INVESTMENTS IN PARTNERSHIPS

a. Due on investments in partnerships and accrued interest payable

As of December 31, 2012 and 2011, the Partnership held limited partner interests in one and four Local Partnerships which were organized to develop, construct, own, maintain and operate rental apartment properties which provide housing principally to the elderly or to individuals and families of low or moderate income.

Due on investments in partnerships includes $119,544 due to a previous owner related to Meadow Lanes at December 31, 2012 and 2011; accrued interest payable thereon was $33,976 at December 31, 2012 and 2011. These amounts are schedule to be paid upon the occurrence of certain specific events, as outlined in the note agreement. At December 31, 2012, the Partnership is in dispute with the previous owner regarding amounts owed under the note agreement. Management cannot determine the outcome of the dispute at this time. Accordingly, the financial statements do not reflect any adjustment due to the uncertainty.

b. Sales and Pending Sale of Local Limited Partnerships

Villa Mirage I and Villa Mirage II

On November 15, 2011, the general partners of Villa Mirage I, a California limited partnership, and Villa Mirage II, a California limited partnership, entered into a contract with an unaffiliated third party to sell their properties for an aggregate sale price of $6,500,000. On September 27, 2012, the sale of the properties closed. The investment balance in the Local Partnerships at the time of sale was $195,662. Of the $1,903,349 of proceeds received as a result of the sale, a disposition fee was paid to the managing general partner in the amount of $325,000. The disposition fee was netted against the related gain on disposition of property.

A gain of $1,382,687 was recorded as a result of the sale of Villa Mirage I and Villa Mirage II.

Monterey/Hillcrest

On September 29, 2011, the general partners of Pebble Valley Housing Partners Limited Partnership, a Wisconsin limited partnership, entered into a contract with an unaffiliated third party to sell its property (Monterey/Hillcrest) and the transaction closed on January 31, 2012. The sales price was $18,920,000 and proceeds received totaled $3,611,288. The investment balance in the Local Partnership was $0 at December 31, 2011. Net unamortized acquisition costs and property purchase costs of $3,656 were written off and netted against the gain on sale of property. A disposition fee of $946,000 was paid to the managing general partner. The disposition fee was netted against the related gain on disposition of property.

A gain of $2,661,632 was recorded as a result of the sale of Monterey/Hillcrest.

Meadow Lanes

The Partnership has been notified by the general partners of Meadow Lanes–II Associates Limited Dividend Housing Association Limited Partnership, a Michigan limited partnership, that an agreement to sell its property to an unaffiliated third party has been reached and that a contract to memorialize the agreement has been signed. It is expected that the sale will be consummated during the second quarter of 2013. It is anticipated that all sale proceeds will be used to satisfy Local Partnership obligations and any remaining funds available will be distributed to partners in accordance with the Meadow Lanes–II Associates Limited Dividend Housing Association Limited Partnership Agreement. There can be no assurance that the sale transaction contemplated will be consummated upon the terms and conditions anticipated or at all.

On June 18, 2012, the Local Partnership entered into a purchase and sale agreement to sell Meadow Lanes Apartments for $2,900,000. The Partnership's investment basis in this Local Partnership (including deferred costs of $2,342) at December 31, 2012 was $3,190,427. The Partnership expects to receive $2,594,816 as a result of the sale. The difference between the investment basis at December 31, 2012 and expected proceeds is $605,612. This amount represents the impairment loss on the statements of operations.

In the event the transaction contemplated above is consummated, the Partnership will be liquidated.

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

The Partnership has a 98.00% to 98.99% 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 2011, the Partnership received total distributions of $70,929. Of this amount, $59,394 was applied to a Partnership tax liability, which was paid at the Local Partnership level. The remaining amount of $11,535 was received in the form of a cash distribution. During 2012, the Partnership received total distributions of $11,211. As of December 31, 2012 and 2011, one and two, respectively, of the Local Partnerships had aggregate surplus cash, as defined by their respective regulatory Agencies, in the amounts of $137,854 and $402,802, 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.

d. Advances to Local Partnerships

During the year ended December 31, 2009, the Partnership advanced a total of $61,680 to Pebble Valley Housing Partners Ltd. Partnership (Monterey/Hillcrest) for non-resident withholding taxes paid on behalf of the Partnership. On April 14, 2010, the Partnership advanced $13,686 to Monterey/Hillcrest for non-resident withholding taxes paid on behalf of the Partnership. For financial statement purposes, the advances were charged off by the Partnership as a result of losses at the Local Partnership level during prior years. In October 2009, $66,300 was advanced to Villa Mirage II, Limited Partnership for the purpose of funding operation deficits. On February 8, 2012, the Partnership advanced $10,000 to Villa Mirage II Limited Partnership for the issuance of a prepayment letter, as required by CalHFA. For financial statement purposes, the advances were charged off by the Partnership as a result of losses at the Local Partnership level during prior years. Both of these advances were repaid in full on September 27, 2012 and are included in other income on the statements of operations.

