Document:

REGISTRATION RIGHTS AGREEMENT

            This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 8, 2000 among Fidelity Holdings, Inc., a Nevada
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").

            This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the Purchasers
(the "Purchase Agreement").

            The Company and the Purchasers hereby agree as follows:

      1. Definitions

            Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:

            "Adjustable Warrants" shall have the meaning set forth in the
Purchase Agreement.

            "Advice" shall have meaning set forth in Section 6(e).

            "Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.

            "Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the state of New York generally are authorized or required by law or other
governmental action to close.

            "Closing Date" shall have the meaning set forth in the Purchase
Agreement.

            "Closing Warrants" shall have the meaning set forth in the Purchase
Agreement.

            "Commission" means the Securities and Exchange Commission.

            "Common Stock" means the Company's common stock, $.01 par value per
share.

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            "Effectiveness Date" means the 90th day following the Closing Date,
except that with respect to any Registration Statement to be filed pursuant to
Section 2(f) hereof, means the ninetieth (90) day following a Vesting Date,
provided, that if (i) the Commission fails to respond with either comments
(whether or not such comments request the filing of additional material), a
request for additional information, a notice of no-review, or a notice of no
further review (whether, in any case, orally or in writing) to the filing by the
Company with the Commission of a Registration Statement or an amendment thereto
within 20 days of the date that such Registration Statement or amendment thereto
was filed (the "Response Period"), and (ii) the Company shall have during such
entire period used its best efforts to obtain such comments, requests or
notifications, then, for each day after the Response Period during which such
failure by the Commission continues and during which the Company shall have
continued to have used its best efforts to obtain such comments, requests or
notifications, one day will be added to the definition of "Effectiveness Date"
for all purposes of this Agreement, provided, however, that for purposes of
measuring the period of initial response to the Company's filing of the initial
Registration Statement pursuant to the terms hereof, the Response Period shall
be 30 days.

            "Effectiveness Period" shall have the meaning set forth in Section
2(a).

            "Exchange Act" means the Securities Exchange Act of 1934, as
amended.

            "Filing Date" means the 40th day following the Closing Date, except
that with respect to any Registration Statement to be filed pursuant to Section
2(f) hereof, means the fifteenth (15) day following a Vesting Date.

            "Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.

            "Indemnified Party" shall have the meaning set forth in Section
5(c).

            "Indemnifying Party" shall have the meaning set forth in Section
5(c).

            "Losses" shall have the meaning set forth in Section 5(a).

            "Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.

            "Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.

            "Prospectus" means the prospectus included a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms

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of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.

            "Registration Delay Payments" shall have the meaning set forth in
Section 2(e).

            "Registrable Securities" means (i) the Shares and (ii) the shares of
Common Stock issuable upon exercise of the Warrants.

            "Registration Statements" means the registration statements and any
additional registration statements contemplated by Sections 2(a) and 2(f),
including (in each case) the Prospectus, amendments and supplements to such
registration statements or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statements.

            "Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.

            "Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.

            "Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.

            "Securities Act" means the Securities Act of 1933, as amended.

            "Shares" means the shares of Common Stock issued to the Purchasers
on the Closing Date pursuant to the Purchase Agreement.

            "Special Counsel" means one special counsel to the Holders for which
the Holders will be reimbursed by the Company pursuant to Section 4.

            "Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.

            "Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.

            "Vesting Date" shall have the meaning set forth in the Adjustable
Warrants.

            "Warrants" means the Closing Warrants and the Adjustable Warrants.

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      2. Shelf Registration

            (a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith as the Holders may consent). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is two (2) years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
Period"), provided, however, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holder not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.

            (b) In order to account for the fact that the number of shares of
Common Stock that are issuable upon exercise of the Adjustable Warrants is
determined in part upon the Per Share Market Value (as defined in the Adjustable
Warrants) on a Vesting Date (as defined in the Adjustable Warrant), the initial
Registration Statement to be filed hereunder shall include (but not be limited
to) a number of shares of Common Stock equal to no less than the sum of (i) the
number of shares issuable upon exercise of the Adjustable Warrants, assuming,
for the purposes of this subsection (i), that the Adjustment Price (as defined
in the Adjustable Warrants) on each Vesting Date is 50% of the Per Share Market
Value for the Trading Day (as defined in the Adjustable Warrants) immediately
preceding the Closing Date, (ii) the number of shares issuable upon exercise in
full of the Closing Warrant and (iii) the Shares (the sum of (i), (ii) and
(iii), the "Initial Minimum").

            (c) If the Holders of a majority of the Registrable Securities then
outstanding so elect, an offering of Registrable Securities pursuant to a
Registration Statement may be effected in the form of an Underwritten Offering.
In such event, and, if the managing underwriters advise the Company and such
Holders in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro rata among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.

            (d) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Company

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upon consultation with the Holders of a majority of the Registrable Securities.
No Holder may participate in any Underwritten Offering hereunder unless such
Holder (i) agrees to sell its Registrable Securities on the basis provided in
any underwriting agreements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such arrangements.

            (e) If (i) the initial Registration Statement covering the
Registrable Securities to be covered thereby as set forth herein is not filed on
or before the Filing Date (if the Company files such Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed" or is not
subject to further review, or (iii) the initial Registration Statement filed
hereunder is not declared effective by the Commission on or before the thirtieth
(30) day following the Effectiveness Date, or (iv) after a Registration
Statement has been declared effective by the Commission, such Registration
Statement is either not effective as to all Registrable Securities required to
be covered thereby throughout the Effectiveness Period for a period of more than
three (3) aggregate days or the Holders are not permitted for any reason to make
sales thereunder during such period, (v) an amendment to the Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for a Registration Statement to be declared effective, (vi) the Company
shall become ineligible to register securities for resale with the Commission
under Form S-3, or (vii) trading in the Common Stock shall be suspended from the
NASDAQ (as defined herein) or a Subsequent Market (as defined herein) for more
than three (3) Business Days (which need not be consecutive days) (any such
failure or breach being referred to as an "Event," and for purposes of clauses
(i), (iii) and (vi) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five (5) Business Day period is exceeded, or
for purposes of clause (v) the date on which such ten (10) day period is
exceeded, or for purposes of clause (iv) the date on which such three (3) day
period is exceeded, or for purposes of clause (vii) the date on which such three
(3) Business Day period is exceeded being referred to as "Event Date"), then, in
any such case, as partial relief for the damages suffered therefrom by the
Holder (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall on the Event Date and on each monthly
anniversary thereof until the triggering Event is cured, pay to the Holder an
amount in cash, as liquidated damages for the estimated cost to the Holders of
not having liquid securities in the time contemplated by the Transaction
Documents and not as a penalty, equal to 1% (the "Percentage") of the purchase
price paid by such Holder pursuant to the Purchase Agreement and the pro-rata
portion for partial months until the applicable Event is cured, provided, that
(i) after the Event Date, the Percentage shall equal 3% and (ii) in the case of
an Event under clause 2(e)(iii), on and after the ninetieth (90th) day following
the Effectiveness Date, the Percentage shall equal 5%. The payments to which the
Holders shall be entitled pursuant to this Section are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be calculated
on a cumulative basis and paid within five (5) Business Days of the Event Date
and each monthly anniversary thereof. If the Company fails to make Registration
Delay Payments in a timely manner, such Registration Delay

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Payments shall bear interest at the rate of 2.0% per month (or the maximum rate
permitted by law), pro-rated for partial months, until paid in full.
Notwithstanding anything to the contrary, the Company shall not be required to
make any Registration Delay Payments if an Event described above arises solely
as a result of (i) comments by the Commission relating to or directed at any of
the Holders in connection with a Registration Statement and no other comments
relating to the Registration Statement remain outstanding or (ii) the fact that
the Commission refuses to accept or review a Registration Statement because
shares of Common Stock issuable upon exercise of the Adjustment Warrants are
being included in such Registration Statement unless the Company refuses to
permit all other Registrable Securities to immediately go effective in such
initial Registration Statement.

            (f) Notwithstanding anything to the contrary, if the Commission
refuses to accept or review a Registration Statement because shares of Common
Stock issuable upon exercise of the Adjustment Warrants are being included in
such Registration Statement, then, with respect to each Vesting Date, the
Company shall, within fifteen (15) days of a Vesting Date, file an additional
Registration Statement covering the Registrable Securities then issuable upon
exercise of the Adjustable Warrants and use its best efforts to cause such
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
ninetieth (90th) day following the applicable Vesting Date.

      3. Registration Procedures

            In connection with the Company's registration obligations hereunder,
the Company shall:

            (a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and the Holders) which shall contain the "Plan of Distribution"
attached hereto as Annex A (except if otherwise directed by the Holders), and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of a Registration Statement or any related Prospectus or any
amendment or supplement thereto, the Company shall, (i) furnish to the Holders,
their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents will be subject to the review of
such Holders, their Special Counsel and such managing underwriters, and (ii)
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to such Holders and such underwriters,
to conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.

            (b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection

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therewith as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) use its best effort to
respond as quickly as possible, and, in case the obtainment of information
requested by the Commission which is within the control of the Company, no later
than ten (10) Business Days of receipt thereof, to all comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holders true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securi ties Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.

            (c) (i) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement. The Company shall have 30
days to file such additional Registration Statements after its receipt of notice
of the requirement thereof which the Holders may give at any time when the
Registrable Securities exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement hereunder. In such event, the
Registration Statement required to be filed by the Company shall include a
number of shares of Common Stock equal to no less than the Initial Minimum and
any other Registrable Securities not then registered in a Registration
Statement.

                  (ii) File such supplements or attach "stickers" to the
Registration Statement or Prospectus as and when required by the Commission to
evidence a material amount of resales by a Holder pursuant to a Prospectus. In
connection therewith, if such supplements or "stickers" are periodically
required by the Commission, the Company shall, within four (4) Business Days,
file such supplements or attach such "stickers" whenever a Holder has sold 50%
of the Registrable Securities covered by the then outstanding Prospectus (as
last supplemented or "stickered") in order to cover 100% of the number of the
outstanding Registrable Securities.

            (d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than three (3) Business Days (or, in
the case of a supplement or "sticker" required to be filed or attached pursuant
to Section 3(c)(ii), within one (1) Business Day) prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders, which the

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Holders shall keep confidential); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspen sion of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event or passage of time that makes the financial statements
included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.

            (e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.

            (f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably request should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company or the Board of Directors of
the Company, violate applicable law or be materially detrimental to the business
prospects of the Company.

            (g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.

            (h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of

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prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.

            (i) Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject or make any change in its charter or by-laws, which in each case the
Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.

            (j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request.

            (k) Upon the occurrence of any event contemplated by Section
3(d)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.

            (l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market ("NASDAQ") or on any other stock market or trading facility on which the
shares of Common Stock are traded, listed or quoted (each a "Subsequent Market")
as and when required pursuant to the Purchase Agreement.

            (m) In the event of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order

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to expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings,
and confirm the same if and when requested; (ii) obtain and deliver copies
thereof to each Holder and the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each Holder and each
such underwriter, in form, scope and substance reasonably satisfactory to any
such managing underwriters and Special Counsel to the selling Holders covering
the matters customarily covered in opinions requested in Underwritten Offerings
and such other matters as may be reasonably requested by such Special Counsel
and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
reasonable best efforts to obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the under writers, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reason ably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to Section 3(m)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.

            (n) In the event of an Underwritten Offering, make available for
inspection by any underwriter participating in any disposition of Registrable
Securities, and any Special Counsel at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such person;
provided, however, that any information that is determined in good faith by the
Company in writing to be of a confidential nature at the time of delivery of
such information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities; (ii) disclosure
of such information, in the opinion of counsel to such Person, is required by
law; (iii) such information becomes generally available to the public other than
as a result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.

            (o) Comply with all applicable rules and regulations of the
Commission.

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<PAGE>

            (p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request. If the Registration Statement
refers to any Holder by name or otherwise as the holder of any securities of the
Company, then such Holder shall have the right to require (if such reference to
such Holder by name or otherwise is not required by the Securities Act or any
similar Federal statute then in force) the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.

      4. Registration Expenses

            (a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
reasonably incurred in compliance with state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for the
Holders in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
reasonably designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses of the Company, (iv) fees and disbursements of counsel for
the Company and Special Counsel for the Holders, up to an aggregate of $7,500
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.

            (b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to

                                      -11-
<PAGE>

diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof. Notwithstanding the
foregoing, except in connection with a block trade by a broker who as a result
of the trade may be deemed an underwriter, if at any time the Company has (i)
timely filed the Registration Statement on or prior to the applicable Filing
Date, (ii) caused the Registration Statement to be declared effective as
promptly as possible after the filing thereof but in any event prior to the
applicable Effectiveness Date and (iii) kept the Registration Statement
continuously effective under the Securities Act, all in accordance with the
terms of this Agreement, and if at any such time the Holders require an
Underwritten Offering pursuant to the terms hereof, then Holders shall be
responsible for all costs, fees and expenses in connection with such
Underwritten Offering.

      5. Indemnification

            (a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(e). The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.

                                      -12-
<PAGE>

            (b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.

            (c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.

            An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending

                                      -13-
<PAGE>

Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.

            All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).

            (d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.

            The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allo cation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.

            The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.

                                      -14-
<PAGE>

      6. Miscellaneous

            (a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.

            (b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor, during the Effectiveness
Period, shall the Company or any of its subsidiaries, on or after the date of
this Agreement, enter into any agreement with respect to the registration of the
Common Stock that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except as and to
the extent specified in Schedule 6(b) hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to the registration of the Common Stock to any Person that
have not been satisfied. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register shares of the Common Stock under the Securities
Act unless the rights so granted are subject in all respects to the prior rights
in full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.

            (c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.

            (d) Compliance. Each Holder covenants and agrees that (i) it will
not sell any Registrable Securities under the Registration Statement until it
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(h) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(d) and (ii) it and its officers, directors or
Affiliates, if any, will comply with the prospectus delivery requirements of the
Securities Act as applicable to any of them in connection with sales of
Registrable Securities pursuant to the Registration Statement.

            (e) Discontinued Disposition. Each Holder agrees by its acquisition
of such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), or until it is
advised in writing (the "Advice") by the

                                      -15-
<PAGE>

Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.

            (f) Piggy-Back Registrations. (i) If at any time, during the period
from the date hereof until two (2) years from the date hereof, when there is not
an effective Registration Statement covering all of the Registrable Securities,
the Company shall determine to prepare and file with the Commission a
registration statement relating to an offering for its own account or the
account of others under the Securities Act of any of its equity securities,
other than on Form S-4 or Form S-8 (each as promulgated under the Securities
Act) or their then equivalents relating to equity securities to be issued solely
in connection with any acquisition of any entity or business or equity
securities issuable in connection with stock option or other employee benefit
plans, then the Company shall send to each Holder of Registrable Securities
written notice of such determination and, if within fifteen (15) days after
receipt of such notice, any such holder shall so request in writing, the Company
shall include in such registration statement all or any part of such Registrable
Securities such holder requests to be registered, subject, in the event of an
underwritten offering, to customary cutbacks and lock-ups requested by the
managing underwriter of all selling stockholders thereunder, on a pro-rata basis
with such other selling stockholders.

                  (ii) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 6(f) with respect to the
Registrable Securities of any selling Holder, that such Holder shall furnish to
the Company such information regarding it, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required under the Securities Act to effect the registration of such Holder's
Registrable Securities and to execute such documents (including, without
limitation, any underwriting agreement) in connection with such registration as
the Company may reasonably request.

            (g) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least 80% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.

            (h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase

                                      -16-
<PAGE>

Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:

      If to the Company:    Fidelity Holdings, Inc.
                            80-02 Kew Gardens Road, Suite 5000
                            Kew Gardens, New York 11415
                            Facsimile No.: (718) 793-2455
                            Attn: Doron Cohen, President

      With copies to:       Littman Krooks Roth & Ball P.C.
                            655 Third Avenue
                            New York, New York 10017-5617
                            Attn: Mitchell C. Littman, Esq. and
                            James J. Quinlan, Esq.
                            Facsimile No.: (212) 490-2990

      If to a Purchaser:    To the address set forth under such Purchaser's name
                            on the signature pages hereto.

            (i) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
Holders of a majority of Registrable Securities then outstanding. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under this Agreement and the Purchase Agreement.

            (j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.

            (k) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this

                                      -17-
<PAGE>

Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.

            (l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.

            (m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.

            (n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.

            (o) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.

                   [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
                            SIGNATURE PAGE TO FOLLOW]

                                      -18-
<PAGE>

      IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.

                                  FIDELITY HOLDINGS, INC.

                                  By: /s/ Doron Cohen
                                      ---------------
                                      Name: Doron Cohen
                                      Title: President and CEO

                                      -19-
<PAGE>

                                  STRONG RIVER INVESTMENTS, INC.

                                  By: /s/ Kenneth L. Henderson
                                      ------------------------
                                      Name: Kenneth L. Henderson
                                      Title: Attorney-in-fact

                                  Address for Notice:

                                  Strong River Investments, Inc.
                                  c/o Gonzalez-Ruiz & Aleman (BVI) Limited
                                  Wickhams Cay I, Vanterpool Plaza
                                  P.O. Box 873
                                  Road Town, Tortolla. BVI

                                  With copies to:
                                  Robinson Silverman Pearce Aronsohn &
                                     Berman LLP
                                  1290 Avenue of the Americas
                                  New York, NY  10104
                                  Facsimile No.:  (212) 541-4630
                                  Attn: Kenneth L. Henderson, Esq. and
                                        Eric L. Cohen, Esq.

                                      -20-
<PAGE>

                                  MONTROSE INVESTMENTS LTD.

                                  By: /s/ Kevin O'Neal
                                      ----------------
                                     Name: Kevin O'Neal
                                     Title: Authorized Signatory

                                  Address for Notice:
                                  Montrose Investments Ltd.
                                  300 Crescent Court, Suite 700
                                  Dallas, TX 75201
                                  Facsimile: (214) 758-1221
                                  Attn: Will Rose and Kim Rozman

                                  With copies to:

                                  Robinson Silverman Pearce Aronsohn &
                                     Berman LLP
                                  1290 Avenue of the Americas
                                  New York, NY  10104
                                  Facsimile No.:  (212) 541-4630
                                  Attn: Kenneth L. Henderson, Esq. and
                                        Eric L. Cohen. Esq.

                                      -21-
<PAGE>

                                  AUGUSTA STREET LLC

                                  By: Navigator Management Ltd.
                                      -------------------------
                                        Director

                                        By: /s/ David Sims
                                            --------------
                                            Name: David Sims
                                            Title: President

                                  Address for Notice:

                                  Augusta Street LLC
                                  c/o Citco Trustees (Cayman) Limited
                                  Commercial Centre
                                  P.O. Box 31106 SMB
                                  Grand Cayman
                                  Cayman Islands
                                  British West Indies
                                  Facsimile No.: (345) 945-7566

                                  With copies to

                                  Krieger & Prager, Esqs.
                                  39 Broadway
                                  New York, NY 10006
                                  Facsimile No.:  (212) 363-2999
                                  Attn: Samuel L. Krieger, Esq

                                        -and-

                                  Southridge Capital Management LLC
                                  Executive Pavillon
                                  90 Grove Street
                                  Ridgefield, CT 06877
                                  Facsimile No.: (203) 431-8301
                                  Attn: Henry Sargent, Esq.

                                      -22-
<PAGE>

                                                                         Annex A

                              Plan of Distribution

      The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:

o     ordinary brokerage transactions and transactions in which the
      broker-dealer solicits purchasers;

o     block trades in which the broker-dealer will attempt to sell the shares as
      agent but may position and resell a portion of the block as principal to
      facilitate the transaction;

o     purchases by a broker-dealer as principal and resale by the broker-dealer
      for its account;

o     an exchange distribution in accordance with the rules of the applicable
      exchange;

o     privately negotiated transactions;

o     short sales;

o     broker-dealers may agree with the Selling Stockholders to sell a specified
      number of such shares at a stipulated price per share;

o     a combination of any such methods of sale; and

o     any other method permitted pursuant to applicable law.

      The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.

      The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.

      Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.

                                      -23-
<PAGE>

      The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.

      The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.

                                      -24-Amended and Restated

                        Limited Partnership Agreement of

                       School Square Limited Partnership

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

I.       DEFINITIONS ..........................................................2

         1.1      "Accountant" ................................................2
         1.2      "Act" .......................................................2
         1.3      "Actual Tax Credit"..........................................2
         1.4      "Adjusted Capital Account Deficit" ..........................2
         1.5      "Affiliate" .................................................2
         1.6      "Agreement" or "Partnership Agreement"...................... 2
         1.7      "Apartment Housing"......................................... 3
         1.8      "Assignee" ..................................................3
         1.9      "Bankruptcy" or "Bankrupt".................................. 3
         1.10     "Break-even Operations"..................................... 3
         1.11     "Budget".....................................................3
         1.12     "Capital Account" ...........................................3
         1.13     "Capital Contribution" . ....................................3
         1.14     "Cash Expenses"..............................................4
         1.15     "Cash Receipts...............................................4
         1.16     "Code" ......................................................4
         1.17     "Completion of Construction"................................ 4
         1.18     "Compliance Period"......................................... 4
         1.19     "Consent of the Special Limited Partner".................... 4
         1.20     "Construction Budget"....................................... 4
         1.21     "Construction Contract"..................................... 5
         1.22     "Construction Lender"....................................... 5
         1.23     "Construction Loan" .........................................5
         1.24     "Contractor" ................................................5
         1.25     "Debt Service Coverage"..................................... 5
         1.26     "Deferred Management Fee.................................... 5
         1.27     "Developer"..................................................5
         1.28     "Development Fee" ...........................................5
         1.29     "Distributions" .............................................5
         1.30     "Fair Market Value" ........................................ 6
         1.31     "Financial Interest" ........................................6
         1.32     "First Year Certificate" . ..................................6
         1.33     "FmHA" ......................................................6
         1.34     "FmHA Interest Credit Agreement" ............................6
         1.35     "FmHA Loan Agreement" .......................................6
         1.36     "Force Majeure" .............................................6
         1.37     "General Partner" ...........................................6
         1.38     "Gross Asset Value" .........................................6
         1.39     "Hazardous Substance"........................................7
         1.40     "Improvements"...............................................7
         1.41     "In-Balance" ................................................8

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         1.42     "Incentive Management Fee"...................................8
         1.43     "Income and Losses"..........................................8
         1.44     "Inspecting Architect".......................................9
         1.45     "Insurance" .................................................9
         1.46     "Insurance Company" ........................................10
         1.47     "Interest" .................................................10
         1.48     "Involuntary Withdrawal"....................................10
         1.50     "LIHTC".....................................................10
         1.51     "Limited Partner"...........................................10
         1.52     "Management Agent"..........................................10
         1.53     "Management Agreement"......................................10
         1.54     "Minimum Set-Aside Test"....................................11
         1.55     "Mortgage" or "Mortgage Loan"...............................11
         1.56     "Net Operating Income"......................................11
         1.57     "Nonrecourse Deductions"....................................11
         1.58     "Nonrecourse Liability".....................................11
         1.59     "Operating Deficit" ........................................11
         1.60     "Operating Deficit Guarantee Period"........................11
         1.61     "Operating Loans"...........................................12
         1.62     "Original Limited Partner" .................................12
         1.63     "Partner(s)" ...............................................12
         1.64     "Partner Nonrecourse Debt" .................................12
         1.65     "Partner Nonrecourse Debt Minimum Gain" ....................12
         1.66     "Partner Nonrecourse Deductions" ...........................12
         1.67     "Partnership" ..............................................12
         1.68     "Partnership Minimum Gain" .................................12
         1.69     "Permanent Mortgage Commencement" ..........................12
         1.70     "Person" ...................................................12
         1.71     "Plans and Specifications"..................................12
         1.72     "Project Documents" ........................................12
         1.73     "Projected Annual Tax Credits" .............................13
         1.74     "Projected Tax Credits" ....................................13
         1.75     "Rent Restriction Test" ....................................13
         1.76     "Reporting Fee".............................................13
         1.77     "Revised Projected Tax Credits".............................13
         1.78     "Sale or Refinancing".......................................13
         1.79     "Sale or Refinancing Proceeds" .............................13
         1.80     "Special Limited Partner"...................................13
         1.81     "State" ....................................................13
         1.82     "State Tax Credit Agency" ..................................13
         1.83     "Substitute Limited Partner" ...............................14
         1.84     "Syndication Fee"...........................................14
         1.85     "Tax Credit" ...............................................14
         1.86     "Tax Credit Compliance Fee".................................14
         1.87     "Tax Credit Conditions".....................................14
         1.88     "Tax Credit Period".........................................14
         1.89     "Title Policy"..............................................14
         1.80     "TRA 1986" .................................................14
         1.91     "Treasury Regulations" .....................................14
         1.92     "Withdrawing" or "Withdrawal"...............................14

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II.      NAME ................................................................15

III.     PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE ........................15

         3.1      Principal Executive Office .................................15
         3.2      Agent for Service of Process ...............................15

IV.      PURPOSE .............................................................15

         4.1      Purpose of the Partnership..................................15
         4.2      Authority of the Partnership................................15

V.       TERM ................................................................16

VI.      GENERAL PARTNER'S CONTRIBUTIONS AND LOANS............................16

         6.1      Capital Contribution of General Partner.....................16
         6.2      Construction Obligations....................................16
         6.3      Operating Obligations.......................................17
         6.4      Other General Partner Loans.................................17

VII.     CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
         AND SPECIAL LIMITED PARTNER..........................................18

         7.1      Original Limited Partner....................................18
         7.2      Capital Contribution of Limited Partner.....................18
         7.3      Repurchase of Limited Partner's Interest....................20
         7.4      Adjustment of Limited Partner's
                  Capital Contribution........................................20
         7.5      Capital Contribution of Special Limited Partner.............23
         7.6      Return of Capital Contribution..............................23
         7.7      Liability of Limited Partner and Special
                  Limited Partner.............................................23

VIII. WORKING CAPITAL AND RESERVES ...........................................23

         8.1      Operating and Maintenance Account...........................23
         8.2      Reserve for Replacements....................................23
         8.3      Tax and Insurance Account...................................23
         8.4      Other Reserves..............................................24

IX.      MANAGEMENT AND CONTROL ..............................................24

         9.1      Power and Authority of General Partner .....................24
         9.2      Payments to the General Partners and Others ................24
         9.3      Specific Powers of the General Partner .....................26
         9.4      Authority Requirements......................................27
         9.5      Limitations on General Partner's
                  Power and Authority ........................................27

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         9.6      Restrictions on Authority of General Partner................28
         9.7      Duties of General Partner ..................................29
         9.8      Obligations to Repair and Rebuild Apartment
                  Housing.....................................................31
         9.9      Partnership Expenses .......................................31
         9.10     General Partner Expenses ...................................32
         9.11     Other Business of Partners .................................32
         9.12     Covenants, Representations and Warranties...................32

X.       ALLOCATIONS OF INCOME, LOSSES AND CREDITS ...........................36

         10.1     General ....................................................36
         10.2     Allocations From Sale or Refinancing........................36
         10.3     Special Allocations.........................................37
         10.4     Curative Allocations........................................39
         10.5     Other Allocation Rules......................................40
         10.6     Tax Allocations: Code Section 704(c) .......................40
         10.7     Allocation Among Limited Partners...........................41
         10.8     Allocation Among General Partners ..........................41
         10.9     Modification of Allocations ................................41

XI.      DISTRIBUTION ........................................................42

         11.1     Distribution of Net Operating Income .......................42
         11.2     Distribution of Sale or Refinancing Proceeds................42

XII.     TRANSFERS OF LIMITED PARTNER'S INTEREST
         IN THE PARTNERSHIP...................................................42

         12.1     Assignment of Limited Partner's Interest ...................42
         12.2     Effective Date of Transfer .................................43
         12.3     Invalid Assignment .........................................43
         12.4     Assignee's Rights to Allocations
                  and Distributions ..........................................43
         12.5     Substitution of Assignee as Limited Partner
                  or Special Limited Partner..................................44
         12.6     Death, Bankruptcy, Incompetency, etc.
                  of a Limited Partner .......................................44

XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF GENERAL
        PARTNER ..............................................................44

         13.1     Withdrawal of General Partner ..............................44
         13.2     Removal of General Partner .................................45
         13.3     Effects of a Withdrawal.....................................46
         13.4     Successor General Partner...................................48

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         13.5     Admission of Additional or Successor
                  General Partner ............................................48
         13.6     Transfer of Interest .......................................48
         13.7     No Goodwill Value...........................................48

XIV.     BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
         FISCAL YEAR AND BANKING .............................................49

         14.1     Books and Accounts .........................................49
         14.2     Accounting Reports .........................................50
         14.3     Other Reports ..............................................50
         14.4     Late Reports ...............................................52
         14.5     Annual Site Visits..........................................52
         14.6     Tax Returns.................................................52
         14.7     Fiscal Year ................................................52
         14.8     Banking ....................................................52
         14.9     Certificates and Elections .................................53

XV.      DISSOLUTION, WINDING UP, TERMINATION AND
         LIQUIDATION OF THE PARTNERSHIP ......................................53

         15.1     Dissolution of Partnership .................................53
         15.2     Return of Capital Contribution upon
                  Dissolution ................................................53
         15.3     Distributions of Assets ....................................54
         15.4     Deferral of Liquidation.....................................55
         15.5     Liquidation Statement ......................................55
         15.6     Certificates of Dissolution; Certificate of
                  Cancellation of Certificate of Limited
                  Partnership ................................................55

XVI.     AMENDMENTS ..........................................................55

XVII. MISCELLANEOUS ..........................................................56

         17.1     Voting Rights ..............................................56
         17.2     Meeting of Partnership .....................................56
         17.3     Notices ....................................................56
         17.4     Successors and Assigns .....................................57
         17.5     FmHA Regulations............................................57
         17.6     Recording of Certificate of Limited
                  Partnership.................................................58
         17.7     Amendment of Certificate of Limited
                  Partnership ................................................58
         17.8     Counterparts ...............................................59
         17.9     Captions ...................................................59
         17.10    Saving Clause...............................................59
         17.11    Certain Provisions..........................................59
         17.12    Tax Matters Partners........................................59
         17.13    Expiration of Compliance Period.............................60

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         17.14    Number and Gender ..........................................60
         17.15    Entire Agreement ...........................................60
         17.16    Governing Law ..............................................61
         17.17    Attorney's Fees ............................................61
         17.18    Receipt of Correspondence ..................................61
         17.19    Security Interest and Right of Set-Off .....................61

EXHIBIT A - Legal Description................................................A-1
EXHIBIT B - Form of Legal Opinion......................................B-1 - B-4
EXHIBIT C - Certification and Agreement................................C-1 - C-4
EXHIBIT D - Form of Completion Certificate...................................D-1
EXHIBIT E - Accountant's Certificate.........................................E-1
EXHIBIT F - Contractor's Letter..............................................F-1
EXHIBIT G - Report of Operations......................................G-1 - G-10

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                              Amended and Restated
                        Limited Partnership Agreement of
                        School Square Limited Partnership

         This  Amended  and  Restated  Limited  Partnership  Agreement  is being
entered into  effective as of the date written  below by and between  Bradley V.
Larson, as the general partner (the "General  Partner"),  WNC Housing Tax Credit
Fund VI, L.P., Series 7, a California limited partnership as the limited partner
(the "Limited Partner"),  WNC Housing, L.P., as the special limited partner (the
"Special Limited  Partner"),  and Sharon K. Larson,  as the withdrawing  limited
partner (the "Original Limited Partner").

                                    RECITALS

         WHEREAS,  School  Square  Limited  Partnership,   a  Minnesota  limited
partnership (the  "Partnership")  recorded a certificate of limited  partnership
with the  Minnesota  Secretary  of State on December  14,  1998.  A  partnership
agreement  dated  December 9, 1998 was  entered  into by and between the General
Partner and the Original Limited Partner (the "Original Partnership Agreement").

         WHEREAS,  the Partners  desire to enter into this  Agreement to provide
for,  among other things,  (i) the  continuation  of the  Partnership,  (ii) the
admission of the Limited  Partner and the Special Limited Partner as partners of
the  Partnership,  (iii)  the  liquidation  of the  Original  Limited  Partner's
Interest in the  Partnership,  (iv) the payment of Capital  Contributions by the
Limited  Partner and the Special  Limited  Partner to the  Partnership,  (v) the
allocation of Income,  Losses,  Tax Credits and  distributions  of Net Operating
Income and other  cash  funds of the  Partnership  among the  Partners  (vi) the
determination  of  the  respective  rights,  obligations  and  interests  of the
Partners to each other and to the Partnership, and (vii) certain other matters.

         WHEREAS,  the Partners  desire hereby to amend and restate the Original
Partnership Agreement.

         NOW, THEREFORE,  in consideration of their mutual agreements herein set
forth,  the Partners hereby agree to amend and restate the Original  Partnership
Agreement in its entirety to provide as follows:

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                                    ARTICLE I

                                   DEFINITIONS

Section  1.1  "Accountant"  shall mean Eide  Bailey  LLP,  or such other firm of
independent  certified public  accountants as may be engaged for the Partnership
by the  General  Partner  with  the  Consent  of the  Special  Limited  Partner.
Notwithstanding  any provision of this  Agreement to the  contrary,  the Special
Limited Partner shall have the discretion to dismiss the Accountant for cause if
such  Accountant  fails  to  provide,  or  untimely  provides,  or  inaccurately
provides, the information required in Section 14.2 or 14.3 of this Agreement.

