Document:

Second Amended and Restated Operating

                                  Agreement of

                               2nd Fairhaven, LLC

<PAGE>

                                TABLE OF CONTENTS

                                                                     Page

I.       DEFINITIONS .............................................    1

         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 "Operating 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" .........................    4
         1.14     "Cash Expenses".................................    4
         1.15     "Cash Receipts".................................    4
         1.16     "Code" .........................................    4
         1.17     "Completion of Construction"....................    4
         1.18     "Compliance Period".............................    5
         1.19     "Consent of the Special Member".................    5
         1.20     "Construction Budget"...........................    5
         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".......................    6
         1.27     "Developer".....................................    6
         1.28     "Development Fee" ..............................    6
         1.29     "Distributions" ................................    6
         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" ..........................    7
         1.36     "Force Majeure".................................    7
         1.37     "Managing Member" ..............................    7
         1.38     "Gross Asset Value" ............................    7
         1.39     "Hazardous Substance"...........................    8
         1.40     "Improvements"..................................    8
         1.41     "Incentive Management Fee"......................    8
         1.42     "Income and Losses".............................    8
         1.43     "Inspecting Architect"..........................   10
         1.44     "Insurance" ....................................   10
         1.45     "Insurance Company" ............................   11
         1.46     "Interest" .....................................   11
         1.47     "Involuntary Withdrawal"........................   11
         1.48     "Land Acquisition Fee"..........................   11
         1.49     "LIHTC".........................................   11

                                       i
<PAGE>

         1.50     "Investor Member"...............................   11
         1.51     "Management Agent"..............................   11
         1.52     "Management Agreement"..........................   11
         1.53     "Minimum Set-Aside Test"........................   12
         1.54     "Mortgage" or "Mortgage Loan"...................   12
         1.55     "Net Operating Income"..........................   12
         1.56     "Nonrecourse Deductions"........................   12
         1.57     "Nonrecourse Liability".........................   12
         1.58     "Operating Deficit" ............................   12
         1.59     "Operating Deficit Guarantee Period"............   13
         1.60     "Operating Loans"...............................   13
         1.61     "Original Limited Partner" .....................   13
         1.62     "Member(s)" ....................................   13
         1.63     "Member Nonrecourse Debt" ......................   13
         1.64     "Member Nonrecourse Debt Minimum Gain" .........   13
         1.65     "Member Nonrecourse Deductions" ................   13
         1.66     "Company" ......................................   13
         1.67     "Company Minimum Gain" .........................   13
         1.68     "Permanent Mortgage Commencement" ..............   13
         1.69     "Person" .......................................   13
         1.70     "Plans and Specifications"......................   13
         1.71     "Project Documents" ............................   14
         1.72     "Projected Annual Tax Credits" .................   14
         1.73     "Projected Tax Credits" ........................   14
         1.74     "Rent Restriction Test" ........................   14
         1.75     "Reporting Fee".................................   14
         1.76     "Revised Projected Tax Credits".................   14
         1.77     "Sale or Refinancing"...........................   14
         1.78     "Sale or Refinancing Proceeds" .................   14
         1.79     "Special Member"................................   15
         1.80     "State" ........................................   15
         1.81     "State Tax Credit Agency" ......................   15
         1.82     "Substitute Investor Member" ...................   15
         1.83     "Syndication Fee"...............................   15
         1.84     "Tax Credit" ...................................   15
         1.85  "Tax Credit Compliance Fee"........................   15
         1.86     "Tax Credit Conditions".........................   15
         1.87     "Tax Credit Period".............................   15
         1.88     "Title Policy"..................................   15
         1.89     "TRA 1986" .....................................   16
         1.90     "Treasury Regulations" .........................   16
         1.91     "Withdrawing" or "Withdrawal"...................   16

II.      NAME ....................................................   16

III.     PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE ............   16

         3.1      Principal Executive Office .....................   16
         3.2      Agent for Service of Process ...................   16

IV.      PURPOSE .................................................   16

         4.1      Purpose of the Company..........................   16
         4.2      Authority of the Company........................   17

V.       TERM ....................................................   17

                                       ii
<PAGE>

VI.      MANAGING MEMBER'S CONTRIBUTIONS AND LOANS................   18

         6.1      Capital Contribution of Managing Member.........   18
         6.2      Construction Obligations........................   18
         6.3      Operating Obligations...........................   19
         6.4      Other Managing Member Loans.....................   19

VII.     CAPITAL CONTRIBUTIONS OF INVESTOR MEMBER
         AND SPECIAL MEMBER.......................................   19

         7.1      Original Limited Partner........................   19
         7.2      Capital Contribution of Investor Member.........   19
         7.3      Repurchase of Investor Member's Interest........   21
         7.4      Adjustment of Investor Member's
                  Capital Contribution............................   22
         7.5      Capital Contribution of Special Member..........   25
         7.6      Return of Capital Contribution..................   25
         7.7      Liability of Investor Member and Special
                  Investor Member.................................   25

VIII. WORKING CAPITAL AND RESERVES ...............................   25

         8.1      Operating and Maintenance Account...............   25
         8.2      Reserve for Replacements........................   25
         8.3      Tax and Insurance Account.......................   26
         8.4      Other Reserves..................................   26

IX.      MANAGEMENT AND CONTROL ..................................   26

         9.1      Power and Authority of Managing Member .........   26
         9.2      Payments to the Managing Members and Others ....   27
         9.3      Specific Powers of the Managing Member .........   28
         9.4      Authority Requirements..........................   29
         9.5      Limitations on Managing Member's
                  Power and Authority ............................   29
         9.6      Restrictions on Authority of Managing Member....   30
         9.7      Duties of Managing Member ......................   32
         9.8      Obligations to Repair and Rebuild Apartment
                  Housing.........................................   33
         9.9      Company Expenses ...............................   33
         9.10     Managing Member Expenses .......................   34
         9.11     Other Business of Members ......................   34
         9.12     Covenants, Representations and Warranties.......   35

X.       ALLOCATIONS OF INCOME, LOSSES AND CREDITS ...............   39

         10.1     General ........................................   39
         10.2     Allocations From Sale or Refinancing............   39
         10.3     Special Allocations.............................   40
         10.4     Curative Allocations............................   42
         10.5     Other Allocation Rules..........................   43
         10.6     Tax Allocations:  Code Section 704(c)...........   44
         10.7     Allocation Among Investor Members...............   44
         10.8     Allocation Among Managing Members ..............   44
         10.9     Modification of Allocations ....................   45

XI.      DISTRIBUTION ............................................   45

                                      iii
<PAGE>

         11.1     Distribution of Net Operating Income ...........   45
         11.2     Distribution of Sale or Refinancing Proceeds....   45

XII.     TRANSFERS OF INVESTOR MEMBER'S INTEREST
         IN THE COMPANY...........................................   46

         12.1     Assignment of Investor Member's Interest .......   46
         12.2     Effective Date of Transfer .....................   47
         12.3     Invalid Assignment .............................   47
         12.4     Assignee's Rights to Allocations
                  and Distributions ..............................   47
         12.5     Substitution of Assignee as Investor Member
                  or Special Member...............................   47
         12.6     Death, Bankruptcy, Incompetency, etc.
          of an Investor Member ..................................   48

XIII. WITHDRAWAL, REMOVAL AND REPLACEMENT OF MANAGING
      MEMBER .....................................................   48

         13.1     Withdrawal of Managing Member ..................   48
         13.2     Removal of Managing Member .....................   49
         13.3     Effects of a Withdrawal.........................   50
         13.4     Successor Managing Member.......................   52
         13.5     Admission of Additional or Successor
                  Managing Member ................................   52
         13.6     Transfer of Interest ...........................   53
         13.7     No Goodwill Value...............................   53

XIV.     BOOKS AND ACCOUNTS, REPORTS, TAX RETURNS,
         FISCAL YEAR AND BANKING .................................   53

         14.1     Books and Accounts .............................   53
         14.2     Accounting Reports .............................   54
         14.3     Other Reports ..................................   55
         14.4     Late Reports ...................................   57
         14.5     Annual Site Visits..............................   57
         14.6     Tax Returns.....................................   57
         14.7     Fiscal Year ....................................   57
         14.8     Banking ........................................   57
         14.9     Certificates and Elections .....................   58

XV.      DISSOLUTION, WINDING UP, TERMINATION AND
         LIQUIDATION OF THE COMPANY ..............................   58

         15.1     Dissolution of Company .........................   58
         15.2     Return of Capital Contribution upon
                  Dissolution ....................................   58
         15.3     Distributions of Assets ........................   59
         15.4     Deferral of Liquidation.........................   60
         15.5     Liquidation Statement ..........................   60
         15.6     Certificates of Dissolution; Certificate of
                  Cancellation of Articles of Organization........   60

XVI.     AMENDMENTS ..............................................   61

XVII. MISCELLANEOUS ..............................................   61

                                       iv
<PAGE>

         17.1     Voting Rights ..................................   61
         17.2     Meeting of Company .............................   61
         17.3     Notices ........................................   62
         17.4     Successors and Assigns .........................   62
         17.5     FmHA Regulations................................   62
         17.6     Recording of Articles of Organization...........   63
         17.7     Amendment of Articles of Organization...........   63
         17.8     Counterparts ...................................   64
         17.9     Captions .......................................   64
         17.10    Saving Clause...................................   64
         17.11    Certain Provisions.............................    64
         17.12    Tax Matters Members............................    64
         17.13    Expiration of Compliance Period................    65
         17.14    Number and Gender .............................    66
         17.15    Entire Agreement ..............................    66
         17.16    Governing Law .................................    66
         17.17    Attorney's Fees ...............................    66
         17.18    Receipt of Correspondence .....................    66
         17.19    Security Interest and Right of Set-Off ........    67

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  -  H-10

                                       v
<PAGE>

                           Second Amended and Restated
                             Operating Agreement of
                               2nd Fairhaven, LLC

         This Second Amended and Restated  Operating  Agreement is being entered
into  effective as of the date written  below by and between Larry C. Porter and
Carter C. Chinnis as the managing members  (collectively the "Managing Member"),
WNC Housing Tax Credit Fund VI, L.P., Series 7, a California limited partnership
as a member (the  "Investor  Member"),  and WNC  Housing,  L.P.,  as the Special
Member (the "Special Member").

                                    RECITALS

         WHEREAS, 2nd Fairhaven,  LLC, a Maryland limited liability company (the
"Company")  recorded an Articles of Organization with the Maryland  Secretary of
State on June 4, 1997.  An  operating  agreement  dated June 4, 1997 was entered
into by and between the Managing Members (the "Original Operating Agreement").

         WHEREAS,  the Company entered into an Articles of Amendment on February
8, 2000 to provide  for  substitution  of  Articles 1 through 6 of the  Original
Operating Agreement.

         WHEREAS,  the Members  entered  into a Amended and  Restated  Operating
Agreement of 2nd  Fairhaven,  LLC dated  January 25, 2000 to provide for,  among
other things,  (i) the  continuation  of the Company,  (ii) the admission of the
Investor Member and the Special Member as members of the Company,  and (iii) the
determination of the respective rights, obligations and interests of the Members
to each other and to the Company (the "Amended Operating Agreement").

         WHEREAS,  the Members  desire to enter into this  Agreement  to provide
for, among other things,  (i) the continuation of the Company,  (ii) the payment
of Capital  Contribution  by the Investor  Member and the Special  Member to the
Company,  (iii) the allocation of Income,  Losses, Tax Credits and distributions
of Net  Operating  Income and other cash funds of the Company among the Members,
and (iv) certain other matters.

         WHEREAS,  the  Members  desire  hereby to amend and restate the Amended
Operating Agreement.

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

                                       1
<PAGE>

                                    ARTICLE I

                                   DEFINITIONS

Section 1.1  "Accountant"  shall mean Thomas S. Chambers,  or such other firm of
independent  certified  public  accountants as may be engaged for the Company by
the Managing Members with the Consent of the Special Member. Notwithstanding any
provision of this  Agreement to the contrary,  the Special Member 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  liability
companies, 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 Company to the Investor  Member,
representing  99.98% of the LIHTC actually received by the Company,  as shown on
the applicable tax returns of the Company.

Section 1.4 "Adjusted  Capital  Account  Deficit" shall mean with respect to any
Member, the deficit balance,  if any, in such Member'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 Member 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 member of such other
Person;  and (d) if such  Person is an  officer,  director,  trustee or managing
member, any other Person for which such Person acts in any such capacity.

Section 1.6 "Agreement" or "Operating  Agreement" shall mean this Second Amended
and Restated Operating 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.

                                       2
<PAGE>

Section 1.7 "Apartment  Housing" shall collectively mean the approximately 3.487
acres  of  land in  Federalsburg,  Caroline  County,  Maryland,  as  more  fully
described  in  Exhibit  "A"  attached  hereto  and  incorporated  herein by this
reference, and the Improvements.

Section 1.8 "Assignee"  shall mean a Person who has acquired all or a portion of
the Investor Member's or Special Member's beneficial interest in the Company and
has not become a Substitute Investor Member.

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 Member shall be deemed  Bankrupt if the  Bankruptcy of
such Member shall have occurred and be continuing.

Section 1.10 "Break-even  Operations" shall mean at such time as the Company has
Cash  Receipts  equal to Cash  Expenses,  as determined  by the  Accountant  and
approved by the Special Member.  For purposes of this  definition,  any one-time
up-front  fee paid to the Company  from any source shall not be included in Cash
Receipts to calculate Break-even Operations.

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

Section 1.12  "Capital  Account"  shall mean,  with respect to each Member,  the
account   maintained  for  such  Member   comprised  of  such  Member's  Capital
Contribution  as increased by  allocations  to such Member of Company 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 Member,  and  allocations  to such Member of
Company  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 Company 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  Company,  if any, by all the

                                       3
<PAGE>

Members  or any class of  Members  or any one Member as the case may be (or by a
predecessor-in-interest  of such Member or Members), 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 Company by a Member shall not be  considered a Capital
Contribution.

Section 1.14 "Cash  Expenses"  shall mean all cash operating  obligations of the
Company  (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
promotion,  utilities,  maintenance,  repairs,  Member  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 Members or Affiliates of Members shall
be paid after Cash Expenses payable to third parties. Construction loan interest
and construction  costs of any nature whatsoever are not Cash Expenses and shall
not be paid from Cash Receipts. The provisions of Section 6.2 govern the payment
of construction costs and construction interest.

Section 1.15 "Cash  Receipts" shall mean actual cash received on a cash basis by
the Company from operating revenues of the Company, including without limitation
rental  income  (but not any subsidy  thereof  from the  Managing  Members 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 "Company" shall mean the limited  liability company continued under
this Agreement.