On February 8, 2012, the Partnership advanced $10,000 to Villa Mirage I Limited Partnership for the issuance of a prepayment letter, as required by CalHFA. On September 27, 2012, this advance was repaid in full.

e. Summarized financial information

The balance sheet for the Local Partnership in which the Partnership is invested as of December 31, 2012, and the combined statements of operations for the four Local Partnerships, in which the Partnership is invested during the year ended December 31, 2012, follow. The balance sheet information is presented for one Local Partnership which has investment basis (equity method). The combined statements of operations is presented separately for two Local Partnerships which has investment basis (equity method) and for two Local Partnerships for which the Partnership's carrying value was zero (equity method suspended).

BALANCE SHEET

December 31, 2012



	Equity Method
Number of Local Partnerships	1	(a)

Rental property, at cost, net of accumulated depreciation of $4,463,501	$1,144,413
Land	168,760
Other assets	2,198,576

Total assets	$3,511,749

Mortgage notes payable	$251,830
Other liabilities	41,890
Due to general partners	—
Total liabilities	293,720

Partners' capital	3,218,029

Total liabilities and partners' capital	$3,511,749

__________________________________

(a) Meadow Lanes

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2012



	Equity Method				Suspended				Total
Number of Local Partnerships	2			(a)	2			(b)	4

Revenue:
Rental	$	1,242,632			$	633,793			1,876,425
Other	214,957				27,295				242,252

Total revenue	1,457,589				661,088				2,118,677

Expenses:
Operating and other	869,862				445,427				1,315,289
Interest	(18,090		)		110,057				91,967
Depreciation and amortization	267,553				1,713				269,266

Total expenses	1,119,325				557,197				1,676,522

Net income	$	338,264			$	103,891			$	442,155

Cash distribution
Cash distribution recorded as reduction of investments in partnerships	$	11,211			$	—			$	11,211
Partnership’s share of Local Partnership net income	$	331,497			$	—			$	331,497
Advances to Local Partnerships	—				(10,000		)		(10,000		)
Share of income from partnerships	$	331,497			$	(10,000	)		$	321,497

(a) Meadow Lanes; Villa Mirage I (operations through dates of sales)

(b) Monterey/Hillcrest (operations through date of sale); Villa Mirage II (operations through date of sale)

Combined balance sheets and combined statements of operations for the four Local Partnerships in which the Partnership is invested as of December 31, 2011, follow. The information is presented separately for two Local Partnerships which have investment basis (equity method), and for two 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	2		(a)	2			(b)	4
Rental property, at cost, net of accumulated depreciation of $4,236,640 and $2,948,051, respectively	$	1,101,086		$	10,426			$	1,111,512
Land	432,415			237,909				670,324
Other assets	2,422,446			5,466,901				7,889,347

Total assets	$	3,955,947		$	5,715,236			$	9,671,183

Mortgage notes payable	$	1,243,492		$	13,084,259			$	14,327,751
Other liabilities	476,752			1,482,250				1,959,002
Due to general partners	1,183,533			1,470,716				2,654,249

Total liabilities	2,903,777			16,037,225				18,941,002

Partners' capital (deficit)	1,052,170			(10,321,989		)		(9,269,819		)

Total liabilities and partners' capital
(deficit)	$	3,955,947		$	5,715,236			$	9,671,183

________________________________

(a) Meadow Lanes; Villa Mirage I

(b) Monterey/Hillcrest; Villa Mirage II

COMBINED STATEMENTS OF OPERATIONS

For the year ended December 31, 2011



	Equity Method			Suspended			Total
Number of Local Partnerships	2		(a)	2		(b)	4
Revenue:
Rental	$	1,372,972		$	3,449,932		$	4,822,904
Other	206,948			219,414			426,362

Total revenue	1,579,920			3,669,346			5,249,266

Expenses:
Operating and other	1,062,690			2,123,914			3,186,604
Interest	33,968			789,475			823,443
Depreciation and amortization	239,712			483,435			723,147

Total expenses	1,336,370			3,396,824			4,733,194

Net income	$	243,550		$	272,522		$	516,072

Cash distributions	$	11,535		$	59,394		$	70,929

Cash distribution recorded as reduction of investments in partnerships	$	11,535		$	—		$	11,535

Cash distribution recorded as share of income from partnerships	$	—		$	59,394		$	59,394

Partnership’s share of Local Partnership net income	238,679			—			238,679

Share of income from partnerships	$	238,679		$	59,394		$	298,073

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	$	442,155	$	516,072
Differences between financial statement and tax depreciation, amortization, and other items	21,664,034		221,901
Taxable income	$	22,106,189	$	737,973

f. Investment Reconciliation

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



Investments in partnerships at January 1, 2011:	$	2,836,317
Share of income from partnerships	298,073
Distribution from partnerships	(70,929		)

Investments in partnerships at December 31, 2011:	3,063,461

Share of income from partnerships	321,497
Advance to Local Partnership	20,000
Disposition of Villa Mirage	(195,662		)
Repayment of advance to Local Partnership	(10,000		)
Impairment loss	(605,612		)
Distribution from partnerships	(11,211		)

Investments in partnerships at December 31, 2012:	$	2,582,473