INVESTMENTS IN AND ADVANCES TO PARTNERSHIPS

a. Interests in profits, losses and cash distributions made by Local Partnerships

The Partnership has a 98.00% to 98.98% interest in profits, losses and cash distributions (as restricted by various federal and state housing agencies) (collectively, the “Agencies”) of each Local Partnership. An affiliate of the Managing General Partner of the Partnership is also a general partner of each Local Partnership. As stipulated by the Local Partnerships’ partnership agreements, the Local Partnerships are required to make annual cash distributions from surplus cash flow, if any. During 2012 and 2011, the Partnership received cash distributions from rental operations of the Local Partnerships of $27,437 and $51,316, respectively. As of December 31, 2012 and 2011, one and two of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $35,863 and $1,238,617, respectively, which may be available for distribution in accordance with their respective regulatory Agencies' regulations.

The cash distributions to the Partnership from the operations of the Local Partnerships may be limited by the Agencies' regulations. Such regulations limit annual cash distributions to a percentage of the owner's equity investment in a rental property. Funds in excess of those which may be distributed to owners are generally required to be placed in a residual receipts account held by the governing state or federal agency for the benefit of the property. In addition, local general partners have the authority to withhold funds if needed for property repairs, improvements, or other property needs.

Upon sale or refinancing of a property owned by a Local Partnership, or upon the liquidation of a Local Partnership, the proceeds from such sale, refinancing or liquidation shall be distributed in accordance with the respective provisions of each Local Partnership's partnership agreement. In accordance with such provisions, the Partnership would receive from such proceeds its respective percentage interest of any remaining proceeds, after payment of (i) all debts and liabilities of the Local Partnership and certain other items, (ii) the Partnership's capital contributions plus certain specified amounts as outlined in each partnership agreement, and (iii) certain special distributions to general partners and related entities of the Local Partnership.

b. Pending and Completed Sales

Pending Sales

On June 29, 2012, the Partnership entered into a partnership purchase agreement to sell their partnership interest in New Sharon Woods for $1. The Partnership's investment basis in this Local Partnership at both December 31, 2012 and 2011 was $0. The sale is expected to close during the second quarter of 2013.

On August 2, 2012, the Local Partnership entered into a purchase agreement to sell The Chestnut Apartments for $5,440,000. The Partnership's investment basis in this Local Partnership at December 31, 2012 and 2011 was $1,171,612 and $1,024,547, respectively. The Partnership expects to receive approximately $3,500,000 as a result of the sale. The sale is expected to close during the second quarter of 2013.

On August 2, 2012, the Local Partnership entered into a purchase and sale agreement to sell Westwood Village for $3,085,000. The Partnership's investment basis in this Local Partnership at December 31, 2012 and 2011 was $425,415 and $155,120, respectively. The Partnership expects to receive approximately $2,100,000 as a result of the sale. The sale is expected to close during the third quarter of 2013.

Completed Sales

On August 29, 2012, the Partnership sold its limited partner interest in Traverse City Elderly, LP, which owns the Hillview Terrace Apartments, for $299,990. In accordance with the terms of the Partnership Agreement, in September 2012, the Managing General Partner paid a disposition fee of $92,000 related to the sale. The net proceeds received as a result of the sale of was $207,990. The Partnership's investment basis at the date of the sale was $0. Net acquisition fees and property purchase costs netted against the gain on sale of interest in Local Partnership were $7,465. The net gain recognized for this sale was $200,525.

On December 17, 2012, the Partnership sold its limited partner interest in Capitol Senior Limited Dividend Housing Association Limited Partnership, which owns the Capital Commons Senior Apartments. Total proceeds received as a result of the sale were $6,245,328. In accordance with the terms of the Partnership Agreement, in December 2012, the Managing General Partner paid a disposition fee of $475,000 related to the sale. The net proceeds received as a result of the sale was $5,770,328. Net acquisition fees and property purchase costs netted against the gain on sale of interest in Local Partnership were $21,575. The Partnership's investment basis at the date of sale was $5,183,461 and was written off and included in the gain on sale of interest in Local Partnership. The net gain recognized for the sale was $565,292.

c. Advance to Local Partnership

As of December 31, 2011, the Partnership had advanced funds, including accrued interest, totaling $1,008,738 to ARA Associates-Shangri-La Ltd. (Shallowford Oaks). On April 15, 2010, the Partnership advanced $100,000 to Shallowford Oaks for operating expenses. The Partnership accrued $28,390 to interest receivable on the advances to Shallowford Oaks as of December 31, 2011. For financial reporting purposes, these loans have been reduced to zero by the Partnership as a result of losses at the Local Partnership level during prior years. As a result, the amount advanced and accrued interest has been reflected as a reduction of share of income from the Partnership in 2011.