Section  1.2  "Act"  shall  mean  the  laws  of  the  State  governing   limited
partnerships, as now in effect and as the same may be amended from time to time.

Section 1.3 "Actual  Tax Credit"  shall mean as of any point in time,  the total
amount  of the  LIHTC  actually  allocated  by the  Partnership  to the  Limited
Partner,  representing 99.98% of the LIHTC actually received by the Partnership,
as shown on the applicable tax returns of the Partnership.

Section 1.4 "Adjusted  Capital  Account  Deficit" shall mean with respect to any
Partner,  the deficit balance,  if any, in such Partner's  Capital Account as of
the end of the relevant  fiscal  period,  after giving  effect to the  following
adjustments:

         (a) credit to such  Capital  Account any amounts  which such Partner is
obligated  to restore or is deemed to be  obligated  to restore  pursuant to the
penultimate  sentences  of  Treasury  Regulations  Sections   1.704-2(g)(1)  and
1.704-2(i)(5); and

         (b) debit  to  such  Capital  Account  the items  described in Sections
1.704-1(b)(2)(ii)(d)(4),  1.704-1(b)(2)(ii)(d)(5) and 1.704-1(b)(2)(ii)(d)(6) of
the Treasury Regulations.

The foregoing  definition  of Adjusted  Capital  Account  Deficit is intended to
comply  with the  provisions  of Section  1.704-1(b)(2)(ii)(d)  of the  Treasury
Regulations and shall be interpreted consistently therewith.

Section  1.5  "Affiliate"  shall  mean (a) any  Person  directly  or  indirectly
controlling, controlled by, or under common control with another Person; (b) any
Person owning or controlling 10% or more of the outstanding voting securities of
such other Person; (c) any officer, director,  trustee, or partner of such other
Person;  and (d) if such  Person is an  officer,  director,  trustee  or general
partner, any other Person for which such Person acts in any such capacity.

Section 1.6 "Agreement" or "Partnership  Agreement"  shall mean this Amended and
Restated Limited Partnership Agreement,  as it may be amended from time to time.
Words  such  as  "herein,"   "hereinafter,"  "hereof,"  "hereto,"  "hereby"  and
"hereunder,"  when  used  with  reference  to  this  Agreement,  refers  to this
Agreement as a whole, unless the context otherwise requires.

Section 1.7 "Apartment  Housing" shall  collectively mean the approximately 1.29
acres of land in Albany, Stearns County,  Minnesota,  as more fully described in
Exhibit "A" attached hereto and incorporated  herein by this reference,  and the
Improvements.

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Section 1.8 "Assignee"  shall mean a Person who has acquired all or a portion of
the Limited Partner's  beneficial interest in the Partnership and has not become
a Substitute Limited Partner.

Section 1.9  "Bankruptcy"  or "Bankrupt"  shall mean the making of an assignment
for the benefit of creditors, becoming a party to any liquidation or dissolution
action  or  proceeding,  the  commencement  of any  bankruptcy,  reorganization,
insolvency or other proceeding for the relief of financially distressed debtors,
or the appointment of a receiver,  liquidator,  custodian or trustee and, if any
of the same  occur  involuntarily,  the  same not  being  dismissed,  stayed  or
discharged within 90 days; or the entry of an order for relief under Title 11 of
the United States Code. A Partner shall be deemed  Bankrupt if the Bankruptcy of
such Partner shall have occurred and be continuing.

Section 1.10 "Break-even  Operations" shall mean at such time as the Partnership
has Cash Receipts  equal to Cash  Expenses,  as determined by the Accountant and
approved by the Special Limited Partner.  For purposes of this  definition,  any
one-time  up-front  fee paid to the  Partnership  from any  source  shall not be
included in Cash Receipts to calculate Break-even  Operations.  Moreover, in the
event any rent  concession  is granted for the rental of an  apartment  unit the
value of the rental concession shall be amortized over the term of the lease.

Section 1.11 "Budget" shall mean the annual operating  Budget of the Partnership
as more fully described in Section 14.3 of this Agreement.

Section 1.12 "Capital  Account"  shall mean,  with respect to each Partner,  the
account  maintained  for  such  Partner  comprised  of  such  Partner's  Capital
Contribution  as increased by allocations to such Partner of Partnership  Income
(or  items  thereof)  and any items in the  nature  of income or gain  which are
specially  allocated  pursuant to Section 10.3 or 10.4 hereof,  and decreased by
the amount of any  Distributions  made to such Partner,  and allocations to such
Partner of Partnership  Losses (or items thereof) and any items in the nature of
expenses or losses  which are  specially  allocated  pursuant to Section 10.3 or
10.4 hereof.  In the event of any transfer of an interest in the  Partnership in
accordance with the terms of this Agreement, the transferee shall succeed to the
Capital  Account of the  transferor to the extent it relates to the  transferred
interest.  The foregoing  definition and the other  provisions of this Agreement
relating to the  maintenance  of Capital  Accounts  are  intended to comply with
Treasury Regulation Section 1.704-1(b), as amended or any successor thereto, and
shall be  interpreted  and  applied in a manner  consistent  with such  Treasury
Regulation.

Section 1.13 "Capital Contribution" shall mean the total amount of money, or the
Gross Asset Value of property contributed to the Partnership, if any, by all the
Partners or any class of Partners or any one Partner as the case may be (or by a
predecessor-in-interest  of such  Partner  or  Partners),  reduced  by any  such
capital  which shall have been  returned  pursuant to Section 7.3, 7.4 or 7.6 of
this Agreement. A loan to the Partnership by a Partner shall not be considered a
Capital Contribution.

Section 1.14 "Cash  Expenses"  shall mean all cash operating  obligations of the
Partnership  (other than those  covered by  Insurance)  in  accordance  with the
applicable  Budget,  including  without  limitation,  the payment of the monthly
Mortgage  payments,  the Management Agent fees (which shall be deemed to include
that portion of such fees which is currently deferred and not paid), the funding
of reserves in accordance with Article VIII of this  Agreement,  advertising and

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promotion,  utilities,  maintenance,  repairs,  Partner  communications,  legal,
telephone,  any other  expenses which may reasonably be expected to be paid in a
subsequent  period but which on an accrual  basis is  allocable to the period in
question,  such as  Insurance,  real estate taxes and audit,  tax or  accounting
expenses (excluding deductions for cost recovery of buildings;  improvements and
personal  property  and  amortization  of any  financing  fees) and any seasonal
expenses (such as snow removal, the use of air conditioners in the middle of the
summer, or heaters in the middle of the winter) which may reasonably be expected
to be paid in a subsequent  period shall be allocated equally per month over the
calendar year. Cash Expenses payable to Partners or Affiliates of Partners shall
be paid after Cash Expenses payable to third parties.

Section 1.15 "Cash  Receipts" shall mean actual cash received on a cash basis by
the Partnership from operating  revenues of the Partnership,  including  without
limitation  rental income (but not any subsidy  thereof from the General Partner
or an Affiliate thereof) and laundry income, but excluding prepayments, security
deposits, Capital Contributions, borrowings, lump-sum payment, any extraordinary
receipt of funds, and any income earned on investment of its funds.

Section 1.16 "Code" shall mean the Internal Revenue Code  of  1986,  as  amended
from time to time, or any successor statute.

Section 1.17  "Completion of  Construction"  shall mean the date the Partnership
has received the required  certificates  of occupancy (or the local  equivalent)
for all 17 apartment  units,  or by the issuance of the  inspecting  architect's
certification,  in a form  substantially  similar to the form attached hereto as
Exhibit  "D"  and  incorporated  herein  by  this  reference,  with  respect  to
completion of all the apartment units in the Apartment Housing. Notwithstanding,
Completion  of  Construction  shall  not be  deemed  to  have  occurred:  if the
statutory  time  period  for  the  filing  of  any  liens  by  the   Contractor,
subcontractors,   material  suppliers  or  any  one  else  entitled  to  file  a
construction  lien  has not  lapsed;  or if on such  date  any  liens  or  other
encumbrances  as to  title  to the  Apartment  Housing  exist,  other  than  the
Construction Loan.

Section 1.18 "Compliance  Period" shall mean the period set forth in  Section 42
(i)(1) of the Code,  as amended,  or any successor statute.

Section  1.19  "Consent of the  Special  Limited  Partner"  shall mean the prior
written consent or approval of the Special Limited Partner.

Section  1.20  "Construction   Budget"  shall  mean  the  agreed  upon  cost  of
construction of the Improvements,  including soft costs (which includes,  but is
not limited to, financing  charges,  market study,  Development  Fee,  architect
fees, etc.),  based upon the Plans and  Specifications.  The final  Construction
Budget is  referenced in the  Development,  Construction  and  Operating  Budget
Agreement  entered into by and between the  Partners  the even date hereof.  The
Development,  Construction  and  Operating  Budget  Agreement  shall:  list  all
subcontractors  and material suppliers who will account for five percent or more
of the  cost of  construction  of the  Improvements;  and  show a trade  payment
breakdown   specifying  the  cost  of  each   classification   of   construction
requirements pursuant to the Plans and Specifications.

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Section 1.21 "Construction  Contract" shall mean the construction contract dated
October 19, 1999 in the amount of $953,726, entered into between the Partnership
and the Contractor pursuant to which the Improvements are being constructed.

Section 1.22 "Construction Lender" shall mean First Minnesota Bank,  N.A. or any
successor thereto.

Section 1.23 "Construction  Loan" shall mean the loan obtained from Construction
Lender in the  principal  amount of $943,500 at an interest  rate equal to 9.25%
per  annum  for a term of 12  months  to  provide  funds  for  the  acquisition,
construction and development of the Apartment Housing. Where the context admits,
the term  "Construction  Loan"  shall  include  any deed,  deed of trust,  note,
security agreement,  assumption agreement or other instrument executed by, or on
behalf  of,  the   Partnership  or  General   Partner  in  connection  with  the
Construction Loan.

Section 1.24 "Contractor" shall mean Sand Companies, Inc.,  which is the general
construction contractor for the Apartment Housing.

Section 1.25 "Debt Service  Coverage"  shall mean for the applicable  period the
ratio between the Net Operating  Income  (excluding  Mortgage  payments) and the
debt service  required to be paid on the  Mortgage(s);  as example,  a 1.15 Debt
Service  Coverage means that for every $1.00 of debt service required to be paid
there must be $1.15 of Net  Operating  Income  available.  A  worksheet  for the
calculation  of Debt  Service  Coverage  is found in the  Report  of  Operations
attached hereto as Exhibit "G" and incorporated herein by this reference.

Section 1.26  "Deferred Management Fee"  shall  have  the  meaning  set forth in
Section 9.2(c) hereof.

Section 1.27  "Developer" shall mean Bradley V. Larson.

Section 1.28  "Development  Fee" shall mean the fee payable to the Developer for
services  incident to the development and construction of the Apartment  Housing
in accordance with the Amended Turnkey Agreement between the Partnership and the
Developer  dated  the  even  date  herewith  and  incorporated  herein  by  this
reference. Development activities do not include services for the acquisition of
the land or syndication activities.

Section 1.29 "Distributions"  shall mean the total amount of money, or the Gross
Asset Value of property (net of liabilities  securing such distributed  property
that such Partner is  considered  to assume or take subject to under Section 752
of the Code),  distributed  to Partners  with respect to their  Interests in the
Partnership,  but shall not include any  payments to the General  Partner or its
Affiliates for fees or other  compensation  as provided in this Agreement or any
guaranteed payment within the meaning of Section 707(c) of the Code, as amended,
or any successor thereto.

Section 1.30 "Fair Market Value" shall mean, with respect to any property,  real
or  personal,  the price a ready,  willing  and able buyer would pay to a ready,
willing and able seller of the property,  provided that such value is reasonably
agreed to between the parties in arm's-length  negotiations and the parties have
sufficiently adverse interests.

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<PAGE>

Section  1.31  "Financial  Interest"  shall mean the General  Partner's  capital
interest in the  Partnership  to be contributed  and maintained  pursuant to the
requirements of FmHA  Instruction  1944-E,  Section  1944.211(a)(13)(ii)  or any
amendments  thereto.  Such  Financial  Interest  shall not affect the  Partners'
allocable share of the Profits, Losses, Tax Credits or Cash Flow From Operations
as set forth in this Agreement.

Section 1.32 "First Year Certificate"  shall mean the certificate to be filed by
the  General  Partner  with the  Secretary  of the  Treasury as required by Code
Section 42(1)(1), as amended, or any successor thereto.

Section  1.33 "FmHA" shall mean the United  States  Department  of  Agriculture,
Rural  Development-Minnesota  (formerly  Farmers  Home  Administration)  or  any
successor thereto.

Section 1.34 "FmHA Interest  Credit  Agreement"  shall mean the Multiple  Family
Housing Interest Credit and Rental Assistance Agreement (Form FmHA 1944-7 or any
successor  thereof)  between  the FmHA and the  Partnership  whereby  FmHA  will
provide a monthly credit subsidy to the Partnership's  Mortgage account when the
Partnership makes each monthly payment on the Mortgage.

Section 1.35 "FmHA Loan Agreement" shall mean the Loan Agreement for an RRH Loan
to a Limited Partnership  Operating on a Limited Profit Basis (Form FmHA 1944-34
or any  successor  thereof)  between  the  FmHA  and  the  Partnership  made  in
consideration  of the Mortgage Loan to the  Partnership  by the FmHA pursuant to
Section  515(b) of the  Housing  Act of 1949 to build a low to  moderate  income
apartment complex.

Section 1.36 "Force  Majeure"  shall mean any act of God,  strike,  lockout,  or
other industrial  disturbance,  act of the public enemy, war,  blockage,  public
riot, fire, flood, explosion, governmental action, governmental delay, restraint
or  inaction  and any  other  cause or  event,  whether  of the kind  enumerated
specifically herein, or otherwise, which is not reasonably within the control of
a Partner to this Agreement claiming such suspension.

Section 1.37 "General  Partner(s)" shall mean Bradley V. Larson,  and such other
Persons as are admitted to the  Partnership as additional or substitute  General
Partners pursuant to this Agreement.

Section  1.38 "Gross  Asset  Value"  shall mean with  respect to any asset,  the
asset's adjusted basis for federal income tax purposes, except as follows:

         (a) the initial Gross Asset Value of any asset contributed by a Partner
to the  Partnership  shall be the Fair Market Value of such asset, as determined
by the  contributing  Partner and the General  Partner,  provided  that,  if the
contributing  Partner is a General Partner, the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;

         (b) the Gross Asset Values of all Partnership  assets shall be adjusted
to equal their  respective  Fair Market  Values,  as  determined  by the General
Partner,  as of the  following  times:  (1)  the  acquisition  of an  additional

                                       6
<PAGE>

Interest in the Partnership by any new or existing  Partner in exchange for more
than a de minimis Capital Contribution;  (2) the distribution by the Partnership
to a  Partner  of more  than a de  minimis  amount of  Partnership  property  as
consideration for an Interest in the Partnership; and (3) the liquidation of the
Partnership    within   the    meaning   of   Treasury    Regulations    Section
1.704-1(b)(2)(ii)(g);  provided,  however,  that  the  adjustments  pursuant  to
clauses  (1) and (2) above  shall be made only with the  Consent of the  Special
Limited Partner and only if the General Partner reasonably  determines that such
adjustments  are  necessary  or  appropriate  to reflect the  relative  economic
interests of the Partners in the Partnership;

         (c) the Gross Asset Value of any Partnership  asset  distributed to any
Partner  shall be adjusted  to equal the Fair Market  Value of such asset on the
date of distribution  as determined by the distributee and the General  Partner,
provided that, if the distributee is a General Partner, the determination of the
Fair Market Value of the distributed asset shall be determined by appraisal; and

        (d) the Gross Asset Values of Partnership  assets shall be increased (or
decreased)  to reflect  any  adjustments  to the  adjusted  basis of such assets
pursuant to Code Section 734(b) or Code Section  743(b),  but only to the extent
that such  adjustments  are taken into account in determining  Capital  Accounts
pursuant  to  Treasury  Regulations  Section  1.704-1(b)(2)(iv)(m)  and  Section
10.3(g) hereof;  provided however, that Gross Asset Values shall not be adjusted
pursuant to this Section  1.38(d) to the extent the General  Partner  determines
that  an  adjustment   pursuant  to  Section  1.38(b)  hereof  is  necessary  or
appropriate in connection with a transaction  that would otherwise  result in an
adjustment pursuant to this Section 1.38(d).

         If the Gross  Asset Value of an asset has been  determined  or adjusted
pursuant to Section 1.38(a),  Section 1.38(b),  or Section 1.38(d) hereof,  such
Gross Asset Value shall  thereafter be adjusted by the  depreciation  taken into
account with respect to such asset for purposes of computing Income and Losses.

Section  1.39  "Hazardous  Substance"  shall  mean and  include  any  substance,
material  or  waste,  including  asbestos,   petroleum  and  petroleum  products
(including crude oil), that is or becomes designated, classified or regulated as
"toxic"  or  "hazardous"  or a  "pollutant"  or  that  is or  becomes  similarly
designated,  classified  or  regulated,  under any federal,  state or local law,
regulation  or  ordinance  including,   without  limitation,   Compensation  and
Liability Act of 1980, as amended,  the Hazardous Materials  Transportation Act,
as amended,  the Resource  Conservation  and Recovery  Act, as amended,  and the
regulations adopted and publications promulgated pursuant thereto.

Section  1.40  "Improvements"  shall  mean  the  two  (2)  buildings  containing
seventeen  (17)  apartment  units  and  ancillary  and  appurtenant   facilities
(including  those intended for commercial  use, if any,) being  constructed  for
family and handicapped built in accordance with the Project Documents.  It shall
also include all furnishings, equipment and personal property used in connection
with the operation thereof.

Section 1.41  "In-Balance"  shall mean, on any occasion,  that the amount of the
undisbursed   Construction  Loan  and  undisbursed   Limited  Partner's  Capital
Contribution are sufficient in the Limited Partner's reasonable judgment to pay,
through  Completion of Construction and maturity of the Construction Loan, where

                                       7
<PAGE>

applicable, all of the following sums: (a) all costs of construction, marketing,
ownership,  maintenance and leasing of the Apartment  Housing units; and (b) all
interest  and all other sums  accruing or payable  under the  Construction  Loan
documents.

Section 1.42  "Incentive Management Fee" shall have the  meaning  set  forth  in
Section 9.2(e) hereof.

Section 1.43  "Income  and  Losses"  shall  mean,  for each fiscal year or other
period,  an amount equal to the  Partnership's  taxable  income or loss for such
year or period,  determined  in  accordance  with Code Section  703(a) (for this
purpose,  all items of income,  gain,  loss or  deduction  required to be stated
separately  pursuant  to Code  Section  703(a)(1)  shall be  included in taxable
income or loss), with the following adjustments:

        (a) any income of the Partnership that is exempt from federal income tax
and not otherwise  taken into account in computing  Income or Losses pursuant to
this Section 1.43 shall be added to such taxable income or loss;

        (b) any  expenditures  of the  Partnership  described  in  Code  Section
705(a)(2)(B) or treated as Code Section  705(a)(2)(B)  expenditures  pursuant to
Regulation Section 1.704-1(b)(2)(iv)(i), and not otherwise taken into account in
computing  Income and Losses  pursuant to this Section 1.43 shall be  subtracted
from such taxable income or loss;

        (c) in the event  the  Gross  Asset  Value of any  Partnership  asset is
adjusted  pursuant  to  Section  1.38(a)  or (b)  hereof,  the  amount  of  such
adjustment  shall be taken into account as gain or loss from the  disposition of
such asset for purposes of computing Income and Losses;

        (d) gain or loss  resulting from any  disposition of Partnership  assets
with respect to which gain or loss is recognized for federal income tax purposes
shall be computed by reference to the Gross Asset Value of the property disposed
of,  notwithstanding  that the adjusted tax basis of such property  differs from
its Gross Asset Value;

        (e) in lieu of the depreciation,  amortization,  and other cost recovery
deductions  taken into account in computing such taxable  income or loss,  there
shall be taken into account  depreciation  for such fiscal year or other period,
computed as provided below; and

        (f)  notwithstanding  any other provision of this definition,  any items
which are specially allocated pursuant to Sections 10.3 or 10.4 hereof shall not
otherwise be taken into account in computing Income or Losses.

Depreciation  for each  fiscal  year or other  period  shall  be  calculated  as
follows:  an  amount  equal to the  depreciation,  amortization,  or other  cost
recovery  deduction  allowable  with  respect to an asset for such year or other
period for federal income tax purposes,  except that if the Gross Asset Value of
an asset differs from its adjusted  basis for federal income tax purposes at the
beginning of such year or other  period,  depreciation  shall be an amount which
bears the same ratio to such  beginning  Gross Asset Value as the federal income

                                       8
<PAGE>

tax depreciation,  amortization,  or other cost recovery deduction for such year
or other period bears to such beginning adjusted tax basis;  provided,  however,
if the federal  income tax  depreciation,  amortization,  or other cost recovery
deduction for such year is zero, depreciation shall be determined with reference
to such beginning Gross Asset Value using any reasonable  method selected by the
General Partner.

         For purposes of this  Agreement,  the term Income when used alone shall
include all items of income or revenue contemplated in this Section and the term
Losses  when  used  alone  shall   include  all  items  of  loss  or  deductions
contemplated in this Section.

Section 1.44  "Inspecting  Architect"  shall mean Johnson,  Sheldon,  Sorensen &
Hafner Architects,  Inc. The Inspecting Architect shall make regular inspections
of the  construction  site,  but in no event less than once a month,  to confirm
that  construction  of the  Improvements  is in  conformance  with the Plans and
Specifications.  The Inspecting Architect will sign-off on all the draw requests
made

by the  Contractor  and provide the documents  specified in Section 14.3 of this
Agreement.  If there  comes into being any  identity  of  interest  between  the
Partnership  and the  Inspecting  Architect,  or between the  Contractor and the
Inspecting  Architect,  then the General  Partner will  immediately  relieve the
Inspecting Architect of any inspecting duties.

Section 1.45 "Insurance" shall mean:

        (a) during construction,  the Partnership will provide and maintain,  or
cause the  Contractor to provide and maintain,  builder's  risk  insurance in an
amount equal to 100% of the insurable value of the Apartment Housing at the date
of completion;  comprehensive  general  liability  insurance with limits against
bodily injury of not less than  $1,000,000  per  occurrence  and an aggregate of
$2,000,000 and against property damage of not less than $1,000,000; and worker's
compensation insurance, with statutory guidelines;

        (b) during operations the Partnership will provide and maintain business
interruption  coverage  covering  actual  sustained loss for twelve (12) months;
worker's  compensation;  hazard coverage  (including but not limited to fire, or
other casualty loss to any structure or building on the Apartment  Housing in an
amount  equal to the full  replacement  value of the  damaged  property  without
deducting  for  depreciation);  and  comprehensive  general  liability  coverage
against  liability  claims for bodily  injury or property  damage in the minimum
amount of $1,000,000 per occurrence and an aggregate of $2,000,000;

        (c) all liability  coverage shall include an umbrella liability coverage
in a minimum amount of $4,000,000 per occurrence and an aggregate of $4,000,000;

        (d) all  Insurance  polices  shall  name  the  Partnership  as the named
insured,  the  Limited  Partner  as an additional insured, and WNC & Associates,
Inc. as the certificate holder;

        (e) all Insurance  policies  shall  include a  provision  to  notify the
insured,  the Limited Partner and the  certificate holder prior to cancellation;

        (f) hazard coverage  must  include  inflation and  building or ordinance
endorsements;

        (g) the minimum builder's risk  coverage shall be  in an amount equal to
the construction contract amount; and

                                       9
<PAGE>

        (h) the  Contractor  must also provide  evidence of  liability  coverage
equal to $1,000,000  per  occurrence  with an aggregate of $2,000,000  and shall
name the  Partnership  as an additional  insured and WNC & Associates,  Inc., as
certificate holder.

Section 1.46 "Insurance Company" shall mean any insurance company engaged by the
General  Partner for the  Partnership  with the  Consent of the Special  Limited
Partner which  Insurance  Company shall have an A rating or better for financial
safety by A.M. Best or Standard & Poor's.

Section 1.47 "Interest" shall mean the entire ownership interest of a Partner in
the Partnership at any particular  time,  including the right of such Partner to
any and all  benefits  to which a  Partner  may be  entitled  hereunder  and the
obligation of such Partner to comply with the terms of this Agreement.

Section 1.48  "Involuntary  Withdrawal"  shall mean any Withdrawal caused by the
death,  adjudication  of  insanity  or  incompetence,  Bankruptcy  of a  General
Partner, or the removal of a General Partner pursuant to Section 13.2 hereof.

Section 1.49 "LIHTC" shall mean the low-income housing tax credit established by
TRA 1986 and which is provided for in Section 42 of the Code, as amended, or any
successor thereto.

Section 1.50 "Limited  Partner" shall mean WNC Housing Tax Credit Fund VI, L.P.,
Series 7, a  California  limited  partnership,  and such  other  Persons  as are
admitted  to the  Partnership  as  additional  or  Substitute  Limited  Partners
pursuant to this Agreement.

Section 1.51 "Management Agent" shall mean the property management company which
oversees the property  management  functions for the Apartment Housing and which
is on-site at the Apartment Housing.  The initial Management Agent shall be Sand
Companies, Inc.

Section  1.52  "Management  Agreement"  shall  mean the  agreement  between  the
Partnership  and the  Management  Agent for property  management  services.  The
management  fee shall  equal $45 per unit or as approved by FmHA and the Special
Limited Partner.  Neither the Management Agreement nor ancillary agreement shall
provide  for an  initial  rent-up  fee,  a set-up  fee,  nor any  other  similar
pre-management  fee payable to the Management  Agent.  The Management  Agreement
shall provide that it will be terminable at will by the  Partnership  at anytime
following the Withdrawal or removal of the General Partner and, in any event, on
any  anniversary of the date of execution of the Management  Agreement,  without
payment or penalty for failure to renew the same.

Section  1.53  "Minimum  Set-Aside  Test"  shall mean the 40-60  set-aside  test
pursuant to Section  42(g),  as amended and any successor  thereto,  of the Code
with respect to the percentage of apartment units in the Apartment Housing to be
occupied  by  tenants  whose  incomes  are  equal to or less  than the  required
percentage of the area median gross income.

                                       10
<PAGE>

Section 1.54 "Mortgage" or "Mortgage Loan" shall mean the permanent  nonrecourse
financing  wherein the Partnership  promises to pay the following:  (a) FmHA, or
its successor or assignee,  the principal sum of $988,000,  plus interest on the
principal  at 7.125%  per annum  over a term of 30 years and  amortized  over 50
years period; and (b) City of Albany through Tax Increment  Financing ("TIF") or
its successor or assignee,  the principal sum of $50,000, such financing will be
used to pay for street, sewer, and utility renovations  benefiting the Apartment
Housing.  Where the context admits, the term "Mortgage" or "Mortgage Loan" shall
include any mortgage, deed, deed of trust, note, regulatory agreement,  security
agreement,  assumption agreement or other instrument executed in connection with
the Mortgage  which is binding on the  Partnership;  and in case any Mortgage is
replaced or supplemented by any subsequent  mortgage or mortgages,  the Mortgage
shall refer to any such subsequent  mortgage or mortgages.  Prior to closing the
Mortgage,  the General  Partner shall provide to the Limited  Partner a draft of
the Mortgage  documents  for review and  approval.  Based on the draft  Mortgage
documents,  if the  terms of the  Mortgage  are not as  specified  above and the
Special  Limited Partner  determines that the Debt Service  Coverage falls below
1.15 based on then current  Cash  Expenses  and Cash  Receipts  then the General
Partner  shall adjust the  principal  loan amount and close on a Mortgage  which
will produce a 1.15 Debt Service  Coverage.  The Mortgage funds shall be used to
retire the  Construction  Loan and if there are any funds remaining the Mortgage
funds shall be used to retire any outstanding hard construction  costs including
labor and materials.

Section  1.55  "Net  Operating   Income"  shall  mean  the  cash  available  for
Distribution on an annual basis, when Cash Receipts exceed Cash Expenses.

Section  1.56  "Nonrecourse  Deductions"  shall  have  the  meaning  given it in
Treasury Regulations Section 1.704-2(b)(1).

Section 1.57 "Nonrecourse Liability" shall have the meaning given it in Treasury
Regulations Section 1.704-2(b)(3).

Section  1.58  "Operating  Deficit"  shall  mean,  for  the  applicable  period,
insufficient  funds to pay  operating  costs  when  Cash  Expenses  exceed  Cash
Receipts,  as determined by the Accountant  and approved by the Special  Limited
Partner.

Section  1.59  "Operating  Deficit  Guarantee  Period"  shall  mean  the  period
commencing  with the date of this  Agreement  and ending  three years  following
three consecutive months of Break-even Operations,  provided the Partnership has
achieved Completion of Construction of the Apartment Housing.

Section 1.60  "Operating  Loans" shall mean loans made by the General Partner to
the  Partnership  pursuant to Article VI of this  Agreement,  which loans do not
bear  interest  and  are  repayable  only  as  provided  in  Article  XI of this
Agreement.

Section 1.61 "Original Limited Partner" shall mean  Sharon K. Larson.

Section 1.62  "Partner(s)"  shall  collectively  mean the General  Partner,  the
Limited Partner and the Special  Limited  Partner or  individually  may mean any
Partner as the context dictates.

Section 1.63  "Partner  Nonrecourse  Debt"  shall  have the meaning set forth in
Section 1.704-2(b)(4) of the Treasury Regulations.

Section 1.64 "Partner  Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Partner  Nonrecourse Debt, equal to the Partnership Minimum Gain
that would result if such Partner Nonrecourse Debt were treated as a Nonrecourse
Liability,  determined in accordance with Section  1.704-2(i)(3) of the Treasury
Regulations.

                                       11
<PAGE>

Section 1.65 "Partner  Nonrecourse  Deductions" shall have the meaning set forth
in Sections 1.704-2 (i)(1) and 1.704-2(i)(2) of the Treasury Regulations.

Section 1.66 "Partnership"  shall mean the limited  partnership  continued under
this Agreement.

Section 1.67  "Partnership  Minimum  Gain" shall mean the amount  determined  in
accordance with the principles of Treasury Regulation Sections 1.704-2(b)(2) and
1.704-2(d).

Section  1.68  "Permanent  Mortgage  Commencement"  shall mean the first date on
which all of the following have occurred:  (a) the Construction  Loan shall have
been repaid in full;  (b) the  Mortgage  shall have  closed and funded;  and (c)
amortization of the Mortgage shall have commenced.

Section 1.69 "Person" shall  collectively  mean an  individual,  proprietorship,
trust, estate, partnership, joint venture, association,  company, corporation or
other entity.  Section 1.70 "Plans and Specifications"  shall mean the plans and
specifications  for the construction of the  Improvements  which are approved by
the  local   city/county   building   department  with   jurisdiction  over  the
construction of the Improvements and which plans and specifications are referred
to in the  Construction  Contract.  Any changes to the Plans and  Specifications
after approval by the appropriate government building department,  shall require
the Consent of the Special Limited Partner.

Section  1.71  "Project  Documents"  shall mean all  documents  relating  to the
Construction  Loan,  Mortgage  Loan and  Construction  Contract.  It shall  also
include all documents  required by any governmental  agency having  jurisdiction
over the Apartment Housing in connection with the development,  construction and
financing of the Apartment  Housing,  including but not limited to, the approved
Plans and  Specifications  for the development and construction of the Apartment
Housing.

Section 1.72  "Projected  Annual Tax Credits"  shall mean LIHTC in the amount of
$27,183 for 2000,  $39,663 per year for each of the years 2001 through 2009, and
$12,480 for 2010, which the General Partner has projected to be the total amount
of LIHTC  which will be  allocated  to the Limited  Partner by the  Partnership,
constituting 99.98% of the aggregate amount of LIHTC of $396,710 to be available
to the Partnership.

Section 1.73 "Projected  Tax  Credits" shall mean  LIHTC in the aggregate amount
of $396,710.

Section 1.74 "Rent  Restriction Test" shall mean the test pursuant to Section 42
of the Code  whereby  the  gross  rent  charged  to  tenants  of the  low-income
apartment  units in the Apartment  Housing  cannot exceed 30% of the  qualifying
income levels of those units under Section 42.

Section 1.75 "Reporting Fee" shall  have the meaning set forth in Section 9.2(d)
hereof.

                                       12
<PAGE>

Section 1.76 "Revised Projected Tax Credits" shall have the meaning set forth in
Section 7.4(a) hereof.

Section  1.77 "Sale or  Refinancing"  shall mean any of the  following  items or
transactions:  a  sale,  transfer,  exchange  or  other  disposition  of  all or
substantially  all of  the  assets  of the  Partnership,  a  condemnation  of or
casualty at the Apartment  Housing or any part thereof,  a claim against a title
insurance company,  the refinancing or any Mortgage or other indebtedness of the
Partnership and any similar item or  transaction;  provided,  however,  that the
payment of Capital  Contributions  by the Partners shall not be included  within
the meaning of the term "Sale or Refinancing."