Section  1.18  "Company  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  1.19  "Completion  of  Construction"  shall  mean the date the  Company
receives the required certificate of occupancy (or the local equivalent) for all
eighteen  (18)  apartment  units  in  the  Apartment  Housing.  Notwithstanding,
Completion  of  Construction  shall  not be  deemed  to  have  occurred:  if the

                                       4
<PAGE>

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

Section 1.21 "Consent  of  the  Special  Member"  shall  mean  the prior written
consent or approval of the Special Member.

Section 1.22 "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 "E" and incorporated herein by this reference.

Section 1.23  "Deferred  Management  Fee" shall  have the  meaning set  forth in
Section 9.2(c) hereof.

Section 1.24  "Developer" shall mean Carter C. Chinnis.

Section 1.25  "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 Development Fee Agreement between the Company 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 1.26 "Distributions"  shall mean the total amount of money, or the Gross
Asset Value of property (net of liabilities  securing such distributed  property
that such Member is considered to assume or take subject to under Section 752 of
the  Code),  distributed  to Members  with  respect  to their  Interests  in the
Company,  but shall not include  any  payments  to the  Managing  Members 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 1.27 "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.

Section  1.28  "Financial  Interest"  shall mean the Managing  Members'  capital
interest  in the  Company  to be  contributed  and  maintained  pursuant  to the
requirements of FmHA  Instruction  1944-E,  Section  1944.211(a)(13)(ii)  or any

                                       5
<PAGE>

amendments  thereto.  Such  Financial  Interest  shall not affect  the  Members'
allocable share of the Profits, Losses, Tax Credits or Cash Flow From Operations
as set forth in this Agreement.

Section 1.29 "First Year Certificate"  shall mean the certificate to be filed by
the  Managing  Members  with the  Secretary  of the Treasury as required by Code
Section 42(1)(1), as amended, or any successor thereto.

Section  1.30 "FmHA" shall mean the United  States  Department  of  Agriculture,
Rural  Development-Maryland   (formerly  Farmers  Home  Administration)  or  any
successor thereto.

Section 1.31 "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 Company whereby FmHA will provide a
monthly credit subsidy to the Company's  Mortgage account when the Company makes
each monthly payment on the Mortgage.

Section 1.32 "FmHA Loan Agreement" shall mean the Loan Agreement for an RRH Loan
to an limited  liability  company Operating on a Limited Profit Basis (Form FmHA
1944-34 or any  successor  thereof)  between  the FmHA and the  Company  made in
consideration  of the  Mortgage  Loan to the  Company  by the FmHA  pursuant  to
Section  515(b) of the  Housing  Act of 1949 to build a low to  moderate  income
apartment complex.

Section 1.33 "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  or
restraint.

Section  1.34 "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 Member
to the Company  shall be the Fair Market Value of such asset,  as  determined by
the  contributing  Member  and  the  Managing  Member,  provided  that,  if  the
contributing  Member is a Managing Member,  the determination of the Fair Market
Value of a contributed asset shall be determined by appraisal;

        (b) the Gross Asset  Values of all Company  assets  shall be adjusted to
equal their respective Fair Market Values, as determined by the Managing Member,
as of the following times: (1) the acquisition of an additional  Interest in the
Company by any new or  existing  Member in  exchange  for more than a de minimis
Capital  Contribution;  (2) the  distribution by the Company to a Member of more
than a de minimis amount of Company property as consideration for an Interest in
the  Company;  and (3) the  liquidation  of the  Company  within the  meaning of

                                       6
<PAGE>

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  Member  and  only if the  Managing  Member  reasonably
determines  that such  adjustments  are necessary or  appropriate to reflect the
relative economic interests of the Members in the Company;

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

        (d) the Gross Asset  Values of Company  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  1.34(d) to the extent the Managing  Member  determines
that  an  adjustment   pursuant  to  Section  1.34(b)  hereof  is  necessary  or
appropriate in connection with a transaction  that would otherwise  result in an
adjustment pursuant to this Section 1.34(d).

         If the Gross  Asset Value of an asset has been  determined  or adjusted
pursuant to Section 1.34(a),  Section 1.34(b),  or Section 1.34(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  1.35  "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 1.36  "Improvements"  shall mean the five buildings  containing eighteen
(18) apartment units and ancillary and appurtenant  facilities  (including those
intended for commercial  use, if any,) being  constructed  for the elderly built
and in  accordance  with the  Project  Documents.  It  shall  also  include  all
furnishings,  equipment  and  personal  property  used in  connection  with  the
operation thereof.

Section 1.37  "Incentive  Management Fee" shall  have the  meaning set  forth in
Section 9.2(e) hereof.

Section  1.38  "Income  and Losses"  shall  mean,  for each fiscal year or other
period, an amount equal to the Company's taxable income or loss for such year or
period, determined in accordance with Code Section 703(a) (for this purpose, all

                                       7
<PAGE>

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 Company that is exempt from federal income tax and
not otherwise taken into account in computing  Income or Losses pursuant to this
Section 1.38 shall be added to such taxable income or loss;

        (b)  any   expenditures  of  the  Company   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 1.38 shall be  subtracted
from such taxable income or loss;

        (c) in the event the Gross Asset Value of any Company  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 Company 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
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
Managing Member.

         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.

                                       8
<PAGE>

Section 1.39 "Insurance" shall mean:

        (a) during  operations  the Company will  provide and maintain  business
interruption  coverage  covering actual  sustained loss for 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;

        (b) 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;

        (c) all Insurance polices shall name the Company as  the named  insured,
the Investor  Member as an additional  insured,  and WNC &  Associates,  Inc. as
the certificate holder;

        (d) all  Insurance  policies  shall include  a provision  to  notify the
insured, the Investor Member and the certificate  holder prior to  cancellation;
and

        (e) hazard coverage must  include  inflation and  building or  ordinance
endorsements.

Section 1.40 "Insurance Company" shall mean any insurance company engaged by the
Managing  Member for the Company  with the Consent of the Special  Member  which
Insurance  Company shall have an A rating or better for financial safety by A.M.
Best or Standard & Poor's.

Section 1.41 "Interest" shall mean the entire ownership  interest of a Member in
the Company at any  particular  time,  including the right of such Member to any
and all benefits to which a Member may be entitled  hereunder and the obligation
of such Member to comply with the terms of this Agreement.

Section 1.42 "Investor  Member" 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 Company as additional or Substitute Investor Members pursuant to
this Agreement.

Section 1.43  "Involuntary  Withdrawal"  shall mean any Withdrawal of a Managing
Member caused by death, adjudication of insanity or incompetence, Bankruptcy, or
the removal of a Managing Member pursuant to Section 13.2 hereof.

Section 1.44 "Land  Acquisition  Fee" shall mean the fee payable to the Managing
Member in an amount  equal to  $3,138  for the  Managing  Member's  services  in
locating,  negotiating  and closing on the  purchase of the real  property  upon
which the Improvements are, or will be, erected.

                                       9
<PAGE>

Section 1.45 "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 1.46 "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
Cabell Corporation.

Section 1.47 "Management Agreement" shall mean the agreement between the Company
and the Management Agent for property  management  services.  The management fee
shall equal 9% of gross revenues. 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 Company at
anytime  following the Withdrawal or removal of the Managing  Member 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 1.48  "Managing  Members"  shall  collectively  mean Larry C. Porter and
Carter C.  Chinnis  and such other  Persons as are  admitted  to the  Company as
additional or substitute  Managing Members pursuant to this Agreement.  If there
is more than one Managing  Member of the  Company,  the term  "Managing  Member"
shall be deemed to collectively  refer to such Managing  Members or individually
may mean any Managing Member as the context dictates.

Section  1.49  "Member(s)"  shall  collectively  mean the Managing  Member,  the
Investor  Member,  and the Special Member or individually may mean any Member as
the context dictates.

Section 1.50   "Member Nonrecourse  Debt" shall have  the meaning  set forth  in
Section 1.704-2(b)(4) of the Treasury Regulations.

Section 1.51 "Member  Nonrecourse Debt Minimum Gain" shall mean an amount,  with
respect to each Member  Nonrecourse Debt, equal to the Company Minimum Gain that
would  result if such  Member  Nonrecourse  Debt were  treated as a  Nonrecourse
Liability,  determined in accordance with Section  1.704-2(i)(3) of the Treasury
Regulations.

Section 1.52 "Member 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  1.53  "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

                                       10
<PAGE>

percentage of the area median gross income. Notwithstanding, the Managing Member
has agreed that 16 apartment units will be rented to tenants with incomes of 40%
or less of the area median income adjusted for family size.

Section 1.54 "Mortgage" or "Mortgage Loan" shall mean the permanent  nonrecourse
financing  wherein  the  Company  promises  to pay  FmHA,  or its  successor  or
assignee,  the  principal sum of  $1,000,000,  plus interest on the principal at
6.75% per annum over a term of 30 years and amortized  over 50 years.  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 Company;  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.  The Debt Service  Coverage
shall not fall below 1.15 on the current Cash Expenses and Cash Receipts.

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 Member.

Section  1.59  "Operating  Deficit  Guarantee  Period"  shall  mean  the  period
commencing  the  date the  first  apartment  unit in the  Apartment  Housing  is
available  for its  intended  use and ending  eighteen  months  following  three
consecutive  months of Break-Even  Operations.  The Operating  Deficit Guarantee
Period  will  not  expire   unless  the  Company  has  achieved   Completion  of
Construction of the Apartment Housing.

Section 1.60  "Operating  Loans" shall mean loans made by the Managing Member to
the Company  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  "Permanent  Mortgage  Commencement"  shall mean the first date on
which all of the following have occurred: (a) the Mortgage shall have closed and
funded; and (b) amortization of the Mortgage shall have commenced.

Section 1.62 "Person" shall  collectively  mean an  individual,  proprietorship,
trust, estate, joint venture, association, company, corporation or other entity.

                                       11
<PAGE>

Section  1.63  "Project  Documents"  shall mean all  documents  relating  to the
Mortgage  Loan and all  documents  required by any  governmental  agency  having
jurisdiction  over the Apartment  Housing in  connection  with the operation and
financing of the Apartment Housing.

Section 1.64  "Projected  Annual Tax Credits"  shall mean LIHTC in the amount of
$47,035 per year for each of the years 2000  through  2009,  which the  Managing
Member has  projected to be the total amount of LIHTC which will be allocated to
the Investor Member by the Company,  constituting 99.98% of the aggregate amount
of LIHTC of $470,441 to be available to the Company.

Section 1.65  "Projected Tax Credits" shall mean LIHTC in  the aggregate  amount
of $470,441.

Section 1.66 "Qualified  Tenants" shall mean any tenants who have incomes of 60%
or less of the area median gross  income,  as adjusted for family size, so as to
make the Project eligible for LIHTC.

Section 1.67 "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 1.68  "Reporting Fee" shall have the meaning set forth in Section 9.2(d)
hereof.

Section 1.69  "Revised Projected Tax  Credits" shall have the meaning  set forth
in Section 7.4(a) hereof.

Section  1.70 "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 Company, 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 Company
and any similar  item or  transaction;  provided,  however,  that the payment of
Capital Contributions by the Members shall not be included within the meaning of
the term "Sale or Refinancing."

Section 1.71 "Sale or Refinancing  Proceeds" shall mean all cash receipts of the
Company  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 1.72 "Special Member" shall mean WNC Housing, L.P., a California limited
partnership, and such other Persons as are admitted to the Company as additional
or substitute Special Members pursuant to this Agreement.

                                       12
<PAGE>

Section 1.73 "State" shall mean the State of Maryland.

Section 1.74 "State Tax Credit  Agency"  shall mean the state agency of Maryland
which has the  responsibility  and authority to administer  the LIHTC program in
Maryland.

Section 1.75 "Substitute  Investor Member" shall mean any Person who is admitted
to the Company as an Investor  Member  pursuant to Section  12.5 or acquires the
Interest of the Investor Member pursuant to Section 7.3 of this Agreement.

Section 1.76 "Syndication Fee" shall mean the fee payable to the Managing Member
in an amount equal to $10,000 for the Managing  Member's services in forming the
Company,  locating and approving the Investor  Member and Special  Member as the
investors in the Company,  negotiating and finalizing this Company Agreement and
for such other services referenced in Treasury Regulation Section 1.709-2(B).

Section 1.77 "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
Member as a result of  activities  or  expenditures  of the  Company  including,
without limitation, LIHTC.

Section 1.78  "Tax Credit  Compliance  Fee" shall  mean the fee  payable to  the
Managing  Member in accordance with Section 9.2(f) of this Agreement.

Section  1.79 "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.

Section 1.80 "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 Members. It is the intent of the Members that the Projected Tax Credits will
be allocated during the Tax Credit Period and not a longer term.

Section 1.81 "Title Policy" shall mean the policy of insurance  covering the fee
simple title to the  Apartment  Housing  from a company  approved by the Special
Member. The Title Policy shall be an ALTA owners title policy naming the Company
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  Mortgage   Loan  amount  and  the  Investor   Member's   Capital
Contribution.

Section 1.82 "TRA 1986" shall mean the Tax Reform Act of 1986.

                                       13
<PAGE>

Section  1.83  "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 1.84  "Withdrawing" or "Withdrawal"  (including the verb form "Withdraw"
and the adjectival  forms  "Withdrawing"  and  "Withdrawn")  shall mean, as to a
Managing  Member,  the  occurrence  of the death,  adjudication  of  insanity or
incompetence,  Bankruptcy of such Member, the withdrawal,  removal or retirement
from the  Company of such  Member for any reason,  including  any sale,  pledge,
encumbering,  assignment  or other  transfer of all or any part of its  Managing
Member  Interest  and those  situations  when a  Managing  Member  may no longer
continue  as a Managing  Member by reason of any law or pursuant to any terms of
this Agreement.

                                   ARTICLE II

                                      NAME

     The name of the Company shall be "2nd Fairhaven, LLC."

                                   ARTICLE III

                  PRINCIPAL EXECUTIVE OFFICE/AGENT FOR SERVICE

         Section 3.1 Principal  Executive Office. The principal executive office
of the Company is located at 410 Market Street,  Denton,  Maryland  21629, or at
such other place or places within the State as the Managing Member may hereafter
designate.

         Section 3.2 Agent for  Service of  Process.  The  name of the agent for
service  of  process on the  Company is Larry  C. Porter,  whose address  is 410
Market Street, P.O. Box 499, Denton, Maryland 21629.

                                   ARTICLE IV

                                     PURPOSE

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

         Section  4.2  Authority  of the  Company.  In order  to  carry  out its
purpose,  the Company 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 Company, including but not limited to the following:

                                       14
<PAGE>

         (a)  own, maintain and operate the Apartment Housing in accordance with
the Project Documents;

         (b)  provide  housing to  Qualified  Tenants,  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;

         (c) maintain and operate the Apartment  Housing,  including  hiring the
Management  Agent  (which  Management  Agent  may be any  of the  Members  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;

         (d) enter into the Mortgage;

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

         (f) do  any  and  all other  acts and  things  necessary  or proper  in
accordance with this Agreement.

