10-K 1 form10k_aug22002.txt ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) /X/ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended March 31, 2000 or / / Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ________________ to ______________ Commission file number: 0-19258 BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP (Exact name of registrant as specified in its charter) Delaware 11-3022123 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) c/o Paul J. Maddock, Megan Asset Management, Inc. 1424 West Century Avenue, Suite 102, Bismarck, ND 58503 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (701) 223-2923 Securities registered pursuant to Section 12(b) of the Act: NONE. Securities registered pursuant to Section 12(g) of the Act: LIMITED PARTNERSHIP INTERESTS (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / / No /X/ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. /X/ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. / / Yes / / No DOCUMENTS INCORPORATED BY REFERENCE List hereunder the following documents if incorporated by reference and the Part of the Form 10-K (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) Any annual report to security holders; (2) Any proxy or information statement; and (3) Any prospects filed pursuant to Rule 424(b) or (c) under the Securities Act of 1933: NONE This filing is a consolidated filing for the fiscal year ended March 31, 2000. Bayfield Low Income Housing Limited Partnership has not heretofore filed an Annual Report on Form 10-K for the fiscal year ended March 31, 2000, nor has it filed Quarterly Reports on Form 10-Q for the quarterly periods ended June 30, September 30, and December 31, 1999. BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP FORM 10-K FOR THE YEAR ENDED MARCH 31, 2000 INDEX PART I Item 1. Business 1 Item 2. Properties 8 Item 3. Legal Proceedings 23 Item 4. Submission of Matters to a Vote of Security Holders 23 PART II Item 5. Market for Registrant's Limited Partnership Interests and Related Security Holder Matters 23 Item 6. Selected Financial Data 25 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 26 Item 7A. Quantitative and Qualitative Disclosure about Market Risks 39 Item 8. Financial Statements and Supplementary Data 39 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 40 PART III Item 10. Directors and Executive Officers of the Registrant 40 Item 11. Executive Compensation 42 Item 12. Security Ownership of Certain Beneficial Owners and Management 44 Item 13. Certain Relationships and Related Transactions 44 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 46 Signatures 48 48 PART I ITEM 1. BUSINESS ORGANIZATION Bayfield Low Income Housing Limited Partnership (the "Partnership") is a Delaware limited partnership organized as of July 1, 1990 pursuant to the provisions of a Joint Plan of Reorganization of 52 Debtors (investor limited partnerships - the "Debtor Investor Partnerships"), dated May 9, 1990, pursuant to the provisions of Chapter 11 of Title 11, United States Code, as confirmed July 13, 1990 and amended from time to time thereafter (the "Plan"). Each of the Debtor Investor Partnerships was a newly formed Delaware limited partnership which was originally formed to and did acquire equity interests in limited partnerships (the "Operating Partnerships"), each of which has developed and now owns and operates a multi-family apartment complex for low to moderate income tenants (each, a "Project"). (See "Item 2. Properties.") A majority of the Projects received financing under Section 515 of the Housing Act of 1949, (as amended "Section 515"), which authorized the Rural Housing Service, the successor agency to the Farmers Home Administration of the Department of Agriculture (collectively referred to here in as "RD") to provide direct below-market-rate mortgage loans for rural rental housing. The Partnership was created under the Plan as a master limited partnership into which all of the assets and liabilities of the Debtor Investor Partnerships were "rolled-up" as of July 1, 1990. Pursuant to the Plan, the Partnership has succeeded to the interests of the Debtor Investor Partnerships in the Operating Partnerships, and the Debtor Investor Partnerships were liquidated in 1990. The 52 Debtor Investor Partnerships were the following Delaware limited partnerships: ARLINGTON Estates Limited Partnership BARRINGTON Estates Limited Partnership BAYFIELD Estates Limited Partnership BEECHFIELD Estates Limited Partnership BIRCHFIELD Estates Limited Partnership BLAKEFIELD Estates Limited Partnership BRIGHTON Estates Limited Partnership BROOKLINE Estates Limited Partnership CANDLE RIDGE Estates Limited Partnership CANTERBURY Estates Limited Partnership CARLYSLE Estates Limited Partnership CHERRYWOOD Estates Limited Partnership CHESTERFIELD Estates Limited Partnership CLARKSON Estates Limited Partnership CLAYTON Estates Limited Partnership CLOVERFIELD Estates Limited Partnership COPPERFIELD Estates Limited Partnership CRESCENT Estates Limited Partnership DEERFIELD Estates Limited Partnership DELAFIELD Estates Limited Partnership EDENFIELD Estates Limited Partnership EMERALD Estates Limited Partnership EVEREST Estates Limited Partnership EVERGREEN Estates Limited Partnership FIRST Estates Limited Partnership GLENWOOD Estates Limited Partnership GREENFIELD Estates Limited Partnership GREENWOOD Estates Limited Partnership HARBORFIELD Estates Limited Partnership HOLLY Estates Limited Partnership HUNTER Estates Limited Partnership KEHRS MILL Estates Limited Partnership LITTLEFIELD Estates Limited Partnership LIVINGSTON Realty Investors Limited MEADOWFIELD Estates Limited Partnership MITCHELLFIELD Estates Limited Partnership NORTHFIELD Estates Limited Partnership NORWICH Estates Limited Partnership OLEANDER Estates Limited Partnership PINE HOLLOW Estates, A Delaware Ltd. Partnership PLAINFIELD Estates Limited Partnership PLANTINGFIELD Estates Limited Partnership REDWOOD Estates Limited Partnership ROSEWOOD Estates Limited Partnership SAGEWOOD Estates Limited Partnership SOUTHFIELD Estates Limited Partnership SPRINGFIELD Estates Limited Partnership SUMMERFIELD Estates Limited Partnership SYCAMORE Realty Investors Limited Partnership WALNUT Estates Limited Partnership WYNNFIELD Estates Limited Partnership WILSHIRE Estates Limited Partnership First American Holdings, Inc., a Delaware corporation ("First American"), was the sole general partner of each of the Debtor Investor Partnerships, and was the initial General Partner of the Partnership under the Plan. The Plan required that an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership. A committee formed by the representatives of the three principal creditor classes in the bankruptcy proceedings (respectively, the "Developer Committee", the "Secured Lender Group", and the "Investors Committee") selected Megan Management Company, Inc. ("Megan Management") as the independent manager and entered into a management agreement with Megan Management as of July 10, 1990 (as amended by that Amended and Restated Management Agreement as of December 23, 1991 the "Management Agreement"). Effective December 23, 1991, First American withdrew as general partner, subject to the approval of the Limited Partners, pursuant to a Settlement Agreement (the "Settlement Agreement") with the Partnership and Megan Management. Among other things, the Settlement Agreement provided for certain amendments to the partnership agreement of the Partnership and, at the request of the Investors Committee, for the replacement of First American as General Partner of the Partnership by Megan Management or an affiliated company which were effected by the Second 2 Amended and Restated Agreement of Limited Partnership of Bayfield Low Income Housing Limited Partnership entered into as of the 23rd day of December, 1991 (the " Partnership Agreement"). The Settlement Agreement was approved by the bankruptcy court, and the Plan modified in accordance therewith, by an order entered June 22, 1992. Consent of the Limited Partners of the Partnership was obtained in October 1992. As of December 31, 1992, Megan Management's rights and obligations as General Partner and Independent Manager of the Partnership were assigned to, and assumed by, Megan Asset Management, Inc. ("Megan Asset Management" or the "Independent Manager"), a corporation which was under common ownership and control with Megan Management. The General Partner has full, exclusive and complete discretion in the management and control of the Partnership, except as limited by the Partnership Agreement, by the Plan or by the Management Agreement. Megan Asset Management, in its capacity as Independent Manager under the Plan, is responsible for the day-to-day management of the Partnership's operations. Each of the Debtor Investor Partnerships' offerings of Limited Partnership Interests (as hereinafter defined) had been closed prior to the organization of the Partnership. Accordingly, no additional interests in the Partnership are being made available and only limited transfers of Limited Partnership Interests in the Partnership are being effected in accordance with the Partnership Agreement. DESCRIPTION OF BUSINESS The Partnership's principal business is to maintain its investments in the form of Limited Partnership Interests in the Operating Partnerships (and, through such investments, in the Projects) and to carry out the provisions of the Plan. See "Business Objectives" under this Item. For Projects funded under Section 515 after December 21, 1979, which include substantially all of those in which the Partnership owns an interest, applicable law and regulations require the owner to utilize the housing for eligible low income tenants at restricted lower rents for a period of 20 years following closing of the RD mortgage. The direct below-market-rate mortgage loans for rural rental housing provided by RD under Section 515, in amounts up to 97% of an apartment complex's cost as determined pursuant to RD regulations and for terms up to 50 years, were extended to qualified sponsors/owners organized exclusively for the purpose of providing housing. In addition, RD provided each owner with mortgage interest subsidies, which effectively lowered the interest rate of the loan to 1% after the completion of the apartment complex, the benefits of which the owner must pass through to eligible tenants in the form of lower rents. RD regulations limit cash distributions to owners of apartment complexes which it finances to a maximum annual return of 8% per annum, on a non-cumulative basis, on the owner's equity contribution of 3% to 5% of the cost of the apartment complex. 3 RD approval is required if an owner wishes to sell a Project. In addition, applicable law and regulations also preclude prepayment of mortgage loans, except in certain very limited circumstances and unless the owner agrees to utilize the project for eligible tenants for a specified period. Each of the Projects indirectly owned by the Partnership qualified for the low income housing tax credits (the "Tax Credits"), under Section 42 of the Internal Revenue Code of 1986, as amended (the "Tax Code"), which was enacted by the United States Congress to promote the development of low income rental housing. In order to generate Tax Credits, properties must be rented to tenants whose incomes are below certain levels established by the federal government, and the rents which are permitted to be charged are strictly limited by government regulations. Since the inception of the Partnership, five of its Operating Partnerships became insolvent or bankrupt. A portion of the Tax Credits generated and to be generated by these Operating Partnerships were, therefore, lost. This loss of Tax Credits had a direct effect on the Limited Partners since one-third of the amount of Tax Credits allocated to the Limited Partners from these Operating Partnerships were recaptured and those to be generated and allocated to them were reduced correspondingly. Generation of Tax Credits by the Partnership and the receipt thereof by the Limited Partners was one of the primary business objectives of the Partnership. For the tax year ended December 31, 1999, the Partnership passed through an aggregate total of approximately $1,232,000 of Tax Credits to the Limited Partners. The annual anticipated Tax Credits, which the Partnership could have received from the Operating Partnerships, excluding those projects lost in prior years due to insolvency or bankruptcy, and passed through to the Limited Partners during the tax year ended December 31, 1999, was approximately $1,251,000. As of December 31, 1999, substantially all of the Tax Credits have been realized from the Operating Partnerships and passed through to the Limited Partners. With the realization that substantially all of the Tax Credits have been received from the Operating Partnerships by the Limited Partners, the General Partner began exploring various exit strategies, including the sale of the limited partnership interests in the Partnership, the sale and of the Partnership's interests in the Operating Partnerships which own the Projects and the sale/or refinancing by the Operating Partnerships of their Projects. However, various restrictions in connection with the RD mortgage loans, as well as continuing occupancy requirements with respect to the Tax Credits received (as explained above) and market conditions have severely restricted the Partnership's flexibility in considering various exit strategies and the value to be received from the exit strategies considered. In view of these governmental restrictions and requirements, as well as the resulting legal complexities and costs involved in exploring and attempting to structure various exit strategies, the annual payments to be received from the Operating Partnerships, in combination with the Partnership's reserves, are not presently and are not expected to be sufficient to permit the Partnership to meet its operating expenses until such time, if at all, that a complete exit strategy has been identified and implemented. Accordingly, to continue to maintain its operations as set forth in the section on "Liquidity" below, while it continues to review alternative exit strategies the Partnership has begun (see Item 2. Properties below) accepting offers it has received to sell the 4 Partnership's limited partnership interests in a number of Operating Partnerships which own the Projects to maintain the operations of the Partnership (the "Liquidity Program"). BUSINESS OBJECTIVES Although there was no assurance that the Partnership's purpose or objectives would be achieved, the