Section 1.78 "Sale or Refinancing  Proceeds" shall mean all cash receipts of the
Partnership arising from a Sale or Refinancing (including principal and interest
received on a debt obligation  received as consideration in whole or in part, on
a Sale or Refinancing)  less the amount paid or to be paid in connection with or
as an expense of such Sale or Refinancing,  and with regard to damage recoveries
or  insurance  or  condemnation  proceeds,  the  amount  paid or to be paid  for
repairs,   replacements  or  renewals   resulting  from  damage  to  or  partial
condemnation of the Apartment Housing.

Section  1.79  "Special  Limited  Partner"  shall  mean  WNC  Housing,  L.P.,  a
California  limited  partnership,  and such other Persons as are admitted to the
Partnership as additional or substitute  Special  Limited  Partners  pursuant to
this Agreement.

Section 1.80 "State" shall mean the State of Minnesota.

Section 1.81 "State Tax Credit  Agency" shall mean the state agency of Minnesota
which has the  responsibility  and authorization to administer the LIHTC program
in Minnesota.

Section 1.82 "Substitute  Limited Partner" shall mean any Person who is admitted
to the Partnership as a Limited Partner pursuant to Section 12.5 or acquires the
Interest of the Limited Partner pursuant to Section 7.3 of this Agreement.

Section 1.83 "Syndication Fee" shall mean the fee payable to the General Partner
in an amount equal to $10,000 for the General Partner's  services in forming the
Partnership,  locating and  approving  the Limited  Partner and Special  Limited
Partner as the investors in the  Partnership,  negotiating  and finalizing  this
Partnership  Agreement  and for  such  other  services  referenced  in  Treasury
Regulation Section 1.709-2(B).

Section 1.84 "Tax Credit" shall mean any credit  permitted under the Code or the
law of any state  against the  federal or a state  income tax  liability  of any
Partner as a result of activities or expenditures of the Partnership  including,
without limitation, LIHTC.

Section 1.85 "Tax Credit  Compliance  Fee" shall mean the  fee  payable  to  the
General  Partner in accordance with Section 9.2(f) of this Agreement.

Section  1.86 "Tax  Credit  Conditions"  shall  mean,  for the  duration  of the
Compliance  Period,  any and all  restrictions  including,  but not  limited to,
applicable federal,  state and local laws, rules and regulations,  which must be
complied  with in  order  to  qualify  for the  LIHTC  or to  avoid  an event of
recapture in respect of the LIHTC.

                                       13
<PAGE>

Section 1.87 "Tax Credit Period" shall mean the ten year time period  referenced
in Code Section  42(f)(1)  over which the Projected Tax Credits are allocated to
the  Partners.  It is the intent of the Partners  that the Projected Tax Credits
will be allocated during the Tax Credit Period and not a longer term.

Section 1.88 "Title Policy" shall mean the policy of insurance  covering the fee
simple title to the  Apartment  Housing  from a company  approved by the Special
Limited  Partner.  The Title Policy shall be an ALTA owners title policy  naming
the  Partnership  as  insured  and  including  a   non-imputation   and  fairway
endorsement.   The  Title  Policy  shall  also  insure  against   rights-of-way,
easements, or claims of easements, not shown by public records. The Title Policy
shall be in an amount  equal to the  Construction  Loan  amount and the  Limited
Partner's Capital Contribution.

Section 1.89 "TRA 1986" shall mean the Tax Reform Act of 1986.

Section  1.90  "Treasury  Regulations"  shall mean the  Income  Tax  Regulations
promulgated under the Code, as such regulations may be amended from time to time
(including corresponding provisions of succeeding regulations).

Section 1.91  "Withdrawing" or "Withdrawal"  (including the verb form "Withdraw"
and the adjectival  forms  "Withdrawing"  and  "Withdrawn")  shall mean, as to a
General  Partner,  the  occurrence  of the death,  adjudication  of  insanity or
incompetence,  Bankruptcy of such Partner, the withdrawal, removal or retirement
from the Partnership of such Partner for any reason, including any sale, pledge,
encumbering,  assignment  or other  transfer  of all or any part of its  General
Partner  Interest  and those  situations  when a General  Partner  may no longer
continue  as a General  Partner by reason of any law or pursuant to any terms of
this Agreement.

                                   ARTICLE II

                                      NAME

     The name of the Partnership shall be "School Square Limited Partnership."

                                   ARTICLE III

                  PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE

         Section 3.1 Principal  Executive Office. The principal executive office
of the Partnership is located at 313 West Broadway, Monticello, Minnesota 55362,
or at such other  place or places  within the State as the  General  Partner may
hereafter designate.

         Section  3.2 Agent for  Service of  Process.  The name of the agent for
service of process on the Partnership is Bradley V. Larson, whose address is 313
West Broadway, Monticello, Minnesota 55362.

                                       14
<PAGE>

                                   ARTICLE IV

                                     PURPOSE

         Section 4.1 Purpose of the Partnership.  The purpose of the Partnership
is to acquire,  construct,  own and operate  the  Apartment  Housing in order to
provide,  in part, Tax Credits to the Partners in accordance with the provisions
of the Code and the  Treasury  Regulations  applicable  to LIHTC and to sell the
Apartment Housing.  The Partnership shall not engage in any business or activity
which is not incident to the attainment of such purpose.

         Section 4.2  Authority  of the  Partnership.  In order to carry out its
purpose,  the Partnership is empowered and authorized to do any and all acts and
things  necessary,   appropriate,   proper,   advisable  or  incidental  to  the
furtherance and accomplishment of its purpose, and for protection and benefit of
the Partnership, including but not limited to the following:

     (a)  acquire  ownership  of the real  property  referred  to in Exhibit "A"
attached hereto;

     (b)  construct,  renovate,  rehabilitate,  own,  maintain  and  operate the
Apartment Housing in accordance with the Plans and Specifications;

     (c) provide  housing,  subject to the Minimum  Set-Aside  Test and the Rent
Restriction Test and consistent with the  requirements of the Project  Documents
so long as any Project Documents remain in force;

     (d)  maintain  and  operate the  Apartment  Housing,  including  hiring the
Management  Agent  (which  Management  Agent  may be any  of the  artners  or an
Affiliate  thereof) and entering into any  agreement  for the  management of the
Apartment  Housing during its rent-up and after its rent-up period in accordance
with this Agreement;

     (e) enter into the Construction Loan and Mortgage;

     (f) rent  dwelling  units in the  Apartment  Housing from time to time,  in
accordance with the provisions of the Code applicable to LIHTC; and

     (g) do any and all other acts and things necessary or proper in furtherance
of the Partnership business and in accordance with this Agreement.

                                    ARTICLE V

                                      TERM

         The  Partnership  term commenced upon the filing of the  Certificate of
Limited  Partnership  in the  office  of,  and on the form  prescribed  by,  the
Secretary  of State of the State,  and shall  continue  until  December 31, 2050
unless terminated earlier in accordance with the provisions of this Agreement or
as otherwise provided by law.

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<PAGE>

                                   ARTICLE VI

                    GENERAL PARTNER'S CONTRIBUTIONS AND LOANS

         Section 6.1  Capital  Contribution  of  General  Partner.  The  General
Partner shall make a Capital  Contribution equal to $52,000.

         Section 6.2  Construction Obligations.

     (a) The  General  Partner  hereby  guarantees  a lien  free  Completion  of
Construction of the Apartment Housing on or before October 31, 2000 ("Completion
Date") at a total  development  cost of not more than  $1,228,050  ("Development
Budget"),  which includes all hard and soft costs  incident to the  acquisition,
development  and  construction  of the Apartment  Housing in accordance with the
Construction Budget, the Construction  Contract, the other Project Documents and
the Plans and  Specifications.  If the Development Budget exceeds the sum of the
Capital  Contributions,   the  Mortgage  amount  as  specified  herein  and  the
Development  Fee then the General  Partner shall be responsible for and shall be
obligated to pay the  difference  thereof.  Any advances by the General  Partner
pursuant to the previous  sentence shall not be repayable,  shall not change the
Interest of any Partner in the  Partnership and shall be considered a guaranteed
payment to the Partnership for cost overruns. If the Special Limited Partner, in
good  faith,  ascertains  that  the  cost  of  completing  the  Improvements  in
substantial accordance with the Plans and Specifications is greater than the sum
of (1) the then remaining undisbursed portion of the Capital Contributions;  (2)
the then  remaining  undisbursed  portion of the  Mortgage  amount as  specified
herein; and (3) the then remaining  undisbursed  portion of the Development Fee;
then the Special  Limited  Partner  may  request the General  Partner to advance
funds  into a  construction  account  in an  amount  required  to  complete  the
Improvements and retire the Construction Loan.

     (b) In addition, if (1) the Improvements are not completed on or before the
Completion Date (which date may be extended in the events of Force Majeure,  but
in no event longer than three  months from the  Completion  Date);  (2) prior to
completing the Improvements, there is an uncured default under or termination of
the Construction Loan, Mortgage Loan commitment, or other material documents; or
(3) a  foreclosure  action is  commenced  against the  Partnership,  then at the
Special Limited Partner's  election,  either the General Partner will be removed
from the  Partnership  and the  Special  Limited  Partner  will be  admitted  as
successor  General Partner,  all in accordance with Article XIII hereof,  or the
General  Partner will  repurchase  the  Interest of the Limited  Partner and the
Special Limited Partner for an amount equal to the amounts  theretofore  paid by
the Limited Partner and the Special Limited Partner, and the Limited Partner and
the Special Limited Partner shall have no further  Interest in the  Partnership.
If the  Limited  Partner  elects  to have the  General  Partner  repurchase  the
Interest of the Limited  Partner then the repurchase  shall occur within 60 days
after the General Partner receives written demand from the Limited Partner.

         Section  6.3  Operating  Obligations.  From the date of this  Agreement
until three  consecutive  months of Break-even  Operations,  the General Partner
will provide the necessary  funds to pay Operating  Deficits,  which funds shall
not be  repayable,  shall not change the  Interest  of any  Partner and shall be

                                       16
<PAGE>

considered a guaranteed  payment to the Partnership  for cost overruns.  For the
balance of the  Operating  Deficit  Guarantee  Period the General  Partner  will
provide  Operating Loans to pay any Operating  Deficits.  The aggregate  maximum
amount of the  Operating  Loan(s) the General  Partner will be obligated to lend
will be equal to one year's  operating  expenses  (including  debt and reserves)
approved by the General Partner and the Special Limited Partner.  Each Operating
Loan shall be nonrecourse to the Partners,  and shall be repayable out of 50% of
the available Net Operating Income or Sale or Refinancing Proceeds in accordance
with Article XI of this Agreement.

         Section  6.4 Other  General  Partner  Loans.  After  expiration  of the
Operating  Deficit  Guarantee  Period,  with the Consent of the Special  Limited
Partner,  the General  Partner may loan to the  Partnership any sums required by
the  Partnership  and not  otherwise  reasonably  available to it. Any such loan
shall bear simple interest (not compounded) at the 10-year Treasury money market
rate in effect as of the day of the General  Partner  loan,  or, if lesser,  the
maximum legal rate.  The maturity  date and repayment  schedule of any such loan
shall be as agreed to by the General  Partner and the Special  Limited  Partner.
The terms of any such loan  shall be  evidenced  by a  written  instrument.  The
General Partner shall not charge a prepayment penalty on any such loan. Any loan
in  contravention of this Section shall be deemed an invalid action taken by the
General Partner and such advance will be classified as a General Partner Capital
Contribution.

                                   ARTICLE VII

                    CAPITAL CONTRIBUTIONS OF LIMITED PARTNER
                           AND SPECIAL LIMITED PARTNER

         Section 7.1 Original Limited Partner.  The Original Limited Partner has
not made a Capital Contribution to the Partnership.  Effective as of the date of
this Agreement,  the Original Limited Partner's Interest has been liquidated and
the Partnership has reacquired the Original  Limited  Partner's  Interest in the
Partnership.  The Original Limited Partner  acknowledges  that it has no further
interest  in the  Partnership  as a  limited  partner  as of the  date  of  this
Agreement,  and has released all claims, if any, against the Partnership arising
out of its participation as a limited partner.

         Section  7.2  Capital  Contribution  of Limited  Partner.  The  Limited
Partner shall make a Capital  Contribution in the amount of $285,574,  as may be
adjusted in accordance  with Section 7.4 of this  Agreement,  deposited  into an
escrow account evidenced by an escrow agreement  ("Escrow  Agreement") dated the
even date herewith on the dates and subject to the  conditions  hereinafter  set
forth.

     (a)  $71,394  shall be  payable  upon the  Limited  Partner's  receipt  and
approval of the following documents:

                  (1) a legal opinion in a form  substantially  similar to the
form of opinion  attached hereto as Exhibit "B" and incorporated herein by this
reference;

                  (2) a fully executed  Certification  and Agreement in the form
attached  hereto as Exhibit "C" and  incorporated herein by this reference;

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<PAGE>

                  (3) a copy of the title  commitment,  (in a form and substance
satisfactory to the Special Limited  Partner)  constituting an agreement by such
title company to issue the Title Policy within  fifteen  working days. The title
commitment  will show the  Apartment  Housing to be free from  liens,  free from
pending  assessments for street,  sewer and utilities,  and other exceptions not
previously approved by the Special Limited Partner;

                  (4) Insurance required during construction;

                  (5) a copy of the recorded grant deed (warranty deed);

                  (6) draw requests, project site visit, and title search;

                  (7) construction costs, sources and uses and operating budget;
and

                  (8) upon Construction Loan closing.

     (b)  $71,394  shall be  payable  upon the  Limited  Partner's  receipt  and
approval of the following documents:

                  (1) the Inspecting Architect's certification of fifty percent
completion of the total construction; and

                  (2) the construction  documents  required  pursuant to Section
14.3(a) of this Agreement, if not previously provided to the Limited Partner.

     (c)  $71,394  shall be  payable  upon the  Limited  Partner's  receipt  and
approval of the following documents:

                  (1) a certificate of occupancy (or equivalent  evidence of
local occupancy  approval if a permanent  certificate is not available) on all
the apartment units in the Apartment Housing;

                  (2) a completion certification in a form substantially similar
to the form  attached  hereto as  Exhibit  "D" and  incorporated  herein by this
reference,  indicating that the  Improvements  have been completed in accordance
with the Project Documents;

                  (3) a  letter  from  the  Contractor  in a form  substantially
similar to the form attached  hereto as Exhibit "F" and  incorporated  herein by
this reference stating that all amounts payable to the Contractor have been paid
in full  and  that  the  Partnership  is not in  violation  of the  Construction
Contract;

                  (4) Insurance required during operations; and

                  (5) the construction  documents  required  pursuant to Section
14.3(a) of this Agreement, if not previously provided to the Limited Partner.

                                       18
<PAGE>

     (d)  $71,392  shall be  payable  upon the  Limited  Partner's  receipt  and
approval of the following documents:

                  (1) Mortgage Loan documents signed and the Mortgage funded;

                  (2) endorsement  to  the Title  Policy  dated no more than ten
days prior to the scheduled  Capital  Contribution  providing an as-built survey
and  confirming  that there are no pending  assessments  for  street,  sewer and
utilities on the property, and no liens, claims or rights to a lien or judgments
filed against the property or the Apartment Housing during the time period since
the issuance of the Title Policy referenced above in Section 7.2(a);

                  (3) achievement by the Project of a Debt Service Coverage
of 1.15 for 90 consecutive days;

                  (4) copies of all initial  tenant  files  including  completed
applications,  completed  questionnaires  or  checklist  of income  and  assets,
documentation  of third  party  verification  of income and  assets,  and income
certification  forms (LIHTC  specific)  collected by the  Management  Agent,  or
General  Partner,  verifying each tenant's  eligibility  pursuant to the Minimum
Set-Aside Test;

                  (5) copies of the executed lease agreement with the tenants;

                  (6) an audited construction cost certification (which includes
an itemized cost breakdown);

                  (7) a copy of the  declaration  of  restrictive
covenants/extended  use  agreement  entered into between the Partnership and the
State Tax Credit Agency;

                  (8) the Accountant's final Tax Credit  certification in a form
substantially   similar  to  the  form  attached   hereto  as  Exhibit  "E"  and
incorporated herein by this reference;

                  (9) first year tax returns in which Tax Credits are taken;

                  (10) any  documents  previous not provided to the Limited
Partner but required  pursuant to this Section 7.2 and Sections 14.3(a) and (b);
and

                  (11) Internal Revenue Code Form 8609, or any successor form.

         Section 7.3 Repurchase of Limited  Partner's  Interest.  Within 60 days
after the General  Partner  receives  written  demand  from the Limited  Partner
and/or the Special Limited Partner, the Partnership shall repurchase the Limited
Partner's  Interest  and/or  the  Special  Limited  Partner's  Interest  in  the
Partnership  by  refunding  to it  in  cash  the  full  amount  of  the  Capital
Contribution  which the Limited  Partner and/or the Special  Limited Partner has
theretofore made in the event that, for any reason,  the Partnership  shall fail
to:

     (a) cause the  Apartment  Housing to be placed in  service  by October  31,
2001;

                                       19
<PAGE>

     (b)  achieve 90%  occupancy  of the  Apartment  Housing by  satisfying  the
minimum Set-Aside Test by December 31, 2000;

     (c) obtain Permanent Mortgage Commencement by April 1, 2000;

     (d) meet both the Minimum  Set-Aside Test and the Rent Restriction Test not
later than  December  31 of the first year the  Partnership  elects the LIHTC to
commence in accordance with the Code; or

     (e) obtain a carryover allocation,  within the meaning of Section 42 of the
Code, from the State Tax Credit Agency on or before December 31, 1999.

         Section 7.4       Adjustment of Limited Partner's Capital Contribution.

     (a) The amount of the  Limited  Partner's  and  Special  Limited  Partner's
Capital  Contribution was determined in part upon the amount of Tax Credits that
were  expected  to be  available  to  the  Partnership,  and  was  based  on the
assumption  that the  Partnership  would be eligible to claim, in the aggregate,
the Projected Tax Credits. If the anticipated amount of Projected Tax Credits to
be allocated to the Limited  Partner and Special Limited Partner as evidenced by
IRS  Form  8609,  Schedule  A  thereto,   and  the  audited   construction  cost
certification  provided to the Limited  Partner and Special  Limited Partner are
less than $396,670 (the new Tax Credit amount, if applicable,  shall be referred
to as the  "Revised  Projected  Tax  Credits")  then the Limited  Partner's  and
Special Limited Partner's Capital  Contribution  provided for in Section 7.2 and
Section 7.5  respectively  shall be  adjusted by the amount  which will make the
total Capital Contribution to be paid by the Limited Partner and Special Limited
Partner to the Partnership  equal to 72% of the Revised Projected Tax Credits so
anticipated to be allocated to the Limited Partner and Special Limited  Partner.
If the Capital  Contribution  adjustment  referenced in this Section 7.4(a) is a
reduction which is greater than the remaining Capital Contribution to be paid by
the Limited  Partner and the Special  Limited  Partner then the General  Partner
shall have ninety days from the date the General  Partner  receives  notice from
either the Limited  Partner or the Special Limited Partner to pay the shortfall.
If the Capital Contribution  adjustment  referenced in this Section 7.4(a) is an
increase then the Limited  Partner and Special Limited Partner shall have ninety
days from the date the Limited Partner and Special Limited Partner have received
notice from the General Partner to pay the increase.

     (b) The General Partner is required to use its best efforts to rent 100% of
the  Apartment  Housing's  apartment  units to  tenants  who  meet  the  Minimum
Set-Aside Test throughout the Compliance  Period. If at the end of each calendar
year  during  the first  five  calendar  years  following  the year in which the
Apartment  Housing  is placed in  service,  the Actual Tax Credit for any fiscal
year or portion thereof is or will be less than the Projected Annual Tax Credit,
or the  Projected  Annual  Tax  Credit as  modified  by  Section  7.4(a) of this
Agreement if  applicable  (collectively  the "Annual Tax  Credit")  (the "Annual
Credit  Shortfall"),  then the next  Capital  Contribution  owed by the  Limited
Partner shall be reduced by the Annual Credit Shortfall amount,  and any portion
of such Annual Credit Shortfall in excess of such Capital  Contribution shall be

                                       20
<PAGE>

applied to reduce succeeding  Capital  Contributions of the Limited Partner.  If
the Annual  Credit  Shortfall  is greater than the Limited  Partner's  remaining
Capital  Contributions then the General Partner shall pay to the Limited Partner
the  excess  of  the  Annual  Credit   Shortfall  over  the  remaining   Capital
Contributions.  The  General  Partner  shall have  ninety days to pay the Annual
Credit  Shortfall  from the date the General  Partner  receives  notice from the
Limited  Partner.  The  provisions of this Section 7.4(b) shall apply equally to
the  Special  Limited  Partner in  proportion  to its Capital  Contribution  and
anticipated annual Tax Credit.

     (c) In the event  that,  for any  reason,  at any time after the first five
calendar  years  following the year in which the Apartment  Housing is placed in
service, there is an Annual Credit Shortfall, then there shall be a reduction in
the General  Partner's  share of Net Operating  Income in an amount equal to the
Annual Credit Shortfall and said amount shall be paid to the Limited Partner. In
the event there are not sufficient funds to pay the full Annual Credit Shortfall
to the Limited  Partner at the time of the next  Distribution  of Net  Operating
Income, then the unpaid Annual Credit Shortfall shall be repaid in the next year
in which  sufficient  monies  are  available  from  the  General  Partner's  Net
Operating  Income.  In the event a Sale or Refinancing of the Apartment  Housing
occurs prior to repayment in full of the Annual Credit Shortfall then the excess
will be paid in accordance with Section 11.2(b).  The provisions of this Section
7.4(b) shall apply equally to the Special  Limited  Partner in proportion to its
Capital Contribution and anticipated annual Tax Credit.

     (d) The General Partner has represented,  in part, that the Limited Partner
will  receive  Projected  Annual Tax  Credits of $27,183 in 2000 and  $39,663 in
2001. In the event the 2000 and Actual Tax Credits are less than  projected then
the Limited Partner's Capital  Contribution  shall be reduced by an amount equal
to 72% times the  difference  between the Projected  Annual Tax Credits for 2000
and 2001 and the  Actual  Tax  Credits  for 2000 and 2001.  If the 2000 and 2001
Actual Tax Credits are less than  projected then the Special  Limited  Partner's
Capital  Contribution shall be reduced following the same equation referenced in
the preceding sentence.  If, at the time of determination  thereof,  the Capital
Contribution  adjustment  referenced in this Section  7.4(d) is greater than the
balance  of  the  Limited   Partner's  or  Special  Limited   Partner's  Capital
Contribution  payment which is then due, if any, then the excess amount shall be
paid by the General  Partner to the Limited  Partner and/or the Special  Limited
Partner  within  ninety  days of the  General  Partner  receiving  notice of the
reduction from the Limited Partners and/or the Special Limited Partner.

     (e) The Partners recognize and acknowledge that the Limited Partner and the
Special Limited Partner are making their Capital  Contribution,  in part, on the
expectation  that the  Projected  Tax Credits are allocated to the Partners over
the Tax Credit  Period.  If the  Projected  Tax Credits are not allocated to the
Partners  during the Tax Credit  Period then the Limited  Partner's  and Special
Limited Partner's Capital Contribution shall be reduced by an amount agreed upon
by the Partners,  in good faith,  to provide the Limited Partner and the Special
Limited Partner with their anticipated internal rate of return.

     (f) In the event there is: (1) a filing of a tax return by the  Partnership
evidencing a reduction in the qualified basis of the Apartment Housing causing a
recapture  of Tax Credits  previously  allocated to the Limited  Partner;  (2) a
reduction  in the  qualified  basis of the  Apartment  Housing  for  income  tax
purposes following an audit by the Internal Revenue Service (IRS) resulting in a
recapture of Tax Credits previously claimed; (3) a decision by the United States
Tax Court  upholding the assessment of such  deficiency  against the Partnership
with  respect  to any Tax  Credit  previously  claimed  in  connection  with the

                                       21
<PAGE>

Apartment Housing,  unless the Partnership shall timely appeal such decision and
the collection of such  assessment  shall be stayed  pending the  disposition of
such appeal;  or (4) a decision of a court  affirming  such  decision  upon such
appeal then, in addition to any other payments to which the Limited  Partner and
Special  Limited  Partner are entitled  under the terms of this Section 7.4, the
General Partner shall pay to the Limited Partner and the Special Limited Partner
the sum of (A) the income tax deficiency assessed against the Limited Partner or
Special  Limited  Partner  as a  result  of the Tax  Credit  recapture,  (B) any
interest and penalties imposed on the Limited Partner or Special Limited Partner
with respect to such  deficiency,  and (C) an amount  sufficient  to pay any tax
liability owed by the Limited Partner or Special Limited Partner  resulting from
the receipt of the amounts specified in (A) and (B).

     (g) The increase in the Capital Contribution of the Limited Partner and the
Special  Limited  Partner  pursuant  to Section  7.4(a)  shall be subject to the
Limited  Partner and Special  Limited  Partner having funds available to pay any
such  increase  at the time of its  notification  of such  increase.  For  these
purposes,  any funds theretofore  previously earmarked by the Limited Partner or
Special  Limited  Partner to make other  investments,  or to be held as required
reserves, shall not be considered available for payment hereunder.

         Section  7.5  Capital  Contribution  of Special  Limited  Partner.  The
Special Limited Partner shall make a Capital  Contribution of $29 at the time of
the Limited Partner's Capital  Contribution payment referenced in Section 7.2(a)
upon the same  conditions.  The Special  Limited Partner shall be in a different
class from the Limited Partner and, except as otherwise expressly stated in this
Agreement,  shall not  participate in any rights  allocable to or exercisable by
the Limited Partner under this Agreement.

         Section  7.6  Return  of  Capital  Contribution.  From time to time the
Partnership  may have cash in excess of the amount  required  for the conduct of
the affairs of the Partnership, and the General Partner may, with the Consent of
the Special  Limited  Partner,  determine that such cash should,  in whole or in
part,  be returned to the  Partners,  pro rata,  in reduction  of their  Capital
Contribution.  No such  return  shall  be made  unless  all  liabilities  of the
Partnership  (except  those to Partners  on account of amounts  credited to them
pursuant  to this  Agreement)  have  been  paid or there  remain  assets  of the
Partnership  sufficient,  in the sole discretion of the General Partner,  to pay
such liabilities.

         Section 7.7 Liability of Limited Partner and Special  Limited  Partner.
The Limited  Partner and Special  Limited Partner shall not be liable for any of
the debts, liabilities,  contracts or other obligations of the Partnership.  The
Limited Partner and Special Limited Partner shall be liable only to make Capital
Contributions  in the amounts and on the dates  specified in this Agreement and,
except as otherwise expressly required hereunder,  shall not be required to lend
any funds to the Partnership or, after their  respective  Capital  Contributions
have been paid, to make any further Capital Contribution to the Partnership.

                                  ARTICLE VIII

                          WORKING CAPITAL AND RESERVES

         Section 8.1 Operating and Maintenance  Account. The General Partner, on
behalf of the Partnership,  shall establish an operating and maintenance account
and  shall  deposit  thereinto,  or  provide a letter  of  credit,  in an amount
required by the FmHA, to be used for initial  operating  capital as permitted or

                                       22
<PAGE>

required  by  applicable  FmHA  regulations.  Said amount  shall be  reimbursed,
without  interest,  out of Apartment  Housing  funds as shall be  authorized  in
accordance  with applicable FmHA  regulations,  and if not so reimbursed  within
five years of the deposit,  any amount remaining  unreimbursed shall be forgiven
and shall  constitute an ordinary and necessary  business expense of the General
Partner as part consideration for the payment of the Development Fee.

         Section 8.2  Reserve  for  Replacements.  The  Partnership  shall fund,
establish and maintain a reserve  account in an amount required by the FmHA Loan
Agreement  which funds shall be used in  accordance  with FmHA  Regulation 7 CFR
Part 1930-C, or any successor thereof, as evidenced by the FmHA Loan Agreement.

         Section 8.3 Tax and Insurance Account.  The General Partner,  on behalf
of  the  Partnership,  shall  establish  a tax  and  insurance  account  ("T & I
Account") for the purpose of making the requisite Insurance premium payments and
the real  estate tax  payments.  The annual  deposit to the T & I Account  shall
equal the total  annual  Insurance  payment and the total annual real estate tax
payment.   Said  amount  shall  be  deposited  monthly  in  equal  installments.
Withdrawals from such account shall be made only for its intended  purpose.  Any
balance  remaining in the account at the time of a sale of the Apartment Housing
shall be allocated and  distributed  equally between the General Partner and the
Limited Partner.

         Section 8.4 Other Reserves. The General Partner, shall establish out of
funds  available to the  Partnership  a reserve  account  sufficient in its sole
discretion to pay any unforeseen  contingencies  which might arise in connection
with the furtherance of the Partnership business including,  but not limited to,
(a) any rent subsidy  required to maintain  rent levels in  compliance  with the
Code and applicable FmHA regulations;  and (b) any real estate taxes, Insurance,
debt  service or other  payments  for which  other  funds are not  provided  for
hereunder or otherwise expected to be available to the Partnership.  The General
Partner shall not be liable for any  good-faith  estimate which it shall make in
connection  with  establishing  or  maintaining  any such reserves nor shall the
General  Partner be required to establish  or maintain any such  reserves if, in
its sole discretion, such reserves do not appear to be necessary.

                                   ARTICLE IX

                             MANAGEMENT AND CONTROL

         Section  9.1 Power and  Authority  of General  Partner.  Subject to the
Consent of the Special  Limited  Partner or the  consent of the Limited  Partner
where  required  by this  Agreement,  and subject to the other  limitations  and
restrictions included in this Agreement, the General Partner shall have complete
and  exclusive  control  over the  management  of the  Partnership  business and
affairs,  and  shall  have the  right,  power  and  authority,  on behalf of the
Partnership,  and in its  name,  to  exercise  all of  the  rights,  powers  and
authority of a partner of a partnership  without limited  partners.  If there is
more than one General  Partner,  all acts,  decisions or consents of the General
Partners  shall  require  the  concurrence  of all of the General  Partners.  No
actions taken without the  authorization  of all the General  Partners  shall be
deemed valid actions taken by the General  Partners  pursuant to this Agreement.

                                       23
<PAGE>

No Limited  Partner or Special  Limited  Partner  (except  one who may also be a
General  Partner,  and then only in its capacity as General  Partner  within the
scope of its  authority  hereunder)  shall  have any  right to be  active in the
management  of the  Partnership's  business or  investments  or to exercise  any
control  thereover,  nor have the right to bind the Partnership in any contract,
agreement,  promise or undertaking, or to act in any way whatsoever with respect
to the  control  or  conduct  of the  business  of the  Partnership,  except  as
otherwise specifically provided in this Agreement.

         Section 9.2 Payments to the General Partners and Others.

     (a) The  Partnership  shall pay to the Developer a  Development  Fee in the
amount of $159,544 in accordance with the Amended Turnkey Agreement entered into
by and between the Developer and the  Partnership  on the even date hereof.  The
Amended  Turnkey  Agreement  provides,  in part,  that the Development Fee shall
first be paid from available  proceeds in accordance with Section 9.2(b) of this
Agreement and if not paid in full then the balance of the  Development  Fee will
be paid in accordance with Section 11.1 of this Agreement.

     (b)  The   Partnership   shall   utilize  the  proceeds  from  the  Capital
Contributions paid pursuant to Section 7.2 and Section 7.5 of this Agreement for
development costs including, but not limited to, land costs, architectural fees,
survey and engineering  costs,  financing  costs,  loan fees,  Syndication  Fee,
building materials and labor. If any Capital Contribution proceeds are remaining
after  Completion  of  Construction   and  all   acquisition,   development  and
construction  costs,  excluding  the  Development  Fee, are paid in full and the
Construction  Loan  retired,  then  the  remainder  shall:  first be paid to the
Developer  in  payment of the  Development  Fee;  second be paid to the  General
Partner as a reduction of the General  Partner's Capital  Contribution;  and any
remaining Capital Contribution  proceeds shall be paid to the General Partner as
a Partnership oversight fee.

     (c) The Partnership shall pay to the Management Agent a property management
fee for the  leasing and  management  of the  Apartment  Housing in an amount in
accordance with the Management  Agreement.  The term of the Management Agreement
shall not  exceed one year,  and the  execution  or  renewal  of any  Management
Agreement shall be subject to the prior Consent of the Special Limited  Partner.
If the Management  Agent is an Affiliate of the General  Partner then commencing
with the termination of the Operating  Deficit  Guarantee Period, in any year in
which the Apartment Housing has an Operating Deficit,  40% of the management fee
will be deferred ("Deferred  Management Fee"). Deferred Management Fees, if any,
shall be paid to the  Management  Agent in accordance  with Section 11.1 of this
Agreement.

                  (1) The General  Partner shall,  upon receiving any request of
the Mortgage Lender requesting such action,  dismiss the Management Agent as the
entity  responsible  for management of the Apartment  Housing under the terms of
the Management  Agreement;  or, the General Partner shall dismiss the Management
Agent at the request of the Special Limited Partner.

                  (2) The  appointment  of any  successor  Management  Agent  is
subject to the Consent of the Special Limited Partner,  which may only be sought
after the General Partner has provided the Special Limited Partner with accurate
and complete disclosure respecting the proposed Management Agent.