                                    ARTICLE V

                                      TERM

         The  Company  term  commenced  upon  the  filing  of  the  Articles  of
Organization  in the office of, and on the form  prescribed by, the Secretary of
State of the State, and shall continue until December 31, 2055 unless terminated
earlier in  accordance  with the  provisions  of this  Agreement or as otherwise
provided by law.

                                   ARTICLE VI

                    MANAGING MEMBER'S CONTRIBUTIONS AND LOANS

        Section 6.1 Capital Contribution of Managing Member. The Managing Member
shall make a Capital Contribution equal to $52,632.

        Section 6.2 Construction Obligations.

        (a) The Managing  Member  hereby  guarantees a lien  free  completion of
construction  of the Apartment  Housing on or before April 30,  1999("Completion
Date") at a total  development  cost of not more than  $1,433,546  ("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,  and the Project Documents.  If
the Special Member ascertains that the Development Budget exceeds the sum of the
Capital  Contributions,  the Mortgage  amount and the  Development  Fee then the
Managing  Member  shall be  responsible  for and shall be  obligated  to pay the

                                       15
<PAGE>

difference  thereof  within  thirty days of  receiving  written  notice from the
Special  Member.  Any advances by the Managing  Member  pursuant to the previous
sentence shall not be repayable,  shall not change the Interest of any Member in
the Company and shall be considered a guaranteed payment to the Company for cost
overruns.  Upon such notice from the Special  Member,  the Managing Member shall
advance the requested funds into the construction lender's construction account.

         (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,  the construction  lender sends a notice of default
under the construction  loan; or (3) a foreclosure  action is commenced  against
the Company,  then at the Special Member's election,  either the Managing Member
will be removed  from the  Company  and the  Special  Member will be admitted as
successor  Managing Member,  all in accordance with Article XIII hereof,  or the
Managing  Member will  repurchase  the Interest of the  Investor  Member and the
Special  Member  for an  amount  equal to the  amounts  theretofore  paid by the
Investor Member and the Special Member,  and the Investor Member and the Special
Member  shall have no further  Interest in the  Company.  If the Special  Member
elects to have the  Managing  Member  repurchase  the  Interest of the  Investor
Member then the repurchase  shall occur within 60 days after the Managing Member
receives written demand from the Investor  Member.  If the Special Member elects
to remove the Managing Member then the provisions of Article XIII apply.

         Section 6.3 Operating  Obligations.  From the date the first  apartment
unit in the  Apartment  Housing is  available  for its  intended use until three
consecutive   months  of  Break-even   Operations,   the  Managing  Member  will
immediately  provide the Company the necessary funds to pay Operating  Deficits,
which funds shall not be repayable,  shall not change the Interest of any Member
and shall be considered a guaranteed  payment to the Company for cost  overruns.
For the balance of the Operating  Deficit  Guarantee  Period the Managing Member
will  immediately  provide  Operating Loans to pay any Operating  Deficits.  The
aggregate  maximum amount of the Operating  Loan(s) the Managing  Member will be
obligated to lend will be equal to one year's operating expenses (including debt
and  reserves)  approved by the  Managing  Member and the Special  Member.  Each
Operating Loan shall be  nonrecourse to the Members,  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  Managing  Member  Loans.  After  expiration  of the
Operating Deficit Guarantee Period,  with the Consent of the Special Member, the
Managing Member may loan to the Company any sums required by the Company 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 Managing  Member 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 Managing Member and the Special Member.  The terms of any such loan shall be

                                       16
<PAGE>

evidenced  by a written  instrument.  The  Managing  Member  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 Managing  Member and such advance
will be classified as a Managing Member Capital Contribution.

                                   ARTICLE VII

                    CAPITAL CONTRIBUTIONS OF INVESTOR MEMBER
                               AND SPECIAL MEMBER

         Section  7.1 Capital  Contribution  of Investor  Member.  The  Investor
Member shall make a Capital  Contribution  in the amount of $359,815,  as may be
adjusted in accordance  with Section 7.3 of this  Agreement,  deposited  into an
escrow  account  evidenced by an escrow  agreement  ("Escrow  Agreement")  dated
January 11, 2000, subject to the conditions hereinafter set forth.

         (a) $359,815 shall be payable upon  the Investor  Member'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;

                  (3) a copy of an ALTA owner's  title  insurance  policy naming
the Investor Member as a co-insured and including a  non-imputation  and fairway
endorsement to the Title Policy ("Title  Insurance")dated  no more than ten days
prior to the scheduled  Capital  Contribution  providing an as-built  survey and
confirming  that  there  are 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.  The Title  Insurance  shall be in an amount
equal to the Mortgage Loan and the Investor Member's capital contribution.

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

                  (5) 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;

                  (6) Insurance required during operations;

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

                  (8) the current rent roll;

                  (9) 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
Managing  Member,  verifying each tenant's  eligibility  pursuant to the Minimum
Set-Aside Test;

                                       17
<PAGE>

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

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

                  (12) a  construction  cost  certification (which  includes  an
itemized cost breakdown);

                  (13) 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;

                  (14) Internal Revenue Code Form 8609, or any successor form;

                  (15) approval by the Investor Member's acquisition  committee;
and

                  (16) any documents  previously not  provided  to the  Investor
Member but required pursuant to this Section 7.1.

         Section 7.2 Repurchase of Investor  Member's  Interest.  Within 60 days
after the Managing  Member  receives  written  demand from the  Investor  Member
and/or the Special Member,  the Company shall  repurchase the Investor  Member's
Interest and/or the Special Member's  Interest in the Company by refunding to it
in cash the full amount of the Capital  Contribution  which the Investor  Member
and/or  the  Special  Member has  theretofore  made in the event  that,  for any
reason,  the Company shall fail to meet both the Minimum  Set-Aside Test and the
Rent  Restriction  Test not later than December 31 of the first year the Company
elects the LIHTC to commence in accordance with the Code.

         Section 7.3  Adjustment  of  Investor  Member's  and  Special  Member's
Capital Contribution.

         (a) The amount of the Investor  Member's and Special  Member's  Capital
Contribution  was  determined  in part upon the amount of Tax Credits  that were
expected to be available to the Company,  and was based on the  assumption  that
the Company  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 Investor Member and Special Member as evidenced by IRS Form 8609, Schedule A
thereto,  and  the  audited  construction  cost  certification  provided  to the
Investor  Member and Special  Member are less than  $470,494 (the new Tax Credit
amount,  if  applicable,  shall be referred  to as the  "Revised  Projected  Tax
Credits") then the Investor  Member's and Special Member's Capital  Contribution
provided  for in Section 7.1 and Section 7.4  respectively  shall be adjusted by
the amount  which  will make the total  Capital  Contribution  to be paid by the
Investor  Member and Special Member to the Company equal to 76.5% of the Revised

                                       18
<PAGE>

Projected Tax Credits so anticipated to be allocated to the Investor  Member and
Special  Member.  If the  Capital  Contribution  adjustment  referenced  in this
Section  7.3(a) is a  reduction  which is  greater  than the  remaining  Capital
Contribution  to be paid by the Investor  Member and the Special Member then the
Managing  Member  shall  have  ninety  days  from the date the  Managing  Member
receives notice from either the Investor Member or the Special Member to pay the
shortfall.  If the Capital  Contribution  adjustment  referenced in this Section
7.3(a) is an increase  then the  Investor  Member and Special  Member shall have
sixty days from the date the Investor  Member and Special  Member have  received
notice from the Managing Member to pay the increase.

         (b) The  Managing  Member 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  three  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
then the next Capital  Contribution owed by the Investor Member shall be reduced
to reflect the reduced tax credit amount  (Annual  Credit  Shortfall"),  and any
portion of such Annual Credit  Shortfall in excess of such Capital  Contribution
shall be applied to reduce  succeeding  Capital  Contributions  of the  Investor
Member.  If the Annual  Credit  Shortfall is greater than the Investor  Member's
remaining  Capital  Contributions  then the  Managing  Member  shall  pay to the
Investor  Member the excess of the Annual  Credit  Shortfall  over the remaining
Capital  Contributions.  The  Managing  Member shall have ninety days to pay the
Annual Credit  Shortfall from the date the Managing  Member receives notice from
the Investor  Member.  The provisions of this Section 7.3(b) shall apply equally
to the Special Member 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
three 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 Managing Member's share of Net Operating Income in an amount equal to the
Annual Credit Shortfall and said amount shall be paid to the Investor Member. In
the event there are not sufficient funds to pay the full Annual Credit Shortfall
to the Investor  Member 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 Managing Member's share of 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
7.3(c) shall apply  equally to the Special  Member in  proportion to its Capital
Contribution and anticipated annual Tax Credit.

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

                                       19
<PAGE>

         (e) In the event  there is: (1) a filing of a tax return by the Company
evidencing a reduction in the qualified basis of the Apartment Housing causing a
recapture of Tax Credits  previously  allocated to the  Investor  Member;  (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 Company with
respect to any Tax Credit  previously  claimed in connection  with the Apartment
Housing, unless the Company 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  Investor  Member  and/or  Special
Member are entitled  under the terms of this  Section  7.3, the Managing  Member
shall pay to the  Investor  Member and the Special  Member  within sixty days of
receiving  notice from the Investor  Member and/or the Special Member the sum of
(A) the income tax deficiency  assessed  against the Investor  Member or Special
Member as a result of the Tax Credit  recapture,  (B) any interest and penalties
imposed  on  the  Investor  Member  or  Special  Member  with  respect  to  such
deficiency,  and (C) an amount  sufficient to pay any tax liability  owed by the
Investor  Member or Special  Member  resulting  from the  receipt of the amounts
specified in (A) and (B).

         Section 7.4 Capital  Contribution of Special Member. The Special Member
shall make a Capital  Contribution  of $36 at the time of the Investor  Member's
Capital  Contribution  payment  referenced  in  Section  7.1(a)  upon  the  same
conditions.  The Special Member shall be in a different  class from the Investor
Member and, except as otherwise  expressly  stated in this Agreement,  shall not
participate in any rights  allocable to or  exercisable  by the Investor  Member
under this Agreement.

         Section  7.5  Return  of  Capital  Contribution.  From time to time the
Company  may have cash in excess of the amount  required  for the conduct of the
affairs of the  Company,  and the Managing  Member may,  with the Consent of the
Special  Member,  determine  that  such  cash  should,  in whole or in part,  be
returned to the Members,  pro rata, in reduction of their Capital  Contribution.
No such return shall be made unless all liabilities of the Company (except those
to Members on account of amounts  credited to them  pursuant to this  Agreement)
have been paid or there  remain  assets of the Company  sufficient,  in the sole
discretion of the Managing Member, to pay such liabilities.

         Section 7.6  Liability  of  Investor  Member and  Special  Member.  The
Investor  Member and  Special  Member  shall not be liable for any of the debts,
liabilities,  contracts or other obligations of the Company. The Investor Member
and Special  Member  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
Company or, after their respective Capital Contributions have been paid, to make
any further Capital Contribution to the Company.

                                       20
<PAGE>

                                  ARTICLE VIII

                          WORKING CAPITAL AND RESERVES

         Section 8.1 Operating and Maintenance  Account. The Managing Member, on
behalf of the Company,  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 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 Managing Member as
part consideration for the payment of the Development Fee.

         Section 8.2 Reserve for Replacements. The Company 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 Managing Member, on behalf
of the Company,  may 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 Managing Member and the Investor Member.

         Section 8.4 Other Reserves. The Managing Member, shall establish out of
funds  available  to the  Company  a  reserve  account  sufficient  in its  sole
discretion to pay any unforeseen  contingencies  which might arise in connection
with the furtherance of the Company 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 Company.  The Managing Member 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 Managing Member 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 Managing  Member.  Subject to the
Consent of the  Special  Member or the  consent  of the  Investor  Member  where
required  by  this  Agreement,   and  subject  to  the  other   limitations  and

                                       21
<PAGE>

restrictions included in this Agreement, the Managing Member shall have complete
and exclusive  control over the management of the Company  business and affairs,
and shall have the right, power and authority,  on behalf of the Company, and in
its name,  to exercise all of the rights,  powers and authority of a member of a
company without investor members. If there is more than one Managing Member, all
acts,   decisions  or  consents  of  the  Managing  Members  shall  require  the
concurrence  of all of the  Managing  Members.  No  actions  taken  without  the
authorization of all the Managing Members shall be deemed valid actions taken by
the Managing Members  pursuant to this Agreement.  No Investor Member or Special
Member  (except  one who may also be a  Managing  Member,  and then  only in its
capacity as Managing Member within the scope of its authority  hereunder)  shall
have any right to be active  in the  management  of the  Company's  business  or
investments or to exercise any control thereover, nor have the right to bind the
Company 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
Company, except as otherwise specifically provided in this Agreement.

         Section 9.2  Payments to the Managing Members and Others.

         (a) The Company  shall pay to the  Developer a  Development  Fee in the
amount of $164,800 in  accordance  with the Amended  Development  Fee  Agreement
entered  into by and  between  the  Developer  and the  Company on the even date
hereof.  The Amended  Development  Fee  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  Company   shall   utilize  the  proceeds   from  the  Capital
Contributions paid pursuant to Section 7.1 and Section 7.4 of this Agreement for
development  costs including,  but not limited to, land costs,  Land Acquisition
Fee,  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,  then the remainder
shall:  first be paid to the Developer in payment of the Development Fee; second
be paid to the Managing Member as a reduction of the Managing  Member's  Capital
Contribution;  and any remaining Capital Contribution  proceeds shall be paid to
the Managing Member as a Company oversight fee.

         (c) The Company 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 three  years,  and the  execution or renewal of any  Management
Agreement  shall be subject to the prior Consent of the Special  Member.  If the
Management Agent is an Affiliate of the Managing Member 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.

                                       22
<PAGE>

                  (1) The Managing  Member 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 Managing Member shall dismiss the Management
Agent at the request of the Special Member for cause.

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

         (d) The Company shall pay to the Investor  Member a fee (the "Reporting
Fee")  commencing  in 2000  equal to 15% of the Net  Operating  Income but in no
event  less than $750 for the  Investor  Member's  services  in  monitoring  the
operations  of the Company and for  services in  connection  with the  Company'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  $750,  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.b.