In January 2011, the Shallowford Oaks property was unable to meet its debt service requirements and was therefore in default with regards to the mortgage encumbering the property. In February 2011, the mortgage lender for the mortgage encumbering the property sent notice accelerating the debt. On November 1, 2011, the mortgage holder for Shallowford Oaks, LSREF2, LLC, foreclosed on the property and became the new owner of the property pursuant to a non-judicial foreclosure sale under the power of sale clause contained in its law documents. As a result of the foreclosure all of the assets and liabilities of the Local Partnership were written off as of December 31, 2011. The resulting loss of the foreclosure was $31,263 and is recorded on the statements of operations as loss from foreclosure on Local Partnership. During 2011, the Local Partnership was wound up, and the Partnershiop no longer holds a limited partner interest in the Local Partnership.

d. Property matters

Baltic Plaza

On December 19, 2002, the Local Partnership which owned the Baltic Plaza apartments sold the property. Cash proceeds received by the Partnership totaled $2,053,358. As part of the consideration, the Local Partnership took back a 30-year purchase money note in the principal amount of $2,300,000, collateralized by the partnership interests of the general partner of the maker/purchaser. The Local Partnership assigned the purchase money note to an escrow for the benefit of its partners (with CRI serving as escrow agent), so that the Local Partnership entity could be dissolved. The purchase money note bears interest at 4.60% compounded annually, and requires a minimum annual payment equal to 50% of the maker/purchaser’s annual audited cash flow, as defined, with the balance of unpaid principal, if any, plus accrued interest, due and payable on December 31, 2032. As of December 31, 2012 and 2011, no payments of principal or interest have been received on this purchase money note. The Partnership’s 98% beneficial interest in this purchase money note is reflected in the accompanying balance sheets at December 31, 2012 and 2011, at its original principal balance of $2,300,000 plus estimated accrued but unpaid interest, all discounted to $619,000 to provide for an effective interest rate commensurate with the investment risk. The resulting discounted amount has been fully reserved due to uncertainty of collection of the purchase money note and related interest.

On November 28, 2012, the Partnership entered an agreement to sell the note to an affiliate of the SP Baltic Plaza, LP for a sale price of $2,000,000. The note sold on April 29, 2013. The Partnership received $1,960,000 in proceeds from the sale of the note.

e. Summarized financial information

Combined balance sheets and combined statements of operations for the three Local Partnerships in which the Partnership is invested as of December 31, 2012 follow. The information is presented separately for two Local Partnerships which have investment basis (equity method), and for one Local Partnership for which the Partnership’s carrying value is zero (equity method suspended).

COMBINED BALANCE SHEETS

December 31, 2012



	Equity Method			Suspended				Total
Number of Local Partnerships	2		(a)	1			(b)	3

Rental property, at cost, net of accumulated
depreciation of $4,792,429, $3,873,267,
and $8,665,696, respectively	$	956,676		$	465,476			$	1,422,152
Land	406,000			71,050				477,050
Other assets	642,727			1,157,199				1,799,926
Total assets	$	2,005,403		$	1,693,725			$	3,699,128

Mortgage notes payable	$	129,244		$	3,536,432			$	3,665,676
Other liabilities	217,116			1,076,488				1,293,604
Due to general partners	294,158			36,999				331,157
Total liabilities	640,518			4,649,919				5,290,437

Partners' capital (deficit)	1,364,885			(2,956,194		)		(1,591,309		)

Total liabilities and partners'
capital (deficit)	$	2,005,403		$	1,693,725			$	3,699,128

(a) Westood Village; Chestnut

(b) New Sharon Woods

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2012



	Equity Method			Suspended			Total
Number of Local Partnerships	3		(a)	2		(b)	5

Revenue:
Rental	$	3,575,298		$	1,350,446		$	4,925,744
Other	405,497			21,164			426,661
Total revenue	3,980,795			1,371,610			5,352,405

Expenses:
Operating	2,061,140			989,221			3,050,361
Interest	75,654			167,966			243,620
Depreciation and amortization	261,243			131,047			392,290
Total expenses	2,398,037			1,288,234			3,686,271

Net income	$	1,582,758		$	83,376		$	1,666,134

Cash distributions	$	27,437		$	—		$	27,437

Cash distributions recorded as reduction
of investments in partnerships	$	27,437		$	—		$	27,437