     (d) The Partnership  shall pay to the Limited Partner a fee (the "Reporting
Fee")  commencing  in 2001  equal to 15% of the Net  Operating  Income but in no
event less than $1,000 for the Limited  Partner's  services  in  monitoring  the

                                       24
<PAGE>

operations  of  the   Partnership  and  for  services  in  connection  with  the
Partnership's  accounting  matters and  assisting  with the  preparation  of tax
returns and the reports  required in Sections  14.2 and 14.3 of this  Agreement.
The Reporting Fee shall be payable within  seventy-five (75) days following each
calendar year and shall be payable from Net  Operating  Income in the manner and
priority set forth in Section 11.1 of this Agreement; provided, however, that if
in any year Net Operating  Income is  insufficient  to pay the full $1,000,  the
unpaid portion thereof shall accrue and be payable on a cumulative  basis in the
first year in which there is  sufficient  Net Operating  Income,  as provided in
Section 11.1, or sufficient Sale or Refinancing Proceeds, as provided in Section
11.2.

     (e) The Partnership shall pay to the General Partner through the Compliance
Period an annual Incentive  Management Fee equal to $1,106 of the remaining Cash
Flow from operations  commencing in 2001 for overseeing the marketing,  lease-up
and continued  occupancy of the  Partnership's  apartment  units,  obtaining and
monitoring  the  Mortgage  Loan,  maintaining  the  books  and  records  of  the
Partnership,   selecting  and   supervising   the   Partnership's   Accountants,
bookkeepers  and other Persons  required to prepare and audit the  Partnership's
financial statements and tax returns, and preparing and disseminating reports on
the status of the  Apartment  Housing  and the  Partnership,  all as required by
Article XIV of this  Agreement.  The  Partners  acknowledge  that the  Incentive
Management Fee is being paid as an inducement to the General  Partner to operate
the  Partnership  efficiently,  to maximize  occupancy  and to increase  the Net
Operating  Income.  The  Incentive  Management  Fee  shall be  payable  from Net
Operating  Income in the manner and  priority  set forth in Section 11.1 of this
Agreement  upon  completion and delivery of the annual audit pursuant to Section
14.2(a) of this  Agreement.  If the Incentive  Management Fee is not paid in any
year it shall not accrue for payment in subsequent years.

     (f) The Partnership shall pay to the General Partner through the Compliance
Period an annual Tax Credit  Compliance  Fee equal to $1,106  commencing in 2001
for  the  services  of  the  General  Partner  in  ensuring  compliance  by  the
Partnership and the Apartment Housing with all Tax Credit rules and regulations.
The Tax Credit  Compliance Fee shall be payable from Net Operating Income in the
manner and priority set forth in Section 11.1 of this Agreement upon  completion
and delivery of the annual audit pursuant to Section  14.2(a) of this Agreement.
If the Tax Credit Compliance Fee is not paid in any year it shall not accrue for
payment in subsequent years.

         Section 9.3 Specific Powers of the General  Partner.  Subject to the
other  provisions of this  Agreement,  the General Partner, in the Partnership's
name and on its behalf, may:

     (a) employ,  contract and otherwise deal with,  from time to time,  Persons
whose services are necessary or appropriate  in connection  with  management and
operation  of  the  Partnership   business,   including,   without   limitation,
contractors,  agents, brokers,  Accountants and Management Agents (provided that
the selection of any Accountant or Management  Agent has received the Consent of
the Special Limited Partner) and attorneys, on such terms as the General Partner
shall determine;

     (b) pay as a Partnership  expense any and all costs and expenses associated
with the formation, development,  organization and operation of the Partnership,
including the expense of annual audits, tax returns and LIHTC compliance;

                                       25
<PAGE>

     (c) deposit, withdraw, invest, pay, retain and distribute the Partnership's
funds in a manner consistent with the provisions of this Agreement;

     (d) execute the Construction Loan and the Mortgage; and

     (e) execute, acknowledge and deliver any and all instruments to
effectuate any of the foregoing.

                                       26
<PAGE>

         Section 9.4 Authority Requirements.  During the Compliance Period, the
following provisions shall apply.

     (a) Each of the provisions of this  Agreement  shall be subject to, and the
General Partner  covenants to act in accordance with, the Tax Credit  Conditions
and all applicable federal, state and local laws and regulations.

     (b) The Tax Credit Conditions and all such laws and regulations, as amended
or supplemented,  shall govern the rights and obligations of the Partners, their
heirs, executors, administrators,  successor and assigns, and they shall control
as to any terms in this Agreement which are inconsistent therewith, and any such
inconsistent terms of this Agreement shall be unenforceable by or against any of
the Partners.

     (c)  Upon  any  dissolution  of  the  Partnership  or any  transfer  of the
Apartment  Housing,  no  title or right to the  possession  and  control  of the
Apartment  Housing  and no right to  collect  rent  therefrom  shall pass to any
Person who is not, or does not become,  bound by the Tax Credit  Conditions in a
manner  that,  in the  opinion  of  counsel to the  Partnership,  would  avoid a
recapture of Tax Credits thereof on the part of the former owners.

     (d) Any  conveyance  or  transfer  of  title to all or any  portion  of the
Apartment  Housing  required  or  permitted  under this  Agreement  shall in all
respects be subject to the Tax Credit  Conditions and all conditions,  approvals
or other  requirements of the rules and regulations of any authority  applicable
thereto.

         Section 9.5 Limitations  on General  Partner's  Power and  Authority.
Notwithstanding  the  provisions of this Article IX, the General Partner shall
not:

     (a)  except as  required  by  Section  9.4,  act in  contravention  of this
Agreement;

     (b) act in any  manner  which  would  make it  impossible  to  carry on the
ordinary business of the Partnership;

     (c) confess a judgment against the Partnership;

     (d) possess Partnership property, or assign the Partner's right in specific
Partnership property, for other than the
exclusive benefit of the Partnership;

     (e)  admit a  Person  as a  General  Partner  except  as  provided  in this
Agreement;

     (f)  admit a  Person  as a  Limited  Partner  except  as  provided  in this
Agreement;

     (g) violate any provision of the Mortgage;

     (h)  cause the  Apartment  Housing  apartment  units to be rented to anyone
other than Qualified Tenants;

                                       27
<PAGE>

     (i) violate the Minimum Set-Aside Test or the Rent Restriction Test for the
Apartment Housing;

     (j) cause any recapture of the Tax Credits;

     (k) permit any creditor who makes a nonrecourse  loan to the Partnership to
have,  or to acquire at any time as a result of making such loan,  any direct or
indirect  interest  in the  profits,  income,  capital or other  property of the
Partnership, other than as a secured creditor;

     (l) commingle funds of the Partnership with the funds of another Person; or

     (m) take any action  which  requires  the  Consent of the  Special  Limited
Partner or the consent of the  Limited  Partner  unless the General  Partner has
received said Consent.

         Section 9.6  Restrictions on Authority of General  Partner. Without the
Consent of the Special Limited Partner the General Partner shall not:

     (a) sell, exchange, lease or otherwise dispose of the Apartment Housing;

     (b) incur  indebtedness  other than the Construction Loan and Mortgage Loan
in the name of the Partnership;

     (c) engage in any transaction not expressly  contemplated by this Agreement
in which the  General  Partner has an actual or  potential  conflict of interest
with the Limited Partner or the Special Limited Partner;

     (d) contract  away the fiduciary  duty owed to the Limited  Partner and the
Special Limited Partner at common law;

     (e) take any action  which  would  cause the  Apartment  Housing to fail to
qualify,   or  which  would  cause  a  termination  or   discontinuance  of  the
qualification  of the  Apartment  Housing,  as a "qualified  low income  housing
project"  under  Section  42(g)(1)  of the Code,  as amended,  or any  successor
thereto,  or which  would  cause  the  Limited  Partner  to fail to  obtain  the
Projected Tax Credits or which would cause the recapture of any LIHTC;

     (f) make any expenditure of funds, or commit to make any such  expenditure,
other than in response  to an  emergency,  except as provided  for in the annual
budget approved by the Special Limited  Partner,  as provided in Section 14.3(i)
hereof;

     (g) cause the merger or other reorganization of the Partnership;

     (h) dissolve the Partnership;

     (i) acquire any real or  personal  property  (tangible  or  intangible)  in
addition to the  Apartment  Housing the  aggregate  value of which shall  exceed
$10,000 (other than easement or similar rights  necessary or appropriate for the
operation of the Apartment Housing);

                                       28
<PAGE>

     (j)  become  personally  liable  on or in  respect  of, or  guarantee,  the
Mortgage or any other indebtedness of the Partnership;

     (k) pay any salary,  fees or other compensation to a General Partner or any
Affiliate thereof, except as authorized by Section 9.2 and Section 9.9 hereof or
specifically provided for in this Agreement;

     (l)  terminate  the  services  of  the  Accountant,  Inspecting  Architect,
Contractor or Management  Agent, or terminate,  amend or modify the Construction
Contract or any other Project Document,  or grant any material waiver or consent
thereunder;

     (m) cause the Partnership to redeem or repurchase all or any portion of the
Interest of a Partner;

     (n) cause the  Partnership to convert the Apartment  Housing to cooperative
or condominium ownership;

     (o) cause or permit the Partnership to make loans to the General Partner or
any Affiliate;

     (p) bring or defend, pay, collect,  compromise,  arbitrate, resort to legal
action or otherwise adjust claims or demands of or against the Partnership; or

     (q) agree or consent to any changes in the Plans and Specifications, to any
change  orders,  or to any of  the  terms  and  provisions  of the  Construction
Contract.

         Section 9.7  Duties of General Partner. The General Partner agrees that
it shall at all times:

     (a) diligently  and  faithfully  devote such of its time to the business of
the Partnership as may be necessary to properly
conduct the affairs of the Partnership;

     (b) file and  publish all  certificates,  statements  or other  instruments
required by law for the formation and operation of the  Partnership as a limited
partnership in all appropriate jurisdictions;

     (c) cause the Partnership to carry Insurance from an Insurance Company;

     (d) have a  fiduciary  responsibility  for the  safekeeping  and use of all
funds and assets of the Partnership,  whether or not in its immediate possession
or control  and not employ or permit  another to employ  such funds or assets in
any manner except for the benefit of the Partnership;

     (e) use its best  efforts so that all  requirements  shall be met which are
reasonably  necessary  to obtain or  achieve  (1)  compliance  with the  Minimum
Set-Aside Test, the Rent Restriction Test, and any other requirements  necessary
for the Apartment Housing to initially qualify,  and to continue to qualify, for
LIHTC;  (2) issuance of all necessary  certificates of occupancy,  including all

                                       29
<PAGE>

governmental  approvals  required to permit  occupancy  of all of the  apartment
units in the  Apartment  Housing;  (3)  compliance  with all  provisions  of the
Project  Documents and (4) a reservation  and allocation of LIHTC from the State
Tax Credit Agency;

     (f) make inspections of the Apartment Housing and assure that the
Apartment Housing is in decent,  safe,  sanitary and good condition,  repair and
working order, ordinary use and obsolescence  excepted,  and make or cause to be
made from time to time all necessary  repairs  thereto  (including  external and
structural repairs) and renewals and replacements thereof;

     (g) pay,  before  the same shall  become  delinquent  and before  penalties
accrue thereon all Partnership taxes, assessments and other governmental charges
against the  Partnership or its  properties,  and all of its other  liabilities,
except to the extent and so long as the same are being  contested  in good faith
by appropriate  proceedings in such manners as not to cause any material adverse
effect  on  the  Partnership's   property,   financial   condition  or  business
operations, with adequate reserves provided for such payments;

     (h) permit,  and cause the Management Agent to permit,  the Special Limited
Partner and its representatives: (1) to have access to the Apartment Housing and
personnel  employed by the Partnership and by the Management  Agent at all times
during  normal  business  hours  after  reasonable  notice;  (2) to examine  all
agreements, LIHTC compliance data and Plans and Specifications;  and (3) to make
copies thereof;

     (i) exercise  good faith in all  activities  relating to the conduct of the
business  of  the  Partnership,   including  the   development,   operation  and
maintenance of the Apartment  Housing,  and shall take no action with respect to
the business and property of the Partnership which is not reasonably  related to
the achievement of the purpose of the Partnership;

     (j) make any Capital  Contributions,  advances or loans required to be made
by the General Partner under the terms of this Agreement;

     (k)  establish  and maintain all reserves  required to be  established  and
maintained under the terms of this Agreement;

     (l) cause the  Management  Agent to manage the Apartment  Housing in such a
manner that the Apartment Housing will be eligible to receive LIHTC with respect
to 100% of the  apartment  units in the  Apartment  Housing.  To that  end,  the
General Partner agrees, without limitation:  (1) to make all elections requested
by the  Special  Limited  Partner  under  Section  42 of the Code to  allow  the
Partnership or its Partners to claim the Tax Credit;  (2) to file Form 8609 with
respect to the Apartment  Housing as required,  for at least the duration of the
Compliance Period; (3) to operate the Apartment Housing and cause the Management
Agent to manage the Apartment  Housing so as to comply with the  requirements of
Section 42 of the Code, as amended, or any successor thereto, including, but not
limited to, Section 42(g) and Section  42(i)(3) of the Code, as amended,  or any
successors thereto; (4) to make all certifications  required by Section 42(l) of
the Code, as amended, or any successor thereto; and (5) to operate the Apartment
Housing and cause the Management Agent to manage the Apartment  Housing so as to
comply with all other Tax Credit Conditions; and

                                       30
<PAGE>

     (m) perform  such other acts as may be  expressly  required of it under the
terms of this Agreement.

         Section 9.8 Obligations to Repair and Rebuild Apartment  Housing.  With
the approval of any lender, if such approval is required, any Insurance proceeds
received  by the  Partnership  due to  fire  or  other  casualty  affecting  the
Apartment  Housing will be utilized to repair and rebuild the Apartment  Housing
in satisfaction of the conditions  contained in Section 42(j)(4) of the Code and
to the extent required by any lender.  Any such proceeds  received in respect of
such event  occurring  after the  Compliance  Period shall be so utilized or, if
permitted by the Project  Documents and with the Consent of the Special  Limited
Partner, shall be treated as Sale or Refinancing Proceeds.

         Section 9.9  Partnership Expenses.

     (a) All of the Partnership's  expenses shall be billed directly to and paid
by the  Partnership  to the extent  practicable.  Reimbursements  to the General
Partner, or any of its Affiliates,  by the Partnership shall be allowed only for
the  Partnership's  Cash Expenses unless the General Partner is obligated to pay
the same as an Operating  Deficit during the Operating Deficit Guarantee Period,
and subject to the limitations on the  reimbursement  of such expenses set forth
herein.  For purposes of this Section,  Cash Expenses shall include fees paid by
the  Partnership to the General  Partner or any Affiliate of the General Partner
permitted  by  this  Agreement  and the  actual  cost of  goods,  materials  and
administrative services used for or by the Partnership,  whether incurred by the
General Partner,  an Affiliate of the General Partner or a nonaffiliated  Person
in  performing  the  foregoing  functions.  As used in the  preceding  sentence,
"actual  cost of goods  and  materials"  means  the  actual  cost of  goods  and
materials  used for or by the  Partnership  and obtained from entities which are
not  Affiliates  of the  General  Partner,  and  actual  cost of  administrative
services means the pro rata cost of personnel (as if such persons were employees
of the Partnership)  associated therewith,  but in no event to exceed the amount
which  would be  charged  by  nonaffiliated  Persons  for  comparable  goods and
services.

     (b)  Reimbursement  to the  General  Partner  or any of its  Affiliates  of
operating  cash expenses  pursuant to Subsection  (a) hereof shall be subject to
the following:

                  (1) no such reimbursement shall be permitted for  services for
which  the  General Partner or any of its Affiliates is entitled to compensation
by way of a separate fee; and

                  (2) no  such  reimbursement  shall  be made  for  (A)  rent or
depreciation,  utilities,  capital equipment or other such administrative items,
and (B) salaries,  fringe  benefits,  travel  expenses and other  administrative
items incurred or allocated to any  "controlling  person" of the General Partner
or any  Affiliate  of the General  Partner.  For the  purposes  of this  Section
9.9(b)(2),  "controlling  person"  includes,  but is not limited to, any Person,
however titled,  who performs functions for the General Partner or any Affiliate
of the General  Partner similar to those of: (i) chairman or member of the board
of directors;  (ii) executive management,  such as president,  vice president or
senior  vice  president,   corporate   secretary  or  treasurer;   (iii)  senior
management,  such as the vice  president  of an  operating  division who reports
directly  to  executive  management;  or (iv) those  holding  5% or more  equity
interest in such General Partner or any such Affiliate of the General Partner or
a person  having  the power to direct or cause  the  direction  of such  General
Partner or any such  Affiliate  of the  General  Partner,  whether  through  the
ownership of voting securities, by contract or otherwise.

                                       31

<PAGE>

         Section  9.10  General  Partner   Expenses.   The  General  Partner  or
Affiliates of the General Partner shall pay all  Partnership  expenses which are
not  permitted to be reimbursed  pursuant to Section 9.9 and all expenses  which
are unrelated to the business of the Partnership.

         Section  9.11  Other  Business  of  Partners.  Any  Partner  may engage
independently or with others in other business  ventures wholly unrelated to the
Partnership  business  of  every  nature  and  description,  including,  without
limitation, the acquisition, development, construction, operation and management
of real estate projects and developments of every type on their own behalf or on
behalf of other  partnerships,  joint  ventures,  corporations or other business
ventures  formed  by them or in  which  they may  have an  interest,  including,
without  limitation,  business  ventures  similar to, related to or in direct or
indirect competition with the Apartment Housing. Neither the Partnership nor any
Partner  shall  have any right by virtue of this  Agreement  or the  partnership
relationship created hereby in or to such other ventures or activities or to the
income or  proceeds  derived  therefrom.  Conversely,  no Person  shall have any
rights to  Partnership  assets,  incomes  or  proceeds  by virtue of such  other
ventures or activities of any Partner.

         Section 9.12 Covenants,  Representations  and  Warranties.  The General
Partner  covenants,  represents  and warrants  that the  following are presently
true, will be true at the time of each Capital  Contribution payment made by the
Limited  Partner  and will be true  during  the term of this  Agreement,  to the
extent then applicable.

     (a)  The  Partnership  is a  duly  organized  limited  partnership  validly
existing  under  the  laws  of the  State  and  has  complied  with  all  filing
requirements  necessary  for the  protection  of the  limited  liability  of the
Limited Partner and the Special Limited Partner.

     (b) The Partnership  Agreement and the Project  Documents are in full force
and effect and neither the  Partnership  nor the General Partner is in breach or
violation of any provisions thereof.

     (c) Improvements will be completed in a timely and workerlike manner in
accordance  with all applicable  requirements  of all  appropriate  governmental
entities and the Plans and Specifications of the Apartment Housing.

     (d) All conditions to the funding of the Construction Loan have been met.

     (e) The Apartment  Housing is being  operated in accordance  with standards
and  procedures  which are prudent and customary for the operation of properties
similar to the Apartment Housing.

     (f) No Partner has or will have any personal  liability  with respect to or
has or will have personally guaranteed the payment of the Mortgage.

     (g) The  Partnership is in compliance with all  construction  and use codes
applicable  to the  Apartment  Housing  and is not in  violation  of any zoning,
environmental or similar regulations applicable to the Apartment Housing.

                                       32
<PAGE>

     (h) All appropriate public utilities,  including sanitary and storm sewers,
water,  gas and  electricity,  are  currently  available  and will be  operating
properly for all units in the Apartment  Housing at the time of first  occupancy
and throughout the term of the Partnership.

     (i) All roads necessary for the full utilization of the  Improvements  have
either  been  completed  or the  necessary  rights  of way  therefore  have been
acquired by the  appropriate  governmental  authority or have been  dedicated to
public use and accepted by said governmental authority.

     (j) The Partnership has obtained Insurance written by an Insurance Company.

     (k) The Partnership owns the fee simple interest in the Apartment Housing.

     (l) The Construction Contract has been entered into between the Partnership
and  the  Contractor;  no  other  consideration  or fee  shall  be  paid  to the
Contractor other than amounts set forth in the Construction Contract.

     (m)  The  Partnership   will  require  the  Accountant  to  depreciate  the
Improvements  over a 27-1/2 year term.  Site work shall be broken out separately
from  Improvements and depreciated over 15 years using the cost recovery system,
mid-year 200% declining balance  depreciation  method.  Landscaping and personal
property   (cabinets,   appliances,   carpet  and  window  coverings)  shall  be
depreciated over 5 years for regular tax or 9 years for alternative minimum tax.

     (n) To the  best  of the  General  Partner's  knowledge:  (1) no  Hazardous
Substance  has been disposed of, or released to or from, or otherwise now exists
in,  on,  under or around,  the  Apartment  Housing  and (2) no  aboveground  or
underground  storage  tanks are now or have ever  been  located  on or under the
Apartment Housing. The General Partner will not install or allow to be installed
any  aboveground  or  underground  storage tanks on the Apartment  Housing.  The
General  Partner  covenants  that the  Apartment  Housing  shall be kept free of
Hazardous  Substance  and shall not be used to  generate,  manufacture,  refine,
transport,  treat,  store,  handle,  dispose  of,  transfer,  produce or process
Hazardous  Substance,  except in  connection  with the  normal  maintenance  and
operation of any portion of the  Apartment  Housing.  The General  Partner shall
comply, or cause there to be compliance,  with all applicable Federal, state and
local  laws,  ordinances,  rules  and  regulations  with  respect  to  Hazardous
Substance  and shall keep, or cause to be kept,  the Apartment  Housing free and
clear  of any  liens  imposed  pursuant  to such  laws,  ordinances,  rules  and
regulations.  The General  Partner must promptly  notify the Limited Partner and
the Special  Limited Partner in writing (3) if it knows, or suspects or believes
there may be any  Hazardous  Substance  in or around  any part of the  Apartment
Housing,  any Improvements  constructed on the Apartment  Housing,  or the soil,
groundwater or soil vapor,  (4) if the General Partner or the Partnership may be
subject to any threatened or pending  investigation by any  governmental  agency
under any law,  regulation or ordinance  pertaining to any Hazardous  Substance,
and (5) of any claim made or threatened by any Person, other than a governmental
agency,  against the  Partnership or General Partner arising out of or resulting
from any Hazardous Substance being present or released in, on or around any part
of the Apartment Housing.

     (o)  The  General  Partner  has not  executed  and  will  not  execute  any
agreements with provisions contradictory to, or in opposition to, the provisions
of this Agreement.

                                       33
<PAGE>

     (p) The  Partnership  will  allocate to the Limited  Partner the  Projected
Annual Tax Credits, or the Revised Projected Tax
Credits, if applicable.

     (q) No charges,  liens or encumbrances  exist with respect to the Apartment
Housing other than those which are created or permitted by the Project Documents
or Mortgage or are noted or excepted in the Title Policy.

     (r) The  buildings  on the  Apartment  Housing  site  constitute  or  shall
constitute a "qualified  low-income housing project" as defined in Section 42(g)
of the Code, and as amplified by the Treasury  Regulations  thereunder.  In this
connection,  not later than  December 31 of the first year in which the Partners
elect the LIHTC to commence in accordance  with the Code, the Apartment  Housing
will satisfy the Minimum Set-Aside Test.

     (s) All accounts of the Partnership required to be maintained under the
terms of the Project Documents,  including,  without limitation, any reserves in
accordance with Article VIII hereof,  are currently  funded to required  levels,
including levels required by any authority.

     (t) The General Partner has not lent or otherwise advanced any funds to the
Partnership other than its Capital  Contribution,  or Operating Deficit Loan, if
applicable,  and the  Partnership  has no  unsatisfied  obligation  to make  any
payments of any kind to the General Partner or any Affiliate thereof.

     (u) No event has  occurred  which  constitutes  a default  under any of the
Project Documents.

     (v) No event has occurred which has caused, and the General Partner has not
acted in any  manner  which  will cause (1) the  Partnership  to be treated  for
federal income tax purposes as an association taxable as a corporation,  (2) the
Partnership  to fail to qualify as a limited  partnership  under the Act, or (3)
the Limited Partner to be liable for Partnership obligations;  provided however,
the General  Partner shall not be in breach of this  representation  if all or a
portion of a Limited  Partner's  agreed upon Capital  Contributions  are used to
satisfy the  Partnership's  obligations to creditors of the Partnership and such
action by the General Partner is otherwise  authorized under this Agreement and;
provided  further,  however,  the General Partner shall not be in breach of this
representation  if the action  causing the Limited  Partner to be liable for the
Partnership obligations is undertaken by the Limited Partner.

     (w) No event or  proceeding,  including,  but not  limited  to,  any  legal
actions or  proceedings  before any court,  commission,  administrative  body or
other  governmental  authority,  and acts of any  governmental  authority having
jurisdiction  over  the  zoning  or land use laws  applicable  to the  Apartment
Housing,  has occurred the  continuing  effect of which has: (1)  materially  or
adversely  affected the operation of the  Partnership or the Apartment  Housing;
(2)  materially  or  adversely  affected  the ability of the General  Partner to
perform its  obligations  hereunder or under any other agreement with respect to
the Apartment  Housing;  or (3) prevented the completion of  construction of the
Improvements in substantial  conformity with the Project  Documents,  other than
legal  proceedings which have been bonded against (or as to which other adequate
financial  security has been issued) in a manner as to indemnify the Partnership

                                       34
<PAGE>

against loss;  provided,  however,  the  foregoing  does not apply to matters of
general applicability which would adversely affect the Partnership,  the General
Partner, Affiliates of the General Partner or the Apartment Housing only insofar
as they or any of them are part of the general public.

     (x) Neither the Partnership  nor the General  Partner has any  liabilities,
contingent or otherwise, which have not been disclosed in writing to the Limited
Partner and the Special  Limited  Partner and which in the aggregate  affect the
ability  of the  Limited  Partner  to obtain  the  anticipated  benefits  of its
investment in the Partnership.

     (y) Upon signing of the  Construction  Loan and receipt of the Construction
Lender's written start order, the General Partner will cause construction of the
Improvements  to commence and thereafter will cause the Contractor to diligently
proceed  with  construction  of the  Improvements  according  to the  Plans  and
Specifications so that the Improvements can be completed by the Completion Date.

     (z) The  General  Partner  will use its best  efforts  to  ensure  that any
architect  retained by the  Partnership or General Partner will have a policy of
professional  liability  insurance  in an  amount  not less  than  five  hundred
thousand  dollars,  which policy should remain in force for a period of at least
two years after the closing and funding of the Mortgage.

     (aa) The  General  Partner  has and shall  maintain a net worth equal to at
least  $1,000,000  computed in accordance  with  generally  accepted  accounting
principles.

     (bb) The Partnership's and General Partner's computer hardware and
software used to produce financial  reports and tax return  information are year
2000  compliant.  To the  best of the  General  Partner's  knowledge  after  due
inquiry:  the Partnership's and General Partner's office machinery and equipment
are year 2000 compliant;  and the Management Agent's financial reporting systems
and office machinery and equipment are year 2000 compliant.

         The  General  Partner  shall be liable to the  Limited  Partner for any
costs,  damages,  loss of profits,  diminution in the value of its investment in
the Partnership, or other losses, of every nature and kind whatsoever, direct or
indirect,  realized  or  incurred  by the  Limited  Partner  as a result  of any
material breach of the  representations and warranties set forth in this Section
9.12.

                                    ARTICLE X

                    ALLOCATIONS OF INCOME, LOSSES AND CREDITS

         Section 10.1 General. All items includable in the calculation of Income
or Loss not arising from a Sale or  Refinancing,  and all Tax Credits,  shall be
allocated 99.98% to the Limited Partner, .01% to the Special Limited Partner and
 .01% to the General Partner.

         Section  10.2  Allocations  From Sale or  Refinancing.  All  Income and
Losses  arising  from a Sale or  Refinancing  shall  be  allocated  between  the
Partners as follows:

                                       35
<PAGE>

     (a) As to Income:

                  (1) first, an amount of Income equal to the aggregate negative
balances  (if any) in the  Capital  Accounts  of all  Partners  having  negative
Capital  Accounts  (prior to taking into account the Sale or Refinancing and the
Distribution  of the related  Sale or  Refinancing  Proceeds,  but after  giving
effect to  Distributions of Net Operating Income and allocations of other Income
and Losses pursuant to this Article X up to the date of the Sale or Refinancing)
shall be allocated to such  Partners in  proportion  to their  negative  Capital
Account balances until all such Capital Accounts shall have zero balances; and

                  (2) the balance, if any, of such Income shall be allocated 50%
to the Limited  Partner and 50% to the General Partner.

     (b) Losses shall be allocated  99.98% to the Limited  Partner,  .01% to the
Special Limited Partner and .01% to the General Partner.

     (c) Notwithstanding the foregoing provisions of Section 10.2(a) and (b), in
no event shall any Losses be  allocated  to the  Limited  Partner or the Special
Limited  Partner  if and to the  extent  that such  allocation  would  create or
increase  an Adjusted  Capital  Account  Deficit for the Limited  Partner or the
Special  Limited  Partner.  In the event an allocation of 99.98% or .01% of each
item  includable in the calculation of Income or Loss not arising from a Sale or
Refinancing,  would create or increase an Adjusted  Capital  Account Deficit for
the Limited Partner or the Special Limited Partner,  respectively,  then so much
of the items of deduction other than projected  depreciation  shall be allocated
to the General  Partner  instead of the Limited  Partner or the Special  Limited
Partner as is  necessary  to allow the Limited  Partner or the  Special  Limited
Partner to be allocated  99.98% and .01%,  respectively,  of the items of Income
and Apartment  Housing  depreciation  without creating or increasing an Adjusted
Capital Account Deficit for the Limited Partner or the Special Limited  Partner,
it being the intent of the  parties  that the  Limited  Partner  and the Special
Limited Partner always shall be allocated 99.98% and .01%, respectively,  of the
items of Income not  arising  from a Sale or  Refinancing  and 99.98 % and .01%,
respectively, of the Apartment Housing depreciation.

                                       36
<PAGE>

         Section 10.3  Special Allocations.  The following  special  allocations
shall be made in the following order.

     (a) Except as  otherwise  provided in Section  1.704-2(f)  of the  Treasury
Regulations, notwithstanding any other provisions of this Article X, if there is
a net decrease in Partnership  Minimum Gain during any Partnership  fiscal year,
each Partner shall be specially  allocated items of Partnership  income and gain
for such fiscal year (and, if necessary,  subsequent  fiscal years) in an amount
equal to such Person's  share of the net decrease in  Partnership  Minimum Gain,
determined  in  accordance  with  Treasury   Regulations   Section   1.704-2(g).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective  amounts required to be allocated to each Partner  pursuant  thereto.
The items to be so allocated  shall be  determined  in  accordance  with Section
1.704-2(f)(6)  and  1.704-2(j)(2)  of the  Treasury  Regulations.  This  Section
10.3(a) is intended to comply with the minimum gain  chargeback  requirement  in
Section  1.704-2(f)  of  the  Treasury  Regulations  and  shall  be  interpreted
consistently therewith.

     (b) Except as otherwise  provided in Section  1.704-2(i)(4) of the Treasury
Regulations,  notwithstanding any other provision of this Article X, if there is
a net  decrease in Partner  Nonrecourse  Debt  Minimum  Gain  attributable  to a
Partner Nonrecourse Debt during any Partnership fiscal year, each Person who has
a share of the  Partner  Nonrecourse  Debt  Minimum  Gain  attributable  to such
Partner Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury  Regulations,  shall be specially  allocated  items of  Partnership
income and gain for such  fiscal  year (and,  if  necessary,  subsequent  fiscal
years) in an amount equal to such Person's  share of the net decrease in Partner
Nonrecourse  Debt Minimum Gain  attributable to such Partner  Nonrecourse  Debt,
determined  in  accordance  with  Treasury  Regulations  Section  1.704-2(i)(4).
Allocations pursuant to the previous sentence shall be made in proportion to the
respective  amounts required to be allocated to each Partner  pursuant  thereto.
The items to be so allocated  shall be determined  in  accordance  with Sections
1.704-2(i)(4)  and  1.704-2(j)(2)  of the  Treasury  Regulations.  This  Section
10.3(b) is intended to comply with the minimum gain  chargeback  requirement  in
Section  1.704-2(i)(4)  of the  Treasury  Regulations  and shall be  interpreted
consistently therewith.

     (c) In  the  event  any  Partner  unexpectedly  receives  any  adjustments,
allocations,   or  distributions   described  in  Treasury  Regulations  Section
1.704-1(b)(2)(ii)(d)(4),    Section    1.704-1(b)(2)(ii)(d)(5),    or    Section
1.704-1(b)(2)(ii)(d)(6), items of Partnership income and gain shall be specially
allocated to each such Partner in an amount and manner  sufficient to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such  Partner as quickly as  possible,  provided  that an  allocation
pursuant to this  Section  10.3(c)  shall be made if and only to the extent that
such Partner  would have an Adjusted  Capital  Account  Deficit  after all other
allocations  provided for in this Section 10.3 have been  tentatively made as if
this Section 10.3(c) were not in the Agreement.