         (e) The Company shall pay to the Managing Member through the Compliance
Period an annual  Incentive  Management Fee equal to $1,211 of the remaining Net
Operating Income  commencing in 2000 for overseeing the marketing,  lease-up and
continued occupancy of the Company's  apartment units,  obtaining and monitoring
the Mortgage Loan,  maintaining the books and records of the Company,  selecting
and  supervising  the  Company's  Accountants,  bookkeepers  and  other  Persons
required  to  prepare  and  audit the  Company's  financial  statements  and tax
returns, and preparing and disseminating  reports on the status of the Apartment
Housing and the Company,  all as required by Article XIV of this Agreement.  The
Members  acknowledge  that the  Incentive  Management  Fee is  being  paid as an
inducement  to the  Managing  Member to  operate  the  Company  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 Company shall pay to the Managing Member through the Compliance
Period an annual Tax Credit  Compliance  Fee equal to $1,211  commencing in 2000
for the services of the Managing  Member in ensuring  compliance  by the Company
and the  Apartment  Housing with all Tax Credit rules and  regulations.  The Tax

                                       23
<PAGE>

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  Managing  Member.  Subject to the
other  provisions of this  Agreement, the Managing Member, in the Company'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 Company 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  Member) and attorneys,  on such terms as the Managing  Member shall
determine within the scope of this Agreement;

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

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

         (d) execute the Mortgage; and

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

         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  Managing  Member  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 Members,
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 Members.

         (c)  Upon  any  dissolution  of  the  Company  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 Company,  would avoid a recapture
of Tax Credits thereof on the part of the former owners.

                                       24
<PAGE>

         (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 Managing  Member's  Power  and  Authority.
Notwithstanding  the  provisions of this Article IX, the  Managing Member  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 Company;

         (c) confess a judgment against the Company;

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

         (e) admit a Person  as a  Managing  Member except as  provided in  this
Agreement;

         (f) admit a Person  as an Investor Member  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;

         (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 Company 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
Company, other than as a secured creditor;

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

         (m) take any action which requires the Consent of the Special Member or
the consent of the Investor  Member unless the Managing Member has received said
Consent.

                                       25
<PAGE>

         Section 9.6  Restrictions  on Authority of Managing Member. Without the
Consent of the Special  Member the Managing Member shall not:

          (a) sell,  exchange, lease (except in the normal course of business to
Qualified Tenants) or otherwise dispose of the Apartment Housing;

          (b) incur indebtedness other than the Mortgage Loan in the name of the
Company;

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

          (d) contract  away the fiduciary  duty owed to the Investor Member and
the Special Member 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  Investor  Member  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 Member, as provided in Section 14.3(g)
hereof;

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

          (h) dissolve the Company;

          (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);

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

          (k) pay any salary, fees or other compensation to a Managing Member 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 or Management Agent, or
terminate, amend or modify the Project Document, or
grant any material waiver or consent thereunder;

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

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

                                       26
<PAGE>

          (o) cause or permit the Company to make loans  to the Managing  Member
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 Company; or

         Section 9.7 Duties of Managing Member.  The Managing Member agrees that
it shall at all times:

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

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

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

         (d) have a fiduciary  responsibility for the safekeeping and use of all
funds and assets of the Company,  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 Company;

         (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
governmental  approvals  required to permit  occupancy  of all of the  apartment
units in the Apartment  Housing;  and (3) compliance  with all provisions of the
Project Documents.

         (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 Company taxes,  assessments  and other  governmental  charges
against the Company 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 Company'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
Member and its representatives:  (1) to have access to the Apartment Housing and
personnel  employed  by the  Company  and by the  Management  Agent at all times

                                       27
<PAGE>

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  Company,   including  the  development,   operation  and
maintenance of the Apartment  Housing,  and shall take no action with respect to
the business and property of the Company which is not reasonably  related to the
achievement of the purpose of the Company;

         (j) make any Capital  Contributions,  advances or loans  required to be
made by the Managing Member 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  Managing  Member  agrees,  without  limitation:  (1) to make all  elections
requested  by the  Special  Member  under  Section  42 of the Code to allow  the
Company  or its  Members  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

         (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 Company 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  Member,
shall be treated as Sale or Refinancing Proceeds.

         Section 9.9  Company Expenses.

         (a) All of the Company's  expenses shall be billed directly to and paid
by the Company to the extent practicable. Reimbursements to the Managing Member,
or any of its Affiliates, by the Company shall be allowed only for the Company's
Cash  Expenses  unless the  Managing  Member is  obligated to pay the same as an
Operating Deficit during the Operating Deficit Guarantee Period,  and subject to

                                       28
<PAGE>

the  limitations  on the  reimbursement  of such expenses set forth herein.  For
purposes of this Section,  Cash Expenses  shall include fees paid by the Company
to the Managing Member or any Affiliate of the Managing Member permitted by this
Agreement and the actual cost of goods,  materials and  administrative  services
used  for  or by the  Company,  whether  incurred  by the  Managing  Member,  an
Affiliate of the Managing  Member 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
Company and obtained  from  entities  which are not  Affiliates  of the Managing
Member,  and actual cost of  administrative  services means the pro rata cost of
personnel  (as  if  such  persons  were  employees  of the  Company)  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 Managing  Member 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  Managing  Member 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 Managing Member
or any  Affiliate  of the  Managing  Member.  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 Managing Member or any Affiliate
of the Managing  Member 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 Managing Member or any such Affiliate of the Managing Member or
a person  having  the power to direct or cause the  direction  of such  Managing
Member  or any such  Affiliate  of the  Managing  Member,  whether  through  the
ownership of voting securities, by contract or otherwise.

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

         Section  9.11  Other  Business  of  Members.   Any  Member  may  engage
independently or with others in other business  ventures wholly unrelated to the
Company business of every nature and description, including, without limitation,
the operation and management of real estate  projects and  developments of every
type on their  own  behalf  or on behalf  of other  companies,  joint  ventures,
corporations or other business ventures formed by them or in which they may have

                                       29
<PAGE>

an  interest,  including,  without  limitation,  business  ventures  similar to,
related to or in direct or  indirect  competition  with the  Apartment  Housing.
Neither  the  Company  nor any  Member  shall  have any  right by virtue of this
Agreement  or the  company  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  Company  assets,  incomes or
proceeds by virtue of such other ventures or activities of any Member.

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

         (a) The Company is a duly organized  limited  liability company 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
Investor Member and the Special Member.

         (b) The Operating Agreement and the Project Documents are in full force
and effect and  neither the  Company  nor the  Managing  Member are 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 Mortgage 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 Member has or will have any personal  liability  with respect to
or has or will have personally guaranteed the payment of the Mortgage.

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

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

         (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.

                                       30
<PAGE>

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

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

         (l)  The  Company  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.

         (m) To the best of the Managing  Member'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 Managing Member will not install or allow to be installed
any  aboveground  or  underground  storage tanks on the Apartment  Housing.  The
Managing  Member  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 Managing  Member 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 Managing  Member must promptly  notify the Investor Member and
the Special Member 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  Managing  Member or the  Company 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  Company or Managing  Member  arising out of or  resulting  from any
Hazardous  Substance  being present or released in, on or around any part of the
Apartment Housing.

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

         (o) The Company will allocate to  the  Investor  Member  the  Projected
Annual Tax Credits, or the Revised Projected Tax Credits, if applicable.

         (p) 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.

                                       31
<PAGE>

         (q) 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 Members
elect the LIHTC to commence in accordance  with the Code, the Apartment  Housing
will satisfy the Minimum Set-Aside Test.

         (r) All accounts of the Company are 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.

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

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

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

          (v) 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 Company or the Apartment Housing; or (2)
materially or adversely  affected the ability of the Managing  Member to perform
its  obligations  hereunder  or under any other  agreement  with  respect to the
Apartment Housing.

         (w) Neither the Company nor the  Managing  Member has any  liabilities,
contingent  or  otherwise,  which  have not been  disclosed  in  writing  to the
Investor  Member and the Special  Member and which in the  aggregate  affect the
ability  of the  Investor  Member  to obtain  the  anticipated  benefits  of its
investment in the Company.

                                       32
<PAGE>

         (x) The  Managing  Member has and shall  maintain a combined  net worth
equal to at least  $1,000,000  computed in accordance  with  generally  accepted
accounting principles.

         (z) The Company's and Managing  Member's computer hardware and software
used to  produce  financial  reports  and tax return  information  are year 2000
compliant. To the best of the Managing Member's knowledge after due inquiry: the
Company's  and Managing  Member'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  Managing  Member  shall be liable to the  Investor  Member for any
costs,  damages,  loss of profits,  diminution in the value of its investment in
the Company,  or other losses,  of every nature and kind  whatsoever,  direct or
indirect,  realized  or  incurred  by the  Investor  Member  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 Investor  Member,  0.01% to the Special Member and 0.01%
to the Managing Member.

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

         (a) As to Income:

                  (1) first, an amount of Income equal to the aggregate negative
balances (if any) in the Capital Accounts of all Members 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  Members 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 to
the Members in the  proportion  necessary  so that the Members  will receive the
amount to which they are entitled pursuant to Section 11.2 hereof;

         (b) Losses  shall be  allocated  99.98% to the  Investor  Member, 0.01%
to the Special  Member and 0.01% to the Managing Member.

                                       33
<PAGE>

         (c)  Notwithstanding  the foregoing  provisions of Section  10.2(a) and
(b), in no event shall any Losses be  allocated  to the  Investor  Member or the
Special  Member  if and to the  extent  that  such  allocation  would  create or
increase an Adjusted  Capital  Account  Deficit for the  Investor  Member or the
Special  Member.  In the  event an  allocation  of  99.98% or 0.01% 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 Investor  Member or the Special  Member,  respectively,  then so much of the
items of deduction other than projected  depreciation  shall be allocated to the
Managing  Member  instead of the  Investor  Member or the  Special  Member as is
necessary  to allow the  Investor  Member or the Special  Member to be allocated
99.98% and 0.01%,  respectively,  of the items of Income and  Apartment  Housing
depreciation  without creating or increasing an Adjusted Capital Account Deficit
for the  Investor  Member or the  Special  Member,  it being  the  intent of the
parties  that  the  Investor  Member  and the  Special  Member  always  shall be
allocated  99.98% and 0.01%,  respectively,  of the items of Income not  arising
from a Sale or Refinancing and 99.98% and 0.01%, respectively,  of the Apartment
Housing depreciation.

         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 Company  Minimum Gain during any Company  fiscal  year,  each
Member shall be specially  allocated  items of Company  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 Company  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 Member  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 Member  Nonrecourse Debt Minimum Gain attributable to
a Member  Nonrecourse Debt during any Company fiscal year, each Person who has a
share of the Member  Nonrecourse  Debt Minimum Gain  attributable to such Member
Nonrecourse  Debt,  determined in accordance with Section  1.704-2(i)(5)  of the
Treasury  Regulations,  shall be specially allocated items of Company 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 Member  Nonrecourse
Debt Minimum Gain attributable to such Member  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

                                       34
<PAGE>

required to be allocated  to each Member  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  Member  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 Company  income  and gain shall be  specially
allocated to each such Member in an amount and manner  sufficient  to eliminate,
to the extent required by the Treasury Regulations, the Adjusted Capital Account
Deficit of such  Member 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  Member  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 Member has a deficit Capital Account at the end of
any  Company  fiscal  year which is in excess of the sum of (i) the amount  such
Member is obligated to restore,  and (ii) the amount such Member 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 Member shall be
specially  allocated  items of  Company  income  and gain in the  amount of such
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 Member 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  especially
allocated 99.98% to the Investor  Member,  0.01% to the Special Member and 0.01%
to the Managing Member.

         (f) Any Member  Nonrecourse  Deductions  for any  fiscal  year shall be
specially  allocated  to the  Member  who bears the  economic  risk of loss with
respect  to the  Member  Nonrecourse  Debt  to  which  such  Member  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
Company  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 Member in complete  liquidation of
his  interest  in the  Company,  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 Members in  accordance  with
their  interests in the Company in the event that Treasury  Regulations  Section
1.704-1 (b)(2)(iv)(m)(2) applies, or to the Member to whom such distribution was
made in the event  that  Treasury  Regulations  Section  1.704-1(b)(2)(iv)(m)(4)
applies.

                                       35
<PAGE>

         (h) To the extent the Company 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
Investor  Member to whom such  promissory  note relates; and

                  (2) the amount of such interest  income shall be excluded from
the  Capital  Contributions   credited  to  such  Member'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 Company is increased pursuant to
Code Section 50(c), such increase shall be specially allocated among the Members
(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 Members.

         (j) Any  reduction  in the  adjusted  tax basis  (or  cost) of  Company
investment tax credit property pursuant to Code Section 50(c) shall be specially
allocated  among the Members (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 Company by the Company to
a Member (the "Issuance Items") shall be allocated among the Members so that, to
the extent  possible,  the net amount of such Issuance Items,  together with all
other allocations under this Agreement to each Member, shall be equal to the net
amount that would have been  allocated to each such Member if the Issuance Items
had not been realized.

         (l) If any Company  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 Member deemed to have received  such  distribution  equal to
the amount of such distribution.

         (m) Interest  deduction on the  Company  indebtedness  referred  to  in
Section 6.3 shall be allocated  100% to the Managing Member.

         (n) In the event all or part of the Incentive Management Fee or the Tax
Credit  Compliance Fee is disallowed by the Internal Revenue  Service,  then any
interest or income  chargeable  to the Company  for such  disallowance  shall be
allocated to the Managing Member.

         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
Members that, to the extent possible, all Regulatory Allocations shall be offset
either with other  Regulatory  Allocations or with special  allocations of other

                                       36
<PAGE>

items of Company 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 Member,  the Managing
Member shall make such offsetting special  allocations of Company income,  gain,
loss, or deduction in whatever manner the Managing  Member,  with the Consent of
the  Special  Member,  determines  appropriate  so that,  after such  offsetting
allocations  are made,  each Member's  Capital Account balance is, to the extent
possible, equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of the Agreement and all Company 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) and 10.5. In exercising its authority under
this Section 10.4, the Managing Member 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).

         Section 10.5  Other Allocation Rules.

         (a) The basis (or cost) of any Company  investment tax credit  property
shall be allocated  among the Members 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  Members  in  accordance  with  applicable  law.
Consistent  with the foregoing,  the Members intend that LIHTC will be allocated
99.98% to the  Investor  Member,  0.01% to the  Special  Member and 0.01% to the
Managing Member.

         (b) In the event Company  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 Members 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 Company, the foregoing
sentence shall apply to such items in the order in which they are disposed of by
the  Company,  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 Managing
Member with the  Consent of the Special  Member,  using any  permissible  method
under Code Section 706 and the Treasury Regulations thereunder.

                                       37
<PAGE>

         (d) Solely for purposes of determining a Member's  proportionate  share
of the "excess  nonrecourse  liabilities"  of the Company within the  meaning of
Treasury  Regulations  Section 1.752-3(a)(3),  the Members' interests in Company
profits are as follows: Investor Member: 99.98%; Special Member: 0.01%; Managing
Member: 0.01%.

