31, 1998                     (1,379)              239,734              238,355
                                      ------------          ------------         ------------

Balance at December 31, 1998          $  9,541,292          $153,812,700         $163,353,992
                                      ============          ============         ============
</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, 1998



<TABLE>
<CAPTION>
                                           Buildings,
                                          Furnishings,
                                             And
                                          Equipment
                                          -----------
<S>                                       <C>
ACCUMULATED DEPRECIATION:

Balance at January 1, 1996                $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

Net additions during
the year ended
December 31, 1998                           5,418,007
                                          -----------

Balance at December 31, 1998              $41,899,250
                                          ===========
</TABLE>

<PAGE>   87



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.

Prior to December 30, 1998, NAPICO was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc., a real
estate investment trust organized by Alan I. Casden, purchased a 95.25% economic
interest in NAPICO. 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, 69, 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, 47, 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, 53, Chairman of Casden Properties Inc. and 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. He also became the
Chairman of the Board of Casden Properties Inc. in 1998. Previously, 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>   88



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, 55, 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. He also became the President of Casden Properties Inc.
in 1998. 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.

PAUL PATIERNO, 42, Chief Financial Officer.

Mr. Patierno joined NAPICO in 1998 and is responsible for its financial affairs,
as well as the limited partnerships sponsored by it. From 1995 until joining
NAPICO in September 1998, Mr. Patierno was a senior manager in the affordable
housing group of Altschuler, Melvoin and Glasser LLP, a national public
accounting firm. From 1990 to 1995, he practiced public accounting with a firm
specializing in real estate syndication. Mr. Patierno received his bachelor of
science degree in accounting from California State University at Northridge, and
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.

PATRICIA W. TOY, 69, 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, 38, 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>   89



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. Fees in amount of $764,612 were incurred for
      each of the years ended December 31, 1998, 1997 and 1996.

(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, 1998, 1997 and 1996, $0, $42,085 and $41,991,
      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 $136,296, $122,740 and
      $131,023 in 1998, 1997 and 1996, respectively.


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.



<PAGE>   90



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.


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, 1998 and 1997.

Statements of Operations for the years ended December 31, 1998, 1997 and 1996.

Statements of Partners' Equity (Deficiency) for the years ended December 31,
1998, 1997 and 1996.

Statements of Cash Flows for the years ended December 31, 1998, 1997 and 1996.

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, 1998, 1997 and
1996.

Schedule III - Real Estate and Accumulated Depreciation, December 31, 1998.

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, 1998.



<PAGE>   91


                                   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/ PAUL PATIERNO
-------------------------------------
Paul Patierno
Chief Financial Officer