     (d) In the event any  Partner has a deficit  Capital  Account at the end of
any Partnership fiscal year which is in excess of the sum of (i) the amount such
Partner is obligated  to restore,  and (ii) the amount such Partner is deemed to
be  obligated  to restore  pursuant  to the  penultimate  sentences  of Treasury
Regulations Sections 1.704-2(g)(1) and 1.704-2(i)(5), each such Partner shall be
specially  allocated items of Partnership  income and gain in the amount of such

                                       37
<PAGE>

excess as quickly as  possible,  provided  that an  allocation  pursuant to this
Section  10.3(d) shall be made if and only to the extent that such Partner would
have a deficit Capital Account in excess of such sum after all other allocations
provided for in this Section 10.3 have been  tentatively made as if this Section
10.3(d) and Section 10.3(c) hereof were not in the Agreement.

     (e) Nonrecourse Deductions for any fiscal year shall be specially allocated
99.98% to the Limited  Partner,  .01% to the Special Limited Partner and .01% to
the General Partner.

     (f) Any  Partner  Nonrecourse  Deductions  for any  fiscal  year  shall  be
specially  allocated  to the  Partner who bears the  economic  risk of loss with
respect  to the  Partner  Nonrecourse  Debt to which  such  Partner  Nonrecourse
Deductions are  attributable  in accordance  with Treasury  Regulations  Section
1.704-2(i)(1).

     (g)  To  the  extent  an  adjustment  to  the  adjusted  tax  basis  of any
Partnership  asset  pursuant to Code Section  734(b) or Code  Section  743(b) is
required,  pursuant to Treasury Regulations Section  1.704-1(b)(2)(iv)(m)(2)  or
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining Capital
Accounts as the result of a distribution to a Partner in complete liquidation of
his interest in the  Partnership,  the amount of such  adjustment to the Capital
Accounts  shall be treated as an item of gain (if the  adjustment  increases the
basis of the asset) or loss (if the  adjustment  decreases  such basis) and such
gain or loss shall be specially  allocated to the  Partners in  accordance  with
their  interests  in the  Partnership  in the event  that  Treasury  Regulations
Section  1.704-1  (b)(2)(iv)(m)(2)  applies,  or to the  Partner  to  whom  such
distribution   was  made  in  the  event  that  Treasury   Regulations   Section
1.704-1(b)(2)(iv)(m)(4) applies.

     (h) To the extent the Partnership has taxable  interest income with respect
to any  promissory  note pursuant to Section 483 or Section 1271 through 1288 of
the Code:

                  (1) such  interest income shall be specially allocated to  the
Limited  Partner to whom such  promissory  note relates; and

                  (2) the amount of such interest  income shall be excluded from
the  Capital  Contributions  credited  to  such  Partner's  Capital  Account  in
connection with payments of principal with respect to such promissory note.

     (i) In the  event  the  adjusted  tax basis of any  investment  tax  credit
property  that has been  placed  in  service  by the  Partnership  is  increased
pursuant to Code Section 50(c), such increase shall be specially allocated among
the  Partners  (as an  item  in the  nature  of  income  or  gain)  in the  same
proportions as the investment tax credit that is recaptured with respect to such
property is shared among the Partners.

     (j) Any  reduction  in the  adjusted  tax basis  (or  cost) of  Partnership
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated among the Partners (as an item in the nature of expenses or losses) in
the same  proportions  as the  basis  (or cost) of such  property  is  allocated
pursuant to Treasury Regulations Section 1.46-3(f)(2)(i).

     (k) Any income,  gain,  loss or deduction  realized as a direct or indirect
result of the issuance of an interest in the Partnership by the Partnership to a
Partner (the "Issuance Items") shall be allocated among the Partners so that, to

                                       38
<PAGE>

the extent  possible,  the net amount of such Issuance Items,  together with all
other  allocations  under this Agreement to each Partner,  shall be equal to the
net amount that would have been  allocated  to each such Partner if the Issuance
Items had not been realized.

     (l) If any  Partnership  expenditure  treated as a deduction on its federal
income tax return is  disallowed  as a deduction  and treated as a  distribution
pursuant to Section 731(a) of the Code,  there shall be a special  allocation of
gross income to the Partner deemed to have received such  distribution  equal to
the amount of such distribution.

     (m)  The  allocation  to the  General  Partner  of  each  material  item of
Partnership income,  loss,  deduction or credit will not be less than 1% of each
such item at all times during the existence of the Partnership.

     (n)  Interest  deduction  on the  Partnership  indebtedness  referred to in
Section 6.3 shall be allocated 100% to the General Partner.

     (o) In the event all or part of the Incentive  Management Fee is disallowed
by the Internal Revenue Service,  then any interest or income  chargeable to the
Partnership for such disallowance shall be allocated to the General Partner.

         Section  10.4  Curative  Allocations.  The  allocations  set  forth  in
Sections 10.2(c),  10.3(a),  10.3(b),  10.3(c),  10.3(d),  10.3(e), 10.3(f), and
10.3(g)  hereof  (the  "Regulatory  Allocations")  are  intended  to comply with
certain  requirements  of the  Treasury  Regulations.  It is the  intent  of the
Partners  that, to the extent  possible,  all  Regulatory  Allocations  shall be
offset either with other Regulatory  Allocations or with special  allocations of
other items of Partnership  income,  gain,  loss, or deduction  pursuant to this
Section 10.4.  Therefore,  notwithstanding any other provision of this Article X
(other than the Regulatory Allocations), with the Consent of the Special Limited
Partner,  the General Partner shall make such offsetting special  allocations of
Partnership  income,  gain,  loss,  or deduction in whatever  manner the General
Partner, with the Consent of the Special Limited Partner, determines appropriate
so that,  after such offsetting  allocations  are made,  each Partner's  Capital
Account balance is, to the extent possible, equal to the Capital Account balance
such Partner would have had if the Regulatory  Allocations  were not part of the
Agreement and all  Partnership  items were allocated  pursuant to Sections 10.1,
10.2(a),  10.2(b), 10.3(h), 10.3(i), 10.3(j), 10.3(k), 10.3(l), 10.3(m), 10.3(n)
and 10.5. In  exercising  its  authority  under this Section  10.4,  the General
Partner  shall take into account  future  Regulatory  Allocations  under Section
10.3(a) and 10.3(b)  that,  although  not yet made,  are likely to offset  other
Regulatory Allocations previously made under Sections 10.3(e) and 10.3(f).

                                       39
<PAGE>

         Section 10.5  Other Allocation Rules.

     (a) The basis (or cost) of any  Partnership  investment tax credit property
shall be allocated  among the Partners in accordance  with Treasury  Regulations
Section 1.46-3(f)(2)(i).  All Tax Credits (other than the investment tax credit)
shall be  allocated  among the  Partners  in  accordance  with  applicable  law.
Consistent with the foregoing,  the Partners intend that LIHTC will be allocated
99.98% to the Limited  Partner,  .01% to the Special Limited Partner and .01% to
the General Partner.

     (b) In the event Partnership investment tax credit property is disposed
of during any taxable  year,  profits for such taxable year (and,  to the extent
such  profits are  insufficient,  profits for  subsequent  taxable  years) in an
amount  equal to the excess,  if any, of (1) the  reduction  in the adjusted tax
basis (or cost) of such property  pursuant to Code Section  50(c),  over (2) any
increase in the  adjusted  tax basis of such  property  pursuant to Code Section
50(c) caused by the  disposition  of such  property,  shall be excluded from the
profits allocated  pursuant to Section 10.1 and Section 10.2(a) hereof and shall
instead be allocated among the Partners in proportion to their respective shares
of such excess,  determined  pursuant to Section 10.3(i) and 10.3(j) hereof.  In
the event more than one item of such property is disposed of by the Partnership,
the foregoing  sentence shall apply to such items in the order in which they are
disposed of by the  Partnership,  so the profits  equal to the entire  amount of
such  excess  with  respect  to the first  such  property  disposed  of shall be
allocated  prior to any  allocations  with  respect to the second such  property
disposed of, and so forth.

     (c) For  purposes of  determining  the Income,  Losses,  or any other items
allocable  to any  period,  Income,  Losses,  and any such other  items shall be
determined  on a daily,  monthly,  or other basis,  as determined by the General
Partner with the Consent of the Special Limited  Partner,  using any permissible
method under Code Section 706 and the Treasury Regulations thereunder.

     (d) Solely for purposes of determining a Partner's  proportionate  share of
the "excess  nonrecourse  liabilities" of the Partnership  within the meaning of
Treasury   Regulations  Section   1.752-3(a)(3),   the  Partners'  interests  in
Partnership  profits are as follows:  Limited Partner:  99.98%;  Special Limited
Partner: .01%; and General Partner: .01%.

     (e) To the extent permitted by Section 1.704-2(h)(3) of the Treasury
Regulations, the General Partner shall endeavor to treat Distributions as having
been made from the proceeds of a Nonrecourse  Liability or a Partner Nonrecourse
Debt only to the extent  that such  Distributions  would  cause or  increase  an
Adjusted Capital Account Deficit for any Partner who is not a General Partner.

     (f) In the event that the  deduction of all or a portion of any fee paid or
incurred  out of Net  Operating  Income by the  Partnership  to a Partner  or an
Affiliate  of a Partner is  disallowed  for federal  income tax  purposes by the
Internal Revenue Service with respect to a taxable year of the Partnership,  the
Partnership shall then allocate to such Partner an amount of gross income of the
Partnership  for such  year  equal  to the  amount  of such fee as to which  the
deduction is disallowed.

         Section 10.6 Tax Allocations:  Code Section 704(c).  In accordance with
Code Section 704(c) and the Treasury Regulations thereunder, income, gain, loss,
and  deduction  with respect to any property  contributed  to the capital of the

                                       40
<PAGE>

Partnership shall,  solely for tax purposes,  be allocated among the Partners so
as to take account of any variation  between the adjusted basis of such property
to the  Partnership  for federal income tax purposes and its initial Gross Asset
Value (computed in accordance with Section 1.36(a) hereof).

         In the event the Gross Asset Value of any Partnership asset is adjusted
pursuant to Section  1.36(b)  hereof,  subsequent  allocations of income,  gain,
loss,  and  deduction  with  respect  to such asset  shall  take  account of any
variation  between  the  adjusted  basis of such  asset for  federal  income tax
purposes  and its Gross  Asset  Value in the same  manner as under Code  Section
704(c) and the Treasury Regulations thereunder.

         Any elections or other decisions  relating to such allocations shall be
made by the General  Partner with the Consent of the Special  Limited Partner in
any manner that reasonably reflects the purpose and intention of this Agreement.
Allocations  pursuant to this  Section  10.6 are solely for purposes of federal,
state, and local taxes and shall not affect, or in any way be taken into account
in computing,  any Person's  Capital Account or share of Income,  Losses,  other
items, or distributions pursuant to any provision of this Agreement.

         Section 10.7 Allocation Among Limited  Partners.  In the event that the
Interest of the Limited  Partner  hereunder is at any time held by more than one
Limited  Partner  all items  which are  specifically  allocated  to the  Limited
Partner for any month pursuant to this Article X shall be apportioned among such
Persons according to the ratio of their respective  profit-sharing  interests in
the Partnership at the last day of such month.

         Section 10.8 Allocation Among General  Partners.  In the event that the
Interest of the General  Partner  hereunder is at any time held by more than one
General  Partner  all items  which are  specifically  allocated  to the  General
Partner for any month pursuant to this Article X shall be apportioned among such
Persons in such  percentages as may from time to time be determined by agreement
among them without amendment to this Agreement or consent of the Limited Partner
or Consent of the Special Limited Partner.

         Section 10.9 Modification of Allocations.  The provisions of Articles X
and XI and other  provisions  of this  Agreement  are  intended  to comply  with
Treasury  Regulations  Section 1.704 and shall be  interpreted  and applied in a
manner  consistent with such section of the Treasury  Regulations.  In the event
that the General Partner determines, in its sole discretion,  that it is prudent
to modify the manner in which the Capital Accounts of the Partners, or any debit
or credit  thereto,  are  computed in order to comply  with such  section of the
Treasury Regulations,  the General Partner may make such modification,  but only
with  the  Consent  of  the  Special  Limited  Partner,  to the  minimum  extent
necessary,  to effect the plan of  allocations  and  Distributions  provided for
elsewhere  in this  Agreement.  Further,  the  General  Partner  shall  make any
appropriate  modifications,  but only with the  Consent of the  Special  Limited
Partner, in the event it appears that unanticipated  events (e.g., the existence
of a Partnership  election  pursuant to Code Section 754) might  otherwise cause
this Agreement not to comply with Treasury Regulation Section 1.704.

                                       41
<PAGE>

                                   ARTICLE XI

                                  DISTRIBUTION

         Section 11.1 Distribution of Net Operating Income.  Except as otherwise
provided,  Net Operating Income for each fiscal year shall be distributed within
seventy-five  (75) days following each calendar year and shall be applied in the
following order of priority:

     (a) to pay the current  Reporting Fee and then to pay any accrued Reporting
Fees which have not been paid in full from previous years;

     (b) to pay the Development Fee;

     (c) to pay the  Operating  Loans,  if any, as  referenced in Section 6.3 of
this  Agreement,  limited to 50% of the Net  Operating  Income  remaining  after
reduction for the payments made pursuant to subsections  (a) through (c) of this
Section 11.1;

     (d) to pay the Incentive Management Fee;

     (e) to pay the Deferred Management Fee;

     (f) to pay the Tax Credit Compliance Fee; and

     (g) the balance, 30% to the Limited Partner and 70% to the General Partner.

         Section 11.2 Distribution  of Sale or  Refinancing  Proceeds.  Sale or
Refinancing  Proceeds shall be distributed in the following order:

     (a) to the payment of the Mortgage and other matured debts and  liabilities
of the  Partnership,  other than accrued  payments,  debts or other  liabilities
owing to Partners or former Partners;

     (b) to the  establishment of any reserves which the General  Partner,  with
the Consent of the Special Limited Partner,  shall deem reasonably necessary for
contingent,   unmatured  or  unforeseen   liabilities   or  obligations  of  the
Partnership; and

     (c) thereafter, 50% to the Limited Partner and 50% to the General Partner.

                                       42
<PAGE>

                                   ARTICLE XII

                              TRANSFERS OF LIMITED
                      PARTNER'S INTEREST IN THE PARTNERSHIP

         Section 12.1  Assignment  of Limited  Partner's  Interest.  The Limited
Partner and Special  Limited  Partner  shall have the right to assign all or any
part of  their  respective  Interests  to any  other  Person,  whether  or not a
Partner, upon satisfaction of the following:

         (a) a written  instrument  in form and  substance  satisfactory  to the
General  Partner  and its  counsel,  setting  forth the name and  address of the
proposed transferee,  the nature and extent of the Interest which is proposed to
be transferred  and the terms and conditions upon which the transfer is proposed
to be made,  stating that the Assignee  accepts and agrees to be bound by all of
the terms and provisions of this Agreement, and providing for the payment of all
reasonable  expenses  incurred  by  the  Partnership  in  connection  with  such
assignment,  including  but not limited to the cost of preparing  any  necessary
amendment to this Agreement;

     (b) upon consent of the General Partner to such  assignment,  which consent
shall not be unreasonably withheld; and

     (c)  upon  receipt  by  the  General  Partner  of  the  Assignee's  written
representation  that the Partnership  Interest is to be acquired by the Assignee
for the  Assignee's  own account for  long-term  investment  and not with a view
toward resale, fractionalization, division or distribution thereof.

     (d) Notwithstanding any provision to the contrary,  the Limited Partner may
assign  its  Interest  to an  Affiliate  or  assign  its  Interest  to  Southern
California Bank or its successors as collateral to secure a capital contribution
loan without satisfying the conditions of Sections 12.1(a) through (c) above.

         THE LIMITED  PARTNERSHIP  INTEREST AND THE SPECIAL LIMITED  PARTNERSHIP
INTEREST  DESCRIBED  HEREIN HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AS AMENDED OR UNDER ANY STATE  SECURITIES  LAW. THESE  INTERESTS MAY NOT BE
SOLD OR OTHERWISE  TRANSFERRED  UNLESS  REGISTERED UNDER APPLICABLE  FEDERAL AND
STATE SECURITIES LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE.

         Section 12.2  Effective  Date of Transfer.  Any assignment of a Limited
Partner's  Interest or Special Limited  Partner's  Interest  pursuant to Section
12.1 shall become  effective  as of the last day of the calendar  month in which
the last of the conditions to such assignment are satisfied.

         Section  12.3  Invalid  Assignment.  Any  purported  assignment  of  an
Interest  of a Limited  Partner or Special  Limited  Partner  otherwise  than in
accordance  with  Section  12.1 or Section 12.6 shall be of no effect as between
the  Partnership  and the  purported  assignee and shall be  disregarded  by the
General Partner in making allocations and Distributions hereunder.

                                       43
<PAGE>

         Section 12.4  Assignee's  Rights to Allocations and  Distributions.  An
Assignee shall be entitled to receive  allocations  and  Distributions  from the
Partnership  attributable  to the Interest  acquired by reason of any  permitted
assignment from and after the first day of the calendar month of the transfer of
such  Interest as  provided in Section  12.2.  The  Partnership  and the General
Partner shall be entitled to treat the assignor of such Partnership  Interest as
the absolute  owner  thereof in all  respects,  and shall incur no liability for
allocations and  Distributions  made in good faith to such assignor,  until such
time  as  the  written  instrument  of  assignment  has  been  received  by  the
Partnership.

         Section 12.5 Substitution of Assignee as Limited Partner or Special
Limited Partner.

     (a) An Assignee shall not have the right to become a Substitute Limited
Partner or Substitute  Special  Limited  Partner in place of his assignor unless
the written consent of the General Partner to such substitution  shall have been
obtained,  which consent, in the General Partner's absolute  discretion,  may be
withheld;  except that an Assignee which is an Affiliate of the Limited  Partner
or Special Limited Partner, or Southern  California Bank or its successors,  may
become a  Substitute  Limited  Partner or  Substitute  Special  Limited  Partner
without the consent of the General Partner.

     (b) A  nonadmitted  transferee of a Limited  Partner's  Interest or Special
Limited Partner's  Interest in the Partnership shall only be entitled to receive
that share of allocations,  Distributions and the return of Capital Contribution
to which its transferor  would  otherwise have been entitled with respect to the
Interest  transferred,  and shall  have no right to obtain  any  information  on
account of the Partnership's  transactions,  to inspect the Partnership's  books
and records or have any other of the rights and privileges of a Limited  Partner
or Special Limited Partner, provided,  however, that the Partnership shall, if a
transferee  and transferor  jointly  advise the General  Partner in writing of a
transfer  of an  Interest  in  the  Partnership,  furnish  the  transferee  with
pertinent tax information at the end of each fiscal year of the Partnership.

     (c) The General  Partner may elect to treat a transferee  of a  Partnership
Interest who has not become a Substitute  Limited Partner or substitute  Special
Limited Partner as a Substitute  Limited  Partner or substitute  Special Limited
Partner,  as the case may be, in the place of its transferor  should the General
Partner determine in its absolute  discretion that such treatment is in the best
interest of the Partnership.

         Section  12.6  Death,  Bankruptcy,  Incompetency,  etc.  of  a  Limited
Partner.   Upon  the  death,   dissolution,   adjudication  of  bankruptcy,   or
adjudication of incompetency or insanity of a Limited Partner or Special Limited
Partner, such Partner's executors, administrators or legal representatives shall
have all the rights of a Limited Partner or Special Limited Partner, as the case
may be, for the purpose of settling or managing such Partner's estate, including
such power as such Partner  possessed to  constitute a successor as a transferee
of its Interest in the  Partnership  and to join with such  transferee in making
the  application  to  substitute  such  transferee as a Partner.  However,  such
executors,  administrators or legal  representatives  will not have the right to
become Substitute Limited Partners or substitute Special Limited Partners in the
place of their  respective  predecessors-in-interest  unless the General Partner
shall so consent.

                                       44
<PAGE>

                                  ARTICLE XIII

                     WITHDRAWAL, REMOVAL AND REPLACEMENT OF
                                 GENERAL PARTNER

         Section 13.1      Withdrawal of General Partner.

     (a) The General Partner may not Withdraw (other than as a result of an
Involuntary Withdrawal) without the Consent of the Special Limited Partner, and,
to the extent  required,  of Not Applicable,  Not Applicable and Not Applicable.
Withdrawal  shall be  conditioned  upon the  agreement  of the  Special  Limited
Partner to be admitted as a successor General Partner, or if the Special Limited
Partner  declines  to be admitted as a  successor  General  Partner  then on the
agreement of one or more Persons who satisfy the requirements of Section 13.5 of
this Agreement to be admitted as successor General Partner(s).

     (b) Each General  Partner shall indemnify and hold harmless the Partnership
and all Partners  from its  Withdrawal in violation of Section  13.1(a)  hereof.
Each General  Partner shall be liable for damages to the  Partnership  resulting
from its Withdrawal in violation of Section 13.1(a).

         Section 13.2      Removal of General Partner.

     (a) The Special  Limited Partner or the Limited  Partner,  or both of them,
may remove the General Partner for cause if such General  Partner,  its officers
or directors, if applicable, has:

                  (1) been subject to Bankruptcy;

                  (2) committed  any  fraud,  willful  misconduct,  breach of
fiduciary  duty or other  negligent  conduct in the performance of its duties
under this Agreement;

                  (3) been convicted of, or entered into a plea of guilty to, a
felony;

                  (4) been disbarred from participating in any federal or state
housing program;

                  (5) made personal use of Partnership funds or properties;

                  (6)  violated  the terms of the  Mortgage  and such  violation
prompts Mortgage under FmHA to issue a default letter or acceleration  notice to
the Partnership or General Partner;

                  (7) failed to provide any loan, advance,  Capital Contribution
or any other  payment to the  Partnership,  the  Limited  Partner or the Special
Limited Partner required under this Agreement;

                  (8) breached any representation, warranty or covenant
contained in this Agreement;

                  (9) caused the  Projected  Tax Credits to be  allocated to the
Partners for a term longer than the Tax Credit Period  unless the  provisions of
Section 7.4(e) of this Agreement apply;

                                       45
<PAGE>

                  (10) failed to provide,  or to cause to be provided,  the
construction  monitoring  documents required in Section 14.3(a) of this
Agreement;

                  (11) violated any federal or state tax law which causes a
recapture of LIHTC; or

                  (12) failed during any six-month  period during the Compliance
Period  to cause at least  85% of the  total  apartment  units in the  Apartment
Housing to qualify for LIHTC, unless such failure is the result of Force Majeure
or unless such failure is cured  within 120 days after the end of the  six-month
period.

     (b)  Written  notice  of the  removal  for  cause  of the  General  Partner
("Removal  Notice")  shall set forth the reasons for removal and shall be served
by the Special Limited Partner or the Limited Partner, or both of them, upon the
General  Partner  either by  certified or by  registered  mail,  return  receipt
requested, or by personal service. If Section 13.2(a)(2), (6), (7) or (8) is the
basis for the removal for cause, then the General Partner shall have thirty days
from  receipt  of the  Removal  Notice in which to cure the  removal  condition;
except that in regard to the  Mortgage  the cure  period  shall be the sooner of
thirty days or ten days prior to the expiration of the cure period referenced in
the loan  documents,  if any. If the  condition for the removal for cause is not
cured within the thirty day cure period then the General Partner's removal shall
become  effective on the first day following the  expiration of the cure period,
or, thirty-one days from the General Partner's receipt of the Removal Notice. If
the removal for cause is for a condition referenced in Sections 13.2(a)(1), (3),
(4), (5), (9), (10),  (11) or (12) then the removal shall become  effective upon
the General Partner's receipt of the Removal Notice.  Upon the General Partner's
removal, the General Partner shall deliver to the Special Limited Partner within
five business days of the termination of the cure period,  or five business days
of the  Removal  Notice all  Partnership  books and records  including  all bank
signature  cards and an  authorization  to change the signature on the signature
cards from the General  Partner to the Special Limited  Partner,  or a successor
general partner so nominated by the Limited Partner and Special Limited Partner.
The Partner's  recognize and  acknowledge  that if the General  Partner fails to
provide the  Partnership  books and records upon the General  Partner's  removal
then the remaining Partners may suffer  irreparable  injury.  Therefore,  in the
event the General  Partner  does not adhere to the  provisions  of this  Section
13.2(b),  and in addition to other  rights or remedies  which may be provided by
law and equity or this  Agreement,  the Limited  Partner and/or Special  Limited
Partner  shall have the right to  specific  performance  to compel  the  General
Partner to perform its  obligation  under this  Section and the Limited  Partner
and/or  Special  Limited  Partner may bring such  action,  and other  actions to
enforce the removal, by way of temporary and/or permanent injunctive relief.

         Section 13.3 Effects of a Withdrawal. In the event of a Withdrawal, the
entire  Interest  of the  Withdrawing  General  Partner  shall  immediately  and
automatically  terminate  on the  effective  date of such  Withdrawal,  and such
General Partner shall immediately  cease to be a General Partner,  shall have no
further right to participate  in the management or operation of the  Partnership

                                       46
<PAGE>

or the Apartment Housing or to receive any allocations or Distributions from the
Partnership  or any  other  funds  or  assets  of  the  Partnership,  except  as
specifically set forth below. In the event of a Withdrawal, any or all executory
contracts,  including but not limited to the Management  Agreement,  between the
Partnership  and  the  Withdrawing  General  Partner  or its  Affiliates  may be
terminated by the Partnership,  with the Consent of the Special Limited Partner,
upon written  notice to the party so  terminated.  Furthermore,  notwithstanding
such  Withdrawal,  the  Withdrawing  General  Partner shall be and shall remain,
liable as a General Partner for all liabilities and obligations  incurred by the
Partnership  or by the  General  Partner  prior  to the  effective  date  of the
Withdrawal, or which may arise upon such Withdrawal. Any remaining Partner shall
have all other rights and remedies  against the  Withdrawing  General Partner as
provided by law or under this Agreement.  The General Partner agrees that in the
event of its Withdrawal it will  indemnify and hold the Limited  Partner and the
Special Limited Partner harmless from and against all losses, costs and expenses
incurred in connection with the Withdrawal,  including,  without limitation, all
legal fees and other  expenses  of the Limited  Partner and the Special  Limited
Partner in connection with the transaction.  The following additional provisions
shall apply in the event of a Withdrawal.

     (a) In the event of a Withdrawal which is not an Involuntary Withdrawal, or
an Involuntary  Withdrawal in accordance with Section  13.2(a),  the Withdrawing
General Partner shall have no further right to receive any future allocations or
Distributions  from  the  Partnership  or  any  other  funds  or  assets  of the
Partnership,  nor  shall  it  be  entitled  to  receive  or to be  paid  by  the
Partnership any further  payments of fees (including fees which have been earned
but are unpaid) or to be repaid any outstanding  advances or loans made by it to
the Partnership or to be paid any amount for its former Interest. From and after
the effective  date of such  Withdrawal,  the former  rights of the  Withdrawing
General Partner to receive or to be paid such allocations, Distributions, funds,
assets,  fees or repayments  shall be assigned to the other  General  Partner or
General Partners (which may include the Special Limited Partner), or if there is
no other general partner of the Partnership at that time, to the Special Limited
Partner.

     (b) In the event of an  Involuntary  Withdrawal,  except as provided in the
preceding  paragraph or in Section  13.3(b)(2)  below,  the Withdrawing  General
Partner  shall  have no  further  right to receive  any  future  allocations  or
Distributions  from  the  Partnership  or  any  other  funds  or  assets  of the
Partnership,  provided  that  accrued  and payable  fees (i.e.,  fees earned but
unpaid as of the date of Withdrawal)  owed to the Withdrawing  General  Partner,
and any outstanding loans of the Withdrawing General Partner to the Partnership,
shall be paid to the Withdrawing  General Partner in the manner and at the times
such fees and loans would have been paid had the Withdrawing General Partner not
Withdrawn. The Interest of the General Partner shall be purchased as follows.

                  (1) If the Involuntary  Withdrawal does not arise from removal
for  cause  under  Section  13.2(a)  hereof,  and  if the  Partnership  is to be
continued  with one or more  remaining  or  successor  General  Partner(s),  the
Partnership,  with the Consent of the Special Limited  Partner,  may, but is not
obligated  to,  purchase  the  Interest of the  Withdrawing  General  Partner in
Partnership  allocations,  Distributions and capital. The purchase price of such
Interest  shall be its Fair Market Value as determined by agreement  between the
Withdrawing General Partner and the Special Limited Partner,  or, if they cannot
agree,  by arbitration in accordance with the then current rules of the American
Arbitration Association.  The cost of such arbitration shall be borne equally by
the Withdrawing General Partner and the Partnership. The purchase price shall be
paid  by  the   Partnership  by  delivering  to  the  General   Partner  or  its
representative the Partnership's  non-interest bearing unsecured promissory note
payable,  if at all, upon  liquidation  of the  Partnership  in accordance  with
Section 11.2(b). The note shall also provide that the Partnership may prepay all
or any part thereof without penalty.

                                       47
<PAGE>

                  (2) If the Involuntary  Withdrawal does not arise from removal
for  cause  under  Section  13.2(a)  hereof,  and  if the  Partnership  is to be
continued with one or more remaining or successor General Partner(s), and if the
Partnership does not purchase the Interest of the Withdrawing General Partner in
Partnership allocations, Distributions and capital, then the Withdrawing General
Partner shall retain its Interest in such items, but such Interest shall be held
as a special limited partner.

     (c) Notwithstanding the provisions of Section 13.3(b), if the
Involuntary  Withdrawal  arises  from  removal for cause as set forth in Section
13.2(a)  hereof,  the Withdrawn  General  Partner shall have no further right to
receive any future  allocations  or  Distributions  from the  Partnership or any
other funds or assets of the Partnership, nor shall it be entitled to receive or
to be paid by the Partnership or any Partners or successor partners, any further
payments of fees (including fees which have been earned but remain unpaid) or to
be repaid any outstanding advances or loans made by it to the Partnership.

         Section 13.4 Successor General Partner. Upon the occurrence of an event
giving rise to a Withdrawal of a General Partner, any remaining General Partner,
or, if there be no remaining General Partner, the Withdrawing General Partner or
its legal  representative,  shall promptly notify the Special Limited Partner of
such Withdrawal (the "Withdrawal Notice").  Whether or not the Withdrawal Notice
shall have been sent as provided herein,  the Special Limited Partner shall have
the right to become a successor  General  Partner  (and to become the  successor
managing  General Partner if the Withdrawing  General Partner was previously the
managing General Partner). In order to effectuate the provisions of this Section
13.4 and the continuance of the Partnership, the Withdrawal of a General Partner
shall not be effective  until the  expiration of 120 days from the date on which
occurred the event  giving rise to the  Withdrawal,  unless the Special  Limited
Partner  shall have  elected to become a successor  General  Partner as provided
herein prior to expiration of such 120-day  period,  whereupon the Withdrawal of
the General Partner shall be deemed  effective upon the  notification of all the
other Partners by the Special Limited Partner of such election.

         Section 13.5 Admission of Additional or Successor  General Partner.  No
Person shall be admitted as an additional or successor  General  Partner  unless
(a) such  Person  shall  have  agreed to become a General  Partner  by a written
instrument  which shall include the acceptance  and adoption of this  Agreement;
(b) the Consent of the Special  Limited  Partner to the admission of such Person
as a substitute General Partner, which consent may be withheld in the discretion
of the Special Limited Partner, shall have been given; and (c) such Person shall
have executed and acknowledged any other  instruments  which the Special Limited
Partner shall  reasonably  deem necessary or appropriate to affect the admission
of such Person as a substitute General Partner. If the foregoing  conditions are
satisfied,  this Agreement shall be amended in accordance with the provisions of
the Act,  and all other steps shall be taken which are  reasonably  necessary to
effect the Withdrawal of the Withdrawing General Partner and the substitution of
the successor General Partner. Nothing contained herein shall reduce the Limited
Partner's Interest or the Special Limited Partner's Interest in the Partnership.

         Section 13.6 Transfer of Interest. Except as otherwise provided herein,
the General  Partner may not Withdraw  from the  Partnership,  or enter into any
agreement  as the result of which any Person  shall  acquire an  Interest in the
Partnership, without the Consent of the Special Limited Partner.

                                       48
<PAGE>

         Section 13.7 No Goodwill Value.  At no time during  continuation of the
Partnership shall any value ever be placed on the Partnership name, or the right
to its use, or to the goodwill  appertaining to the Partnership or its business,
either as among the Partners or for the purpose of determining  the value of any
Interest,  nor shall the legal  representatives of any Partner have any right to
claim any such  value.  In the event of a  termination  and  dissolution  of the
Partnership as provided in this Agreement, neither the Partnership name, nor the
right to its use, nor the same goodwill, if any, shall be considered as an asset
of the  Partnership,  and no  valuation  shall be put thereon for the purpose of
liquidation or distribution, or for any other purpose whatsoever.

                                   ARTICLE XIV

                          BOOKS AND ACCOUNTS, REPORTS,
                      TAX RETURNS, FISCAL YEAR AND BANKING

         Section 14.1 Books and Accounts.