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

         (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  Company  to a Member  or an
Affiliate  of a Member is  disallowed  for  federal  income tax  purposes by the
Internal  Revenue  Service with  respect to a taxable  year of the Company,  the
Company  shall then  allocate  to such  Member an amount of gross  income of the
Company 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
Company shall, solely for tax purposes,  be allocated among the Members so as to
take account of any variation between the adjusted basis of such property to the
Company  for  federal  income tax  purposes  and its  initial  Gross Asset Value
(computed in accordance with Section 1.33(a) hereof).

         In the event the Gross  Asset  Value of any  Company  asset is adjusted
pursuant to Section  1.33(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 Managing Member with the Consent of the Special Member 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 Investor  Members.  In the event that the
Interest of the Investor  Member  hereunder is at any time held by more than one
Investor  Member all items  which are  specifically  allocated  to the  Investor
Member 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 Company at the last day of such month.

                                       38
<PAGE>

         Section 10.8 Allocation Among Managing  Members.  In the event that the
Interest of the Managing  Member  hereunder is at any time held by more than one
Managing  Member all items  which are  specifically  allocated  to the  Managing
Member 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 Investor Member
or Consent of the Special Member.

         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 Managing Member determines, in its sole discretion,  that it is prudent
to modify the manner in which the Capital Accounts of the Members,  or any debit
or credit  thereto,  are  computed in order to comply  with such  section of the
Treasury Regulations,  the Managing Member may make such modification,  but only
with the Consent of the Special  Member,  to the minimum  extent  necessary,  to
effect the plan of allocations and Distributions  provided for elsewhere in this
Agreement.   Further,   the   Managing   Member   shall  make  any   appropriate
modifications,  but only with the Consent of the Special Member, in the event it
appears that  unanticipated  events (e.g.,  the existence of a Company  election
pursuant to Code Section 754) might otherwise cause this Agreement not to comply
with Treasury Regulation Section 1.704.

                                   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 Tax Credit Compliance Fee; and

     (f) the balance, 30% to the Investor Member and 70% to the Managing Member.

                                       39
<PAGE>

         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 Company, other than accrued payments, debts or other liabilities owing to
Members or former Members;

     (b) to any  accrued  payments,  debts  or  other  liabilities  owing to the
Members or former Members, including, but not limited to, accrued Reporting Fees
and Operating Loans, to be paid prorata if necessary;

     (c) to the  establishment of any reserves which the Managing  Member,  with
the  Consent  of  the  Special  Member,  shall  deem  reasonably  necessary  for
contingent,  unmatured or unforeseen  liabilities or obligations of the Company;
and

     (d) thereafter, 40% to the Investor Member and 60% to the Managing Member.

                                   ARTICLE XII

                              TRANSFERS OF INVESTOR
                        MEMBER'S INTEREST IN THE COMPANY

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

     (a) a written instrument 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 Company in connection with such assignment,
including but not limited to the cost of preparing  any  necessary  amendment to
this Agreement; and

     (b)  upon  receipt  by  the  Managing  Member  of  the  Assignee's  written
representation  that the Company  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.

     (c) Notwithstanding any provision to the contrary,  the Investor Member may
assign its  Interest  to an  Affiliate  or assign its  Interest to USBank or its
successors  as  collateral  to  secure  a  capital   contribution  loan  without
satisfying the conditions of Sections 12.1(a) and (b) above. The Managing Member
will not be held  responsible  for any  recapture  of Tax Credit  caused by such
assignment of Investor  Member's  Interest as stated in this Section 12.1 of the
Agreement.

                                       40
<PAGE>

         THE INVESTOR  MEMBERSHIP  INTEREST AND THE SPECIAL MEMBERSHIP  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 an Investor
Member's  Interest or Special Member's  Interest  pursuant to Section 12.1 shall
become  effective as of the first 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 an Investor  Member or Special  Member  otherwise than in accordance
with  Section  12.1 or Section 12.6 shall be of no effect as between the Company
and the purported  assignee and shall be disregarded  by the Managing  Member in
making allocations and Distributions hereunder.

         Section 12.4  Assignee's  Rights to Allocations and  Distributions.  An
Assignee shall be entitled to receive  allocations  and  Distributions  from the
Company  attributable  to the  Interest  acquired  by  reason  of any  permitted
assignment  from the  effective  date of transfer as  determined in Section 12.2
above.  The  Company  and the  Managing  Member  shall be  entitled to treat the
assignor of such Company 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 Company.

         Section 12.5  Substitution of  Assignee as  Investor  Member or Special
Member.

         (a) An  Assignee  shall  not have  the  right  to  become a  Substitute
Investor Member or Substitute Special Member in place of his assignor unless the
written  consent of the Investor  Member or Special Member to such  substitution
shall have been obtained.

         (b) A  nonadmitted  transferee  of an  Investor  Member's  Interest  or
Special Member's  Interest in the Company 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  Company's  transactions,  to  inspect  the  Company's  books and
records or have any other of the rights and privileges of an Investor  Member or
Special Member,  provided,  however, that the Company shall, if a transferee and
transferor  jointly  advise the  Managing  Member in writing of a transfer of an
Interest in the Company,  furnish the transferee  with pertinent tax information
at the end of each fiscal year of the Company.

         Section  12.6  Death,  Bankruptcy,  Incompetency,  etc.  of an Investor
Member. Upon the death, dissolution, adjudication of bankruptcy, or adjudication
of  incompetency  or  insanity  of an Investor  Member or Special  Member,  such

                                       41
<PAGE>

Member's executors,  administrators or legal  representatives shall have all the
rights of an  Investor  Member or  Special  Member,  as the case may be, for the
purpose of settling or managing such Member's  estate,  including  such power as
such Member  possessed to constitute a successor as a transferee of its Interest
in the Company and to join with such  transferee  in making the  application  to
substitute such transferee as a Member. However, such executors,  administrators
or legal  representatives  will not have the right to become Substitute Investor
Members  or  substitute  Special  Members  in  the  place  of  their  respective
predecessors-in-interest unless the Managing Member shall so consent.

                                  ARTICLE XIII

                     WITHDRAWAL, REMOVAL AND REPLACEMENT OF
                                 MANAGING MEMBER

         Section 13.1      Withdrawal of Managing Member.

         (a) The Managing  Member may not Withdraw (other than as a result of an
Involuntary  Withdrawal)  without the Consent of the Special Member.  Withdrawal
shall be conditioned  upon the agreement of the Special Member to be admitted as
a successor Managing Member, or if the Special Member declines to be admitted as
a successor  Managing  Member 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 Managing Member(s).

         (b) Each Managing  Member shall indemnify and hold harmless the Company
and all Members from its Withdrawal in violation of Section 13.1(a) hereof. Each
Managing  Member shall be liable for damages to the Company  resulting  from its
Withdrawal in violation of Section 13.1(a).

         Section 13.2      Removal of Managing Member.

         (a) The Special  Member or the Investor  Member,  or both of them,  may
remove the Managing  Member for cause if such Managing  Member,  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 Company funds or properties;

                                       42
<PAGE>

                  (6) violated  the  terms  of the  Mortgage  and such violation
prompts  FmHA to  issue a  default  letter or acceleration notice to the Company
or Managing Member;

                  (7) failed to provide any loan, advance,  Capital Contribution
or any other payment to the Company,  the Investor  Member or the Special Member
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
Members for a term longer than the Tax Credit  Period  unless the  provisions of
Section 7.4(e) of this Agreement apply;

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

                  (11) failed to obtain  the consent of the Special Member where
such  consent  is  required  pursuant  to this Agreement;

                  (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  Managing  Member
("Removal  Notice")  shall set forth the reasons for removal and shall be served
by the Special Member or the Investor Member, or both of them, upon the Managing
Member in accordance with Section 17.3 of this Agreement. If Section 13.2(a)(2),
(6),  (7),  (8),  (12) or (13) is the basis for the removal for cause,  then the
Managing  Member  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 Managing  Member's  removal shall become effective upon approval
of a majority of the  Member's  Interest  (as  specified in Section 10.1 of this
Agreement) at a Member's  meeting held in  accordance  with Section 17.2 of this
Agreement.  If the removal for cause is for a condition  referenced  in Sections
13.2(a)(1),  (3), (4), (5), (9), (10),  (11), (14), (15), (16), or (18) then the
removal  shall  become  effective  upon  approval of a majority of the  Member's
Interest (as specified in Section 10.1 of this Agreement) at a Member's  meeting
held in  accordance  with  Section  17.2 of this  Agreement.  Upon the  Managing
Member's removal, the Managing Member shall deliver to the Special Member within
five business days of the termination of the cure period,  or five business days
of the Removal Notice all Company books and records including all bank signature

                                       43
<PAGE>

cards and an  authorization  to change the signature on the signature cards from
the Managing  Member to the Special  Member,  or a successor  managing member so
nominated by the Investor Member and Special Member.  The Member's recognize and
acknowledge  that if the Managing  Member fails to provide the Company books and
records upon the Managing Member's removal then the remaining Members may suffer
irreparable injury.  Therefore, in the event the Managing Member 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 Investor
Member and/or  Special  Member shall have the right to specific  performance  to
compel the Managing Member to perform its obligation  under this Section and the
Investor  Member and/or Special Member 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  Managing  Member  shall  immediately  and
automatically  terminate  on the  effective  date of such  Withdrawal,  and such
Managing Member shall immediately  cease to be a Managing Member,  shall have no
further right to  participate  in the  management or operation of the Company or
the Apartment  Housing or to receive any allocations or  Distributions  from the
Company or any other funds or assets of the Company,  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 Company and
the  Withdrawing  Managing  Member or its  Affiliates  may be  terminated by the
Company,  with the Consent of the Special  Member,  upon  written  notice to the
party  so  terminated.   Furthermore,   notwithstanding  such  Withdrawal,   the
Withdrawing  Managing  Member  shall be and shall  remain,  liable as a Managing
Member for all  liabilities  and  obligations  incurred by the Company or by the
Managing  Member prior to the  effective  date of the  Withdrawal,  or which may
arise upon such Withdrawal. Any remaining Member shall have all other rights and
remedies  against the  Withdrawing  Managing  Member as provided by law or under
this  Agreement.  The Managing Member agrees that in the event of its Withdrawal
it will indemnify and hold the Investor  Member and the Special Member  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 Investor Member and the Special Member 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 is not an  Involuntary  Withdrawal  in  accordance  with Section
13.2(a),  the Withdrawing Managing Member shall have no further right to receive
any future  allocations or Distributions  from the Company or any other funds or
assets of the Company,  nor shall it be entitled to receive or to be paid by the
Company 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
Company 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 Managing
Member to receive or to be paid such allocations,  Distributions, funds, assets,
fees or repayments  shall be assigned to the other  Managing  Member or Managing
Members (which may include the Special Member), or if there is no other managing
member of the Company at that time, to the Special Member.

         (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 Managing
Member  shall  have no  further  right to  receive  any  future  allocations  or
Distributions  from the  Company  or any other  funds or assets of the  Company,
provided  that accrued and payable fees (i.e.,  fees earned but unpaid as of the

                                       44
<PAGE>

date of Withdrawal) owed to the Withdrawing Managing Member, and any outstanding
loans of the Withdrawing  Managing  Member to the Company,  shall be paid to the
Withdrawing  Managing  Member in the manner and at the times such fees and loans
would have been paid had the  Withdrawing  Managing  Member not  Withdrawn.  The
Interest of the Managing Member 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 Company is to be continued
with one or more remaining or successor Managing  Member(s),  the Company,  with
the Consent of the Special  Member,  may, but is not obligated to,  purchase the
Interest of the Withdrawing Managing Member. The purchase price of such Interest
shall  be  its  Fair  Market  Value  as  determined  by  agreement  between  the
Withdrawing Managing Member and the Special Member, 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  Managing  Member and the Company.  The purchase price shall be
paid by the Company by delivering to the Managing  Member or its  representative
the Company's non-interest bearing unsecured promissory note payable, if at all,
upon  liquidation of the Company in accordance  with Section  11.2(b).  The note
shall also provide  that the Company may prepay all or any part thereof  without
penalty.

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

         (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  Managing  Member shall have no further right to
receive any future  allocations or  Distributions  from the Company or any other
funds or assets of the Company,  nor shall it be entitled to receive and payment
for its  Interest,  nor shall it be  entitled  to  receive  or to be paid by the
Company or any  Members or  successor  members,  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 Company.

         Section 13.4 Successor Managing Member. Upon the occurrence of an event
giving rise to a Withdrawal of a Managing Member, any remaining Managing Member,
or, if there be no remaining Managing Member, the Withdrawing Managing Member or
its legal  representative,  shall  promptly  notify the  Special  Member of such
Withdrawal (the "Withdrawal Notice"). Whether or not the Withdrawal Notice shall
have been sent as provided  herein,  the Special  Member shall have the right to
become a  successor  Managing  Member if the  Withdrawing  Managing  Member  was

                                       45
<PAGE>

previously  the sole Managing  Member.  In order to effectuate the provisions of
this  Section  13.4 and the  continuance  of the Company,  the  Withdrawal  of a
Managing Member 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  Member  shall have  elected to become a  successor  Managing  Member as
provided  herein prior to  expiration  of such  120-day  period,  whereupon  the
Withdrawal  of  the  Managing   Member  shall  be  deemed   effective  upon  the
notification of all the other Members by the Special Member of such election.

         Section 13.5 Admission of Additional or Successor  Managing Member.  No
Person shall be admitted as an  additional or successor  Managing  Member unless
(a) such  Person  shall  have  agreed to become a  Managing  Member by a written
instrument  which shall include the acceptance  and adoption of this  Agreement;
(b) the  Consent of the  Special  Member to the  admission  of such  Person as a
substitute  Managing Member,  which consent may be withheld in the discretion of
the  Special  Member,  shall have been  given;  and (c) such  Person  shall have
executed and acknowledged any other  instruments  which the Special Member shall
reasonably  deem necessary or appropriate to affect the admission of such Person
as a substitute Managing Member. 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  Managing  Member  and the  substitution  of the
successor  Managing Member.  Nothing  contained herein shall reduce the Investor
Member's Interest or the Special Member's Interest in the Company.

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

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

                                       46
<PAGE>

                                   ARTICLE XIV

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

         Section 14.1  Books and Accounts.

         (a) The Managing Member shall cause the Company 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 Member set forth in alphabetical  order together with
the Capital Contribution and the share in Income and Losses of each Member;

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

                  (3) copies of the Company'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  Company  for  the  six  most
recent fiscal years;

                  (6) the Company'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 Investor Member,  the Managing Member shall
promptly deliver to the Investor Member,  at the expense of the Company,  a copy
of the information set forth in Section 14.1(a) above. The Investor Member 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 Company or the Apartment Housing, at its own expense.

         Section 14.2      Accounting Reports.

         (a) By March 1 of each calendar year the Managing  Member shall provide
to the Investor Member and the Special Member 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 Company is formed and in
which the Apartment Housing is located.

