SABLE CHASE OF MCDONOUGH, L.P.

FINANCIAL STATEMENTS

DECEMBER 31, 2006 AND 2005

CONTENTS

	PAGE
Independent Auditors’Report Letter	2
Financial Statements:
Balance Sheets	3 & 4
Statements of Operations	5
Statements of Changes in Partners’ Equity (Deficit)	6
Statements of Cash Flows	7
Notes to the Financial Statements	8-10
Supplemental Information:
Schedules of Expenses	11

	Tama, Budaj & Raab, P.C.
	Certified Public Accountants
ELY TAMA, CPA*	32783 MIDDLEBELT ROAD
JEFFREY F. BUDAJ, CPA	FARMINGTON HILLS, MICHIGAN 48334-1726	MEMBERS
EMIL A. RAAB, CPA
	(248) 626-380O	AMERICAN INSTITUTE OF
BARTON A. LOWEN, CPA	FAX: (248) 626-2276	CERTIFIED PUBLIC ACCOUNTANTS
JOHN W. WEIPERT, CPA** SEAN M. DONOVAN, CPA THOMAS D. MADOUSE, CPA	WWW.TBRCPA.COM	MICHIGAN ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS
*ALSO LICENSED IN FLORIDA      AND SOUTH CAROLINA **ALSO LICENSED IN FLORIDA		FLORIDA INSTITUTE OF CERTIFIED PUBLIC ACCOUNTANTS SOUTH CAROLINA ASSOCIATION OF CERTIFIED PUBLIC ACCOUNTANTS

Independent Auditors’ Report

To the Partners of

     SABLE CHASE OF MCDONOUGH, L.P.

     We have audited the accompanying balance sheets of SABLE CHASE OF MCDONOUGH, L.P. as of December 31, 2006 and 2005, and the related statements of operations, changes in partners’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the General Partner and management of the Partnership. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly in all material respects, the financial position of SABLE CHASE OF MCDONOUGH, L.P., as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

     Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplemental information is presented for the purpose of additional analysis and is not a required part of the basic financial statements. This supplemental information is the responsibility of the Partnership’s management. Such information has been subjected to the auditing procedures applied in our audits of the basic financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.

January 26, 2007

 2

SABLE CHASE OF MCDONOUGH, L.P.
(A GEORGIA LIMITED PARTNERSHIP)

BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

	2006			2005
ASSETS
CURRENT ASSETS
Cash and cash equivalents	$	58,908		$	115,900
Accounts receivable		7,408			39,500
Management fee receivable		7,105			6,010
Prepaid expenses and other current assets		1,000			1,000
TOTAL CURRENT ASSETS		74,421			162,410
RESTRICTED DEPOSITS AND FUNDED RESERVES
Tenants’ security deposits		28,650			37,400
Real estate tax and insurance escrow		17,187			25,366
Operating reserve		225,244			274,472
Replacement reserve escrow		351,244			566,686
Insurance escrow		-0-			137,653
TOTAL RESTRICTED DEPOSITS AND FUNDED RESERVES		622,325			1,041,577
RENTAL PROPERTY
Buildings and components		11,675,165			11,611,611
Furniture and equipment		762,190			767,221
		12,437,355			12,378,832
Less accumulated depreciation		(5,727,070	)		(5,408,379	)
		6,710,285			6,970,453
Land		502,774			502,774
NET RENTAL PROPERTY		7,213,059			7,473,227
OTHER ASSETS
Deferred loan costs (net of amortization)		27,677			33,966
	$	7,937,482		$	8,711,180

The accompanying notes are an integral part of these financial statements. 3

SABLE CHASE OF MCDONOUGH, L.P.
(A GEORGIA LIMITED PARTNERSHIP)

BALANCE SHEETS
DECEMBER 31, 2006 AND 2005

	2006			2005
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES
Current maturities of long-term debt	$	131,890		$	123,931
Accounts payable		50,036			13,158
Accrued interest		26,027			26,027
TOTAL CURRENT LIABILITIES		207,953			163,116
DEPOSITS AND PREPAYMENT LIABILITIES
Tenants, security deposits		28,650			'37,400
LONG-TERM LIABILITIES
Mortgages payable		4,250,009			4,373,940
Less current maturities		(131,890	)		(123,931	)
TOTAL LONG-TERM LIABILITIES		4,118,119			4,250,009
TOTAL LIABILITIES		4,354,722			4,450,525
PARTNERS’ EQUITY (DEFICIT)		3,582,760			4,260,655
	$	7,937,482		$	8,711,180

The accompanying notes are an integral part of these financial statements. 4

SABLE CHASE OF MCDONOUGH, L.P.

STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

	2006			2005
Revenues:
Rental	$	1,049,986		$	1,227,762
Laundry		6,661			7,103
Security deposits earned		24,473			22,188
Other		45,309			92,757
TOTAL REVENUES		1,126,429			1,349,810
Expenses
Maintenance and operating		248,616			221,791
Utilities		178,062			167,474
Administrative		258,844			248,302
Taxes and insurance		192,887			151,123
Interest		308,870			315,600
Depreciation and amortization		435,558			441,114
TOTAL EXPENSES		1,622,837			1,545,404
INCOME (LOSS) FROM RENTAL OPERATIONS		(496,408	)		(195,594	)
Other income and (expenses):
Interest income		27,156			20,725
Gain (loss) on disposition of rental property		(151,793	)		-0-
Partnership management and reporting fees		(10,665	)		-0-
Gain (loss) from involuntary conversion		(46,185	)		46,185
TOTAL OTHER INCOME AND (EXPENSES)		(181,487	)		66,910
NET INCOME (LOSS)	$	(677,895	)	$	(128,684	)

The accompanying notes are an integral part of these financial statements. 5

SABLE CHASE OF MCDONOUGH, L.P.

STATEMENTS OF CHANGES IN PARTNERS’ EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

				General			Limited
	Total			Partner(s)			Partner(s)
Partners’ equity (deficit) -January 1, 2005	$	4,389,339		$	229,526		$	4,159,813
Net income (loss)		(128,684	)		(1,287	)		(127,397	)
Partners’ equity (deficit) -December 31, 2005		4,260,655			228,239			4,032,416
Net income (loss)		(677,895	)		(6,779	)		(671,116	)
Partners’ equity (deficit) - December 31, 2006	$	3,582,760		$	221,460		$	3,361,300

The accompanying notes are an integral part of these financial statements. 6

SABLE CHASE OF MCDONOUGH, L.P.

STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

	2006			2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)	$	(677,895	)	$	(128,684	)
Adjustments to reconcile net income (loss) to net cash provided by (used by) operating activities:
Depreciation and amortization		435,558			441,114
(Gain) loss on disposition of rental property		151,793			-0-
(Gain) loss from involuntary conversion		46,185			(46,185	)
Changes in:
Accounts receivable		32,092			(23,758	)
Management fee receivable		(1,095	)		(6,010	)
Tenants’ security deposits		-0-			3,150
Tax and insurance escrow		8,179			2,131
Operating reserve		49,228			(4,329	)
Accounts payable		36,878			(26,218	)
Accrued expenses		-0-			(587	)
TOTAL ADJUSTMENTS		758,818			339,308
NET CASH PROVIDED BY (USED BY) OPERATING ACTIVITIES		80,923			210,624
CASH FLOWS FROM INVESTING ACTIVITIES:
Deposits to reserve for replacements		215,442			(61,192	)
Purchase of rental property		(320,894	)		(2,053	)
Gain (loss) from involuntary conversion		(46,185	)		46,185
NET CASH PROVIDED BY (USED BY) INVESTING ACTIVITIES		(151,637	)		(17,060	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal payments on mortgage loans		(123,931	)		(116,614	)
Insurance escrow from hurricane		137,653			(137,653	)
NET CASH PROVIDED BY (USED BY) FINANCING ACTIVITIES		13,722			(254,267	)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		(56,992	)		(60,703	)
CASH AND CASH EQUIVALENTS — BEGINNING OF YEAR		115,900			176,603
CASH AND CASH EQUIVALENTS — END OF YEAR	$	58,908		$	115,900
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for interest	$	308,870		$	316,187

The accompanying notes are an integral part of these financial statements. 7

SABLE CHASE OF MCDONOUGH, L.P.

NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

A.	ORGANIZATION
	The Partnership was formed as a Limited Partnership under the laws of the State of Georgia on May 1, 1992, for the purpose of acquiring land, owning, constructing and operating a 225 unit multi-family rental housing project.
B.	SIGNIFICANT ACCOUNTING POLICIES

     Accounting Method

The accompanying financial statements have been prepared on the accrual basis of accounting.

     Rental Income

Rental income is recognized as rentals become due. Rental payments received in advance are deferred until earned. All leases between the Partnership and the tenants of the property are operating leases.

     Property and Equipment

Buildings improvements and equipment are being depreciated on various methods over 5 to 27.5 years for both financial statement and income tax accounting purposes. Expenditures for maintenance and repairs are charged to expense as incurred.

     Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

     Cash and Cash Equivalents

For the purposes of the statement of cash flows, the Partnership considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents.

C.	INCOME TAXES
	No income tax provision has been included in the financial statements because income or loss of the Partnership is required to be reported by the respective partners on their income tax returns.

 8

SABLE CHASE OF MCDONOUGH, L.P.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

D.	MORTGAGES PAYABLE
	The first mortgage payable to Mass Mutual Life Insurance Company is nonrecourse and is collateralized by a first mortgage on the rental property. This mortgage bears interest at 8.45% per annum. The proceeds were used to refinance the First Union National Bank of Florida loan.

$33,289 payable monthly until the principal and interest are fully paid except that the final installment shall be due and payable on December 1, 2020.