     (a) The General Partner shall cause the Partnership to keep and
maintain at its principal  executive  office full and complete books and records
which shall include each of the following:

                  (1) a current list of the full name and last known business or
residence address of each Partner set forth in alphabetical  order together with
the Capital Contribution and the share in Income and Losses of each Partner;

                  (2) a copy of the  Certificate of Limited  Partnership and all
certificates of amendment  thereto,  together with executed copies of any powers
of attorney pursuant to which any certificate has been executed;

                  (3) copies  of  the  Partnership's  federal,  state and  local
income tax information  returns and reports,  if any, for the  six  most  recent
taxable years;

                  (4) copies  of   the  original   of  this  Agreement  and  all
amendments thereto;

                  (5) financial  statements  of the Partnership for the six most
recent fiscal years;

                  (6) the  Partnership's  books  and  records  for  at least the
current and past three fiscal years; and

                  (7) in regard to the first  tenants  to occupy  the  apartment
units in the Apartment Housing,  copies of all tenant files including  completed
applications,  completed  questionnaires  or  checklist  of income  and  assets,
documentation  of third  party  verification  of income and  assets,  and income
certification forms (LIHTC specific).

         (b) Upon the request of the Limited Partner,  the General Partner shall
promptly  deliver to the Limited Partner,  at the expense of the Partnership,  a
copy of the information set forth in Section 14.1(a) above.  The Limited Partner

                                       49
<PAGE>

shall have the right upon reasonable request and during normal business hours to
inspect and copy any of the foregoing,  or any of the other books and records of
the Partnership or the Apartment Housing, at its own expense.

         Section 14.2      Accounting Reports.

     (a) By February 20 of each calendar year the General  Partner shall provide
to the  Limited  Partner  and the Special  Limited  Partner all tax  information
necessary for the  preparation of their federal and state income tax returns and
other tax returns with regard to the jurisdiction(s) in which the Partnership is
formed and in which the Apartment Housing is located.

     (b) By March 1 of each calendar year the General  Partner shall send to the
Limited Partner and the Special Limited  Partner:  (1) a balance sheet as of the
end of such fiscal year and statements of income,  Partners'  equity and changes
in cash flow for such fiscal year prepared in accordance with generally accepted
accounting  principles  and  accompanied  by an auditor's  report  containing an
opinion  of the  Partnership's  Accountants;  (2) a  report  (which  need not be
audited)  of any  Distributions  made  at  any  time  during  the  fiscal  year,
separately  identifying  Distributions  from Net Operating Income for the fiscal
year, Net Operating Income for prior years,  Sale or Refinancing  Proceeds,  and
reserves;  and (3) a report  setting  forth  the  amount  of all fees and  other
compensation and Distributions  and reimbursed  expenses paid by the Partnership
for the fiscal year to the General  Partner or Affiliates of the General Partner
and the services  performed  in  consideration  therefor,  which report shall be
verified by the  Partnership's  Accountants,  with the method of verification to
include, at a minimum, a review of the time records of individual employees, the
costs of whose services were reimbursed,  and a review of the specific nature of
the work  performed by each such  employee,  all in  accordance  with  generally
accepted  auditing  standards  and,  accordingly,  including  such  tests of the
accounting  records  and  such  other  auditing  procedures  as the  Accountants
consider appropriate in the circumstances.

     (c) Within 60 days after the end of each fiscal  quarter in which a Sale or
Refinancing of the Apartment  Housing occurs,  the General Partner shall send to
the Limited Partner and the Special Limited Partner a report as to the nature of
the Sale or  Refinancing  and as to the Income and Losses for tax  purposes  and
proceeds arising from the Sale or Refinancing.

         Section 14.3 Other Reports.  The General  Partner shall provide to the
Limited  Partner and the Special  Limited  Partner the following reports:

     (a) during construction, on a regular basis, but in no event less than once
a month,  a copy of the  Inspecting  Architect's  report and other  construction
reports  including,  but not limited to, (1) the name of each person  performing
work on the Improvements or providing  materials for the Improvements,  the work
performed or materials supplied by said person and the code number corresponding
to the line item in the  Construction  Budget which the person will be paid, (2)
an original AIA Document G702, or similar form acceptable to the Special Limited
Partner,  (3) if not included in the  Inspecting  Architect's  report or the AIA
Document G702, a line item  break-down of the  Construction  Budget (which shall

                                       50
<PAGE>

include,  description of work to be performed or materials to be supplied; total
dollar  amount  of the  work or  materials;  dollar  amount  of work  previously
completed  and paid or  materials  supplied and paid;  dollar  amount of work or
materials  to be paid per the current  disbursement  request;  dollar  amount of
materials  stored;  total dollar  amount of work  completed and stored as of the
current  disbursement date;  percentage of completion;  dollar amount of work or
materials needed to complete the line item; and retainage), (4) a reconciliation
of the sources and uses to determine that the Construction  Budget is in balance
and there are sufficient funds to complete the construction of the Improvements,
and (5)  copies  of lien  releases,  or  waivers,  from the  Contractor  and all
sub-contractors or material suppliers who were paid the previous month;

     (b) during the rent-up  phase,  and  continuing  until the end of the first
six-month period during which the Apartment Housing has a sustained occupancy of
95% or better,  by the  twentieth day of each month within such period a copy of
the previous  month's rent roll (through the last day of the month) and a tenant
LIHTC compliance  worksheet similar to the monthly initial tenant  certification
worksheet  included in Exhibit "G" attached  hereto and  incorporated  herein by
this reference;

     (c) a  quarterly  tax credit  compliance  report  similar to the  worksheet
included  in  Exhibit  "G" due on or before  April 30 of each year for the first
quarter,  July 31 of each year for the second  quarter,  October 31 of each year
for the third  quarter  and January 31 of each year for the fourth  quarter.  In
order to  verify  the  reliability  of the  information  being  provided  on the
compliance  report the Limited  Partner  may request a small  sampling of tenant
files to be provided.  The sampling will include,  but not be limited to, copies
of tenant  applications,  certifications  and third party  verifications used to
qualify  tenants.  If any  inaccuracies  are  found to  exist on the tax  credit
compliance report or any items of noncompliance are discovered then the sampling
will be expanded as determined by the Limited Partner;

     (d) a  quarterly  report  on  operations,  in the form  attached  hereto as
Exhibit  "G",  due on or before  April 30 of each year for the first  quarter of
operations,  July 31 of each year for the second quarter of operations,  October
31 of each year for the third quarter of operations  and January 31 of each year
for the fourth quarter of operations which shall include, but is not limited to,
an  unaudited  income  statement  showing all  activity in the reserve  accounts
required to be maintained pursuant to Section VIII of this Agreement,  statement
of income and expenses,  balance sheet, rent roll as of the end of each calendar
quarter of each year, and third party verification of current utility allowance;

     (e) by September 15 of each year, an estimate of LIHTC for that year;

     (f) if the Apartment  Housing  receives a reservation  of LIHTC in one year
but will not  complete  the  construction  and rent-up  until a later  year,  an
audited cost certification  together with the Accountant's work papers verifying
that the Partnership  has expended the requisite 10% of the reasonably  expected
cost basis to meet the carryover test provisions of Section 42 of the Code. Such
certification  shall be  provided to the  Limited  Partner  and Special  Limited
Partner by December 31 of the year during which the  reservation  was  received.
Furthermore, if materials and supplies are purchased to meet the 10% requirement
then the General  Partner  shall  provide to the  Limited  Partner an opinion of
counsel that title to the  materials and supplies  pass to the  Partnership  and
that the Partnership bears the risk of loss of the materials and supplies;

     (g)  during  the  Compliance  Period,  no  later  than  the  day  any  such
certification is filed, copies of any certifications  which the Partnership must
furnish to  federal  or state  governmental  authorities  administering  the Tax
Credit  program  including,  but not  limited  to,  copies of all annual  tenant
recertifications required under Section 42 of the Code;

                                       51
<PAGE>

     (h) by the annual renewal date each and every year, an executed original or
certified copy of each and every Insurance policy or certificate required by the
terms of this Agreement;

     (i) by the payment  date of the real estate  property  taxes each and every
year verification that the same has been paid in full;

     (j) on or before  March 15th of each  calendar  year, a copy of the General
Partner's updated financial statement as of December 31 of the previous year;

     (k) on or before  November 1 of each calendar year, a copy of the following
year's  proposed  operating  budget.  Each such  Budget  shall  contain  all the
anticipated Cash Expenses of the Partnership.  Such Budget shall only be adopted
with the Consent of the Special Limited Partner; and

     (l) notice of the  occurrence,  or of the likelihood of occurrence,  of any
event which has had a material adverse effect upon the Apartment  Housing or the
Partnership,   including,  but  not  limited  to,  any  breach  of  any  of  the
representations and warranties set forth in Section 9.12 of this Agreement,  and
any inability of the  Partnership  to meet its cash  obligations  as they become
payable, within ten days after the occurrence of such event.

         Section 14.4 Late Reports.  If the General Partner does not fulfill its
obligations  under Section 14.2 within the time periods set forth  therein,  the
General Partner,  using its own funds,  shall pay as damages the sum of $100 per
week (plus interest at the rate established by Section 6.3 of this Agreement) to
the Limited Partner until such  obligations  shall have been  fulfilled.  If the
General  Partner  shall so fail to pay, the General  Partner and its  Affiliates
shall  forthwith  cease to be  entitled  to any fees  hereunder  (other than the
Development  Fee) and/or to the payment of any Net  Operating  Income or Sale or
Refinancing  Proceeds to which the General  Partner  may  otherwise  be entitled
hereunder.  Payments  of fees and  Distributions  shall be  restored  only  upon
payment of such damages in full.

         Section 14.5 Annual Site Visits. On an annual basis a representative of
the Limited Partner, at the Limited Partner's expense, will conduct a site visit
which will include,  in part,  an  inspection  of the property,  a review of the
office and tenant files and an interview with the property manager.  The Limited
Partner may, in its sole  discretion,  cancel all or any part of the annual site
visit.

         Section 14.6 Tax Returns.  The General  Partner  shall cause income tax
returns for the Partnership to be prepared and timely filed with the appropriate
federal, state and local taxing authorities.

         Section 14.7 Fiscal Year. The fiscal year of the  Partnership  shall be
the  calendar  year or such  other  period as may be  approved  by the  Internal
Revenue Service for federal income tax purposes.

         Section 14.8 Banking.  All funds of the Partnership  shall be deposited
in a separate  bank  account or accounts as shall be  determined  by the General
Partner  with the  Consent  of the  Special  Limited  Partner.  All  withdrawals
therefrom  shall be made upon  checks  signed by the  General  Partner or by any
person  authorized to do so by the General  Partner.  The General  Partner shall
provide to any Partner who requests  same the name and address of the  financial
institution,  the account  number and other relevant  information  regarding any
Partnership bank account.

                                       52
<PAGE>

         Section 14.9      Certificates and Elections.

         (a) The General Partner shall file the First Year Certificate within 90
days  following  the  close of the  taxable  year  during  which  Completion  of
Construction  occurs and thereafter shall timely file any certificates which the
Partnership   must  furnish  to  federal  or  state   governmental   authorities
administering the Tax Credit programs under Section 42 of the Code.

         (b) The  General  Partner,  with the  Consent  of the  Special  Limited
Partner,  may, but is not required to, cause the  Partnership  to make or revoke
the election referred to in Section 754 of the Code, as amended,  or any similar
provisions enacted in lieu thereof.

                                   ARTICLE XV

                      DISSOLUTION, WINDING UP, TERMINATION
                       AND LIQUIDATION OF THE PARTNERSHIP

         Section 15.1  Dissolution  of  Partnership.  The  Partnership  shall be
dissolved  upon the  expiration of its term or the earlier occurrence of any of
the following events.

     (a) The effective date of the Withdrawal or removal of the General Partner,
unless (1) at the time there is at least one other General Partner (which may be
the Special Limited  Partner if it elects to serve as successor  General Partner
under Section 13.4 hereof) who will continue as General  Partner,  or (2) within
120 days after the  occurrence of any such event the Limited  Partner  elects to
continue the business of the Partnership.

     (b) The sale of the  Apartment  Housing and the receipt in cash of the full
amount of the proceeds of such sale.

         Notwithstanding   the  foregoing,   however,  in  no  event  shall  the
Partnership  terminate  prior to the expiration of its term if such  termination
would result in a violation of the Mortgage or any other  agreement with or rule
or regulation of Not Applicable,  Not Applicable and Not Applicable to which the
Partnership is subject.

         Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided  in  Sections  7.3 and  7.4 of  this  Agreement,  which  provide  for a
reduction or refund of the Limited Partner's Capital  Contribution under certain
circumstances,  and which shall represent the personal obligation of the General
Partner,  as well as the obligation of the Partnership,  each Partner shall look
solely to the assets of the  Partnership for all  Distributions  with respect to
the  Partnership  (including the return of its Capital  Contribution)  and shall
have no recourse  therefor (upon  dissolution or otherwise)  against any General
Partner.  No Partner  shall have any right to demand  property  other than money
upon  dissolution  and  termination of the  Partnership,  and the Partnership is
prohibited  from such a  distribution  of  property  absent  the  Consent of the
Special Limited Partner.

         Section  15.3  Distribution  of  Assets.  Upon  a  dissolution  of  the
Partnership,  the  General  Partner  (or,  if there is no General  Partner  then
remaining,  such other Person(s) designated as the liquidator of the Partnership

                                       53
<PAGE>

by the  Limited  Partner or by the court in a judicial  dissolution)  shall take
full account of the  Partnership  assets and liabilities and shall liquidate the
assets as promptly as is consistent with obtaining the fair value thereof.

     (a) Upon  dissolution  and  termination,  after  payment  of,  or  adequate
provision for, the debts and obligations of the Partnership  pursuant to Section
11.2(a) through and including  11.2(c),  the remaining assets of the Partnership
shall be distributed to the Partners in accordance with the positive balances in
their Capital Accounts,  after taking into account all allocations under Article
X hereof.

     (b) In the  event  that a General  Partner  has a  deficit  balance  in its
Capital Account following the Liquidation of the Partnership or its interest, as
determined  after taking into account all Capital  Account  adjustments  for the
Partnership  taxable year in which such Liquidation occurs, such General Partner
shall pay to the  Partnership  the  amount  necessary  to restore  such  deficit
balance   to   zero   in   compliance   with   Treasury    Regulation    Section
1.704-1(b)(2)(ii)(b)(3).

                  (1) The deficit  reduction amount shall be paid by the General
Partner by the end of such taxable year (or, if later,  within 90 days after the
date of Liquidation) and shall, upon Liquidation of the Partnership,  be paid to
creditors of the Partnership or distributed to other Partners in accordance with
their positive Capital Account balances.

     (c)  With  respect  to  assets  distributed  in  kind  to the  Partners  in
Liquidation or otherwise:

                  (1) unrealized  appreciation or unrealized depreciation in the
values of such  assets  shall be deemed to be Income and Losses  realized by the
Partnership  immediately prior to the Liquidation or other  Distribution  event;
and

                  (2) such Income and Losses  shall be allocated to the Partners
in accordance with Section 10.2 hereof, and any property so distributed shall be
treated as a Distribution  of an amount in cash equal to the excess of such Fair
Market Value over the outstanding  principal  balance of and accrued interest on
any debt by which the property is encumbered.

     (d) For the  purposes  of Section  15.3(c),  "unrealized  appreciation"  or
"unrealized  depreciation"  shall mean the  difference  between  the Fair Market
Value  of such  assets,  taking  into  account  the  Fair  Market  Value  of the
associated financing but subject to Section 7701(g) of the Code, and the asset's
Gross  Asset  Value.  Section  15.3(c) is merely  intended to provide a rule for
allocating  unrealized Income and Losses upon Liquidation or other  Distribution
event,  and nothing  contained in Section 15.3(c) or elsewhere in this Agreement
is  intended  to treat or cause  such  Distributions  to be treated as sales for
value.  The  Fair  Market  Value  of  such  assets  shall  be  determined  by an
independent appraiser to be selected by the General Partner.

         Section 15.4 Deferral of Liquidation. If at the time of liquidation the
General  Partner or other  liquidator  shall determine that an immediate sale of
part or all of the  Partnership  assets could cause undue loss to the  Partners,
the  liquidator  may, in order to avoid  loss,  but only with the Consent of the
Special Limited Partner, either defer liquidation and retain all or a portion of
the assets or distribute all or a portion of the assets to the Partners in kind.
In the event that the liquidator  elects to distribute  such assets in kind, the

                                       54
<PAGE>

assets  shall  first  be  assigned  a  value  (by  appraisal  by an  independent
appraiser)  and the  unrealized  appreciation  or  depreciation  in value of the
assets shall be allocated to the Partners' Capital  Accounts,  as if such assets
had been sold, in the manner  described in Section  10.2,  and such assets shall
then be  distributed  to the  Partners  as  provided  herein.  In  applying  the
preceding  sentence,  the  Apartment  Housing shall not be assigned a value less
than the unamortized principal balance of any loan secured thereby.

         Section  15.5  Liquidation  Statement.  Each of the  Partners  shall be
furnished  with a  statement  prepared  or caused to be  prepared by the General
Partner or other liquidator, which shall set forth the assets and liabilities of
the Partnership as of the date of complete liquidation. Upon compliance with the
distribution plan as outlined in Sections 15.3 and 15.4, the Limited Partner and
Special  Limited  Partner  shall cease to be such and the General  Partner shall
execute,  acknowledge  and cause to be filed those  certificates  referenced  in
Section 15.6.

         Section 15.6  Certificates of Dissolution; Certificate of Cancellation
of Certificate of Limited Partnership.

     (a) Upon the  dissolution  of the  Partnership,  the General  Partner shall
cause to be filed in the office of, and on a form prescribed by the Secretary of
State of the State, a certificate of dissolution. The certificate of dissolution
shall set forth the Partnership's name, the Secretary of State's file number for
the Partnership, the event causing the Partnership's dissolution and the date of
the dissolution.

     (b) Upon the completion of the winding up of the Partnership's affairs, the
General  Partner  shall  cause  to be  filed  in the  office  of,  and on a form
prescribed   by,  the  Secretary  of  State  of  the  State,  a  certificate  of
cancellation  of the  Certificate  of Limited  Partnership.  The  certificate of
cancellation  of the  Certificate  of  Limited  Partnership  shall set forth the
Partnership's  name,  the Secretary of State's file number for the  Partnership,
and any other  information  which the  General  Partner  determines  to  include
therein.

                                   ARTICLE XVI

                                   AMENDMENTS

         This  Agreement  may be amended by a unanimous  consent of the Partners
after a meeting of the Partners, which meeting shall be held after proper notice
as provided in Section  17.2 of this  Agreement,.  For  purposes of this Article
XVI, a Partner  shall  grant its  consent to a proposed  amendment  unless  such
Partner  reasonably  determines  that the  proposed  amendment is adverse to the
Partner's Interest.

                                       55
<PAGE>

                                  ARTICLE XVII

                                 MISCELLANEOUS

         Section 17.1 Voting Rights.

     (a) The  Limited  Partner  shall  have no  right to vote  upon any  matters
affecting the Partnership, except as provided in this Agreement. At a meeting of
the Partnership, the Limited Partner may vote:

                  (1) to approve or disapprove the Sale or Refinancing of the
Apartment Housing;

                  (2) to remove the General Partner and elect a substitute
General Partner as provided in this Agreement;

                  (3) to elect a successor General Partner upon the Withdrawal
of the General Partner;

                  (4) to approve or disapprove the dissolution of the
Partnership; or

                  (5) subject to the provisions of Article XVI hereof, to amend
this Agreement; or

                  (6) to approve or disapprove the refinancing of the Mortgage.

     (b) On any matter  where the Limited  Partner has the right to vote,  votes
may only be cast at a duly called meeting of the  Partnership or through written
action without a meeting.

     (c) The Special  Limited  Partner  shall have the right to consent to those
actions or inactions of the Partnership  and/or General Partner as otherwise set
forth in this  Agreement,  and the General Partner is prohibited from any action
or inaction requiring such consent unless such consent has been obtained.

         Section 17.2 Meeting of Partnership. Meetings of the Partnership may be
noticed  either (a) at any time by the  General  Partner;  or (b) by any Partner
with an Interest  greater  than 20% of the Income and  Losses.  The notice for a
meeting shall specify the purpose of such meeting, and the time and the place of
such meeting (which shall be by telephone  conference or at the principal  place
of business of the  Partnership).  Any Partner calling a Partners  meeting shall
provide written notice to all Partners.  The meeting shall not be held less than
15 days nor more than 30 days from the  Partners'  receipt  of the  notice.  All
meetings and actions of the Limited  Partner  shall be governed in all respects,
including matters relating to notice, quorum, adjournment, proxies, record dates
and actions  without a meeting,  by the applicable  provisions of the Act, as it
shall be amended from time to time.

         Section 17.3 Notices.  Any notice given  pursuant to this Agreement may
be served  personally  on the Partner to be  notified,  or may be mailed,  first
class postage prepaid,  to the following address,  or to such other address as a
party may from time to time designate in writing:

                                       56
<PAGE>

       To the General Partner:   Bradley V. Larson
                                 313 West Broadway
                                 P.O. Box 446
                                 Monticello, Minnesota 55362-0446

       To the Limited Partner:   WNC Housing Tax Credit Fund VI, L.P., Series 7
                                 c/o WNC & Associates, Inc.
                                 3158 Redhill Ave., Suite 120
                                 Costa Mesa, CA 92626-3416

       To the Special
       Limited Partner:          WNC Housing, L.P.
                                 3158 Redhill Ave., Suite 120
                                 Costa Mesa, CA 92626-3416

         Section 17.4  Successors  and Assigns.  All the terms and conditions of
this Agreement  shall be binding upon and inure to the benefit of the successors
and assigns of the Partners.

         Section 17.5 FmHA Regulations.  Notwithstanding any other provisions of
this Agreement, the following will take precedence:

     (a) The Partnership is authorized to execute any documents required by FmHA
in connection with the FmHA Loan Agreement. The General Partner hereby covenants
to act in accordance with the Project  Documents.  Any incoming  General Partner
shall, as a condition of receiving a Partnership interest,  agree to be bound by
the Project  Documents,  and all other documents executed in connection with the
FmHA  Loan  Agreement  to the same  extent  and on the same  terms as any  other
General  Partner.  Upon any  dissolution,  no title or right to  possession  and
control of the Project, and no right to collect the rents therefrom,  shall pass
to any Person who is not bound in a manner  consistent  with  Section 515 of the
Housing Act and the rules and regulations thereunder.

     (b) In the event that any  provision of this  Agreement in any way tends to
contradict,  modify or in any way change the terms of the Project  Documents  or
any other agreement  related to the Project entered into, or to be entered into,
by or on behalf of the Partnership with FmHA, the terms of the Project Documents
or such other agreements with FmHA shall prevail and govern.

     (c) Any amendment or revision of this Agreement,  transfer of a Partnership
interest  or other  action  requiring  approval  shall be subject to the written
approval of FmHA,  if such approval is required,  and any amendment  without the
prior  written  approval of FmHA shall be subject to later  amendment  to comply
with the requirements of FmHA; provided,  however, that no such approval of FmHA
shall be required for any amendment of this  Agreement the sole purpose of which
is to provide for the admission of additional or substituted limited partners so
long as any such additional or substituted limited partner so admitted shall own
in the aggregate less than a 10% limited partner interest in the Partnership.

                                       57
<PAGE>

     (d) Any  conveyance  or  transfer  of  title to all or any  portion  of the
Project  required or  permitted  under this  Agreement  shall in all respects be
subject to all  conditions,  approvals and other  requirements of FmHA rules and
regulations applicable thereto.

     (e) The  General  Partner  will at all  times  maintain  the FmHA  required
Financial Interest in the Partnership.

         The foregoing paragraphs (a), (b), (c), (d), and (e) will automatically
become void and of no further force and effect with respect to FmHA at such time
as the Mortgage is no longer being provided by FmHA.

         Section 17.6 Recording of Certificate  of Limited  Partnership.  If the
General Partner should deem it advisable to do so, the Partnership  shall record
in the office of the County  Recorder of the county in which the principal place
of business of the Partnership is located a certified copy of the Certificate of
Limited  Partnership,  or any  amendment  thereto,  after  such  Certificate  or
amendment has been filed with the Secretary of State of the State.

         Section 17.7      Amendment of Certificate of Limited Partnership.

     (a) The General  Partner shall cause to be filed,  within 30 days after the
happening of any of the following  events,  an amendment to the  Certificate  of
Limited Partnership reflecting the occurrence of any of the following.

                  (1) A change in the name of the Partnership.

                  (2) A  change  in  the  street  address  of  the Partnership's
principal executive office.

                  (3) A change in the address,  or the Withdrawal,  of a General
Partner,  or a change in the  address of the agent for  service of  process,  or
appointment of a new agent for service of process.

                  (4) The  admission  of  a  General  Partner and that Partner's
address.

                  (5) The  discovery  by the  General  Partner  of any  false or
erroneous material statement contained in the Certificate of Limited Partnership
or any amendment thereto.

     (b)  The  Certificate  of  Limited  Partnership  may  also  be  amended  in
conformity with this Agreement at any time in any other respect that the General
Partner determines.

     (c) The General Partner shall cause the Certificate of Limited  Partnership
to be amended, when required or permitted as aforesaid,  by filing a certificate
of  amendment  thereto  in the  office  of,  and on a form  prescribed  by,  the
Secretary of State of the State.  The  certificate of amendment  shall set forth
the Partnership's name, the Secretary of State's file number for the Partnership
and the text of the amendment.

                                       58
<PAGE>

         Section 17.8  Counterparts.  This  Agreement  may be executed in one or
more  counterparts,  each of  which  shall  be  deemed  an  original,  and  said
counterparts  shall  constitute  but one  and  the  same  instrument  which  may
sufficiently be evidenced by one counterpart.

         Section  17.9  Captions.  Captions  to and  headings  of the  Articles,
Sections and  subsections of this Agreement are solely for the  conveniences  of
the Partners,  are not a part of this  Agreement,  and shall not be used for the
interpretation  or  determination  of the  validity  of  this  Agreement  or any
provision hereof.

         Section 17.10 Saving Clause. If any provision of this Agreement, or the
application  of such  provision  to any  Person or  circumstance,  shall be held
invalid,  the remainder of this Agreement,  or the application of such provision
to Persons  or  circumstances  other than those as to which it is held  invalid,
shall not be affected thereby.

         Section 17.11 Certain Provisions.  If the operation of any provision of
this  Agreement  would  contravene  the  provisions of applicable  law, or would
result in the imposition of general  liability on any Limited Partner or Special
Limited Partner, such provisions shall be void and ineffectual.

         Section 17.12 Tax Matters  Partner.  All the Partners hereby agree that
the General Partner shall be the "Tax Matters Partner"  pursuant to the Code and
in  connection  with  any  audit  of  the  federal  income  tax  returns  of the
Partnership.

     (a) The Tax  Matters  Partner  shall  furnish  to each  Partner  notice and
information with respect to the following:  closing conference with an examining
agent;  proposed  adjustments,  rights of appeal,  and requirements for filing a
protest;  time and place of any appeals  conference;  acceptance by the Internal
Revenue Service of any settlement offer;  consent to the extension of the period
of  limitation   with  respect  to  all  Partners;   filing  of  a  request  for
administrative  adjustment  on  behalf  of the  Partnership;  filing  by the Tax
Matters Partner or any other Partner of any petition for judicial review; filing
of any appeal with respect to any judicial  determination;  and a final judicial
redetermination.

     (b)  If  the  Tax  Matters   Partner   shall   determine  to  litigate  any
administrative  determination  relating to federal income tax matters,  then the
Tax Matters  Partner shall litigate such matter in such court as the Tax Matters
Partner shall decide in its sole discretion.

     (c) In discharging its duties and responsibilities, the Tax Matters Partner
shall act as a fiduciary  (1) to the Limited  Partner (to the  exclusion  of the
other Partners) insofar as tax matters related to the Tax Credits are concerned,
and (2) to all of the Partners in other respects.

     (d) The Partners consent and agree that in connection with any audit of the
Partnership, or if the Tax Matters Partner withdraws from the Partnership or the
Tax Matters  Partner  becomes  Bankrupt,  then the Special  Limited  Partner may
become,  in its sole discretion,  a special general partner,  and become the Tax
Matters Partner.  The Limited Partner will make no claim against the Partnership
in respect of any action or omission by the Tax Matters Partner during such time
as the Special  Limited Partner acts as the Tax Matters  Partner.  Section 17.13
Expiration of Compliance Period.

                                       59
<PAGE>

     (a)  Notwithstanding  any provision hereof to the contrary (other than this
Section  17.13),  the Special  Limited  Partner shall have the right at any time
after the  beginning of the last year of the  Compliance  Period to require,  by
written notice to the General Partner,  that the General Partner promptly submit
a written request to the applicable  State Tax Credit Agency pursuant to Section
42(h) of the Code (or any  successor  provision)  that such  agency  endeavor to
locate within one year from the date of such written request a purchaser for the
Apartment  Housing  who will  continue  to operate  the  Apartment  Housing as a
qualified  low income  property,  at a purchase  price that is not less than the
minimum  amount  set forth in  Section  42(h)(6)  of the Code (or any  successor
provision).  In the event  that the State Tax  Credit  Agency  obtains  an offer
satisfying the conditions of the preceding  sentence,  the General Partner shall
promptly notify the Special Limited Partner in writing with respect to the terms
and conditions of such offer,  and, if the Special Limited Partner  notifies the
General  Partner that such offer should be accepted,  the General  Partner shall
cause the  Partnership  promptly to accept such offer and to proceed to sell the
Apartment Housing pursuant to such offer.

     (b)  Notwithstanding any other provision of this Agreement to the contrary,
the Special  Limited  Partner  shall have the right at any time after the end of
the Compliance Period to require,  by written notice to the General Partner (the
"Required Sale Notice"),  that the General Partner promptly use its best efforts
to obtain a buyer for the  Apartment  Housing on the most  favorable  terms then
available.  The General  Partner  shall submit the terms of any proposed sale to
the Special  Limited Partner for its approval in the manner set forth in Section
17.13(a) hereof.  If the General Partner shall fail to so obtain a buyer for the
Apartment Housing within six months of receipt of the Required Sale Notice or if
the  Consent of the  Special  Limited  Partner in its sole  discretion  shall be
withheld to any proposed sale,  then the Special  Limited Partner shall have the
right at any time  thereafter  to obtain a buyer for the  Apartment  Housing  on
terms  acceptable to the Special  Limited Partner (but not less favorable to the
Partnership  than any proposed sale  previously  rejected by the Special Limited
Partner).  In the event that the Special  Limited Partner so obtains a buyer, it
shall  notify  the  General  Partner in  writing  with  respect to the terms and
conditions  of the  proposed  sale  and the  General  Partner  shall  cause  the
Partnership promptly to sell the Apartment Housing to such buyer.

     (c) A sale of the  Apartment  Housing  prior  to the end of the  Compliance
Period may only take place if the conditions of Section 42(j)(6) of the Code (or
any  successor  provision)  will be  satisfied  upon  such  sale by  having  the
purchaser  of the  Apartment  Housing  post the  required  bond on behalf of the
Partnership.

         Section  17.14  Number and  Gender.  All  pronouns  and any  variations
thereof shall be deemed to refer to the masculine, feminine, neuter, singular or
plural as the identity of the Person or Persons may require.

         Section 17.15 Entire Agreement.  This Agreement  constitutes the entire
understanding  between the parties with respect to the subject matter hereof and
all prior  understandings and agreements  between the parties,  written or oral,
respecting this transaction are merged in this Agreement.

         Section 17.16 Governing Law.  This Agreement and its application shall
be governed by the laws of the State.

                                       60
<PAGE>

         Section  17.17  Attorney's  Fees.  If a suit or action is instituted in
connection  with an  alleged  breach of any  provision  of this  Agreement,  the
prevailing party shall be entitled to recover,  in addition to costs,  such sums
as the court may adjudge  reasonable as attorney's  fees,  including fees on any
appeal.

         Section 17.18 Receipt of  Correspondence.  The Partners  agree that the
General  Partner  shall send to the  Limited  Partner  and the  Special  Limited
Partner within five days of receipt a copy of any correspondence relative to the
Apartment Housing's  noncompliance with the Mortgage,  relative to the Apartment
Housing's  noncompliance  with the Tax Credit rules or regulations,  relative to
the  acceleration  of the Mortgage  and/or  relative to the  disposition  of the
Apartment Housing.

         Section 17.19 Security  Interest and Right of Set-Off.  As security for
the  performance  of the  respective  obligations  to which any  Partner  may be
subject  under this  Agreement,  the  Partnership  shall have (and each  Partner
hereby  grants to the  Partnership)  a  security  interest  in their  respective
Interests  of such  Partner in all funds  distributable  to said  Partner to the
extent of the amount of such obligation.

                                       61
<PAGE>

         IN WITNESS  WHEREOF,  this  Amended and  Restated  Limited  Partnership
Agreement of School Square Limited Partnership, a Minnesota limited partnership,
is made and entered into as of the 9th day of February, 2000.

                                GENERAL PARTNER

                                /s/BRADLEY V. LARSON
                                Bradley V. Larson

                                WITHDRAWING ORIGINAL LIMITED PARTNER

                                /s/SHARON K. LARSON
                                Sharon K. Larson

                                LIMITED PARTNER

                                WNC Housing Tax Credit Fund VI, L.P., Series 7

                                By:     WNC & Associates, Inc.,
                                        General Partner

                                        By:      /s/DAVID N. SHAFER
                                                 David N. Shafer,
                                                 Excutive Vice President

                                SPECIAL LIMITED PARTNER

                                WNC Housing, L.P.