Partnership’s share of Local Partnership
net income	$	1,510,098		$	—		$	1,510,098

Advance to Local Partnership,
including accrued interest	—			—			—

Share of income from partnerships	$	1,510,098		$	—		$	1,510,098

(a) Westood Village; Chestnut; Capital Commons ( through the date of sale)

(b) New Sharon Woods; Hillview Terrace (through the date of sale)

Combined balance sheets and combined statements of operations for the six Local Partnerships in which the Partnership is invested as of December 31, 2011 follow. The information is presented separately for three Local Partnerships which have investment basis (equity method), and for three Local Partnerships for which the Partnership’s carrying value is zero (equity method suspended).

COMBINED BALANCE SHEETS

December 31, 2011



	Equity Method			Suspended				Total
Number of Local Partnerships	3		(a)	3			(b)	6

Rental property, at cost, net of accumulated
depreciation of $11,437,387 and $9,695,715,
respectively	$	1,454,914		$	960,379			$	2,415,293
Land	715,103			303,428				1,018,531
Other assets	4,531,684			1,941,575				6,473,259
Total assets	$	6,701,701		$	3,205,382			$	9,907,083

Mortgage notes payable	$	1,422,457		$	2,812,619			$	4,235,076
Other liabilities	480,041			5,327,515				5,807,556
Due to general partners	294,158			36,999				331,157
Total liabilities	2,196,656			8,177,133				10,373,789

Partners' capital (deficit)	4,505,045			(4,971,751		)		(466,706		)

Total liabilities and partners'
capital (deficit)	$	6,701,701		$	3,205,382			$	9,907,083

(a) Capital Commons; Chestnut; Westwood Village

(b) Hillview Terrace; New Sharon Woods; Shallowford Oaks

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2011



	Equity Method			Suspended				Total
Number of Local Partnerships	3		(a)	3			(b)	6

Revenue:
Rental	$	3,684,975		$	2,150,657			$	5,835,632
Other	361,263			2,918,184				3,279,447
Total revenue	4,046,238			5,068,841				9,115,079

Expenses:
Operating	2,022,557			1,838,509				3,861,066
Interest	230,273			482,462				712,735
Depreciation and amortization	378,171			265,349				643,520
Total expenses	2,631,001			2,586,320				5,217,321

Net income	$	1,415,237		$	2,482,521			$	3,897,758

Cash distributions	$	44,097		$	7,219			$	51,316

Cash distributions recorded as reduction
of investments in partnerships	$	44,097		$	—			$	44,097

Cash distributions recorded as income	$	—		$	7,219			$	7,219
Partnership’s share of Local Partnership
net income	1,320,643			—				1,320,643
Advance to Local Partnership,
including accrued interest	—			(28,390		)		(28,390		)
Share of income (loss) from partnerships	$	1,320,643		$	(21,171	)		$	1,299,472

(a) Capital Commons; Chestnut; Westwood Village

(b) Hillview Terrace; New Sharon Woods; Shallowford Oaks


f.	Reconciliation of the Local Partnerships' financial statement

net income to taxable income

For federal income tax purposes, the Local Partnerships report on a basis whereby: (i) certain revenue and the related assets are recorded when received rather than when earned; (ii) certain costs are expensed when paid or incurred rather than capitalized and amortized over the period of benefit; and (iii) a shorter life is used to compute depreciation on the property as permitted by the Internal Revenue Code and the underlying regulations. These returns are subject to examination and, therefore, possible adjustment by the IRS.

A reconciliation of the Local Partnerships' financial statement net income reflected above to taxable income follows.



	For the years ended December 31,
	2012			2011
Financial statement net income	$	1,666,134		$	3,897,758
Differences between financial statement
and tax depreciation, amortization,
and miscellaneous differences	(132,478		)	(2,790,616		)
Taxable income	$	1,533,656		$	1,107,142


g.	Investment reconciliation

The following is a reconciliation of investments in partnerships at December 31, 2012 and 2011:



Investments in partnerships at January 1, 2011:	$	4,021,281
Share of income from partnerships	1,299,472
Distribution from partnerships	(51,316		)
Accrued interest on advance to Local Partnership	28,390
Investments in partnerships at December 31, 2011:	5,297,827
Share of income from partnerships	1,510,098
Distribution from partnerships	(27,437		)
Write off of investment due to sale of interest	(5,183,461		)
Investments in partnerships at December 31, 2012:	$	1,597,027