sole purpose of the Partnership as set forth in the Partnership Agreement was (i) to acquire the Debtor Investor Partnerships' equity interests as a limited partner in each of the Operating Partnerships, which developed and were to own, hold, manage, operate, lease, mortgage, sell and otherwise deal with the Projects, (ii) to assume liabilities of the Debtor Investor Partnerships in accordance with the Plan, (iii) to fulfill such other undertakings of the Partnership as are set forth in the Plan, and (iv) to conduct such other activities as may be necessary or appropriate to carry out the foregoing. Purpose (i) - the acquisition of the Debtor Investor Partnerships' equity interests as a limited partner in each of the Operating Partnerships, which developed and were to own, hold, manage, operate, lease, mortgage, sell and otherwise deal with the Projects, was completed in July, 1990 (See Item 1. Business - Organization, above); Purpose (ii) - the liabilities of the Debtor Investor Partnerships were assumed by and have been substantially paid by the Partnership ( See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity", below); Purpose (iii) - in attempting to fulfill such other undertakings of the Partnership as are set forth in the Plan the Partnership has, among other things: a) used its capital resources, to maintain, to the extent possible, the Partnership's interests in the Operating Partnerships in order to provide Tax Credits to the Limited Partners. For the fiscal years ended March 31, 2000 (the "2000 Fiscal Year"), March 31, 1999 (the "1999 Fiscal Year") and March 31, 1998 (the "1998 Fiscal Year") the Partnership had cash and cash reserves totaling $807,285, $1,097,967 and $1,337,519, respectively. The Partnership used its capital resources during these periods to fund its operations, including the payment of fees to the Independent Manager under the Management Agreement and to make loans to certain financially troubled Operating Partnerships in order to attempt to insure that the Tax Credits, and other tax benefits, continued to flow from those Operating Partnerships to the Limited Partners (See "Item 2. Properties"; see, also, "Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity"). In order to generate Tax Credits and avoid recapture thereafter, there are significant continuing occupancy requirements with which each Project must comply for a 15-year compliance period. To the extent a Project does not 5 comply with the Tax Credit occupancy requirements, all of the Tax Credits previously generated by the non-complying dwelling units in the applicable Project, and used by the Limited Partners, would have to be recaptured. If this occurs the Limited Partners would have to pay a tax equal to one-third of the Tax Credits so generated and used by the Limited Partners to reduce their tax liability, together with possible penalties and interest. b) provided to the extent available cash distributions to the Limited Partners. The Partnership does not expect to make material distributions beyond those previously made, as its sources of liquidity are limited and are being used to meet its operating expenses, including attempts to preserve the Projects (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" - "Liquidity" and "- Capital Resources"). Purpose (iv) - conduct such other activities as may be necessary or appropriate to carry out the foregoing, the Partnership has focused on the following long-term objectives: a) capital appreciation through increases in the value of the Partnership's investments in the Operating Partnerships; and b) providing cash distributions to the Limited Partners from the proceeds of the sale or refinancing of the Projects. Objective a) - The Partnership's investments are in Operating Partnerships which own the Projects and provide housing to low income tenants pursuant to government sponsored programs. Therefore, in addition to market-related risks, which any real estate investment is subject to, capital appreciation of the Partnership's investment in the Operating Partnerships is subject to the restrictions set by government policy. As further explained below, this makes it unlikely that the Projects owned by the Operating Partnerships and the Partnership's investment in the Operating Partnerships will significantly increase in value. The vast majority of the Projects owned by the Operating Partnerships are located in small rural communities. As such, the market rents in many of the Operating Partnerships' Project's areas are not significantly higher that the RD restricted rents eligible tenants are currently charged. Therefore, the valuation of many of the Operating Partnerships' Projects, even if based upon market rents, results in little or no appreciation from their valuation at the time the Partnership acquired its interest in the Operating Partnership. In the event that the projected cash flow from any of the Projects in a market rate environment is significantly greater than that in a restricted rent environment, the Operating Partnership can seek RD approval to prepay a specific Project's 50 year mortgage and then sell the Project or convert it to market rate property, or upon RD's refusal to allow prepayment, seek an equity loan from RD to use to repay a portion of the equity the Partnership contributed to the 6 Operating Partnership. However, the instances where market rents might be significantly higher are rare and there are numerous government restrictions in connection with such a course of action. In addition, most of the Operating Partnerships' Project's mortgages have an absolute restriction which will not allow prepayment until approximately 2009. Accordingly, based on current market conditions and government regulations, it does not appear that the value of the Projects owned by the Operating Partnerships and the Partnership's investment in the Operating Partnerships have or will increase significantly. The value of the Projects and the market conditions are adversely affected by the restricted use limitations which limit the amount of income a tenant may have and the amount of rent a Project can charge a tenant. Under current RD regulations, these restrictions will continue to be in place until the Projects are in their 20th year of existence or approximately the year 2009. These regulations make capital appreciation in the Partnership's Projects much more difficult than is the case with market rate properties. Objective b) - With respect to the Partnership's long-term objective to provide cash distributions to the Limited Partners from the proceeds of the sale or refinancing of the Projects, with the realization that substantially all of the Tax Credits have been received from the Operating Partnerships by the Limited Partners as of December 31, 1999, the General Partner began exploring various exit strategies, including the sale of the limited partnership interests in the Partnership, the sale of the Partnership's interests in the Operating Partnerships which own the Projects and the sale and/or refinancing by the Operating Partnerships of their Projects. However, the various restrictions in connection with the RD mortgage loans, as well as the continuing occupancy requirements with respect to the Tax Credits received and market conditions, have severely restricted the Partnership's flexibility in considering various exit strategies and the value to be received from the exit strategies considered (See "Item 1. Business - Description of Business" above). In early 2000, a third party (the "Third Party") expressed an interest in buying Megan Asset Management's General Partnership interest and its other interests in the Partnership (collectively "General Partnership Interests"). Megan Asset Management declined this proposal as it did not include an immediate offer to purchase each of the Partnership's limited partners' interests in the Partnership (the "Limited Partners" and "Limited Partnership Interests" and together with the General Partnership Interests the "Partnership Interests") as well. In July 2000, when the Third Party suggested a proposal which was to include the purchase of substantially all of the Limited Partnership Interests and the General Partnership Interests, and the assumption of approximately $1,800,000 owed by Bayfield to the Operating General Partners, the Partnership and Megan Asset Management entered into an agreement by which they agreed to negotiate exclusively with the Third Party with respect to said proposal through December 31, 2000 (the "Exclusivity Agreement"). Had this proposal materialized it was expected to yield $1,200 per 0.05% Limited Partnership Interest to the Limited Partners. However, prior to December 31, 2000, the Third Party indicated that it had been unable to raise sufficient funds and was no longer able to discuss a price in this amount and 7 could only discuss a price at approximately one-half of that amount. The revised proposal was unacceptable and the Exclusivity Agreement expired by its terms on December 31, 2000. Not having found any other parties interested in making an offer for the above Partnership Interests, in July 2001, the Partnership and Megan Asset Management entered into a second agreement with the Third Party to pursue a possible tender offer for some or all of the Limited Partnership Interests, as well as a possible purchase of the stock of Megan Asset Management, including its General Partnership Interest (the "Second Exclusivity Agreement") at the revised lower price. The Second Exclusivity Agreement expired by its terms on August 31, 2001. While further discussions followed, those discussions were not fruitful and were eventually curtailed. While it is not known to what extent other alternatives will be successful, the Partnership's search for and consideration of other alternatives is continuing. EMPLOYEES The Partnership has no employees. The day-to-day operations of the Partnership are conducted by the Independent Manager, which employs 2 people on a full-time basis. ITEM 2. PROPERTIES. Each Operating Partnership owns and operates a Project, which generated Tax Credits under Section 42 of the Tax Code over its initial 10-years of existence or slightly longer. A description of the Projects is contained in the following tables. Immediately following these tables, is a glossary which provides an explanation of certain terms used in the table headings, as well as a discussion of certain Projects. 8

14 The following is additional information on certain Operating Partnerships which had operational or other financial problems either during or which the effects of which continued during the Fiscal Year ended March 31, 2000: ALACHUA VILLAS, LTD., CITRUS TERRACE, LTD. AND LAKE CITY VILLAGE, LTD. In the 1995 Fiscal Year, Megan Asset Management, as general partner of the Partnership, and the Partnership commenced an action in the Circuit Court of Alachua County, Florida as the sole limited partner of, and derivatively on behalf of, two Operating Partnerships, Lake City Village, Ltd. and Alachua Villas, Ltd., against John D. Carver ("Carver"), the general partner of these Operating Partnerships, and a management company affiliated with Carver, G & R Management Services, Inc. ("G & R"). The actions arose as a result of the acceleration by RD of the entire balance due on the mortgage against these Operating Partnerships. RD alleged various defaults under such Operating Partnership's loan agreements, promissory notes and mortgages with RD (the "RD Documents"), including failure to pay real estate taxes, failure to maintain account balances sufficient to pay current operating and maintenance expenses, failure to maintain adequate records and file required reports, and failure to correct deficiencies previously noted by RD during its supervisory visits to the housing projects. After extensive motion practice and discovery, on January 13, 1995, a settlement agreement was entered into ("Carver Settlement Agreement") providing for a designated representative of the Partnership (a company under common ownership and control with Megan Asset Management) to take over management of the affected Operating Partnerships and the replacement of Carver as general partner subject to the consent of RD (which was obtained in December, 1995). The Carver Settlement Agreement also provided for an audit of the two Operating Partnerships and Citrus Terrace Village Ltd., an Operating Partnership unaffiliated with Carver, but which G&R managed ("Citrus Terrace"). This audit uncovered possible claims of the two Operating Partnerships and Citrus Terrace against the defendants totaling $83,599, which amount was contested by Carver. Following a hearing on November 13, 1997, the Court ruled that it would enter summary judgment pursuant to the Carver Settlement Agreement in favor of the Partnership against Carver in the amount of $78,599 together with interest from January 24, 1996. Thereafter Carver appealed the Court's entry of judgment in favor of the Partnership. After the filing of briefs and hearing the arguments the Circuit Court of Appeal, First District, State of Florida dismissed Carver's appeal and the judgment in favor of the Partnership became final. Subsequently, the Partnership applied for an award of attorney's fees and cost pursuant to the terms of the Carver Settlement Agreement. By an order dated March 2, 2001, the Partnership's application for an award of attorneys' fees and costs was granted by the Court in the sum of $34,012.95 as attorney's fees and $787.00 as costs for the total sum of $34,799.95. While the Partnership has made attempts to recover against Carver with respect to the judgment and award of attorneys' fees and has taken asset discovery depositions of Carver, his wife and certain relatives, no asset against which the judgment or award of attorneys' fees can be collected have yet been discovered. Accordingly, there can be no assurance that any such amounts will be recovered by such Operating Partnerships or the Partnership. Further, in the 1996 Fiscal Year, in an attempt to recover upon its claims and the sums taken by Carver from the two Operating Partnerships, other than Citrus Terrace, the Partnership 15 commenced a further action in the Circuit Court of Alachua County, Florida against Mercurio & Bridgford, P.A. and John J. Mercurio (together, "Mercurio"), who provided auditing services to each of Lake City Village, Ltd., Alachua Villas, Ltd. and Citrus Terrace, based upon their failure to report the improper payments made by John D. Carver, Jr. from these two Operating Partnerships. After a jury trial in the Circuit Court of Alachua County, Florida, in