                                By:     WNC & Associates, Inc.,
                                        General Partner

                                        By:      /s/DAVID N. SHAFER
                                                 David N. Shafer,
                                                 Executive Vice President

                                       62
<PAGE>

                       EXHIBIT A TO PARTNERSHIP AGREEMENT

                                LEGAL DESCRIPTION

Lot 2, Block 2,  Stonebrook,  according  to the plat of record,  City of Albany,
Stearns County, Minnesota.

                                      A-1
<PAGE>

                       EXHIBIT B TO PARTNERSHIP AGREEMENT

                              FORM OF LEGAL OPINION

WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Avenue, Suite 120
Costa Mesa, California  92626

RE:      School Square Limited Partnership

Ladies and Gentlemen:

         You have  requested  our  opinion  with  respect to certain  matters in
connection  with the investment by WNC Housing Tax Credit Fund VI, L.P.,  Series
7, a California  limited  partnership  (the "Limited  Partner") in School Square
Limited Partnership (the "Partnership"),  a Minnesota limited partnership formed
to own,  develop,  construct  finance,  and  operate an  apartment  complex  for
low-income  persons  (the  "Apartment  Complex")  in  Albany,   Stearns  County,
Minnesota.

         The general partner of the Partnership is Bradley V. Larson, (the
"General Partner").

         In rendering  the opinions  stated  below,  we have examined and relied
upon the following:

         (i)   [Certificate of Limited Partnership];

         (ii)  [Agreement of Limited Partnership] (the "Partnership
               Agreement");

         (iii) A   preliminary   reservation   letter   from  [State
               Allocating   Agency]  (the  "State   Agency")   dated
               _________,      2000      conditionally      awarding
               $_______________  in Federal tax credits annually for
               each of ten years and  $_______________ in California
               tax credits  annually  for each of four years for the
               Apartment Complex; and

         (iv)  Such other  documents,  records and instruments as we
               have deemed  necessary in order to enable us to render
               the opinions referred to in this letter.

         For  purposes of rendering  the  opinions  stated below we have assumed
that,  in  those  cases in which  we have  not  been  involved  directly  in the
preparation,  execution  or the  filing  of a  document,  that (a) the  document
reviewed  by us is an  original  document,  or a true and  accurate  copy of the
original document,  and has not been subsequently amended, (b) the signatures on
each original document are genuine, and (c) each party who executed the document
had proper authority and capacity.

Based on the foregoing we are of the opinion that:

     (a) ________________________, the General Partner, is an individual who has
full power and  authority  to enter into and perform its  obligations  under the
Partnership Agreement

                                      B-1
<PAGE>

WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, inc.
_______________, 2000
Page 2

     (b) The  Partnership  is a limited  partnership  duly  formed  and  validly
existing under the laws of the State of Minnesota.

     (c) The  Partnership  is validly  existing under and subject to the laws of
Minnesota with full power and authority to own, develop, construct,  finance and
operate  the  Apartment  Complex and to  otherwise  conduct  business  under the
Partnership Agreement.

     (d) Execution of the Partnership  Agreement by the General Partner has been
duly and validly  authorized by or on behalf of the General  Partner and, having
been  executed  and  delivered in  accordance  with its terms,  the  Partnership
Agreement  constitutes the valid and binding  agreement of the General  Partner,
enforceable in accordance with its terms.

     (e) The execution and delivery of the Partnership Agreement by the
General Partner does not conflict with and will not result in a breach of any of
the terms,  provisions or  conditions  of any  agreement or instrument  known to
counsel to which any of the General  Partner or the Partnership is a party or by
which  any of them  may be  bound,  or any  order,  rule,  or  regulation  to be
applicable  to any of  such  parties  of  any  court  or  governmental  body  or
administrative  agency having  jurisdiction over any of such parties or over the
property.

     (f) To the best of  counsel's  knowledge,  after due  inquiry,  there is no
litigation  or  governmental   proceeding  pending  or  threatened  against,  or
involving the Apartment  Complex,  the  Partnership or any General Partner which
would  materially  adversely  affect the  condition  (financial or otherwise) or
business of the Apartment Complex, the Partnership or any of the Partners of the
Partnership.

     (g) The Limited  Partner and the Special Limited Partner have been admitted
to the Partnership as limited  partners of the Partnership  under __________ law
and are entitled to all of the rights of limited  partners under the Partnership
Agreement.  Except as described  in the  Partnership  Agreement,  no person is a
partner of or has any legal or equitable  interest in the  Partnership,  and all
former  partners of record or known to counsel have validly  withdrawn  from the
Partnership and have released any claims against the Partnership  arising out of
their  participation as partners  therein.  (h) Liability of the Limited Partner
for  obligations  of the  Partnership  is limited  to the amount of the  Limited
Partner's capital contributions required by the Partnership Agreement.

     (i) Neither  the  General  Partner(s)  of the  Partnership  nor the Limited
Partner nor the Special Limited Partner will have any liability for the Mortgage
represented  thereby (as those terms are defined in the  Partnership  Agreement,
and the  lender of the  Mortgage  Loan will  look  only to its  security  in the
Apartment Complex for repayment of the Mortgage Loan.

     (j) The Partnership owns a fee simple interest in the Apartment Complex.

                                      B-2
<PAGE>

WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, inc.
_______________, 2000
Page 3

     (k) To the best of our actual knowledge and belief,  after due inquiry, the
Partnership  has obtained all consents,  permissions,  licenses,  approvals,  or
orders required by all applicable  governmental  or regulatory  agencies for the
development,   [construction/rehabilitation]  and  operation  of  the  Apartment
Complex, and the Apartment Complex conforms to all applicable Federal, state and
local land use, zoning, health, building and safety laws, ordinances,  rules and
regulations.

     (l) The  Apartment  Complex has obtained a preliminary  reservation  of low
income housing tax credits ("LIHTC") from the State Agency. The final allocation
of the LIHTC and ultimately  eligibility of the Apartment Complex for such final
allocation are subject to a series of requirements  which must be met, performed
or achieved at various times prior to and after such final allocation.  Assuming
all  such  requirements  are met,  performed  or  achieved  at the time or times
provided by applicable laws and regulations,  the Apartment Complex will qualify
for LIHTC.

         All of the  opinions  set forth above are  qualified to the extent that
the validity of any  provision of any agreement may be subject to or affected by
applicable bankruptcy,  insolvency,  reorganization,  moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the  availability  of any equitable or specific remedy upon any breach of any of
the covenants,  warranties or other  provisions  contained in any agreement.  We
have not examined,  and we express no opinion with respect to, the applicability
of, or liability under, any Federal, state or local law, ordinance or regulation
governing or  pertaining  to  environmental  matters,  hazardous  wastes,  toxic
substances or the like.

         We express no opinion as to any matter  except  those set forth  above.
These opinions are rendered for use by the Limited Partner and its legal counsel
which will rely on this opinion in connection  with federal  income tax opinions
to be rendered by that firm. This opinion may not be delivered to or relied upon
by any other person or entity without our express written consent.

Sincerely,

--------------------

                                      B-3
<PAGE>

                       EXHIBIT C TO PARTNERSHIP AGREEMENT

                           CERTIFICATION AND AGREEMENT

         CERTIFICATION AND AGREEMENT made as of the date written below by School
Square Limited Partnership, a Minnesota limited partnership (the "Partnership");
Bradley V. Larson, (the "General Partner");  and Sharon K. Larson (the "Original
Limited  Partner")  for the benefit of WNC  Housing  Tax Credit  Fund VI,  L.P.,
Series 7, a California limited partnership (the "Investment  Partnership"),  and
WNC & Associates, Inc. ("WNC").

         WHEREAS, the Partnership  proposes to admit the Investment  Partnership
as a limited  partner  thereof  pursuant  to an  Amended  and  Restated  Limited
Partnership  Agreement (the "Partnership  Agreement"),  in accordance with which
the Investment  Partnership will make substantial  capital  contributions to the
Partnership; and

         WHEREAS,  the Investment  Partnership  and WNC have relied upon certain
information  and  representations  described  herein in evaluating the merits of
investment by the Investment Partnership in the Partnership;

         NOW, THEREFORE,  to induce the Investment Partnership to enter into the
Partnership  Agreement and become a limited partner of the Partnership,  and for
$1.00 and other good and  valuable  consideration,  the receipt and  adequacy of
which are hereby  acknowledged,  the  Partnership,  the General  Partner and the
Original  Limited  Partner  hereby  agree  as  follows  for the  benefit  of the
Investment Partnership and WNC.

         1. Representations,  Warranties and Covenants of the Partnership, the
General Partner and the Original Limited Partner

         The  Partnership,  the General Partner and the Original Limited Partner
jointly  and  severally  represent,   warrant  and  certify  to  the  Investment
Partnership  and WNC  that,  with  respect  to the  Partnership,  as of the date
hereof:

                  1.1 The  Partnership is duly organized and in good standing as
a limited  partnership  pursuant to the laws of the state of its formation  with
full power and authority to own its apartment complex (the "Apartment  Complex")
and conduct its business; the Partnership,  the General Partner and the Original
Limited  Partner  have the power and  authority  to enter into and perform  this
Certification  and Agreement;  the execution and delivery of this  Certification
and Agreement by the  Partnership,  the General Partner and the Original Limited
Partner  have been duly and validly  authorized  by all  necessary  action;  the
execution and delivery of this  Certification and Agreement,  the fulfillment of
its terms and consummation of the transactions contemplated hereunder do not and
will not conflict  with or result in a violation,  breach or  termination  of or
constitute a default  under (or would not result in such a conflict,  violation,
breach,  termination  or default with the giving of notice or passage of time or
both) any other  agreement,  indenture or instrument by which the Partnership or
any General Partner or Original Limited Partner is bound or any law, regulation,
judgment,  decree or order  applicable to the Partnership or any General Partner

                                      C-1
<PAGE>

or  Original  Limited  Partner  or  any of  their  respective  properties;  this
Certification  and Agreement  constitutes the valid and binding agreement of the
Partnership,  the General Partner and the Original Limited Partner,  enforceable
against each of them in accordance with its terms.

                  1.2  The  General  Partner  has  delivered  to the  Investment
Partnership,  WNC or their affiliates all documents and information  which would
be  material  to a  prudent  investor  in  deciding  whether  to  invest  in the
Partnership. All factual information provided to the Investment Partnership, WNC
or their affiliates either in writing or orally, did not, at the time given, and
does not, on the date hereof, contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances  under which
they are made.

                  1.3 Each of the  representations  and  warranties contained in
the  Partnership  Agreement is true and correct as of the date hereof.

                  1.4 Each of the  covenants and  agreements of the  Partnership
and the General  Partner  contained in the  Partnership  Agreement has been duly
performed  to the extent  that  performance  of any  covenant  or  agreement  is
required on or prior to the date hereof.

                  1.5 All conditions to admission of the Investment  Partnership
as  the  investment  limited  partner  of  the  Partnership   contained  in  the
Partnership Agreement have been satisfied.

                  1.6 No  default  has  occurred  and is  continuing  under  the
Partnership  Agreement or any of the Project  Documents (as such term is defined
in the Partnership Agreement) for the Partnership.

                  1.7 The  Partnership  will allocate to the Limited Partner the
Projected  Annual Tax Credits,  or the Revised Projected Tax Credits, if
applicable.

                  1.8 The General  Partner agrees to take all actions  necessary
to claim the Projected Tax Credit, including,  without limitation, the filing of
Form(s) 8609 with the Internal Revenue Service.

                  1.9 No person or entity other than the Partnership  holds  any
equity interest in the Apartment Complex.

                  1.10 The  Partnership has the sole  responsibility  to pay all
maintenance  and operating  costs,  including all taxes levied and all insurance
costs, attributable to the Apartment Complex.

                  1.11 The Partnership,  except to the extent it is protected by
insurance and  excluding any risk borne by lenders,  bears the sole risk of loss
if the  Apartment  Complex is destroyed or condemned or there is a diminution in
the value of the Apartment Complex.

                                      C-2
<PAGE>

                  1.12 No person or entity except the  Partnership has the right
to any proceeds, after payment of all indebtedness,  from the sale, refinancing,
or leasing of the Apartment Complex.

                  1.13 No  General  Partner  is  related  in any  manner  to the
Investment  Partnership,  nor is any General  Partner  acting as an agent of the
Investment Partnership.

         2. Miscellaneous

                  2.1 This  Certification  and  Agreement is made solely for the
benefit of the Investment  Partnership and WNC, and their respective  successors
and  assignees,  and no other person shall acquire or have any right under or by
virtue of this Agreement.

                  2.2  This  Certification  and  Agreement  may be  executed  in
several  counterparts,  each of which shall be deemed to be an original,  all of
which together shall constitute one and the same instrument.

                  2.3   Capitalized   terms   used  but  not   defined  in  this
Certification Agreement shall have the meanings given to them in the Partnership
Agreement.

         IN WITNESS WHEREOF,  this Certificate and Agreement is made and entered
into as of the ________ day of ____________, 2000.

PARTNERSHIP

School Square Limited Partnership

---------------------------
Bradley V. Larson,
General Partner

Signatures continue next page.....

                                      C-3
<PAGE>

GENERAL PARTNER

---------------------------
Bradley V. Larson

ORIGINAL LIMITED PARTNER

---------------------------
Sharon K. Larson

                                      C-4
<PAGE>

                       EXHIBIT D TO PARTNERSHIP AGREEMENT

                             COMPLETION CERTIFICATE

The  undersigned,  an architect  duly  licensed and  registered  in the State of
Minnesota,  has reviewed the final working plans and detailed specifications for
School  Square  Limited  Partnership,   a  Minnesota  limited  partnership  (the
"Partnership")  in  connection  with the  construction  on certain real property
located  North Ninth and Alivia  Streets in Albany,  Stearns  County,  Minnesota
56307.

The undersigned  hereby certifies (i) that the Improvements  have been completed
in accordance with the aforesaid plans and specifications, (ii) that a permanent
certificate  of occupancy and all other  permits  required for the continued use
and occupancy of the  Improvements  have been issued with respect thereto by the
governmental agencies having jurisdiction  thereof,  (iii) that the Improvements
are in compliance with all  requirements  and  restrictions of all  governmental
authorities  having  jurisdiction  over  the  Improvements,  including,  without
limitation,  all applicable zoning,  building,  environmental,  fire, and health
ordinances, rules and regulations and (iv) that all contractors,  subcontractors
and  workmen  who worked on the  Improvements  have been paid in full except for
normal retainages and amounts in dispute.

-----------------------------------
Apartment Housing Architect

Date:  ____________________________

Confirmed by:

-----------------------------------
General Partner

Date:  ____________________________

                                      D-1
<PAGE>

                          EXHIBIT E TO THE PARTNERSHIP

                           [ACCOUNTANT'S CERTIFICATE]
                            [Accountant's Letterhead]

_______________, 2000

WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Ave., Suite 120
Costa Mesa, California 92626

RE:  School Square Limited Partnership
       Certification as to Amount
       of Eligible Tax Credit Base

Gentlemen:

In  connection  with the  acquisition  by (the  "Limited  Partner") of a limited
partnership interest in School Square Limited  Partnership,  a Minnesota limited
partnership (the  "Partnership")  which owns a certain parcel of land located in
Albany,  Stearns  County,  Minnesota and  improvements  thereon (the  "Apartment
Housing"),  the Limited Partner has requested our certification as to the amount
of low-income housing tax credits ("Tax Credits")  available with respect to the
Apartment  Housing  under  Section 42 of the Internal  Revenue Code of 1986,  as
amended  (the  "Code").  Based  upon our  review of [the  financial  information
provided by the  Partnership]  of the  Partnership,  we are prepared to file the
Federal information tax return of the Partnership claiming annual Tax Credits in
the amount of  $_______________,  which amount is based on an eligible basis (as
defined  in   Section   42(d)  of  the  Code)  of  the   Apartment   Housing  of
$________________,  a qualified  basis (as defined in Section 42(c) of the Code)
of the Apartment Housing of $_________________  and an applicable percentage (as
defined in Section 42(b) of the Code) of _____%.

Sincerely,

-------------------------

                                      E-1
<PAGE>

                     EXHIBIT F TO THE PARTNERSHIP AGREEMENT

                           [CONTRACTOR'S CERTIFICATE]
                            [Contractor's Letterhead]
_______________, 2000

WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
3158 Redhill Avenue
Suite 120
Costa Mesa, California 92626

Re: School Square Limited Partnership

Dear Ladies and Gentlemen:

The undersigned Sand Companies, Inc., (hereinafter referred to as "Contractor"),
has furnished or has  contracted to furnish  labor,  services  and/or  materials
(hereinafter  collectively  referred  to as the "Work") in  connection  with the
construction  of certain real property  known as School House Square  Apartments
located in North Ninth and Alivia Streets,  Albany,  Stearns  County,  Minnesota
56307 (hereinafter known as the "Apartment Housing").

Contractor makes the following  representations and warranties regarding Work at
the Apartment Housing.

o    Work  on said  Apartment  Housing  has  been  performed  and  completed  in
     accordance with the plans and specifications for the Apartment Housing.

o    Contractor  acknowledges that all amounts owed pursuant to the contract for
     Work performed for School Square Limited Partnership is paid in full.

o    Contractor  acknowledges  that School Square Limited  Partnership is not in
     violation with terms and conditions of the contractual documents related to
     the Apartment Housing.

o Contractor warrants that all parties who have supplied Work for improvement of
the Apartment Housing have been paid in full.

o Contractor  acknowledges the contract to be paid in full and releases any lien
or right to lien against the above property.

The  undersigned  has  personal  knowledge of the matters  stated  herein and is
authorized  and  fully  qualified  to  execute  this  document  on behalf of the
Contractor.

                          (NAME OF COMPANY)

                          By:_________________________________________

                          Title:______________________________________

                                      F-1
<PAGE>

                              REPORT OF OPERATIONS

                 QUARTER ENDED:____________________________,199X

-------------------------------------       -----------------------------------
LOCAL PARTNERSHIP:
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GENERAL PARTNER:
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FIRM NAME:
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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PROPERTY NAME:
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ADDRESS:
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CITY, STATE, ZIP:
                                            -----------------------------------
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RESIDENT MANAGER:
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PHONE:
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ACCOUNTANT:
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FIRM:
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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MANAGEMENT COMPANY
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ADDRESS:
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CITY, STATE, ZIP:
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PHONE:
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CONTACT:
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                              OCCUPANCY INFORMATION

A. Number of Units_____ Number of RA Units_____ Number of Section 8 Tenants ____

B. Occupancy for the Quarter has: Increased ____ Decreased_____
                                  Remained the Same _____

<PAGE>

C. Number of:  Move-Ins ______   Move-Outs __________   % of Occupancy ______

D. Average length of tenant residency:   1-6 months ______   6-12 months ______

                                         1-3 years  ______   Over 4 years_____

E. Number of Basic rent qualified applicants on waiting list:  ________

F. If the  apartments  are less than 90% occupied,  please  explain why and
describe what efforts are being made to lease-up remaining units.

 ___________________________________________________________________________

G. On site manager:   Full Time__________  Part Time____________.

   If part-time, the number of hours per week_____________.

                                      G-1
<PAGE>

                             OPERATIONAL INFORMATION

                Rent Schedule and Increases from Previous Quarter

                       Number     Monthly Rent         Rent Increases  Effective
                       of Units   Basic / Market    Amount    Percent    Date

1 Bedroom              ________   ______________    _________________  ________

2 Bedroom              ________   ______________    _________________  ________

3 Bedroom              ________   ______________    _________________  ________

                              PROPOSED MAINTENANCE

                                       Completed        Funded by
   Type                Description        or            Operations or    Amount
                                        Planned         Reserves
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Interior Painting
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Exterior Painting
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Siding
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Roofing
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Drainage
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Paving
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Landscaping
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Playground
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Community Room
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Laundry Room
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Common Areas
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Carpet
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Appliances
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Lighting
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Other
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Please describe in detail any major repairs:

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                                      G-2
<PAGE>

                              CONDITION OF PROPERTY

THE OVERALL APPEARANCE OF THE BUILDING(S) IS:

Excellent                  Good                     Fair                Bad

THE OVERALL APPEARANCE OF THE GROUNDS IS:

Excellent                  Good                     Fair                 Bad

EXTERIOR CONDITION (Please Check Appropriate Box)
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Type of Condition        Excellent       Good          Fair    Problems/Comments
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Signage
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Parking Lots
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Office/Storage
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Equipment
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Community Building
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Laundry Room
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Benches/Playground
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Lawns, Plantings
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Drainage, Erosion
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Carports
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Fences
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Walks/Steps/Guardrails
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Lighting
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Painting
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Walls/Foundation
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Roof/Flashing/Vents
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Gutters/Splashblocks
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Balconies/Patios
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Doors Windows/Screens
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Elevators
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INTERIOR CONDITION
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Stairs
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Flooring
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Doors/Cabinets/Hardware
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Drapes/Blinds
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Interior Painting
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Refrig/Stoves/Sinks
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Bathroom/Tubs/Showers
    Toilets
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                                      G-3
<PAGE>

                                FINANCIAL STATUS

A.     Replacement Reserve is:   Fully-funded     Under-funded      Amount
       (complete attached schedule)
       Tax/Insurance Escrow is:  Fully-funded     Under-funded      Amount
       (complete attached schedule)
       Property is operating at a:    Surplus      Deficit          Amount

       If deficit, General Partner funding?        Yes     No       Amount

       Mortgage Payments are:   On Schedule        Delinquent       Amount

       Are the taxes current?          Yes         No
       (please provide copy of paid tax bill)
       Is the insurance current?       Yes         No        Renewal Date
       (please provide copy of yearly renewal)

B.     Please note and explain any significant changes in the following:

       Administrative Expense   Increase        Decrease            Amount

       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

       Repairs/Maintenance Expense      Increase    Decrease         Amount

       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

       Utility Expense        Increase          Decrease             Amount

       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

       Taxes/Insurance Expense    Increase       Decrease            Amount

       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

C.     Do you anticipate making a return to owner distribution?   Yes      No

       Explanation:
       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

D.     Please explain in detail any change in the financial condition:

       ------------------------------------------------------------------------

       ------------------------------------------------------------------------
E.     Any insurance claims files?  Yes______   No______
       If yes, please explain:
       ------------------------------------------------------------------------

       ------------------------------------------------------------------------

                                      G-4
<PAGE>

                              SCHEDULE OF RESERVES

                            Replacement    Tax & Insurance    Other      Total

Beginning Balance:

Deposits:

       ----------         -----------       ----------       -------    -------

       ----------         -----------       ----------       -------    -------

       ----------         -----------       ----------       -------    -------

Total Deposits
                          -----------       ----------       -------    -------
Authorized Disbursements:
       Description:

       ---------         -----------        ----------       -------    -------

       ---------         -----------        ----------       -------    -------

       ---------         -----------        ----------       -------    -------

       ---------         -----------        ----------       -------    -------

       ---------         -----------        ----------       -------    -------

       ---------         -----------        ----------       -------    -------

Total Disbursements:     -----------        ----------       --------    ------

Ending Balance: (1)      -----------        ----------       --------    ------

Required Balance:        -----------        ----------       --------    ------

Over/under funding:      -----------        ----------       --------    ------

(1) Must agree with amount shown on the balance sheet.

Prepared By:                                                Date:
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Firm:                                                       Telephone:
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Reminder: Please include the following documents:

              1. Completed Report of Operations
              2. Balance Sheet
              3. Statement of Income & Expenses
              4. Rent roll for quarter ending
              5. Tax Credit Compliance Report

                                      G-5
<PAGE>

                          INITIAL TENANT CERTIFICATIONS
                                 PARTNERSHIP NAME

Fund:            Tax Credit Set-Asides Information:  Loan/Regulatory Set-Asides:
Property Name:   [ ] 20/50 or [  ] 40/60 Election
Address:         Does the 51% average apply?
                 [  ] Y [  ] N
                 Deeper Set-Aside __% @ 50% AMI

County:
                                                    Management Company

[ ] Multi-Family                                    Contact Person:
[ ] Elderly

  24 Number of Units                                Phone #

     Number of Exempt
     Units
LIHTC Project#

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                                                                Gross   Move-In
Unit  First Time   Move-In  No. of                      No. in Income   Income
No.   Tenant Name  Date     Bdrms  Sq. Ft.   Set-Aside  Unit   Move-In  Limits
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      BIN #        Certificate of Occupancy Date:
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     BIN #          Certificate of Occupancy Date:
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     BIN #           Certificate of Occupancy Date:
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<PAGE>

                          INITIAL TENANT CERTIFICATIONS
                                PARTNERSHIP NAME
(CONTINUED)

Tenant                                                            Tenant
Income       Income         Asset      Unit   Rent      Tenant    Utility
Qualified Verification  Verification   Rent   Subsidy   Payment   Allowance

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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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YES
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<PAGE>

                          INITIAL TENANT CERTIFICATIONS
                                PARTNERSHIP NAME
(CONTINUED)

     Tenant                   Tenant            Overall
Gross     Maximum             Rent              Tenant
Rent      Rent                Qualified         Eligible

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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                              YES               YES
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                                G-6
<PAGE>

                     QUARTERLY TAX CREDIT COMPLIANCE REPORT
                                  PROPERTY NAME

Quarter Ending: Tax Credit Set-Asides Information:  Loan/Regulatory Set-Asides:
                [  ] 20/50 or [  ] 40/60 Election
                Does the 51% average apply? [  ] Y [  ] N
                Deeper Set-Aside : ( List Details)

County:    Allocation:                                 Management Company:

           Pre-1990 (Rent based on number of persons)  Contact Person:
           Elected to change No. Bedrm
           Post-1989 (Based on number of Bedroom)

[  ] Multi-Family  [  ] Elderly                         Phone No.

      Number of Units
      Number of Exempt Units                            Fax No.
                                                        Prepared by:

LIHTC Project#
-----------------------------------------------------------------------------
                                                          Gross    Annual
Unit   Tenant    Move-In   No. Of   Inc.   Set-  No. In   Annual   Income
No.    Name      Date      Bdrms    Pct.  Aside  Unit     Income   Limits
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<PAGE>

                     QUARTERLY TAX CREDIT COMPLIANCE REPORT
                                  PROPERTY NAME
(CONTINUED)

Annual  Tenant                                   Less
Recert.  Income      Income     Assets   Unit    Rent     Tenant
Date   Qualified   Verified   Verified   Rent  Subsidy   Payment

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<PAGE>

        Tenant              Tenant     Overall
Utility   Gross   Maximum    Rent       Tenat
Allow.    Rent    Rent    Qualified    Eligible

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                                  G-7
<PAGE>

                       Tenant Tax Credit Compliance Audit
                         Document Transmittal Checklist

Unit Number          Property Name                                   Date

Tenant Name                                               Completed By:

Initial  _________        Annual________
  Check Box for Type of Certification         Management Company
                                                 This Section For WNC Use Only
Check Documents Being Sent
                                                          Received.  Reviewed
___Internal Checklist or worksheet
___Initial - Rental Application/Rental Agreement
___Initial - Questionnaire of Income/Assets
___Recertification - Questionnaire of Income/Assets
___Recertification - Addendum to Lease
___Employment Verification
___Employment Termination Verification
___Military  Verification
___Verification of Welfare Benefits
___Verification of Social Security Benefits
___Verification of Disability Benefits
___Unemployment Verification
___Verification of Unemployment Compensation
___Verification Worksmen Compensation
___Retirement/Annuities Verification
___Verification of Veterans Pension
___Verification of Child Support
___Verification of Alimony Support
___Disposed of Assets Last 2 yrs.
___Real Estate
___Investment
___Assets Verifications (savings, stocks etc.)
___Trusts/with Current Tax Return
___Lump Sum Settlements
___Notarized Affidavit of Support
___Certification of Handicap
___Notarized Self-Employed-Tax Return
___Notarized statement of no income
___Tenant Certification
------------------------------------------------------------------------------
                          This Section For WNC Use Only

         YES  NO
                     Are all required forms completed?
                     Are all required forms dated?
                     Did the Manager and Tenant sign all documents?
                     Third party verification of income completed?
                     Third party verification of assets completed?
                     Are verifications completed for all members 18 yrs. and
                     over?
                     Did all the members of the household 18 yrs. and
                     over sign all documents?
                     Is lease completed with a minimum of six months/ SRO
                     monthly?
                     Addendum completed?
                     Tenant Certification completed?
                     Are all members of the household full-time students?
                     Is utility allowance correct?
                     Is correct income limit being used?
                     Is correct rent limit being used?

                       For tenants with no income

                     Was notarized statement of no income obtained with tax
                     return?
                     or Were all sources verified (AFDC, Unemployment,
                        Soc. Sec., Disability)?

                                      G-8
<PAGE>

                        TAX CREDIT COMPLIANCE MONITORING:
                              ANNUAL CERTIFICATION

     As General Partner of School Square Limited  Partnership,  I hereby certify
as to the following:

     1. School Square Limited  Partnership  owns a 17-unit  project  ("Apartment
Housing") in Albany, Stearns County, Minnesota.

     2. An annual income certification (including supporting  documentation) has
been  received  from each tenant.  The income  certification  reflects  that the
tenant's income meets the income limitation  applicable to the Apartment Housing
pursuant to Section 42(g)(1) of the Internal Revenue Code ("Code").

     3. The Apartment  Housing  satisfies  the  requirements  of the  applicable
minimum set aside test as defined in Section 42(g)(1) of the Code.

     4. Each unit within the Apartment  Housing is rent restricted as defined in
Section 42(g)(2)of the Code.

     5. Each unit in the  Apartment  Housing is available for use by the general
public and not for use on a transient basis.

     6. Each  building in the  Apartment  Housing is suitable  for  occupancy in
accordance with local health, safety, and building codes.

     7.  During the  preceding  calendar  year,  there had been no change in the
eligible  basis,  as defined in Section 42(d)of the Code, of any building within
the Apartment Housing.

     8.  All  common  area  facilities  included  in the  eligible  basis of the
Apartment  Complex are provided to the tenants on a comparable  basis  without a
separate fee to any tenant in the Apartment Housing.

     9. During the preceding  calendar year when a unit in the Apartment Housing
became vacant  reasonable  attempts were made to rent that unit to tenants whose
incomes met the income  limitation  applicable to the Apartment Housing pursuant
to  Section  42(g)(1)  of the Code and while  that  unit was  vacant no units of
comparable  or smaller size were rented to tenants whose income did not meet the
income  limitation  applicable  to the  Apartment  Housing  pursuant  to Section
42(g)(1) of the Code.

     10. If the income of a tenant in a unit  increased  above the limit allowed
in Section 42  (g)(2)(D)(ii),  then the next  available  unit of  comparable  or
smaller  size was  rented to tenants  whose  incomes  met the income  limitation
applicable to the Apartment Housing pursuant to Section 42(g)(1) of the Code.

IN  VERIFICATION  OF THE  FOREGOING  ENCLOSED  HEREWITH  IS A COPY OF THE ANNUAL
INCOME  CERTIFICATION  RECEIVED FROM EACH TENANT IN THE PROJECT.  UPON REQUEST I
WILL PROVIDE  COPIES OF ALL  DOCUMENTATION  RECEIVED  FROM THE TENANT TO SUPPORT
THAT CERTIFICATION.

         I  declare  under  penalty  of  perjury  under  the law of the State of
Minnesota that the foregoing is true and correct.

         Executed this ____ day of  ___________ at  ____________,

-----------------------

                                      G-9
<PAGE>

                      Calculation of Debt Service Coverage

                                        Month 1        Month 2       Month 3
                                     ------------   ------------  ------------

           INCOME

 Gross Potential Rent
 Other Income
 Vacancy     Loss
                                     ------------   ------------  ------------
 Adjusted Gross Income
                                     ------------   ------------  ------------

          OPERATING EXPENSES

 Utilities
 Maintenance
 Management Fee
 Administration
 Insurance
 Real Estate Taxes
 Other Expenses
                                     ------------   ------------  ------------
 Total Operating Expenses
                                     ------------   ------------  ------------

 Net Operating Income (1)
 Accrual adjustments for:
             R/E Taxes
             Insurance
             Tax/ Accounting
             Other
 Replacement Reserves

                                     ------------   ------------  ------------
 Income for DSC Calculation
                                     ============   ============  ============
 Stabilized Debt Service
                                     ------------   ------------  ------------
 Debt Service Coverage (2)
                                     ------------   ------------  ------------

     Please submit this form along with the following supporting documentation:

     Monthly Financial Reports (income statement, balance sheet, general ledger
          and rent rolls)
     Operating Budget
     Copies of bank statements.

     (1)  This  number  should  reconcile  easily  with  the  monthly  financial
     statements

     (2) The ratio between the Income for DSC  calculation  and Stabilized  Debt
     Service.  As  example,  a 1.15 DSC means that for every $1.00 of Stabilized
     Debt Service required  to be paid  there  must be  $1.15  of Net  Operating
     Income available.

                                      G-10
<PAGE>

                            AMENDED TURNKEY AGREEMENT

         This Amended Turnkey Agreement ("Agreement"), is entered into as of the
date written below by and between  Bradley V. Larson  ("Developer"),  and School
Square Limited Partnership, a Minnesota limited partnership ("Owner"). Developer
and Owner  collectively  may be referred to as the "Parties" or individually may
be referred to as a "Party".