                                       47
<PAGE>

         (b) By March 1 of each calendar year the Managing  Member shall send to
the Investor Member and the Special Member: (1) a balance sheet as of the end of
such fiscal year and  statements  of income,  Members'  equity and 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
Company's Accountants; (2) a report 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
Company for the fiscal year to the Managing Member or Affiliates of the Managing
Member and the services  performed in  consideration  therefor,  subjecte to the
auditing procedures applied in the audit of the financial statements.

         (c) Within 60 days after the end of each fiscal quarter in which a Sale
or Refinancing of the Apartment  Housing occurs,  the Managing Member shall send
to the Investor  Member and the Special  Member 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  Managing Member shall  provide to the
Investor  Member and the  Special  Member the following reports:

         (a) a quarterly tax credit  compliance  report similar to the worksheet
included  in  Exhibit  "E" 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 Investor Member may request a 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 Special Member;

         (b) a quarterly  report on operations,  in the form attached  hereto as
Exhibit  "E",  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;

                                       48
<PAGE>

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

         (d)  during  the  Compliance  Period,  no  later  than the day any such
certification  is filed,  copies of any  certifications  which the Company  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;

         (e) 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;

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

         (g) on  or  before  November  1 of  each  calendar year, a copy  of the
following year's proposed  operating  budget as submitted to FmHA for  approval.
Each such Budget shall contain all the anticipated Cash Expenses of the Company;
and

         (h) 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  Company,  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  Company  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 Managing Member does not fulfill its
obligations  under Section 14.2 within the time periods set forth  therein,  the
Managing Member,  using its own funds,  shall pay as damages the sum of $100 per
day (plus interest at the rate  established by Section 6.3 of this Agreement) to
the Investor Member until such  obligations  shall have been  fulfilled.  If the
Managing Member does not fulfill its  obligations  under Section 14.3 within the
time periods set forth therein,  the Managing Member, using its own funds, shall
pay as  damages  the  sum  of  $100.00  per  week  (plus  interest  at the  rate
established by Section 6.3 of this  Agreement) to the Investor Member until such
obligations  shall have been fulfilled.  If the Managing Member shall so fail to
pay, the Managing Member 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 Managing
Member 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 Investor Member (upon a fifteen-day notification to the Managing Member), at
the Investor Member'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 Investor  Member may, in its sole
discretion, cancel all or any part of the annual site visit.

                                       49
<PAGE>

         Section  14.6 Tax Returns.  The Managing  Member shall cause income tax
returns  for the Company 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 Company  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 Company shall be deposited into
Provident State Bank, or its successors or assignees.  All withdrawals therefrom
shall be made  upon  checks  signed  by the  Managing  Member  or by any  person
authorized to do so by the Managing Member. The Managing Member shall provide to
any Member who requests same the name and address of the financial  institution,
the account  number and other  relevant  information  regarding any Company bank
account.

         Section 14.9 Certificates and Elections.

         (a) The Managing Member shall file the First Year Certificate within 90
days following the close of the first taxable year in the Tax Credit Period with
respect to any qualified  low-income  building and thereafter  shall timely file
any certificates which the Company must furnish to federal or state governmental
authorities administering the Tax Credit programs under Section 42 of the Code.

         (b) The Managing Member,  with the Consent of the Special Member,  may,
but is not  required  to,  cause  the  Company  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 COMPANY

         Section 15.1  Dissolution  of Company.  The Company  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 Managing
Member,  unless  (1) at the time  there is at least  one other  Managing  Member
(which may be the  Special  Member if it elects to serve as  successor  Managing
Member under Section 13.4 hereof) who will continue as Managing  Member,  or (2)
within  120 days after the  occurrence  of any such  event the  Investor  Member
elects to continue the business of the Company.

         (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 Company
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 any Mortgage lender to which the Company is subject.

                                       50
<PAGE>

         Section 15.2 Return of Capital Contribution upon Dissolution. Except as
provided  in  Sections  7.2 and  7.3 of  this  Agreement,  which  provide  for a
reduction or refund of the Investor Member's Capital  Contribution under certain
circumstances, and which shall represent the personal obligation of the Managing
Member, as well as the obligation of the Company,  each Member shall look solely
to the assets of the Company for all  Distributions  with respect to the Company
(including  the return of its Capital  Contribution)  and shall have no recourse
therefor (upon dissolution or otherwise)  against any Managing Member. No Member
shall have any right to demand  property other than money upon  dissolution  and
termination  of  the  Company,  and  the  Company  is  prohibited  from  such  a
distribution of property absent the Consent of the Special Member.

         Section 15.3 Distribution of Assets. Upon a dissolution of the Company,
the Managing  Member (or, if there is no Managing  Member then  remaining,  such
other  Person(s)  designated  as the  liquidator  of the Company by the Investor
Member or by the court in a judicial dissolution) shall take full account of the
Company 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 Company  pursuant to Section
11.2(a) through and including 11.2(c), the remaining assets of the Company shall
be distributed to the Members 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 Managing  Member has a deficit  balance in its
Capital  Account  following the  liquidation of the Company or its Interest,  as
determined  after taking into account all Capital  Account  adjustments  for the
Company  taxable year in which such  liquidation  occurs,  such Managing  Member
shall pay to the Company 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 Managing
Member by the end of such taxable  year (or, if later,  within 90 days after the
date of  Liquidation)  and shall,  upon  liquidation of the Company,  be paid to
creditors of the Company or  distributed  to other  Members in  accordance  with
their positive Capital Account balances.

         (c)  With respect to assets distributed  in  kind  to  the  Members  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
Company immediately prior to the liquidation or other Distribution event; and

                  (2) such Income and Losses  shall be  allocated to the Members
in accordance with Section 10.2 hereof, and any property so distributed shall be

                                       51
<PAGE>

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 Managing Member.

         Section 15.4 Deferral of Liquidation. If at the time of liquidation the
Managing  Member or other  liquidator  shall determine that an immediate sale of
part or all of the Company  assets  could cause undue loss to the  Members,  the
liquidator may, in order to avoid loss, but only with the Consent of the Special
Member,  either defer  liquidation  and retain all or a portion of the assets or
distribute  all or a portion of the assets to the Members in kind.  In the event
that the liquidator  elects to distribute  such assets in kind, the 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 Members' 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 Members 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  Members  shall  be
furnished  with a statement  prepared  or caused to be prepared by the  Managing
Member or other liquidator,  which shall set forth the assets and liabilities of
the Company as of the date of complete  liquidation.  Upon  compliance  with the
distribution plan as outlined in Sections 15.3 and 15.4, the Investor Member and
Special  Member  shall cease to be such and the Managing  Member 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 Investor Membership.

         (a) Upon the  dissolution  of the Company,  the  Managing  Member 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 Company's name, the Secretary of State's file number for the
Company,  the  event  causing  the  Company's  dissolution  and the  date of the
dissolution.

         (b) Upon the completion of the winding up of the Company's affairs, the
Managing  Member  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

                                       52
<PAGE>

cancellation of the Articles of Organization. The certificate of cancellation of
the Articles of  Organization  shall set forth the Company's name, the Secretary
of State's  file number for the  Company,  and any other  information  which the
Managing Member determines to include therein.

                                   ARTICLE XVI

                                   AMENDMENTS

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

                                  ARTICLE XVII

                                  MISCELLANEOUS

         Section 17.1      Voting Rights.

         (a) The  Investor  Member  shall have no right to vote upon any matters
affecting the Company, except as provided in this Agreement. Notwithstanding, at
a meeting of the Company, the Investor Member may vote:

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

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

                  (3) to elect a successor Managing Member  upon the  Withdrawal
of the Managing Member;

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

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

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

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

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

                                       53
<PAGE>

         Section 17.2 Meeting of Company. Meetings of the Company may be noticed
either (a) at any time by the Managing Member;  or (b) by the Investor Member or
Special  Member.  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  Company).  Any Member
calling a Members  meeting  shall  provide  written  notice to all Members.  The
meeting  shall  not be held  less  than 15 days nor more  than 30 days  from the
Members' receipt of the notice.  All meetings and actions of the Investor Member
shall be governed in all respects, including matters relating to 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 Member to be notified or may be sent by  overnight
courier,  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:

         To the Managing Member:  Larry C. Porter
                                  P.O. Box 499
                                  Denton, Maryland 21629

                                  Carter C. Chinnis
                                  P.O. Box 499
                                  Denton, Maryland 21629

         To the Investor Member:  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
         Member:                  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 Members.

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

         (a) The Company is authorized to execute any documents required by FmHA
in connection with the FmHA Loan Agreement. The Managing Member hereby covenants
to act in accordance with the Project  Documents.  Any incoming  Managing Member
shall, as a condition of receiving a Company interest,  agree to be bound by the
Project Documents,  and all other documents executed in connection with the FmHA

                                       54
<PAGE>

Loan  Agreement  to the same extent and on the same terms as any other  Managing
Member. 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 Company 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 Company
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 investor members so
long as any such additional or substituted investor member so admitted shall own
in the aggregate less than a 10% investor member interest in the Company.

         (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 Managing Member will  at all  times  maintain the FmHA required
Financial Interest in the Company.

         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 Articles of  Organization.  If the Managing
Member should deem it advisable to do so, the Company shall record in the office
of the County Recorder of the county in which the principal place of business of
the Company is located a certified copy of the Articles of Organization,  or any
amendment  thereto,  after  such  Article or  amendment  has been filed with the
Secretary of State of the State.

         Section 17.7      Amendment of Articles of Organization.

         (a) The Managing  Member shall cause to be filed,  within 30 days after
the  happening of any of the following  events,  an amendment to the Articles of
Organization reflecting the occurrence of any of the following:

                  (1) a change in the name of the Company;

                                       55
<PAGE>

                  (2) a change in the street address of the Company's  principal
executive office;

                  (3) the admission of a Managing Member; or

                  (4) the  discovery  by the  Managing  Member  of any  false or
erroneous material statement  contained in the Certificate of Limited Company or
any amendment thereto.

         (b) The Articles of Organization may also be amended in conformity with
this  Agreement  at any  time in any  other  respect  that the  Managing  Member
determines.

         (c) The Managing  Member shall cause the Articles of Organization to be
amended, when required or permitted as aforesaid, by filing an amendment thereto
in the office of, and on a form  prescribed  by, the  Secretary  of State of the
State.  The  amendment  shall set forth the  Company's  name,  the  Secretary of
State's file number for the Company and the text of the amendment.

         (d) In the  event of a  Withdrawal  or  Involuntary  Withdrawal  of the
Managing  Member,  and if such Managing Member does not file an amendment to the
Articles of  Organization  as specified in this Section  17.7,  then the Special
Member is hereby granted the specific authority to sign and file such amendment.

         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  Members,  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 Investor Member or Special
Member, such provisions shall be void and ineffectual.

         Section 17.12 Tax Matters Member. All the Members hereby agree that the
Managing  Member shall be the "Tax Matters  Member"  pursuant to the Code and in
connection with any audit of the federal income tax returns of the Company.

                                       56
<PAGE>

         (a) The Tax Matters  Member  shall  furnish to each  Member  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  Members;   filing  of  a  request  for
administrative  adjustment  on behalf of the Company;  filing by the Tax Matters
Member or any other Member 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  Member  shall  determine  to  litigate  any
administrative  determination  relating to federal income tax matters,  then the
Tax Matters  Member shall  litigate such matter in such court as the Tax Matters
Member shall decide in its sole discretion.

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

         (d) The Members  consent and agree that in connection with any audit of
the Company,  or if the Tax Matters Member withdraws from the Company or the Tax
Matters Member becomes Bankrupt, then the Special Member may become, in its sole
discretion,  a special managing member,  and become the Tax Matters Member.  The
Investor  Member will make no claim against the Company in respect of any action
or  omission by the Tax Matters  Member  during such time as the Special  Member
acts as the Tax Matters Member.

         Section 17.13     Expiration of Compliance Period.

         (a)  Notwithstanding  any provision  hereof to the contrary (other than
this Section  17.13),  the Special Member 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  Managing  Member,  that the  Managing  Member  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 Managing Member shall
promptly  notify the  Special  Member in writing  with  respect to the terms and
conditions  of such offer,  and, if the Special  Member  notifies  the  Managing
Member that such offer should be accepted,  the Managing  Member shall cause the
Company  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  Member shall have the right at any time after the end of
the Compliance Period to require,  by written notice to the Managing Member (the
"Required Sale Notice"),  that the Managing Member promptly use its best efforts

                                       57
<PAGE>

to obtain a buyer for the  Apartment  Housing on the most  favorable  terms then
available.  The Managing  Member shall submit the terms of any proposed  sale to
the Special Member for its approval in the manner set forth in Section  17.13(a)
hereof. If the Managing Member 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  Member in its sole  discretion  shall be withheld to any
proposed  sale,  then  the  Special  Member  shall  have  the  right at any time
thereafter  to obtain a buyer for the Apartment  Housing on terms  acceptable to
the Special Member (but not less favorable to the Company than any proposed sale
previously rejected by the Special Member). In the event that the Special Member
so obtains a buyer,  it shall notify the Managing Member in writing with respect
to the terms and  conditions of the proposed sale and the Managing  Member shall
cause the Company 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
Company.

         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.

         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 Members agree that the
Managing  Member shall send to the Investor Member and the Special Member 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 Member may be subject

                                       58
<PAGE>

under this  Agreement,  the Company shall have (and each Member hereby grants to
the Company) a security interest in their respective Interests of such Member in
all  funds  distributable  to said  Member to the  extent of the  amount of such
obligation.

         IN  WITNESS  WHEREOF,   this  Second  Amended  and  Restated  Operating
Agreement of 2nd Fairhaven,  LLC, a Maryland limited liability company,  is made
and entered into as of the 31st day of March, 2000.

                                    MANAGING MEMBER

                                    /s/LARRY C. PORTER
                                    ------------------------
                                    Larry C. Porter

                                    /s/CARTER C. CHINNIS
                                    ------------------------
                                    Carter C. Chinnis

                                       59
<PAGE>

                               INVESTOR MEMBER

                               WNC Housing Tax Credit Fund VI, L.P., Series 7,
                               A California limited partnership

                               By:     WNC & Associates, Inc.,
                                       General Partner

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

                               SPECIAL MEMBER

                               WNC Housing, L.P.