November, 1998, the jury reach the verdict that these defendants had not caused the Partnership's and Operating Partnerships' financial loss. Following the jury's verdict, these defendants sought a $55,545 recovery for their costs and attorneys' fees against the Partnership. The Partnership and counsel to the Partnership did not believe the Partnership was obligated for defendants' cost and attorneys' fees and defended against such claim, however, the Court concluded that the Partnership would be liable for costs incurred by these defendants in the amount of $18,464.70. Subsequently, the Partnership reached a settlement agreement with these defendants and paid $13,000 to defendants in full settlement of all costs and attorney's fees due to these defendants. The Partnership further made loans of $24,655 and $25,310 in excess of its capital commitment to Lake City Village, Ltd. and Alachua Villas, Ltd. respectively, to enable them to pay certain outstanding real estate taxes in arrears. In consideration of the Partnership's making these loans, RD has not foreclosed on its mortgages to such Operating Partnerships and has restructured such mortgages to finance the payment of the balance of the past due real estate taxes unpaid by Carver and to permit such Operating Partnerships to remain in operation not withstanding the damages they suffered. This permitted the Partnership and its Limited Partners to continue to receive the benefit of the Tax Credits related thereto and to avoid any recapture on Tax Credits taken in prior years. Had RD foreclosed on its loans and the Partnership lost its interest in Lake City Village, Ltd. and Alachua Villas, the Partnership would not have been entitled to aggregate Tax Credits of $392,300 through 1999, or approximately $196 per 0.05% of Limited Partnership Interest. In addition, assuming that 100% of the Tax Credits previously allocated to the Limited Partners relating to these Operating Partnerships were used by them, it is estimated that the Limited Partners would have been subject to a total tax recapture with respect to these Operating Partnerships of $186,709 or approximately $93 per 0.05% of Limited Partnership Interest, plus interest and penalties, if any. In addition to the above loans in excess of its capital commitment, during the fiscal year ending March 31, 1998 the Partnership made an additional loan of $20,714 to Lake City Village to cover the cost of maintenance, which had been deferred by Carver, in an attempt to keep the units in this Project habitable and available for rent. While the Partnership has obtained a promissory note from each Operating Partnership and a security interest in the Operating General Partners' interests in each Operating Partnership, the repayment of the loans with accrued interest is subject to each Operating Partnership's having sufficient cash flow from operations to cover its ongoing operating expenses and fund the necessary reserves and RD's approval, there can be no assurance that any such amounts will be recovered from such Operating Partnerships. The Partnership has also paid professional fees on behalf of each Operating Partnership 16 relating to the litigation against the former general partner and takeover and workout of these Operating Partnerships in the amount of $55,462 on behalf of Alachua Villas and $55,638 on behalf of Lake City Village. Said payments have been reflected as a note payable to the Partnership on the financial statements of each Operating Partnership. Any sums recovered by the Operating Partnerships from the judgment obtained against Carver, the former general partner, will be paid to the Partnership in reduction of these loans, subject to the then financial condition of each Operating Partnership. Also in the 1995 Fiscal Year, the Partnership commenced a further action in the Circuit Court of Highlands County, Florida on behalf of Citrus Terrace substantially similar to that described above, against George T. Wheeler ("Wheeler"), individually and as the general partner of Citrus and against Carver, as Trustee of G & R, and G & R, which management company was also managing the Project owned by Citrus Terrace. A substantially similar settlement agreement was entered into and implemented in connection with and this litigation was also settled, except for the recovery of the sum of approximately $5,000 in an unauthorized loan taken by Carver from Citrus Terrace. It is not likely going to be economically feasible for the Partnership to attempt to recover this latter sum against Carver with respect to such claim. In consideration of an affiliate of Megan Asset Management becoming the substitute general partner of Citrus Terrace, RD did not foreclose on its mortgage to Citrus Terrace, and it has restructured the mortgage to finance the payment of past due real estate taxes not paid by Carver to permit this Operating Partnership to remain in operation, notwithstanding the damages suffered by it. This permitted the Partnership and its Limited Partners to continue to receive the benefit of the Tax Credits related thereto and to avoid any recapture on Tax Credits taken in prior years. If RD had foreclosed on its loans and had the Partnership lost its interest in this Operating Partnership, the Partnership would not have been entitled to aggregate Tax Credits of $283,136 through 1999, or approximately $142 per 0.05% of Limited Partnership Interest. In addition, assuming that 100% of the Tax Credits previously allocated to the Limited Partners relating to this Operating Partnership were used by them, it is estimated that the Limited Partners would have been subject to a total tax recapture with respect to this Operating Partnership of $115,731, or approximately $58 per 0.05% of Limited Partnership Interest, plus interest and penalties, if any. The Partnership has also paid professional fees on behalf of Citrus Terrace relating to the litigation against the former general partner and the takeover and workout of this Operating Partnership in the amount of $57,098. Said payments have been reflected as a note payable to the Partnership on the financial statements of the Operating Partnership. As the repayment of the fees for professional services paid by the Partnership on behalf of Citrus Terrace is subject to its having sufficient cash flow from operations to cover ongoing operating expenses and fund the necessary reserves and RD's approval, there can be no assurance that any such amounts will be recovered from this Operating Partnership by the Partnership. FLAMBEAU VILLAGE, L.P. The Partnership was made aware that the Internal Revenue Service (the "IRS") audited the 1993 and 1994 income tax returns for one of the Partnership's Operating Partnerships, Flambeau 17 Village, L.P. ("Flambeau Village"), the owner of a 53 unit, mixed income, elderly Project (26 units of low income housing tax credit restricted tenants and 27 units of unrestricted market rate income tenants) located in Ladysmith, Wisconsin. Flambeau Village was the Partnership's largest single producer of tax credits with approximately $163,000 in annual tax credits. Accordingly, the Partnership engaged legal and tax counsel and tax credit compliance experts to review the compliance by the Flambeau Village Developer/General Partner with Section 42 of the Internal Revenue Code ("IRC"), meet with the IRS and actively monitor the situation. As a result of a meeting between the professionals engaged by the Partnership and the IRS, the Partnership was informally informed that the IRS had concluded that Flambeau Village had failed to meet the minimum set-aside and rent restriction tests of Section 42 of the IRC and therefore, it had not qualified for and was not entitled Tax Credits for any year. The IRS however did not issued a formal report at the time and its investigation and the Developer/General Partner's negotiations with the IRS continued. In view of the above, the Partnership made the decision not to allocate any of the approximately $163,000 of Tax Credits of Flambeau Village for 1996 to its Limited Partners in order to minimize or make a provision for potential recapture, penalties and interest if the IRS ultimately should disallow some or all of the previous allocated Flambeau Village Tax Credits. As no report from the IRS was forthcoming and the Developer/General Partner continued to negotiate with the IRS, the Partnership did allocate the approximately $163,000 of Tax Credits from Flambeau Village for each of 1997 and 1998 to its Limited Partners, although it had not allocated any of the 1996 Tax Credits from Flambeau Village to its Limited Partners. Subsequently, in connection with the IRS's criminal investigation of the activities of principals, former officers of or persons related to Flambeau Village's Developer/General Partner, the Partnership learned that one of the Developer/General Partner's principals and former officers pleaded guilty to charges filed by the IRS relating to other activities (not involving the IRS's audit of Flambeau Village's 1993 and 1994 tax returns) and was sentenced to and served a two year jail sentence. In connection with the actions of the Developer/General Partner with respect to Flambeau Village, the IRS by letter dated September 29, 1999, formally notified Flambeau Village that it had determined that Flambeau Village is not entitled to claim any tax credits for any year that the Project was in existence. Since 1989, the Partnership has received a total of $1,663,311 in Tax Credits in connection with its Limited Partnership interest in Flambeau Village. Of these tax credits, $1,482,898 have been allocated to the Limited Partners of the Partnership. Although there can be no assurance that the IRS will not seek to recapture all of the Tax Credits generated by Flambeau Village, other than for the years 1993 and 1994, the Partnership's counsel believes, after considering the IRS letter which reflects that no adjustments will be proposed by the IRS either at the partnership level or individual partner level for 1993 and 1994, absent a finding of fraud by the IRS with respect to the activities of the Developer/General Partner with respect to Flambeau Village, and the fact that the statute of limitations has run for years prior to 1998, that the IRS will not likely make any adjustment for the Tax Credits allocated by Flambeau Village 18 to the Partnership and by the Partnership to its Limited Partners for the years 1989 through 1997. It is not known what position with respect to adjustments the IRS will take, if any, for the subsequent year 1998 for which Tax Credits were allocated to and passed through by the Partnership to its Limited Partners. No Tax Credits were passed through by the Partnership for the year 1996 and, in view of the above, the Partnership also elected not to pass through Tax Credits allocated by Flambeau Village to it in the amount of $17,727 for the year 1999, which was the last year the Partnership was entitled to Tax Credits. If the IRS takes the subsequent position that adjustments will be proposed at the partnership level, or individual partner level, for the years 1995, 1997 and 1998 (i.e. those years not covered by the IRS's September 29, 1999 letter) or the years prior to 1993 for which Tax Credits were allocated to the Partnership and passed through to its Limited Partners, assuming that 100% of the Tax Credits so allocated to the Limited Partners relating to Flambeau Village were used by the Limited Partners, it is estimated that the Limited Partners would be subject to recapture of Tax Credits with respect to Flambeau Village of an estimated $385,000 or approximately $200 per 0.05% of Limited Partnership Interest, plus interest and penalties, if any. As a result of the loss of the 1996 and 1999 Tax Credits not taken by the Partnership in the aggregate amount of $179,142 and the additional costs incurred by the Partnership of $117,815 to have its professionals review the compliance by the Flambeau Village Developer/General Partner with Section 42 of the Internal Revenue Code, meet with the IRS and actively monitor the situation, the Partnership reviewed the likelihood of successfully pursuing a claim against and attempting to recover compensatory damages for such losses from the Developer/General Partner of Flambeau Village and any affiliate deemed responsible under the terms of Flambeau Village Operating Partnership agreement, the Partnership's Plan and common law. However, in the event a claim was filed there was no assurance that any amounts could be recovered by the Partnership. In connection with its evaluation of the feasibility of pursuing a claim against the Developer/General Partner of Flambeau Village and any affiliate, the Independent Manager had an independent appraisal of the Project performed. The appraisal, dated as of January 4, 2000, showed an appraised value of $1,700,000. As of December 31, 1999, the Project had a mortgage payable of $1,603,455. Accordingly, the Project's appraised value appears to be only $96,545 above the Project's first mortgage loan. As the Partnership through its ownership of the limited partnership interests in Flambeau Village already owned a 50% interest in the equity of that Operating Partnership, should that Operating Partnership have a value, after offsetting other assets and other liabilities, of the net appraised value over the Project's mortgage or $96,545, the Developer/General Partner's 50% interest in the equity of the Operating Partnership would only be approximately $48,273. Accordingly, the Partnership did not commence an action to attempt to recover the damages the Partnership has suffered as a result of the breaches of the Operating Partnership Agreement by the Developer/General Partner of Flambeau Village, as the Partnership could not determine the availability of other assets of the Developer/General Partner of Flambeau Village from which a damage award could be satisfied. 