The second mortgage payable to Georgia Housing and Finance Authority, under the HOME Program, provided non-interest bearing construction financing of $1,000,000. The construction loan was converted to permanent financing in 1995. The note is collateralized by a deed to secure debt on the partnership rental property, subordinate to Mass Mutual Life Insurance Company’s lien on the property.

$2,778 is payable monthly until 2035, when unpaid principal becomes due.

Maturities of the notes payable are as follows for the years ended December 31:

	First Mortgage		Second Mortgage
2007	$	98,557	$	33,333
2008		107,215		33,333
2009		116,634		33,333
2010		126,880		33,333
2011		138,027		33,333
Thereafter		3,018,251		477,780
	$	3,605,564	$	644,445

	The liability of the Partnership is limited to the underlying value of the real estate collateral.
E.	TRANSACTIONS WITH RELATED PARTIES
	An affiliate performs rental, administrative and accounting services for SABLE CHASE OF MCDONOUGH, L.P. in its capacity as managing agent of the Project for which the affiliate received $72,693 in 2006 and $79,204 in 2005.
	The Partnership is committed to pay a non-cumulative annual fee of $28,125 to its General Partner for management services and a non-cumulative annual fee of $10,665 to an affiliate of the Limited Partner for reporting services if and when sufficient cash flow, as defined in the partnership agreement is available. The Partnership paid management and reporting fees of $0 to the General Partner in the year 2006 and $0 in the year 2005. The Partnership paid reporting fees of $10,665 for the year 2006 and $0 for 2005 to an affiliate of the Limited Partner.
	The General Partner is obligated through the terms of the Partnership, to advance funds to the Partnership to cover deficits that may arise, as defined in the partnership agreement.

 9

SABLE CHASE OF MCDONOUGH, L.P.

NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

F.	CONCENTRATION OF CREDIT RISK
	The Partnership has funds exceeding $100,000 in a single financial institution, which exceeds the FDIC insurable limits.
G.	VULNERABILITY DUE TO CERTAIN CONCENTRATIONS
	The Partnership’s operations are concentrated in the multi-family real estate market. In addition, the Partnership operates in a heavily regulated environment. The operations of the Partnership are subject to the administrative directives, rules and regulations of federal, state and local regulatory agencies. Such administrative directives rules and regulations are subject to change by acts of or administrative changes mandated by these regulatory agencies. Such changes occur with little notice or inadequate funding to pay for the related cost, including the additional administrative burden, to comply with a change.
H.	GAIN FROM INVOLUNTARY CONVERSION
	The Project sustained tornado damage in 2004 and carries commercial insurance to cover the damages. Funds were being held in escrow by the mortgage company, Mass Mutual Life Insurance Company, and were disbursed in 2006. During 2006 and 2005, the Project received proceeds from the insurance company of $0 and $137,653, respectively. In 2006 the Project spent $286,438, of which $240,253 was capitalized for roof replacement. In 2005, $91,488 was spent for other repairs relating to the damage. The net amount of ($46,185) for 2006 and $46,185 for 2005 is reported in the Statement of Operations under the caption Gain (loss) from involuntary conversion. As of December 31, 2006, the Project has completed all the repairs.
I.	TAXABLE INCOME (LOSS)
	A reconciliation of financial statement net income (loss) to taxable income (loss) of the Partnership for the years ended December 31, 2006 and 2005 is as follows:

	2006			2005
Financial statement net income (loss)	$	(677,895	)	$	(128,684	)
Adjustments:
Gain from involuntary conversion		46,185			(46,185	)
Taxable income (loss)	$	(631,710	)	$	(174,869	)

 10

SABLE CHASE OF MCDONOUGH, L.P.

SCHEDULES OF EXPENSES
FOR THE YEARS ENDED DECEMBER 31, 2006 AND 2005

	2006		2005
MAINTENANCE AND OPERATING
Repairs - payroll	$	62,544	$	81,440
- supply		50,311		25,505
- contract		9,625		14,262
Painting and decorating		14,759		13,924
Grounds		45,283		22,464
Services		54,921		49,381
Furniture and furnishing replacement		11,173		14,817
	$	248,616	$	221,791
UTILITIES
Electricity	$	34,807	$	25,570
Internet service		995		1,327
Water		61,270		59,571
Sewer		52,526		51,854
Fuel		1,784		1,695
Garbage and trash removal		26,680		27,458
	$	178,062	$	167,474
ADMINISTRATIVE
Site management payroll	$	65,501	$	64,775
Management fee		72,693		79,204
Auditing		7,612		5,092
Legal		22,985		3,851
Advertising		22,984		24,839
Telephone		5,476		6,142
Office supplies		25,965		24,425
Health insurance		14,078		14,682
Payroll taxes		14,512		13,807
Homeowner incentive		1,650		4,310
Workmen’s compensation		5,388		7,175
	$	258,844	$	248,302
TAXES AND INSURANCE
Real estate taxes	$	113,264	$	108,385
Other taxes, licenses and permits		1,197		1,495
Property and liability insurance		78,426		41,243
	$	192,887	$	151,123

The accompanying notes are an integral part of these financial statements. 11