                               By:     WNC & Associates, Inc.,
                                       General Partner

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

                                       60
<PAGE>

                        EXHIBIT A TO OPERATING AGREEMENT

                                LEGAL DESCRIPTION

All  that  lot or  parcel  of  land  situate  lying  and  being  in the  Town of
Federalsburg,  Fifth Election District, Caroline County, Maryland and being more
particularly  described  as  follows:  Beginning  for the same at a point at the
northwesterly  corner of the herein  described land, said point bearing South 76
degrees 34 minutes 26 seconds East 61.50 ft. from a concrete  monument  found at
the southwesterly  corner of the land of People for Better Housing,  Inc. (Liber
210, Folio 138) and the northwesterly corner of the land of R. Levi Saunders, et
al. (Liber 221, Folio 526 and part, and from said place of beginning  running 1)
with the said  People  For  Better  Housing  land South 76 degrees 34 minutes 26
seconds East 337.42 ft.;  thence 2) with a new division line South 15 degrees 26
minutes 15 seconds  East 462.07 ft. to the land of Ronald M.  Fluharty and Joyce
W. Fluharty (Liber 171, Folio 303);  thence 3) with the said Fluharty land North
86 degrees 37 minutes 14 seconds West 84.92 ft. to a marble  monument  found and
the land of Shu-Chai Willy Lin and H. Sharon Lin (Liber 209, Folio 290);  thence
with the said Lin land the  following  two  courses and  distances:  4) North 04
degrees 06 minutes 01 seconds East 3.95 ft. to a concrete monument found; thence
5) South 82 degrees 49 minutes 35 seconds  West  223.25  ft.;  thence with a new
division line the following  two courses and  distances;  6) North 15 degrees 26
minutes 15 seconds  West  546.26  ft.;  thence 7) North 00 degrees 45 minutes 36
seconds East 16.12 ft to the place of beginning, containing 3.487 acres of land,
more or less.

                                      A-1
<PAGE>

                        EXHIBIT B TO OPERATING 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:      2nd Fairhaven, LLC

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 "Investor  Member") in 2nd Fairhaven,
LLC (the "Company"), a Maryland limited liability company formed to own, finance
and  operate  an  apartment  complex  for  low-income  persons  (the  "Apartment
Complex") in Federalsburg,  Caroline County, Maryland. The managing member(s) of
the  Company  are  Larry  C.  Porter  and  Carter  C.  Chinnis  (the   "Managing
Member(s)").

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

         (i)   [Articles of Organization];

         (ii)  [Operating Agreement] (the "Operating Agreement");

         (iii) A   preliminary   reservation   letter   from  [State  Allocating
               Agency]  (the  "State   Agency")  dated   _________,  200________
               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)  ________________________,  one  of  the  Managing  Members,  is an
individual  and has full  power and  authority  to enter  into and  perform  its
obligations  under the Operating  Agreement.  _____________________,  one of the
other  Managing  Members,  is an individual  and has full power and authority to
enter into and perform its obligations under the Operating Agreement.

                                      B-1
<PAGE>
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
______________, 200___
Page 2

         (b) The Company is a limited  liability company duly formed and validly
existing under the laws of the State of Maryland.

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

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

         (e) The  execution  and  delivery  of the  Operating  Agreement  by the
Managing Member(s) 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  Managing  Member(s) or the Company 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 Company or any Managing Member which would
materially  adversely affect the condition  (financial or otherwise) or business
of the Apartment Complex, the Company or any of the Members of the Company.

         (g) The Investor  Member and the Special  Member have been  admitted to
the Company as  investor  members of the Company  under  __________  law and are
entitled to all of the rights of investor members under the Operating Agreement.
Except as described in the Operating Agreement,  no person is a member of or has
any legal or equitable interest in the Company, and all former members of record
or known to counsel have validly  withdrawn  from the Company and have  released
any claims  against the Company  arising out of their  participation  as members
therein.

         (h) Liability of the Investor  Member for obligations of the Company is
limited to the amount of the Investor Member's capital contributions required by
the Operating Agreement.

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

                                      B-2
<PAGE>
WNC Housing Tax Credit Fund VI, L.P., Series 7
c/o WNC & Associates, Inc.
______________, 200___
Page 3

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

         (k) To the best of our actual knowledge and belief,  after due inquiry,
the Company 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 Investor Member 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 OPERATING AGREEMENT

                           CERTIFICATION AND AGREEMENT

         CERTIFICATION  AND  AGREEMENT  made as of the date written below by 2nd
Fairhaven,  LLC, a Maryland limited liability company (the "Company");  Larry C.
Porter and Carter C. Chinnis (collectively referred to as the "Managing Member")
for the benefit of WNC Housing Tax Credit Fund VI, L.P.,  Series 7, a California
limited partnership (the "Investment  Membership"),  and WNC & Associates,  Inc.
("WNC").

         WHEREAS, the Company proposes to admit the Investment  Membership as an
Investor  member thereof  pursuant to an Second  Amended and Restated  Operating
Agreement of the Company (the "Operating  Agreement"),  in accordance with which
the Investment  Membership will make  substantial  capital  contributions to the
Company; and

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

         NOW, THEREFORE,  to induce the Investment  Membership to enter into the
Operating Agreement and become an Investor member of the Company,  and for $1.00
and other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the Company and the Managing Member hereby agree as follows
for the benefit of the Investment Membership and WNC.

         1.       Representations, Warranties and Covenants of the Company
                  and the Managing Member

         The Company and the Managing  Member  jointly and severally  represent,
warrant and certify to the Investment  Membership and WNC that,  with respect to
the Company, as of the date hereof:

                  1.1 The Company is duly  organized  and in good  standing as a
limited  liability  company  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 Company and the Managing Member 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 Company
and the Managing  Member 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

                                      C-1
<PAGE>

the Company or any Managing  Member is bound or any law,  regulation,  judgment,
decree or order applicable to the Company or any Managing Member or any of their
respective  properties;  this Certification and Agreement  constitutes the valid
and binding agreement of the Company and the Managing Member enforceable against
each of them in accordance with its terms.

                  1.2  The  Managing  Member  has  delivered  to the  Investment
Membership, WNC or their affiliates all documents and information which would be
material to a prudent investor in deciding whether to invest in the Company. All
factual  information  provided  to  the  Investment  Membership,  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  Operating  Agreement  is true and correct as of the date hereof.

                  1.4 Each of the  covenants  and  agreements of the Company and
the Managing Member contained in the Operating 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  Membership
as the investor member of the Company contained in the Operating  Agreement have
been satisfied.

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

                  1.7  The Company will  allocate  to  the  Investor  Member the
Projected  Annual  Tax  Credits,  or  the  Revised  Projected  Tax   Credits, if
applicable.

                  1.8 The Managing  Member 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  Company  holds  any
equity interest in the Apartment Complex.

                  1.10  The  Company  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  Company,  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.

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

                                      C-2
<PAGE>

                  1.13 No  Managing  Member  is  related  in any  manner  to the
Investment  Membership,  nor is any  Managing  Member  acting as an agent of the
Investment Membership.

         2.       Miscellaneous

                  2.1 This  Certification  and  Agreement is made solely for the
benefit of the Investment  Membership 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 Operating
Agreement.

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

COMPANY
-------
2nd Fairhaven, LLC

-------------------------
Larry C. Porter,
Managing Member

-------------------------
Carter C. Chinnis,
Managing Member

MANAGING MEMBER
---------------

-------------------------
Larry C. Porter

-------------------------
Carter C. Chinnis

                                      C-3
<PAGE>

                        EXHIBIT D TO OPERATING AGREEMENT

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

_______________, 200____

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:  Company
     Certification as to Amount
     of Eligible Tax Credit Base

Gentlemen:

In  connection  with the  acquisition  by WNC Housing Tax Credit Fund VI,  L.P.,
Series 7 (the "Investor Member") of a membership interest in 2nd Fairhaven, LLC,
a Maryland limited liability company (the "Company") which owns a certain parcel
of land located in  Federalsburg,  Caroline  County,  Maryland and  improvements
thereon  (the  "Apartment  Housing"),  the  Investor  Member 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 Company] of the Company, we are prepared
to file the Federal  information  tax return of the Company  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,

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

                                      D-1

<PAGE>

                      EXHIBIT E TO THE OPERATING AGREEMENT

                              REPORT OF OPERATIONS

                 QUARTER ENDED:____________________________,200X

-------------------------------------       -----------------------------------
LOCAL PARTNERSHIP:
-------------------------------------       -----------------------------------

-------------------------------------       -----------------------------------
GENERAL PARTNER:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
FIRM NAME:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
ADDRESS:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
CITY, STATE, ZIP:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
PHONE:
-------------------------------------       -----------------------------------

-------------------------------------       -----------------------------------
PROPERTY NAME:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
ADDRESS:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
CITY, STATE, ZIP:
                                            -----------------------------------
-------------------------------------       -----------------------------------
RESIDENT MANAGER:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
PHONE:
-------------------------------------       -----------------------------------

-------------------------------------       -----------------------------------
ACCOUNTANT:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
FIRM:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
ADDRESS:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
CITY, STATE, ZIP:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
PHONE:
-------------------------------------       -----------------------------------

------------------------------------       -----------------------------------
MANAGEMENT COMPANY
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
ADDRESS:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
CITY, STATE, ZIP:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
PHONE:
-------------------------------------       -----------------------------------
-------------------------------------       -----------------------------------
CONTACT:
-------------------------------------       -----------------------------------

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

                              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_____________.

                                      E-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
------------------------------------------------------------------------------
Interior Painting
------------------------------------------------------------------------------
Exterior Painting
------------------------------------------------------------------------------
Siding
------------------------------------------------------------------------------
Roofing
------------------------------------------------------------------------------
Drainage
------------------------------------------------------------------------------
Paving
------------------------------------------------------------------------------
Landscaping
------------------------------------------------------------------------------
Playground
------------------------------------------------------------------------------
Community Room
------------------------------------------------------------------------------
Laundry Room
------------------------------------------------------------------------------
Common Areas
------------------------------------------------------------------------------
Carpet
------------------------------------------------------------------------------
Appliances
------------------------------------------------------------------------------
Lighting
------------------------------------------------------------------------------
Other
------------------------------------------------------------------------------

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

Please describe in detail any major repairs:

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

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

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

                                      E-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)
------------------------------------------------------------------------------
Type of Condition        Excellent       Good          Fair    Problems/Comments
------------------------------------------------------------------------------
Signage
-------------------------------------------------------------------------------
Parking Lots
-------------------------------------------------------------------------------
Office/Storage
-------------------------------------------------------------------------------
Equipment
-------------------------------------------------------------------------------
Community Building
-------------------------------------------------------------------------------
Laundry Room
-------------------------------------------------------------------------------
Benches/Playground
-------------------------------------------------------------------------------
Lawns, Plantings
-------------------------------------------------------------------------------
Drainage, Erosion
-------------------------------------------------------------------------------
Carports
-------------------------------------------------------------------------------
Fences
-------------------------------------------------------------------------------
Walks/Steps/Guardrails
-------------------------------------------------------------------------------
Lighting
-------------------------------------------------------------------------------
Painting
-------------------------------------------------------------------------------
Walls/Foundation
-------------------------------------------------------------------------------
Roof/Flashing/Vents
-------------------------------------------------------------------------------
Gutters/Splashblocks
-------------------------------------------------------------------------------
Balconies/Patios
-------------------------------------------------------------------------------
Doors Windows/Screens
-------------------------------------------------------------------------------
Elevators
-------------------------------------------------------------------------------

INTERIOR CONDITION
-------------------------------------------------------------------------------
Stairs
-------------------------------------------------------------------------------
Flooring
-------------------------------------------------------------------------------
Doors/Cabinets/Hardware
-------------------------------------------------------------------------------
Drapes/Blinds
-------------------------------------------------------------------------------
Interior Painting
-------------------------------------------------------------------------------
Refrig/Stoves/Sinks
-------------------------------------------------------------------------------
Bathroom/Tubs/Showers
    Toilets
-------------------------------------------------------------------------------

                                      E-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:
       ------------------------------------------------------------------------

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

                                      E-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:
-------------------------------------------------------------------------------
Firm:                                                       Telephone:
-------------------------------------------------------------------------------

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

                                      E-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#

-----------------------------------------------------------------------------
                                                                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
-------------------------------------------------------------------------------
      BIN #        Certificate of Occupancy Date:
-----------------------------------------------------------------------------

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

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

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

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

     BIN #          Certificate of Occupancy Date:
-------------------------------------------------------------------------------

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

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

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
     BIN #           Certificate of Occupancy Date:
-------------------------------------------------------------------------------

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

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

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

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

<PAGE>

                          INITIAL TENANT CERTIFICATIONS
                                PARTNERSHIP NAME
(CONTINUED)

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

-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------
YES
-------------------------------------------------------------------------------

<PAGE>

                          INITIAL TENANT CERTIFICATIONS
                                PARTNERSHIP NAME
(CONTINUED)

     Tenant                   Tenant            Overall
Gross     Maximum             Rent              Tenant
Rent      Rent                Qualified         Eligible

-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------
                              YES               YES
-------------------------------------------------------------------------------

                                       E-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
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------

<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

-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
<PAGE>

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

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

                                  E-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)?

                                      E-8

<PAGE>

                        TAX CREDIT COMPLIANCE MONITORING:
                              ANNUAL CERTIFICATION

         As Managing  Member of 2nd  Fairhaven,  LLC, I hereby certify as to the
following:

     1. 2nd  Fairhaven,  LLC  owns a  eighteen  (18)  unit  project  ("Apartment
Housing") in Federalsburg, Caroline County, Maryland .

     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.

                                      E-9
<PAGE>

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
Maryland that the foregoing is true and correct.

         Executed this     day of            at              ,                 .
                       ---        ----------    -------------  ----------------

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

                                      E-10
<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.

                                      E-11
<PAGE>

                        AMENDED DEVELOPMENT FEE AGREEMENT

         This Amended Development Fee Agreement  ("Agreement"),  is entered into
as of the date written below by and between Carter C. Chinnis  ("Developer") and
2nd Fairhaven,  LLC, a Maryland limited liability company  ("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  Federalsburg,
Caroline County,  Maryland, as more particularly described in Exhibit A attached
hereto and incorporated herein (the "Real Property").

         B.  Owner  developed  on  the  Real  Property  an  eighteen  (18)  unit
low-income  rental  housing  complex  and  other  related  improvements,   which
qualifies for federal low-income housing tax credits (the "Apartment Housing").

         C.  Owner and Developer have entered into a  Development  Fee Agreement
on January 1, 1999 (the "Original  Development Fee Agreement").

         D. Prior to the date of this  Agreement  and  pursuant to the  Original
Development  Fee  Agreement  Developer  has  performed  substantial  development
services  with respect to the  Apartment  Housing as specified in Section 2.3 of
this Agreement.  Developer also oversaw the development of the Apartment Housing
until all construction work was completed and provided 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 Development Fee Agreement.

         E. Owner  desires to amend and restate  the  Original  Development  Fee
Agreement  with  Developer  through this Amended  Development  Fee 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 Development Fee 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.

         "Department"  means the Maryland 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.

         "Amended  Operating  Agreement"  shall  mean  the  Second  Amended  and
Restated Operating Agreement of 2nd Fairhaven, LLC, a Maryland limited liability
company,  which  Amended  Operating  Agreement  is  incorporated  herein by this
reference.  Any terms  capitalized but not defined herein shall have the meaning
ascribed in the Operating 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, 2010.