19 As the repayment of the fees of $117,815 for professional services paid by the Partnership on behalf of Flambeau Village was subject to its having sufficient cash flow from operations to cover ongoing operating expenses and fund the necessary reserves, which this Operating Partnership did not have, and the Partnership was facing potential litigation against with the Developer/General Partner of Flambeau Village and there could be no assurance that any such amounts would be recovered by the Partnership, the Partnership chose to settle with the Developer/General Partner of Flambeau Village by accepting the payment of $100,000 in satisfaction of the fees of $117,815 for professional services paid by the Partnership on behalf of Flambeau Village and by agreeing to terminate the Partnership's interest in Flambeau Village. By way of terminating its interest in Flambeau Village, the Partnership agreed to sell its interests in this Operating Partnership first in the implementation of its Liquidity Program. Accordingly, by Agreement For Purchase And Sale Of Partnership Interest entered into on February 28, 2002, the Partnership sold thirty-three percent (33%) of its Partnership Interests in Flambeau Village for Ten Thousand Dollars ($10,000) and granted purchaser, Flambeau Village Properties, LL.C., a Wisconsin limited liability company, an option for Five Thousand Dollars ($5,000) to purchase the balance of the Partnership's Partnership Interests consisting of sixty-seven percent (67%) of the Partnership's limited partnership interests in Flambeau Village for an additional Fifteen Thousand Dollars ($15,000) subject to the exercise of the option and a final closing only after the expiration of Flambeau Village's 15-Year Tax Credit Compliance Period on January 1, 2004. Flambeau Village as of December 31, 2000 had an estimated remaining depreciable basis of $1,696,030, thirty-three percent (33%) of which the Partnership would have received in the way of passive losses proportionately over approximately 16.5 years from December 31, 2000 had thirty-three percent (33%) of its interest in Flambeau Village not been sold. Further the Partnership will not receive its interest in the balance of Flambeau Village's depreciable basis remaining after January 1, 2004 if the purchaser exercises the Option to purchase the remaining sixty-seven percent (67%) of the Partnership's interest in Flambeau Village. SULLIVAN GARDEN APARTMENTS, L.P. AND MILLS-SHAPLEY PARTNERSHIP, L.P. The Partnership also chose to sell its interests in two other Operating Partnerships which owned small, troubled Projects. The general partners of Operating Partnerships Sullivan Garden Apartments, L.P. ("Sullivan Garden") and Mills-Shapley Partnership, L.P. ("Mills-Shapley"), each sought to sell their Projects to third-parties prior to the expiration of each project's 15-Year Tax Credit Compliance Period as both Projects had substantial deferred maintenance and suffered from extremely high vacancies. While the Partnership could not approve the sale of either Project because of the potential recapture of Tax Credits, understanding the troubled nature of both Projects, the Partnership agreed to approve the transfer of the general partners' interests and to sell the purchasers a portion of the Partnership's limited partnership interests in each Operating Partnership at the present time and to grant the purchasers an option to purchase the balance of the Partnership's limited partnership interest after the expiration of the Project's 15-Year Tax Credit Compliance Period in an attempt to facilitate the purchasers' takeover and revitalization of each Project. 20 Accordingly, by Agreement For Purchase And Sale Of Partnership Interest entered into on or about January 1, 2002, the Partnership sold thirty-three percent (33%) of its interest in Sullivan Garden for Five Thousand Dollars ($5,000) and granted purchaser, Leslie D. Ray, an option for One Thousand Dollars ($1,000) to purchase the balance of the Partnership's interest consisting of sixty-seven percent (67%) of the Partnership's limited partnership interest in Sullivan Garden for an additional Ten Thousand Dollars ($10,000) subject to the exercise of the option and a final closing only after the expiration of Sullivan Garden's 15-Year Tax Credit Compliance Period on January 1, 2004. Sullivan Garden as of December 31, 2000 had an estimated remaining depreciable basis of $236,474, thirty-three percent (33%) of which the Partnership would have received in the way of passive losses proportionately over approximately 16.5 years from December 31, 2000 had thirty-three percent (33%) of its interest in Sullivan Gardens not been sold. Further, the Partnership will not receive its interest in the balance of Sullivan Garden's depreciable basis remaining after January 1, 2004 if the purchaser exercises the Option to purchase the remaining sixty-seven percent (67%) of the Partnership's interest in Sullivan Garden. Further, by Agreement For Purchase And Sale Of Partnership Interest entered into on or about February 1, 2002, the Partnership sold thirty-three percent (33%) of its interests in Mills-Shapley, which owned the more deeply troubled Project, for Fifty Dollars ($50) and granted purchasers, George R. and George A. Davis, an option for Ten dollars ($10) to purchase the balance of the Partnership's interests consisting of sixty-seven percent (67%) of the Partnership's limited partnership interest in Mills-Shapley for an additional One Hundred Dollars ($100) subject to the exercise of the option and a final closing only after the expiration of Mills-Shapley's 15-Year Tax Credit Compliance Period, also on January 1, 2004. Mills-Shapley as of December 31, 2000 had an estimated remaining depreciable basis of $237,402, thirty-three percent (33%) of which the Partnership would have received in the way of passive losses proportionately over approximately 16.5 years from December 31, 2000 had thirty-three percent (33%) of its interest in Mills-Shapley not been sold. Further, the Partnership will not receive its interest in the balance of Mills-Shapley's depreciable basis remaining after January 1, 2004 if the purchasers exercise the Option to purchase the remaining sixty-seven percent (67%) of the Partnership's interest in Mills-Shapley. BROADWAY TERRACE OF DREW, L.P., LONGVIEW TERRACE, LTD., AND PONTOTOC RIDGE, LTD. The sole operating general partner of three Operating Partnerships, Broadway Terrace of Drew, L.P., Longview Terrace, Ltd. and Pontotoc Ridge, Ltd. located in the state of Mississippi in which the Partnership owns the limited partnership interests, died during the fiscal year ended March 31, 1998. After several months of attempting to sell the deceased Operating General Partner's 5% general partner and 50% equity interests in these three Operating Partnerships, the estate of the deceased Operating General Partner advised the Partnership that it was abandoning its interest in the three Operating Partnerships. Thereupon, Megan Asset Management caused one of its affiliates to be appointed Operating General Partner of the three Operating Partnerships in an attempt to preserve the Partnership's interests therein. Two of the three Operating Partnerships, Broadway Terrace of Drew, L.P. and Pontotoc Ridge, Ltd., had severely underfunded reserves and were delinquent in several years real estate taxes and were subject to possible foreclosure by RD. 21 BROADWAY TERRACE OF DREW, L.P. At the time that an affiliate of Megan Asset Management began to manage Broadway Terrace of Drew it had severely under funded reserves and several years of delinquent real estate taxes. Further the Project had an entire building, containing 8 apartments, uninhabitable and unrentable due to severe vandalism, as a result of which RD commenced formal foreclosure proceedings. The Partnership engaged legal counsel on behalf of Broadway Terrace and was successful in stopping the foreclosure proceedings and getting RD to begin working with Megan Asset Management's affiliate to put a workout plan together toward saving the Project owned by this Operating Partnership. RD does not feel that Broadway Terrace will ever have sufficient income to service its $1,339,330 mortgage, pay its real estate taxes and fund its reserves annually. Accordingly, RD has proposed a 100% transfer of Broadway Terrace to a new entity, through which the Partnership would maintain its ownership interest and to write down Broadway Terrace's mortgage to approximately $700,000. The Partnership has consented to this effort to try and keep this Project viable and has engaged professionals to begin working on the 100% transfer and mortgage write-down. In the year a write-down is effected the Partnership will recognize a gain equal to the amount of the write-down, however, it is anticipated that the Partnership will have sufficient losses with which to off-set this gain so it will have no consequence to the Limited Partners other than reducing the amount of losses they will be allocated in the year of the write-down. LONGVIEW TERRACE, LTD. Although Longview Terrace, Ltd. was not delinquent on its real estate taxes, had the estate of the deceased Operating General Partner simply abandoned its general partnership interest in this Operating Partnership and an affiliate of Megan Asset Management not become the substitute general partner, the Project owned by Longview Terrace would likely have been subject to foreclosure by RD. In consideration of an affiliate of Megan Asset Management becoming the Operating General Partner of Longview Terrace, Ltd., RD has not foreclosed on its mortgage and is permitting this Operating Partnership to remain in operation. This permitted the Partnership and its Limited Partners to continue to receive the benefit of the Tax Credits related thereto and avoid recapture of previously taken and used Tax Credits. PONTOTOC RIDGE, LTD. Had the estate of the deceased Operating General Partner simply abandoned its general partnership interest in this Operating Partnership and an affiliate of Megan Asset Management not become the substitute general partner, the Project owned by Pontotoc Ridge would likely have been subject to foreclosure by RD. In consideration of the Partnership's making a loan of $14,985 in excess of its capital commitment to Pontotoc Ridge, to enable it to pay certain real estate taxes in arrears and having an affiliate of Megan Asset Management become the substitute general partner, RD has not foreclosed on its mortgage to Pontotoc Ridge and agreed to restructure its mortgage loan to finance the payment of the balance of the past due real estate taxes to permit this Operating 22 Partnership to remain in operation. This has permitted the Partnership and its Limited Partners to continue to receive the benefit of the Tax Credits related thereto and avoid recapture of previously taken and used Tax Credits. The Partnership has also paid professional fees in the amount of $122,125 on behalf of Broadway Terrace, Longview Terrace and Pontotoc Ridge, relating to the takeover and workout of these Operating Partnerships from the estate of the deceased Operating General Partner and successfully contesting the RD foreclosure proceedings with respect to Broadway Terrace. As the repayment of the fees for professional services paid by the Partnership on behalf of these Operating Partnerships is subject to their having sufficient cash flow from operations to cover ongoing operating expenses and fund the necessary reserves, which these Operating Partnerships do not currently have, and RD's approval, there can be no assurance that any such amounts will be recovered from such Operating Partnerships by the Partnership. ITEM 3. LEGAL PROCEEDINGS See discussion of applicable legal proceedings above in "Item 2. Properties" above. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. PART II ITEM 5. MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS MARKET INFORMATION The Partnership is a limited partnership and thus has no common stock. There is no established public trading market for limited partnership interests in the Partnership ("Limited Partnership Interests") and it is not anticipated that any such public market will develop. Article XI of the Partnership Agreement effectively prevents the transfer of Limited Partnership Interests except under very limited circumstances. In order to transfer a Limited Partnership Interest, a Limited Partner must obtain the consent of the General Partner of the Partnership, which has the absolute right to refuse any request for a transfer. In addition, the Partnership Agreement requires the transferring Limited Partner to obtain a legal opinion from counsel, at his or her sole expense, as to certain tax and securities law matters with regard to the proposed transfer. In addition, the proposed transferee must meet all applicable suitability standards and agree to be bound by the Partnership Agreement. 23 APPROXIMATE NUMBER OF SECURITY HOLDERS As of December 31, 2001, there were approximately 1,840 holders of Limited Partnership Interests. DISTRIBUTIONS An aggregate of $286, $443 and $9,250 was distributed to Limited Partners for fiscal years ending March 31, 2000, March 31, 1999 and March 31, 1998 respectively, in the form of return of Partnership capital. 24 ITEM 6. SELECTED FINANCIAL DATA The information set forth below presents selected historical financial data of the Partnership for the years ended March 31, 2000, 1999, 1998, 1997 and 1996. This information has been derived from and is qualified by reference to the additional detailed information is set forth in the audited financial statements listed in Item 14 hereof and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" included as Item 7 in this Report.