                                    RECITALS

         A. Owner has  acquired  the real  property  located in Albany,  Stearns
County,  Minnesota,  as more particularly described in Exhibit A attached hereto
and incorporated herein (the "Real Property").

         B. Owner intends to develop on the Real Property a seventeen  (17) unit
low-income  rental  housing  complex and other  related  improvements,  which is
intended to qualify for federal  low-income  housing tax credits (the "Apartment
Housing").

         C.  Prior  to the  date  of  this  Agreement  Developer  has  performed
substantial  development  services  with  respect  to the  Apartment  Housing as
specified in Section 2.3 of this Agreement. Developer has also agreed to oversee
the  development  of the  Apartment  Housing  until  all  construction  work  is
completed  and  to  provide  certain  services  relating  thereto.  The  Parties
recognize and  acknowledge  that the Developer is, and has been, an  independent
contractor  in all  services  rendered  to,  and to be  rendered  to,  the Owner
pursuant to this Amended Turnkey Agreement.

         D. Owner  desires to commit its  existing  development  agreement  with
Developer into writing  through this Amended  Turnkey  Agreement for Developer's
services to manage,  oversee, and complete development of the Apartment Housing.
Developer desires to commit its existing  development  agreement with Owner into
writing  through  this Amended  Turnkey  Agreement  and  Developer is willing to
assign all  development  rights to the Apartment  Housing to Owner, to undertake
performance of such development services,  and to fulfill all obligations of the
Developer set forth in this  Agreement,  in  consideration  of Owner's  restated
promise to pay to Developer the fee specified in this Agreement.

         NOW  THEREFORE,  in  consideration  of the  foregoing  recitals and the
mutual  promises  and  undertakings  in this  Agreement,  and for other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged, Owner and Developer agree as follows.

                                    SECTION I
                               CERTAIN DEFINITIONS

         As used in this Agreement, the following terms shall, when capitalized,
have the following meanings:

                                       1
<PAGE>

         "Code" means the Internal Revenue Code of 1986, as amended.

         "Construction Documents" means the contract documents between the Owner
and the Construction Lender pertaining to construction of the Apartment Housing.

         "Construction  Lender" means First Minnesota  Bank,  N.A.,  which has
committed to make a loan to finance  construction of the Apartment Housing.

         "Construction  Loan"  means  the loan to  finance  construction  of the
Apartment Housing, made to Owner by the Construction Lender.

         "Contractor" means Sand Companies, Inc.

         "Department" means the Minnesota agency responsible for the reservation
and allocation of Tax Credits.

         "Development Fee" means the fee for development  services  described in
Section 2 of this Agreement.

         "Partnership  Agreement"  shall mean the Amended and  Restated  Limited
Partnership Agreement of School Square Limited Partnership,  a Minnesota limited
partnership,   which  Partnership  Agreement  is  incorporated  herein  by  this
reference.  Any terms  capitalized but not defined herein shall have the meaning
ascribed in the Partnership Agreement.

         "Tax Credits" means the low-income housing tax credits found in Section
42 of  the  Code,  and  all  rules,  regulations,  rulings,  notices  and  other
promulgations thereunder.

                                    SECTION 2
                     ENGAGEMENT OF DEVELOPER; FEE; SERVICES

         2.1 Engagement; Term. Owner hereby confirms the engagement of Developer
to act as  developer  of the  Apartment  Housing,  and to  perform  the  various
covenants and  obligations  of the  Developer  under this  Agreement.  Developer
hereby  confirms and accepts  such  engagement  and agrees to perform  fully and
timely each and every one of its obligations  under this Agreement.  The term of
such engagement shall commence on the date hereof and subject to the pre-payment
provisions of Section 3 shall expire on December 31, 2009.

         2.2 Development Fee. In  consideration of Developer's  prior activities
and  Developer's  agreement to provide  development  services during the term of
this  Agreement,  Owner  agrees to pay the  Developer a  Development  Fee in the
amount of $159,544.  The  Development  Fee shall be payable in  accordance  with
Section 3 of this Agreement.

                                       2
<PAGE>

         2.3      Development Services.

     (a) Prior  Services.  Owner  acknowledges  that Developer has, prior to the
date  hereof,   performed  substantial  development  services  relating  to  the
Apartment  Housing.  Such  services  (the "Prior  Services")  have  included the
following.

                  (1)  Services Rendered Prior to December 31, 1999.

                           (A)      Developer has negotiated  and conferred with
the  Contractor  and  recommended  to  the  Owner  to  enter into a construction
contract with the Contractor for the building of the Apartment Housing.

                           (B)      Developer   has:  estimated   the  cost   of

construction;  determined  the  construction    period;    prepared   a monthly-
estimated  construction  chart  reflecting  the  construction  services required
each month; and prepared a preliminary construction budget.

                           (C)      Developer   has   reviewed   the  plans  and
specifications  for  compliance with design criteria and construction contracts.

                           (D)      Developer  has established a central control
file of all design,  engineering and development documents, including contracts,
plans and specifications.

                           (E)      Developer has negotiated  and conferred with
public authorities  relating to traffic control, flood control and other matters
affecting the development of the Apartment Housing.

                           (F)      Developer has negotiated  and conferred with
an  architect and  recommended to the Owner to execute an architectural contract
for the planning and design of the Apartment Housing.

                  (2)      Other Prior Services.

                           (A)      Developer  has created, refined and analyzed
the financial projections for the Apartment Housing.

                           (B)      Developer  has  negotiated,  conferred,  and
worked with the Apartment Housing  architects,  engineers  and  Contractor  with
regard  to  preparation,   refinement,   and   finalization  of  the  plans  and
specifications for the Apartment Housing, and projected  construction  schedules
and costs.

                           (C)      Developer has  negotiated and conferred with
the Construction Lender to obtain the Construction Loan.

                           (D)      Developer has negotiated and  conferred with
an insurance  carrier to provide a builder's  risk policy during construction.

                                       3
<PAGE>

     (b) Future  Services.  Developer  hereby  agrees to perform  the  following
development services for and as an agent of Owner.

                  (1)  Construction  and  Development  Matters.  Developer shall
oversee  construction of the Apartment Housing on Owner's behalf, as provided in
this Section 2.3(b)(1). Owner shall allow Developer full access to the Apartment
Housing during the construction  period.  Developer and Developer's agents shall
perform their work in a manner that minimizes  interference  with the management
and operation of the Apartment Housing.

                           (A)      Developer  shall exert  its best  efforts to
ensure that the  Contractor  performs  its  obligations  under the  Construction
Documents in a diligent and timely manner.

                           (B)      Developer  shall  participate in and provide
assistance  with  regard  to  pre-construction  conferences and pre-construction
documents, including drawings, specifications, contracts, and schedules.

                           (C)      Developer  shall  review   all  Construction
Documents,  identify  construction  issues and  participate in the resolution of
such issues.

                           (D)      Developer   shall    review    and   approve
subcontract bids received by the Contractor.

                           (E)      Developer  shall  establish  and  administer
field order and change order procedures.

                           (F)      Developer  shall  coordinate  performance of
Owner's obligations under  the  construction  phase  for  the Apartment Housing,
including the preparation of draw requests.

                           (G)      Developer shall attend construction progress
meetings at the Apartment  Housing site to  monitor  construction  progress  and
advise Owner and the  Contractor  with respect to the resolution of construction
issues.

                           (H) Developer shall review the  Contractor's  monthly
pay applications.

                           (I)      Developer  shall  monitor  the  Contractor's
progress with respect to  the approved  Apartment  Housing schedule and keep the
Owner  informed  of  all  pertinent  Apartment  Housing  issues and construction
progress.

                           (J)      Developer shall advise Owner with respect to
relations with  engineers, architects,  and other construction professionals.

                                       4
<PAGE>

                           (K)      Developer  shall be available  for immediate
response in critical  situations  arising  during the construction of the
Apartment Housing.

                           (L)      Developer shall  coordinate  relations  with
the City of Albany and other  governmental  authorities having jurisdiction over
development of the Apartment Housing.

                  (2) Tax  Credit  Matters.  From the date  hereof  through  the
completion of construction of the Apartment Housing, the Developer shall provide
the following services to Owner with regard to the Tax Credits which services do
not constitute the rendering of legal or tax advice:

                           (A)      Developer  shall  consult  with  and  advise
Owner  concerning  construction  issues  that  could  affect   the amount of Tax
Credits for which the Apartment Housing is eligible.

                           (B)      Developer  shall  consult  with   and advise
Owner with respect to the  requirements  of the Department as they relate to the
construction and development of the Apartment Housing.

                           (C)     Developer shall monitor construction progress
with respect to the  Apartment  Housing  schedule agreed to with the Department,
if any.

         (c) Assignment of Development Rights. Developer hereby assigns to Owner
all  rights to the  development  of the  Apartment  Housing,  including  but not
limited to, all tangible and intangible  rights arising with respect to the name
School Square  Limited  Partnership,  the design of the Apartment  Housing,  the
plans and  specifications for the Apartment Housing and all rights arising under
the agreements with Apartment Housing architects,  engineers and other Apartment
Housing design and construction professionals.

                                    SECTION 3
                            DEVELOPMENT FEE PAYMENTS

         3.1  Services  Rendered  Prior  to  December  31,  1999 .  The  Parties
acknowledge  and agree that Developer has earned the sum of $63,818 for services
rendered prior to December 31, 1999,  that said amount is reasonable in relation
to the work performed,  is fully earned as of that date and said amount shall be
paid in any event notwithstanding the termination of this Agreement. The Parties
further  acknowledge and agree that the Owner has accrued the Development Fee of
$63,818,  under its method of accounting,  and has reported the  Development Fee
expense on its income tax return.

         3.2 Payment of Development  Fee. The  Development  Fee shall be paid to
the  Developer  from  Capital  Contribution  payments  received  by the Owner in
accordance with Section 9.2(b) of the Partnership Agreement.  If the Development
Fee is not paid in full in  accordance  with Section  9.2(b) of the  Partnership
Agreement then the balance of the  Development  Fee shall be paid from available

                                       5
<PAGE>

Net  Operating  Income  in  accordance  with the  terms of  Section  11.1 of the
Partnership  Agreement,  but in no event later than December 21, 2009.  Also, if
the Development Fee is not paid in full in accordance with Section 9.2(b) of the
Partnership  Agreement then the unpaid  portion shall accrue  interest at a rate
equal to the 5-year  Treasury  money market rate in effect as of the date of the
last  Capital   Contribution   payment  referenced  in  Section  7.2(b)  of  the
Partnership Agreement.

                                    SECTION 4
                                   TERMINATION

         Neither Party to this Agreement  shall have the right to terminate this
Agreement prior to the expiration of the term without cause. Owner may terminate
this Agreement without further liability, for cause, which shall mean any one of
the following:

     (a) a material breach by Developer of its obligations  under this Agreement
that is not cured within  thirty (30) days after  notice  thereof (or, as to any
non-monetary  obligations that is not reasonably capable of cure within 30 days,
and  provided  that cure is  commenced  within 10 days of notice and  diligently
pursued  thereafter  to  completion,  within  such  time  as may  reasonably  be
necessary to complete such cure);

     (b) a fraudulent or  intentionally  incorrect  report by Developer to Owner
with respect to the Apartment Housing; or

     (c) any  intentional  misconduct  or gross  negligence  by  Developer  with
respect to its duties under this Contract.

         Upon proper  termination  of this  Agreement by Owner  pursuant to this
Section 4, all rights of Developer to receive unearned Development Fees pursuant
to this  Agreement with respect to services not yet performed  shall  terminate.
Developer  shall receive the full  Development  Fee for Prior Services and shall
receive  a portion  of the  Development  Fee for  Future  Services  based on the
percentage of completion of construction of the Apartment Housing at the time of
termination.  Nothing in this  Section 4 shall be deemed to  prevent  Owner from
bringing an action against Developer to recover fully all damages resulting from
any of the causes set forth in paragraphs  (a), (b) or (c) above,  or to prevent
Owner from  contending in any action or proceeding that the Future Services were
not earned by Developer.

                                    SECTION 5
                               GENERAL PROVISIONS

         5.1  Notices.  Notices  required  or  permitted  to be given under this
Agreement  shall be in writing sent by  registered  or certified  mail,  postage
prepaid, return receipt requested, to the Parties at the following addresses, or
such other  address  as is  designated  in  writing  by the  Party,  the date of

                                       6
<PAGE>

registry thereof, or the date of certification receipt therefor being deemed the
date  of  such  notice;  provided,   however,  that  any  written  communication
containing such information  sent to a Party actually  received by a Party shall
constitute notice for all purposes of this Agreement.

If to Developer:         Bradley V. Larson
                         313 West Broadway
                         Monticello, Minnesota 55362

If to Owner:             School Square Limited Partnership
                         313 West Broadway
                         Monticello, Minnesota 55362

         5.2   Interpretation.

     (a)  Headings.  The section  headings in this  Agreement  are  included for
convenience  only;  they do not give full  notice of the terms of any portion of
this  Agreement and are not relevant to the  interpretation  of any provision of
this Agreement.

     (b)  Relationship  of the Parties.  Neither Party hereto shall be deemed an
agent, partner, joint venturer, or related entity of the other by reason of this
Agreement and as such neither Party may enter into contracts or agreements which
bind the other Party.

     (c) Governing Law. The Parties intend that this Agreement shall be governed
by and  construed  in  accordance  with  the  laws  of the  state  of  Minnesota
applicable to contracts made and wholly  performed  within  Minnesota by persons
domiciled in Minnesota.

     (d) Severability. Any provision of this Agreement that is deemed invalid or
unenforceable  shall  be  ineffective  to  the  extent  of  such  invalidity  or
unenforceability,  without  rendering  invalid or  unenforceable  the  remaining
provisions of this Agreement.

         5.3  Integration;  Amendment.  This  Agreement  constitutes  the entire
agreement of the Parties  relating to the subject  matter  hereof.  There are no
promises,  terms,  conditions,  obligations,  or  warranties  other  than  those
contained   herein.   This  Agreement   supersedes  all  prior   communications,
representations, or agreements, verbal or written, among the Parties relating to
the subject matter hereof. This Agreement may not be amended except in writing.

         5.4 Attorney's Fees. If any suit or action arising out of or related to
this  Agreement  is brought by any Party to any such  document,  the  prevailing
Party  shall be  entitled  to  recover  the  costs and fees  (including  without
limitation  reasonable  attorneys'  fees and costs of experts  and  consultants,
copying, courier and telecommunication costs, and deposition costs and all other
costs of  discovery)  incurred  by such Party in such suit or action,  including
without limitation to any post-trial or appellate proceeding.

                                       7
<PAGE>

         5.5      Binding  Effect.  This Agreement  shall bind and inure to the
benefit of, and be  enforceable  by, the Parties hereto and their respectiv
 successors, heirs, and permitted assigns.

         5.6  Assignment.  Neither Party may assign this  Agreement  without the
consent of the other Party.  No assignment  shall relieve any Party of liability
under this Agreement unless agreed in writing to the contrary.

         5.7  Third-Party  Beneficiary  Rights.  No  person  not a Party to this
Agreement  is an intended  beneficiary  of this  Agreement,  and no person not a
Party to this  Agreement  shall  have  any  right  to  enforce  any term of this
Agreement.  Notwithstanding the Parties acknowledge that shall have the right to
enforce any term of this Agreement.

         5.8  Related  Parties.  The  Parties  acknowledge  that the  Owner  and
Developer  are  related  parties  under  Code  Section  267 and that Owner is an
accrual  basis  taxpayer.  As such,  the Parties agree and consent that each and
every year during the term of this  Agreement  that Owner  accrues any or all of
the principal and/or interest of the Development Fee that the Developer (whether
or not an accrual basis  taxpayer)  will include an equal amount in  Developer's
income tax return for that year.

         5.9  Counterparts.  This  Agreement  may be  executed  in any number of
counterparts, all of which taken together shall constitute one agreement binding
on all the Parties,  notwithstanding that all Parties are not signatories to the
same counterpart.

         5.10 Further Assurances. Each Party agrees, at the request of the other
Party,  at any time and from time to time after the date hereof,  to execute and
deliver  all  such  further  documents,  and to take and  forbear  from all such
action, as may be reasonably  necessary or appropriate in order more effectively
to perfect the transfers or rights  contemplated  herein or otherwise to confirm
or carry out the provisions of this Agreement.

         5.11  Mandatory  Arbitration.  Any person  enforcing this Agreement may
require  that all  disputes,  claims,  counterclaims,  and  defenses  ("Claims")
relating in any way to this Agreement or any transaction of which this Agreement
is a part (the  "Transaction"),  be settled by binding arbitration in accordance
with the Commercial  Arbitration Rules of the American  Arbitration  Association
and Title 9 of the U.S.  Code.  All claims  will be subject to the  statutes  of
limitation applicable if they were litigated.

         If arbitration  occurs,  one neutral  arbitrator will decide all issues
unless either  Party's Claim is $100,000.00 or more, in which case three neutral
arbitrators  will decide all issues.  All arbitrators  will be active  Minnesota
State Bar  members  in good  standing.  In  addition  to all other  powers,  the
arbitrator(s)  shall  have  the  exclusive  right to  determine  all  issues  of
arbitrability.  Judgment  on any  arbitration  award may be entered in any court
with jurisdiction.

                                       8
<PAGE>

         If either  Party  institutes  any judicial  proceeding  relating to the
Transaction,  such action shall not be a waiver of the right to submit any Claim
to arbitration.  In addition,  both Parties have the right before,  during,  and
after any arbitration to exercise any of the following remedies, in any order or
concurrently:  (i)  setoff,  (ii)  self-help  repossession,  (iii)  judicial  or
non-judicial  foreclosure  against real or personal  property  collateral,  (iv)
provisional remedies, including injunction, appointment of receiver, attachment,
claim and delivery, and replevin.

         This  arbitration  clause  cannot be modified or waived by either Party
except in a writing that refers to this arbitration clause and is signed by both
Parties.

         IN WITNESS  WHEREOF,  the  Parties  have caused  this  Amended  Turnkey
Agreement to be executed as of ___________________, 2000.

DEVELOPER:        _________________________
                  Bradley V. Larson

OWNER:            School Square Limited Partnership

                  --------------------
                  Bradley V. Larson,
                  General Partner

                                       9
<PAGE>

                                    EXHIBIT A

Lot 2, Block 2,  Stonebrook,  according  to the plat of record,  City of Albany,
Stearns County, Minnesota.

<PAGE>

                               GUARANTY AGREEMENT

         FOR VALUE  RECEIVED,  the  receipt and  sufficiency  of which is hereby
acknowledged,  and in consideration of the agreement of Bradley V. Larson,  (the
"Developer")  to permit  deferral of the $159,544 due from School Square Limited
Partnership,  a Minnesota limited partnership  ("Debtor") to the Developer,  the
undersigned Guarantor(s),  hereby unconditionally guarantees the full and prompt
payment when due, whether by acceleration or otherwise of that certain Developer
Fee from Debtor to the  Developer,  evidenced by the Amended  Turnkey  Agreement
dated the even date herewith,  and  incorporated  herein by this reference.  The
foregoing  described  debt is referred to hereinafter  as the  "Liabilities"  or
"Liability."

         The  undersigned  further agree to pay all expenses paid or incurred by
the Debtor or Developer in endeavoring to collect the  Liabilities,  or any part
thereof,  and in enforcing the Liabilities or this Guaranty Agreement (including
reasonable  attorneys'  fees if  collected  or  enforced  by law or  through  an
attorney-at-law).  The  undersigned  hereby  represents  and  warrants  that the
extension of credit or other financial accommodations by the Developer to Debtor
will be to the interest and advantage of the undersigned,  and acknowledges that
this Guaranty  Agreement is a substantial  inducement to the Developer to extend
credit to Debtor and that the  Developer  would not  otherwise  extend credit to
Debtor.

         Debtor  or  Developer  may,  from  time to time,  without  notice to or
consent of the  undersigned,  (a) retain or obtain a  security  interest  in any
property  to secure any of the  Liabilities  or any  obligation  hereunder,  (b)
retain or obtain the primary or secondary  liability of any party or parties, in
addition to the  undersigned,  with  respect to any of the  Liabilities  and (c)
resort to the undersigned for payment of any of the Liabilities,  whether or not
the Debtor or Developer shall have resorted to any property  securing any of the
Liabilities or any obligation hereunder or shall have preceded against any other
party primarily or secondarily liable on any of the Liabilities.

         Debtor and Developer must mutually agree to (a) extend or renew for any
period this Agreement  (whether or not longer than the original period) or alter
any  of  the  Liabilities,  (b)  release  or  compromise  any  Liability  of the
undersigned  hereunder or any Liability of any other party or parties  primarily
or secondarily liable on any of the Liabilities,  or (c) release,  compromise or
subordinate its title or security interest,  or any part thereof, if any, in all
or any  property  now or  hereafter  securing  any  of  the  Liabilities  or any
obligation  hereunder,  and permit any  substitution  or  exchange  for any such
property,

         The undersigned hereby expressly waives: (a) notice of the existence or
creation  of all or any of the  Liabilities,  (b)  notice  of any  amendment  or
modification of any of the  instruments or documents  evidencing or securing the
Liabilities,  (c) presentment,  demand,  notice of dishonor and protest, (d) all
diligence in collection or protection of or realization  upon the Liabilities or
any thereof, any obligation hereunder, or any security for any of the foregoing,
and (e) the right to require the Developer to proceed  against  Debtor on any of
the  Liabilities,  though  nothing  herein  shall  prevent  the  Developer  from
proceeding against Debtor on any of the Liabilities.

                                       1
<PAGE>

         In the  event  any  payment  of  Debtor  to the  Developer  is  held to
constitute a preference  under the  bankruptcy  laws, or if for any other reason
the  Developer is required to refund such  payment or pay the amount  thereof to
any other party,  such payment by Debtor to the Developer shall not constitute a
release of Guarantor from any Liability  hereunder,  but Guarantor agrees to pay
such amount to the Developer  upon demand and this Guaranty shall continue to be
effective or shall be reinstated,  as the case may be, to the extent of any such
payment or payments.

         No delay or failure on the part of the Developer in the exercise of any
right or remedy  shall  operate  as a waiver  thereof,  and no single or partial
exercise by the Developer of any right or remedy shall  preclude other or future
exercise thereof or the exercise of any other right or remedy.  No action of the
Developer  permitted  hereunder  shall in any way impair or affect this Guaranty
Agreement. For the purpose of this Guaranty Agreement, the Liabilities of Debtor
to the Developer are guaranteed  notwithstanding any right or power of Debtor or
anyone  else  to  assert  any  claim  or  defense  as  to  the   invalidity   or
unenforceability  of any such  obligation,  and no such claim or  defense  shall
impair or affect the obligations of the undersigned hereunder.

         Any payment from  Guarantor  directly to Developer in  accordance  with
this Agreement shall be classified and booked as a  non-refundable  cost overrun
payment from Guarantor to Debtor in consideration of this Guaranty Agreement and
then a payment by Debtor to Developer in  consideration  of the Amended  Turnkey
Agreement.

         This Guaranty Agreement shall be binding upon the undersigned, and upon
the legal representatives, heirs, successors and assigns of the undersigned, and
may be  enforced  against  them  by the  Debtor  or  Developer  or  their  legal
representatives, heirs, successors and assigns.

         This  Guaranty  Agreement  has been made and  delivered in the state of
Minnesota and shall be construed and governed under Minnesota law.

         Whenever  possible,  each provision of the Guaranty  Agreement shall be
interpreted  in such manner as to be effective and valid under  applicable  law,
but if any  provision  of this  Guaranty  Agreement  shall be  prohibited  by or
invalid under such law, such  provision  shall be  ineffective  to the extent of
such  prohibition  of  invalidity,  without  invalidating  the remainder of such
provision or the remaining provisions of this Guaranty Agreement.

         Whenever the singular or plural number, masculine or feminine or neuter
is used herein,  it shall  equally  include the other where  applicable.  In the
event this  Guaranty  Agreement  is  executed by more than one  guarantor,  this
Guaranty  Agreement  and the  obligations  hereunder  are the joint and  several
obligation of all the undersigned.

         Guarantor  consents to the  jurisdiction  of the courts in the State of
Minnesota  and/or to the  jurisdiction  and venue of any United States  District
Court in the State of Minnesota having  jurisdiction over any action or judicial

                                       2
<PAGE>

proceeding  brought to enforce,  construe or interpret this Guaranty.  Guarantor
agrees  to  stipulate  in  any  such  proceeding  that  this  Guaranty  is to be
considered  for all  purposes to have been  executed  and  delivered  within the
geographical  boundaries  of the State of  Minnesota,  even if it was,  in fact,
executed and delivered elsewhere.

     IN WITNESS  WHEREOF,  the  undersigned  have hereunto  caused this Guaranty
Agreement to be executed as of _______________________, 2000.

Signed, sealed and delivered                         GUARANTOR:
in the presence of:

----------------------------                         --------------------------
Witness                                              Bradley V. Larson

____________________________                         Address for Guarantor:
                                                     ---------------------
Notary Public                                        313 West Broadway
My Commission Expires:                               Monticello, Minnesota 55362

----------------------------,
(NOTARY SEAL)

                                       3
<PAGE>

                     DEVELOPMENT, CONSTRUCTION AND OPERATING
                                BUDGET AGREEMENT

         This   Development,   Construction   and  Operating   Budget  Agreement
("Agreement") is entered into as of the date written below by and between School
Square Limited Partnership,  a Minnesota limited Partnership ("Owner"),  Bradley
V. Larson ("General Partner"), WNC Housing Tax Credit Fund VI, L.P., Series 7, a
California  limited  Partnership  ("Limited  Partner") and WNC Housing,  L.P., a
California  limited  Partnership  ("Special Limited  Partner").  Owner,  General
Partner,  Limited  Partner  and  Special  Limited  Partner  collectively  may be
referred to as the "Parties" or individually may be referred to as a "Party".

                                    RECITALS

         A.       Owner has acquired 1.29 acres of land in 921 and 931 Ninth
Street North,  Albany,  Stearns  County,  Minnesota  56307 (the "Real
Property").

         B. Owner intends to develop on the Real Property a seventeen  (17) unit
low-income rental housing complex and other related  improvements for family and
handicapped,  which is intended to qualify  for federal  low-income  housing tax
credits (the "Apartment Housing").

         C. On the even date herewith a Partnership  agreement for School Square
Limited  Partnership  ("Partnership  Agreement") was entered into by and between
Bradley V.  Larson,  as the  General  Partner),  WNC Housing Tax Credit Fund VI,
L.P.,  Series 7, as the  Limited  Partner and WNC  Housing,  L.P. as the Special
Limited  Partner  (the  Partnership  Agreement  is  incorporated  herein by this
reference as if the same were reproduced in full and any  capitalized  terms not
defined in this Agreement  shall have the meaning as defined in the  Partnership
Agreement).

         D. In  determining  whether to be admitted into School  Square  Limited
Partnership and contribute  funds to the  development of the Apartment  Housing,
the Limited  Partner  and  Special  Limited  Partner  performed a due  diligence
review.  Part of the due diligence  review included an analysis of the available
sources of funds to develop the Apartment Housing, the cost of construction, the
anticipated  revenues  associated with the rental of the Apartment Housing units
and the expenses required to operate the Apartment Housing.

         E.       The  Parties  recognize  and  acknowledge  that  the  final
construction  cost  determination  involves  substantial negotiations with
lenders, contractors and governmental authorities.

         F.       The Parties  recognize and acknowledge that a final operating
budget involves  substantial  negotiations with lenders and governmental
authorities.

                                       1
<PAGE>

         G. Limited Partner's and Special Limited Partner's  decision to execute
the Partnership  Agreement is based, in part, on their acceptance of the sources
of funds available to develop the Apartment Housing, the cost of construction to
build the  Apartment  Housing and the  operating  budget  necessary to provide a
positive Debt Service Coverage.

         Now, Therefore,  in consideration of the foregoing recitals which are a
part of this Agreement,  the mutual promises and undertakings in this Agreement,
and for other good and valuable  consideration,  the receipt and  sufficiency of
which are hereby acknowledged, the Parties agree as follows.

         1. Source of Funds.  Attached  hereto as Exhibit  "A" and  incorporated
herein by this reference is the Apartment Housing Source of Funds. The Source of
Funds have been specified in the Partnership Agreement as the Construction Loan,
the  Mortgage,  the Capital  Contribution  of the General  Partner,  the Capital
Contribution of the Limited Partner and the Capital  Contribution of the Special
Limited  Partner.  Unless  expressly  permitted  in the  Partnership  Agreement,
Consent of the Special  Limited Partner is required for any change to the Source
of Funds.

         2.  Development Budget. Attached hereto as Exhibit "B" and incorporated
herein  by this  reference  is the  Development  Budget  in an  amount  equal to
$1,228,050.  Owner  acknowledges  and represents  that the attached  Development
Budget  includes the total costs and expenses to acquire,  develop and construct
the Real Property and the Apartment Housing.

         3.   Construction   Proforma.   Attached  hereto  as  Exhibit  "C"  and
incorporated  herein  by this  reference  is the  Construction  Proforma.  Owner
acknowledges  and represents  that the attached  Construction  Proforma has been
reviewed  by and  approved  by  the  Construction  Lender,  Mortgage  lender  if
applicable and any  governmental  authorities if  applicable.  The  Construction
Proforma contains a list, by name, of all  subcontractors and material suppliers
who will  account for five  percent or more of the cost of  construction  of the
Apartment  Housing.  Also included is a trade payment  breakdown  specifying the
cost of each classification of construction  requirements  pursuant to Plans and
Specifications  and  the  other  Project  Documents.   In  accordance  with  the
Partnership  Agreement,  if the construction costs exceed the sum of the Capital
Contributions,  the proceeds of the Mortgage  and the  Development  Fee then the
General  Partner  shall be  responsible  for and shall be  obligated to pay such
deficiencies.

         4.  Operating Proforma. Attached hereto as Exhibit "D" and incorporated
herein by this  reference is the  Operating  Proforma.  Owner  acknowledges  and
represents  that  the  attached  Operating  Proforma  has been  reviewed  by and
approved by the  Construction  Lender,  the Mortgage lender and any governmental
authorities if applicable.

         5.  Notices. Any notice given  pursuant to this Agreement may be served
personally on the Party to be notified,  or may be mailed,  first class postage
prepaid,  to the following address, or to such other address as a Party may from
time to time designate in writing:

                                       2
<PAGE>

        To the General Partner:   Bradley V. Larson
                                  313 West Broadway
                                  Monticello, Minnesota 55362

        To the Limited Partner:   WNC Housing Tax Credit Fund VI, L.P., Series 7
                                  c/o WNC & Associates, Inc.
                                  3158 Redhill Ave., Suite 120
                                  Costa Mesa, CA 92626-3416

        To the Special
        Limited Partner:          WNC Housing, L.P.
                                  3158 Redhill Ave., Suite 120
                                  Costa Mesa, CA 92626-3416

         6.       Successors  and  Assigns. All the terms and conditions of this
Agreement  shall be binding  upon and inure to the benefit of the successors and
assigns of the Parties.

         7.       Counterparts.  This  Agreement  may be executed in one or more
counterparts, each of which shall be  deemed an original, and said  counterparts
shall  constitute  but one and the same  instrument  which  may  sufficiently be
evidenced  by one counterpart.

         8.       Captions.  Captions  to and  headings  of the Sections of this
Agreement are solely for the conveniences of the Parties, are not a part of this
Agreement,  and shall not be used for the  interpretation  or  determination  of
the validity of this Agreement or any provision hereof.

         9.       Saving  Clause.  If  any  provision of  this Agreement, or the
application  of such  provision  to any  Person or  circumstance,  shall be held
invalid,  the remainder of this Agreement,  or the application of such provision
to Persons  or  circumstances  other than those as to which it is held  invalid,
shall not be affected thereby.

         10.      Governing Law.  This Agreement and its application shall be
governed by the laws of Minnesota.

         11.  Attorney's  Fees.  If a suit or action is instituted in connection
with an alleged breach of any provision of this Agreement,  the prevailing Party
shall be entitled to recover,  in addition to costs,  such sums as the court may
adjudge reasonable as attorney's fees, including fees on any appeal.

                                       3
<PAGE>

         In Witness Whereof, this Development, Construction and Operating Budget
Agreement is made and entered into as of _________, 2000.

                                 GENERAL PARTNER

                                 Bradley V. Larson

                                 LIMITED PARTNER

                                 WNC Housing Tax Credit Fund VI, L.P., Series 7

                                 By:     WNC & Associates, Inc.,
                                         General Partner

                                         By:      _________________________
                                                  David N. Shafer,
                                                  Executive Vice President

                                 SPECIAL LIMITED PARTNER

                                 WNC Housing, L.P.

                                 By:     WNC & Associates, Inc.,
                                         General Partner

                                         By:      ______________________________
                                                  David N. Shafer,
                                                  Executive Vice President

                                       4
<PAGE>

                                    EXHIBIT A

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                                 SOURCE OF FUNDS

                                       A
<PAGE>

                                    EXHIBIT B

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                               DEVELOPMENT BUDGET

                                       B
<PAGE>

                                    EXHIBIT C

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                              CONSTRUCTION PROFORMA

                                       C
<PAGE>

                                    EXHIBIT D

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                               OPERATING PROFORMA

                                       D

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