         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 $164,800.  The  Development  Fee shall be payable in  accordance  with
Section 3 of this Agreement.

         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  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:   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    reviewed    the    plans    and
specifications for compliance  with  design criteria and construction contracts.

                                       2
<PAGE>

                           (D)      Developer   negotiated  and  conferred  with
public authorities relating to traffic  control, flood control and other matters
affecting the development of the Apartment Housing.

                           (E)      Developer  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.

                           (F)  Developer  created,  refined  and  analyzed  the
financial projections for the Apartment Housing.

                           (G)      Developer 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.

                           (H)  Developer  negotiated  and  conferred  with  the
construction lender to obtain the construction loan.

                           (I)      Developer  negotiated  and conferred with an
insurance  carrier to provide a builder's risk policy during construction.

                           (J)      Developer exerted its best efforts to ensure
that the contractor  performed its obligations  under the construction documents
in a diligent and timely manner.

                           (K)      Developer  participated  in   and   provided
assistance with regard  to  pre-construction  conferences  and  pre-construction
documents, including drawings, specifications, contracts, and schedules.

                           (L)      Developer    reviewed    all    construction
documents,  identified construction issues and participated in the resolution of
such issues.

                           (M)      Developer reviewed and approved  subcontract
bids received by the contractor.

                           (N)      Developer   established   and   administered
field order and change order procedures.

                           (O)      Developer coordinated performance of Owner's
obligations  under the  construction  phase for the Apartment Housing, including
the preparation of draw requests.

                           (P)      Developer  attended  construction   progress
meetings  at the  Apartment  Housing site to  monitor construction  progress and
advised Owner and the contractor  with respect to the resolution of construction
issues.

                           (Q)      Developer reviewed the contractor's  monthly
pay applications.

                           (R)      Developer    monitored    the   contractor's
progress  with respect to the approved  Apartment  Housing schedule and kept the
Owner  informed  of all  pertinent  Apartment  Housing  issues and  construction
progress.

                                       3
<PAGE>

                           (S)      Developer  advised  Owner  with  respect  to
relations  with  engineers,  architects,  and  other construction professionals.

                           (T)      Developer  was   available   for   immediate
response in critical situations arising during the construction of the Apartment
Housing.

                           (U)      Developer  coordinated  relations  with  the
City of Federalsburg and other governmental authorities having jurisdiction over
development of the Apartment Housing.

                  (2)      Tax  Credit  Matters.   The  Developer  provided  the
following services to Owner with  regard to the  Tax Credits which  services did
not constitute the rendering of legal or tax advice:

                           (A)      Developer  consulted with and advised  Owner
concerning  construction  issues that could affect the amount of Tax Credits for
which the Apartment Housing is eligible.

                           (B)      Developer  consulted with and advised  Owner
with  respect to  the  requirements  of  the  Department  as  they relate to the
construction and development of the Apartment Housing.

                           (C)      Developer  monitored  construction  progress
with respect to the Apartment Housing schedule agreed to with the Department, if
any.

         (b) 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
2nd  Fairhaven,  LLC,  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

         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 Operating  Agreement.  If the  Development Fee is not
paid in  full  in  accordance  with  Section  9.2(b)  of the  Amended  Operating
Agreement then the balance of the  Development  Fee shall be paid from available
Net  Operating  Income  in  accordance  with the  terms of  Section  11.1 of the
Operating Agreement,  but in no event later than December 21, 2010. Also, if the
Development  Fee is not paid in full in  accordance  with Section  9.2(b) of the
Operating  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 7.1(b) of the Operating
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

                                       4
<PAGE>

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
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:                    Carter C. Chinnis
                                    410 Market Street
                                    Denton, Maryland 21629

                                       5
<PAGE>

If to Owner:                        2nd Fairhaven, LLC
                                    c/o Larry C. Porter
                                    410 Market Street
                                    Denton, Maryland 21629

         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,  member,  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 Maryland
applicable to contracts  made and wholly  performed  within  Maryland by persons
domiciled in Maryland.

         (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.

         5.5      Binding  Effect.  This Agreement  shall bind and inure  to the
benefit of, and  be  enforceable  by, the  Parties hereto  and their  respective
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

                                       6
<PAGE>

Agreement.  Notwithstanding  the Parties acknowledge that WNC Housing Tax Credit
Fund VI,  L.P.,  Series  7 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  Maryland
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.

         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.

                                       7
<PAGE>

     IN WITNESS  WHEREOF,  the Parties have caused this Amended  Development Fee
Agreement to be executed as of ___________________, 2000.

DEVELOPER:

                           ----------------------------
                           Carter C. Chinnis

OWNER:                     2nd Fairhaven, LLC

                           -----------------------------
                           Larry C. Porter,
                           Managing Member

                           -----------------------------
                           Carter C. Chinnis,
                           Managing Member

                                       8
<PAGE>

                                    EXHIBIT A

All  that  lot or  parcel  of  land  situate  lying  and  being  in the  Town of
Federalsburg,  Fifth Election District, Caroline County, Maryland and being more
particularly  described  as  follows:  Beginning  for the same at a point at the
northwesterly  corner of the herein  described land, said point bearing South 76
degrees 34 minutes 26 seconds East 61.50 ft. from a concrete  monument  found at
the southwesterly  corner of the land of People for Better Housing,  Inc. (Liber
210, Folio 138) and the northwesterly corner of the land of R. Levi Saunders, et
al. (Liber 221, Folio 526 and part, and from said place of beginning  running 1)
with the said  People  For  Better  Housing  land South 76 degrees 34 minutes 26
seconds East 337.42 ft.;  thence 2) with a new division line South 15 degrees 26
minutes 15 seconds  East 462.07 ft. to the land of Ronald M.  Fluharty and Joyce
W. Fluharty (Liber 171, Folio 303);  thence 3) with the said Fluharty land North
86 degrees 37 minutes 14 seconds West 84.92 ft. to a marble  monument  found and
the land of Shu-Chai Willy Lin and H. Sharon Lin (Liber 209, Folio 290);  thence
with the said Lin land the  following  two  courses and  distances:  4) North 04
degrees 06 minutes 01 seconds East 3.95 ft. to a concrete monument found; thence
5) South 82 degrees 49 minutes 35 seconds  West  223.25  ft.;  thence with a new
division line the following  two courses and  distances;  6) North 15 degrees 26
minutes 15 seconds  West  546.26  ft.;  thence 7) North 00 degrees 45 minutes 36
seconds East 16.12 ft to the place of beginning, containing 3.487 acres of land,
more or less.

<PAGE>

                               GUARANTY AGREEMENT

         FOR VALUE  RECEIVED,  the  receipt and  sufficiency  of which is hereby
acknowledged,  and in  consideration  of the agreement of Carter C. Chinnis (the
"Developer") to permit  deferral of the $164,800 due from 2nd Fairhaven,  LLC, a
Maryland limited liability company ("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  Development  Fee 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

                                       1
<PAGE>

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.

         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
Development Fee 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
Maryland and shall be construed and governed under Maryland 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.

                                       2
<PAGE>

         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
Maryland  and/or to the  jurisdiction  and venue of any United  States  District
Court in the State of Maryland having  jurisdiction  over any action or judicial
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  Maryland,  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:

----------------------------                --------------------------
                                            Larry C. Porter
Witness
                                            --------------------------
____________________________                Carter C. Chinnis

                                            Notary Public
My Commission Expires:
                                            Address for Guarantor:
                                            Cabell Corporation,
____________________________                P.O. Box 499
(NOTARY SEAL)                               Denton, Maryland  21629

                                       3
<PAGE>

                           OPERATING BUDGET AGREEMENT

         This Operating Budget Agreement ("Agreement") is entered into as of the
date  written  below by and  between  2nd  Fairhaven,  LLC, a  Maryland  limited
liability company ("Owner"), Larry C. Porter and Carter C. Chinnis (collectively
the  "Managing  Member"),  WNC  Housing Tax Credit  Fund VI,  L.P.,  Series 7, a
California limited partnership  ("Investor  Member"),  and WNC Housing,  L.P., a
California  limited  partnership  ("Special  Member").  Owner,  Managing Member,
Investor  Member,  and  Special  Member  collectively  may be referred to as the
"Parties" or individually may be referred to as a "Party".

                                    RECITALS

         A.  Owner has acquired 3.487 acres of  land in  Federalsburg,  Caroline
County, Maryland (the "Real Property").

         B.  Owner  developed  on  the  Real  Property  an  eighteen  (18)  unit
low-income  rental housing complex and other related  improvements  for elderly,
which is intended to qualify for  federal  low-income  housing tax credits  (the
"Apartment Housing").

         C. On the even date  herewith a Second  Amended and Restated  Operating
Agreement for 2nd Fairhaven, LLC ("Operating Agreement") was entered into by and
between  Larry  C.  Porter  and  Carter  C.  Chinnis  as  the  managing  members
(collectively  the  "Managing  Member"),  WNC Housing Tax Credit Fund VI,  L.P.,
Series 7 as the Investor Member and WNC Housing, L.P. as the Special Member (the
Operating 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 Operating Agreement).

         D. In determining  whether to be admitted into 2nd  Fairhaven,  LLC and
contribute funds to the operation of the Apartment Housing,  the Investor Member
and Special Member 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 and 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 a final operating budget
involves  substantial  negotiations with lenders and governmental authorities.

         F. Investor  Member's  and  Special  Member's  decision to execute the
Operating  Agreement is based,  in part,  on their  acceptance of the sources of
funds  available to develop 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,

                                       1
<PAGE>

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 Operating  Agreement as the construction  loan,
the  Mortgage,  the Capital  Contribution  of the Managing  Member,  the Capital
Contribution of the Investor Member and the Capital  Contribution of the Special
Member.  Unless expressly permitted in the Operating  Agreement,  Consent of the
Special Member is required for any change to the Source of Funds.

         2. Operating Proforma.  Attached hereto as Exhibit "B" 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 Mortgage lender and any governmental authorities if applicable.

         3. 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:

       To the Managing Member:    Larry C. Porter
                                  P.O. Box 499
                                  Denton, Maryland 21629

                                  Carter C. Chinnis
                                  P.O. Box 499
                                  Denton, Maryland 21629

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

         3. 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.

         4. 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.

         5. 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.

                                       2
<PAGE>

         6. 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.

         7. Governing Law.  This Agreement and its application shall be governed
by the laws of Maryland.

         8. 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.

         In Witness Whereof, this Operating Budget Agreement is made and entered
into as of _________, 2000.

                             MANAGING MEMBER

                             Larry C. Porter

                             ---------------------------------
                             Carter C. Chinnis

                             INVESTOR MEMBER

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

                             By:     WNC & Associates, Inc.,
                                     General Partner

                                     By:      _________________________
                                              David N. Shafer,
                                              Executive Vice President

                             SPECIAL MEMBER

                             WNC Housing, L.P.

                             By:     WNC & Associates, Inc.,
                                     General Partner

                                     By:       ________________________
                                               David N. Shafer,
                                               Executive Vice President

                                       3
<PAGE>

                                    EXHIBIT A

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                                SOURCES OF FUNDS

<PAGE>

                                    EXHIBIT B

           TO DEVELOPMENT, CONSTRUCTION AND OPERATING BUDGET AGREEMENT

                               OPERATING PROFORMANORTH CAROLINA                                                SECOND AMENDMENT
                                                                     TO
DURHAM COUNTY                                               EMPLOYMENT AGREEMENT

     THIS SECOND  AMENDMENT TO EMPLOYMENT  AGREEMENT (this  "Amendment") is made
and  entered  into  effective  the 1st  day of  September,  1999 by and  between
PHYAMERICA  PHYSICIAN  GROUP,  INC.,  f/k/a COASTAL  HEALTHCARE  GROUP,  INC., a
Delaware corporation ("Corporation"), and STEVEN M. SCOTT, M.D. ("Employee").

                               W I T N E S S E T H
                               -------------------

     WHEREAS,   Corporation  and  Employee  have  previously   entered  into  an
employment  agreement dated April 1, 1991, and an amendment  thereto dated April
1, 1994  (collectively,  the  "Employment  Agreement")  under which  Employee is
currently employed by Corporation; and

     WHEREAS,  Corporation  and Employee  desire to modify the existing terms of
employment of Employee to increase his annual salary;

     NOW,  THEREFORE,  for and in  consideration  of the  mutual  covenants  and
agreements  hereinafter  set forth,  the  receipt and  sufficiency  of which are
hereby acknowledged, the parties agree as follows:

     1. Paragraph 3(a) of the Employment Agreement shall be amended effective as
of September 1, 1999, to read as follows:

          (a) An  annual  salary of Five  Hundred  Thousand  Dollars  ($500,000)
     payable  in  twelve  equal  monthly  installments  in  accordance  with the
     Corporation's  payroll  policies.  The  annual  salary  shall  be  reviewed
     annually,  and  may be  increased  in the  discretion  of the  Compensation
     Committee of the Corporation's Board of Directors.

          2.  Except as  specifically  modified as set forth  above,  all of the
     remaining  terms,  conditions  and  covenants of the  Employment  Agreement
     between  Corporation  and Employee are hereby ratified and confirmed in all
     respects.

<PAGE>

IN WITNESS  WHEREOF,  Corporation has caused this Amendment to be executed under
its  seal  and by  its  duly  authorized  officers,  upon  the  approval  by the
Compensation Committee of the Board of Directors,  and Employee has hereunto set
his hand and seal as of the day and year first above written.

                                         PHYAMERICA PHYSICIAN GROUP, INC.

                                         By:________________________________

ATTEST:

----------------------
Secretary

[Corporate Seal]

                                         EMPLOYEE:

                                         _______________________________(SEAL)
                                         Steven M. Scott, M.D.

<PAGE>

NORTH CAROLINA

DURHAM COUNTY

     I,  __________________________________,  a Notary  Public of the  aforesaid
County and State,  do hereby  certify  that  _______________________  personally
appeared before me this day and acknowledged that (s)he is the ______________ of
PhyAmerica Physician Group, Inc., a Delaware corporation,  and that by authority
duly given and as an act of the corporation, the foregoing instrument was signed
in  its  name  by  its   ___________,   and  attested  by   herself/himself   as
____________________, and sealed with its common corporate seal.

     Witness my hand and notarial seal this ____ day of _____________, 1999.

                                         ----------------------------
                                                Notary Public

My Commission Expires:

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

NORTH CAROLINA

DURHAM COUNTY

     I, _______________________________, a Notary Public of the aforesaid County
and State,  do hereby  certify that Steven M. Scott,  M.D.  personally  appeared
before me this day and acknowledged the execution of the foregoing instrument.

     Witness my hand and notarial seal this ____ day of _________, 1999.

                                         ------------------------------
                                                Notary Public

My Commission Expires:

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

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00008-of-00352.parquet"}]]