25 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Partnership was formed as of July 1, 1990, pursuant to the Plan. In 1992 its fiscal year-end for accounting purposes was changed to March 31, from December 31. The Partnership's fiscal year-end for tax purposes remains December 31. CAPITAL RESOURCES The Partnership was formed pursuant to the terms of the Plan, which mandates the Partnership's material commitments for expenditures and the anticipated sources of funds needed to fulfill such commitments. Commencing in calendar 1995, although funds from certain other sources were received during the 1996 and 1995 fiscal years (see "Liquidity" below), the Partnership's primary source of funds became the annual distributions from the Operating Partnerships in which the Partnership has an interest, which has been negotiated at $750 per year, per Operating Partnership, provided that such payment is not prohibited by any applicable agreement with a governmental agency or any applicable governmental agency rules or regulations. The total amount due annually to the Partnership from the $750 distributions from the Operating Partnerships is approximately $104,000. The Partnership has been receiving only approximately 50% of the distributions due from the Operating Partnerships. To the extent that such distributions or portion thereof are not paid in any year, the remainder accumulate and are to be paid at the earliest time permitted. As indicated above, many of the distributions are not being made do to limitations by governmental regulations. The Partnership also receives interest income on account balances. The ability of the Partnership to make all cash distributions to its Limited Partners contemplated by the Plan is dependent upon the receipt by the Partnership of sufficient proceeds from the sale or refinancing of its interests in the Operating Partnerships (the General Partner has actively begun exploring various exit strategies, including the sale and refinancing of the Partnership's interests in the Operating Partnerships - See "Item 1. - Description of Business" above). There can be no assurance that such proceeds, if any, from the sale or refinancing of the remaining Operating Partnerships will be sufficient to enable the Partnership to make all or any portion of such distributions. Further there can be no assurance that the application of funds available for distribution to Limited Partners which, from time to time, were deferred by the Independent Manager with the consent of the Investor Committee to pay certain costs and expenses of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credits (see "Liquidity" subsection "(f)" below), will ultimately yield an economic benefit to the Limited Partners. 26 Prior to calendar 1995, the Partnership's primary source of funds was the payment by Limited Partners of the amounts owed to the Partnership for their capital contributions pursuant to their Investor Notes. Each of the Investor Notes was payable in semi-annual installments through December 31, 1994. As of March 31, 2000, an aggregate of $1,118,845, was owed pursuant to the Investor Notes. These notes are past due and are considered uncollectable. These amounts are not written off on the Partnership's financial statements as the amount is reflected as a negative in the Partners' Capital section of the balance sheet and since the defaulted investor units heretofore have not been cancelled. The aggregate amount outstanding and past due was $1,185,709 and $1,223,287 for the years ending March 31, 1999, and March 31, 1998. Other than the annual payment referred to above, the Partnership does not anticipate that it will receive material cash distributions from the operations of the Operating Partnerships, or that it will derive net cash from its operations generally. Aside from such payments, the Partnership does not have significant external sources of Capital Resources. All of the above-named sources of Capital Resources are being used to meet the operating expenses of the Partnership and to preserve and maintain the investment in its Projects. LIQUIDITY The Partnership's principal uses of funds are its operating expenses and, prior to December 31, 1994, were used for (i) capital contributions to the Operating Partnerships and (ii) payments to the Secured Lenders of the Debtor Investor Partnerships. The remaining unpaid balances of such contractual obligations at each of March 31, 2000, March 31, 1999 and March 31, 1998 were $94,535 with respect to the Operating Partnerships which were in default on their obligations to the Partnership. The Partnership also assumed certain accrued expenses pursuant to the Plan which were paid in full as of March 31, 1996. The Partnership also made distributions to certain Limited Partners that were in the original debtor Brighton Estates Limited Partnership as provided in the Plan. For the 2000 Fiscal Year, the 1999 Fiscal Year and the 1998 Fiscal Year gross cash amounts received by the Partnership were as follows: (i) $66,864, $37,578 and $91,765 respectively, from payments of capital contributions by Limited Partners pursuant to their Investor Notes; and (ii) $28,378, $63,763 and $78,291 respectively, of interest income on the Investor Notes and on deposits maintained in escrow accounts pursuant to the Plan. For the 2000 Fiscal Year, the 1999 Fiscal Year and the 1998 Fiscal Year respectively, the uses of funds by the Partnership were as follows: (a) $-0-, $-0- and $21,229 respectively, for capital contributions to the Operating Partnerships; (b) $292,179, $289,647 and $351,133 respectively, for professional fees for the 2000 Fiscal Year 27 which were attributable to professional costs related to analyzing and attempting to identify a structure for the liquidation of the Partnership and/or a purchaser for the Partnership Interests, litigation against a defaulted investor and for continued litigation against the CPA who performed the audit of three of the Operating Partnerships and costs related to keeping Rural Development from foreclosing on the projects owned by those Operating Partnerships, for professional fees for the 1999 Fiscal Year which were attributable to professional costs related to the litigation against the CPA who performed the audit of three of the Operating Partnerships and costs related to replacing a sole general partner and assuming the management of his three Operating Partnerships and for professional fees for the 1998 Fiscal Year which were attributable to professional costs related primarily to litigation against the CPA who performed the audit of three Operating Partnerships, professional costs for the site inspections of several troubled Operating Partnerships; (c) $120,078, $106,846 and $124,855 respectively, for operating expenses; and (d) $286, $443 and $9,250 respectively, for payments as a return of capital made to the Limited Partners in accordance with the Plan. The distributions to Limited Partners included a full distribution of the $1,014,628 contemplated by the Plan for the 1995 Fiscal Year, and a partial distribution for the 1994 Fiscal Year. In Fiscal 1994, $516,901 of the $1,014,628, contemplated by the Plan to be distributed, was distributed to the Limited Partners in such year. As permitted under the Plan and approved by the Investors Committee, undistributed amounts of $507,314 for the 1994 Fiscal Year, together with the entire $1,014,628 to have been distributed in the 1993 Fiscal Year, were deferred and were applied to meet the increased obligations of the Partnership. No such distributions are payable after December 31, 1994, except to the extent that the Independent Manager, in consultation with the Investors Committee, determines that the financial resources of the Partnership will permit payment of previously deferred distributions. It is not presently anticipated that any such payments will be made. (See "Item 10. Directors and Executive Officers of the Registrant - Investor Committee".) The net decrease in cash held by the Partnership amounted to $290,682 for the 2000 Fiscal Year, $239,552 for the 1999 Fiscal Year and $324,015 for the 1998 Fiscal Year. As discussed above in "Item 1. - Description of Business", the Partnership no longer anticipates that the annual payments to be received from the Operating Partnerships, in combination with the Partnership's reserves, will be sufficient to permit the Partnership to meet its operating expenses until such time, if at all, a complete exit strategy has been identified and implemented. Accordingly, in view of the Partnership's need to raise more capital to continue to maintain its operations as set forth herein, the Partnership has begun accepting offers it has received from Operating Partnerships to sell the Partnership's limited partnership interests in a number of those Operating Partnerships which own the Projects to maintain the operations of the Partnership. However, there can be no assurance in the future that the Partnership will be able to meet its obligations through this program should the implementation of an exit strategy extend beyond the originally anticipated 15-year compliance period of the Operating Partnerships, years 2002-2004, or if sufficient purchasers of the Operating Partnership interests are not available. 28 RESULTS OF OPERATIONS Expenses, comprised principally of depreciation expenses passed through to the Partnership from the Operating Partnerships, exceeded income, which is comprised principally of interest income, by $530,876 for the 2000 fiscal Year, $388,891 for the 1999 Fiscal Year and $1,256,682 for the 1998 Fiscal Year. As noted above under "Item 1. Business - Description of Business", the Partnership's principal business is the maintenance of its interests in the Operating Partnerships, and the Partnership does not expect to and does not have the funds available to make new investments or otherwise engage in additional activities. The Partnership's results of operations and its obligations are primarily determined by the results of operations of the Operating Partnerships, its obligations to the Independent Manager, and by expenses arising out of legal and professional fees related to its Operating Partnerships or business transactions. Accordingly, period-to-period comparisons of the results of operations of the Partnership may not be meaningful. The following discussion attempts to highlight certain elements of the results of operations of the Partnership for the periods discussed. It is estimated that, without additional acquisitions of interests in limited partnerships owning properties with or eligible for Tax Credits to replace interests lost through insolvency, bankruptcy or the settlement of litigation, for which the Partnership does not have funds available, the amount of Tax Credits generated or the minimal amount still to be generated by the Partnership will aggregate approximately $0.97 for every $1.00 invested by the Limited Partners, rather than the $1.10 for every $1.00 estimated in the Plan. Further the production of such Tax Credits will take slightly longer than the ten years estimated in the Plan. This includes Tax Credits passed through to the Limited Partners by the Debtor Investor Partnerships previous to the inception of the Partnership. Such estimate is based on the following assumptions: (i) the Partnership will be able to continue to attempt to preserve as much of its present portfolio of Projects as possible, will not purchase additional interests in limited partnerships owning Projects eligible for Tax Credits to replace lost Operating Partnerships and will dispose of the Partnership's interests in Operating Partnerships under its Liquidity Program in such a way so as to attempt to avoid causing recapture of Tax Credits, (ii) the current applicability of the tax laws and regulations and current interpretations of such laws and regulations by the courts, remain unchanged, (iii) the occupancy of each of the Projects with qualifying individuals will continue substantially unchanged throughout the applicable 15-year tax credit compliance period, and (iv) no substantial changes occur in the aggregate interest held by the Partnership in the Operating Partnerships as a group. In the tax year ended December 31, 1999, the Limited Partners were allocated approximately $1,232,441 in Tax Credits, or approximately $616 per 0.05% of Partnership Interest. Interest income decreased by approximately 55% for the 2000 Fiscal Year from the 1999 Fiscal Year and 19% for the 1999 Fiscal Year from the 1998 Fiscal Year due primarily to the decrease in the Partnership's cash balances. Interest income decreased by approximately 3% and 67% for the respective 1998 Fiscal Year and 1997 Fiscal Year primarily due to decrease in cash and reduction in the amount of late interest collected on defaulted Investor Notes. Due to the end of the investor pay-in period as of December 31, 1994 and the Partnership's collection of substantially all collectable payments due it from the Investor Notes, there will be no material interest income for 29 future periods from the Investor Notes. Equity in losses from Operating Partnerships was $142,000 for the 2000 Fiscal Year and $52,000 for the 1999 Fiscal Year or an increase of 273%. Equity in losses from Operating Partnerships was $52,000 for the 1999 Fiscal Year and $873,000 for the 1998 Fiscal Year, or a decrease of 94%. Equity in losses from Operating Partnerships was $873,000 for the 1998 Fiscal Year and $1,552,000 for the 1997 Fiscal Year, or a decrease of 44%. The equity in losses from Operating Partnerships fluctuate from year to year based on the results of operations from the Projects. For the 2000 Fiscal Year the total equity in losses from Operating Partnerships was over $3,5000,000, primarily consisting of depreciation expense, of which only $142,000 is recognized for financial accounting purposes. The Partnership uses the equity method of accounting for its investment in its Operating Partnerships and under the equity method losses in excess of aggregate investment in each Operating Partnership are not recognized. Therefore in recent years the reported losses from the Operating Partnerships have been declining due to basis limitation. For income tax reporting purposes 100% of the losses are permitted to be passed through to the Limited Partners on their K-1's and each Limited Partner is to calculate basis limitation separately. Management fees paid remained the same for the 2000 Fiscal Year, the 1999 Fiscal Year and the 1998 Fiscal Year. Professional fees of approximately $292,376 in the 2000 Fiscal Year included fees attributable to professional costs related to analyzing and attempting to identify a structure for the liquidation of the Partnership and/or a purchaser for the Partnership Interests, litigation against a defaulted investor and for continued litigation against the CPA who performed the audit of three of the Operating Partnerships and costs related to keeping Rural Development from foreclosing on the projects owned by those Operating Partnerships. Professional fees of approximately $281,000 in the 1999 Fiscal Year included fees incurred for litigation against the CPA who performed the audit of three of the Operating Partnerships and costs related to replacing a sole general partner and assuming the management of his three Operating Partnerships. Professional fees of approximately $347,000 in the 1998 Fiscal Year included fees incurred for litigation against a CPA who performed the audit of three Operating Partnerships, professional costs related to the site inspections of several troubled properties, and costs in connection with SEC filings. No interest expense was incurred in the 2000, 1999 and 1998 Fiscal Years as all indebtedness to the Secured Lenders was paid in full prior to the 1996 Fiscal Year. No amortization of organization costs were incurred in the 2000, 1999 and 1998 Fiscal Years due to the fact that amortization of all organization costs was completed in 1996. Other income of approximately $1,334 in the 2000 Fiscal Year and $1,600 was recorded in the 1999 Fiscal Year as a result of the receipt of a share of the management fees earned by an affiliate of the Independent Manager from Operating Partnerships pursuant to the Independent Manager's Management Agreement. Other income of approximately $10,000 was recorded for the 1998 Fiscal Year and was a result of a collection of a bad debt. 30 Pursuant to the Plan, amounts due and unpaid to Operating Partnerships by the Debtor Investor Partnerships prior to the implementation of the Plan in July 1990 accrued interest at the rate of eight percent (8%) until paid. As the non-payment of this interest is not a default under the Plan and any such unpaid interest becomes payable only as a first priority out of Capital Events, a contingent liability, or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement the Partnership is not paying this interest currently and is not accruing it on its financial statements. The amount of this interest which could be payable under the Plan as a first priority from Capital Events or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement is estimated at $1,800,000 and is subject to offsets of the amount of fees for professional services paid on behalf of certain Operating Partnerships (see "Item 2. Properties" above) and any unpaid or accrued annual distributions due the Partnership (see "Capital Resources" above) and a reduction by said sums payable to Operating Partnerships which have lost their Projects through foreclosure, bankruptcy or insolvency. The Partnership is organized as a limited partnership and is a "pass through" entity which does not, itself, pay federal income tax. However, the partners of the Partnership receive their proportionate share of Tax Credits and other tax benefits accruing to the Partnership. For the tax years ended December 31, 1999, 1998 and 1997 respectively, Limited Partners were allocated $1,232,441, $3,723,899 and $4,934,656 in Tax Credits, or approximately $616, $1,861 and $2,467 per 0.05% of Partnership Interest, respectively. The following is financial data for the Partnership which reflects the quarterly results of operations for the fiscal quarters ended June 30, September 30, and December 31, 1999. 31

32 STATEMENT OF OPERATIONS BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP FOR THE THREE MONTHS ENDED ------------------ JUNE 30, JUNE 30, 1999 1998 ------------------------------ INTEREST INCOME $ 2,733 $ 9,772 OTHER - - --------------- -------------- - 2,733 9,772 EQUITY IN LOSSES OF OPERATING PARTNERSHIPS (80,000) (210,000) EXPENSES: MANAGEMENT FEES 29,875 29,875 PROFESSIONAL SERVICES 62,201 64,410 DEVELOPER CLASS REPRESENTATIVE 15,000 15,000 OTHER EXPENSE 628 126 ------------ ----------- 107,704 109,411 NET LOSS $ (184,971) $ (309,639) ============= ============ NET LOSS ALLOCATED TO GENERAL PARTNER $ (1) $ (1) ============ ============ NET LOSS ALLOCATED TO LIMITED PARTNERS $ (184,970) $ (309,638) ============ ============ NET LOSS PER .05% L. P. INTEREST $ (92) $ (155) ============ ============ 33

35 STATEMENT OF CASH FLOWS BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP FOR THE THREE MONTHS ENDED ------------------ JUNE 30, JUNE 30, 1999 1998 -------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: NET LOSS $ (184,972) $ (309,639) ADJUSTMENTS TO RECONCILE NET LOSS TO NET CASH USED BY OPERATING ACTIVITIES: EQUITY IN LOSSES OF OPERATING PARTNERSHIPS 102,356 243,601 DECREASE (INCREASE) IN OTHER ASSETS - (16,636) INCREASE (DECREASE) IN ACCOUNTS PAYABLE AND ACCRUED EXPENSES (33,879) 5,985 ----------- ----------- TOTAL ADJUSTMENTS 68,477 220,980 ----------- ----------- NET CASH USED BY OPERATING ACTIVITIES (116,495) (88,659) CASH FLOWS FROM FINANCING ACTIVITIES: CAPITAL CONTRIBUTION RECEIVED 33,692 38,943 DISTRIBUTIONS - (443) ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 33,692 38,500 ----------- ----------- NET INCREASE (DECREASE) IN CASH (82,803) (50,159) CASH BALANCE, BEGINNING OF PERIOD 1,097,967 1,337,519 ----------- ----------- CASH BALANCE, END OF PERIOD $ 1,015,164 $ 1,287,360 =========== =========== 36

38 The expenses for each quarter, which consist primarily of the Partnership's equity in losses passed through to the Partnership from the Operating Partnerships, exceeded income, comprised principally of interest income, for each quarter. For interim periods, the Partnership estimates its equity in losses of the Operating Partnerships based on their operations for the prior calendar year. The losses were $120,877 for the quarter ended December 31, 1999, $165,922 for the quarter ended September 30, 1999, and $184,971 for the quarter ended June 30, 1999, respectively, as compared to the losses of $324,530 for the quarter ended December 31, 1998, $290,221 for the quarter ended September 30, 1998, and $309,639 for the quarter ended June 30, 1998. The quarter-to-quarter comparison of interest income, which includes interest income on Investor Notes, may not be meaningful, as the Partnership's collection from the Investor Notes and the related interest were made on an semi-annual basis. Generally interest income has been decreasing due to decrease in cash and decrease in the amount of the Investor Notes outstanding. LOOKING FORWARD STATEMENTS Certain items discussed in this Report constitute forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995 and, as such, involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. Statements which make reference to the expectations or beliefs of the Partnership or any of its management are such forward-looking statements. These statements use words such as "believe", "expect", "should" and "anticipate". All such forward-looking statements speak only as of the date of this Report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK. Not Applicable ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. See Item 14 and Exhibit 12 for a list of the Partnership's Financial Statements filed as part of this report. 39 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Partnership has no directors or executive officers and has no employees of its own. GENERAL PARTNER The sole General Partner of the Partnership is Megan Asset Management, Inc., whose mailing address is 1424 West Century Ave., Suite 102, Bismarck, ND 58503. Megan Asset Management, which is also the Independent Manager of the Partnership, is a Delaware corporation whose executive officers are Gary L. Maddock, Chairman and Secretary, and Paul J. Maddock, President and Treasurer. The shareholders of Megan Asset Management are Gary L. Maddock (50%), and Paul J. Maddock (50%). Except as limited by the Partnership Agreement, by the Plan or by the Management Agreement, the General Partner has full, exclusive and complete discretion in the management and control of the Partnership. THE INDEPENDENT MANAGER In view of the need to have an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership, a Management Agreement between the Partnership and the Independent Manager was entered into and provides for the Independent Manager to conduct and manage, on the Partnership's behalf, the Partnership's operations in connection with, among other things, collection, investment and disbursement of funds, maintenance of books and records, preparation of tax returns and review and coordination of related-party tax filings. Pursuant to the Management Agreement, the Independent Manager was appointed the exclusive agent of the Partnership to supervise and manage, on behalf of the Partnership, all of the operations of the Partnership under the Plan. (See "Item 1. Business - Organization" above) Even after the merger of both the General Partner's and Independent Manager's rights and obligations into Megan Management, and subsequently Megan Asset Management, the Management Agreement was kept in place because it outlined the compensation and duties to be performed more specifically than did the Partnership Agreement. The compensation of the Independent Manager is set forth under "Item 11. Executive Compensation." Gary L. Maddock, 61, Chairman of Megan Asset Management, is a real estate attorney, CPA and has been a licensed real estate broker. He also has extensive experience in other phases of real estate. Prior to July, 1989, Gary Maddock was Executive Vice President of First American 40 for two years, resigning in a management dispute. As a former partner of Burns, Summit, Rovins and Feldesman, and in his own subsequent law practice, he has represented owner/developers of projects ranging from a proposed $100 million Caribbean hotel, marina and condominium development to a 250-room urban hotel and conference center to a proposed $15 million residential waterfront development on Long Island, New York. As an officer of various companies affiliated with Megan Asset Management, he has consulted and assisted developers in (i) obtaining in excess of $20 million in debt financing, (ii) placing in excess of $60 million in Tax Credits and (iii) building hundreds of units of low to moderate income housing. He also has overseen the management of numerous projects with housing units for low income families and the elderly. He has been engaged in and continues to be engaged in the practice of law and has performed professional services for the Partnership. See "Item 13. Certain Relationships and Related Transactions". Paul J. Maddock, 49, President of Megan Asset Management, has been with the Independent Manager for ten years. Paul Maddock spends about 70% of his time working on and overseeing the management of the Partnership. He is a CPA and was formerly a tax manager for a regional CPA firm. THE INVESTOR COMMITTEE Pursuant to the Plan, the Investor Committee performed an oversight role in connection with the approval of the deferral of distributions to be made to the Limited Partners and the use thereof to pay costs and expenses for the administration and operation of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credit and to maintain its investment in the Projects. (See "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations - Capital Resources" and "Liquidity" above). The Investor Committee does not perform any management functions with respect to the Partnership. All but one of the current members of the Investors Committee are direct or indirect holders of an Interest in the Partnership. The members of the Investor Committee are as follows: Fran Hoaglund, Chair, 59. President of Tax Equity Associates for over10 years. Financial planner and tax specialist for more than 25 years. Holder of an Interest. David Apple, 47. President of David Apple, Ltd. (certified public accountants) for over 10 years. CPA for more than 15 years. Holder of an Interest. James Linna, 62. President of First Midwest Securities, Inc. and President of First Midwest Insurance Services, Inc. for over five years. National Association of Securities Dealers ("NASD") principal; licensed real estate broker; security representative for more than 20 years. Holder of an Interest. Joseph Schwartz, 35. Treasurer of Gregory Schwartz & Co. since 1991. Prior thereto Mr. Schwartz was employed as a certified public accountant with Arthur Andersen & Co. (1989-1991) 41 and Plante & Moran (1988), following his graduation from the University of Notre Dame in 1988. William Walczak, 61. CPA for the past 20 years and currently a member of the accounting firm of MacDonald & Walczak, CPAs, LLC. Holder of an Interest. THE DEVELOPER CLASS REPRESENTATIVE The Developer Class Representative is ERC Properties, Inc. located in Fort Smith, Arkansas which was the chairman of the Unofficial Committee of Developers during the Debtor Investor Limited Partnerships' bankruptcy proceedings (see "Item 1. Business - Organization" above) and continues to represent the approximately 139 Operating Partnerships. Pursuant to the Plan, the Developer Class Representative had and continues to have many responsibilities including but not limited to performing an oversight role in connection with the each Debtor Investor Limited Partnership's right to commence any action to avoid or recover any Pre-Petition transfer of property; negotiate with the Independent Manager as to the amount each Operating Partnership shall distribute to the Master Limited Partnership on or before April 1 of each year commencing in the year 2000 which shall not exceed $750; file any financing statement (without a Debtor Investor Limited Partnership's or the Master Limited Partnership's signature) which is reasonable or necessary to perfect any security interests granted to, or retained by, an Operating Partnership under the Plan; it was deemed to be a holder in due course of the Unfinanced Notes; is directed to execute and record any and all documents which are required to be executed and recorded under applicable nonbankruptcy law to effect the admission of the Master Limited Partnership as a limited partner of the Operating Partnerships; and under the Management Agreement to preapprove all withdrawals by the Independent Manager from the Escrow Account, including all checks drawn on and wire transfers made from the Escrow Account. The Developer Class Representative is to be exculpated from any and all liability that may arise out of any action or inaction by the Developer Class Representative under the Plan and Management Agreement unless caused by his gross negligence or willful misconduct. For its services, the Developer Class Representative is paid $15,000 per year by the Partnership. ITEM 11. EXECUTIVE COMPENSATION. The following table shows compensation for management services rendered in all capacities to the Partnership by Megan Asset Management, Inc. as Independent Manager during the periods indicated. SUMMARY COMPENSATION TABLE ANNUAL COMPENSATION Fiscal Year All Other NAME AND PRINCIPAL POSITION ENDED FEE COMPENSATION (2) --------------------------- ----- ------ ---------------- Megan Asset Management, Inc. - 3/31/00 $ 131,732 $ 18,512 Independent Manager (1) 3/31/99 $ 119,500 $ 15,529 43 3/31/98 $ 134,352 $ 9,645 (1) The Independent Manager for periods prior to January 1, 1993 was Megan Management, a company under common ownership and control with Megan Asset Management. Megan Management assigned its rights and obligations as Independent Manager to Megan Asset Management as of December 31, 1992. (2) Consists of payment for reimbursement of expenses and services rendered other than pursuant to the Management Agreement. COMPENSATION OF THE INDEPENDENT MANAGER Commencing in calendar year 1995, the Independent Manager, under the Management Agreement, is entitled to receive $119,500 annually, plus $30,000 per year to cover the cost of preparation of tax returns and financial statements, for each of the years 1995 through 1998. Prior to calendar 1995, the Independent Manager was entitled to receive $396,000, plus $40,000 per year to cover the cost of preparation of tax returns and financial statements and $75,000 in relation to investor billings due to the Secured Lender refinancing. Commencing with calendar year 1999, the Independent Manager became entitled to an annual base fee of $119,500, together with an additional $30,000 to cover the cost of preparation of tax returns and financial statements, less $750 for each Operating Limited Partnership in which the Partnership ceases to own the limited partnership interest during 1999 and thereafter. The foregoing is in lieu of payment to the Independent Manager of amounts pursuant to the Plan sections 6(6)(c) (providing for annual payment from each Operating Partnership to the Partnership of $750 for each of the years 1995 through 1999) and 6(6)(d) (providing for annual payments from each Operating Partnership to the Partnership of an amount to be negotiated but not to exceed $750 for each year commencing with the year 2000) of the Plan. The Independent Manager is also entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, under the Plan ("Continental Construction") and the Independent Manager is to pay to the Partnership an amount equal to 25% of gross fees, if any, earned by it or its Affiliates directly from any of the Operating Partnerships (not including amounts owed to the Independent Manager pursuant to the Management Agreement). The total amount originally due to Continental Construction, with 8% interest as provided in the Plan, as of June 30, 2002 is $4,630,000, of which, pursuant to the Settlement Agreement, 50% is due to the Independent Manager and 50% is due to the Partnership. With respect to the above 25% of gross fees earned from any of the Operating Partnership, $1,125 and $1,600 were due and paid to the Partnership for the 2000 and 1999 Fiscal Years. Subsequent to this reporting period, an aggregate of $2,025 was due and paid to the Partnership by the Independent Manager for fiscal period ending March 31, 2001, from fees earned by it or its Affiliates directly from the Operating Partnerships. The Management Agreement also provides for the Partnership to indemnify the Independent Manager and its officers, directors and employees against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross 44 negligence or willful misconduct. COMPENSATION OF THE GENERAL PARTNER Prior to December 31, 1994, pursuant to the Settlement Agreement, the General Partner was entitled to $10,000 per month ($120,000 per year) for performing the day-to-day obligations and duties as the general partner of the Partnership through December 31, 1994. Thereafter, the General Partner was to receive no additional amounts payable by the Partnership for the performance of such functions during the remaining term of the Partnership, except as otherwise provided in the Plan. If any such additional compensation is requested by the General Partner it will be subject to competitive bidding. No such additional sums have been paid or requested by the General Partner. COMPENSATION OF THE INVESTORS COMMITTEE The Investors Committee received an annual operating budget from the Partnership of up to $50,000, through December 31, 1994, but which was continued during subsequent periods including the periods in which the Partnership was considering exit or liquidation strategies pursuant to a budget approved by the General Partner, to cover the costs, fees and expenses of performing its oversight duties. Members of the Investors Committee receive $125.00 per hour, plus direct expenses, for time spent in the performance of their duties on behalf of the Investors Committee, including $1,000 for attendance at meetings of the Investors Committee. An aggregate of $9,334, $3,575, and $9,767 was paid to Investors Committee by the Partnership for fiscal periods ending March 31, 2000, March 31, 1999 and March 31, 1998. The members of the Investors Committee are also indemnified by the Partnership against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct the same as the Independent Manager and the Developers Class Representative. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. No partner is the holder of 5% or more in Limited Partnership Interests of the Partnership. Neither the General Partner, Independent Manager nor any of its officers or directors hold any Limited Partnership Interests. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. GARY L. MADDOCK P.C. Gary L. Maddock P.C. is a New York corporation of which Megan Asset Management's Chairman, Secretary and shareholder, Gary L. Maddock, is also the president and sole shareholder and through which he practices law and is the only full-time employee. The Partnership paid Gary L. Maddock P.C. approximately $190,564 in legal fees and expenses related to legal services rendered to the Partnership, during the 2000 Fiscal Year. 45 PAUL J. MADDOCK P.C. Paul J. Maddock P.C. is a North Dakota corporation of which Megan Asset Management's President, Treasurer and shareholder, Paul J. Maddock, is also the president and sole shareholder and through which he practices public accounting. The Partnership paid Paul J. Maddock P.C. approximately $40,525 in accounting fees during the 2000 Fiscal Year related to tax return services rendered to approximately 60 Operating Partnerships and the review of the tax returns of all other Operating Partnerships. Each Operating Partnership is responsible for and is billed for these accounting and review services which are, when and if collected, reimbursed to the Partnership. 46 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) Financial Statements and Financial Statement Schedules Reports of Independent Accountants Balance Sheets as of March 31, 2000, March 31, 1999 and March 31, 1998 Statements of Operations for the fiscal year ended March 31, 2000, March 31, 1999, March 31, 1998 and March 31, 1997 Statements of Changes in Partners' Capital for the fiscal year ended March 31, 2000, March 31, 1999, March 31, 1998 and March 31, 1997 Statements of Cash Flows for the fiscal year ended March 31, 2000, March 31, 1999, March 31, 1998 and March 31, 1997 Notes to Financial Statements as of March 31, 2000, (b) Exhibits (listed according to the number assigned in the table to Item 601 of Regulation S-K) *2a Joint Plan of Reorganization of 52 Debtors dated May 9, 1990 *2a(i) Order Confirming Plan of Reorganization of the Bankruptcy Court, dated July 10, 1990. *2a(ii)Order Amending Confirmation Order, dated October 3, 1990. *2b Order Clarifying Joint Plan dated December 11, 1990. *2c Order Modifying Joint Plan entered March 6, 1991. *2c(i) Order Amending Confirmation Order, dated April 8, 1991. *2d Second Order Modifying Joint Plan entered June 22, 1992. *2e Final Decree, dated May 20, 1993. *3a Certificate of Limited Partnership of Bayfield Low Income Housing Limited Partnership. *4a Amended and Restated Agreement of Limited Partnership of Bayfield Low Income Housing Limited Partnership. *10a Amended and Restated Management Agreement dated as of December 23, 1991. *10b Form of Partnership Interest Security Agreement with Developer. *10c Form of Unfinanced Note Security Agreement with Developers. *10d Form of Loan and Security Agreement. *10e Settlement Agreement dated December 4, 1991 between First American Holdings, Inc., Megan Management Company, Inc., Parkgate International Ltd., The Fidelity Management Company, Inc. andContinental Construction Management Corporation *10f Amendment dated December 23, 1991 to Settlement Agreement dated December 4, 1991 between First American Holdings, Inc., Megan Management Company, Inc., Parkgate International Ltd., The Fidelity Management Company, Inc. and Continental Construction Management Corporation 12 Report of Independent Accountants, Financial Statements and Notes thereto *28a Net Worth Formula and Allocation to Investors of Interests in Master Limited Partnership. *28b Investor Notes. *28c Agreements and Certificate of Limited Partnership of the Operating Partnerships. (c) Reports on Form 8-K None ------------------------- * Incorporated by reference to Exhibit of the same number to Form 10-K for the Fiscal Year Ended March 31, 1993 * * Incorporated by reference to Exhibit of the same number to Form 10-K for the Fiscal Year Ended March 31, 1993 ** Incorporated by reference to Exhibit of the same number to Form 10-K for the Fiscal Year Ended March 31, 1993 47 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. Dated: July 30, 2002 BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP By: MEGAN ASSET MANAGEMENT, INC. Independent Manager/General Partner By: /S/ GARY L. MADDOCK --------------------------- Gary L. Maddock, Chairman Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated. Dated: July 30, 2002 By: /S/ GARY L. MADDOCK ---------------------------------- Chairman and Director, (Principal Executive Officer) Megan Asset Management, Inc. Dated: July 30, 2002 By: /S/ PAUL J. MADDOCK ---------------------------------- President and Director, (Principal Accounting Officer) Megan Asset Management, Inc. Dated: July 30, 2002 By: /S/ MICHELE MADDOCK --------------------------------- Director, Megan Asset Management, Inc. 48 BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP FINANCIAL STATEMENTS March 31, 2000 Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 CONTENTS: Independent Auditors' Report F-1 Financial Statements Balance Sheets F-3 Statements of Operations F-4 Statements of Changes in Partners' Capital F-5 Statements of Cash Flows F-6 Notes to Financial Statements F-7 INDEPENDENT AUDITORS' REPORT To The Partners Bayfield Low Income Housing Limited Partnership We have audited the accompanying balance sheets of Bayfield Low Income Housing Limited Partnership ("the Master Limited Partnership") as of March 31, 2000 and March 31, 1999, and the related statements of operations, changes in partners' capital and cash flows for the years ended March 31, 2000, 1999 and 1998. These financial statements are the responsibility of the Master Limited Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the financial statements of 144 of 147 Operating Partnerships in 2000, 138 of 147 in 1999 and 140 of the 147 Operating Partnerships in 1998 in which Bayfield Low Income Housing Limited Partnership has invested. The financial statements of 50 in 2000, 44 in 1999 and 45 in 1998 of these Operating Partnerships were audited by other auditors whose reports have been furnished to us and our opinion, to the extent it relates to the amounts included for these Operating Partnership investments, is based solely on the reports of the other auditors. These investments comprised 18.8 percent and 21.3 percent of the Master Limited Partnership's total assets at March 31, 2000 and March 31, 1999, respectively, and 16.3, 6.5, and 36.1 percent, respectively, of the total loss of the Master Limited Partnership for the years ended March 31, 2000, March 31, 1999 and March 31, 1998. Except as discussed in the following paragraph, we conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit 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 and the reports of other auditors provide a reasonable basis for our opinion. The financial statements of 94 of the Operating Partnerships in 2000, 94 of the Operating Partnerships in 1999 and 95 of the Operating Partnerships in 1998 were not audited. These investments comprised 30.0 percent and 31.0 percent of the Master Limited Partnership's total assets at March 31, 2000 and March 31, 1999, respectively, and 10.5 percent, 6.8 percent and 33.4 percent, respectively, of the total loss of the Master Limited Partnership for the years ended March 31, 2000, March 31, 1999 and March 31, 1998. We were unable to satisfy ourselves about Bayfield Low Income Housing Limited Partnership's investment in these Operating Partnerships by means of other auditing procedures. F-1 INDEPENDENT AUDITORS' REPORT - Continued In our opinion, based on our audits and the reports of other auditors, except for the effects of such adjustments, if any, as might have been determined to be necessary had the 94 Operating Partnerships in 2000, 94 Operating Partnerships in 1999 and 95 Operating Partnerships in 1998 referred to in the preceding paragraph been audited, the financial statements referred to above present fairly, in all material respects, the financial position of Bayfield Low Income Housing Limited Partnership as of March 31, 2000 and March 31, 1999, and the results of its operations and its cash flows for the years ended March 31, 2000, March 31, 1999 and March 31, 1998, in conformity with generally accepted accounting principles. /s/ Smith & Radigan Atlanta, Georgia August 22, 2000 F-2 Balance Sheets BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP ASSETS March 31, 2000 1999 --------------------------- INVESTMENTS IN OPERATING LIMITED PARTNERSHIP OTHER ASSETS Cash $ 807,285 $ 1,097,967 Advances to operating partnerships 353,121 341,212 ---------- ----------- $ 2,267,963 $ 2,732,346 =========== =========== LIABILITIES AND PARTNERS' CAPITAL March 31, 2000 1999 -------------------------- Accounts payable and accrued expenses $ 65,608 $ 59,440 Contributions payable to operating partnerships 94,535 94,535 ----------- ----------- 160,143 153,975 Partners' capital Limited partners 3,226,650 3,764,062 General partner 15 18 Subscriptions receivable (1,118,845) (1,185,709) ----------- ----------- 2,107,820 2,578,371 $ 2,267,963 $ 2,732,346 =========== =========== The Notes to Financial Statements are an integral part of these Statements. F-3

The Notes to Financial Statements are an integral part of these Statements. F-4

The Notes to Financial Statements are an integral part of these Statements. F-5

Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION Bayfield Low Income Housing Limited Partnership (the "Master Limited Partnership") was organized as of July 1, 1990 pursuant to the provisions of a Joint Plan of Reorganization of 52 debtor investor limited partnerships ("the Debtor Investor Partnerships"), dated May 9, 1990, pursuant to the provisions of Chapter 11 of Title 11, United States Code, as amended by an Order Clarifying the Joint Plan dated December 11, 1990 and an Order Modifying the Joint Plan entered March 6, 1991 or as may have been otherwise amended or modified by orders settling litigation with non-electing Developers with respect to those Developers or their Operating Partnerships ("the Plan"). The Master Limited Partnership was created under the Plan as the entity into which all of the assets and liabilities of the fifty-two Debtor Investor Partnerships were "rolled-up" as of July 1, 1990 and after which their assets and businesses would be managed.

F-7 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000

Each of the Debtor Investor Partnerships was organized as a Delaware limited partnership by First American Holdings, Inc. First American Holdings, Inc. a Delaware corporation, (sometimes referred to herein as "First American") was the sole general partner of each of the Debtor Investor Partnerships and general partner of the Master Limited Partnership. Each Debtor Investor Partnership was formed to acquire equity interests in limited partnerships (the "Operating Partnerships"), each of which was expected to develop, own and operate a multi-family apartment complex for low to moderate income tenants ("the Projects"). The Projects were expected to receive financing from the Rural Development, formerly known as the Farmers Home Administration, of the U.S. Department of Agriculture, and to receive interest credits and, in some cases, rental assistance payments under Section 515 of the Housing Act of 1949. Each Project was expected to qualify for the low income housing credit ("LIHC") under Section 42 of the Internal Revenue Code of 1986. Section 42 of the Tax Code was enacted by the United States Congress to promote the development of low and moderate income rental housing. In order to generate LIHC, properties must be rented to tenants whose incomes are below certain levels established by the federal government, and the rents which are permitted to be charged are strictly limited by government regulations. As a result of adverse economic conditions and increased competition, the Debtor Investor Partnerships were placed under the protection of Chapter 11 of the Bankruptcy Code. Principal provisions of the plan of reorganization, as approved July 1990 and amended ("the Plan"), follow: In consideration of their contribution of assets to the Master Limited Partnership, each of the Debtor Investor Partnerships received an allocable portion of the limited partnership interests in the Master Limited Partnership. The limited partnership interests in the Master Limited Partnership were then distributed by each of the Debtor Investor Partnerships to the Investors in such Debtor Investor Partnership and so registered in the books of the Master Limited Partnership. The distribution of the interests in the Master Limited Partnership to the Investors was to be complete on the registration of such interests in the books of the Master Limited Partnership, and no certificates of limited partnership interests were distributed to any party. The limited partnership interests in the Master Limited Partnership are subject to the security interests granted under the Plan to Secured Lenders and Developers, and the Master Limited Partnership shall make no transfer of any such limited partnership interest without the consent of the appropriate Secured Party. F-8 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION - CONTINUED All claims against and interests in the Debtor Investor Partnerships were divided into the following classes: (1) ADMINISTRATION CLASS consists of all allowed or bankruptcy court approved administration claims of a Debtor Investor Partnership, including, without limitation, the costs and expenses (including attorneys' and accountants' fees as approved by the bankruptcy court) of each official committee of the Debtor Investor Partnerships and the unofficial committee of developers. Each member of such class received on confirmation cash equal to the allowed amount of its administration claim, except to the extent it has agreed to different treatment. (2) SECURED LENDER CLASS consists of all allowed claims based on loan and security agreements giving rise to valid, duly perfected and non-avoidable pre-petition security interests in investor notes, to the extent of the value of a Debtor Investor Partnership's interest at confirmation of the plan in the collateral securing such claims, less payments made or applied on account of such claims during the course of the Chapter 11 case. Except to the extent a member of such class has agreed to different treatment, it: (a) Retained any existing duly perfected security interest until all payments due to it under the plan shall have been paid in full; (b) Received a note from the Master Limited Partnership, pursuant to the loan repayment and security agreement; (c) Received a security interest from the Master Limited Partnership pursuant to the loan repayment and security agreement, with respect to: 1) any property of the Debtors that was transferred to the Master Limited Partnership and in which such secured lender held a duly perfected security interest as of the filing of the petition; and 2) those interests in the Master Limited Partnership which were distributed to the Investors whose investor notes are held by such Secured Lender. Such security agreements provide that all property in which a holder receives a security interest shall serve as collateral for all obligations to such holder under the Plan; and (d) Received cash payments of principal and interest as set forth in the Secured Lender Payment Schedule (after credit for any payments made or applied during the course of the Chapter 11 case). F-9 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION - CONTINUED (3) DEVELOPER CLASS consists of all allowed claims held by Operating Partnerships (or the general partners thereof) against a Debtor Investor Partnership exclusive of those specifically included in subsection (b) of the "Other Creditor Class." Except for Developers holding the auction interests, each of the Developers received: (a) Payments at the times specified in the Plan in amounts determined by a developer payment formula, provided, however, any amount which would otherwise be payable to a non-electing Developer were reserved and will not be made until the entry of a final order determining all litigation between the debtor and such non-electing Developer and any funds so reserved may be used by the Master Limited Partnership in connection with such litigation; (b) Payments such that the total of all payments to a Developer shall be equal to the full amount of such Developer's allowed claim plus interest at a rate equal to eight percent (8%) per annum; and (c) To the extent a party held a duly perfected non-avoidable security interest in assets of a Debtor Investor Partnership, such party retained its perfected security interest in such of those assets of that Debtor Investor Partnership which were transferred to the Master Limited Partnership and received the costs and expenses, if any, fixed by a Final Order of the bankruptcy court. The limited partnership agreements between the Debtor Investor Partnerships and each of the Operating Partnerships were to be amended as follows: (a) The Master Limited Partnership shall become the limited partner of such Operating Partnership in place of the Debtor Investor Partnership; (b) Commencing January 1, 1995, except as noted below, any cash flow to which a Debtor Investor Partnership is entitled shall be retained by the Developers; (c) On or before April 1 of each of the five (5) years commencing 1995, each Operating Partnership shall distribute to the Master Limited Partnership $750 per year, provided that such payment is not prohibited by any applicable agreement with a governmental agency or any applicable governmental agency rules or regulations. To the extent the payment or any portion is not paid in any year, the remainder shall accumulate and be paid at the earliest time the payment is not prohibited; and F-10 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION - CONTINUED (d) On or before April 1 of each year commencing 2000, each Operating Partnership shall distribute to the Master Limited Partnership an amount to be negotiated by the Independent Manager and the Developer Class Representative which shall not exceed $750, provided that such payment is not prohibited by any applicable agreement with a governmental agency or any applicable governmental agency rules or regulations. To the extent the payment or any portion is not paid in any year, the remainder shall accumulate and be paid at the earliest time the payment is not prohibited. (4) OTHER CREDITOR CLASS consists of all: (a) Allowed claims held by creditors of a Debtor Investor Partnership that are not otherwise classified under the Plan; (b) Allowed claims (or those portions of allowed claims) which represent the amounts to be reimbursed to the Operating Partnerships (or the general partners thereof) in connection with the filing of an amended partnership agreement for such Operating Partnership prior to the filing of the Petitions; and (c) Allowed claims (or those portions of allowed claims) which represent the amounts to be paid to Investors in connection with checks which were issued to Investors prior to the filing of the petitions. Each holder of an allowed claim in such class received payment in full at confirmation of the Plan; provided, however, that if the aggregate total of allowed claims of this class exceeded $55,000, each member of the Class received a PRORATA share of $55,000 based on the amount of its allowed claim. (5) PRE-PETITION LEGAL CLASS consists of all allowed claims held by Stairs, Dillenbeck, Kelly & Merle, attorneys, against a Debtor Investor Partnership for services rendered prior to the filing of the Petition of such Debtor Investor Partnership and not in connection with the Chapter 11 cases of the Debtor Investor Partnerships. Each holder of an allowed claim in such class received payments in full of its allowed claim in ten equal semiannual installments commencing July 1990. F-11 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION - CONTINUED (6) FIDELITY CLASS consists of all allowed claims held by Fidelity Management Corporation, an affiliate of First American, or any broker or dealer whose claim arises out of the sale of a limited partnership interest in a Debtor Investor Partnership. Holders of the Fidelity Class Allowed Claims shall receive in full of its allowed claim in ten semiannual payments of $69,237 each commencing in July, 1990. (7) FIRST AMERICAN CLASS consists of all allowed claims (but not interests) held by First American against a Debtor Investor Partnership. Each holder of a First American Class allowed claim shall receive: (a) Three semiannual payments of $66,667 commencing upon confirmation of First American's plan of reorganization. (b) Additional amounts, if any, pursuant to Article 15 of the Plan. ("Payments from Capital Events") (Note F). Such amounts will only be paid AFTER payment in full of amounts due from such monies to the Secured Lender Class and Developer Class, and payments have been made to the Investor Class equal to: twenty percent (20%) of its net capital invested; plus interest at a rate of ten percent (10%) per annum from December 31, 1994; plus an additional one hundred percent (100%) of its net capital invested. (8) INVESTOR CLASS consists of all interests and allowed claims of parties which arise out of the purchase or holding of limited partnership interests in a Debtor Investor Partnership, exclusive of those specifically included in subsection (c) of the "Other Creditor Class." Except as noted below, each of the Investors shall receive: (a) Limited partnership interests in the Master Limited Partnership (including all rights to allocations and distributions to which a partner is entitled thereunder) equal to the result of the following formula: (i) the limited partnership units in a Debtor Investor Partnership owned by such investor divided by the total of the limited partnership units in such Debtor Investor Partnership; multiplied by (ii) the allocation of units in the Master Limited Partnership to a Debtor Investor Partnership as determined by an allocation formula; F-12 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION - CONTINUED (b) Within thirty (30) days after June 30 and December 31 of each year (commencing December 31, 1990 and terminating on December 31, 1994) payments of a return of capital equal to a PRORATA portion (based on Net Capital Invested) of $507,801 for each period. Upon written consent of the Investor Committee, payments to be made to Investors pursuant to the above may be deferred and instead paid to Developers or for other costs and expenses for the administration of the Master Limited Partnership. Pursuant to Articles 14 and 15 of the Plan, Investors are entitled to receive additional payments based on proceeds from capital events and other specified conditions. (Note F.) (9) GENERAL PARTNER CLASS consists of all interests held by First American in a Debtor Investor Partnership. The holder became the general partner of the Master Limited Partnership and was entitled to certain payments from the proceeds of capital events pursuant to Article 15 of the Plan. (Note F.) An order modifying the Plan was entered on March 6, 1991. Under such modification, the Master Limited Partnership, on the written consent of the Investor Committee, may defer payments otherwise to be made to the Investors semi-annually as a return of capital, and use such monies to make payment to the developers or for other costs and expenses for the administration or operation of the Master Limited Partnership or to purchase interests in additional limited partnerships which own, or are intended to own, projects which are intended to qualify for LIHC (including the payment of any costs or expenses incurred in connection with such purchases). Pursuant to an agreement entered into in December 1991, as amended, First American withdrew as the General Partner of the Master Limited Partnership, subject to the consent of the Limited Partners of the Master Limited Partnership. In connection therewith, First American received a total of $434,968 for the transfer or release of all rights or economic benefits owed by the Master Limited Partnership to First American or its subsidiaries and in full settlement of any outstanding claims. Megan Management Company ("Megan"), the Independent Manager, agreed to become or have an entity under common control with it become General Partner of the Master Limited Partnership in place of First American subject to the approval of the Limited Partners; pending receipt of such approval, First American immediately relinquished to the Independent Manager any remaining management powers and responsibilities as well as all of its rights to income tax items related to its one percent ownership interest in the Master Limited Partnership from January 1, 1991 to December 22, 1991. These tax items were allocated on a prorata basis to the remaining partners. Megan Asset Management, Inc. ("Megan Asset") assumed the one percent ownership interest of First American as of December 31, 1991, subject to the approval of the F-13 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE A - ORGANIZATION -- CONTINUED Limited Partners. The agreement also provided for an increase in the Independent Manager's fees in compensation for the additional duties that it had been performing and would perform pursuant to the agreement of $35,000 at closing (December 31, 1991) to cover its takeover costs and $10,000 per month on the first day of every month subsequent to closing through December 31, 1994, the right to receive an amount equal to one-half of the distributions with respect to capital events previously payable to Continental Construction Management (Note F) and would pay to the Master Limited Partnership an amount equal to twenty-five percent of gross fees, if any, earned by it or its affiliates directly from any of the Operating Partnerships and for an extension of the term of the management agreement. As of December 31, 1991, the agreement had been approved by the Investor Committee and the Developer Representative and those provisions of the agreement which did not require consent of the Limited Partners of the Master Limited Partnership were implemented promptly. Thereafter, Megan designated Megan Asset Management, Inc., a newly formed affiliate, to be the new General Partner of the Master Limited Partnership, made the required filings under the Securities and Exchange Act of 1934's proxy rules and solicited the consent of the Limited Partners. In September, 1992, the Master Limited Partnership received approval of a majority in interest of its Limited Partners. With the agreed withdrawal of First American and the transfer of all of its rights and responsibilities to the Master Limited Partnership and Megan, maintaining the Independent Manager and General Partner as separate entities was no longer necessary. Accordingly, as of December 31, 1992, Megan assigned to Megan Asset and Megan Asset assumed all of the rights, powers and obligations of the Independent Manager of the Master Limited Partnership. Gary L. Maddock, then President and sole shareholder of both corporations, reaffirmed his personal guarantee of the performance of the Management Agreement by Megan Asset. NOTE B - SIGNIFICANT ACCOUNTING POLICIES CASH AND CASH EQUIVALENTS For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments to be cash equivalents. INVESTMENTS IN OPERATING LIMITED PARTNERSHIPS The Master Limited Partnership accounts for its investments in Operating Partnerships (including acquisition costs) using the equity method, under which the Master Limited Partnership's capital investment in each Operating Partnership is adjusted for its share of the Operating Partnership's income or losses and for any distributions received or accrued. Such income and losses are recognized on a calendar year basis. Losses in excess of the Master Limited Partnership's aggregate investment in each Operating Partnership are not recognized. F-14 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE B - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED INVESTMENTS IN OPERATING LIMITED PARTNERSHIPS - CONTINUED Costs previously recorded by the Debtor Investor Partnerships for services provided or to be provided by the General Partner and its affiliates relating to acquisitions of Operating Partnerships, including syndication fees, agency fees, investor services fees, partnership operations fees and audit indemnification fees, have been included in the Master Limited Partnership's aggregate investment in each Operating Partnership. For annual reporting purposes, the recorded equity in income or losses is based on the calendar year basis financial information submitted by the Operating Partnerships. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles 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. INCOME TAXES No provision has been made for income taxes in the financial statements, as the partners' shares of the results of the Master Limited Partnership's operations are included in their respective income tax returns. Losses, which were previously allocated one percent to the General Partner and ninety-nine percent to the Limited Partners, will now, pursuant to the agreement of December 1991, as amended, be allocated to all of the Partners in proportion to the outstanding positive balances of their respective capital accounts until their respective capital accounts are reduced to zero. After capital accounts have been reduced to zero, further losses and LIHC's would be allocated one percent to the General Partner and the remaining ninety-nine percent to all Limited Partners. CONTRIBUTIONS PAYABLE TO OPERATING PARTNERSHIPS Contributions payable to Operating Partnerships are recorded at the gross amount due pursuant to the Plan. When the Master Limited Partnership sells or assigns an interest in an Operating Partnership, any remaining balance of contributions payable is included in computing the gain or loss on sale or assignment. Pursuant to the Plan, amounts due and unpaid to Operating Partnerships by the Debtor Investor Partnerships after the implementation of the Plan in July, 1990, accrue interest at the rate of eight percent. Failure to pay this interest is not a default under the Plan and any such unpaid interest is contingently payable as a first priority out of Capital Events (Note F). The Master Limited Partnership has F-15 Notes to Financial Statements BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP March 31, 2000 NOTE B - SIGNIFICANT ACCOUNTING POLICIES - CONTINUED CONTRIBUTIONS PAYABLE TO OPERATING PARTNERSHIPS - CONTINUED not made any payments of this interest and has not recorded such interest on the accompanying financial statements. The maximum amount of interest which may become payable under the Plan as a first priority from Capital Events is estimated at approximately $1,800,000. NOTE C - INVESTMENT IN OPERATING LIMITED PARTNERSHIPS A summary of the Master Limited Partnership's investments in Operating Partnerships accounted for on the equity method as of March 31, 2000 and March 31, 1999 (Note B) is as follows:

BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP 10-K